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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Orion Capital Corporation
(Name of Subject Company)
Orion Capital Corporation
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00
per share
(Title of Class of Securities)
686268-10-3
(CUSIP Number of Class of Securities)
John J. McCann, Esq.
Executive Vice President and Secretary
ORION CAPITAL CORPORATION
9 Farm Springs Road
Farmington, CT 06032
(860) 674-6834
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person(s) Filing Statement)
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With a copy to:
Alan C. Myers, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
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Item 1. Security and Subject Company
(a) The name of the subject company is Orion Capital Corporation, a company
incorporated under the laws of the State of Delaware (the "Company"), and the
principal executive offices of the Company are located at 9 Farm Springs Road,
Farmington, CT 06032. The title of the class of equity securities to which
this Schedule 14D-9 relates is the common stock, par value $1.00 per share
(the "Shares"), of the Company, including the Preferred Stock Purchase Rights
(the "Rights") issued pursuant to the Rights Agreement dated as of September
11, 1996, as amended, between the Company and First Chicago Trust Company of
New York.
Item 2. Tender Offer of the Bidder
This Schedule 14D-9 relates to the tender offer being made by NTG
Acquisition Corp. ("Purchaser"), a Delaware corporation and a wholly owned
subsidiary of Royal Group Inc. ("Royal US"), a Delaware corporation and a
wholly owned subsidiary of Royal & Sun Alliance Insurance Group plc ("Royal
plc"), disclosed in Purchaser's Tender Offer Statement on Schedule 14D-1,
dated July 16, 1999 (the "Schedule 14D-1"), to purchase all of the issued and
outstanding Shares, together with the associated Rights, at a price of $50 per
share, net to the seller in cash (the "Offer Price"), upon the terms and
subject to the conditions set forth in the Purchaser's Offer to Purchase,
dated July 16, 1999 (the "Offer to Purchase"), and the related Letter of
Transmittal (which, as amended or supplemented from time to time, together
constitute the "Offer"). The Offer to Purchase and the Letter of Transmittal
are exhibits to the Schedule 14D-1, which has been filed by Purchaser with the
Securities and Exchange Commission (the "SEC").
The Offer is made pursuant to an Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), by and among the Company, Purchaser
and Royal US. The Merger Agreement provides, among other things, that as soon
as practicable after the completion of the Offer and the satisfaction or
waiver of the conditions set forth in the Merger Agreement, Purchaser will be
merged with and into the Company (the "Merger"), and the Company will continue
as the surviving corporation of the Merger and as a wholly owned subsidiary of
Royal US (the "Surviving Corporation"). At the effective time of the Merger
(the "Effective Time"), each Share then outstanding (other than Shares owned
directly or indirectly by Royal plc, any of its subsidiaries, or any of the
Company's subsidiaries, all of which will be converted into the shares of the
Surviving Corporation, shares held in the treasury of the Company which shall
be cancelled at the Effective Time and Shares held by stockholders who perfect
appraisal rights under Delaware law) will be converted into the right to
receive $50 in cash, the same price per Share paid in the Offer. A copy of the
Merger Agreement is filed herewith as Exhibit 1 hereto and is incorporated
herein by reference.
As a condition and inducement to Purchaser entering into the Merger
Agreement, concurrently with the execution and delivery of the Merger
Agreement, Royal US and the Company have entered into an Option Agreement,
dated as of July 12, 1999 (the "Option Agreement"), pursuant to which, among
other things, the Company has granted Purchaser an irrevocable option to
purchase up to 5,443,697 newly issued Shares at $50 per share (the "Company
Option"). The Company Option only can be exercised under certain circumstances
described herein. See "Identity and Background--Stock Option Agreement."
As set forth in the Schedule 14D-1, the principal executive offices of the
Purchaser are located at 9300 Arrowpoint Blvd., Charlotte, NC 28273-8135.
Item 3. Identity and Background
(a) The name and business address of the Company, which is the person filing
this Schedule 14D-9, are set forth in Item 1 above.
(b) Except as described in this Item 3(b) or under the captions "Certain
Relationships and Related Transactions," "Directors Compensation," "Directors
Benefit Plans," "Executive Compensation," "Option Grants in the Last Fiscal
Year," "Aggregate Option Exercises in Last Fiscal Year and Year-End Option
Values," "Employment Agreements and Change of Control Arrangements" and
"Approval of the Amendment to the Equity Incentive Plan to Increase the Number
of Shares" in pages 5 through 6 and pages 10 through 27 of
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the Company's Proxy Statement, dated April 9, 1999, which pages are filed as
Exhibit 2 to this Schedule 14D-9 and incorporated herein by reference, as of
the date hereof, there are no material contracts, agreements, arrangements or
understandings, or any actual or potential conflicts of interest between the
Company or its affiliates and (i) its executive officers, directors or
affiliates or (ii) Royal US, Purchaser or their respective officers, directors
or affiliates.
Confidentiality Agreement
The following is a summary of certain portions of the Confidentiality
Agreement dated June 18, 1999, between Royal & SunAlliance USA, Inc. (the
parent of Royal US) and the Company (the "Confidentiality Agreement") and is
qualified in its entirety by reference to the Confidentiality Agreement, a
copy of which has been filed as Exhibit 3 hereto and is incorporated by
reference herein.
As a condition to being furnished certain information concerning the other
party to the Confidentiality Agreement (the "Evaluation Material"), the
parties to the Confidentiality Agreement have agreed, among other things, that
they will keep such Evaluation Material about the other party confidential and
will use it solely for evaluating the Offer and the Merger. "Evaluation
Material" does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by the party
receiving the Evaluation Material (the "Receiving Party") or its directors,
officers, employees, affiliates, representatives and potential sources of
financing ("Representatives"), (ii) was available to the Receiving Party or
its Representatives on a non-confidential basis from a source (other than the
party providing such materials or its Representatives), that is not and was
not prohibited from disclosing such information to the Receiving Party by a
contractual, legal or fiduciary obligation of which the Receiving Party is
aware or should have been aware or (iii) is independently developed based on
information received by the Receiving Party as described in (i) or (ii) above.
Royal has also agreed in the Confidentiality Agreement to certain standstill
provisions for a period of one year from the date thereof, with respect to
certain actions involving or leading to a transaction with the Company without
the prior written consent of the Company's Board of Directors.
The parties to the Confidentiality Agreement have agreed that for a period
of one year following the date of the Confidentiality Agreement, neither party
shall directly or indirectly solicit for employment any officer, director or
employee of the other party or the other party's affiliates, with whom such
party had contact or who became known to such party in connection with
consideration of the Offer and the Merger, except that neither party shall be
precluded from hiring any such employee who (i) initiates discussions
regarding such employment without any direct or indirect solicitation, (ii)
responds to any public advertisement or (iii) has been terminated by the other
party or its affiliates prior to the commencement of employment discussions.
The Merger Agreement
The following is a summary of certain portions of the Merger Agreement and
is qualified in its entirety by reference to the Merger Agreement, a copy of
which has been filed as Exhibit 1 to this Schedule 14D-9.
The Offer. The Merger Agreement provides that, without the written consent
of the Company, Purchaser will not (i) decrease the Offer Price, (ii) change
the form of consideration to be paid in the Offer, (iii) decrease the number
of Shares sought in the Offer, (iv) impose additional conditions to the Offer
or (v) make any other change to the terms and conditions of the Offer in any
manner materially adverse to the holders of the Shares. Upon the terms and
subject to the conditions of the Offer, Purchaser will accept for payment and
will purchase, as soon as permitted under the terms of the Offer, all Shares
validly tendered and not withdrawn prior to the expiration of the Offer. Royal
US and Purchaser agree that, unless the Merger Agreement is terminated,
Purchaser will not terminate or withdraw the Offer prior to the expiration
date thereof. If at the expiration date
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of the Offer the conditions to the Offer shall not have been satisfied or
earlier waived, Purchaser may extend the expiration date on one or more
occasions for such additional period or periods of time as Purchaser
determines in its sole discretion (provided that following the 90th day after
the date of the Merger Agreement, such extensions shall be in increments of
not more than ten (10) business days each) and, unless the Merger Agreement
has been terminated in accordance with its terms, will extend it until a date
that is not later than December 31, 1999, if requested to do so by the
Company, and Royal US is otherwise going to let the Offer expire without the
purchase of Shares thereunder, but shall not be required to so extend if any
of the conditions not satisfied or earlier waived on the then-scheduled
expiration date are one or more of the Minimum Condition or the conditions
described in paragraphs (b)(ii), (b)(iii) or (b)(iv) under "--Conditions to
the Offer", provided that (x) if the only condition not satisfied is the
Minimum Condition, the satisfaction or waiver of all other conditions shall
have been publicly disclosed at least five (5) business days before
termination of the Offer and (y) if any condition described in paragraph
(b)(ii), (b)(iii) or (b)(iv) under "--Conditions to the Offer" has not been
satisfied and the failure to so satisfy can be remedied, the Offer shall not
be terminated unless the failure is not remedied within 20 days after Royal US
has furnished the Company with written notice of such failure. In addition,
Purchaser, at its sole option, may extend the expiration date of the Offer for
an aggregate period of not more than ten (10) business days beyond the latest
expiration date that would otherwise be permitted (but in no event later than
the Termination Date (as defined below)) if there shall not have been tendered
sufficient Shares so that the Merger could be effected without a meeting of
the Company's stockholders in accordance with Section 253 of Delaware Law.
The Merger. Following the consummation of the Offer, the Merger Agreement
provides that at the Effective Time and subject to and upon the terms and
conditions of the Merger Agreement and the Delaware Law, Purchaser shall be
merged with and into the Company and, as a result of the Merger, the separate
corporate existence of Purchaser shall cease and the Company shall continue as
the surviving corporation (sometimes referred to as the "Surviving
Corporation").
The respective obligations of Purchaser, on the one hand, and the Company,
on the other hand, to effect the Merger are subject to the satisfaction on or
prior to the Effective Time of each of the following conditions: (i) Purchaser
shall have made, or caused to be made, the Offer and shall have purchased, or
caused to be purchased, Shares pursuant to the Offer (provided that the
purchase of Shares pursuant to the Offer shall not be a condition to the
obligations of Purchaser or Royal US pursuant to the Merger Agreement if
Purchaser fails to accept for payment and pay for the Shares in violation of
the terms of the Offer or the Merger Agreement), (ii) the Merger and the
Merger Agreement shall have been approved and adopted by the requisite vote of
the stockholders of the Company, if required by Delaware Law, (iii) no court
or governmental entity of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, statute, ordinance, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and restrains, enjoins or
otherwise prohibits consummation of the Merger and (iv) the waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated and, other than the filing of a Certificate of
Merger, all notices, reports and other filings required to be made prior to
the Effective Time by the Company or Royal US or any of their respective
subsidiaries with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by the
Company or Royal US or any of their respective subsidiaries from, any
governmental entity, including, but not limited to, the consent of certain
insurance commissioners, directors or superintendents of the state insurance
departments, in connection with the execution and delivery of the Merger
Agreement and the consummation of the Merger and the other transactions
contemplated hereby shall have been made or obtained (as the case may be) and
shall be in full force and effect.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company or any of its subsidiaries,
any Shares owned by Royal plc or any of its subsidiaries or any Shares which
are held by stockholders who properly perfect their dissenters rights under
Delaware Law) will be canceled and converted into the right to receive the
Offer Price paid pursuant to the Offer, without interest, upon the surrender
of the certificate formerly representing such Share in accordance with the
Merger Agreement and (ii) each share of the common stock, par value $.01 per
share, of Purchaser issued and outstanding immediately prior
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to the Effective Time will be converted into that number of fully paid and
nonassessable shares of common stock of the Surviving Corporation equal to (x)
the number of shares of Common Stock issued and outstanding immediately prior
to the Effective Time less (y) the number of those shares of Common Stock held
by (A) any subsidiary of the Company or (B) Royal plc or any subsidiary
thereof.
The Company's Board of Directors. The Merger Agreement provides that
promptly upon the purchase by Purchaser of Shares pursuant to the Offer which
represent at least a majority of the outstanding shares of Common Stock,
Purchaser or Royal US shall be entitled to designate up to such number of
directors but in no event less than a majority, rounded up to the next whole
number, on the board of directors of the Company as shall give Purchaser
representation on such board of directors equal to the product of the total
number of directors on such board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Royal US, Purchaser and any other
subsidiary of Royal US bears to the total number of Shares then outstanding.
At such time, the Company will promptly use its reasonable best efforts to
cause Purchaser's or Royal US's designees, as the case may be, to be so
elected, including either increasing the size of the board of directors or
securing the resignations of incumbent directors or both. The Company will use
its reasonable best efforts to cause directors designated by Purchaser to
constitute the same percentage as is on the board of (i) each committee of the
board of directors, (ii) each board of directors of each subsidiary of the
Company and (iii) each committee of each such subsidiary board, in each case
only to the extent permitted by applicable law. The Company's obligation to
appoint Purchaser's designees to the Company Board is subject to compliance
with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder.
From and after the time, if any, that Royal US's designees constitute a
majority of the Company's board of directors, any amendment of the Merger
Agreement, any termination of the Merger Agreement by the Company, any
extension of time for performance of any of the obligations of Royal US or
Purchaser thereunder, any waiver of any condition or any of the Company's
rights thereunder or other action by the Company thereunder may be effected
only by unanimous vote of the entire board of directors of the Company.
Stockholders' Meeting. Pursuant to the Merger Agreement, if the approval by
the holders of Shares is required under Delaware Law to consummate the Merger
and is required to be given at a duly held meeting of stockholders, the
Company will take, in accordance with its certificate of incorporation and
bylaws, all action necessary to convene a meeting of holders of Shares as
promptly as practicable upon the written request of Royal US to consider and
vote upon the approval of the Merger. The Company's board of directors will
recommend approval of the Merger, will not withdraw or modify such
recommendation and will take all lawful action to solicit such approval
unless, in the good faith judgment of the board of directors of the Company,
after consultation with and receipt of advice of outside legal counsel, the
failure to take such actions is required under applicable law. The Merger
Agreement provides that in connection with such stockholders meeting referred
to above, the Company will promptly prepare and deliver to Royal US a draft of
a proxy statement (the "Proxy Statement"). Thereafter, the Company and Royal
US shall use their reasonable best efforts to cooperate fully to make such
changes to the Proxy Statement as may be reasonably requested by Royal US or
otherwise may be appropriate, file the Proxy Statement with the SEC as soon as
practicable and respond promptly to any SEC comments. Upon filing the final,
definitive Proxy Statement with the SEC, the Company will mail such Proxy
Statement to its stockholders. If Purchaser acquires at least a majority of
the outstanding Shares in the Offer, Purchaser will have sufficient voting
power to approve the Merger, even if no other stockholder votes in favor of
the Merger. The Company has agreed to include in the Proxy Statement the
recommendation of the Company Board that stockholders of the Company vote in
favor of the approval of the Merger and the adoption of the Merger Agreement
unless the Company Board, after consultation with outside legal counsel to the
Company, determines that to do so would likely breach the fiduciary duties of
the Company Board under applicable law.
Notwithstanding the foregoing, if Purchaser obtains 90 percent or more of
the Shares through the Offer, Purchaser will use the short form merger
provisions of Section 253 of Delaware Law.
Stock Options; Restricted Stock and Performance Units. The Merger Agreement
provides that at the Effective Time each outstanding option to purchase Shares
issued by the Company, whether issued pursuant to
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any stock plan of the Company or otherwise, whether or not exercisable (a
"Company Option") will be canceled and, in consideration of such cancellation,
Royal US shall (or shall cause the Company to), pay to each holder of a
Company Option an amount in cash equal to (x) the difference (if positive)
between the Offer Price and the price per Share (the "Option Exercise Price")
pursuant to which the holder of such Company Option may purchase the Shares to
which such Company Option relates, multiplied by (y) the number of Shares
subject to such Company Option, less (z) any withholding of taxes as may be
required by applicable law with respect to any Company Option. With respect to
any Company Option as to which the Option Exercise Price exceeds the Offer
Price, such Company Option shall also be canceled and in consideration of such
cancellation, Royal US shall (or cause the Company to) pay to each holder
thereof an amount in cash equal to (x) $5, multiplied by (y) the number of
Common Shares subject to such Company Option, less (z) any withholding taxes
as may be required by applicable law.
The Merger Agreement also provides that at the Effective Time each Share
which is subject to vesting or other similar restrictions, whether issued
pursuant to any stock plan of the Company or otherwise ("Restricted Stock")
will become fully vested and free of such restrictions in accordance with the
Company Stock Plans (as defined in the Merger Agreement), and otherwise will
be treated in the same manner as the Shares, provided that amounts payable in
respect of Restricted Stock shall be reduced by any withholding of taxes as
may be required by applicable law and the amount of any loans or other
indebtedness owing to the Company in respect of the Restricted Stock from
holders thereof. The Merger Agreement also provides that at the Effective Time
each outstanding performance unit (each, a "Performance Unit"), whether issued
pursuant to any stock plans of the Company or otherwise shall become
immediately vested and immediately thereafter shall be canceled. In exchange
for such cancellation, Royal US shall (or shall cause the Company to) pay each
holder of a Performance Unit an amount in cash equal to (x) the book value per
Common Share, determined as of the end of the fiscal quarter immediately
preceding the Effective Time, in accordance with US GAAP, multiplied by (y)
the number of Performance Units then held by such holder, less (z) any
withholding Taxes as may be required by applicable Law.
Interim Operations; Covenants. The Company has covenanted and agreed as to
itself and its subsidiaries that after the date of the Merger Agreement and
prior to the Effective Time (unless Royal US shall otherwise approve in
writing, and except as otherwise expressly contemplated by the Merger
Agreement, the Stock Option Agreement or as disclosed pursuant to the Merger
Agreement):
(a) its and its subsidiaries' businesses shall be conducted only in the
ordinary and usual course (it being understood and agreed that nothing
contained in the Merger Agreement shall permit the Company to enter into or
engage in (through acquisition, product extension or otherwise) the
business of selling any products or services materially different from
existing products or services of the Company and its subsidiaries or to
enter into or engage in new lines of business (as such term is defined in
the National Association of Insurance Commissioner's instructions for the
preparation of the annual statement form) without Royal US's prior written
approval);
(b) it and each of its subsidiaries shall use its respective reasonable
best efforts to preserve its business organization intact and maintain its
existing relations and goodwill with customers, suppliers, reinsurers,
distributors, creditors, lessors, employees and business associates;
(c) it shall not (i) amend its certificate of incorporation or bylaws or
amend, modify or terminate the Rights Agreement; (ii) split, combine or
reclassify its outstanding shares of capital stock; (iii) authorize,
declare, set aside or pay any dividend payable in cash, stock or property
in respect of any capital stock other than dividends from its wholly-owned
subsidiaries and other than regular quarterly dividends paid by the Company
on its Shares not in excess of $0.18 per share, with usual record and
payment dates and in accordance with the Company's past dividend policy; or
(iv) repurchase, redeem or otherwise acquire, or permit any of its
subsidiaries to purchase or otherwise acquire, any shares of its stock or
any securities convertible into or exchangeable or exercisable for any
shares of its stock;
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(d) neither it nor any of its subsidiaries shall (i) issue, sell, pledge,
dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments
or rights of any kind to acquire any shares, of its or any subsidiary's
capital stock of any class or any other property or assets (other than
Shares issuable pursuant to options outstanding on the date hereof under
any stock plan of the Company); (ii) other than in the ordinary and usual
course of business, transfer, lease, license, guarantee, sell, mortgage,
pledge, dispose of or encumber any other property or assets (including
capital stock of any of its subsidiaries) or incur or modify any material
indebtedness or other liability; or (iii) make or authorize or commit for
any capital expenditures, including entering into capital lease
obligations, other than in amounts not exceeding $1,000,000 in the
aggregate or, by any means, make any acquisition of, or investment in,
assets or stock of any other person or entity, including by way of
assumption reinsurance, in excess of $1,000,000 individually or $5,000,000
in the aggregate (other than in connection with ordinary course investment
activities);
(e) neither it nor any of its subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans (as defined in the Merger
Agreement) including the Stay Bonus Plan (as defined in the Merger
Agreement), or increase the salary, wage, bonus or other compensation of
any employees except increases occurring in the ordinary and usual course
of business (which shall include normal periodic performance reviews and
related compensation and benefit increases) or promote any employee into
any of bands 1, 2, 3 or 4, or from one of such bands into another of such
bands;
(f) neither it nor any of its subsidiaries shall pay, discharge, settle
or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
settlement, discharge or satisfaction of claims, liabilities or obligations
legally due and payable and arising in the ordinary and usual course of
business, claims arising under the terms of products, contracts or policies
issued by the Company Insurance subsidiaries in the ordinary and usual
course of business and such other claims, liabilities or obligations as
shall not exceed $2,000,000 in the aggregate;
(g) neither it nor any of its subsidiaries shall make, change or revoke
any material tax election, settle or compromise any material tax liability
arising in any audit, change its method of accounting if such change would
have a material impact on taxes, enter into any closing or other agreement
with respect to a material amount of taxes, file a request for refund of a
material amount of taxes (but not including the prosecution of any refund
claim pending on the date hereof), or file an amended tax return if such
tax return is materially different from the original return to which it
relates, except, in each case, (i) in the ordinary course of business and
consistent with the Company's past practice in respect of the tax at issue
in the jurisdiction in question or (ii) with the consent of Royal US, such
consent not to be unreasonably withheld;
(h) neither it nor any of its subsidiaries shall enter into any agreement
containing any provision or covenant limiting in any material respect the
ability of the Company or any subsidiary or affiliate to (i) sell any
products or services of or to any other person, (ii) engage in any line of
business or (iii) compete with or to obtain products or services from any
person or limiting the ability of any person to provide products or
services to the Company or any of its subsidiaries or affiliates;
(i) neither it nor any of its subsidiaries shall enter into any (A)
commutations or (B) new quota share or other reinsurance transaction, in
the case of clause (B), (i) which does not contain cancellation and
termination provisions reasonably customary in the industry for that type
of transaction, (ii) which, except in the ordinary course of business,
materially increases or reduces the Company's insurance subsidiaries'
consolidated ratio of net written premiums to gross written premiums or
(iii) pursuant to which $5,000,000 or more in gross written premiums are
ceded by the Company's insurance subsidiaries to any person other than the
Company or any of its subsidiaries;
(j) neither it nor any of the Company's insurance subsidiaries will alter
or amend in any material respect their existing investment guidelines or
policies;
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(k) neither it nor any of its subsidiaries shall take any action or omit
to take any action that would cause any of its representations and
warranties in the Merger Agreement to become untrue in any material
respect;
(l) neither it nor its subsidiaries shall permit a material change in any
of its underwriting, investment, actuarial, financial reporting or
accounting practices or policies or in any material assumption underlying
an actuarial practice or policy, except as may be required by any change in
generally accepted accounting principles, statutory accounting principles
or applicable law; and
(m) neither it nor any of its subsidiaries will authorize or enter into
an agreement to do any of the foregoing.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that it will not, and will not permit or cause any of its subsidiaries or any
of its or its subsidiaries' directors and officers to, and shall direct its
and its subsidiaries directors, officers, employees, counsel, accountants,
financial advisors and other authorized agents and representatives
(collectively, "Representatives") not to, directly or indirectly, initiate,
solicit, encourage or otherwise facilitate any inquiries or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization or similar transaction
involving, or any purchase of 15% or more of the assets or any equity
securities of, the Company or any of its subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal"). The Company
will not, and will not permit or cause any of its subsidiaries or any of its
or its subsidiaries officers or directors to, and shall direct its and its
subsidiaries' Representatives (including any investment banker, attorney or
accountant retained by it or any of its subsidiaries) not to, directly or
indirectly, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to
an Acquisition Proposal, whether made before or after the date of the Merger
Agreement, or otherwise facilitate any effort or attempt to make or implement
an Acquisition Proposal (including, without limitation, by means of an
amendment to the Rights Agreement); provided, however, that nothing contained
in the Merger Agreement shall prevent the Company or its board of directors
from: (i) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal or (ii) at any time prior to the approval of
the Merger by the Company's stockholders (A) providing information in response
to a request therefor by a person who has made an unsolicited bona fide
written Acquisition Proposal if the board of directors receives from the
person so requesting such information an executed confidentiality agreement on
terms substantially equivalent to those contained in the Confidentiality
Agreement, (B) engaging in any negotiations or discussions with any person who
has made an unsolicited bona fide written Acquisition Proposal or (C)
recommending such an Acquisition Proposal to the stockholders of the Company,
if and only to the extent that, in the case of clauses (A), (B) and (C) above,
(i) the board of directors of the Company determines in good faith, after
consultation with and receipt of advice of outside legal counsel, that such
action is required in order for its directors to comply with their respective
fiduciary duties under applicable law and (ii) the board of directors of the
Company determines in good faith (after consultation with its financial
advisor) that such Acquisition Proposal, if accepted, is reasonably likely to
be consummated, taking into account all legal, financial and regulatory
aspects of the proposal and the Person making the proposal, and would, if
consummated, result in a more favorable transaction than the transaction
contemplated by the Merger Agreement (any such Acquisition Proposal being
referred to in the Merger Agreement as a "Superior Proposal").
The Company also has agreed to cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted prior to
the execution of the Merger Agreement with respect to any of the foregoing.
The Company has further agreed that it will take the necessary steps to
promptly inform its officers, directors, subsidiaries and Representatives of
the foregoing obligations and the obligations in the Confidentiality
Agreement.
The Company will also notify Royal US promptly, but in any event not later
than one day following receipt, if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions
or negotiations are sought to be initiated or continued with, any of its
Representatives indicating, in
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connection with such notice, the name of such person and the material terms
and conditions of any proposals or offers and thereafter shall keep Royal US
informed, on a current basis, of the status and terms of any such proposals or
offers and the status of any such negotiations or discussions. The Company
also will promptly request each person that has executed a confidentiality
agreement in connection with its consideration of an Acquisition Proposal to
return or dispose of all confidential information that had been furnished to
such person by or on behalf of the Company or any of its subsidiaries.
Indemnification and Insurance. Royal US has agreed that from and after the
Effective Time it will indemnify and hold harmless each present and former
director and officer of the Company (when acting in such capacity) against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time to the fullest extent that the Company was permitted
under Delaware Law and its certificate of incorporation and bylaws to
indemnify such person (and Royal US has also agreed to advance expenses as
incurred to the fullest extent permitted under applicable law provided the
person to whom expenses are advanced provides a written affirmation of his or
her good faith belief that the standard of conduct necessary for
indemnification has been met and an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to indemnification).
Royal US has also agreed that the Surviving Corporation shall continue to
maintain the Company's existing officers' and directors' liability insurance
("D&O Insurance") or D&O Insurance that is substantially comparable to the
Company's existing D&O Insurance for a period of six years after the Effective
Time, subject to certain maximum required premium amounts.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to Purchaser and
Royal US with respect to, among other things, its organization,
capitalization, authority relative to the Merger Agreement and the Stock
Option Agreement, financial statements, public filings, the absence of certain
material adverse events, changes or effects, conduct of business, compliance
with insurance laws and regulations and related insurance matters, liabilities
and reserves, litigation, employee benefit plans, brokers' fees, compliance
with laws, tax matters, intellectual property, employment matters,
environmental matters, real property, material contracts, potential conflicts
of interest, insurance, vote required to approve the Merger Agreement,
information in the Proxy Statement, the Rights Agreement and Year 2000
compliance.
Termination; Fees.
The Merger Agreement may be terminated:
(i) at any time prior to the Effective Time, whether before or after the
approval of the Merger by stockholders of the Company, by mutual written
consent of the Company and Royal US;
(ii) by Royal US or the Company if (x) the Offer shall have expired or been
terminated in accordance with its terms without any Shares being purchased
pursuant thereto or (y) Purchaser shall not have accepted for payment any
Shares pursuant to the Offer by December 31, 1999 (the "Termination Date"),
provided, that (A) the foregoing rights to terminate the Merger Agreement
shall not be available to any party that has breached in any material respect
its obligations under the Merger Agreement in any manner that shall have
proximately contributed to the occurrence of the failure of the Offer to be
consummated and (B) the Company shall not receive a termination fee it would
otherwise have been entitled to receive pursuant to the Merger Agreement, if
it exercises the right to terminate the Merger Agreement pursuant to clause
(y) on or prior to February 29, 2000;
(iii) by either Royal US or the Company if any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the Offer or
the Merger shall become final and non-appealable (whether before or after the
approval of the Merger by the stockholders of the Company);
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(iv) by the Company if prior to the consummation of the Offer (i) the board
of directors of the Company authorizes the Company, subject to complying with
the terms of the Merger Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal and the Company
notifies Royal US in writing that it intends to enter into such an agreement,
(ii) Royal US does not make, prior to five business days after receipt of the
Company's written notification of its intention to enter into a binding
agreement for a Superior Proposal (the "Alternative Transaction Notice") an
offer that the board of directors of the Company determines, in good faith
after consultation with its financial advisor, is at least as favorable as the
Superior Proposal, and (iii) the Company pays all termination fees required to
be paid pursuant to the Merger Agreement;
(v) by the Company if prior to the consummation of the Offer there has been
a material breach by Royal US or Purchaser of any representation, warranty,
covenant or agreement contained in the Merger Agreement that is not curable
or, if curable, is not cured within 20 days after written notice of such
breach is given by the Company to the party committing such breach; or
(vi) by Royal US if (a) the Company enters into a binding agreement for, or
recommends, a Superior Proposal or the board of directors of the Company shall
have withdrawn or adversely modified its approval or recommendation of the
Merger Agreement or, after the mailing of the proxy statement relating to the
approval of the Merger or this Offer to Purchase, failed to reconfirm its
recommendation of the Merger Agreement within ten business days after a
reasonable written request by Royal US to do so or redeems any rights under,
or modifies or agrees to modify, the Rights Agreement (or any replacement
thereof) to facilitate, any Acquisition Proposal with any Person (other than
Royal plc or any subsidiary of Royal plc), or (b) prior to consummation of the
Offer there has been a material breach by the Company of any representation,
warranty, covenant or agreement contained in the Merger Agreement that is not
curable or, if curable, is not cured within 20 days after written notice of
such breach is given by Royal US to the party committing such breach.
The Merger Agreement provides that if the Merger Agreement is terminated:
(a) by the Company in the manner described in clause (iv) above or by Royal
US in the manner described in clause (vi)(a) above, then the Company shall,
not later than immediately prior to the time of such termination or not later
than immediately prior to the time of entering into an agreement concerning a
transaction that constitutes an Acquisition Proposal, pay Royal US a
termination fee of $45,000,000 plus an amount equal to Royal US's out-of-
pocket charges and expenses incurred in connection with the transactions
contemplated by the Merger Agreement up to a maximum of $5,000,000
("Expenses");
(b) by the Company or Royal US in the manner described in clause (ii)(x)
above (provided that (1) on the date of expiration or termination of the Offer
the Minimum Condition has not been satisfied and (2) (x) at least 5 business
days prior to such date, it shall have been publicly disclosed that the
conditions to the Offer described in paragraphs (a)(ii), (a)(iii), (a)(iv) and
(b)(i) under "--Conditions to the Offer" have been satisfied or on such date
any of such conditions shall not have been satisfied as a result of a material
breach of the Merger Agreement by the Company or (y) on such date the
condition to the Offer set forth in paragraph (b)(iii) under "--Conditions to
the Offer" has not been satisfied), in circumstances where within 9 months
after the termination of the Merger Agreement the Company enters into a
definitive agreement in respect of, or approves or recommends an Acquisition
Proposal or redeems any rights under, or modifies or agrees to modify, the
Rights Agreement (or any replacement thereof) to facilitate, any Acquisition
Proposal with any person (other than Royal plc or any subsidiary of Royal
plc), then the Company shall make payment to Royal US by wire transfer of
immediately available funds a fee in the amount of $45,000,000 plus the
Expenses of Royal US, payable upon the earlier of the time of entering into
such agreement or consummation of an Acquisition Proposal;
(c) by the Company or Royal US in the manner described in clause (ii)(y)
above (provided that (1) on the date of expiration or termination there is no
condition to the Offer which has failed to be satisfied as a result of a
material breach of the Merger Agreement by Royal US or Purchaser and (2) prior
to such termination an Acquisition Proposal with respect to the Company shall
have been publicly announced or otherwise became public) in circumstances
where within 9 months after the termination of the Merger Agreement the
Company
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enters into a definitive agreement in respect of, or approves or recommends an
Acquisition Proposal or redeems any rights under, or modifies or agrees to
modify, the Rights Agreement (or any replacement thereof) in order to
facilitate, any Acquisition Proposal with any person (other than Royal US or
any subsidiary of Royal US), then the Company shall make payment to Royal US
by wire transfer of immediately available funds a fee in the amount of
$45,000,000 plus the Expenses of Royal US, payable upon the earlier of the
time of entering into such agreement or consummation of an Acquisition
Proposal;
In the event that (a) the Merger Agreement is terminated (1) by the Company
and Royal US in the manner described in clause (i) above or (2) by the Company
or Royal US in the manner described in clause (ii)(y) above (other than a
termination resulting from a breach of the Merger Agreement by the Company) or
in the manner described in clause (iii) above or (3) by the Company in the
manner described in clause (v) above) and (b) as of the date of termination, a
Change in Control of Royal plc shall have occurred, then Royal US shall
promptly pay the Company a termination fee of $45,000,000. "Change in Control
of Royal plc" shall mean, (i) offers for the entire issued ordinary share
capital of Royal plc under the terms of the United Kingdom Code on Takeovers
and Mergers which (x) have been recommended by the board of directors of Royal
plc, (y) have been publicly announced by the offeror to have become
unconditional as to acceptances or (z) when the offeror has publicly announced
that acceptances have been received and not withdrawn by Shareholders
representing 50 percent of the issued ordinary share capital of Royal plc;
(ii) the conveyance, transfer or lease by Royal US of all or substantially all
of its assets to any Person or (iii) Royal plc has entered into a binding
written agreement providing for any of the foregoing.
Conditions to the Offer Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-l(c) under the
Exchange Act (relating to Purchaser's obligation to pay for or return tendered
Shares promptly after termination or withdrawal of the Offer), pay for, or may
delay the acceptance for payment of or, subject to the above restriction,
payment for, any tendered Shares, or may, in its sole discretion, terminate or
amend the Offer as to any Shares not then paid for if
(a) prior to the Expiration Date (i) the Minimum Condition shall not have
been satisfied, (ii) any waiting period applicable to the consummation of the
Offer and the Merger under the HSR Act shall not have expired or been
terminated, (iii) other than the filing of a certificate of merger, any
notices, reports and other filings required to be made prior to the Effective
Time by the Company or Royal plc or any of their respective subsidiaries with,
and any consents, registrations, approvals, permits and authorizations
required to be obtained prior to the Effective Time by the Company or Royal US
or any of their respective subsidiaries from, any governmental entity,
including but not limited to the consent of those insurance commissioners,
directors or superintendents of the state insurance departments disclosed in
the Merger Agreement, in connection with the execution and delivery of the
Merger Agreement and the consummation of the Offer and the Merger and the
other transactions contemplated by the Merger Agreement shall not have been
made or obtained (as the case may be) and shall not be in full force and
effect, or (iv) the Company shall not have obtained the consent or approval of
the Commissioner of Insurance or similar regulatory authority in Connecticut,
Colorado, Wisconsin, Oklahoma, California, North Carolina, South Carolina,
Oregon and Texas or which shall be required under any contract to which the
Company or any of its subsidiaries is a party, except those for which the
failure to obtain such consents or approvals would not, individually or in the
aggregate, have a Company Material Adverse Effect (as defined in the Merger
Agreement) or is not, individually or in the aggregate, reasonably likely to
prevent or materially burden or materially impair the ability of the Company
to consummate the transactions contemplated by the Merger Agreement; or any
such consent or approval, or any governmental consent, imposes any condition
or conditions relating to, or requires changes or restrictions in, the
operations of any asset or businesses of the Company, Royal plc or their
respective subsidiaries which could, in the reasonable judgment of the board
of directors of Royal US, individually or in the aggregate, materially and
adversely impact the economic or business benefits to Royal plc and its
subsidiaries of the transactions contemplated by the Merger Agreement or
materially
impair the ability of any Royal US company (including the Company following
the Effective Time) to conduct its business in the manner as such business is
now being conducted; or
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(b) at or before the time of payment for any of such Shares (whether or not
any Shares have theretofore been accepted for payment), any of the following
events shall occur:
(i) any court or governmental entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any law, statute,
ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Offer or the
Merger, or which makes the acceptance for payment of, or payment for, any
Shares in the Offer illegal;
(ii) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and correct both when made and at and as
of the Expiration Date as though made on and as of the Expiration Date
(except to the extent any such representation or warranty expressly speaks
as of an earlier date) except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
qualifications in the representations and warranties as to "Company
Material Adverse Effect," "material" or similar qualifications set forth in
the Merger Agreement) would not have, individually or in the aggregate, a
Company Material Adverse Effect, or Royal US shall not have received a
certificate on the Expiration Date signed on behalf of the Company by an
executive officer of the Company to such effect;
(iii) the Company shall not have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Expiration Date; or
(iv) there shall have occurred a change, event or circumstance that has
had, or would reasonably be expected to have, a Company Material Adverse
Effect; or
(v) the Merger Agreement shall have been terminated in accordance with
its terms prior to the Expiration Date; or Royal US, Purchaser and the
Company shall have otherwise agreed that Purchaser may amend, terminate or
withdraw the Offer;
The foregoing conditions are for the sole benefit of Royal US and Purchaser
and may be asserted by Royal US or Purchaser regardless of the circumstances
(including any action or inaction by Royal US or Purchaser) giving rise to
such condition or may be waived by Royal US or Purchaser, by express and
specific action to that effect, in whole or in part at any time and from time
to time in their sole discretion. Any determination by Royal US and Purchaser
concerning any event described in this Annex I shall be final and binding upon
all holders of Shares. The failure by Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right, the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
Stock Option Agreement.
The following is a summary of certain portions of the Stock Option Agreement
and is qualified in its entirety by reference to the Stock Option Agreement, a
copy of which has been filed as exhibit 4 to this Schedule 14D-9.
As a condition and inducement to Purchaser and Royal US's entering into the
Merger Agreement, concurrently with the execution and delivery of the Merger
Agreement, Royal US and the Company have entered into the Stock Option
Agreement, pursuant to which, among another things, the Company has granted
Royal US an irrevocable option to purchase up to 5,443,697 newly issued Shares
(the "Company Option") at a purchase price per Share of $50.00 (the "Exercise
Price"). The Stock Option Agreement will terminate, and the Company Option
will expire, on the earlier of (i) the Effective Time; (ii) 90 days after the
date full payment of the termination fee is made by the Company to Royal US as
described in paragraphs (a), (b) and (c) under "--Termination; Fees" (the date
referred to in clause (ii) being hereinafter referred to as the "Option
Termination Date"), or (iii) one day following the date on which it is certain
that no termination fee will become payable to Royal US under the Merger
Agreement; provided that, if the Option cannot be exercised or the Shares
cannot be delivered to Grantee upon such exercise because (a) a preliminary or
permanent injunction or other order issued by any federal or state court of
competent jurisdiction in the United States prohibiting the delivery of the
Shares shall be in effect; (b) any applicable waiting periods under the HSR
Act shall not have expired or
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been terminated; or (c) any approval required to be obtained prior to the
delivery of the Shares under the insurance laws of any state or foreign
jurisdiction shall not have been obtained and be in full force and effect, the
Option Termination Date shall be extended until thirty days after such
impediment to exercise or delivery has been removed but not past December 31,
2001.
Royal US may exercise the Company Option, in whole or in part, if on or
after the date hereof any of the events described in paragraphs (a), (b) and
(c) under "--Termination; Fees" shall have occured.
In the event of any change in the number of issued and outstanding Shares by
reason of any stock dividend, stock split, split-up, recapitalization, merger
or other change in the corporate or capital structure of the Company, the
number of Shares subject to the Company Option and the purchase price per
Share shall be appropriately adjusted to restore Royal US to its rights under
the Stock Option Agreement, including its right to purchase
Shares representing 19.9% of the capital stock of the Company entitled to vote
generally for the election of the directors of the Company which is issued and
outstanding immediately prior to the exercise of the Company Option at an
aggregate purchase price equal to the Exercise Price multiplied by 5,443,697.
If at any time the Company Option is then exercisable, Royal US may elect,
in lieu of exercising the option to purchase Shares, to have the Company pay
to Royal US an amount in cash equal to the Spread (as defined below)
multiplied by all or such portion of the Shares subject to the Company Option
as Royal US shall specify, net of any taxes required to be withheld under
applicable law. "Spread" shall mean the excess, if any, over the Exercise
Price of the higher of (x) if applicable, the highest price per Share
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid or proposed to be paid by any person pursuant to one of the
transactions described in paragraphs (a), (b) and (c) under "--Termination;
Fees" (the "Alternative Purchase Price") or (y) the closing price of the
Shares on the NYSE on the last trading day immediately prior to the date of
such election (the "Closing Price"). If, in the case of clause (x) above, the
Alternative Purchase Price can be calculated by reference to an all cash
amount paid or proposed to be paid for any Shares outstanding, such cash
amount shall be deemed to be the Alternative Purchase Price; if, in the case
of clause (x) above, no Shares will be purchased for all cash, the Alternative
Purchase Price shall be the sum of (i) the fixed cash amount, if any, included
in the Alternative Purchase Price plus (ii) the fair market value of such
property other than cash included in the Alternative Purchase Price. If such
other property consists of securities with an existing public trading market,
the average of the closing prices (or the average of the closing bid and asked
prices if closing prices are unavailable) for such securities in their
principal public trading market on the five trading days ending five days
prior to the date of the election shall be used to calculate the fair market
value of such property. If such other property consists of something other
than cash or securities with an existing public trading market and, as of the
payment date for the Spread, agreement on the value of such other property has
not been reached, the Alternative Purchase Price shall be deemed to equal the
Closing Price.
If by the first anniversary of the date the Merger Agreement was terminated
(the "Merger Termination Date") pursuant to the terms thereof, neither Royal
US nor any other person has acquired more than fifty percent (excluding the
Shares subject to the Company Option) of the shares of outstanding Common
Stock, then the Company has the right to purchase (the "Repurchase Right")
all, but not less than all, of the Shares subject to the Company Option at the
greater of (i) $50.00 per Share or (ii) the average of the last sales prices
for shares of Common Stock on the five trading days ending five days prior to
the date the Company gives written notice of its intention to exercise the
Repurchase Right. If the Company does not exercise the Repurchase Right within
thirty days following the end of the one year period after the Merger
Termination Date, the Repurchase Right lapses.
At any time prior to the first anniversary of the Merger Termination Date,
Royal US shall have the right to sell (the "Sale Right") to the Company all,
but not less than all, of the Shares subject to the Company Option at the
greater of (i) $50.00 per Share or (ii) the average of the last sales prices
for shares of Common Stock on the five trading days ending five days prior to
the date Royal US gives written notice of its intention to exercise the Sale
Right. If Royal US does not exercise the Sale Right prior to the first
anniversary of the Merger Termination Date, the Sale Right terminates.
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The Company has also granted Royal US customary registration rights with
respect to the Shares issued upon exercise of the Company Option.
Notwithstanding any other provision of the Stock Option Agreement, in no
event shall Royal US's Total Profit (as defined below) exceed $55 million and,
if it otherwise would exceed such amount, Royal US, at its sole election,
shall either (a) reduce the number of Shares subject to the Company Option,
(b) deliver to the Company for cancellation Shares previously purchased by
Royal US, (c) reduce the cash payable to Royal US upon a cash election by
Royal US, (d) pay cash to the Company, or (d) any combination thereof, so that
Royal US's Total Profit shall not exceed $55 million after taking into account
the foregoing actions.
Notwithstanding any other provision of the Stock Option Agreement, the
Company Option may not be exercised for a number of Shares as would result in
a Notional Total Profit (as defined below) of more than $55 million and, if
exercise of the Company Option otherwise would exceed such amount, Royal US,
at its discretion, may increase the Exercise Price for that number of Shares
so that the Notional Total Profit shall not exceed $55 million.
As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount of cash received by Royal US
pursuant to (x) the section of the Merger Agreement which provides for the
payment of certain fees and expenses following the termination of the Merger
Agreement under certain conditions and (y) the exercise of the Company Option,
(ii) the amount of (x) cash received by Royal US pursuant to the Grantor's
repurchase of Shares pursuant to the Stock Option Agreement, less (y) Royal
US's purchase price for such Shares, and (iii) (x) the net cash amounts
received by Royal US pursuant to the sale of Shares (or any other securities
into which such Shares are converted or exchanged) to any unaffiliated party
prior to the first anniversary of the date on which the Merger Agreement is
terminated, less (y) Royal US's purchase price for such Shares.
As used herein, the term "Notional Total Profit" with respect to any number
of Shares as to which Royal US may propose to exercise the Company Option
shall be the Total Profit assuming that the Company Option were exercised for
such number of Shares and assuming that such Shares, together with all other
Shares held by Royal US and its affiliates, were sold for cash at the closing
market price for the Shares as of the close of business on the preceding
trading day (less customary brokerage commissions).
Item 4. The Solicitation or Recommendation
(a) Recommendation of the Board of Directors.
The Board of Directors has unanimously approved the Offer, the Merger and
the Merger Agreement and has determined that the terms of each are advisable,
fair to, and in the best interests of, the Company and its stockholders and
recommends that the Company's stockholders accept the Offer and tender their
Shares in the Offer.
The Board's recommendation is based in part upon an opinion the Board of
Directors received from Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), the Company's financial advisor, that, as of the date of such
opinion, the consideration to be received by the Company's stockholders
pursuant to the Offer is fair, from a financial point of view, to such
stockholders (the "DLJ Fairness Opinion"). The full text of the DLJ Fairness
Opinion, which sets forth the factors considered and the assumptions made by
DLJ, is attached hereto as Annex A and filed as Exhibit 5 hereto. Stockholders
are urged to read the DLJ Fairness Opinion in its entirety.
A letter to the Company's stockholders communicating the Board of Directors'
recommendation is filed as Exhibit 6 and is incorporated herein by reference.
(b) Background; Reasons for the Recommendation.
Commencing in December 1998 and continuing until mid-May 1999, W. Marston
Becker, Chairman and Chief Executive Officer of the Company, had several
telephone conversations and meetings with representatives of Royal US. During
this period, Mr. Becker stated that the Company was interested in selling
certain businesses
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and expressed an interest in Royal US making a preferred equity investment in
the Company, combined with a strategic marketing alliance for the cross-
selling of each other's products. Royal US expressed a preference for a
business combination between the two companies and elaborated on the synergies
which it believed existed between the two companies.
On May 26, 1999, Terry Broderick, President of Royal US, advised Mr. Becker
that he believed the synergies between the two companies could only be fully
realized if Royal US acquired the Company. Mr. Becker indicated that, as a
result of the information he had obtained during the previous months'
discussions, he thought Mr. Broderick's conclusion might well be correct, and
was willing to discuss this alternative with the senior management of Royal
plc in order to determine whether, in fact, a business combination transaction
was in the best interests of the Company and its stockholders.
Accordingly, on June 4, 1999, Mr. Becker and Robert V. Mendelsohn, Royal
plc's Group Chief Executive, met and agreed that Royal US would submit a
proposal to acquire the Company. On June 11, 1999, Mr. Broderick telephoned
Mr. Becker and communicated the broad outlines of a proposal for the
acquisition by Royal US of the Company which he confirmed in a letter to Mr.
Becker on June 14, 1999. The proposal contemplated a share-for-share stock
exchange, using Royal plc's American Depositary Receipts, and valued the
shares at $45-$50.
On June 18, 1999, the Board of Directors of the Company held a meeting at
which it considered the proposal of Royal US and authorized the Company's
senior management to continue its discussions with Royal US. Also on June 18,
the Confidentiality Agreement was executed and Royal US began its preliminary
due diligence review. To that end, beginning on June 22, 1999, senior
management of Royal US and the Company and their advisors met for several
days.
On July 1, 1999, Mr. Broderick sent Mr. Becker a letter and related term
sheet setting forth the terms and conditions upon which Royal US would be
willing to acquire the Company at a price of $50 per Share in cash, subject to
the completion of due diligence and the negotiation of a mutually satisfactory
definitive acquisition agreement.
On July 2, 1999, the Board of Directors of the Company held a meeting to
review and discuss the July 1 proposal and authorized the Company's senior
management to negotiate a definitive merger agreement with Royal US by July 9,
1999, if possible.
Beginning on July 3, 1999 and continuing through the preparation of final
agreements on July 11, Royal US conducted more extensive business and legal
due diligence. During the week of July 5, the parties and their respective
legal and financial advisors negotiated the Merger Agreement and the Option
Agreement.
On July 7, 1999, the Company entered into an Exclusivity Agreement pursuant
to which it agreed, subject to certain conditions, to enter into exclusive
negotiations with Royal & SunAlliance USA, Inc. ("Royal USA, Inc."), the
parent of Royal US and an indirect wholly-owned subsidiary of Royal plc, and
its affiliates for a period of time so as to enable both parties to negotiate
and conclude a definitive agreement. This agreement terminated according to
its terms upon the execution of the Merger Agreement.
On July 11, 1999, the Board of Directors of the Company met to consider the
terms upon which Royal US would acquire the Company. After hearing
presentations by the Company's senior management, legal advisors and DLJ,
including DLJ's opinion that the consideration to be received by the
stockholders of the Company was fair to them from a financial point of view,
the Company's Board unanimously resolved that the Offer and the Merger were
advisable, fair to and in the best interests of the stockholders of the
Company. The Board also
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approved the Merger Agreement, the Option Agreement and the transactions
contemplated thereby and recommended that the stockholders of the Company
tender their Shares in the Offer and approve and adopt the Merger Agreement
and the transactions contemplated thereby.
Thereafter, Royal US, Purchaser, and the Company executed the Merger
Agreement and Royal US and the Company executed the Stock Option Agreement.
In reaching its determination described in paragraph (a) above, the Board of
Directors of the Company gave careful consideration to a number of factors,
including, without limitation, the following:
(i) The financial and other terms and conditions of the Offer, the Merger
Agreement and the Option Agreement, and the fact that the Option Agreement
was a condition to Purchaser's willingness to enter into the Merger
Agreement.
(ii) Presentations by DLJ and the Company's management regarding the
financial condition, results of operations, business and prospects of the
Company, including the prospects if the Company were to remain independent,
based in part on projections prepared by the Company's management.
(iii) Current industry, economic and market conditions, including the
acquisitions and consolidations taking place in the industry.
(iv) Historical market prices and trading information with respect to the
Shares.
(v) Publicly available information concerning other companies comparable
to the Company.
(vi) Certain information regarding other companies in the same or related
industries that might represent potential acquirers of the Company.
(vii) The DLJ Fairness Opinion.
(viii) The fact that the $50.00 per Share price to be paid in the Offer
represents a premium of 22.7% over $40.75, the closing price of the Shares
on the New York Stock Exchange on July 9, 1999, the last full trading day
prior to the execution and delivery of the Merger Agreement; a premium of
69.85% over $29.4375, the closing price on June 11, 1999 (the 31st day
prior to the execution and delivery of the Merger Agreement) and a premium
of 67.01% over $29.9375, the closing price on May 13, 1999 (the 60th day
prior to the execution and delivery of the Merger Agreement).
(ix) The fact that the terms of the Merger Agreement, including the price
to be paid, compare favorably to the terms and prices paid in other recent
acquisition transactions.
(x) Possible alternatives to the Offer that might be available to the
Company and its shareholders, including, without limitation, continuing to
operate the Company as an independent entity and the risks associated
therewith.
(xi) The representation of Royal US and Purchaser that they expect to
have funds sufficient to satisfy their obligations under the Merger
Agreement and the fact that the Offer is not subject to a financing
condition.
(xii) The effect of the Offer and the Merger on the Company's employees
and customers.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation and
approval of the Merger Agreement, the Stock Option and the transactions
contemplated thereby, the Board of Directors did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Board of Directors may have given different weights to
different factors.
In addition, stockholders should consult their own financial and legal
advisors and make such other investigations concerning the Offer and the
Merger as they deem necessary.
15
<PAGE>
5. Persons Retained, Employed or to be Compensated
The Company engaged DLJ to act as financial advisor to the Company with
respect to a potential sale of the Company. Pursuant to a letter agreement,
dated June 22, 1999, between the Company and DLJ, the Company has agreed to
pay DLJ a fee of $1,250,000 payable upon the delivery of the DLJ Fairness
Opinion and $50,000 for each update of the DLJ Fairness Opinion with the
exception of the first update. Such fee shall be credited against any
compensation otherwise payable by the Company to DLJ upon the consummation of
a sale of the Company. Upon completion of a transaction involving a sale,
merger, consolidation, or any other business combination of the Company at a
per share price of $50, the Company has agreed to pay DLJ a fee equal to 0.60%
of the aggregate value of the outstanding common stock of the Company
(treating any shares issuable upon exercise of options, warrants or other
rights of conversion as outstanding), plus the amount of any debt assumed,
acquired, remaining outstanding, retired or defeased or preferred stock
redeemed or remaining outstanding in connection with the transaction. Company
has also agreed to pay the reasonable out-of-pocket expenses of DLJ whether or
not a transaction is consummated.
In addition if the Company is entitled to receive a "break-up fee" or
"termination fee," then the Company shall pay to DLJ an amount equal to 20% of
such fee, less the fee paid in connection with the DLJ Fairness Opinion.
The Company has agreed to indemnify DLJ and certain related persons against
certain liabilities in connection with its engagement, including certain
liabilities under the U.S. federal securities laws and, in certain
circumstances, to reimburse DLJ for legal or other expenses reasonably
incurred by it.
In the past, DLJ and its affiliates have provided investment banking
services to the Company and received customary compensation for the rendering
of such services. In the ordinary course of business, DLJ and its affiliates
may trade securities of the Company and Purchaser for their own accounts and
the accounts of their customers and, accordingly, may at any time hold a long
or short position in such securities.
Except as described in this Item 5, neither the Company nor any person
acting on its behalf has employed, retained or agreed to compensate any person
to make solicitations or recommendations to the Company's stockholders
concerning the Offer or the Merger.
6. Recent Transactions and Intent with Respect to Securities.
(a) There have been no transactions in Shares that were effected during the
past 60 days by the Company, or to the best knowledge of the Company, by any
executive officer, director, affiliate or subsidiary of the Company except as
follows. On May 25, 1999 each of the non-employee directors of the Company
received, pursuant to the 1994 Stock Option Plan for Non-Employee Directors,
an option for 2,000 Shares with an exercise price of $28.4375. On May 21,
1999, Raymond W. Jacobson, Executive Vice President of the Company, purchased
10,000 Shares at $28.875 and 400 Shares at $28.50.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, each executive officer,
director and affiliate of the Company currently intends to tender to the
Purchaser all Shares over which he or she has sole dispositive power.
7. Certain Negotiations and Transactions by the Subject Company
(a) Except as set forth in this Schedule 14D-9, to the knowledge of the
Company, no negotiation is being undertaken or is underway by the Company in
response to the Offer which relates or would result in: (1) an extraordinary
transaction, such as a merger or reorganization involving the Company or any
subsidiary thereof;
16
<PAGE>
(2) a purchase, sale or transfer of a material amount of assets by the Company
or any subsidiary thereof; (3) a tender offer for or other acquisition of
securities by or of the Company; or (4) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described herein, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to
in paragraph (a) of this Item 7.
8. Additional Information to be Furnished
(a) As a Delaware corporation, the Company is subject to section 203
("Section 203") of the General Corporation Law of the State of Delaware.
Section 203 prevents an "Interested Stockholder" (generally defined as a
person beneficially owning 15% or more of a corporation's voting stock) from
engaging in a "Business Combination" (as defined in Section 203) with a
Delaware corporation for three years following the date such person became an
Interested Stockholder unless: (i) before such person became an Interested
Stockholder, the board of directors of the corporation approved the
transaction in which the Interested Stockholder became an Interested
Stockholder or approved the Business Combination, (ii) upon consummation of
the transaction which resulted in the Interested Stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers and by
employee stock ownership plans that do not allow plan participants to
determine confidentially whether to tender shares), or (iii) following the
transaction in which such person became an Interested Stockholder, the
Business Combination is (A) approved by the board of directors of the
corporation and (B) authorized at a meeting of stockholders by the affirmative
vote of the holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder. In accordance with the
provisions of Section 203, the Board of Directors of the Company has approved
the Merger Agreement, the Option Agreement and the Purchaser's acquisition of
Shares pursuant to the Offer, the Merger and the Option Agreement and,
therefore, Section 203 is inapplicable to such transactions.
(b) The information statement attached as Annex B hereto is being furnished
in accordance with Rule 14f-1 under the Exchange Act, in connection with the
possible designation by Royal US, pursuant to the Merger Agreement, of certain
persons to be appointed to the Company Board other than at a meeting of the
Company's stockholders.
9. Material to be Filed as Exhibits
The following Exhibits are filed herewith:
<TABLE>
<C> <S>
Exhibit Agreement and Plan of Merger, dated as of July 12, 1999, between
1: Orion Capital Corporation, NTG Acquisition Corp. and Royal Group
Inc.
Exhibit Pages 5 through 6 and 10 through 27 of the Proxy Statement dated
2: April 9, 1999, relating to its annual meeting of stockholders.
Exhibit Confidentiality Agreement dated June 18, 1999.
3:
Exhibit Option Agreement, dated as of July 12, 1999, between Royal Group
4: Inc. and Orion Capital Corporation.
Exhibit Opinion of Donaldson, Lufkin & Jenrette Securities Corporation,
5: dated July 11, 1999.*
Exhibit Letter to Stockholders of the Company, dated July 16, 1999.*
6:
</TABLE>
- --------
* Included in the Schedule 14D-9 mailed to stockholders.
17
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Orion Capital Corporation
/s/ W. Marston Becker
By:
----------------------------------
W. Marston Becker
Chairman and Chief Executive
Officer
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
Exhibit 1: Agreement and Plan of Merger, dated as of July 12, 1999, between
Orion Capital Corporation, NTG Acquisition Corp. and Royal Group
Inc.
Exhibit 2: Pages 5 through 6 and 10 through 27 of the Proxy Statement dated
April 9, 1999, relating to its annual meeting of stockholders.
Exhibit 3: Confidentiality Agreement dated June 18, 1999.
Exhibit 4: Option Agreement, dated as of July 12, 1999, between Royal Group,
Inc. and Orion Capital Corporation.
Exhibit 5: Opinion of Donaldson, Lufkin & Jenrette Securities Corporation,
dated July 11, 1999.*
Exhibit 6: Letter to Stockholders of the Company, dated July 16, 1999.*
</TABLE>
- --------
* Included in the Schedule 14D-9 mailed to stockholders.
19
<PAGE>
EXHIBIT 1
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
ORION CAPITAL CORPORATION,
ROYAL GROUP INC.
and
NTG ACQUISITION CORP.
Dated as of July 12, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
THE MERGER; CLOSING; EFFECTIVE TIME; TENDER OFFER
1.1. The Merger...............................................................1
1.2. Closing..................................................................2
1.3. Effective Time...........................................................2
1.4. Tender Offer.............................................................2
1.5. The Tender Offer.........................................................2
(a) Conditions; Consideration; Schedule 14D-1........................2
(b) Expiration Date..................................................3
(c) Company Action...................................................4
(d) Schedule 14D-9; Meeting of Stockholders..........................4
(e) Mailing and Content of Offer Documents and Schedule 14D-9........4
(f) Directors........................................................5
ARTICLE II.
CHARTER AND BY-LAWS OF THE SURVIVING CORPORATION
2.1. The Charter..............................................................6
2.2. The By-Laws..............................................................6
ARTICLE III.
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1. Directors................................................................6
3.2. Officers.................................................................6
ARTICLE IV.
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
4.1. Conversion of Shares; Consideration......................................6
4.2. Dissenting Stockholders..................................................7
4.3. Company Options and Restricted Stock.....................................7
(a) Company Options..................................................7
(b) Restricted Stock.................................................8
(c) Performance Units................................................8
(d) Notices..........................................................8
4.4. Exchange Procedures......................................................8
(a) Exchange Agent...................................................8
(b) Exchange Procedures..............................................8
4.5. Rights of Former Company Stockholders....................................9
4.6. Termination of Exchange Fund............................................10
4.7. Adjustments to Prevent Dilution.........................................10
(i)
<PAGE>
4.8. Merger Without Meeting of Stockholders..................................10
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company...........................10
(a) Organization, Good Standing and Qualification...................10
(b) Capital Structure...............................................11
(c) Corporate Authority; Approval and Fairness......................12
(d) Governmental Filings; No Violations.............................13
(e) Company Reports; Financial Statements...........................14
(f) Absence of Certain Changes......................................15
(g) Litigation......................................................16
(h) Employee Benefits...............................................16
(i) Compliance with Laws; Permits...................................18
(j) Takeover Statutes...............................................18
(k) Environmental Matters...........................................19
(l) Taxes...........................................................19
(m) Labor Relations and Employment..................................21
(n) Intellectual Property; Year 2000................................21
(o) Material Contracts..............................................22
(p) Rights Plan.....................................................22
(q) Title to Assets; Liens..........................................23
(r) Insurance Matters...............................................23
(s) Liabilities and Reserves........................................24
(t) Brokers and Finders.............................................25
5.2. Representations and Warranties of Parent and Merger Subsidiary..........25
(a) Capitalization of Merger Subsidiary.............................25
(b) Organization, Good Standing and Qualification...................25
(c) Corporate Authority.............................................25
(d) Governmental Filings; No Violations.............................25
(e) Financing.......................................................26
(f) Share Ownership.................................................26
(g) Brokers or Finders..............................................26
ARTICLE VI.
COVENANTS
6.1. Interim Operations......................................................27
6.2. Acquisition Proposals...................................................29
6.3. Information Supplied....................................................30
6.4. Stockholders Meeting....................................................30
6.5. Filings; Other Actions; Notification....................................31
6.6. Access..................................................................32
6.7. Publicity...............................................................33
6.8. Employee Benefits.......................................................33
(ii)
<PAGE>
6.9. Expenses................................................................34
6.10. Indemnification; Directors' and Officers' Insurance....................34
6.11. Other Actions by the Company and Parent................................36
(a) Rights..........................................................36
(b) Takeover Statute................................................36
(c) NYSE De-Listing.................................................36
ARTICLE VII.
CONDITIONS
7.1. Conditions to Each Party's Obligation to Effect the Merger..............36
(a) Stockholder Approval............................................36
(b) Regulatory Consents.............................................36
(c) Legal Prohibition...............................................37
(d) Purchase of Shares Pursuant to Tender Offer.....................37
ARTICLE VIII.
TERMINATION
8.1. Termination by Mutual Consent...........................................37
8.2. Termination by Either Parent or the Company.............................37
8.3. Termination by the Company..............................................37
8.4. Termination by Parent...................................................38
8.5. Effect of Termination and Abandonment...................................38
ARTICLE IX.
MISCELLANEOUS AND GENERAL
9.1. Survival................................................................40
9.2. Modification or Amendment...............................................40
9.3. Waiver of Conditions....................................................40
9.4. Counterparts............................................................41
9.5. Governing Law; Consent to Jurisdiction..................................41
9.6. Notices.................................................................41
9.7. Entire Agreement; No Other Representations..............................42
9.8. No Third Party Beneficiaries............................................42
9.9. Obligations of Parent and of the Company................................42
9.10. Severability...........................................................42
9.11. Interpretation.........................................................43
9.12. Assignment.............................................................43
Annex I Certain Conditions of the Tender Offer
Annex II Index of Defined Terms
Exhibit A Stock Option Agreement
Exhibit B Officers of Surviving Corporation
(iii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 12, 1999 (this
"Agreement"), among ORION CAPITAL CORPORATION, a Delaware corporation (the
"Company"), ROYAL GROUP INC., a Delaware corporation ("Parent"), and NTG
ACQUISITION CORP., a Delaware corporation and a direct or indirect wholly owned
subsidiary of Parent ("Merger Subsidiary") (the Company and Merger Subsidiary
sometimes being hereinafter collectively referred to as the "Constituent
Corporations").
RECITALS
WHEREAS, Parent is a direct or indirect wholly owned subsidiary of
Royal & Sun Alliance Insurance Group plc, a public limited company organized
under the laws of England and Wales ("PLC");
WHEREAS, the respective boards of directors of each of Parent, Merger
Subsidiary and the Company have determined that the Tender Offer (as defined in
Section 1.4) and the merger of Merger Subsidiary with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth in this
Agreement are advisable and have approved the Tender Offer and the Merger;
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to Parent's willingness to enter into this
Agreement, the Company and Parent have entered into that certain Stock Option
Agreement dated as of the date of this Agreement and attached hereto as Exhibit
A (the "Stock Option Agreement"), pursuant to which the Company has granted
Parent an option to purchase shares of common stock, par value $1.00 per share,
of the Company (the "Common Shares") under certain circumstances; and
WHEREAS, the Company, Parent and Merger Subsidiary desire to make
certain representations, warranties, covenants and agreements as set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I.
The Merger; Closing; Effective Time; Tender Offer
1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.3)
Merger Subsidiary shall be merged with and into the Company and the separate
corporate existence of Merger Subsidiary shall thereupon cease. The Company
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation"), and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises shall
continue
<PAGE>
unaffected by the Merger. The Merger shall have the effects specified in the
Delaware General Corporation Law (the "DGCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, New York 10019 at 9:00 A.M. on the second business day after satisfaction
or waiver of the conditions set forth in Article VII (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) or (ii) at such other place
and time and/or on such other date as the Company and Parent may agree in
writing (the "Closing Date").
1.3. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, if this Agreement shall not have
been terminated as provided in Article VIII, the parties shall acknowledge and
cause a certificate of merger or other appropriate documents (the "Certificate
of Merger") executed in accordance with the relevant provisions of the DGCL to
be filed with the Secretary of State of the State of Delaware (the "Secretary")
as provided in Section 251 of the DGCL. The Merger shall become effective at the
time the Certificate of Merger is duly filed with the Secretary or at such later
time as may be agreed by the parties and specified in the Certificate of Merger
(the "Effective Time").
1.4. Tender Offer. Parent shall, within five business days after
the public announcement of the execution of this Agreement, cause Merger
Subsidiary to commence (within the meaning of Rule 14d-2(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) a tender offer (the
"Tender Offer") to acquire all of the outstanding Common Shares together with
all associated Rights (as defined in Section 5.1(p)) issued pursuant to the
Rights Agreement (as defined in Section 5.1(b)), at a purchase price per Common
Share of not less than the Per Share Purchase Price (as defined in Section
4.1(c)), net to the seller in cash, without interest thereon and less any
required withholding tax, with such Tender Offer being upon the terms and
subject solely to the conditions set forth in Annex I to this Agreement
including the Minimum Tender Condition (as defined therein) and such further
customary terms as may be set forth in an Offer to Purchase and Letter of
Transmittal (the "Offer Documents") to be mailed by Merger Subsidiary in
connection with the Tender Offer.
1.5. The Tender Offer.
(a) Conditions; Consideration; Schedule 14D-1. Parent and Merger
Subsidiary shall, within five business days after the public announcement of the
execution of this Agreement, file with the Securities and Exchange Commission
(the "SEC") a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
with respect to the Tender Offer which will contain the Offer Documents as
exhibits. The Schedule 14D-1, and all amendments and supplements thereto, shall
comply in all material respects with the provisions of applicable federal
securities laws. Parent, Merger Subsidiary and the Company each agrees promptly
to correct any information provided by it for use in the Schedule 14D-1 if and
to the extent that it shall have become false or misleading in any material
respect or any event occurs which should be set forth in an amendment or
supplement to the Schedule 14D-1. Merger Subsidiary agrees to take all steps
necessary to cause the Schedule 14D-1, as so corrected if applicable, to be
filed with the SEC and to be disseminated to holders of Common Shares, in each
case as and to the extent required by applicable federal
-2-
<PAGE>
securities laws. The Company shall cooperate fully in the preparation of the
Schedule 14D-1 prior to its being filed with the SEC. The Company and its
counsel shall be given the reasonable opportunity to review and comment on the
Offer Documents and the Schedule 14D-1, and any amendments thereto, prior to the
filing thereof with the SEC. Parent and Merger Subsidiary shall provide the
Company and its counsel with a copy of any written comments or telephonic
notification of any oral comments Parent or Merger Subsidiary may receive from
the SEC or its staff with respect to the Offer Documents and the Schedule 14D-1
promptly after the receipt thereof. Parent and Merger Subsidiary shall provide
the Company and its counsel with a reasonable opportunity to participate in all
communications with the SEC and its staff, including any meetings and telephone
conferences, relating to the Tender Offer or this Agreement. Without the prior
written consent of the Company, Merger Subsidiary shall not decrease the Per
Share Purchase Price or change the form of consideration payable in the Tender
Offer, decrease the number of Common Shares sought, impose additional conditions
to the Tender Offer or make any other change to the terms and conditions of the
Tender Offer in any manner adverse to the holders of Common Shares. Upon the
terms and subject to the conditions of the Tender Offer, unless the Agreement is
terminated in accordance with Article VIII, Merger Subsidiary will accept for
payment and will purchase, as soon as permitted under the terms of the Tender
Offer, all Common Shares validly tendered and not withdrawn prior to the
expiration of the Tender Offer.
(b) Expiration Date. Parent and Merger Subsidiary agree that, unless the
Agreement is terminated in accordance with Article VIII, Merger Subsidiary shall
not terminate or withdraw the Tender Offer prior to the expiration date thereof,
which shall be a date at least 20 business days from the date of commencement
thereof (the "Expiration Date"). If, at the Expiration Date, the conditions to
the Tender Offer described in Annex I hereto shall not have been satisfied or
earlier waived, Merger Subsidiary may extend the Expiration Date on one or more
occasions for such additional period or periods of time as Merger Subsidiary
determines in its sole discretion (provided that following the 90th day after
the date of this Agreement, such extensions shall be in increments of not more
than ten business days each) and, unless this Agreement has been terminated in
accordance with its terms, shall extend it until a date that is not later than
the Termination Date (as defined in Section 8.2), if requested to do so by the
Company, and Parent is otherwise going to let the Tender Offer expire without
the purchase of Common Shares thereunder, but shall not be required to so extend
if any of the conditions not satisfied or earlier waived on the then-scheduled
expiration date are one or more of the Minimum Tender Condition or the
conditions set forth in paragraphs (b)(ii), (b)(iii) or (b)(iv) of Annex I
hereto, provided that (x) if the only condition not satisfied is the Minimum
Tender Condition, the satisfaction or waiver of all other conditions shall have
been publicly disclosed at least five business days before termination of the
Tender Offer and (y) if paragraph (b)(ii), (b)(iii) or (b)(iv) of Annex I hereto
has not been satisfied and the failure to so satisfy can be remedied, the Tender
Offer shall not be terminated unless the failure is not remedied within 20 days
after Parent has furnished the Company with written notice of such failure. In
addition, Merger Subsidiary, at its sole option, may extend the Expiration Date
for an aggregate period of not more than ten business days beyond the latest
expiration date that would otherwise be permitted (but in no event later than
the Termination Date) if there shall not have been tendered sufficient Common
Shares so that the Merger could be effected without a meeting of the Company's
stockholders in accordance with Section 253 of the DGCL. Parent and Merger
Subsidiary shall use their reasonable best efforts to
-3-
<PAGE>
consummate the Tender Offer in accordance with the terms of this Agreement and
the conditions to the Tender Offer set forth in Annex I.
(c) Company Action. The board of directors of the Company has received
the opinion of Donaldson, Lufkin & Jenrette Securities Corporation (the "Company
Financial Advisor") to the effect set forth in Section 5.1(c)(ii). The Company
has been authorized by the Company Financial Advisor to permit, subject to its
prior review and consent (such consent not to be unreasonably withheld), the
inclusion of such opinion and appropriate references thereto in the Offer
Documents and in the Schedule 14D-9 referred to below and the Proxy Statement
referred to in Section 6.5(a). The Company hereby consents to the inclusion in
the Offer Documents of the recommendation of the Company's board of directors
described in Section 5.1(c)(ii), unless the Company's board of directors
determines in good faith, after consultation with and receipt of advice of
outside legal counsel, that it is required in order for its directors to comply
with their respective fiduciary duties under applicable law to withdraw, modify
or qualify its recommendation in a manner adverse to Parent in response to a
Superior Proposal (as defined in Section 6.2).
(d) Schedule 14D-9; Meeting of Stockholders. The Company agrees that it
shall, on the same day that Merger Subsidiary and Parent file with the SEC the
Schedule 14D-1, file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Tender Offer (including exhibits, and as
amended from time to time, the "Schedule 14D-9"), which shall reflect the
actions of the board of directors of the Company referred to above and shall
comply in all material respects with the provisions of applicable federal
securities laws. The Company, Parent and Merger Subsidiary each agrees promptly
to correct any information provided by it for use in the Schedule 14D-9 to the
extent that it shall have become false or misleading in any material respect.
The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and to be disseminated to holders of Common
Shares, in each case as and to the extent required by applicable federal
securities laws. Parent and Merger Subsidiary shall cooperate fully in the
preparation of the Schedule 14D-9 prior to its being filed with the SEC. Parent
and Merger Subsidiary, and their counsel, shall be given the reasonable
opportunity to review and comment on the Schedule 14D-9 and any amendments
thereto prior to the filing thereof with the SEC. The Company shall provide
Parent and Merger Subsidiary, and their counsel, with a copy of any written
comments or telephonic notification of any oral comments the Company may receive
from the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt thereof. The Company shall provide Parent and Merger Subsidiary and
their counsel with a reasonable opportunity to participate in all communications
with the SEC and its staff, including any meetings and telephone conferences,
relating to the Tender Offer or this Agreement. The Schedule 14D-9 shall contain
the recommendation of the board of directors of the Company that the holders of
Common Shares accept the Tender Offer, unless the Company's board of directors
determines in good faith, after consultation with and receipt of advice of
outside legal counsel, that it is required in order for its directors to comply
with their respective fiduciary duties under applicable law to withdraw, modify
or qualify its recommendation in a manner adverse to Parent in response to a
Superior Proposal.
(e) Mailing and Content of Offer Documents and Schedule 14D-9. The
Company agrees that copies of the Schedule 14D-9 (excluding exhibits) shall be
enclosed with the Offer
-4-
<PAGE>
Documents to be mailed by Merger Subsidiary to the stockholders of the Company
in connection with the Tender Offer. In connection with the Tender Offer, the
Company shall promptly furnish Parent and Merger Subsidiary with such
information, including lists of the names and addresses of stockholders of the
Company, mailing labels and lists of security positions, each as of the most
recent practicable date, and shall furnish such assistance as Parent or Merger
Subsidiary or their agents may request in communicating the Tender Offer to the
record and beneficial holders of the Common Shares. Subject to the requirements
of applicable law and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Tender
Offer, Merger Subsidiary and its affiliates will hold in confidence such
listings and other information, shall use such information only in connection
with the Tender Offer and, if this Agreement is terminated, shall, and shall
cause its agents or other representatives to, promptly deliver to the Company or
dispose of all copies of all such information (and extracts or summaries
thereof) then in their possession.
(f) Directors. (i) Promptly upon the purchase by Merger Subsidiary of
Common Shares pursuant to the Tender Offer which represent at least a majority
of the outstanding Common Shares, Merger Subsidiary or Parent shall be entitled
to designate up to such number of directors but in no event less than a
majority, rounded up to the next whole number, on the board of directors of the
Company as shall give Merger Subsidiary representation on such board of
directors equal to the product of the total number of directors on such board
(giving effect to the directors elected pursuant to this sentence) multiplied by
the percentage that the aggregate number of Common Shares beneficially owned by
Parent, Merger Subsidiary and any other Subsidiary (as defined in Section
5.1(a)) of Parent bears to the total number of Common Shares then outstanding,
and the Company shall, at such time, promptly use its reasonable best efforts to
cause Merger Subsidiary's or Parent's designees, as the case may be, to be so
elected, including either increasing the size of the board of directors or
securing the resignations of incumbent directors or both. The Company will use
its reasonable best efforts to cause directors designated by Merger Subsidiary
to constitute the same percentage as is on the board of (i) each committee of
the board of directors, (ii) each board of directors of each Subsidiary of the
Company and (iii) each committee of each such Subsidiary board, in each case
only to the extent permitted by applicable Law (as defined in Section 5.1(i)).
(ii) The Company shall promptly (subject to the prompt provision of
information by Parent and Merger Subsidiary) take all actions required pursuant
to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder in order to
fulfill its obligations under this Section 1.5(f) and shall include in the
Schedule 14D-9 or a separate Rule 14f-1 information statement provided to
stockholders such information with respect to the Company and its officers and
directors as is required under Section 14(f) of the Exchange Act and Rule 14f-1
thereunder to fulfill its obligations under this Section 1.5(f). Parent or
Merger Subsidiary will promptly supply to the Company and be solely responsible
for any information with respect to either of them and their nominees, officers
and directors required by Section 14(f) of the Exchange Act and Rule 14f-1
thereunder.
(iii) From and after the time, if any, that Parent's designees
constitute a majority of the Company's board of directors, any amendment of this
Agreement, any termination of this Agreement by the Company, any extension of
time for performance of any of the obligations of
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Parent or Merger Subsidiary hereunder, any waiver of any condition or any of the
Company's rights hereunder or other action by the Company hereunder may be
effected only by unanimous vote of the entire board of directors of the Company.
ARTICLE II.
Charter and By-Laws
of the Surviving Corporation
2.1. The Charter. The Certificate of Incorporation of the Company as in
effect immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation (the "Charter"), until duly amended
or repealed as provided therein or by applicable Law.
2.2. The By-Laws. The by-laws of the Company as in effect immediately
prior to the Effective Time shall be the by-laws of the Surviving Corporation
(the "By-Laws"), until duly amended or repealed as provided therein or by
applicable Law.
ARTICLE III.
Officers and Directors
of the Surviving Corporation
3.1. Directors. The directors of Merger Subsidiary at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
3.2. Officers. The officers of the Surviving Corporation shall, from and
after the Effective Time, be as set forth on Exhibit B until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Charter and the By-Laws.
ARTICLE IV.
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Conversion of Shares; Consideration. Subject to the provisions of
this Article IV, at the Effective Time, by virtue of the Merger and without any
future action on the part of Parent, the Company, Merger Subsidiary or the
stockholders of any of the foregoing, the shares of the Constituent Corporations
shall be converted as follows:
(a) Each share of Merger Subsidiary Common Stock (as defined in Section
5.2(a)) issued and outstanding immediately prior to the Effective Time shall
cease to be outstanding and shall be converted into that number of fully paid
and nonassessable shares of common stock of the Surviving Corporation equal to
(x) the number of Common Shares issued and outstanding
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immediately prior to the Effective Time less (y) the number of those Common
Shares set forth in Section 4.1(b)(ii) (A) and (B).
(b) (i) Each Common Share held by the Company and not held on behalf of
third parties shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor and (ii) each Common Share
held by (A) any Subsidiary of the Company or (B) PLC or any Subsidiary thereof
(PLC and each of its Subsidiaries being referred to as "Parent Companies") other
than Merger Subsidiary shall be converted into one fully paid and non-assessable
share of common stock of Surviving Corporation (the Common Shares in this
Section 4.1(b) together with the Common Shares held by Merger Subsidiary are
hereinafter referred to as "Excluded Shares").
(c) Each Common Share (including any associated Rights), but excluding
(i) Excluded Shares and (ii) Dissenting Shares (as defined in Section 4.2),
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
from Merger Subsidiary a cash payment in the amount of Fifty Dollars ($50.00) or
if a higher price was paid in the Tender Offer, such higher price (the "Per
Share Purchase Price"; the aggregate cash paid for all Common Shares being the
"Merger Consideration"), without interest.
4.2. Dissenting Stockholders. Notwithstanding anything in this Agreement
to the contrary, any issued and outstanding Common Shares held by a Person (as
defined in Section 5.1(b)) (a "Dissenting Stockholder") who duly demands
appraisal of his Common Shares pursuant to the DGCL and complies with all the
provisions of the DGCL concerning the right of holders of Common Shares to
demand appraisal of their Common Shares in connection with the Merger
("Dissenting Shares") shall not be converted as described in Section 4.1(c) but
shall become the right to receive such cash consideration as may be determined
to be due to such Dissenting Stockholder as provided in the DGCL. If, however,
such Dissenting Stockholder withdraws his demand for appraisal or fails to
perfect or otherwise loses his right of appraisal, in any case pursuant to the
DGCL, his Common Shares shall be deemed to be converted as of the Effective Time
into the right to receive the Per Share Purchase Price net of all withholding
Taxes, if any, and without interest. The Company shall give Parent (i) prompt
notice of any demands for appraisal of Common Shares received by the Company and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company shall not, without the
prior written consent of Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
4.3. Company Options and Restricted Stock.
(a) Company Options. At the Effective Time, each outstanding option to
purchase Common Shares issued by the Company, whether issued pursuant to any
stock plan of the Company or otherwise, and whether or not exercisable (a
"Company Option"), shall no longer represent the right to purchase or receive
Common Shares, but in lieu thereof shall be canceled and, in consideration of
such cancellation, Parent shall (or shall cause the Company to), pay to each
holder of a Company Option an amount in cash equal to (x) the difference (if
positive) between the Per Share Purchase Price and the price per Common Share
pursuant to which the
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holder of such Company Option (the "Exercise Price") may purchase the Common
Shares to which such Company Option relates, multiplied by (y) the number of
Common Shares subject to such Company Option, less (z) any withholding of Taxes
as may be required by applicable Law. With respect to any Company Option as to
which the Exercise Price exceeds the Per Share Purchase Price, such Company
Option shall also be canceled and in consideration of such cancellation, Parent
shall (or cause the Company to) pay to each holder thereof an amount in cash
equal to (x) $5, multiplied by (y) the number of Common Shares subject to such
Company Option, less (z) any withholding taxes as may be required by applicable
Law.
(b) Restricted Stock. Each Common Share which is subject to vesting or
other similar restrictions, whether issued pursuant to any stock plan of the
Company or otherwise ("Restricted Stock"), shall become fully vested and free of
such restrictions in accordance with the Company Stock Plans (as defined in
Section 5.1(b)), and otherwise shall be treated in the same manner as the Common
Shares as described in Section 4.1(c), provided that amounts payable in respect
of Restricted Stock shall be reduced by the amount of any loans or other
indebtedness owing to the Company in respect of the Restricted Stock from
holders thereof.
(c) Performance Units. At the Effective Time, each outstanding
performance unit (each, a "Performance Unit"), whether issued pursuant to any
stock plans of the Company or otherwise shall become immediately vested and
immediately thereafter shall be canceled. In exchange for such cancellation,
Parent shall (or shall cause the Company to) pay each holder of a Performance
Unit an amount in cash equal to (x) the book value per Common Share, determined
as of the end of the fiscal quarter immediately preceding the Effective Time, in
accordance with GAAP, multiplied by (y) the number of Performance Units then
held by such holder, less (z) any withholding Taxes as may be required by
applicable Law.
(d) Notices. At or prior to the Effective Time, the Company shall take
all actions necessary to provide notice of the provisions of this Section 4.3 to
all holders of Company Options, Restricted Stock, and Performance Units with
Parent's prior review and consent (not to be unreasonably withheld or delayed)
to the form of such notice.
4.4. Exchange Procedures.
(a) Exchange Agent. Promptly after the Effective Time, Parent shall
deposit, or shall cause to be deposited, the Merger Consideration with an
exchange agent selected by Parent and reasonably satisfactory to the Company
(the "Exchange Agent"), for the benefit of the holders of Common Shares (the
"Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a certificate which represented Common Shares
immediately prior to the Effective Time (the "Certificates") (i) a letter of
transmittal specifying that delivery shall be effected, and risk of loss and
title to such Certificates shall pass, only upon proper delivery of such
Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent, such
letter of transmittal to be in such form and have such other provisions as
Parent shall reasonably determine, and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the consideration described in
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Section 4.1 and 4.3(b). The Certificates so delivered shall be duly endorsed as
the Exchange Agent may require. The Exchange Agent may establish such other
reasonable and customary rules and procedures in connection with its duties as
it may deem appropriate. After the Effective Time, each holder of Common Shares
(other than Excluded Shares and Dissenting Shares) issued and outstanding at the
Effective Time shall surrender the Certificates representing such Common Shares
to the Exchange Agent together with the letter of transmittal and such other
documents as may reasonably be required by the Exchange Agent. Upon surrender of
a Certificate, such holder shall be entitled to receive in exchange therefor the
consideration provided in Section 4.1 or 4.3(b), as applicable, together with
all undelivered dividends or distributions in respect of such Common Shares
(without interest thereon) pursuant to Section 4.5, less any withholding of
Taxes as may be required by applicable Law, and the Certificate so surrendered
shall forthwith be canceled. Subject to the second and third succeeding
sentences, Parent shall not be obligated to deliver the consideration to which
any former holder of Common Shares is entitled as a result of the Merger until
such holder surrenders such holder's Certificates for exchange as provided in
this Section 4.4. In the event of a transfer of ownership of Common Shares
represented by Certificates that are not registered in the transfer records of
the Company, the consideration provided in Section 4.1 or 4.3(b), as applicable,
may be issued to a transferee if the Certificates representing such Common
Shares are delivered to the Exchange Agent, accompanied by all documents
required to evidence such transfer. If payment of the Merger Consideration is to
be made to a Person other than the Person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the Person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a Person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
If any Certificate shall have been lost, stolen, mislaid or destroyed, upon
receipt of (a) an affidavit of that fact from the holder claiming such
Certificate to be lost, mislaid, stolen or destroyed, (b) such bond, security or
indemnity as Parent and the Exchange Agent may reasonably require, and (c) any
other documents reasonably necessary to evidence and effect the bona fide
exchange thereof, the Exchange Agent shall issue to such holder the
consideration into which the Common Shares represented by such lost, stolen,
mislaid or destroyed Certificate shall have been converted. Any other provision
of this Agreement notwithstanding, neither Parent, the Surviving Corporation nor
the Exchange Agent shall be liable to a holder of Common Shares for any amounts
paid or property delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
4.5. Rights of Former Company Stockholders. At the Effective Time, the
stock transfer books of the Company shall be closed as to holders of Common
Shares immediately prior to the Effective Time and no transfer of Common Shares
by any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.4, each Certificate
theretofore representing Common Shares (other than Excluded Shares or Dissenting
Shares) shall from and after the Effective Time represent for all purposes only
the right to receive the consideration provided in Section 4.1 or 4.3(b), as
applicable, in exchange therefor, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which have been declared or
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made by the Company in respect of such Common Shares in accordance with the
terms of this Agreement and which remain unpaid at the Effective Time. Upon
surrender of such Certificate, any undelivered dividends and cash payments
payable hereunder (without interest) shall be delivered and paid with respect to
each Common Share represented by such Certificate.
4.6. Termination of Exchange Fund. Any holder of Common Shares who has
not exchanged his Certificates for the Merger Consideration in accordance with
Section 4.1(c) or 4.3(b), as applicable, within one year after the Effective
Time shall have no further claim upon the Exchange Agent and shall thereafter
look only to Parent for payment in respect of his Common Shares. Any portion of
the Exchange Fund (including the proceeds of any investments thereof) that
remains unclaimed by the stockholders of the Company for one year after the
Effective Time shall be paid to Parent. The Exchange Agent shall invest the
Exchange Fund, as directed by Parent, on a daily basis. Any interest and other
income resulting from such investments shall be paid to Parent.
4.7. Adjustments to Prevent Dilution. Without limiting the provisions of
Section 6.1, in the event that prior to the Effective Time the Company changes
the number of Common Shares or securities convertible or exchangeable into or
exercisable for Common Shares as a result of a reclassification, stock split
(including a reverse split), stock dividend or distribution, recapitalization,
merger, subdivision or other similar transaction, the Merger Consideration shall
be equitably adjusted.
4.8. Merger Without Meeting of Stockholders. In the event that Merger
Subsidiary, or any other direct or indirect subsidiary of PLC, shall acquire at
least 90 percent of the outstanding Common Shares pursuant to the Tender Offer,
the parties hereto shall take all necessary and appropriate action to cause the
Merger to become effective as soon as practicable after the expiration of the
Tender Offer without a vote of stockholders of the Company, in accordance with
Section 253 of the DGCL.
ARTICLE V.
Representations and Warranties
5.1. Representations and Warranties of the Company. Except as set forth
in the corresponding sections or subsections of the disclosure letter delivered
to Parent by the Company on or prior to entering into this Agreement (the
"Company Disclosure Letter") or in any Company Report (as defined in Section
5.1(e)(i)) filed prior to the date hereof, the Company hereby represents and
warrants to Parent and Merger Subsidiary that:
(a) Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of Delaware and each of its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the Laws of its
respective jurisdiction of organization. Each of the Company and its
Subsidiaries has all requisite corporate or similar power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership
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or operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in good standing,
individually or in the aggregate, would not have a Company Material Adverse
Effect. The Company has made available to Parent a complete and correct copy of
the articles or certificate of incorporation and by-laws or other similar
governing documents as amended to date (collectively, "Governing Documents") of
the Company and each of its Subsidiaries. The Company's and its Subsidiaries'
Governing Documents as so made available are in full force and effect.
As used in this Agreement, the term (i) "Subsidiary" means, with respect
to the Company, PLC, Parent or Merger Subsidiary, as the case may be, any
entity, whether incorporated or unincorporated, of which at least a majority of
the securities or ownership interests having by their terms ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions is directly or indirectly owned or controlled by such party or
by one or more of its respective Subsidiaries or by such party and any one or
more of its respective Subsidiaries, and (ii) "Company Material Adverse Effect"
means a material adverse effect on the financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole; provided,
however, that the term "Company Material Adverse Effect" shall not be deemed to
include any (i) fundamental changes in the property and casualty insurance
industry in general, (ii) events resulting from changes in general United States
or global economic conditions, (iii) changes in GAAP or SAP, or (iv) adverse
changes in the Company's financial condition or results of operations following
the date hereof as set forth in Section 5.1(a) of the Company Disclosure Letter.
The Company conducts its insurance operations through the Subsidiaries
set forth in Section 5.1(a) of the Company Disclosure Letter which are
identified as insurance companies (collectively, the "Company Insurance
Subsidiaries"). Each of the Company Insurance Subsidiaries is (i) duly licensed
or authorized as an insurance company and, where applicable, a reinsurer in its
jurisdiction of incorporation, (ii) duly licensed or authorized as an insurance
company and, where applicable, a reinsurer in each other jurisdiction where it
is required to be so licensed or authorized, and (iii) duly authorized in its
jurisdiction of incorporation and each other applicable jurisdiction to write
each line of business reported as being written in the most recent Company SAP
Statements (as defined in Section 5.1(e)(ii)), except where the failure to be so
licensed or authorized would not, individually or in the aggregate, have a
Company Material Adverse Effect. The Company has made all required filings under
applicable insurance holding company statutes except where the failure to file
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(b) Capital Structure. The authorized stock of the Company consists of
50,000,000 Common Shares, of which 30,675,300 Common Shares were issued and
outstanding and 3,320,037 Common Shares were held by the Company in treasury as
of the close of business on July 9, 1999, and 5,000,000 shares of preferred
stock, no par value, of which 1,000,000 shares have been authorized as Series B
Junior Participating Preferred Stock, none of which are outstanding. All of the
outstanding Common Shares have been duly authorized and are validly issued,
fully paid and nonassessable. The Company has no commitments to issue or deliver
Common Shares, except that, as of July 9, 1999, there were (i) 1,408,066 Common
Shares subject to issuance upon exercise of outstanding Company Options pursuant
to the Company's
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Equity Incentive Plan, the 1994 Stock Option Plan For Non-Employee Directors and
the 1982 Long-Term Performance Incentive Plan, (ii) 1,546,559 Common Shares
reserved for issuance upon exercise of authorized but unissued Company Options
and 167,000 shares reserved for issuance as Restricted Stock under the Company
Stock Plans, and (iii) 243,157 Common Shares reserved for issuance under the
Company's Employee Stock Purchase Plan (the plans in clauses (i) and (iii) are
hereinafter collectively referred to as the "Company Stock Plans"). The Company
has no commitments to issue or deliver shares of preferred stock, except that as
of the date hereof, there were 1,000,000 shares of Series B Junior Participating
Preferred Stock subject to issuance pursuant to the Rights Agreement, dated as
of September 11, 1996, between the Company and ChaseMellon Shareholder Services,
LLC, as Rights Agent (the "Rights Agreement"). Except as set forth in Section
5.1(a) of the Company Disclosure Letter, each of the outstanding shares of
capital stock or other securities of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and owned by the
Company or a direct or indirect wholly owned Subsidiary of the Company, free and
clear of any lien, pledge, security interest, claim or other encumbrance. Except
as set forth above and in the Stock Option Agreement, there are no preemptive or
other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue, sell, repurchase, redeem or otherwise
acquire any shares of capital stock or other securities of the Company or any of
its Subsidiaries or any securities or obligations convertible or exchangeable
into or exercisable for, or giving any Person a right to subscribe for or
acquire, any securities of the Company or any of its Subsidiaries, and no
securities or obligations evidencing such rights are authorized, issued or
outstanding. There are no outstanding contractual obligations of the Company to
vote any shares of the capital stock of any of its Subsidiaries. The Company
does not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter.
For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity or other entity of any kind or
nature.
(c) Corporate Authority; Approval and Fairness. (i) The Company has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and the Stock Option Agreement and to consummate the Merger, subject
only to approval of the Merger by the holders of at least a majority of the
outstanding Common Shares, if applicable (the "Company Requisite Vote"). This
Agreement and the Stock Option Agreement are the valid and binding agreements of
the Company enforceable against the Company in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar Laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(ii) The board of directors of the Company (at a meeting duly called and
held) has by the requisite vote of all directors present (A) declared that the
Agreement, the Stock Option Agreement, the Tender Offer, the Merger and the
other transactions contemplated hereby and thereby are advisable and fair and in
the best interests of the Company and its stockholders, (B)
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authorized, approved and adopted the Agreement, the Stock Option Agreement, the
Tender Offer, the Merger and the other transactions contemplated hereby and
thereby, (C) recommended that the shareholders of the Company accept the Tender
Offer and tender their Common Shares, (D) recommended the approval of this
Agreement and the Merger by the holders of the Common Shares and directed that
the Merger be submitted for consideration by the Company's stockholders at the
Stockholders Meeting (as defined in Section 6.4) (if applicable) and (E)
received the opinion of the Company Financial Advisor to the effect that the Per
Share Purchase Price to be received by the holders of the Common Shares in the
Tender Offer and the Merger, taken together, is fair from a financial point of
view to such holders.
(d) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) pursuant to Section 1.3, (B) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the Exchange
Act as amended, (C) required to be made with the New York Stock Exchange
("NYSE"), and (D) the filing of appropriate documents with, and approval of, the
respective Commissioners of Insurance or similar regulatory authorities of the
states set forth in Section 5.1(d) of the Company Disclosure Letter and such
notices and consents as may be required under the antitrust notification or
insurance Laws of any state or country in which the Company, Parent or any of
their respective subsidiaries is domiciled or does business, no notices, reports
or other filings are required to be made by the Company with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by the Company from, any foreign or domestic governmental or regulatory
authority, agency, commission, legislature, body or other governmental entity
("Governmental Entity"), in connection with the execution and delivery of this
Agreement and the Stock Option Agreement by the Company and the consummation by
the Company of the Merger and the other transactions contemplated hereby and
thereby, except those that the failure to make or obtain would not, individually
or in the aggregate, (i) have a Company Material Adverse Effect, (ii) prevent,
materially delay or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement or the Stock Option Agreement or
(iii) materially impair the ability of any Parent Company, (including the
Company following the Effective Time), to conduct its business in the manner as
such business is now being conducted.
(ii) Subject to the approval, if necessary, of the Merger by the
Company's stockholders in accordance with the DGCL and assuming the consents,
approvals, authorizations or permits and filings or notifications referred to in
Section 5.1(d)(i) are duly and timely obtained or made, the execution, delivery
and performance of this Agreement and the Stock Option Agreement by the Company
do not, and the consummation by the Company of the Merger and the other
transactions contemplated hereby and thereby will not, constitute or result in
(A) a breach or violation of, or a default under, any Governing Document of the
Company or any of its Subsidiaries, (B) a breach or violation of, a default
under, the right of cancellation, termination or acceleration by another Person
of, or the creation of a lien, pledge, security interest or other encumbrance on
the properties or assets of the Company or any of its Subsidiaries (with or
without notice, lapse of time or both) pursuant to, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation
("Contract") binding upon the Company or any of its Subsidiaries or (C) a
violation of any Law (as defined in Section 5.1(i)) or governmental or
non-governmental permit or license to which the Company or any of its
Subsidiaries is subject, except, in the case, of clause (B) or (C) above, for
any breach, violation, default, acceleration, creation or
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change that, individually or in the aggregate, would not (i) have a Company
Material Adverse Effect, (ii) prevent, materially delay or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Stock Option Agreement or (iii) materially impair the ability
of any Parent Company, (including the Company following the Effective Time), to
conduct its business in the manner as such business is now being conducted.
Neither the Company nor any of its Subsidiaries is a party to any contract
pursuant to which consents or waivers are or may be required of any other Person
in connection with the execution and delivery of this Agreement and the Stock
Option Agreement by the Company or the performance by the Company of its
obligations hereunder and thereunder, except where the failure to obtain any
such consent or waiver would not, individually or in the aggregate, have a
Company Material Adverse Effect or prevent, materially delay or materially
impair the ability of the Company to consummate the transactions contemplated
hereby and thereby.
(e) Company Reports; Financial Statements. (i) The Company has
delivered to Parent each registration statement, report, proxy statement or
information statement prepared by it since December 31, 1996 including (A) the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the
"Audit Date"), and (B) the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1999 in the form (including exhibits, annexes and any
amendments thereto) filed with the SEC (collectively, including any such reports
filed subsequent to the date hereof, the "Company Reports"). As of their
respective dates, the Company Reports complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Exchange Act, as the case may be, and did not, and any Company Reports
filed with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. The financial statements
of the Company included in the Company Reports comply in all material respects
as to form with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Each of the consolidated balance
sheets included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents, or will fairly
present, the consolidated financial position of the Company and its Subsidiaries
as of its date and each of the consolidated statements of income and of changes
in financial position included in or incorporated by reference into the Company
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the results of operations, retained earnings and changes in
financial position, as the case may be, of the Company and its Subsidiaries for
the periods set forth therein (subject, in the case of unaudited statements, to
the failure to include all required notes thereto and normal year-end audit
adjustments that will not be material in amount or effect), in each case
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved, except as may be noted
therein.
(ii) Each of the Company Insurance Subsidiaries has filed all annual and
quarterly statements for the periods beginning January 1, 1996, including all
exhibits, interrogatories, notes, schedules and any actuarial opinions,
affirmations or certifications or other supporting documents required to be
filed in connection therewith, required to be filed with or submitted to the
appropriate regulatory authorities of the jurisdiction in which it is domiciled
or commercially domiciled on forms prescribed or permitted by such authority
(collectively, including any such
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annual or quarterly statements filed subsequent to the date hereof, the "Company
SAP Statements"). The Company has delivered to Parent all Company SAP Statements
for each Company Insurance Subsidiary each in the form (including exhibits,
annexes and any amendments thereto) filed with the applicable domiciliary state
insurance regulatory agency. All of the Company SAP Statements for the period
beginning January 1, 1998 and Company SAP Statements for the periods beginning
January 1, 1996 for the Company Insurance Subsidiaries set forth in Section
5.1(e)(ii) of the Company Disclosure Letter (such Company SAP Statements being
collectively referred to herein as the "Company Prepared SAP Statements") were
(or will be) prepared in conformity with statutory accounting practices
prescribed or permitted by the applicable insurance regulatory authority ("SAP")
consistently applied for the periods covered thereby, were prepared in
accordance with the books and records of the Company or the Company Insurance
Subsidiary, as the case may be, and present (or will present) fairly the
statutory financial position of such Company Insurance Subsidiaries as at the
respective dates thereof and the results of operations of such Subsidiaries for
the respective periods then ended. The Company Prepared SAP Statements complied
(or will comply) in all material respects with all applicable Laws, rules and
regulations when filed, and no material deficiency has been asserted with
respect to any Company Prepared SAP Statements by the applicable insurance
regulatory body or any other governmental agency or body. Except as indicated
therein, all assets that are reflected on the Company Prepared SAP Statements
comply with all applicable foreign, federal, state and local statutes and
regulations regulating the business and products of insurance and all applicable
Insurance Laws (as defined in Section 5.1(i)) with respect to admitted assets
and are in an amount at least equal to the minimum amounts required by Insurance
Laws. The statutory balance sheets and income statements included in the Company
Prepared SAP Statements have been audited by independent certified public
accountants, and the Company has made available to Parent true and complete
copies of all audit opinions related thereto. The Company has made available to
Parent true and complete copies of all financial examination reports of
insurance departments and any insurance regulatory agencies since January 1,
1996 relating to the Company Insurance Subsidiaries and a list of all pending
market conduct examinations.
(f) Absence of Certain Changes. Except as disclosed in the Company
Reports filed prior to the date hereof or otherwise set forth in Section 5.1(f)
of the Company Disclosure Letter, since the Audit Date and prior to the date
hereof the Company and its Subsidiaries have conducted their businesses only in
the ordinary and usual course of such businesses and there has not been (i) any
change, event or circumstance which, individually or in the aggregate, has had
or would reasonably be expected to have a Company Material Adverse Effect; (ii)
any material damage, destruction or other casualty loss with respect to any
material tangible asset or property owned, leased or otherwise used by the
Company or any of its Subsidiaries, whether or not covered by insurance; (iii)
any declaration, setting aside or payment of any dividend or other distribution
in respect of the stock of the Company, except for regular quarterly cash
dividends on its Common Shares publicly announced prior to the date hereof; (iv)
any material change by the Company in accounting principles, practices or
methods other than those required by GAAP or SAP; (v) any material addition, or
any development involving a prospective material addition, to the Company's
aggregate reserves for future policy benefits or other policy claims and
benefits; or (vi) any change in the accounting, actuarial, investment,
reserving, underwriting or claims administration policies, practices,
procedures, methods, assumptions or principles of any
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Company Insurance Subsidiary that is material to the Company and its
Subsidiaries, taken as a whole. Since the Audit Date, except as provided for
herein, or as set forth in Section 5.1(f) of the Company Disclosure Letter, or
as disclosed in the Company Reports filed prior to the date hereof, there has
not been any increase in the compensation payable or that could become payable
by the Company or any of its Subsidiaries to any of the top 12 most highly
compensated employees or any amendment of any of the Compensation and Benefit
Plans (as defined in Section 5.1(h)(i)) other than increases or amendments in
the ordinary course and increases or amendments approved by Parent.
(g) Litigation. Except as specifically disclosed in the Company Reports
filed prior to the date hereof, there are no civil, criminal or administrative
actions, suits, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries, directors or officers, except for those that would not,
individually or in the aggregate, have a Company Material Adverse Effect or
prevent or materially burden or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement or by the Stock
Option Agreement.
(h) Employee Benefits. (i) Section 5.1(h) of the Company Disclosure
Letter contains a partial list of the Company's material bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock option,
employment, termination, severance, change of control, compensation, medical,
health or other plan, agreement, policy or arrangement that covers any
employees, directors, former employees or former directors of the Company or any
of its Subsidiaries including the principal terms of the Stay Bonus Plan
approved by the board of directors of the Company. (This list, together with all
other such plans, arrangements and the like, is hereinafter referred to as the
"Compensation and Benefit Plans.") The Compensation and Benefit Plans or any
amendments to any Compensation and Benefit Plans not delivered to Parent do not,
individually or in the aggregate, have undisclosed liabilities in any material
amount.
(ii) All Compensation and Benefit Plans are in substantial compliance
with all applicable Law, including the Internal Revenue Code of 1986, as amended
(together with all regulations promulgated thereunder, the "Code"), and the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Each
Compensation and Benefit Plan that is an "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA (a "Pension Plan") and that is intended to
be qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service (the "IRS"), and the
Company has no knowledge of any circumstances reasonably likely to result in
revocation of any such favorable determination letter. There is no pending or,
to the knowledge of the Company, threatened material litigation relating to the
Compensation and Benefit Plans. Neither the Company nor any of its Subsidiaries
has engaged in a transaction with respect to any Compensation and Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject the Company or any of its Subsidiaries to a material tax
or penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.
(iii) No liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by the Company or any Subsidiary with respect to
any ongoing, frozen or terminated
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"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer plan of
any entity which is considered one employer with the Company under Section 4001
of ERISA or Section 414 of the Code (an "ERISA Affiliate"). The Company and its
ERISA Affiliates have not contributed, or been obligated to contribute, to a
multiemployer plan under Subtitle E of Title IV of ERISA at any time since
September 26, 1980. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan by the Company or any
ERISA Affiliate.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof have been timely made or
have been reflected on the most recent consolidated balance sheet included or
incorporated by reference in the Company Reports filed prior to the date hereof.
Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has
an "accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA. Neither the Company nor its
Subsidiaries has provided, or is required to provide, security to any Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
(v) Neither the Company nor its Subsidiaries have any obligations for
retiree health or life benefits under any Compensation and Benefit Plan, except
as set forth in the Company Disclosure Letter.
(vi) Except as described in Section 5.1(h)(vi) of the Company
Disclosure Letter or as provided in this Agreement, the consummation of the
Merger and the other transactions contemplated by this Agreement, either alone
or in connection with a subsequent termination of employment, will not (x)
entitle any employees of the Company or its Subsidiaries to severance pay, or
(y) accelerate the time of payment or vesting or trigger any payment of
compensation or benefits under, increase the amount payable or trigger any other
material obligation pursuant to, any of the Compensation and Benefit Plans.
(vii) All Compensation and Benefit Plans covering current or former
non-U.S. employees or former employees of the Company and its Subsidiaries
comply in all material respects with applicable Law. The Company and its
Subsidiaries have no material unfunded liabilities with respect to any employee
benefit plan that covers such non-U.S. employees.
(viii) Except as provided in Section 5.1(h)(viii) of the Company
Disclosure Letter, no amount that could be received (whether in cash, options or
property, or as a result of the vesting of cash, options or property) by any
employee, officer, director or independent contractor of the Company who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) will be treated as an "excess parachute payment"
(as such term is defined in Section 280G(b)(1) of the Code).
(ix) All Compensation and Benefit Plans that are indicated as frozen
in Section 5.1(h) of the Company Disclosure Letter have been properly amended to
freeze participation and discontinue benefit accruals and notices, if required,
were timely provided to participants.
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(i) Compliance with Laws; Permits. (i) The business and operations of
the Company, and the Company Insurance Subsidiaries, have been conducted in
compliance with all applicable domestic and foreign statutes, regulations and
rules regulating the business of insurance and all applicable orders and
directives of insurance regulatory authorities and market conduct
recommendations resulting from market conduct examinations of insurance
regulatory authorities (collectively, "Insurance Laws"), except where the
failure to so conduct such business and operations would not, individually or in
the aggregate, have a Company Material Adverse Effect. Notwithstanding the
generality of the foregoing, each Company Insurance Subsidiary has marketed,
sold and issued insurance products in compliance, in all material respects, with
Insurance Laws applicable to the business of such Company Insurance Subsidiary
in the respective jurisdictions in which such products have been sold,
including, without limitation, in compliance with all applicable prohibitions
against "redlining" or withdrawal of business lines. In addition, the Company
has no knowledge that its agents have not marketed, sold and issued insurance
products in compliance, in all material respects, with Insurance Laws applicable
to the business of the Company Insurance Subsidiaries in the respective
jurisdictions in which such products have been sold, including, without
limitation, in compliance with all applicable prohibitions against "redlining"
or withdrawal of business lines. In addition, (i) none of the Company Insurance
Subsidiaries is subject to any order or decree of any insurance regulatory
authority relating specifically to such Company Insurance Subsidiary (as opposed
to insurance companies generally); and (ii) each of the Company Insurance
Subsidiaries has filed all reports required to be filed with any insurance
regulatory authority on or before the date hereof as to which the failure to
file such reports would, individually or in the aggregate, have a Company
Material Adverse Effect.
(ii) In addition to Insurance Laws, except as set forth in the Company
Reports filed prior to the date hereof, the businesses of each of the Company
and its Subsidiaries have not been, and are not being, conducted in violation of
any federal, state, local or foreign law, statute, ordinance, rule, regulation
judgment, order, injunction, decree, arbitration award, agency requirement,
license or permit of any Governmental Entity (collectively with Insurance Laws,
"Laws"), except for violations or possible violations that would not,
individually or in the aggregate, have a Company Material Adverse Effect or
prevent or materially burden or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement or the Stock Option
Agreement. No material change is required in the Company's or any of its
Subsidiaries' processes, properties or procedures in connection with any
applicable Laws, and the Company has not received any notice or communication of
any material noncompliance with any such Laws that has not been cured as of the
date hereof. The Company and its Subsidiaries each has all permits, licenses,
trademarks, patents, trade names, copyrights, service marks, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted except
those the absence of which would not, individually or in the aggregate, have a
Company Material Adverse Effect.
(j) Takeover Statutes. The Company has taken all actions necessary such
that no restrictive provision of any "fair price," "moratorium," "control share
acquisition," "interested shareholder" or other similar anti-takeover statute or
regulation (including, without limitation, Section 203 of the DGCL) (each a
"Takeover Statute") or restrictive provision of any applicable
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anti-takeover provision in the Governing Documents of the Company is, or at the
Effective Time will be, applicable to the Company, Parent, PLC, the Common
Shares, the Tender Offer, the Merger or any other transaction contemplated by
this Agreement or the Stock Option Agreement.
(k) Environmental Matters. Except as disclosed in the Company Reports
filed prior to the date hereof and except for such matters as are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect or as set forth in Section 5.1(k) to the Company Disclosure
Letter: (i) to the knowledge of the Company, there are no liabilities of the
Company or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined or otherwise arising or relating to any
Environmental Law, and there are no facts, conditions, situations or set of
circumstances that would reasonably be expected to result in or be the basis for
any such liability; (ii) neither the Company nor any of its Subsidiaries has
received any notice, demand, letter, claim or request for information alleging
that the Company or any of its Subsidiaries may be in violation of or liable
under any Environmental Law; or (iii) neither the Company nor any of its
Subsidiaries is subject to any orders, decrees, injunctions or other written
arrangements with any Governmental Entity relating to liability under any
Environmental Law or relating to Hazardous Substances.
As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, statute, ordinance, regulation, judgment, order, decree,
arbitration award, relating to: (A) the protection, investigation or restoration
of the environment, health and safety, wildlife or natural resources, (B) the
handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, odor, wetlands, pollution or environmental
contamination.
As used herein, the term "Hazardous Substance" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law or (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint, polychlorinated biphenyls, radioactive materials or
radon.
(l) Taxes. Except as set forth in Section 5.1(l) of the Company
Disclosure Letter or except for such matters as would not, individually or in
the aggregate, have a Company Material Adverse Effect:
(i) the Company and each of its Subsidiaries have (w) filed all Tax
Returns (as defined below) that are required by all applicable Laws to be filed
by them, and such Tax Returns are correct and complete or requests for
extensions to file such Tax Returns have been properly obtained and have not
expired, (x) paid (or the Company has paid on its behalf) all Taxes shown as due
on such Tax Returns, (y) paid, or made adequate provision for the payment of,
all Taxes payable by the Company and each of its Subsidiaries, including all
estimated Taxes due, and (z) paid all other deficiencies or other claims for
Taxes received to date other than those deficiencies or claims for Taxes being
contested in good faith for which adequate provision has been made on the most
recent balance sheet included in the Company Reports;
(ii) all Taxes which the Company and its Subsidiaries are required by
Law to withhold and collect have been duly withheld and collected, and have been
paid over, in a timely manner, to the proper Taxing Authorities (as defined
below) to the extent due and payable;
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(iii) neither the Company nor any of its Subsidiaries have executed any
written waiver to extend the applicable statute of limitations in respect of any
Tax liabilities of the Company or its Subsidiaries;
(iv) neither the Company nor any of its Subsidiaries is a party to any
tax sharing agreement or arrangement, other than between or among the Company
and its Subsidiaries;
(v) all of the federal income Tax Returns filed by or on behalf of
each of the Company and its Subsidiaries have been examined by and settled with
the IRS or the statute of limitations with respect to the relevant Tax liability
has expired, for all taxable periods through and including the period ended on
December 31, 1994;
(vi) all Taxes of the Company and its Subsidiaries due with respect to
any completed audit, examination or deficiency litigation with any Taxing
Authority have been paid in full;
(vii) there is no suit, claim, dispute, audit, deficiency or refund
litigation pending with respect to Taxes of the Company or any of its
Subsidiaries (A) that has a reasonable possibility of being resolved in a manner
adverse to the Company or any of its Subsidiaries and (B) for which adequate
provision has not been made on the most recent balance sheet included in the
Company Reports;
(viii) none of the Company or any of its Subsidiaries is bound by any
currently effective private ruling, closing agreement or similar agreement with
any Taxing Authority relating to a material amount of Taxes;
(ix) none of the Company or any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f) of the Code;
(x) any liability of the Company or any of its Subsidiaries for Taxes
not yet due and payable have been provided for on the most recent balance sheet
included in the Company Reports, in accordance with GAAP; and
(xi) the Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
As used in this Agreement, (A) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") shall mean, with respect
to any Person, (a) all taxes, domestic or foreign, including without limitation
any income (net, gross or other, including recapture of any tax items such as
investment tax credits), alternative or add-on minimum tax, gross income, gross
receipts, premium, gains, sales, use, ad valorem, transfer, recording,
franchise, profits, property (real or personal, tangible or intangible), fuel,
license, withholding (whether on amounts paid to or by such Person), payroll,
employment, unemployment, social security, excise, severance, stamp, occupation,
or environmental tax, customs duties, or other assessments or governmental
charges of any kind whatsoever, together with any interest, penalties, additions
or additional amounts imposed with respect thereto (including, without
limitation, penalties for failure to file Tax Returns, or interest on such
amounts), (b) any joint or several liability of such Person with any
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other Person for the payment of any amounts of the type described in clause (a)
hereof, including as a result of being, or having been at any time, a member of
an affiliated, consolidated, combined or unitary group, and (c) any liability of
such Person for the payment in respect of any amounts of the type described in
(a) as a result of any express or implied obligation to reimburse or indemnify
any other Person, including pursuant to any tax sharing agreement or tax
indemnity arrangement; (B) the term "Tax Return(s)" shall mean all reports,
statements and returns, consolidated, combined, unitary or otherwise (including
without limitation information returns), required to be filed with any Taxing
Authority; and (C) the term "Taxing Authority" shall mean any Governmental
Entity responsible for the imposition, collection or administration of any Tax.
(m) Labor Relations and Employment. (i) Except as set forth in Section
5.1(m) of the Company Disclosure Letter or as would not have a Company Material
Adverse Effect, (a) to the best of the Company's knowledge, the Company or its
Subsidiaries are in compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours; (b) the Company or its Subsidiaries have not received written notice of
any investigation, charge or complaint against the Company or its Subsidiaries
pending before the Equal Employment Opportunity Commission, the National Labor
Relations Board, or any other governmental agency or court or other tribunal
regarding an unlawful employment practice; (c) there are no complaints, lawsuits
or other proceedings pending, or to the best of the Company's knowledge,
threatened by or on behalf of any present or former employee of the Company, or
any of its Subsidiaries alleging breach of any express or implied contract of
employment; (d) the Company or its Subsidiaries have not received notice that
any representation petition respecting the employees of the Company or its
Subsidiaries has been filed with the National Labor Relations Board; (e) the
Company or its Subsidiaries are and have been in substantial compliance with all
notice and other requirements under the Worker Adjustment and Retaining
Notification Act or similar state statute. The Company or its Subsidiaries are
not party to any collective bargaining agreement and there is no labor strike,
slowdown or stoppage actually pending or threatened against or affecting the
Company and its Subsidiaries.
(ii) The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company or any of its Subsidiaries, nor does the Company have a present
intention to terminate the employment of any of the foregoing.
(n) Intellectual Property; Year 2000.
(i) The Company and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or materials that are used in the business
of the Company and its Subsidiaries as currently conducted, except for any such
failures to own, be licensed or possess that would not, individually or in the
aggregate, have a Company Material Adverse Effect, and to the knowledge of the
Company all patents, trademarks, trade names, service marks and copyrights owned
by the Company and/or its Subsidiaries are valid and subsisting.
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(ii) All computer systems and computer software used by the Company or
any of its Subsidiaries which the Company expects to be using after December 31,
1999 (A) recognize or are being adapted so that, prior to December 31, 1999,
they shall recognize the advent of the year A.D. 2000 without any adverse change
in operation associated with such recognition, (B) can correctly recognize or
are being adapted so that they can correctly recognize and manipulate date
information relating to dates before, on or after January 1, 2000, including but
not limited to accepting date input, performing calculations on dates or portion
of dates and providing date output, and the operation and functionality of such
computer systems and such computer software will not be adversely affected by
the advent of the year A.D. 2000 or any manipulation of data featuring
information relating to dates before, on or after January 1, 2000, and (C) can
suitably interact with other computer systems and computer software in a way
that does not compromise (y) its ability to correctly recognize the advent of
the year A.D. 2000 or (z) its ability to correctly recognize and manipulate date
information relating to dates before, on or after January 1, 2000 (the
operations of clauses (A), (B) and (C) together, "Millennium Functionality"),
except in each case for such computer systems and computer software, the failure
of which to achieve Millennium Functionality would not, individually or in the
aggregate, have a Company Material Adverse Effect. As of the date hereof, the
future costs in excess of those disclosed in the Company Reports of the
adaptions necessary to achieve Millennium Functionality would not, individually
or in the aggregate, have a Company Material Adverse Effect. The Company is in
compliance with all applicable state insurance department requests for "Year
2000" filings. The Company reasonably believes, after due inquiry, that the
suppliers, vendors, customers or other material third parties used or served by
the Company and its Subsidiaries are addressing or will address Millennium
Functionality in a timely manner, except to the extent that a failure to address
Millennium Functionality by any supplier, vendor, customer or material third
party would not, individually or in the aggregate, have a Company Material
Adverse Effect.
(o) Material Contracts. Other than Contracts of the Company and its
Subsidiaries that are required to be filed and have been filed as exhibits to
the Company Reports, there are no Contracts that are material to the business,
financial position or results of operations of the Company. Each material
Contract is valid, binding and enforceable against the Company in accordance
with its terms and is in full force and effect. True and complete copies of all
such material Contracts have been delivered or have been made available by the
Company to Parent. Neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any other party is in breach of or in default under
any such Contract, and to the knowledge of the Company, no event has occurred
which, with due notice or lapse of time or both, would constitute such a breach
or default, except for such breaches, defaults and events as would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is party to any agreement
containing any provision or covenant limiting in any respect the ability of the
Company or any of its Subsidiaries or, assuming the consummation of the
transactions contemplated by this Agreement, Parent or any of its Subsidiaries,
to (i) sell any products or services of or to any other person, (ii) engage in
any line of business or (iii) compete with or to obtain products or services
from any Person or limiting the ability of any Person to provide products or
services to the Company or any of its Subsidiaries.
(p) Rights Plan. (i) The Company has taken all actions necessary such
that, for all purposes under the Rights Agreement, Parent shall not be deemed an
Acquiring Person (as
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defined in the Rights Agreement), the Distribution Date (as defined in the
Rights Agreement) shall not be deemed to occur, and the rights issuable pursuant
to the Rights Agreement (the "Rights") will not separate from the Common Shares,
as a result of Parent's entering into this Agreement, or the Stock Option
Agreement or consummating the Tender Offer, the Merger and/or the other
transactions contemplated hereby or thereby.
(ii) The Company has taken all necessary action with respect to all of
the outstanding Rights so that, as of immediately prior to the Effective Time
and immediately prior to the consummation of the Tender Offer, (A) neither the
Company nor PLC will have any obligations under the Rights or the Rights
Agreement and (B) the holders of Rights will have no rights under the Rights or
the Rights Agreement.
(q) Title to Assets; Liens. The Company and the Subsidiaries, have good
and marketable title to all of their respective premium balances receivable,
property, equipment and other assets, and such assets are free and clear of any
mortgages, liens, charges, encumbrances, or title defects of any nature
whatsoever, except for (i) such mortgages, liens, charges, encumbrances or title
defects which would not, individually or in the aggregate, have a Company
Material Adverse Effect and (ii) liens for Taxes not yet due or payable or that
are being contested in good faith. The Company and the Subsidiaries have valid
and enforceable leases for the material premises and the equipment, furniture
and fixtures purported to be leased by them.
(r) Insurance Matters. (i) Except as otherwise would not, individually
or in the aggregate, have a Company Material Adverse Effect, all policies,
binders, slips, certificates, annuity contracts and participation agreements and
other agreements of insurance, whether individual or group, in effect as of the
date hereof (including all applications, supplements, endorsements, riders and
ancillary agreements in connection therewith) that are issued by the Company
Insurance Subsidiaries (the "Company Insurance Contracts") and any and all
marketing materials, are, to the extent required under applicable Law, on forms
approved by applicable insurance regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for
objection, and such forms comply in all material respects with all Insurance
Laws applicable thereto and, as to premium rates established by the Company or
any Company Insurance Subsidiary which are required to be filed with or approved
by insurance regulatory authorities, the rates have been so filed or approved,
the premiums charged conform thereto in all material respects, and such premiums
comply in all material respects with all Insurance Laws applicable thereto.
(ii) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which the Company or any Company Insurance
Subsidiary is a party or under which the Company or any Company Insurance
Subsidiary has any existing rights, obligations or liabilities are in full force
and effect, except for such treaties or agreements the failure to be in full
force and effect of which would not, individually or in the aggregate, have a
Company Material Adverse Effect. Neither the Company nor any Company Insurance
Subsidiary, nor, to the knowledge of the Company, any other insurer or reinsurer
which is party to a reinsurance or coinsurance treaty or agreement to which the
Company or any Company Insurance Subsidiary is a party, is in default in any
material respect as to any provision thereof, and no such agreement contains any
provision providing that such other party thereto may terminate such agreement
by
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reason of the transactions contemplated by this Agreement. The Company has not
received any notice to the effect that the financial condition of any other
insurer or reinsurer which is party to any such agreement is impaired with the
result that a default thereunder may reasonably be anticipated, whether or not
such default may be cured by the operation of any offset clause in such
agreement. No insurer or reinsurer or group of affiliated insurers or reinsurers
accounted for the direction to the Company and the Company Insurance
Subsidiaries or the ceding by the Company and the Company Insurance Subsidiaries
of insurance or reinsurance business in an aggregate amount equal to five
percent or more of the consolidated gross premium income of the Company and the
Company Insurance Subsidiaries for the year ended December 31, 1998. The Company
SAP Statements accurately reflect the extent to which, pursuant to Insurance
Laws, rules and regulations, the Company is entitled to take credit for such
reinsurance.
(iii) Prior to the date hereof, the Company has delivered or made
available to Parent a true and complete copy of the actuarial reports set forth
in Section 5.1(r)(iii) of the Company Disclosure Letter (the "Company Actuarial
Analyses"). The information and data furnished by the Company or any Company
Insurance Subsidiary to its independent actuaries in connection with the
preparation of the Company Actuarial Analyses was accurate and responsive to
their requests in all material respects. Furthermore, to the knowledge of the
Company, each Company Actuarial Analysis was based upon an accurate inventory of
policies in force for the Company and the Company Insurance Subsidiaries, as the
case may be, at the relevant time of preparation. Except as set forth in Section
5.1(r)(iii) of the Company Disclosure Letter, there has not been an independent
actuarial report completed on the Company since December 31, 1996.
(iv) None of Standard & Poor's Corporation, Moody's Investors Service,
Inc. or A.M. Best Company has announced that it presently has under surveillance
or review its rating of the financial strength or claims-paying ability of any
Company Insurance Subsidiary other than normal annual reviews.
(s) Liabilities and Reserves. (i) The reserves for incurred losses,
incurred loss adjustment expenses, incurred but not reported losses and loss
adjustment expenses for incurred but not reported losses carried on the Company
SAP Statements of each Company Insurance Subsidiary were, as of the respective
dates of such Company SAP Statements, in compliance in all material respects
with the requirements for reserves established by the insurance departments of
the state of domicile of such Company Insurance Subsidiary, were determined in
all material respects in accordance with generally accepted actuarial standards
and principles consistently applied, were based on actuarial assumptions that
were in accordance with or stronger than those called for in relevant policy and
contract provisions and were fairly stated in all material respects in
accordance with sound actuarial and statutory accounting principles.
(ii) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, no claim or assessment is pending or, to the knowledge
of the Company, threatened against any Company Insurance Subsidiary which is
peculiar or unique to such Company Insurance Subsidiary by any state insurance
guaranty association in connection with such association's fund relating to
insolvent insurers which if determined adversely, would, individually or in the
aggregate, have a Company Material Adverse Effect.
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(t) Brokers and Finders. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the Tender Offer or the other transactions contemplated in this Agreement except
that the Company has employed Donaldson, Lufkin & Jenrette Securities
Corporation as its financial advisor, the arrangements with which have been
disclosed to Parent prior to the date hereof.
5.2. Representations and Warranties of Parent and Merger Subsidiary.
Parent and Merger Subsidiary each hereby represent and warrant to the Company
that:
(a) Capitalization of Merger Subsidiary. The authorized stock of Merger
Subsidiary consists of 1,000 shares of common stock, par value $.01 per share
("Merger Subsidiary Common Stock"), all of which are duly authorized, validly
issued and outstanding, fully paid and non-assessable. All of the issued and
outstanding stock of Merger Subsidiary is, and at the Effective Time will be,
owned by Parent or a wholly owned Subsidiary of Parent, and there are (i) no
other shares of stock or voting securities of Merger Subsidiary, (ii) no
securities of Merger Subsidiary convertible into or exchangeable for shares of
stock or voting securities of Merger Subsidiary and (iii) no options or other
rights to acquire from Merger Subsidiary, and no obligations of Merger
Subsidiary to issue or deliver, any stock, voting securities or securities
convertible into or exchangeable for stock or voting securities of Merger
Subsidiary, except securities that may be delivered to Parent. Merger Subsidiary
has not conducted any business prior to the date hereof and has no, and prior to
the Effective Time will have no, assets, liabilities or obligations of any
nature other than those incident to its formation and pursuant to this Agreement
and the Merger and the other transactions contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Each of Parent and
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of its jurisdiction of organization and has all
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as presently conducted and is qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership or operation of its properties or conduct of
its business requires such qualification, except where the failure to be so
qualified or in such good standing, would not, individually or in the aggregate,
have a Parent Material Adverse Effect. As used in this Agreement, the term
"Parent Material Adverse Effect" means a material adverse effect that is
reasonably likely to prevent, materially delay or materially impair the ability
of Parent or Merger Subsidiary to consummate the transactions contemplated by
this Agreement.
(c) Corporate Authority. Each of Parent and Merger Subsidiary has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and to consummate the Tender Offer and the Merger. This Agreement is a
valid and binding agreement of Parent and Merger Subsidiary, enforceable against
each of Parent and Merger Subsidiary in accordance with its terms, subject to
the Bankruptcy and Equity Exception.
(d) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) pursuant to Section 1.3, (B) under the HSR Act and the
Exchange Act, (C) required to be made
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with the NYSE or the London Stock Exchange, and (D) the filing of appropriate
documents with, and approval of, the respective Commissioners of Insurance or
similar regulatory authorities of the states set forth in Section 5.1(d) of the
Company Disclosure Letter and such notices and consents as may be required under
the antitrust notification or insurance Laws of any state or country in which
the Company, Parent or any of their respective subsidiaries is domiciled or does
business, no notices, reports or other filings are required to be made by Parent
or Merger Subsidiary with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by Parent or Merger Subsidiary
from, any Governmental Entity, in connection with the execution and delivery of
this Agreement by Parent and Merger Subsidiary and the consummation by Parent
and Merger Subsidiary of the Merger and the other transactions contemplated
hereby, except those that the failure to make or obtain would not, individually
or in the aggregate, have a Parent Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement by Parent
and Merger Subsidiary do not, and the consummation by Parent and Merger
Subsidiary of the Merger and the other transactions contemplated hereby will
not, constitute or result in (A) a breach or violation of, or a default under,
the Governing Documents of Parent and Merger Subsidiary or the comparable
governing instruments of any of its Subsidiaries, (B) a breach or violation of,
a default under, the right of cancellation, termination or acceleration by
another Person or the creation of a lien, pledge, security interest or other
encumbrance on the assets of Parent or any of its Subsidiaries (with or without
notice, lapse of time or both) pursuant to, any Contracts binding upon Parent or
any of its Subsidiaries or (C) any Law or governmental or non-governmental
permit or license to which Parent or any of its Subsidiaries is subject, except,
in the case of clause (B) or (C) above, for a breach, violation, default,
acceleration, creation or change that would not, individually or in the
aggregate, have a Parent Material Adverse Effect.
(e) Financing. Parent has, or will have prior to the Closing Date,
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to make the aggregate cash payments required to be
paid pursuant to the Tender Offer and Section 4.1 and any other amounts to be
paid by it hereunder.
(f) Share Ownership. PLC, Parent, Merger Subsidiary and their
respective Subsidiaries beneficially do not own in the aggregate more than 3.5%
of the outstanding Common Shares.
(g) Brokers or Finders. Neither Parent, PLC nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the Tender Offer or the other transactions contemplated in this Agreement except
that Parent or an affiliate of Parent has employed Salomon Smith Barney Inc. as
its financial advisor.
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ARTICLE VI.
Covenants
6.1. Interim Operations. Except as set forth in Section 6.1 of the
Company Disclosure Letter, the Company covenants and agrees as to itself and its
Subsidiaries that, after the date hereof and prior to the Effective Time (unless
Parent shall otherwise approve in writing, and except as otherwise expressly
contemplated by this Agreement or the Stock Option Agreement):
(a) its and its Subsidiaries' businesses shall be conducted
only in the ordinary and usual course (it being understood and agreed
that nothing contained herein shall permit the Company to enter into or
engage in (through acquisition, product extension or otherwise) the
business of selling any products or services materially different from
existing products or services of the Company and its Subsidiaries or to
enter into or engage in new lines of business (as such term is defined
in the National Association of Insurance Commissioner's instructions
for the preparation of the annual statement form) without Parent's
prior written approval);
(b) to the extent consistent with (a) above, it and each of
its Subsidiaries shall use its respective reasonable best efforts to
preserve its business organization intact and maintain its existing
relations and goodwill with customers, suppliers, reinsurers,
distributors, creditors, lessors, employees and business associates;
(c) it shall not (i) amend any Governing Document or amend,
modify or terminate the Rights Agreement; (ii) split, combine or
reclassify its outstanding shares of capital stock; (iii) authorize,
declare, set aside or pay any dividend payable in cash, stock or
property in respect of any capital stock other than dividends from its
wholly owned Subsidiaries and other than regular quarterly dividends
paid by the Company on its Common Shares not in excess of $0.18 per
share, with usual record and payment dates and in accordance with the
Company's past dividend policy; or (iv) repurchase, redeem or otherwise
acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any shares of its stock or any securities convertible into or
exchangeable or exercisable for any shares of its stock;
(d) neither it nor any of its Subsidiaries shall (i) issue,
sell, pledge, dispose of or encumber any shares of, or securities
convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire any
shares, of its or any Subsidiary's capital stock of any class or any
other property or assets (other than Common Shares issuable pursuant to
options outstanding on the date hereof under any of the Company Stock
Plans); (ii) other than in the ordinary and usual course of business,
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of
or encumber any other property or assets (including capital stock of
any of its Subsidiaries) or incur or modify any material indebtedness
or other liability; or (iii) except as set forth in Section 6.1(d) of
the Company Disclosure Letter, make or authorize or commit for any
capital expenditures, including entering into capital lease
obligations, other than in amounts not exceeding $1,000,000 in the
aggregate or, by any means, make any acquisition of, or
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investment in, assets or stock of any other Person or entity, including
by way of assumption reinsurance, in excess of $1,000,000 individually
or $5,000,000 in the aggregate (other than in connection with ordinary
course investment activities);
(e) neither it nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards under,
amend or otherwise modify, any Compensation and Benefit Plans including
the Stay Bonus Plan, or increase the salary, wage, bonus or other
compensation of any employees except increases occurring in the
ordinary and usual course of business (which shall include normal
periodic performance reviews and related compensation and benefit
increases) or promote any employee into any of bands 1, 2, 3 or 4, or
from one of such bands into another of such bands;
(f) neither it nor any of its Subsidiaries shall pay,
discharge, settle or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, settlement, discharge or satisfaction of
claims, liabilities or obligations legally due and payable and arising
in the ordinary and usual course of business, claims arising under the
terms of products, contracts or policies issued by the Company
Insurance Subsidiaries in the ordinary and usual course of business and
such other claims, liabilities or obligations as shall not, subject to
Section 5.1(a) of the Company Disclosure Letter, exceed $2,000,000 in
the aggregate;
(g) neither it nor any of its Subsidiaries shall make, change
or revoke any material Tax election, settle or compromise any material
Tax liability arising in any audit, change its method of accounting if
such change would have a material impact on Taxes, enter into any
closing or other agreement with respect to a material amount of Taxes,
file a request for refund of a material amount of Taxes (but not
including the prosecution of any refund claim pending on the date
hereof), or file an amended Tax Return if such Tax Return is materially
different from the original return to which it relates, except, in each
case, (i) in the ordinary course of business and consistent with the
Company's past practice in respect of the Tax at issue in the
jurisdiction in question or (ii) with the consent of Parent, such
consent not to be unreasonably withheld;
(h) neither it nor any of its Subsidiaries shall enter into
any agreement containing any provision or covenant limiting in any
material respect the ability of the Company or any Subsidiary or
affiliate to (i) sell any products or services of or to any other
Person, (ii) engage in any line of business or (iii) compete with or to
obtain products or services from any Person or limiting the ability of
any Person to provide products or services to the Company or any of its
Subsidiaries or Affiliates;
(i) neither it nor any of its Subsidiaries shall enter into
any (A) commutations or (B) new quota share or other reinsurance
transaction, in the case of clause (B), (i) which does not contain
cancellation and termination provisions reasonably customary in the
industry for that type of transaction, (ii) which, except in the
ordinary course of business, materially increases or reduces the
Company Insurance Subsidiaries' consolidated ratio of net written
premiums to gross written premiums or (iii) except as set forth in
Section 6.1(i) of the Company Disclosure Letter, pursuant to which
$5,000,000 or more
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in gross written premiums are ceded by the Company Insurance
Subsidiaries to any Person other than the Company or any of its
Subsidiaries;
(j) neither it nor any of the Company Insurance Subsidiaries
will alter or amend in any material respect their existing investment
guidelines or policies;
(k) neither it nor any of its Subsidiaries shall take any
action or omit to take any action that would cause any of its
representations and warranties herein to become untrue in any material
respect;
(l) neither it nor its Subsidiaries shall permit a material
change in any of its underwriting, investment, actuarial, financial
reporting or accounting practices or policies or in any material
assumption underlying an actuarial practice or policy, except as may be
required by any change in GAAP, statutory accounting principles or
applicable Law; and
(m) neither it nor any of its Subsidiaries will authorize or
enter into an agreement to do any of the foregoing.
6.2. Acquisition Proposals. The Company will not, and will not permit
or cause any of its Subsidiaries or any of its or its Subsidiaries officers or
directors to, and shall direct its and its Subsidiaries' Representatives (as
defined in Section 6.6(a)(i)) not to, directly or indirectly, initiate, solicit,
encourage or otherwise facilitate any inquiries or the making of any proposal or
offer with respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalilzation or similar transaction involving, or any
purchase of 15% or more of the assets or any equity securities of, the Company
or any of its Subsidiaries (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). The Company will not, and will not
permit or cause any of its Subsidiaries or any of its or its Subsidiaries
officers or directors to, and shall direct its and its Subsidiaries'
Representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly,
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any Person relating to an Acquisition
Proposal, whether made before or after the date of this Agreement, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal
(including, without limitation, by means of an amendment to the Rights
Agreement); provided, however, that nothing contained in this Agreement shall
prevent the Company or its board of directors from: (i) complying with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal
or (ii) at any time prior to the approval of the Merger by the Company Requisite
Vote (A) providing information in response to a request therefor by a Person who
has made an unsolicited bona fide written Acquisition Proposal if the board of
directors receives from the Person so requesting such information an executed
confidentiality agreement on terms substantially equivalent to those contained
in the Confidentiality Agreement (as defined in Section 9.7); (B) engaging in
any negotiations or discussions with any Person who has made an unsolicited bona
fide written Acquisition Proposal or (C) recommending such an Acquisition
Proposal to the stockholders of the Company, if and only to the extent that, in
the case of clauses (A), (B) and (C) above, (i) the board of directors of the
Company determines in good faith, after consultation with and receipt of advice
of outside legal counsel, that such action is required in order for its
directors to comply with their respective
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fiduciary duties under applicable law and (ii) the board of directors of the
Company determines in good faith (after consultation with its financial advisor)
that such Acquisition Proposal, if accepted, is reasonably likely to be
consummated, taking into account all legal, financial and regulatory aspects of
the proposal and the Person making the proposal, and would, if consummated,
result in a more favorable transaction than the transaction contemplated by this
Agreement (any such Acquisition Proposal being referred to in this Agreement as
a "Superior Proposal"). The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. The Company agrees
that it will take the necessary steps to promptly inform the individuals or
entities referred to in the first sentence hereof of the obligations undertaken
in this Section 6.2 and in the Confidentiality Agreement. The Company will
notify Parent promptly, but in any event not later than one day following
receipt, if any such inquiries, proposals or offers are received by, any such
information is requested from, or any such discussions or negotiations are
sought to be initiated or continued with, any of its Representatives indicating,
in connection with such notice, the name of such Person and the material terms
and conditions of any proposals or offers and thereafter shall keep Parent
informed, on a current basis, of the status and terms of any such proposals or
offers and the status of any such negotiations or discussions. The Company also
will promptly request each Person that has heretofore executed a confidentiality
agreement in connection with its consideration of an Acquisition Proposal to
return or dispose of all confidential information heretofore furnished to such
Person by or on behalf of it or any of its Subsidiaries in accordance with such
agreement.
6.3. Information Supplied. The Company and Parent each agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its Subsidiaries for inclusion or incorporation by reference
in (i) the Offer Documents, the Schedule 14D-1 and the Schedule 14D-9 will, at
the time of filing thereof and at the time of distribution thereof, contain any
untrue statement of material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (ii) the
Proxy Statement (as defined in Section 6.5(a)) and any amendment or supplement
thereto will, at the date of mailing to stockholders and at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
6.4. Stockholders Meeting. If the approval by the holders of Common
Shares constituting the Company Requisite Vote is required under DGCL to
consummate the Merger and is required to be given at a duly held meeting of
stockholders (the "Stockholders Meeting"), the Company will take, in accordance
with its Governing Documents, all action necessary to convene a meeting of
holders of Common Shares as promptly as practicable upon the written request of
Parent to consider and vote upon the approval of the Merger. The Company's board
of directors shall recommend approval of the Merger, shall not withdraw or
modify such recommendation and shall take all lawful action to solicit such
approval unless, in the good faith judgment of the board of directors of the
Company, after consultation with and receipt of advice of outside legal counsel,
the failure to take the foregoing actions is required under applicable law.
Without limiting the generality of the foregoing, in the event that the
Company's board of directors withdraws or modifies its recommendation, the
Company nonetheless shall, if Parent so
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requests, cause such a meeting of the stockholders to be convened and a vote
taken with respect to the Merger, as contemplated by Section 251 of the DGCL.
6.5. Filings; Other Actions; Notification. (a) In connection with the
Stockholders Meeting referred to in Section 6.4 above, the Company shall
promptly prepare and deliver to Parent a draft of a proxy statement (the "Proxy
Statement"). Thereafter, the Company and Parent shall use their reasonable best
efforts to cooperate fully to make such changes to the Proxy Statement as may be
reasonably requested by Parent or otherwise may be appropriate, file the Proxy
Statement with the SEC as soon as practicable and respond promptly to any SEC
comments. Upon filing the final, definitive Proxy Statement with the SEC, the
Company shall mail such Proxy Statement to its stockholders. Notwithstanding the
foregoing, if Merger Subsidiary obtains 90 percent or more of the Common Shares
through the Tender Offer, Merger Subsidiary shall use the short form merger
provisions of Section 253 of the DGCL.
(b) The Company and Parent shall use and shall cause their "ultimate
parent entities," (if applicable) to use, their best efforts to as promptly as
practicable file notifications under the HSR Act in connection with the Merger
(and the Tender Offer as applicable) and the transactions contemplated hereby,
including, but not limited to, the Stock Option Agreement, and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust matters.
(c) The Company and Parent shall cooperate with each other and use
(and shall cause their respective Subsidiaries to use) all reasonable efforts
(i) to cause to be done all things, necessary, proper or advisable on its part
under this Agreement and applicable Laws to consummate and make effective the
Tender Offer, the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement as soon as practicable, including
preparing and filing as promptly as practicable all documentation to effect all
necessary notices, reports and other filings, and (ii) to obtain as promptly as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in connection with, as a result of or in order to consummate
the Tender Offer, the Merger or any of the other transactions contemplated by
this Agreement or the Stock Option Agreement, provided, however, that nothing in
this Section 6.5 shall require, or be construed to require, Parent, in
connection with the receipt of any regulatory approval, to proffer to, or agree
to any conditions relating to, or changes or restriction in, the operations of
any such assets or businesses which, in either case, could, in the reasonable
judgment of the board of directors of Parent, materially and adversely impact
the economic or business benefits to PLC and its Subsidiaries of the
transactions contemplated by this Agreement or materially impair the ability of
any Parent Company (including the Company following the Effective Time), to
conduct its business in the manner as such business is now being conducted.
Parent and Merger Subsidiary shall use reasonable best efforts to cause to be
filed such statements on Form A as are required to be filed with the
Governmental Entities identified in Section 5.1(d) of the Company Disclosure
Letter by August 1, 1999. It is expressly understood by the parties hereto that
the representatives of the Company and Parent respectively shall have the right
to attend and participate in any hearing, proceeding, meeting or conference
before or with a
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Governmental Entity relating to the transactions contemplated hereby. In
furtherance of the foregoing, the Company and Parent shall provide each other
reasonable advance notice of any such hearing, proceeding, meeting or
conference. Subject to applicable Laws relating to the exchange of information,
Parent and the Company shall have the right to review in advance, and to the
extent practicable each will consult the other on, all the information relating
to Parent or the Company, as the case may be, and any of their respective
Subsidiaries, that appear in any filing made with, or written materials
submitted to any Governmental Entity in connection with the Tender Offer, the
Merger and the other transactions contemplated by this Agreement; provided that
nothing in this Section 6.5 shall require Parent to provide information
contained in its notification under the HSR Act to the Company that it
reasonably deems to be confidential. In exercising the foregoing right, each of
the Company and Parent shall act reasonably and as promptly as practicable.
(d) The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Offer Documents, the Schedule
14D-1, the Schedule 14D-9, the Proxy Statement, or any other statement, filing,
notice or application made by or on behalf of Parent, the Company or any of
their respective Subsidiaries to any third party and/or any Governmental Entity
in connection with the Tender Offer, the Merger and the other transactions
contemplated by this Agreement; provided that nothing in this Section 6.5 shall
require Parent to provide information contained in its notification under the
HSR Act to the Company that it reasonably deems to be confidential.
(e) (i) The Company and Parent each shall keep the other apprised of
the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Tender Offer, the Merger and the other transactions contemplated
by this Agreement. The Company and Parent each shall give prompt notice to the
other of any change that would have a Company Material Adverse Effect or Parent
Material Adverse Effect, respectively.
(ii) The Company and Parent each shall give prompt notice to the
other of (A) the occurrence, or nonoccurrence, of any event the occurrence, or
nonoccurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (B) any material failure of any party to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of notice
pursuant to this Section 6.5(e)(ii) shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
6.6. Access. (a) (i) Upon reasonable notice, and except as may
otherwise be required by applicable Law, the Company shall (and shall cause its
Subsidiaries to) afford Parent's directors, officers, employees, counsel,
accountants, financial advisors and other authorized agents and representatives
(collectively, "Representatives") access, during normal business hours
throughout the period prior to the earlier of the termination of this Agreement
or the Effective
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Time, to the Company's and its Subsidiaries' management, properties, books,
contracts, records and personnel (and will use commercially reasonable efforts
to provide access to its auditors (including such auditors' work papers)) and,
during such period, shall (and shall cause its Subsidiaries to) furnish promptly
to Parent all information concerning the Company's and its Subsidiaries'
business, properties and personnel as may reasonably be requested; provided,
that no investigation pursuant to this Section shall affect or be deemed to
modify any representation or warranty made by the Company and provided, further,
that the foregoing shall not require the Company to permit any inspection, or to
disclose any information, that in the reasonable judgment of the board of
directors of the Company would result in the disclosure of any trade secrets of
third parties or violate any of its obligations with respect to confidentiality
if the Company shall have used all reasonable efforts to obtain the consent of
such third party to such inspection or disclosure. All requests for information
made pursuant to this Section 6.6 (a) shall be directed to an executive officer
of the Company or such Person as may be designated by the Company's executive
officers. All such information shall be governed by the terms of the
Confidentiality Agreement.
6.7. Publicity. The initial press release relating to the transaction
contemplated by this Agreement shall be a joint press release and thereafter the
Company and Parent shall consult with each other prior to issuing any press
releases or otherwise making public announcements with respect to the Tender
Offer, the Merger and the other transactions contemplated by this Agreement and
the Stock Option Agreement and prior to making any filings with any third party
and/or any Governmental Entity (including any national securities exchange) with
respect thereto, except as may be required by Law or by obligations pursuant to
any listing agreement with or rules of any national or foreign securities
exchange.
6.8. Employee Benefits. (a) Parent agrees that those individuals who
are employed by the Company or any of its Subsidiaries immediately prior to the
Effective Time shall continue to be employees of the Surviving Corporation and
its Subsidiaries as of the Effective Time (each such employee, an "Affected
Employee"); provided, however, that this Section 6.8 shall not be construed to
limit the ability of the applicable employer to terminate the employment of any
Affected Employee at any time.
(b) From the Effective Time until December 31, 2000, Parent shall, or
shall cause the Surviving Corporation to, continue and maintain in effect all
employee benefit plans and programs of the Company and its Subsidiaries which
are listed in Section 6.8(b) of the Company Disclosure Letter, as in effect on
the date hereof or in the alternative for retirement plan purposes, a retirement
plan of Parent which provides the same or substantially similar employer
provided benefits, to the extent such continuance and maintenance is permissible
under applicable law.
(c) Effective as of January 1, 2001, or such other date as Parent
makes participation in employee benefit plans or arrangements of Parent
available to Affected Employees (the "Plan Entry Date"), Parent shall, or shall
cause the Surviving Corporation to, give Affected Employees full credit for
purposes of eligibility, vesting, benefit accrual (except to the extent giving
such credit would result in the duplication of benefits and except for benefit
accruals under any defined benefit pension plan or defined benefit supplemental
retirement plan (other than as required by law)) and determination of the level
of benefits under any such employee benefit plans or
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arrangements for such Affected Employees' service with the Company or any
Subsidiary of the Company to the same extent recognized by the Company or such
Subsidiary immediately prior to the Plan Entry Date.
(d) Effective as of the Plan Entry Date, Parent shall, or shall cause
the Surviving Corporation to, (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to the Affected Employees under any welfare
benefit plans of Parent in which such Affected Employees may be eligible to
participate, other than limitations or waiting periods that were already in
effect with respect to such Affected Employees and that had not been satisfied
as of the Plan Entry Date under any welfare plan maintained for the Affected
Employees immediately prior to the Plan Entry Date. With respect to any plan for
which the Plan Entry Date is prior to January 1, 2000, Parent shall, or shall
cause the Surviving Corporation to, provide each Affected Employee with credit
for any co-payments and deductibles paid prior to the Plan Entry Date in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such Affected Employees are eligible to participate in after
the Plan Entry Date.
(e) Parent shall cause the Surviving Corporation to honor the
obligations described in Section 6.8(e) of the Company Disclosure Letter with
respect to stay bonuses and other incentive compensation arrangements, it being
agreed that such stay bonus arrangements will provide benefits in lieu of
benefits that would otherwise have been provided under the Orion Specialty
Restructuring Retention Plan and the Security Re Retention Agreements.
(f) During calendar year 2000, Affected Employees shall be eligible to
participate in the incentive compensation programs of Parent, subject to the
eligibility conditions and other terms of such plans, with the level of such
participation being subject to the discretion of the Persons or committees
administering such plans.
6.9. Expenses. If the Merger or the Tender Offer is consummated, the
Surviving Corporation shall pay all charges and expenses, including those of the
Exchange Agent, in connection with the transactions contemplated in Article IV.
Except as otherwise provided in Section 8.5(b), whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the Tender Offer, the Merger and the other transactions contemplated by this
Agreement shall be paid by the party incurring such expense, except that
expenses incurred in connection with the printing and mailing of the Offer
Documents, the Schedule 14D-1, the Schedule 14D-9 and the Proxy Statement shall
be shared equally by Parent and the Company.
6.10. Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, Parent agrees that it will
indemnify and hold harmless each present and former director and officer of the
Company, (when acting in such capacity) determined as of the Effective Time
(each, an "Indemnified Party" and, collectively, the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal,
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administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time to the fullest extent that the Company was permitted
under Delaware Law and its Governing Documents in effect on the date hereof to
indemnify such Person (and Parent shall also advance expenses as incurred to the
fullest extent permitted under applicable Law provided the Person to whom
expenses are advanced provides a written affirmation of his or her good faith
belief that the standard of conduct necessary for indemnification has been met
and an undertaking to repay such advances if it is ultimately determined that
such Person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.11, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Surviving Corporation
and Parent thereof but the failure to so notify shall not relieve Parent of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice the indemnifying party. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) Parent or the Surviving Corporation shall have the right to
assume the defense thereof and neither Parent or Surviving Corporation shall be
liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if Parent or the Surviving
Corporation elects not to assume such defense, or if counsel for the Indemnified
Parties advises that there are issues that raise conflicts of interest between
Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that Parent and
the Surviving Corporation shall be obligated pursuant to this paragraph (b) to
pay for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate
in the defense of any such matter, and (iii) Parent and the Surviving
Corporation shall not be liable for any settlement effected without their prior
written consent; and provided, further, that neither Parent nor the Surviving
Corporation shall have any obligation hereunder to any Indemnified Party if and
when a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law.
(c) The Surviving Corporation shall continue to maintain the Company's
existing officers' and directors' liability insurance ("D&O Insurance") or D&O
Insurance that is substantially comparable to the Company's existing D&O
Insurance for a period of six years after the Effective Time so long as the
annual premium therefor is not in excess of 200% of the last annual premium paid
prior to the date hereof (such last annual premium being hereinafter referred to
as the "Current Premium"); provided, however, that if the existing D&O Insurance
or substantially comparable D&O Insurance cannot be acquired during the six-year
period for not in excess of 200% of the Current Premium, then the Company will
obtain as much D&O Insurance as can be obtained for the remainder of such period
for a premium not in excess (on an annualized basis) of 200% of the Current
Premium.
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(d) The provisions of this Section 6.11 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
6.11. Other Actions by the Company and Parent.
(a) Rights. Except as provided in Section 5.1(p) with respect to the
Merger, the Tender Offer and the other transactions contemplated by this
Agreement and the Option Agreements, the Company's board of directors shall not,
without the prior written consent of Parent, (a) amend the Rights Agreement or
(b) take any action with respect to, or make any determination under, the Rights
Agreement, including a redemption of the Rights to facilitate an Acquisition
Proposal.
(b) Takeover Statute. If any Takeover Statute is or may become
applicable to the Tender Offer, the Merger or the other transactions
contemplated by this Agreement or the Stock Option Agreement, each of Parent and
the Company and its respective board of directors shall grant such approvals and
take such actions as are necessary so that such transactions may be consummated
as promptly as practicable on the terms contemplated by this Agreement or the
Stock Option Agreement, as the case may be, or by the Tender Offer or the Merger
and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
(c) NYSE De-Listing. The Surviving Corporation shall use its best
efforts to cause the Common Shares to be delisted from the NYSE and
de-registered under the Exchange Act as soon as practicable following the
Effective Time.
ARTICLE VII.
Conditions
7.1. 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, if permissible, waiver) at or prior to the Effective Time of
each of the following conditions:
(a) Stockholder Approval. If required under the DGCL, the Merger shall
have been duly approved by holders of Common Shares constituting the Company
Requisite Vote and shall have been duly approved by the sole stockholder of
Merger Subsidiary in accordance with applicable Law.
(b) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and, other than the applicable filing provided for in Section 1.3,
all notices, reports and other filings required to be made prior to the
Effective Time by the Company or Parent or any of their respective Subsidiaries
with, and all consents, registrations, approvals, permits and authorizations
required to be obtained prior to the Effective Time by the Company or Parent or
any of their respective Subsidiaries from, any Governmental Entity
(collectively, "Governmental Consents"), including, but not limited to, the
consent of those insurance commissioners, directors or superintendents of the
state insurance departments set forth on Section 5.1(d) of the Company
Disclosure Letter, in connection with the
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execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby shall have been made or obtained (as
the case may be) and shall be in full force and effect.
(c) Legal Prohibition. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger
(collectively, an "Order").
(d) Purchase of Shares Pursuant to Tender Offer. Merger Subsidiary
shall have purchased Common Shares pursuant to the Tender Offer; provided that
the purchase of Common Shares pursuant to the Tender Offer shall not be a
condition to the obligations of Parent and Merger Subsidiary hereunder if Merger
Subsidiary shall fail to accept for payment and pay for Common Shares pursuant
to the Tender Offer in violation of the terms thereof or of this Agreement.
ARTICLE VIII.
Termination
8.1. Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company referred to in
Section 7.1 (a), by mutual written consent of the Company and Parent by action
of their respective boards of directors.
8.2. Termination by Either Parent or the Company. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned (i) by
action of the board of directors of Parent or the Company if (x) the Tender
Offer shall have expired or been terminated in accordance with its terms without
any Common Shares being purchased pursuant thereto or (y) Merger Subsidiary
shall not have accepted for payment any Common Shares pursuant to the Tender
Offer by December 31, 1999 (the "Termination Date") or (ii) by action of the
board of directors of either Parent or the Company if any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the Tender Offer
or the Merger shall become final and non-appealable (whether before or after the
approval by the stockholders of the Company); provided, that (A) the right to
terminate this Agreement pursuant to clause (i) above shall not be available to
any party that has breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the
occurrence of the failure of the Tender Offer to be consummated and (B) the
Company shall not receive a termination fee pursuant to Section 8.5(e) of this
Agreement even if otherwise payable pursuant to the terms thereof, if it
exercises its right to terminate this Agreement pursuant to clause (i)(y) above
on or prior to February 29, 2000.
8.3. Termination by the Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the consummation of the Tender
Offer, by action of the board of directors of the Company:
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(a) if (i) the board of directors of the Company authorizes the
Company, subject to complying with the terms of this Agreement, to enter into a
binding written agreement concerning a transaction that constitutes a Superior
Proposal and the Company notifies Parent in writing that it intends to enter
into such an agreement, (ii) Parent does not make, prior to five business days
after receipt of the Company's written notification of its intention to enter
into a binding agreement for a Superior Proposal (the "Alternative Transaction
Notice") an offer that the board of directors of the Company determines, in good
faith after consultation with the Company Financial Advisor, is at least as
favorable, as the Superior Proposal, and (iii) the Company pays all amounts
required to be paid pursuant to Section 8.5. The Company agrees and acknowledges
(x) that it cannot terminate this Agreement pursuant to this Section 8.3(a) in
order to enter into a binding agreement referred to in clause (ii) above until
five business days after Parent's receipt of the Alternative Transaction Notice
and until the payment required by Section 8.5 has been received by Parent, and
(y) to notify Parent promptly if its intention to enter into a written agreement
referred to in its Alternative Transaction Notice shall change at any time after
giving such notification; or
(b) if there has been a material breach by Parent or Merger Subsidiary
of any representation, warranty, covenant or agreement contained in this
Agreement that is not curable or, if curable, is not cured within 20 days after
written notice of such breach is given by the Company to the party committing
such breach.
8.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
board of directors of Parent if (a) the Company enters into a binding agreement
for, or recommends, a Superior Proposal or the board of directors of the Company
shall have withdrawn or adversely modified its approval or recommendation of
this Agreement or, after the mailing of the Proxy Statement or the Offer
Documents, failed to reconfirm its recommendation of this Agreement within ten
business days after a reasonable written request by Parent to do so or the
Company redeems any rights under, or modifies or agrees to modify, the Rights
Agreement (or any replacement thereof), in order to facilitate any Acquisition
Proposal with any Person (other than PLC or any Subsidiary of PLC), or (b) prior
to consummation of the Tender Offer there has been a material breach by the
Company of any representation, warranty, covenant or agreement contained in this
Agreement that is not curable or, if curable, is not cured within 20 days after
written notice of such breach is given by Parent to the party committing such
breach.
8.5. Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article VIII, this Agreement (other than as set
forth in Section 9.1) shall become void and of no effect with no liability
(other than the liabilities arising under the provisions, including this Section
8.5, set forth in Section 9.1) on the part of any party hereto (or of any of its
Representatives); provided, however, except as otherwise provided herein, no
such termination shall relieve any party hereto of any liability or damages
resulting from any willful breach of this Agreement.
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(b) In the event that this Agreement is terminated (i) by the Company
pursuant to Section 8.3(a), or (ii) by Parent pursuant to Section 8.4(a), then
the Company shall, not later than immediately prior to the time of such
termination or not later than immediately prior to the time of entering into an
agreement concerning a transaction that constitutes an Acquisition Proposal, pay
Parent a termination fee of $45,000,000 plus an amount equal to Parent's
out-of-pocket charges and expenses incurred in connection with the transactions
contemplated by this Agreement up to a maximum of $5,000,000 ("Expenses"). In
every case, such payments shall be made by wire transfer of same day funds. In
order to facilitate the timely making of the foregoing payments, in the event
that Parent elects to terminate this Agreement, Parent shall notify the Company
thereof not later than 10:00 A.M. (New York City time) on the business day
immediately preceding the date of such termination. In the event that Parent
fails to provide such advance notice of its election to terminate this
Agreement, the foregoing payments shall be made not later than 12:00 P.M. (New
York City time) on the business day immediately following the date of such
termination. The Company acknowledges that the agreements contained in this
Section 8.5(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Merger Subsidiary
would not have entered into this Agreement. If in order to obtain such payments,
Parent or Merger Subsidiary commences a suit that results in a judgment against
the Company for the amounts set forth in this paragraph (b) or paragraph 8.5(c),
the Company shall pay to Parent or Merger Subsidiary its costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
from the date of termination of this Agreement on the amounts owed at the prime
rate of The Chase Manhattan Bank, in effect from time to time during such period
plus two percent.
(c) In the event that this Agreement is terminated by the Company or
Parent pursuant to Section 8.2(i)(x) (provided that (1) on the date of
expiration or termination of the Tender Offer the Minimum Tender Condition has
not been satisfied and (2)(x) at least 5 business days prior to such date, it
shall have been publicly disclosed that the conditions to the Tender Offer set
forth in paragraphs (a)(ii), (a)(iii), (a)(iv) and (b)(i) of Annex I have been
satisfied or on such date any of such conditions shall not have been satisfied
as a result of a material breach of this Agreement by the Company or (y) on such
date, the condition to the Tender Offer set forth in paragraph (b)(iii) of Annex
I has not been satisfied), in circumstances where within 9 months after the
termination of this Agreement the Company enters into a definitive agreement in
respect of, or approves or recommends an Acquisition Proposal or redeems any
rights under, or modifies or agrees to modify, the Rights Agreement (or any
replacement thereof), in order to facilitate any Acquisition Proposal with any
Person (other than PLC or any Subsidiary of PLC), then the Company shall make
payment to Parent by wire transfer of immediately available funds a fee in the
amount of $45,000,000 plus the Expenses of Parent, payable upon the earlier of
the time of entering into such agreement or consummation of an Acquisition
Proposal.
(d) In the event that this Agreement is terminated by the Company or
Parent pursuant to Section 8.2(i)(y) (provided that (i) on the date of
expiration or termination there is no condition to the Tender Offer which has
failed to be satisfied as a result of a material breach of this Agreement by
Parent or Merger Subsidiary and (2) prior to such termination an Acquisition
Proposal with respect to the Company shall have been publicly announced or
otherwise became public) in circumstances where within 9 months after the
termination of this Agreement the Company enters into a definitive agreement in
respect of, or approves or recommends an
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Acquisition Proposal or redeems any rights under, or modifies or agrees to
modify, the Rights Agreement (or any replacement thereof), in order to
facilitate any Acquisition Proposal with any person (other than Parent or any
Subsidiary of Parent), then the Company shall make payment to Parent by wire
transfer of immediately available funds a fee in the amount of $45,000,000 plus
the Expenses of Parent, payable upon the earlier of the time of entering into
such agreement or consummation of an Acquisition Proposal
(e) In the event that (i) this Agreement is terminated (x) by the
Company and Parent pursuant to Section 8.1, (y) by the Company or Parent
pursuant to Section 8.2(i)(y) (other than a termination resulting from a breach
of this Agreement by the Company) or Section 8.2(ii) or (z) by the Company
pursuant to Section 8.3(b) and (ii) as of the date of Termination, a Change in
Control of PLC shall have occurred, then Parent shall promptly, but in no event
later than two business days after the Company shall have requested payment
pursuant to this Section 8.5(e), pay the Company a termination fee of
$45,000,000. "Change in Control of PLC" shall mean, (i) offers for the entire
issued ordinary share capital of PLC in accordance with the requirements of the
United Kingdom Code on Takeovers and Mergers which (x) have been recommended by
the board of directors of PLC, (y) have been publicly announced by the offeror
to have become unconditional as to acceptances or (z) where the offeror has
publicly announced that acceptances have been received and not withdrawn by
Shareholders representing 50 percent of the issued ordinary share capital of
PLC; (ii) the conveyance, transfer or lease by Parent of all or substantially
all of its assets to any Person or (iii) PLC has entered into a binding written
agreement providing for any of the foregoing.
ARTICLE IX.
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the Company,
Parent and Merger Subsidiary contained in Sections 6.8 (Employee Benefits) and
6.10 (Indemnification; Directors' and Officers' Insurance) shall survive the
consummation of the Merger. This Article IX, the agreements of the Company,
Parent and Merger Subsidiary contained in Section 6.6 (Access), insofar as it
relates to the Company's and Parent's respective confidentiality obligations,
Section 6.9 (Expenses) and Section 8.5 (Effect of Termination and Abandonment)
shall survive the termination of this Agreement. All other representations,
warranties, covenants and agreements in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
9.2. Modification or Amendment. Subject to the provisions of applicable
Law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable Law. Any 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
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Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. Governing Law; Consent to Jurisdiction. (a) This Agreement shall
be deemed to be made in and in all respects shall be interpreted, construed and
governed by and in accordance with the laws of the State of Delaware without
regard to the conflict of law principles thereof.
(b) The Company, Parent and Merger Subsidiary each agrees that, in
connection with any legal suit or proceeding arising with respect to this
Agreement, it shall submit to the jurisdiction of the United States District
Court for the District of Delaware and agrees to venue in such courts. The
Company and Merger Subsidiary each hereby appoints the secretary of the Company
and Merger Subsidiary, respectively, as its agent for service of process for
purposes of the foregoing sentence only.
9.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and shall be
deemed delivered (i) on the date personally delivered, (ii) one business day
after the date delivered by facsimile transmission with a confirmation copy sent
by overnight courier or first-class mail, or (iii) three business days after the
date sent by registered or certified mail, postage prepaid:
if to Parent or Merger Subsidiary:
Royal Group Inc.
9300 Arrowpoint Blvd
Charlotte, North Carolina 28273-8135
Attention: Joyce W. Wheeler
Fax: (704) 522-3111
Phone: (704) 522-2739
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Christopher E. Manno
Fax: (212) 728-8111
Phone: (212) 728-8000
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if to the Company:
Orion Capital Corporation
9 Farm Springs Road
Farmington, Connecticut 06032
Attention: Corporate Secretary
Fax: (860) 674-6670
Phone: (860) 674-6904
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers
Fax: (212) 735-2000
Phone: (212) 735-3780
or to such other persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
9.7. Entire Agreement; No Other Representations. This Agreement
(including any exhibits and annexes hereto), the Company Disclosure Letter, the
Stock Option Agreement and the Confidentiality Agreement between Parent and the
Company dated June 18, 1999 (the "Confidentiality Agreement"), constitute the
entire agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof.
9.8. No Third Party Beneficiaries. Except as provided in Section 6.10
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and
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the application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
9.11. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section, Exhibit or Annex, such
reference shall be to a Section of or Exhibit or Annex to this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such term. References to a
person are also to its permitted successors and assigns. For purposes of this
Agreement, the words "the knowledge of the Company" or words of similar import
means the knowledge of any executive officer or any band 1 or band 2 employee of
the Company.
9.12. Assignment. This Agreement shall not be assignable by any party
hereto by operation of Law or otherwise, without the prior written consent of
the other parties; provided, however, that Parent may designate, by written
notice to the Company, another wholly owned direct or indirect Subsidiary of PLC
to be a Constituent Corporation in lieu of Merger Subsidiary, in which event all
references herein to Merger Subsidiary shall be deemed references to such other
Subsidiary. 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.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto as of the date first
written above.
ORION CAPITAL CORPORATION
By: /s/ W. Marston Becker
-------------------------------
Name: W. Marston Becker
Title: Chairman and CEO
ROYAL GROUP INC.
By: /s/ Terry Broderick
-------------------------------
Name: Terry Broderick
Title: President U.S. Operations
NTG ACQUISITION CORP.
By: /s/ Joyce Wheeler
-------------------------------
Name: Joyce Wheeler
Title: General Counsel
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ANNEX I
CERTAIN CONDITIONS OF THE TENDER OFFER. The capitalized terms used in
this Annex I have the meanings set forth in the attached Agreement.
Notwithstanding any other provision of the Tender Offer, Merger Subsidiary shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating
to Merger Subsidiary's obligation to pay for or return tendered Common Shares
promptly after termination or withdrawal of the Tender Offer), pay for, or may
delay the acceptance for payment of or, subject to the above restriction,
payment for, any tendered Common Shares, or may, in its sole discretion,
terminate or amend the Tender Offer as to any Common Shares not then paid for if
(a) prior to the Expiration Date (i) there shall not have been tendered and not
withdrawn at least that number of Common Shares that would represent at least a
majority of all outstanding Common Shares on the date of purchase (excluding for
all purposes in calculating such majority any outstanding Common Shares owned by
Parent or Merger Subsidiary pursuant to the exercise of Parent's rights under
the Stock Option Agreement) (the "Minimum Tender Condition"), (ii) any waiting
period applicable to the consummation of the Tender Offer and the Merger under
the HSR Act shall not have expired or been terminated, (iii) other than the
filing provided for in Section 1.3 of the Agreement, any notices, reports and
other filings required to be made prior to the Effective Time by the Company or
PLC or any of their respective Subsidiaries with, and any consents,
registrations, approvals, permits and authorizations required to be obtained
prior to the Effective Time by the Company or Parent or any of their respective
Subsidiaries from, any Governmental Entity, including but not limited to the
consent of those insurance commissioners, directors or superintendents of the
state insurance departments set forth in Section 5.1(d) of the Company
Disclosure Letter, in connection with the execution and delivery of the
Agreement and the consummation of the Tender Offer and the Merger and the other
transactions contemplated by the Agreement shall not have been made or obtained
(as the case may be) and shall not be in full force and effect, or (iv) the
Company shall not have obtained the consent or approval of each Person whose
consent or approval is set forth in Section I or Section 5.1(d) of the Company
Disclosure Letter or which shall be required under any Contract to which the
Company or any of its Subsidiaries is a party, except those for which the
failure to obtain such consents or approvals would not, individually or in the
aggregate, have a Company Material Adverse Effect or is not, individually or in
the aggregate, reasonably likely to prevent or materially burden or materially
impair the ability of the Company to consummate the transactions contemplated by
this Agreement; or any such consent or approval, or any Governmental Consent,
imposes any condition or conditions relating to, or requires changes or
restrictions in, the operations of any asset or businesses of the Company, PLC
or their respective Subsidiaries which could, in the reasonable judgment of the
board of directors of Parent, individually or in the aggregate, materially and
adversely impact the economic or business benefits to PLC and its Subsidiaries
of the transactions contemplated by the Agreement or materially impair the
ability of any Parent Company (including the Company following the Effective
Time) to conduct its business in the manner as such business is now being
conducted; or (b) at or before the time of payment for any of such Common Shares
(whether or not any Common Shares have theretofore been accepted for payment),
any of the following events shall occur:
(i) any court or Governmental Entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any Law, statute,
ordinance, rule, regulation,
-45-
<PAGE>
judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and restrains, enjoins or
otherwise prohibits consummation of the Tender Offer or the Merger, or
which makes the acceptance for payment of, or payment for, any Common
Shares in the Tender Offer illegal;
(ii) the representations and warranties of the Company set forth in the
Agreement shall not be true and correct both when made and at and as of
the Expiration Date as though made on and as of the Expiration Date
(except to the extent any such representation or warranty expressly speaks
as of an earlier date) except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
qualifications in the representations and warranties as to "Company
Material Adverse Effect," "material" or similar qualifications set forth
in the Agreement) would not have, individually or in the aggregate, a
Company Material Adverse Effect, or Parent shall not have received a
certificate on the Expiration Date signed on behalf of the Company by an
executive officer of the Company to such effect;
(iii) the Company shall not have performed in all material respects all
obligations required to be performed by it under the Agreement at or prior
to the Expiration Date; or
(iv) there shall have occurred a change, event or circumstance that has
had, or would reasonably be expected to have, a Company Material Adverse
Effect; or
(v) the Agreement shall have been terminated in accordance with its
terms prior to the Expiration Date; or Parent, Merger Subsidiary and the
Company shall have otherwise agreed that Merger Subsidiary may amend,
terminate or withdraw the Tender Offer;
The foregoing conditions are for the sole benefit of Parent and Merger
Subsidiary and may be asserted by Parent or Merger Subsidiary regardless of the
circumstances (including any action or inaction by Parent or Merger Subsidiary)
giving rise to such condition or may be waived by Parent or Merger Subsidiary,
by express and specific action to that effect, in whole or in part at any time
and from time to time in their sole discretion. Any determination by Parent and
Merger Subsidiary concerning any event described in this Annex I shall be final
and binding upon all holders of Common Shares. The failure by Merger Subsidiary
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to particular facts
and other circumstances shall not be deemed a waiver with respect to any other
facts and circumstances, and each such right shall be deemed an ongoing right
that may be asserted at any time and from time to time.
-46-
<PAGE>
ANNEX II
INDEX OF DEFINED TERMS
Section
Term Containing Definition
- ---- ---------------------
Acquisition Proposal.................................... 6.2
Affected Employee....................................... 6.8(a)
Agreement............................................... 1st Paragraph
Alternative Transaction Notice.......................... 8.3(a)
Audit Date.............................................. 5.1(e)(i)
Bankruptcy and Equity Exception......................... 5.1(c)(i)
By-Laws................................................. 2.2
Certificates............................................ 4.4(b)
Certificate of Merger................................... 1.3
Change in Control of Parent ............................ 8.5(e)
Charter................................................. 2.1
Closing................................................. 1.2
Closing Date............................................ 1.2
Code.................................................... 5.1(h)(ii)
Common Shares........................................... 3rd Recital
Company................................................. 1st Paragraph
Company Actuarial Analyses.............................. 5.1(r)(iii)
Company Disclosure Letter............................... 5.1
Company Financial Advisor............................... 1.5(c)
Company Insurance Contracts............................. 5.1(r)(i)
Company Insurance Subsidiaries.......................... 5.1(a)
Company Material Adverse Effect......................... 5.1(a)
Company Option.......................................... 4.3(a)
Company Prepared SAP Statements......................... 5.1(e)(ii)
Company Reports......................................... 5.1(e)(i)
Company Requisite Vote.................................. 5.1(c)(i)
Company SAP Statements.................................. 5.1(e)(ii)
Company Stock Plans..................................... 5.1(b)
Compensation and Benefit Plans.......................... 5.1(h)(i)
Confidentiality Agreement............................... 9.7
Constituent Corporations................................ 1st Paragraph
Contract................................................ 5.1(d)(ii)
Costs................................................... 6.10(a)
Current Premium......................................... 6.10(c)
D&O Insurance........................................... 6.10(c)
DGCL.................................................... 1.1
Dissenting Shares....................................... 4.2
Dissenting Stockholder.................................. 4.2
Effective Time.......................................... 1.3
47
<PAGE>
Section
Term Containing Definition
- ---- ---------------------
Environmental Law....................................... 5.1(k)
ERISA................................................... 5.1(h)(ii)
ERISA Affiliate......................................... 5.1(h)(iii)
Exchange Act............................................ 1.4
Exchange Agent.......................................... 4.4(a)
Exchange Fund........................................... 4.4(a)
Excluded Shares......................................... 4.1(b)
Exercise Price.......................................... 4.3(a)
Expenses................................................ 8.5(b)
Expiration Date......................................... 1.5(b)
GAAP.................................................... 5.1(e)(i)
Governing Documents..................................... 5.1(a)
Governmental Consents................................... 7.1(b)
Governmental Entity..................................... 5.1(d)(i)
Hazardous Substance..................................... 5.1(k)
HSR Act................................................. 5.1(d)(i)
Indemnified Parties..................................... 6.10(a)
Insurance Laws.......................................... 5.1(i)(i)
IRS..................................................... 5.1(h)(ii)
Laws.................................................... 5.1(i)(ii)
Merger.................................................. 2nd Recital
Merger Consideration.................................... 4.1(c)
Merger Subsidiary....................................... 1st Paragraph
Merger Subsidiary Common Stock.......................... 5.2(a)
Millennium Functionality................................ 5.1(n)(ii)
Minimum Tender Condition................................ Annex I
NYSE.................................................... 5.1(d)(i)
Offer Documents......................................... 1.4
Order................................................... 7.1(c)
Parent.................................................. 1st Paragraph
Parent Companies........................................ 4.1(b)
Parent Material Adverse Effect.......................... 5.2(b)
Pension Plan............................................ 5.1(h)(ii)
Per Share Purchase Price................................ 4.1(c)
Performance Unit........................................ 4.3(c)
Person.................................................. 5.1(b)
Plan Entry Date......................................... 6.8(c)
PLC..................................................... 1st Recital
Proxy Statement......................................... 6.5
Representatives......................................... 6.6(a)(i)
Restricted Stock........................................ 4.3(b)
Rights.................................................. 5.1(p)
Rights Agreement........................................ 5.1(b)
48
<PAGE>
Section
Term Containing Definition
- ---- ---------------------
SAP..................................................... 5.1(e)(ii)
Schedule 14D-1.......................................... 1.5(a)
Schedule 14D-9.......................................... 1.5(d)
SEC..................................................... 1.5(a)
Secretary............................................... 1.3
Securities Act.......................................... 5.1(e)(i)
Stock Option Agreement.................................. 3rd Recital
Stockholders Meeting.................................... 6.4
Subsidiary.............................................. 5.1(a)
Superior Proposal....................................... 6.2
Surviving Corporation................................... 1.1
Takeover Statute........................................ 5.1(j)
Tax..................................................... 5.1(l)
Tax Return.............................................. 5.1(l)
Taxing Authority........................................ 5.1(l)
Tender Offer............................................ 1.4
Termination Date........................................ 8.2
49
<PAGE>
EXHIBIT B
---------
Officers
- --------
Terry Broderick - President
Marston Becker - Vice President
Joseph Fisher - Chief Financial Officer
Joyce Wheeler - Secretary
Michael Pautler - Treasurer
50
<PAGE>
EXHIBIT 2
DIRECTORS' COMPENSATION
NON-EMPLOYEE DIRECTORS
ARE PAID A $20,000 ANNUAL
RETAINER FEE AND A $1,200
PER MEETING ATTENDANCE FEE.
Fees: During 1998 each director who was not an employee of the Company received
a retainer fee of $20,000. The Chairman of the Audit Committee, the Compensation
Committee and the Investment Committee of the Board each received an additional
fee of $10,000.
During 1998 each non-employee director received an attendance fee of $1,200 for
each meeting of the Board and each meeting of a committee he or she attended. A
fee of only $400 was paid for a committee meeting held on the same day as a
meeting of the Board. Those amounts will be adjusted to $1,500 and $600,
respectively, as of May 25, 1999. The Company reimburses all directors and
officers for travel, lodging and related expenses which they incur in attending
directors' and committee meetings but Company employees who serve as directors
do not receive either retainer or attendance fees.
The Company's By-Laws provide that meetings of the Board can be held by
teleconference and on occasion individual directors participate by telephone in
meetings of the Board. In recognition of the added value of personal attendance
during Board deliberations, the Board has deter-
1
<PAGE>
mined that beginning in June, 1999, the meeting fees for a Board meeting in
which a director participates by telephone will be reduced by one-third.
GUARANTY NATIONAL
CORPORATION PAYMENTS.
On January 2, 1998, three individuals who then were, but no longer are,
directors of the Company, in appreciation for their years of service to Guaranty
National Corporation and the Company were given, with taxes paid, 100 shares of
the Company's Common Stock. On that date, the market price of the Common Stock
was $45.875 per share. Guaranty National Corporation was a majority-owned
subsidiary of the Company until it became by merger a wholly-owned subsidiary of
the Company in December 1997.
DIRECTORS' BENEFIT PLANS
THE DIRECTORS' RETIREMENT
PLAN HAS BEEN TERMINATED.
Retirement Plan. As previously reported, as of December 31, 1997, the Company's
pension plan for the non-employee directors of the Company was terminated, and
in January 1998 vested benefits were paid out in cash (or credited to the
Deferred Compensation Plan) to the following persons who were directors at the
time.
DIRECTOR BENEFIT PAYMENT
-------- ---------------
Bertram Cohn* ... $ 83,715
John Colman ..... 83,715 (Deferred)
Robert Jeffrey .. 83,715 (Deferred)
Warren Lyons .... 42,725
James McWilliams 83,715
Ronald Moore .... 51,030 (Deferred)
William Shepherd* 83,715
John Thorne* .... 83,715 (Deferred)
----------
Total ..... $ 596,045
* Resigned pursuant to the Company's By-Laws, effective as of the 1998 Annual
Meeting of Shareholders.
In addition, two directors who had not vested in their benefits under the terms
of the plan prior to its termination (Ms. Fash and Mr. Cheesbrough) were each
granted 200 shares of Common Stock on January 2, 1998 by the Compensation
Committee to cover the loss of these benefits. The market price on the date of
grant was $45.875 per share.
EACH DIRECTOR MAY DEFER
ALL OR PART OF HIS OR
2
<PAGE>
HER FEES UNDER THE
DEFERRED COMPENSATION PLAN.
Deferred Compensation Plan. Under the Company's Deferred Compensation Plan (the
"Deferred Plan"), non-employee directors may elect to defer receipt of all or a
portion of fees to be earned in the next succeeding year and have such fees
accrue either (i) at the interest rate determined by the Compensation Committee
(currently 9% compounded quarterly) or (ii) as units equivalent to shares of the
Company's Common Stock to which additional amounts equivalent to dividends paid
on such shares are credited quarterly. A participating non-employee director
will receive all amounts deferred and accrued under the Deferred Plan, either in
one payment or as ten (10) equal annual installments, starting in the first
month of the year following the year in which the participant ceases to be a
director.
EACH DIRECTOR RECEIVES AN
OPTION FOR 5,000 SHARES UPON
HIS OR HER INITIAL ELECTION
AS A DIRECTOR AND AN OPTION FOR
2,000 SHARES AT EACH ANNUAL
MEETING DATE THEREAFTER.
Non-Employee Director Stock Option Plan. The 1994 Stock Option Plan for
Non-Employee Directors, as amended, was approved by the stockholders of the
Company on May 31, 1995 and May 29, 1997 (as amended, the "Option Plan"). Under
the Option Plan, each member of the Board who is not an employee of the Company
or any subsidiary of the Company is eligible to participate. The Option Plan is
administered by the Compensation Committee. Options granted under the Option
Plan are nonstatutory options and have no income tax consequences until
exercised.
Upon first being elected to the Board a non-employee director is granted an
initial option to purchase 5,000 shares. Thereafter, each year, an option to
purchase 2,000 shares is granted to each director who is re-elected, immediately
following the Company's Annual Meeting. Each option granted under the Option
Plan expires ten (10) years from the date of grant. The option exercise price
per share may not be less than 100% of the fair market value per share on the
day the option is granted. Options granted immediately following an Annual
Meeting vest fully and become exercisable and non- forfeitable on the day of the
next Annual Meeting, if the optionee has continued to serve as a director until
that meeting. Options granted other than immediately following an Annual Meeting
vest fully and become exercisable and non-forfeitable on the first anniversary
of the date on which such option is granted, if the director has continued to
serve as such until that date.
3
<PAGE>
EXECUTIVE COMPENSATION
The Summary Compensation Table shows information concerning the annual
and long-term compensation for services in all capacities to the Company
for the years ended December 31, 1998, 1997 and 1996 of those persons who
were on December 31, 1998 (1) the chief executive officer and (2) the other
four most highly compensated executive officers of the Company who were
serving as executive officers at the end of 1998. (The chief executive
officer and the other four most highly compensated executive officers are
referred to collectively as the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL
COMPENSATION AWARDS PAYOUTS
---------------------- --------------------- ------------
RESTRICT- STOCK LONG-TERM
ED STOCK OPTIONS INCENTIVE ALL OTHER
AWARD(S) (SHARES) PAYOUTS COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY $ BONUS $ $(1) (1)(2) $(3) TION $(4)
- --------------------------------- ---- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Marston Becker ................ 1998 $409,277 $425,000 -0- 50,632 $133,913 $ 65,495
Chairman of the Board 1997 401,180 500,000 -0- 40,000 85,903 75,092
and Chief Executive 1996 282,746 250,000 -0- 70,000 32,953 53,407
Officer
James R. Pouliot ................. 1998 $308,073 $165,000 -0- 13,880 $ 23,372 $ 70,894
Executive Vice President of the 1997 300,000 190,000 -0- 64,215 22,049 56,466
Company and Chairman, President
and Chief Executive Officer
of Guaranty National Corporation
Raymond W. Jacobsen .............. 1998 $256,974 $150,000 -0- 12,672 $102,015 $ 37,651
Executive Vice President 1997 237,662 190,000 -0- 8,032 95,563 43,201
of the Company and President of 1996 226,584 140,000 -0- 15,436 69,053 41,532
EBI Companies
Okarma, Thomas, M................. 1998 $211,149 $110,000 -0- 9,232 $ 16,825 $ 31,442
Senior Vice President 1997 201,558 110,000 -0- 6,748 14,757 39,569
1996 155,000 70,000 -0- 10,336 -0- 20,840
Raymond J. Schuyler............... 1998 $214,854 $105,000 -0- 9,680 $ 33,994 $ 36,305
Senior Vice President and 1997 207,661 150,000 -0- 7,020 43,485 45,727
Chief Investment Officer 1996 197,738 122,000 -0- 13,422 26,846 44,675
</TABLE>
- ---------------
(1) Prior to 1997, awards of Restricted Stock or Options had been made in
tandem with awards of Performance Units pursuant to the terms of the
Performance Incentive Plans. The value of a Performance Unit under the
Performance Incentive Plans will be equal at any time to the book
value per share of the Company's Common Stock. However, the right of
any Named Officer to receive payment in respect of a Performance Unit
award is contingent upon (a) whether the Named Officer remains an
employee of the Company (except in the case of retirement, disability
or death) throughout the applicable period ("Performance Period"), and
4
<PAGE>
(b) whether the applicable target ("Performance Target"), as
established at the time of award by the Compensation Committee, has
been achieved. Prior to September 1996, the Performance Period was a
five-year period from the date of the award and after September 1996,
the Performance Period generally is four (4) years. The Compensation
Committee has determined that all Performance Units awarded to date
will have a Performance Target of an 11% compound annual increase in
the Company's book value per share during each year of the Performance
Period to achieve the 100% payout. If the Company's book value
increases at less than an 11% compound annual rate, but more than a 6%
rate, the percent of payout is reduced proportionately. If the
compound annual increase in the Company's book value per share during
the Performance Period does not exceed 6%, no payout is made. If a
Change in Control of the Company (as defined in the Performance
Incentive Plans) were to occur before the Performance Units are fully
vested, all such Units would become immediately vested and the
Compensation Committee could, in its sole discretion, declare the
Performance Units immediately payable in such amounts as the Committee
might determine. The Compensation Committee elected not to award any
Performance Units to any executive officers of the Company in 1997 and
1998.
The Named Officers received the following Performance Unit awards over the
past three years:
NUMBER OF
PERFORMANCE
UNITS
-----
NAME DATE OF AWARD AWARDED
- ---- ------------- -------
W. Marston Becker ............ Fiscal 1998 0
Fiscal 1997 0
March 7, 1996 5,000
James R. Pouliot ............. Fiscal 1998 0
Fiscal 1997 0
December 17, 1996 3,552
Raymond W. Jacobsen .......... Fiscal 1998 0
Fiscal 1997 0
September 11, 1996 1,906
Thomas M. Okarma ............. Fiscal 1998 0
Fiscal 1997 0
September 11, 1996 1,276
Raymond J. Schuyler .......... Fiscal 1998 0
Fiscal 1997 0
September 11, 1996 1,658
(2) Options awarded to the Named Officers are granted pursuant to the terms of
the Performance Incentive Plans. To the maximum possible extent, all stock
options have been structured to qualify as incentive stock options. No
Option may be exercised more than ten (10) years from the date of grant,
and in most circumstances the exercise price may not be less than 100% of
the fair market value of the shares covered thereby on the date of grant.
When an Option is exercised, the full exercise price must be paid in cash
and/or by the surrender, at fair market value, of shares of the Company's
Common Stock. Generally, each Option becomes exercisable in installments,
as follows: 25% of the shares of Common Stock covered by
5
<PAGE>
the Option may be purchased on and after the first anniversary of the date
of grant and additional 25% installments on and after each of the second,
third and fourth anniversaries of the date of grant. If a Change in Control
of the Company (as defined in the Performance Incentive Plans) were to
occur before the Option is exercisable in full, the Option would become
immediately exercisable for all shares of Common Stock covered by such
Option. As a result of Guaranty National Corporation becoming a wholly-
owned subsidiary of the Company and pursuant to the Merger Agreement, all
of Mr. Pouliot's options previously granted to him by Guaranty National
Corporation were converted on December 16, 1997 into options to purchase
Common Stock, at an exercise price (adjusted as to both number of shares
and exercise price) to reflect differences between the merger price for
Guaranty National Corporation and the market price of Common Stock of the
Company immediately prior to the merger.
(3) Cash value of Performance Units paid under the Performance Incentive Plans
for Performance Periods ended December 31, 1998, 1997 and 1996.
(4) Detail of amounts reported in the "All Other Compensation" column for 1998
is provided in the table below.
<TABLE>
<CAPTION>
ITEM MR. MR. MR. MR. MR.
BECKER POULIOT JACOBSEN OKARMA SCHUYLER
<S> <C> <C> <C> <C> <C>
Company Contributions to the
Supplemental Benefits Plan
(see below) ................................. $33,689 $42,015 $12,993 $ 7,098 $ 8,989
Company Contributions to
Retirement Plan ............................. 13,600 12,000 13,600 13,600 13,024
Split Dollar Insurance Premium .............. 18,206 16,879 11,058 10,744 14,292
Total All Other Compensation .......... $65,495 $70,894 $37,651 $31,442 $36,305
</TABLE>
The Retirement Plan is a qualified 401(k) savings plan in which all
employees of the Company are eligible to participate. The Company b makes
matching contributions to the Retirement Plan of up to 6% of a
participating employee's base salary, unless limited by federal tax
regulations. The Company contributes to the Supplemental Benefits Plan
("Supplemental Plan") that portion of the Company's contribution to the
Retirement Plan that an employee failed to receive because of federal tax
regulations. All benefits under the Supplemental Plan are fully vested but
no benefits are paid until January of the year following the year
employment terminates. The Supplemental Plan is not funded.
OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
Option Grants in Last Fiscal Year
The following tables set forth information with respect to options granted
to the Named Officers in 1998:
6
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
TERM$(2)
----------------------------------
NAME NUMBER OF % OF EXERCISE EXPIR- 0%($) 5%($) 10%($)
SECURITIES TOTAL OR BASE ATION
UNDERLY- OPTIONS PRICE DATE
ING OP- GRANTED ($/SH)
TIONS (#)(1) TO
EMPLOY-
EES IN
FISCAL
YEAR
- ----------------------------------------------- ------------ ----------- -------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Marston Becker................ 50,632 9.39% $36.21875 9/2/08 $0.00 $1,153,284 $2,922,649
James R. Pouliot................. 13,880 2.58 36.21875 9/2/08 0.00 316,156 807,200
Raymond W. Jacobsen.............. 12,672 2.35 36.21875 9/2/08 0.00 288,640 731,470
Thomas M. Okarma................. 9,232 1.71 36.21875 9/2/08 0.00 210,284 532,902
Raymond J. Schuyler.............. 9,680 1.80 36.21875 9/2/08 0.00 220,489 558,762
</TABLE>
(1) For a description of the material terms of the Options and the Performance
Units awarded in tandem therewith, see footnotes 1 and 2 to the Summary
Compensation Table above.
(2) Calculations are based on hypothetical annual compounded rates of stock
price appreciation of 0%, 5% and 10% over the option term, which is ten
(10) years. Using the same assumptions and based on 27,170,209 shares
outstanding as of December 31, 1998, the total dollar gains for all
stockholders as a group would be $618.9 million (5%) and $1,568.4 million
(10%) based on the September 2, 1998 price per share of $36.21875.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
The following table provides information with respect to the unexercised
options to purchase Common Stock granted in prior years under the Performance
Incentive Plans for each of the Named Officers and held by them at December 31,
1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
1998 DECEMBER 31, 1998$(2)
------------------------------ ------------------------------
NAME SHARES VALUE EXERCIS- UNEXERCISA EXERCIS- UNEXERCISAB
ACQUIRED REALIZED ABLE BLE ABLE LE
ON $(1)
EXERCISE
- ---------------------------------------- ------------ ------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
W. Marston Becker.......... 2,646 $ 82,688 65,554 115,632 $957,188 $647,950
James R. Pouliot........... -0- -0- 43,349 34,746 716,263 271,189
Raymond W. Jacobsen........ 7,236 185,712 32,554 26,414 642,341 142,623
Thomas M. Okarma........... -0- -0- 6,855 19,461 70,576 97,695
Raymond J. Schuyler........ -0- -0- 32,205 21,655 680,733 120,068
</TABLE>
7
<PAGE>
(1) Represents difference between exercise price and market value on date of
exercise. For a description of the material terms of Options and the
Performance Units awarded in tandem therewith, see footnotes 1 and 2 on
pages 10-11.
(2) Based on the fair market value on the NYSE--Composite Transactions of the
Company's Common Stock on that date ($39.15625).
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the following Report of the Compensation Committee and the
Performance Graph on page 17 shall not be incorporated by reference into any
such filing.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
Executive Compensation
has three components
-base salary
-annual incentive The Company's executive compensation program is
awards (bonus) designed to attract, motivate and retain executive
-annual long-term officers who can make significant contributions to the
incentive awards. Company's long-term success; to align the interest of
the executive officers with those of stockholders; and
to place a significant proportion of the executive
officers' total compensation at risk by aligning it
with the Company's financial and Common Stock
performance.
Executive compensation is composed of three
components: base salary, annual incentive awards
(bonus) and annual long-term incentive awards. The
targets of each component of compensation are
determined by comparative compensation data for the
property and casualty insurance industry as a whole, a
selected peer group of specialty niche property and
casualty companies which compete in markets served by
the Company, and other comparative data obtained from
nationally recognized compensation consulting firms.
Base Salary
Base Salary is targeted The base salary is targeted at the median of the
at the median of the competitive marketplace. The base salary target for an
marketplace. executive position is determined through an annual
formal assessment conducted by the Company's human
resource personnel and independent compensation
consultant. This Assessment considers a position's
degree of complexity and level of responsibility, its
importance to the Company in relation to other
executive positions, and the competitiveness of an
executive's total compensation.
Subject to the Compensation Committee's approval,
the level of an executive officer's base pay is
determined on the basis of relevant comparative
compensation data; and the Chairman and Chief Executive
Officer's assessment of the executive's performance,
experience, demonstrated leadership, job knowledge and
management skills.
Annual Incentives
Bonus payout is, in Annual incentives are paid in the form of cash
general, made only if bonuses in the year following performance. In 1998, the
targets are achieved. Compensation Committee formalized the cash bonus
structure to be a target-oriented plan based on the
achievement of predetermined corporate, business unit
and corporate unit goals and individual goals. The plan
provides that no payouts will occur unless a minimum
"threshold" of performance has been met. Assuming that
the threshold is met, "pools" are established for each
business unit and corporate staff unit based on the
achievement of specific goals. A maximum of 200% of
target can be achieved for superior results. Once the
performance goals have been established, the
Compensation Committee may adjust them upon the
occurrence of extraordinary events.
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Business unit pools were determined for 1998
based on pre-tax operating income, combined ratio,
return on equity and premiums.
Long-Term Incentives; Stock
Ownership
Executive Officers of the The long-term incentives awarded to the
Company may receive Company's executive officers and other key
options as long-term employees are made pursuant to the terms of the
incentive awards. Company's Performance Incentive Plans. The
Performance Incentive Plans are intended to focus
the efforts of the executive officers and other
key employees on performance which will increase
the equity value of the Company for stockholders.
The Compensation Committee may grant
incentive stock options and non-statutory stock
options to purchase shares of Common Stock as well
as restricted stock and performance units.
In 1998 the Company granted restricted stock
and/or options to induce prospective executive
officers to become employed by the Company. In
1998 executive officers otherwise received only
stock options; other key employees received a
combination of incentive stock options and
restricted stock. The Compensation Committee has
not elected to award performance units to the
Company's executive offers since 1996.
The exercise price of a stock option is equal
to the fair market value of the Company's stock on
the date of grant. In accordance with provisions
of the Performance Incentive Plans, the Committee
approves all long-term incentive recommendations.
Individual awards are based on competitive data,
results of the Company's performance, the
executive's performance, and the competitiveness
of an executive's total compensation.
In order to align the interest of the
Company's executive officers with the interests of
the stockholders, the Company has encouraged stock
ownership by executive officers. In 1998 the
Compensation Committee took a further step in that
direction by making loans available to those
officers, many of whom had recently been elected,
whose holdings of Common Stock were below the
informal guideline which the Company thought
appropriate. All loans are fully recourse to the
executive and must be used solely to purchase
Common Stock. The stock purchased may not disposed
of unless the corresponding loan amount has been
repaid, and interest is payable on the loan at the
higher of the applicable federal tax rate or the
Company's internal rate of return. Twelve (12)
executive officers were eligible for loans under
the program.
CEO Compensation
Utilizing input from the Company's
independent compensation consultant, the
Compensation Committee discusses matters affecting
Mr. Becker's compensation privately, without Mr.
Becker or other officers present. In determining
Mr. Becker's compensation, the Compensation
Committee considers the Company's financial
performance; industry wide and peer group
compensation data; the Company's positioning for
future performance; as well as Mr. Becker's
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experience, knowledge, and his leadership,
decision-making and communications skills. No
specific weighting is assigned to each factor, but
the committee gives greater weight to current and
anticipated future financial performances. The
Committee's decision regarding Mr. Becker's
compensation is reported to the full Board at its
next regularly scheduled meeting.
Based on a market study In September of 1998, the Committee awarded Mr.
of peer group compensation, Becker a stock option to purchase 50,632 shares of
and taking into account his Common Stock. In March of 1999, the Compensation
performance in 1998, Committee elected to increase Mr. Becker's base
Mr. Becker's compensation salary by 30% to the annualized amount of $535,000
package was comprised of and authorized a cash bonus payment in the amount
(i) a base salary increase of $425,000.
to $535,000, and (ii) an
annual bonus of $425,000. In deciding upon Mr. Becker's compensation
package, the Compensation Committee considered the
accomplishments of Mr. Becker as Chairman and
Chief Executive Officer during the past twelve
months. These accomplishments included an increase
in revenues of 8%, an increase in book value of 2%
and an adjusted combined ratio of 98.7%, which was
1% lower than that reported for 1997. The
Committee also took into account the significant
steps taken by Mr. Becker to position the Company
for the future, including the Orion Specialty
restructuring charge, as well as his compensation
position relative to his peers in the industry.
Deductibility of
Compensation
Section 162(m) of the Internal Revenue Code
generally disallows a tax deduction to public
companies for compensation over $1 million paid to
the Company's Chief Executive Officer or any of
the four other most highly compensated executive
officers. Qualifying performance-based
compensation will not be subject to the deduction
limit if certain requirements are met.
The Committee intends to structure any
compensation for executive officers so that it
qualifies for deductibility under Section 162(m)
to the extent feasible. However, to maintain a
competitive position within the Company's peer
group of companies, the Committee retains the
authority to authorize payments including salary
and bonus, that may not be deductible.
Compensation and Nomination Committee
Warren R. Lyons, Chairman
Gordon F. Cheesbrough
Robert H. Jeffrey
James K. McWilliams
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
stockholder return on the Company's Common Stock, based on the market price of
the Common Stock and assuming reinvestment of dividends, with the cumulative
total return of companies on the Standard & Poor's 500 Stock Index and the
Standard and Poor's Property and Casualty Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY'S
COMMON STOCK, THE STANDARD & POOR'S 500 STOCK INDEX AND THE STANDARD AND POOR'S
PROPERTY AND CASUALTY INDEX*
[GRAPHIC]
- --------------------------------------------------------------------------------
1/1/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- --------------------------------------------------------------------------------
ORION CAPITAL 100.00 112.97 141.77 203.17 312.82 272.91
- --------------------------------------------------------------------------------
S&P 500 INDEX 100.00 101.28 138.88 170.38 226.78 291.04
- --------------------------------------------------------------------------------
STANDARD & POOR'S
P&C INDEX 100.00 102.25 135.87 161.98 232.10 212.96
- --------------------------------------------------------------------------------
- -----------------
* Assumes that the investment in the Company's Common Stock and each index was
$100 on December 31, 1994 and that all dividends were reinvested.
There can be no assurance that the Company's future stock performance
will continue with the same or similar trends depicted in the graph above. The
Company does not make or endorse any predictions as to future stock performance.
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EMPLOYMENT AGREEMENTS
AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has employment agreements with all of its current executive
officers. The Company entered into an employment agreement with Mr. Becker on
October 31, 1995. The agreement, as amended, currently provides for a base
salary of $410,000 with such salary increases as may from time to time be
approved by the Company. In February 1999, the Company entered into employment
agreements with its eleven (11) other executive officers. The initial terms of
the agreements range from twelve to forty- four months and each is
automatically extended, as each day expires during its term, for one
additional day.
The contracts provide for continuation of salary and certain benefits through
the remainder of the unexpired term in the event of termination by the Company
other than for Cause (as defined in the contracts) or in the event of a
termination by an executive for Good Reason following a Change in Control (both
terms as defined in the contracts).
In the event of a Change in Control there is no acceleration of compensation and
benefit payments, which are made as due during the balance of the unexpired term
of each contract. However outstanding options immediately vest and restricted
stock conditions are deemed met.
The Company obtains, by virtue of the agreements, a covenant from each executive
to preserve the confidentiality of the Company's trade secrets for the remaining
unexpired term of the contract and, for that same period a covenant not to
solicit the Company's customers or employees. Each executive also agrees not to
compete with the Company following termination of active employment (a)
absolutely for a fixed period of time ranging from six to twelve months and (b)
thereafter for the remainder of the unexpired term so long as the executive
continues to receive compensation payments.
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
The Company and certain of its subsidiaries have a policy of making unsecured
loans to key officers, in connection with hiring or transfer to new locations,
to assist such personnel in purchasing new residences. In 1997, Mr. Jacobsen
moved his residence from Connecticut to Illinois. In connection with that move
the Company loaned Mr. Jacobsen an aggregate of $200,000 for five years at an
interest rate of 9.25% per year. In 1996, Mr. Thomas Okarma, a Senior Vice
President of the Company and President and Chief Executive Officer of DPIC
Companies, Inc. was required to move his residence from Illinois to California.
In connection with that move, the Company
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loaned Mr. Okarma an aggregate of $150,000 secured by a mortgage on his
California residence, for five years, at an interest rate of 9.25% per year.
In 1998 the Company adopted a policy to make loans to executive officers to
purchase Common Stock, thereby aligning their interests more closely with those
of the Company's stockholders. A total of twelve (12) executives are eligible to
participate in the program and as of December 31, 1998 loans had been made to
Mr. Becker ($412,000), Mr. Jacobsen ($262,000), Mr. McCann ($493,900), and Ms.
Lindsey ($208,000) in connection with open-market purchases of Common Stock by
them. The shares purchased may not be disposed of unless the related debt to the
Company has been repaid.
At the 1987 Annual Meeting of Stockholders of the Company, the stockholders
authorized the execution by the Company of indemnification agreements with its
directors and executive officers. The Company has entered into indemnification
agreements with each of its directors and executive officers which, among other
things, contractually confirm the indemnity provided under the Company's
Restated Certificate of Incorporation, its By-Laws and under the Delaware
General Corporation law.
2. APPROVAL OF THE AMENDMENT TO THE EQUITY
INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES
RESERVED THEREUNDER FROM 1,400,000 TO 2,600,000.
INTRODUCTION
The Board adopted on September 11, 1996 a stock-based, long- term incentive plan
entitled the "Orion Capital Corporation Equity Incentive Plan" (the "Equity
Incentive Plan") for key employees of the Company, which was approved by the
Company's stockholders at the 1997 Annual Meeting. The Equity Incentive Plan
became effective as of September 11, 1996. The number of shares of Common Stock
originally reserved under the Equity Incentive Plan was 1,400,000 (after giving
effect to the 2-for-1 stock split on July 7, 1997). On April 1, 1999,
approximately 100,000 shares of Common Stock remained available for awards under
the Equity Incentive Plan. As of April 1, 1999 the closing price of the Common
Stock on the NYSE was $32.875 per share. The Board has adopted an amendment to
the Equity Incentive Plan, subject to stockholder approval at the Annual
Meeting, increasing the number of shares reserved for issuance under the Equity
Incentive Plan by 1,200,000 shares.
The Board believes that the Equity Incentive Plan has been, and will continue to
be, an important element in the Company's management compensation program. In
addition to assisting the Company in its efforts to attract and retain the
services of key management personnel, grants of options serve to link more
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effectively executive compensation to stockholder returns through stock price
performance and provide recipients with an additional incentive for outstanding
performance. The Equity Incentive Plan as amended will make available an
additional 1,200,000 shares for grant under the Equity Incentive Plan. The Board
believes that this increase in the total number of shares available for grant is
appropriate and will enable the Company to continue to avail itself of the
benefits of the Equity Incentive Plan. Except for the increase in the number of
shares reserved for the Equity Incentive Plan, there have been no other
amendments to the Equity Incentive Plan.
A summary of the principal provisions of the Equity Incentive Plan is set forth
below. This summary is qualified in its entirety by reference to the full text
of the Equity Incentive Plan, which is attached hereto as Exhibit A. Capitalized
terms used herein will, unless otherwise defined, have the meanings assigned to
them in the text of the Equity Incentive Plan.
THE EQUITY INCENTIVE PLAN
ADMINISTRATION
The Equity Incentive Plan is administered by the Compensation Committee (the
"Committee") of the Board. The Company's By-Laws require that the Committee
consist only of directors who are not officers or employees of the Company.
The Committee is authorized, among other things, to construe, interpret and
implement the provisions of the Equity Incentive Plan, to select the employees
to whom awards will be granted, to determine the terms and conditions of such
awards and to make all other determinations deemed necessary or advisable for
the administration of the Equity Incentive Plan. The Committee has determined,
however, not to subsequently reprice any awards previously granted under the
Equity Incentive Plan.
SHARES AVAILABLE
The aggregate number of shares of Common Stock available for issuance, subject
to adjustment as described below, under the Equity Incentive Plan is currently
1,400,000, of which approximately 100,000 currently remain available for
issuance. If this proposal is approved by the stockholders of the Company the
number of shares which can be awarded under the Equity Plan will be increased to
2,600,000. Such shares may be authorized and unissued shares or treasury shares.
The authorized and unissued shares under the Equity Incentive Plan, if the
proposed amendment is approved, will represent approximately 4.8% of the
Company's outstanding Common Stock as of April 1, 1999.
If any shares of Common Stock subject to an award are forfeited or an award is
settled in cash or otherwise terminates for any reason whatsoever without an
actual distribution of shares, the
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<PAGE>
shares subject to such award will again be available for awards. If any
Performance Units awarded under the Equity Incentive Plan are forfeited or
canceled, the Performance Units will again be available for awards. If the
Committee determines that any stock dividend, recapitalization, split,
reorganization, merger, consolidation, combination, repurchase, or other similar
corporate transaction or event, affects the Common Stock or the book value of
the Company such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of participants, then the Committee may adjust any
or all of (i) the number and kind of shares of Common Stock which may thereafter
be issued in connection with awards, (ii) the number and kind of shares of
Common Stock issuable in respect of outstanding awards, (iii) the aggregate
number and kind of shares of Common Stock available, (iv) the number of
Performance Units which may thereafter be granted and the book value of the
Company with respect to outstanding Performance Units, and (v) the exercise
price, grant price, or purchase price relating to any award. If deemed
appropriate, the Committee may also provide for cash payments relating to
outstanding awards. The Committee may also adjust performance conditions and
other terms of awards in response to unusual or nonrecurring events or to
changes in applicable laws, regulations, or accounting principles, except to the
extent that such adjustment would adversely affect the status of any outstanding
Performance-Based Awards as "performance-based compensation" under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
ELIGIBILITY
Persons eligible to participate in the Equity Incentive Plan include all key
employees of the Company and its subsidiaries, as determined by the Committee.
See "Executive Compensation -- Summary Compensation Table" for information on
awards made to the Named Officers. While the specific individuals to whom awards
will be made in the future cannot be determined at this time, it is anticipated
that currently approximately 200 key employees are eligible for participation in
the Equity Incentive Plan.
AWARDS
The Equity Incentive Plan is designed to give the Committee the maximum
flexibility in providing incentive compensation to key employees. The Equity
Incentive Plan provides for the grant of incentive stock options, nonqualified
stock options, stock appreciation rights, restricted stock, bonus stock, awards
in lieu of cash obligations, other stock-based awards and Performance Units. The
Equity Incentive Plan also permits cash payments either as a separate award or
as a supplement to a stock-based award, and for the income and employment taxes
imposed on a participant in respect of any award. Since the Committee may, in
its discretion, grant a combination of an option, stock appreciation rights,
other stock-based awards and a cash award, it is possible that one or more
restrictions or requirements in the Equity Incentive Plan applicable to any
individual type of
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<PAGE>
award, including the requirements that options be granted at fair market value,
can, in effect, be avoided. The Committee has no current intention of taking
such action.
STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS
The Committee is authorized to grant stock options, including both incentive
stock options ("ISOs"), which can result in potentially favorable tax treatment
to the participant, and nonqualified stock options. The Committee can also grant
stock appreciation rights ("SARs") entitling the participant to receive the
excess of the fair market value of a share of Common Stock on the date of
exercise over the grant price of the SAR. The exercise price per share of Common
Stock subject to an option and the grant price of an SAR is determined by the
Committee, provided that the exercise price may not be less than the fair market
value of the Common Stock on the date of grant. However, the Equity Incentive
Plan also allows the Committee to grant an option, an SAR or other award
allowing the purchase of Common Stock at an exercise price or grant price less
than fair market value when it is granted in substitution for some other award
or retroactively in tandem with an outstanding award. In those cases, the
exercise or grant price may be the fair market value at that date, at the date
of the earlier award or at that date reduced by the fair market value of the
award required to be surrendered as a condition to the receipt of the substitute
award. The terms of each option or SAR, the times at which each option or SAR
will be exercisable, and provisions requiring forfeiture of unexercised options
or SARs at or following termination of employment will be fixed by the
Committee. However, no ISO or SAR granted in tandem will have a term exceeding
ten years. Options may be exercised by payment of the exercise price in cash or
in Common Stock, outstanding awards or other property (including notes or
obligations to make payment on a deferred basis, or through "cashless
exercises") having a fair market value equal to the exercise price, as the
Committee may determine from time to time. The Committee also determines the
methods of exercise and settlement and certain other terms of the SARs.
RESTRICTED STOCK
The Equity Incentive Plan also authorizes the Committee to grant restricted
stock. Restricted stock is an award of shares of Common Stock which may not be
disposed of by participants and which may be forfeited in the event of certain
terminations of employment or certain other events prior to the end of a
restriction period established by the Committee. Such an award entitles the
participant to all of the rights of a stockholder of the Company, including the
right to vote the shares and the right to receive any dividends thereon, unless
otherwise determined by the Committee.
OTHER STOCK-BASED
AWARDS, BONUS STOCK AND
AWARDS IN LIEU OF CASH
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OBLIGATIONS
In order to enable the Company to respond to business and economic developments
and trends in executive compensation practices, the Equity Incentive Plan
authorizes the Committee to grant awards that are denominated or payable in, or
valued in whole or in part by reference to the value of, Common Stock. The
Committee will determine the terms and conditions of such awards, including
consideration to be paid to exercise awards in the nature of purchase rights,
the period during which awards will be outstanding and forfeiture conditions and
restrictions on awards. In addition, the Committee is authorized to grant shares
as a bonus, free of restrictions, or to grant shares or other awards in lieu of
Company obligations to pay cash or deliver other property under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
CASH PAYMENTS
The Committee may grant the right to receive cash payments whether as a separate
award or as a supplement to any stock- based awards. Also, to encourage
participants to retain awards payable in stock by providing a source of cash
sufficient to pay the income and employment taxes imposed as a result of a
payment pursuant to, or the exercise or vesting of, any award, the Equity
Incentive Plan authorizes the Committee to grant a Tax Bonus in respect of any
award.
PERFORMANCE UNITS
The Committee is also authorized to grant Performance Units. A Performance Unit
is a right to receive a payment in cash equal to the increase in the book value
of the Company if specified performance goals during a specified time period are
met. The Committee has the discretion to establish the performance goals and the
performance periods relating to each Performance Unit. A performance goal is a
goal expressed in terms of growth in book value, earnings per share, return on
equity or any other financial or other measurement selected by the Committee, in
its discretion, and may relate to the operations of the Company as a whole or
any subsidiary, division or department, and the performance periods may be of
such length as the Committee may select. Neither the performance goals nor the
performance periods need be identical for all Performance Units awarded at any
time or from time to time.
PERFORMANCE-BASED
AWARDS
The Committee may (but is not required to) grant awards pursuant to the Equity
Incentive Plan to a participant who, in the year of grant, may be among the
Company's Chief Executive Officer and the four other most highly compensated
executive officers ("Covered Employees"), which are intended to qualify as a
Performance-Based Award. If the Committee grants an award as a Performance-Based
Award, the right to receive payment of such award, other than stock options and
SARs granted at not less than fair market value on the date of grant, will be
conditional upon the achievement of performance goals estab-
18
<PAGE>
lished by the Committee in writing at the time such Performance-Based Award is
granted. Such performance goals may vary from participant to participant and
Performance-Based Award to Performance-Based Award. The goals will be based
upon (i) the attainment of specific amounts of, or increases in, one or more
of the following: revenues, earnings, cash flow, net worth, book value,
stockholder's equity, financial return ratios, market performance or total
stockholder return, and/or (ii) the completion of certain business or capital
transactions. Before any Performance-Based Award is paid, the Committee will
certify in writing that the performance goals applicable to the Performance-
Based Award were in fact satisfied.
The maximum amount which may be granted as Performance-Based Awards to any
participant in any calendar year shall not exceed (i) stock-based awards for
100,000 shares of Common Stock (whether payable in cash or stock), subject to
adjustment as provided in the Equity Incentive Plan, (ii) 100,000 Performance
Units, (iii) a Tax Bonus payable with respect to the stock-based awards and
Performance Units and (iv) cash payments (other than Tax Bonuses) of $1,000,000.
The Committee has the discretion to grant an award to a participant who may be a
Covered Employee which is not a Performance-Based Award.
OTHER TERMS OF AWARDS
In the discretion of the Committee, awards may be settled in cash, Common
Stock, other awards or other property. The Committee may require or permit
participants to defer the distribution of all or part of an award in
accordance with such terms and conditions as the Committee may establish,
including payment of reasonable interest on any amounts deferred under the
Equity Incentive Plan. Awards granted under the Equity Incentive Plan may not
be pledged or otherwise encumbered. Generally, unless the Committee determines
otherwise, awards are not transferable except by will or by the laws of
descent and distribution, or otherwise if permitted under Rule 16b-3 of the
Exchange Act and by the Committee.
The Equity Incentive Plan grants the Committee broad discretion in the operation
and administration of the Equity Incentive Plan. This discretion includes the
authority to make adjustments in the terms and conditions of, and the criteria
included in performance conditions related to, any awards in recognition of
unusual or nonrecurring events affecting the Company or in response to changes
in applicable laws, regulations or accounting principles. However, no such
adjustment may adversely affect the status of any outstanding award as a
Performance-Based Award. The Committee can waive any condition applicable to any
award, and may adjust any performance condition specified in connection with any
award, if such adjustment is
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<PAGE>
necessary, to take account of a change in the Company's strategy, performance of
comparable companies or other circumstances. However no adjustment may adversely
affect the status of any outstanding award as a Performance-Based Award. The
Committee has determined not to subsequently re-price any awards previously
granted under the Equity Incentive Plan.
Awards under the Equity Incentive Plan generally will be granted for no
consideration other than services. The Committee may, however, grant awards
alone, in addition to, in tandem with, or in substitution for, any other award
under the Equity Incentive Plan, other awards under other Company plans, or
other rights to payment from the Company. Awards granted in addition to or in
tandem with other awards may be granted either at the same time or at different
times. If an award is granted in substitution for another award, the participant
must surrender such other award in consideration for the grant of the new award.
CHANGE OF CONTROL
In the event of a change of control of the Company, all awards granted under the
Equity Incentive Plan (including Performance-Based Awards) that are outstanding
and not yet vested or exercisable or which are subject to restrictions, will
become immediately 100% vested in each participant or will be free of any
restrictions, and will be exercisable for the remaining duration of the award.
All awards that are exercisable as of the effective date of the change of
control will remain exercisable for the remaining duration of the award.
Under the Equity Incentive Plan, a change of control occurs upon any of the
following events: (i) the acquisition, in one or more transactions, of
beneficial ownership by any person or group, (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
subsidiary), of any securities of the Company such that, as a result of such
acquisition, such person or group, either (A) beneficially owns, directly or
indirectly, more than 20% of the Company's outstanding voting securities
entitled to vote on a regular basis for a majority of the members of the Board
or (B) otherwise has the ability to elect, directly or indirectly, a majority of
the members of the Board; (ii) a change in the composition of the Board such
that a majority of the members of the Board are not Continuing directors; or
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 80% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement
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for the sale or disposition by the Company, in one or more transactions, of all
or substantially all the Company's assets. The foregoing events will not be
deemed to be a change of control if the transactions causing such change are
approved in advance by the affirmative vote of at least a majority of the
Continuing directors.
AMENDMENT AND
TERMINATION
The Equity Incentive Plan is of indefinite duration; continuing until all shares
and performance units reserved therefore have been issued or until terminated by
the Board. The Board may amend, alter, suspend, discontinue, or terminate the
Equity Incentive Plan or the Committee's authority to grant awards thereunder
without further stockholder approval or the consent of the participants, except
stockholder approval must be obtained within one year after the effectiveness of
such action if required by law or regulation or under the rules of the
securities exchange on which the Common Stock is then quoted or listed or as
otherwise required by Rule 16b-3 under the Exchange Act. Notwithstanding the
foregoing, unless approved by the stockholders, no amendment will: (i) change
the class of persons eligible to receive awards; (ii) materially increase the
benefits accruing to participants under the Equity Incentive Plan; or (iii)
increase the number of shares of Common Stock subject to the Equity Incentive
Plan.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES TO THE
COMPANY AND THE PARTICIPANT
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the Equity Incentive Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences.
A participant will not realize any income upon the award of an option (including
any other stock-based award in the nature of a purchase right), an SAR or a
Performance Unit, nor will the Company be entitled to any tax deduction.
When a participant who has been granted an option which is not designated as an
ISO exercises that option and receives Common Stock which is either
"transferable" or not subject to a "substantial risk of forfeiture" under
Section 83(c) of the Code, the participant will realize compensation income
subject to withholding taxes. The amount of that compensation income will equal
the excess of the fair market value of the Common Stock (without regard to any
restrictions) on the date of exercise of the option over its exercise price, and
the Company will generally be entitled to a tax deduction in the same amount and
at the same time as the compensation income is realized by the participant. The
participant's tax basis for the Common Stock so
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<PAGE>
acquired will equal the sum of the compensation income realized and the exercise
price. Upon any subsequent sale or exchange of the Common Stock, the gain or
loss will generally be taxed as a capital gain or loss and will be a long-term
capital gain or loss if the Common Stock has been held for more than one year
after the date of exercise.
If a participant exercises an option which is designated as an ISO and the
participant has been an employee of the Company or its subsidiaries throughout
the period from the date of grant of the ISO until three months prior to its
exercise, the participant will not realize any income upon the exercise of the
ISO (although alternative minimum tax liability may result), and the Company
will not be entitled to any tax deduction. If the participant sells or exchanges
any of the shares acquired upon the exercise of the ISO more than one year after
the transfer of the shares to the participant and more than two years after the
date of grant of the ISO, any gain or loss (based upon the difference between
the amount realized and the exercise price of the ISO) will be treated as
long-term capital gain or loss to the participant. If such sale, exchange or
other disposition takes place within two years of the grant of the ISO or within
one year of the transfer of shares to the participant, the sale, exchange or
other disposition will generally constitute a "disqualifying disposition" of
such shares. In such event, to the extent that the gain realized on the
disqualifying disposition does not exceed the difference between the fair market
value of the shares at the time of exercise of the ISO over the exercise price,
such amount will be treated as compensation income in the year of the
disqualifying disposition, and the Company will be entitled to a deduction in
the same amount and at the same time as the compensation income is realized by
the participant. The balance of the gain, if any, will be treated as capital
gain and will not result in any deduction by the Company.
With respect to other awards (including an SAR or a Performance Unit) granted
under the Equity Incentive Plan that may be settled either in cash or in Common
Stock or other property that is either transferable or not subject to a
substantial risk of forfeiture under Section 83(c) of the Code, the participant
will realize compensation income (subject to withholding taxes) equal to the
amount of cash or the fair market value of the Common Stock or other property
received. The Company will be entitled to a deduction in the same amount and at
the same time as the compensation income is realized by the participant.
With respect to awards involving Common Stock or other property that is both
nontransferable and subject to a substantial risk of forfeiture, unless an
election is made under Section 83(b) of the Code, as described below, the
participant will realize compensation income equal to the fair market value of
the Common Stock or other property received at the first time the Common Stock
or other property is either transferable or not
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subject to a substantial risk of forfeiture. The Company will be entitled to a
deduction in the same amount and at the same time as the compensation income is
realized by the participant.
Even though Common Stock or other property may be nontransferable and subject to
a substantial risk of forfeiture, a participant may elect (within 30 days of
receipt of the Common Stock or other property) to include in gross income the
fair market value (determined without regard to such restrictions) of such
Common Stock or other property at the time received. In that event, the
participant will not realize any income at the time the Common Stock or other
property either becomes transferable or is not subject to a substantial risk of
forfeiture, but if the participant subsequently forfeits such Common Stock or
other property, the participant's loss would be limited only to the amount
actually paid for the Common Stock or other property. While such Common Stock or
other property remains nontransferable and subject to a substantial risk of
forfeiture, any dividends or other income will be taxable as additional
compensation income. Finally, special rules may apply with respect to
participants subject to Section 16(b) of the Exchange Act.
The Committee may condition the payment, exercise or vesting of any award on the
payment of the withholding taxes and may provide that a portion of the Common
Stock or other property to be distributed will be withheld (or previously
acquired stock or other property surrendered by the participant) to satisfy such
withholding and other tax obligations.
Finally, amounts paid pursuant to an award which vests or becomes exercisable,
or with respect to which restrictions lapse, upon a Change in Control may
constitute a "parachute payment" under Section 280G of the Code. To the extent
any such payment constitutes an "excess parachute payment," the Company would
not be entitled to deduct such payment and the participant would be subject to a
20 percent excise tax (in addition to regular income tax).
SECTION 162(m)
PROVISIONS
The Equity Incentive Plan was designed to permit the deduction by the Company of
the compensation realized by certain officers in respect of long-term incentive
compensation granted under the Equity Incentive Plan which is intended by the
Committee to qualify as "performance-based compensation" under Section 162(m) of
the Code. Section 162(m) of the Code generally disallows a deduction to the
Company for compensation paid in any year in excess of $1 million to any Covered
Employee. Certain compensation, including compensation that meets the specified
requirements for "performance-based compensation," is not subject to this
deduction limit. Among the requirements for compensation to qualify as
"performance-based compensation" is that the material terms pursuant to
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which the compensation is to be paid be disclosed to, and approved by, the
stockholders of the Company in a separate vote prior to the payment.
Accordingly, if the Equity Incentive Plan is approved by the stockholders, then
the compensation payable pursuant to awards granted to officers who in the year
of grant may be Covered Employees and which are intended by the Committee to
qualify as "performance-based compensation" should, provided the other
requirements of Section 162(m) of the Code are satisfied, not be subject to the
deduction limit of Section 162(m) of the Code.
SHAREHOLDER APPROVAL
Adoption of the proposal will require the affirmative vote of a majority of the
outstanding shares of Common Stock entitled to vote thereon. Proxies not
indicated to the contrary will be voted for the approval of the proposal.
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EXHIBIT 3
June 18, 1999
Terry Broderick
President
Royal & SunAlliance, USA, Inc.
9300 Arrowpoint Blvd.
Charlotte, NC 28273-8135
Dear Terry:
In connection with consideration of a possible transaction (the
"Transaction") involving Royal & SunAlliance, USA, Inc. or one of its
affiliates, (collectively, "RSA") and Orion Capital Corporation ("Orion"), Orion
has furnished or will furnish to RSA, its directors, officers, employees, agents
or representatives, and RSA has furnished or will furnish to Orion, its
directors, officers, employees, agents or representatives, information (in both
written and oral form) related to the business and operations of Orion and RSA,
respectively All such information furnished to RSA and its Representatives (as
defined below) and all such information furnished to Orion and its Representa
tives whether prior to, on, or following the date hereof, together with
analysis, compilations, forecasts, studies or other documents or records
prepared by Orion or its Representatives on the one hand, or RSA or its
Representatives on the other, which contain, are based on or otherwise reflect
or are generated in whole or in part from such information, including that
stored on any computer, word processor or other similar device, are collectively
referred to herein as the "Evaluation Material."
Orion and RSA hereby agree as follows:
(1) Each shall use the Evaluation Material solely for the purpose of evaluating
the Transaction and each shall keep the Evaluation Material confidential,
except that each may disclose the Evaluation Material or portions thereof
to those of its directors, officers, employees, affiliates, representatives
(including, without limitation, financial advisors, attorneys and
accountants) and (with the prior written consent of Orion in each case,
which consent shall not be unreasonably withheld) potential sources of
financing (if any) for the Transaction (collectively, the
"Representatives") (a) who need to know such information for the purpose of
evaluating the Transaction, (b) who are informed of the confidential nature
of the Evaluation Material and (c) who agree to be bound by the terms of
<PAGE>
Sections 1 through 5 and 11 through 14 of this agreement as if they were
parties hereto. Each party shall be responsible for any breach of this
agreement by its Representatives. In the event that either party or any of
its Representatives are requested or required (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand
or similar process) to disclose any of the Evaluation Material, that party
shall provide the other with prompt notice of such requirement, and shall
furnish only that portion of the Evaluation Material which is in the
opinion of its legal counsel legally required, and shall exercise its best
efforts to obtain reliable assurance that confidential treatment will be
accorded such Evaluation Material.
(2) If either Orion or RSA determines not to proceed with the Transaction, the
party making such determination will promptly inform the other of that
decision and, in that case or at any time upon the request of either party,
Orion and RSA shall, and each party's Representatives shall, at the option
of the party possessing the Evaluation Material, promptly (i) destroy all
copies of the written Evaluation Material in its possession or under their
custody or control (including that stored in any computer, word processor
or similar device) and confirm such destruction to the other party in
writing or (ii) return to the other party all copies of any Evaluation
Material furnished to it by or on behalf of the other party in its
possession or in the possession of its Representatives. Any oral
Evaluation Material will continue to be held subject to the terms of this
agreement.
(3) The term "Evaluation Material" does not include any information which (i)
is or becomes generally available to the public (other than as a result of
a disclosure by the party receiving the Evaluation Material (the "Receiving
Party") or by any of its Representatives); (ii) was available to the
Receiving Party or its Representatives on a non-confidential basis from a
source (other than the other party or its Representatives) that is not and
was not prohibited from disclosing such information to the Receiving Party
by a contractual, legal or fiduciary obligation of which the Receiving
Party is aware or should have been aware or (iii) is independently
developed based on information received by the Receiving Party as described
in (i) or (ii) of this paragraph.
(4) Without the prior written consent of the other, neither Orion nor RSA nor
their respective Representatives shall disclose to any person (a) that any
investigations, discussions or negotiations are taking place concerning
the Transaction or any other possible Transaction involving Orion and RSA,
(b) that either party has requested or received any Evaluation Material or
(c) any of the terms, conditions or other facts with respect to the
Transaction or such investigations, discussions or negotiations, including
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the status thereof. The term "person" as used in this agreement shall be
broadly interpreted to include the media and any corporation, partnership,
group, individual or entity.
(5) Orion and RSA each acknowledges that it and its Representatives may receive
material non-public information in connection with the evaluation of the
Transaction and each is aware (and will so advise its Representatives) that
the United States securities laws impose restrictions on trading in
securities when in possession of such information.
(6) Although Orion and RSA have endeavored to include in the Evaluation
Material information known to them which they believe to be relevant for
the purpose of consideration of the Transaction, each understands and
acknowledges that neither Orion nor RSA nor any of their respective
officers, directors, employees, affiliates, stockholders, agents or
controlling persons is making any representation or warranty, express or
implied, as to the accuracy or completeness of the Evaluation Material, and
each of Orion, RSA and such other persons expressly disclaims any and all
liability to the other or any other person that may be based upon or relate
to (a) the use of the Evaluation Material by either party or any of its
Representatives or (b) any errors therein or omissions therefrom. Orion
and RSA further agree that neither is entitled to rely on the accuracy and
completeness of the Evaluation Material and that each will be entitled to
rely solely on those particular representations and warranties, if any,
that are in a definitive agreement relating to the Transaction when, as,
and if it is executed, and subject to such limitations and restrictions as
may be specified in such definitive agreement.
(7) Orion and RSA acknowledge that remedies at law may be inadequate to protect
against any actual or threatened breach of this agreement by either party
or its Representatives, and, without prejudice to any other rights and
remedies otherwise available to the non-breaching party, each party agrees
that the non-breaching party shall be entitled to seek equitable relief in
its favor. In the event of litigation relating to this agreement, if a
court of competent jurisdiction determines in a final, nonappealable order
that this agreement has been breached by either party or its
Representatives, then the breaching party will reimburse the non-breaching
party for its costs and expenses (including, without limitation, legal fees
and expenses) incurred in connection with all such litigation.
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(8) For a period one year following the date hereof, neither party shall
directly or indirectly solicit for employment any officer, director, or
employee of the other or the other's affiliates, with whom such party had
contact or who became known to such party in connection with consideration
of the Transaction, except that neither party shall be precluded from
hiring any such employee who (i) initiates discussions regarding such
employment without any direct or indirect solicitation, (ii) responds to
any public advertisement or (iii) has been terminated by the other party or
its affiliates prior to commencement of employment discussions.
(9) In consideration of substantial expenditures of time, effort and expense to
be undertaken by RSA in connection with the evaluation of a possible
Transaction, Orion undertakes and agrees that from and after the date on
which RSA shall present a term sheet which is reasonably satisfactory to
Orion as a basis for further discussion and until the earliest of (i) the
execution of a definitive purchase agreement, (ii) the mutual termination
of the due diligence process relating to the Transaction or (iii) July 15 ,
1999 neither it, nor any officer, director, affiliate or agent shall
(except as provided below) solicit or encourage inquiries or proposals with
respect to, further information relating to, participate in any
negotiations or discussions concerning, or cooperate in any manner relating
to any change in control of Orion, or any sale of (or granting of any
option with respect to), any assets of, or of an equity interest in Orion
other than as contemplated in this agreement and will notify RSA
immediately if any such inquiries or proposals are received by, any
information is requested, or any such negotiations or discussions are
sought to be initiated with Orion. RSA acknowledges that it has been
informed that Orion has received preliminary indications of interest from
several entities with respect to the purchase by those entities of certain
program and binding authority business of Orion Specialty. RSA agrees that
Orion may continue to respond to requests from those entities for
information; provided, however, Orion agrees that during the period of
exclusivity referred to in the first sentence of this Section 9, Orion will
not enter into a definitive agreement with respect to the disposition of
such Orion Specialty business.
(10) Without the prior written consent of the Board of Directors of Orion, RSA
will not, prior to the first anniversary of this letter, (a) initiate any
contact with any of the directors or employees, shareholders, capital
providers or clients of Orion (other than in relation to matters which do
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not breach this confidentiality agreement and are unrelated to the
Transaction or any similar transaction) or (b) solicit, or join or
encourage or support any group to solicit, proxies or consents from the
shareholders of Orion or make any offer or proposal, or join or encourage
or support any group in making any offer or proposal, to Orion or its
Board of Directors or its shareholders which is intended to result in the
acquisition by RSA or such group of more than 10% of the business or assets
or earning power of Orion or more than 10% of the number of shares of
Common Stock of Orion outstanding at the time. Notwithstanding the
preceding sentence, if (a)(1) the Board of Directors of Orion approves a
transaction with any person (other than Orion or any employee benefit plans
of Orion) and (2) such transaction would result in such person beneficially
owning more than 50% of the outstanding voting securities of Orion or all
or substantially all of Orion's assets, or (b) any person or "group" within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, (other than Orion or RSA or a group of which RSA is a member)
shall have commenced or publicly announced its intention to commence a
tender or exchange offer for more than 50% of the outstanding voting
securities of Orion, or any securities convertible into more than 50% of
the outstanding voting securities of Orion, or any options, warrants or
other rights to acquire more than 50% of the outstanding voting securities
of Orion, then RSA shall not be prohibited thereafter from taking any of
the actions described in the preceding sentence.
(11) Each party agrees that no failure or delay by the other in exercising any
right, power or privilege hereunder will operate as a waiver thereof, nor
will any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
(12) This agreement is for the benefit of Orion and RSA, and their respective
successors and assigns.
(13) This agreement and all controversies arising from or relating to
performance under this agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
its conflicts of laws principles.
(14) This agreement contains the entire agreement between Orion and RSA
concerning the subject matter hereof, and no modification of this agreement
or waiver of the terms and conditions hereof will be binding unless
approved in writing by Orion and RSA.
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Please confirm your agreement to the foregoing by signing both copies of
this agreement and returning one to Orion Capital Corporation, Attn: W. Marston
Becker
Very truly yours
ORION CAPITAL CORPORATION
By: _____________________________
W. Marston Becker
Chief Executive Officer
CONFIRMED AND AGREED AS
OF THE DATE WRITTEN ABOVE:
ROYAL & SUN ALLIANCE, USA, INC.
By: ______________________________
Terry Broderick
President
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EXHIBIT 4
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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 12, 1999 (the "Agreement"),
between ROYAL GROUP INC., a Delaware corporation (the "Grantee"), and ORION
CAPITAL CORPORATION, a Delaware corporation (the "Grantor").
WHEREAS, the Grantee, NTG Acquisition Corp., a Delaware corporation and a
direct or indirect wholly owned subsidiary of the Grantee ("Merger Subsidiary"),
and the Grantor are entering into an Agreement and Plan of Merger, dated as of
the date hereof (the "Merger Agreement"), which provides, among other things,
for the merger of Merger Subsidiary with and into the Grantor (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, the Grantee and Merger Subsidiary have requested that the Grantor
grant to the Grantee an option to purchase up to 5,443,697 shares of Common
Stock, par value $1.00 per share, of the Grantor (the "Common Stock"), upon the
terms and subject to the conditions hereof; and
WHEREAS, in order to induce the Grantee and Merger Subsidiary to enter into
the Merger Agreement, the Grantor is willing to grant the Grantee the requested
option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Payment of Spread.
(a) Contemporaneously herewith the Grantee, Merger Subsidiary and the
Grantor are entering into the Merger Agreement. Subject to the other terms
and conditions set forth herein, the Grantor hereby grants to the Grantee
an irrevocable option (the "Option") to purchase up to 5,443,697 shares of
Common Stock (the "Shares") at a cash purchase price equal to $50.00 per
share (the "Purchase Price"). The Option may be exercised by the Grantee,
in whole or in part, at any time, or from time to time, following the
occurrence of one of the events set forth in Section 2(d) hereof, and prior
to the termination of the Option in accordance with the terms of this
Agreement.
(b) In the event the Grantee wishes to exercise the Option, the
Grantee shall send a written notice to the Grantor (the "Stock Exercise
Notice") specifying a date (subject to the HSR Act (as defined below) and
applicable insurance regulatory approvals) not later than 10 business days
and not earlier than three business days following the date such notice is
given for the closing of such purchase. In the event of any change in the
number of issued and outstanding shares of Common Stock by reason of any
stock dividend, stock split, split-up, recapitalization, merger or other
change in the corporate or capital structure of the Grantor, the number of
Shares subject to this Option and the purchase price per Share shall be
appropriately adjusted to restore the Grantee to its rights hereunder,
including its right to purchase Shares representing 19.9% of the capital
stock of the Grantor entitled to vote generally for the election of the
directors of the Grantor
<PAGE>
which is issued and outstanding immediately prior to the exercise of the
Option at an aggregate purchase price equal to the Purchase Price
multiplied by 5,443,697.
(c) If at any time the Option is then exercisable pursuant to the
terms of Section l(a) hereof, the Grantee may elect, in lieu of exercising
the option to purchase Shares provided in Section 1(a) hereof, to send a
written notice to the Grantor (the "Cash Exercise Notice") specifying a
date not later than 20 business days and not earlier than 10 business days
following the date such notice is given on which date the Grantor shall pay
to the Grantee an amount in cash equal to the Spread (as hereinafter
defined) multiplied by all or such portion of the Shares subject to the
Option as Grantee shall specify, net of any taxes required to be withheld
under applicable law. As used herein "Spread" shall mean the excess, if
any, over the Purchase Price of the higher of (x) if applicable, the
highest price per share of Common Stock (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid or proposed
to be paid by any person pursuant to one of the transactions enumerated in
Section 2(d) hereof (the "Alternative Purchase Price") or (y) the closing
price of the shares of Common Stock on the NYSE Composite Tape on the last
trading day immediately prior to the date of the Cash Exercise Notice (the
"Closing Price"). If, in the case of clause (x) above, the Alternative
Purchase Price can be calculated by reference to an all cash amount paid or
proposed to be paid for any shares of Common Stock outstanding, such cash
amount shall be deemed to be the Alternative Purchase Price; if, in the
case of clause (x) above, no shares of Common Stock will be purchased for
all cash, the Alternative Purchase Price shall be the sum of (i) the fixed
cash amount, if any, included in the Alternative Purchase Price plus (ii)
the fair market value of such property other than cash included in the
Alternative Purchase Price. If such other property consists of securities
with an existing public trading market, the average of the closing prices
(or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market
on the five trading days ending five days prior to the date of the Cash
Exercise Notice or, if Section l(d) is applicable, ending on the last
trading day immediately prior to termination of the Merger Agreement, shall
be used to calculate the fair market value of such property. If such other
property consists of something other than cash or securities with an
existing public trading market and, as of the payment date for the Spread,
agreement on the value of such other property has not been reached, the
Alternative Purchase Price shall be deemed to equal the Closing Price.
Upon exercise of its right to receive cash pursuant to this Section 1(c),
the obligations of the Grantor to deliver Shares pursuant to Section 3
shall be terminated with respect to such number of Shares for which the
Grantee shall have elected to be paid the Spread.
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option is subject only to the conditions that:
(a) No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Shares shall be in effect; and
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(b) Any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall have
expired or been terminated; and
(c) Any approval required to be obtained prior to the delivery of the
Shares under the insurance laws of any state or foreign jurisdiction shall
have been obtained and be in full force and effect; and
(d) Any of the events specified in Sections 8.5(b), 8.5(c) or 8.5(d)
of the Merger Agreement shall have occurred (each, a "Trigger Event").
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by
the Grantee in its Stock Exercise Notice or Cash Exercise Notice, as the
case may be, at 9:00 A.M., local time, at the offices of Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, New York, or if the conditions set
forth in Section 2(a), (b) or (c) have not then been satisfied, on the
second business day following the satisfaction of such conditions, or at
such other time and place as the parties hereto may agree (the "Closing
Date"). On the Closing Date, (i) in the event of a closing pursuant to
Section 1(b) hereof, the Grantor will deliver to the Grantee a certificate
or certificates, representing the Shares in the denominations designated by
the Grantee in its Stock Exercise Notice and the Grantee will purchase such
Shares from the Grantor at the price per Share equal to the Purchase Price,
or (ii) in the event of a closing pursuant to Section 1(c) hereof, as the
case may be, the Grantor will deliver to the Grantee cash in an amount
determined pursuant to Section 1(c) hereof, as the case may be. Any
payment made by the Grantee to the Grantor, or by the Grantor to the
Grantee, pursuant to this Agreement shall be made by certified or official
bank check or by wire transfer of federal funds to a bank designated by the
party receiving such funds.
(b) The certificates representing the Shares shall bear an appropriate
legend relating to the fact that such Shares have not been registered under
the Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Grantee that:
(a) Grantor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power and authority to enter into and perform this Agreement;
(b) the execution and delivery of this Agreement by the Grantor and
the consummation by it of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Grantor and this Agreement
has been duly executed and delivered by a duly authorized officer of the
Grantor and constitutes a valid and binding obligation of the Grantor,
enforceable in accordance with its terms, subject to bankruptcy,
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insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(c) the Grantor has taken all necessary corporate action to authorize
and reserve the Shares issuable upon exercise of the Option and the Shares,
when issued and delivered by the Grantor upon exercise of the Option and
paid for by Grantee as contemplated hereby will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights;
(d) except as otherwise required by the HSR Act and applicable
insurance laws, the execution and delivery of this Agreement by the Grantor
and the consummation by it of the transactions contemplated hereby do not
require the consent, waiver, approval or authorization of or any filing
with any person or public authority and will not violate, result in a
breach of or the acceleration of any obligation under, or constitute a
default under, any provision of Grantor's charter or by-laws, or any
material indenture, mortgage, lien, lease, agreement, contract, instrument,
order, law, rule, regulation, judgment, ordinance, or decree, or
restriction by which the Grantor or any of its subsidiaries or any of their
respective properties or assets is bound;
(e) no "fair price", "moratorium", "control share acquisition,"
"interested shareholder" or other form of antitakeover statute or
regulation, including without limitation, Section 203 of the Delaware
General Corporation Law, or similar provision contained in the charter or
by-laws of Grantor, is or shall be applicable to the acquisition of Shares
pursuant to this Agreement; and
(f) the Grantor has taken all corporate action necessary so that any
Shares acquired pursuant to this Agreement shall not be counted for
purposes of determining the number of shares of Common Stock beneficially
owned by the Grantee or any of its Affiliates or Associates (as defined in
the Rights Agreement) pursuant to the Rights Agreement, dated as of
September 11, 1998, between the Grantor and Chase Mellon Shareholder
Services, LLC, as Rights Agent (the "Rights Agreement").
5. Representations and Warranties of the Grantee. The Grantee represents
and warrants to the Grantor that:
(a) the execution and delivery of this Agreement by the Grantee and
the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the
Grantee and this Agreement has been duly executed and delivered by a duly
authorized officer of the Grantee and constitutes a valid and binding
obligation of Grantee; and
(b) the Grantee is acquiring the Option and, if and when it exercises
the Option, will be acquiring the Shares issuable upon the exercise thereof
for its own account and not with a view to distribution or resale in any
manner which would be in violation of the Securities Act.
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6. Listing of Shares; Filings; Governmental Consents. Subject to
applicable law and the rules and regulations of the New York Stock Exchange,
Inc. (the "NYSE"), the Grantor will promptly file an application to list the
Shares on the NYSE and will use its reasonable best efforts to obtain approval
of such listing and to effect all necessary filings by the Grantor under the HSR
Act and the applicable insurance laws of each state and foreign jurisdiction.
Each of the parties hereto will use its reasonable best efforts to obtain
consents of all third parties and governmental authorities, if any, necessary
for the consummation of the transactions contemplated.
7. Repurchase of Shares. If by the first anniversary of the date the
Merger Agreement was terminated (the "Merger Termination Date") pursuant to the
terms thereof, neither the Grantee nor any other Person has acquired more than
fifty percent (excluding the Shares) of the shares of outstanding Common Stock,
then the Grantor has the right to purchase (the "Repurchase Right") all, but not
less than all, of the Shares at the greater of (i) the Purchase Price or (ii)
the average of the last sales prices for shares of Common Stock on the five
trading days ending five days prior to the date the Grantor gives written notice
of its intention to exercise the Repurchase Right. If the Grantor does not
exercise the Repurchase Right within thirty days following the end of the one
year period after the Merger Termination Date, the Repurchase Right lapses. In
the event the Grantor wishes to exercise the Repurchase Right, the Grantor shall
send a written notice to the Grantee specifying a date (not later than 20
business days and not earlier than 10 business days following the date such
notice is given) for the closing of such purchase.
8. Sale of Shares. At any time prior to the first anniversary of the
Merger Termination Date, the Grantee shall have the right to sell (the "Sale
Right") to the Grantor all, but not less than all, of the Shares at the greater
of (i) the Purchase Price, or (ii) the average of the last sales prices for
shares of Common Stock on the five trading days ending five days prior to the
date the Grantee gives written notice of its intention to exercise the Sale
Right. If the Grantee does not exercise the Sale Right prior to the first
anniversary of the Merger Termination Date, the Sale Right terminates. In the
event the Grantee wishes to exercise the Sale Right, the Grantee shall send a
written notice to the Grantor specifying a date (not later than 20 business days
and not earlier than 10 business days following the date such notice is given)
for the closing of such sale.
9. Registration Rights.
(a) In the event that the Grantee shall desire to sell any of the
Shares within two years after the purchase of such Shares pursuant hereto,
and such sale requires, in the opinion of counsel to the Grantee, which
opinion shall be reasonably satisfactory to the Grantor and its counsel,
registration of such Shares under the Securities Act, the Grantor will
cooperate with the Grantee and any underwriters in registering such Shares
for resale, including, without limitation, promptly filing a registration
statement which complies with the requirements of applicable federal and
state securities laws, and entering into an underwriting agreement with
such underwriters upon such terms and conditions as are customarily
contained in underwriting agreements with respect to secondary
distributions; provided that the Grantor shall not be required to have
declared effective more than two registration statements hereunder and
shall be entitled to delay the filing or effectiveness of any registration
statement for up to 60 days if the offering would, in the judgment of the
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Board of Directors of the Grantor, require premature disclosure of any
material corporate development or material transaction involving the
Grantor or interfere with any previously planned securities offering by the
Company.
(b) If the Common Stock is registered pursuant to the provisions of
this Section 9, the Grantor agrees (i) to furnish copies of the
registration statement and the prospectus relating to the Shares covered
thereby in such numbers as the Grantee may from time to time reasonably
request, and (ii) if any event shall occur as a result of which it becomes
necessary to amend or supplement any registration statement or prospectus,
to prepare and file under the applicable securities laws such amendments
and supplements as may be necessary to keep available for at least 45 days
a prospectus covering the Common Stock meeting the requirements of such
securities laws, and to furnish the Grantee such numbers of copies of the
registration statement and prospectus as amended or supplemented as may
reasonably be requested. The Grantor shall bear the cost of the
registration, including, but not limited to, all registration and filing
fees, printing expenses, and fees and disbursements of counsel and
accountants for the Grantor, except that the Grantee shall pay the fees and
disbursements of its counsel, and the underwriting fees and selling
commissions applicable to the shares of Common Stock sold by the Grantee.
The Grantor shall indemnify and hold harmless (i) Grantee, its affiliates
and its officers and directors, and (ii) each underwriter and each person
who controls any underwriter within the meaning of the Securities Act or
the Securities Exchange Act of 1934, as amended (collectively, the
"Underwriters") ((i) and (ii) being referred to as "Indemnified Parties")
against any losses, claims, damages, liabilities or expenses, to which the
Indemnified Parties may become subject, insofar as such losses, claims,
damages, liabilities (or actions in respect thereof) and expenses arise out
of or are based upon any untrue statement or alleged untrue statement, of
any material fact contained or incorporated by reference in any
registration statement filed pursuant to this paragraph, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Grantor will not be
liable in any such case to the extent that any such loss, liability, claim,
damage or expense arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any such
documents in reliance upon and in conformity with written information
furnished to the Grantor by the Indemnified Parties expressly for use or
incorporation by reference therein.
(c) The Grantee and the Underwriters shall indemnify and hold harmless
the Grantor, its affiliates and its officers and directors against any
losses, claims, damages, liabilities or expenses to which the Grantor, its
affiliates and its officers and directors may become subject, insofar as
such losses, claims, damages, liabilities (or actions in respect thereof)
and expenses arise out of or are based upon any untrue statement of any
material fact contained or incorporated by reference in any registration
statement filed pursuant to this paragraph, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Grantor by the Grantee
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Grantee or the Underwriters, as applicable, specifically for use or
incorporation by reference therein.
10. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
11. Specific Performance. The Grantor acknowledges that if the Grantor
fails to perform any of its obligations under this Agreement immediate and
irreparable harm or injury will be caused to the Grantee for which money damages
would not be an adequate remedy. In such event, the Grantor agrees that the
Grantee shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if the Grantee should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, the Grantor hereby waives the claim or defense that the Grantee has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. The Grantor
further agrees to waive any requirements for the securing or posting of any bond
in connection with obtaining any such equitable relief.
12. Notice. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and shall be
deemed delivered (i) on the date personally delivered, (ii) one business day
after the date delivered by facsimile transmission with a confirmation copy sent
by overnight courier or first-class mail, or (iii) three business days after the
date sent by registered or certified mail, postage prepaid:
If to the Grantee:
Royal Group Inc.
9300 Arrowpoint Blvd
Charlotte, North Carolina 28273-8135
Attention: Joyce W. Wheeler
Fax: (704) 522-3111
Phone: (704) 522-2739
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Christopher E. Manno
Fax: (212) 728-8111
Phone: (212) 728-8000
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If to the Grantor:
Orion Capital Corporation
9 Farm Springs Road
Farmington, Connecticut 06032
Attention: Corporate Secretary
Fax: (860) 674-6670
Phone: (860) 674-6904
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers
Fax: (212) 735-2000
Phone: (212) 735-3780
or to such other persons or addresses as may be designated in writing by
the party to receive such notice as provided above.
13. Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such assigns shall agree to be bound by the
provisions of this Agreement. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the Grantor or the Grantee or
their successors or assigns, any rights or remedies under or by reason of this
Agreement.
14. Entire Agreement; Amendments. This Agreement, together with the
Merger Agreement and the other documents referred to therein, contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
15. Assignment. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the prior written consent of the
other party hereto, except that the Grantee may assign its rights and
obligations hereunder to any of its direct or indirect wholly owned subsidiaries
(including Merger Subsidiary) or direct or indirect parent companies, but no
such transfer shall relieve the Grantee of its obligations hereunder if such
transferee does not perform such obligations.
16. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
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17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
19. Termination. The right to exercise the Option granted pursuant to
this Agreement shall terminate at the earlier of (i) the Effective Time (as
defined in the Merger Agreement); (ii) 90 days after the date full payment of
the termination fee is made by Grantor to Grantee under Section 8.5(b), 8.5(c)
or 8.5(d) of the Merger Agreement (the date referred to in clause (ii) being
hereinafter referred to as the "Option Termination Date"), or (iii) one day
following the date on which it is certain that no termination fee will become
payable to Parent under Section 8.5 of the Merger Agreement; provided that, if
the Option cannot be exercised or the Shares cannot be delivered to Grantee upon
such exercise because the conditions set forth in Section 2(a), (b) or (c)
hereof have not yet been satisfied, the Option Termination Date shall be
extended until thirty days after such impediment to exercise or delivery has
been removed but not past December 31, 2001.
All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
20. Profit Limitation. Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined)
exceed $55,000,000 and, if it otherwise would exceed such amount, the Grantee,
at its sole election, shall either (a) reduce the number of shares of Common
Stock required to be delivered by Grantor pursuant to the Stock Exercise Notice,
(b) deliver to the Grantor for cancellation Shares previously purchased by
Grantee, (c) reduce the cash payable to Grantee pursuant to Section 1(c) or 1(d)
hereof, (d) pay cash or other consideration to the Grantor, or (e) undertake any
combination thereof, so that Grantee's Total Profit shall not exceed $55,000,000
after taking into account the foregoing actions.
Notwithstanding any other provision of this Agreement, this Option may not
be exercised for a number of Shares as would, as of the date of the Stock
Exercise Notice, result in a Notional Total Profit (as defined below) of more
than $55,000,000 and, if exercise of the Option otherwise would exceed such
amount, the Grantee, at its discretion, may increase the Purchase Price for that
number of Shares set forth in the Stock Exercise Notice so that the Notional
Total Profit shall not exceed $55,000,000; provided, that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date at the Purchase Price set forth in Section 1(a) hereof.
As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount of cash received by Grantee
pursuant to Section 8.5 of the Merger Agreement and Section l(c) and Section
l(d) hereof, (ii) the amount of (x) cash received by Grantee pursuant to the
Grantor's repurchase of Shares pursuant to Sections 7 or 8 hereof, less (y) the
Grantee's purchase price for such Shares, and (iii) (x) the net cash amounts
received by
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Grantee pursuant to the sale of Shares (or any other securities into
which such Shares are converted or exchanged) to any unaffiliated party prior to
the first anniversary of the Merger Termination Date, less (y) the Grantee's
purchase price for such Shares.
As used herein, the term "Notional Total Profit" with respect to any number
of Shares as to which Grantee may propose to exercise this Option shall be the
Total Profit determined as of the date of the Stock Exercise Notice assuming
that this Option were exercised on such date for such number of Shares and
assuming that such Shares, together with all other Shares held by Grantee and
its affiliates as of such date, were sold for cash at the closing market price
for the Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
21. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
22. Public Announcement. The Grantee will consult with the Grantor and
the Grantor will consult with the Grantee before issuing any press release with
respect to the initial announcement of this Agreement, the Option or the
transactions contemplated hereby and neither party shall issue any such press
release prior to such consultation except as may be required by law or the
applicable rules and regulations of the NYSE.
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IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement
to be duly executed and delivered on the day and year first above written.
ORION CAPITAL CORPORATION
By: /s/ W. Marston Becker
---------------------
Name: W. Marston Becker
Title: Chairman and CEO
ROYAL GROUP INC.
By: /s/ Terry Broderick
-------------------
Name: Terry Broderick
Title: President U.S. Operations
<PAGE>
Exhibit 5
[LETTERHEAD DONALDSON, LUFKIN & JENRETT]
July 11, 1999
Board of Directors
Orion Capital Corporation
9 Farm Springs Road
Farmington, Connecticut 06032
Dear Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, par value $1.00 per share ("Company
Common Stock") of Orion Capital Corporation (the "Company") of the Tender
Price (as defined below) to be received by such holders pursuant to the terms
of the Agreement and Plan of Merger to be dated as of July 12, 1999 (the
"Agreement"), among the Company, Royal Group Inc. ("Parent") and NTG
Acquisition Corp ("Merger Sub"), a wholly owned subsidiary of Parent, pursuant
to which Merger Sub will merge (the "Merger") with and into the Company.
Pursuant to the Agreement, Parent and Merger Sub will commence a tender
offer (the "Tender Offer"; the Tender Offer, together with the Merger, the
"Transaction") for all of the outstanding shares of Company Common Stock at a
price of $50.00 per share (the "Tender Price"). The Tender Offer is to be
followed by the Merger in which the shares of Company Common Stock not
tendered into the Tender Offer would be converted into the right to receive
the Tender Price.
In arriving at our opinion, we have reviewed the draft dated July 8, 1999 of
the Agreement. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company including information
provided during discussions with management. Included in the information
provided during discussions with management were certain financial projections
of the Company for the period beginning January 1999 and ending December 2000
prepared by the management of the Company. Included in information that was
publicly available were I/B/E/S long-term growth rate estimates for the
Company. In addition, we have compared certain financial and securities data
of the Company with data of various other companies whose securities are
traded in public markets, reviewed historical stock prices and trading volumes
of the Company's common stock, reviewed prices and premiums paid in certain
other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have relied on representations that
they have been reasonably prepared on the basis reflecting the best currently
available estimates and judgments of the management of the Company as to the
future operating and financial performance of the Company. With respect to the
I/B/E/S growth rate estimates which were used to project the Company's
operating and financial performance for periods subsequent to December 2000,
we have assumed that such estimates are reasonable based on discussions with
the management of the Company as to the operating and financial performance of
the Company for such periods. We have not assumed any responsibility for
making an independent evaluation of any assets or liabilities or for making
any independent verification of any of the information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm
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this opinion. Our opinion does not address the relative merits of the
Transaction and the other business strategies being considered by the
Company's Board of Directors, nor does it address the Board's decision to
proceed with the Transaction. Our opinion does not constitute a recommendation
to any stockholder as to whether such stockholder should tender any shares
into the Tender Offer or as to how such stockholder should vote on the
proposed Merger.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company in the past
including acting as lead manager for the Company's $125 million Trust
Preferred Offering in February, 1998 and acting as financial advisor in
connection with the Company's investment in ACO Brokerage Holding, the sale of
the Company's investment in Intercargo Corporation and the sale of Wm. H.
McGee & Co., Inc. and has been compensated in a customary manner for such
services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Tender Price to be received by the holders of Company
Common Stock pursuant to the Tender Offer and Merger is fair to such holders
from a financial point of view.
Very truly yours,
Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ Perry H. Braun
-----------------------------------
Perry H. Braun
Managing Director
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Exhibit 6
[LETTERHEAD ORION CAPITAL]
July 16, 1999
To our Stockholders:
On July 12, 1999, Royal Group Inc. ("Royal US"), a Delaware corporation and
a wholly owned subsidiary of Royal & Sun Alliance Insurance Group plc ("Royal
plc"), NTG Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Royal US ("Purchaser"), and Orion Capital Corporation (the
"Company"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"). Pursuant to the Merger Agreement, the Purchaser commenced a
tender offer (the "Offer") for all of the Company's issued and outstanding
shares (the "Shares"), together with the Preferred Stock Purchase Rights
issued pursuant to a Rights Agreement dated as of September 11, 1996, as
amended, at a price of $50 per share in cash subject to the terms and
conditions in the Offer to Purchase and the related Letter of Transmittal that
are included in the Purchaser's offering materials. Under the Merger
Agreement, the Offer will be followed by a merger (the "Merger") of the
Purchaser with and into the Company, and all shares of common stock not
purchased in the Offer will be acquired by Royal US, through Purchaser, at the
same price.
Your Board of Directors has unanimously approved the Offer and the Merger
Agreement and has determined that the terms of each are advisable, fair to,
and in the best interests of, the Company's stockholders. Accordingly, the
Board of Directors recommends that stockholders accept the Offer and tender
their Shares in the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors, including, among other things, the
opinion of Donaldson, Lufkin & Jenrette Securities Corporation, the Company's
financial advisor, that, as of the date of such opinion, the consideration to
be received by the Company's stockholders pursuant to the Offer and the Merger
is fair, from a financial point of view, to such stockholders. The full text
of the opinion is attached as an exhibit to the Schedule 14D-9. Stockholders
are urged to read the opinion carefully and in its entirety.
Attached is a copy of the Schedule 14D-9 filed by the Company with the
Securities and Exchange Commission. The Schedule 14D-9 describes the reasons
for your Board of Directors' recommendation, and contains other important
information relating to the Offer. Also enclosed is the Offer to Purchase,
dated July 16, 1999, of the Purchaser, together with related materials,
including a Letter of Transmittal to be used for tendering your shares. These
documents set forth the terms and conditions of the Offer and provide
instructions on how to tender your shares. I urge you to read the Schedule
14D-9 and the enclosed materials carefully.
Sincerely,
/s/ W. M. Becker
W. Marston Becker
Chairman and Chief Executive Officer
