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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
MMI COMPANIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
common stock, par value $.10 per share, of MMI Companies, Inc.,
including the associated rights to purchase Series B Junior
Participating Preferred Stock, par value $20 per share, of MMI
Companies, Inc.
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(2) Aggregate number of securities to which transaction applies:
19,202,631 shares of MMI common stock.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$10.00 per share
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(4) Proposed maximum aggregate value of transaction:
$192,026,310
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(5) Total fee paid:
$38,406
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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[LOGO]
MMI COMPANIES, INC.
540 LAKE COOK ROAD
DEERFIELD, IL 60015
, 2000
Dear Stockholder,
You are cordially invited to attend a special meeting of the stockholders of
MMI Companies, Inc., which will be held at 540 Lake Cook Road, Deerfield,
Illinois, on , 2000, at 9:00 A.M., local time.
At the special meeting, you will be asked to consider and vote to approve a
merger agreement under which The St. Paul Companies would acquire MMI by merger
and you would be entitled to receive $10.00 per share in cash (unless you
properly exercise your appraisal rights).
Detailed information concerning the merger is set forth in the accompanying
proxy statement and a copy of the merger agreement is attached as Appendix A to
the proxy statement, both of which you are urged to read carefully.
THE BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS APPROVED THE MERGER
AGREEMENT, HAS DECLARED THE MERGER ADVISABLE, FAIR TO AND IN THE BEST INTERESTS
OF MMI AND ITS STOCKHOLDERS AND RECOMMENDS THAT HOLDERS OF COMMON STOCK VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
YOUR VOTE IS IMPORTANT. To assure that your shares are represented at the
special meeting, please complete, sign and date the enclosed proxy card and
return it in the enclosed postage-paid envelope. This will allow your shares to
be represented at the meeting whether or not you attend the meeting.
We thank you for your support over the years.
Sincerely yours,
[SIG]
B. Frederick Becker
Chairman of the Board and Chief
Executive Officer
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[LOGO]
MMI COMPANIES, INC.
540 LAKE COOK ROAD
DEERFIELD, IL 60015
NOTICE OF ANNUAL STOCKHOLDERS MEETING
, 2000
A special meeting of stockholders of MMI Companies, Inc., a Delaware
corporation, will be held on , 2000, at 9:00 A.M., local time, at
540 Lake Cook Road, Deerfield, Illinois, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of December 20, 1999, by and among MMI
Companies, Inc. ("MMI"), The St. Paul Companies, Inc. ("The St. Paul")
and Bowman Acquisition Corp., a wholly owned, indirect subsidiary of The
St. Paul ("Merger Sub"), that will result in:
- Merger Sub merging with and into MMI, with MMI being the surviving
corporation; and
- each outstanding share of MMI common stock held immediately prior to
the effective time of the merger being converted into the right to
receive $10.00 in cash payable to the holders thereof, without
interest, other than shares held by stockholders who are entitled to
and who have perfected their appraisal rights, shares held by MMI or
any of MMI's subsidiaries or shares held by The St. Paul, Merger Sub
or any other subsidiary of The St. Paul.
2. To transact such other business as may properly come before the MMI
special meeting or any adjournment or postponement of the MMI special
meeting, including without limitation, potential adjournments or
postponements of the MMI special meeting for the purpose of soliciting
additional proxies in order to approve and adopt the merger agreement.
All stockholders are invited to attend, although only those stockholders of
record at the close of business on January 31, 2000 will be entitled to notice
of and to vote at the meeting or any adjournment thereof. A list of stockholders
entitled to vote at the special meeting will be available during ordinary
business hours at MMI's offices at 540 Lake Cook Road, Deerfield, IL 60015 for a
period of at least 10 days prior to the special meeting for examination by any
MMI stockholder entitled to vote at the special meeting. Your attention is
directed to the proxy statement accompanying this notice for a more complete
statement regarding the matters proposed to be acted upon at the meeting. A copy
of the merger agreement is attached as Appendix A to the accompanying proxy
statement.
PLEASE SIGN AND DATE THE ACCOMPANYING PROXY FORM AND RETURN IT IN THE
STAMPED, SELF-ADDRESSED ENVELOPE ENCLOSED FOR YOUR USE.
PLEASE DO NOT SEND YOUR MMI COMMON STOCK CERTIFICATES TO MMI WITH YOUR PROXY
CARDS. IF THE MERGER IS CONSUMMATED YOU WILL RECEIVE A LETTER CONTAINING
INSTRUCTIONS FOR THE SURRENDER OF YOUR MMI COMMON STOCK CERTIFICATES.
[SIG]
Wayne A. Sinclair
Secretary
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PROXY STATEMENT
MMI COMPANIES, INC.
540 LAKE COOK ROAD
DEERFIELD, IL 60015
DATED , 2000
This Proxy Statement is furnished in connection with the solicitation by the
board of directors of MMI Companies, Inc. ("MMI") of proxies for use at the
special meeting of stockholders to be held on , 2000. At the special
meeting, stockholders will be asked to approve the Agreement and Plan of Merger,
dated as of December 20, 1999, among MMI, The St. Paul Companies, Inc. ("The St.
Paul") and Bowman Acquisition Corp., a wholly owned subsidiary of The St. Paul
("Merger Sub"). Consummation of the merger will result in:
- Merger Sub merging with and into MMI, with MMI as the surviving
corporation; and
- each outstanding share of MMI common stock held immediately prior to the
effective time of the merger being converted into the right to receive
$10.00 in cash payable to the holders thereof, without interest, other
than shares held by stockholders who are entitled to and who have
perfected their appraisal rights, shares held by MMI or any of MMI's
subsidiaries or shares held by The St. Paul, Merger Sub or any other
subsidiary of The St. Paul.
As of January 31, 2000, MMI had shares of common stock, par value
$.10 per share, outstanding. Only stockholders of record at the close on
business on January 31, 2000, will be entitled to vote at the special meeting.
Each stockholder will be entitled to one vote for each share of common stock
outstanding in his or her name on the records of MMI. Approval of the merger
agreement requires the affirmative vote of at least a majority of the
outstanding shares of MMI common stock.
All proxies duly executed and received will be voted on all business
properly presented at the special meeting. Only such business that is brought
before the special meeting by or at the direction of the board of directors will
be conducted at the special meeting. Proxies that specify a vote on a proposal
will be voted in accordance with such specification. Proxies that do not specify
a vote on a proposal will be voted in accordance with the recommendation of the
board of directors. The board of directors knows of no other business to be
brought before the special meeting. However, if other business is properly
brought before the special meeting, the holders of the proxies will vote on
those proposals at their discretion. A stockholder voting by means of a proxy
has the power to revoke it at any time before it is exercised by submitting
another proxy bearing a later date, by notifying the Secretary of MMI in writing
of such revocation, or by voting in person at the special meeting.
THE BOARD OF DIRECTORS OF MMI HAS APPROVED THE MERGER AGREEMENT, HAS
DECLARED THE MERGER ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF MMI AND ITS
STOCKHOLDERS, AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
MMI will pay the expense of soliciting proxies. Proxies will be solicited by
mail. Proxies may also be solicited by telephone calls or personal calls by
officers, directors, or employees of MMI, none of whom will be specially
compensated for soliciting proxies. MMI has retained the services of ChaseMellon
Consulting Services, L.L.C., to assist in the solicitation. Fees for such
services are estimated to be approximately $7,500. This proxy statement and the
accompanying proxy were mailed on or about , 2000.
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TABLE OF CONTENTS
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PAGE
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Frequently Asked Questions and Answers About the Merger..... 1
Summary..................................................... 4
Forward-Looking Statements.................................. 10
Market Price of MMI Common Stock and Dividend History....... 10
Selected Consolidated Financial Data of MMI................. 11
The MMI Special Meeting..................................... 12
The Merger.................................................. 14
The Merger Agreement........................................ 25
Information Concerning MMI.................................. 38
Security Ownership of Principal Stockholders and Management
of MMI.................................................... 39
Supplemental Information Regarding MMI...................... 41
Information Concerning The St. Paul......................... 41
Information Concerning Bowman Acquisition Corp.............. 41
Stockholder Proposals....................................... 41
Where You Can Find More Information......................... 41
Independent Auditors........................................ 42
APPENDIX A: Agreement and Plan of Merger
APPENDIX B: Opinion of Salomon Smith Barney Inc.
APPENDIX C: Appraisal Rights Statute
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FREQUENTLY ASKED QUESTIONS AND ANSWERS
ABOUT THE MERGER
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Q: Why is MMI proposing the merger?.......... A: The MMI board believes the merger of
Merger Sub with and into MMI, with MMI as the
surviving corporation, is advisable, fair to
and in the best interests of MMI and its
stockholders. See page .
Q: What will I receive in the merger?........ A: Each share of MMI common stock you own
will be converted into the right to receive
$10.00 in cash payable to the holders
thereof, without interest, other than shares
held by stockholders who are entitled to and
who have perfected their appraisal rights,
shares held by MMI or any of MMI's
subsidiaries or shares held by The St. Paul,
Merger Sub or any other subsidiary of The
St. Paul.
Q: What do I need to do now?................. A: If you are a stockholder of MMI, you
should simply indicate on your proxy card how
you want to vote, then sign and mail your
proxy card in the enclosed return envelope as
soon as possible so that your shares may be
represented at the MMI special meeting. If
you sign and send in your proxy but do not
indicate how you want to vote, your proxy
will be counted as a vote for the merger. You
may withdraw your proxy at any time prior to
its use at the MMI special meeting by
following the directions on page .
Q: When do you expect the merger to be
completed?............................. A: We are working toward obtaining regulatory
approvals and completing the merger as
quickly as possible. We currently expect to
complete the merger by , 2000.
See page .
Q: What are the tax consequences of the
merger?................................ A: The receipt of the merger consideration
($10.00 in cash per share) by holders of
common stock pursuant to the merger will be a
taxable transaction for federal income tax
purposes.
Tax considerations to you resulting from your
own individual circumstances and the merger
may be complex. You should carefully read the
discussion of the material U.S. federal
income tax consequences of the merger on
page of this document and consult with your
own advisors as to the federal, state and
local tax consequences. Foreign stockholders
should consult with local advisors as to the
tax consequences of the merger.
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Q: What is the MMI board of directors'
recommendation on the merger?.......... A: The MMI board approved the merger and
recommends that you vote FOR the proposal to
approve the merger agreement. See page .
Q: What vote is required to approve the
merger?................................ A: In order to complete the merger, the
merger agreement must be approved by the
affirmative vote of at least a majority of
the outstanding shares of MMI common stock.
Q: How can I find more information about the
merger?................................ A: This document contains important
information regarding the proposed merger, as
well as information about The St. Paul and
MMI. It also contains important information
about the factors management and the board of
MMI considered in evaluating the proposed
merger. We urge you to read this document
carefully, including the appendices, and to
consider how the merger affects you as a
stockholder. You also may want to review the
documents referenced under Where You Can Find
More Information on page . For information
about where to call to get answers to your
questions, see Who Can Help Answer My
Questions? on page .
Q: If my shares are held in street name by my
broker, will my broker vote my shares
for me?................................ A: No. Your broker will not vote your shares
for you unless you provide instructions on
how to vote. It is important therefore that
you follow the directions provided by your
broker regarding how to instruct your broker
to vote your shares. Without instructions,
your shares will not be voted, which for
purposes of voting on the proposed merger
will have the same effect as voting against
the proposed merger.
Q: May I change my vote after I have mailed
my signed proxy card?.................. A: Yes. You may change your vote at any time
before your proxy is voted at the MMI special
meeting. You may do this in one of three
ways.
- You may send the MMI Secretary a written
notice stating that you would like to
revoke your proxy;
- You may complete and submit a new proxy
card;
- You may attend the MMI special meeting and
vote in person if you tell the MMI
Secretary that you want to cancel your
proxy and vote in person. Simply attending
the MMI special meeting, however, will not
revoke your proxy.
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If you choose either of the first two options
above, you must submit your notice of
revocation or your new proxy card to MMI at
the address on page .
If you have instructed a broker to vote your
shares, you must follow directions received
from your broker to change your vote or to
vote in person at the MMI special meeting.
Q: Should I send in my stock certificates
now?................................... A: No. After the merger is complete, the
payment agent appointed by The St. Paul will
send you written instructions for exchanging
your stock certificates. See page .
Q: Who can help answer my questions?......... A: If you have more questions about the
proposals, you should contact:
MMI Companies, Inc.
540 Lake Cook Road
Deerfield, IL 60015
Attention: Wayne Sinclair, Secretary
Telephone Number: (847) 940-7550
</TABLE>
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SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
proposals for the special meeting fully and for a more complete description of
the legal terms of the merger you should read carefully this entire document and
the documents to which we have referred you. A copy of the merger agreement is
attached as Appendix A to this proxy statement and reference is made thereto for
a complete description of the merger. See "Where You Can Find More Information"
on page . We have included page references parenthetically to direct you to a
more complete description of the topics in this summary.
THE COMPANIES
THE ST. PAUL COMPANIES, INC.
385 Washington Street
St. Paul, Minnesota 55102
(612) 310-7911
The St. Paul is incorporated as a general business corporation under the
laws of the State of Minnesota. The St. Paul and its subsidiaries constitute one
of the oldest insurance organizations in the United States, dating back to 1853.
The St. Paul is a management company principally engaged, through its
subsidiaries, in providing property-liability and life insurance, and
reinsurance products and services worldwide. The St. Paul also has a presence in
the asset management industry through its majority ownership of The John Nuveen
Company. As a management company, The St. Paul oversees the operations of its
subsidiaries and provides them with capital, management and administrative
services. At March 1, 1999, The St. Paul and its subsidiaries employed
approximately 14,000 persons. As of September 30, 1999, The St. Paul had total
assets of $39.2 billion and stockholders' equity of $6.4 billion. In 1998, The
St. Paul had total revenues from continuing operations of $7.7 billion and net
income of $89.3 million.
MMI COMPANIES, INC.
540 Lake Cook Road
Deerfield, IL 60015
(847) 940-7550
MMI provides insurance products and related specialized services in two
principal markets: the United States healthcare industry and the international
insurance and reinsurance markets. Domestically, MMI offers specialized medical
malpractice insurance products and consulting services that are designed to
assist healthcare providers manage the cost and quality of care. MMI integrates
its professional liability insurance with certain of its fee-based risk
management services and does not offer such insurance or that set of risk
management services on a stand-alone basis. In addition, MMI offers a variety of
other consulting and fee-based services to healthcare providers, including
strategic and management consulting, employee relations consulting, risk
management services, and property and casualty claims management services.
Internationally, MMI operates as a specialty casualty and property reinsurer and
insurer operating in the London-based reinsurance and insurance market,
primarily through its subsidiary, Unionamerica Insurance Company Limited.
Unionamerica's core businesses are professional liability reinsurance, including
malpractice reinsurance for healthcare providers, as well as lawyers and other
professionals, and reinsurance and insurance for a variety of property and
casualty risks.
4
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BOWMAN ACQUISITION CORP.
385 Washington Street
St. Paul, Minnesota 55102
(612) 310-7911
Bowman Acquisition Corp. (the "Merger Sub") is a corporation formed by a
subsidiary of St. Paul to effect the merger. Merger Sub will not have any
significant assets or liabilities or engage in any activities other than those
related to completing the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The MMI board believes that the merger is advisable, fair to you and in your
best interest and recommends that you vote FOR the proposal to approve the
merger agreement and the merger.
REASONS FOR MERGER (PAGE )
The MMI board believes that the merger will achieve greater value at this
time for MMI stockholders as compared with remaining a public company and that
stockholder value may be maximized by selling MMI to a larger, better
capitalized company. In reaching its determination, the MMI board considered
various factors, such as the present and anticipated environment of MMI's
business, the financial condition, results of operations, business and prospects
of MMI and the value to be received per share of MMI common stock in the merger.
OPINION OF MMI'S FINANCIAL ADVISOR (PAGE )
In connection with the merger, the MMI board received a written opinion from
Salomon Smith Barney Inc. as to the fairness, from a financial point of view, of
the merger consideration to the holders of MMI common stock. The full text of
Salomon Smith Barney's written opinion dated December 20, 1999 is attached to
the back of this proxy statement as Appendix B. We encourage you to read this
opinion carefully in its entirety for a description of the assumptions made,
matters considered and limitations on the review undertaken. SALOMON SMITH
BARNEY'S OPINION IS DIRECTED TO THE MMI BOARD AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE
PROPOSED MERGER.
THE SPECIAL MEETING (PAGE )
TIME, DATE, PLACE AND PURPOSE
MMI will hold a special meeting of stockholders on , 2000 at
9:00 A.M., local time, at 540 Lake Cook Road, Deerfield, Illinois. At the MMI
special meeting, the holders of shares of MMI common stock will vote on:
- the approval of the merger agreement;
- the transaction of such other business as may properly come before the MMI
special meeting.
RECORD DATE AND VOTING POWER
You are entitled to vote at the MMI special meeting if you owned shares of
MMI common stock as of the close of business on the record date of January 31,
2000. On the record date, there were shares of MMI common stock
outstanding held by approximately 550 record holders.
You are entitled to one vote for each share of MMI common stock you owned on
the record date. The holders of a majority of the shares entitled to vote at the
MMI special meeting must be present in person or by proxy in order to constitute
a quorum for all matters to come before the special meeting.
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VOTE REQUIRED
The affirmative vote of at least a majority of the outstanding shares of MMI
common stock is required to approve and adopt the merger agreement and to
consummate the merger.
PROXIES
MMI will bear its own cost of solicitation of proxies. MMI will reimburse
brokerage houses, fiduciaries, nominees and others for their out-of- pocket
expenses in forwarding proxy materials to beneficial owners of MMI common stock
held in their names. MMI has retained the services of ChaseMellon Consulting
Services to assist in the solicitation. Fees for such services are estimated to
be approximately $7,500.
THE MERGER (PAGE )
WHAT HOLDERS OF MMI COMMON STOCK WILL RECEIVE (PAGE )
Each share of your MMI common stock held immediately prior to the effective
time of the merger will be exchanged for the right to receive $10.00 in cash
payable to the holders thereof, without interest, other than shares held by
stockholders who are entitled to and who have perfected their appraisal rights,
shares held by MMI or any of MMI's subsidiaries or shares held by The St. Paul,
Merger Sub or any other subsidiary of The St. Paul.
MMI stockholders should not send in their stock certificates until
instructed to do so after the merger is completed.
EFFECTIVE TIME OF THE MERGER (PAGE )
The merger will become effective when a certificate of merger is filed with
the Delaware Secretary of State or at such later time as agreed to by MMI and
The St. Paul.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE )
As of the record date, the directors and executive officers of MMI and their
affiliates have the right to vote an aggregate of 403,365 shares of MMI common
stock at the special meeting, representing approximately 2.1% of the shares of
MMI common stock outstanding on the record date. See "Security Ownership of
Principal Stockholders and Management of MMI" on page .
Some directors and executive officers of MMI have interests in the merger
that are different from, or in addition to, your interests as a stockholder.
These interests may relate to or arise from, among other things, potential
change in control payments and employment agreements which are discussed in more
detail in "The Merger--Interests of Directors and Executive Officers in the
Merger" on page .
Each outstanding option to purchase MMI common stock, whether or not
exercisable, will be canceled as of the effective time of the merger. Each
option holder will be entitled to receive an amount in cash equal to the excess,
if any, of the merger consideration over the exercise price per share of such
option multiplied by the number of shares of common stock previously subject to
such option, less any required withholding taxes.
CONDITIONS TO THE MERGER AGREEMENT (PAGE )
The completion of the merger depends upon the companies meeting a number of
conditions, including, among others, the following:
- the approval of the merger by the MMI stockholders;
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- the expiration or termination of the waiting period applicable to the
consummation of the merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended;
- the receipt of all authorizations, consents, orders and approvals of any
required governmental or insurance authority, except for any non-insurance
or non-HSR related consents which are not material;
- the absence of legal restraints or prohibitions preventing the
consummation of the merger;
- the receipt of required, material third-party consents or approvals; and
- the material correctness of the representations and warranties of the
parties contained in the merger agreement and the material performance of
the obligations of the parties to be performed under the merger agreement.
Each condition to the merger may be waived by the company entitled to assert
the condition.
TERMINATION OF THE MERGER AGREEMENT (PAGE )
The companies may, by mutual written consent, agree to terminate the merger
agreement without completing the merger, and either company may terminate the
merger agreement if any of the following occurs:
1. the merger is not consummated by August 31, 2000;
2. the approval of the stockholders of MMI is not obtained; or
3. any order permanently restraining, enjoining or otherwise prohibiting
consummation of the merger becomes final and non-appealable.
The St. Paul can terminate the merger agreement if any of the following
occurs:
1. MMI enters into a binding agreement for a "superior proposal" (as
defined in the merger agreement) or the MMI board withdraws or adversely
modifies its approval or recommendation of the merger agreement; or
2. MMI breaches any representation, warranty, covenant or agreement
contained in the merger agreement that would cause the condition relating
to MMI's representations and warranties or obligations pursuant to the
merger agreement not to be satisfied or incapable of being satisfied and
such breach is either not curable or, if curable, is not cured within 20
days after written notice of such breach is given by The St. Paul.
MMI can terminate the merger agreement if any of the following occurs:
1. MMI receives a superior proposal and the MMI board determines in good
faith to accept the superior proposal in order to act in a manner
consistent with its fiduciary duties to the MMI stockholders; or
2. The St. Paul breaches any representation, warranty, covenant or
agreement contained in the merger agreement that would cause the
condition relating to The St. Paul's representations and warranties or
obligations pursuant to the merger agreement not to be satisfied or
incapable of being satisfied and such breach is either not curable or, if
curable, is not cured within 20 days after written notice of such breach
is given by MMI.
TERMINATION FEES (PAGE )
If the merger agreement is terminated by The St. Paul or MMI after a failure
to obtain stockholder approval at the special meeting, MMI will pay The
St. Paul reasonable, documented, out-of-pocket expenses incurred in connection
with the merger agreement and the transactions
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contemplated by the merger agreement, in an amount up to $1 million. The merger
agreement requires MMI to pay to The St. Paul a termination fee of up to $7.5
million if the merger agreement is terminated under various circumstances.
FINANCING FOR THE MERGER (PAGE )
The St. Paul intends to fund the merger consideration with cash from
operations.
ACCOUNTING TREATMENT (PAGE )
The merger will be treated as a "purchase" in accordance with generally
accepted accounting principles.
TAX CONSEQUENCES (PAGE )
In general, you will recognize a capital gain or loss equal to the
difference between the cash you receive from the merger and your adjusted tax
basis in the shares of common stock surrendered. BECAUSE INDIVIDUAL
CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR TO DETERMINE THE PARTICULAR TAX EFFECTS OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
REGULATORY MATTERS (PAGE )
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
requires MMI and The St. Paul to furnish certain information and materials to
the Antitrust Division of the Department of Justice and the Federal Trade
Commission and requires that a specified waiting period expire or be terminated
before the merger can be completed. The waiting period under the
Hart-Scott-Rodino Act has not yet been terminated.
The completion of the merger is subject to certain approvals of and/or
notices to, and the expiration of applicable waiting periods required by, the
insurance department of Missouri. The St. Paul has filed an application for
approval with the insurance department of Missouri. A hearing on the application
for approval of the merger is mandatory in Missouri. In addition, The St. Paul
has made notice filings in certain other jurisdictions, including to insurance
departments in numerous states where The St. Paul's subsidiaries and MMI's
subsidiaries together have sufficiently large market shares in particular
insurance lines to require a notification prior to a merger. Approval of the
merger is not required in these states, but the insurance departments could
determine to impose conditions on the merger that could prevent its
consummation.
The St. Paul and MMI conduct operations in a number of foreign countries,
including the United Kingdom and Ireland, where regulatory filings or approvals
may be required in connection with the consummation of the merger. In
particular, The St. Paul and MMI are required to receive certain approvals,
consents, indications, decisions or confirmations from the UK Office of Fair
Trading (or the Commission of the European Communities), the UK Financial
Services Authority, the Council of Lloyd's and the Minister for Enterprise Trade
and Employment of Ireland.
We cannot predict whether we will obtain the required regulatory approvals
within the time frame contemplated by the merger agreement or on conditions that
would not be detrimental to the combined company.
APPRAISAL RIGHTS (PAGE )
Any stockholder who does not wish to accept the merger consideration has the
right under the Delaware General Corporation Law to receive the "fair value" of
his or her shares of common stock as determined by a Delaware court. This
"appraisal right" is subject to a number of restrictions and
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technical requirements. Generally, in order to perfect appraisal rights (a) a
dissenting stockholder must not vote in favor of adopting and approving the
merger agreement and (b) a dissenting stockholder must make a written demand for
appraisal before the vote on the merger agreement is taken. Merely voting
against the merger agreement will not protect the right of appraisal.
Appendix C to this proxy statement contains the applicable provisions of the
Delaware General Corporation Law relating to appraisal rights. See "Appraisal
Rights" on page .
9
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain matters referred to herein contain forward-looking statements that
involve risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations and
adequacy of reserves. MMI claims the protection of the disclosure liability safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. MMI assumes no duty to update such
forward-looking statements. Readers are cautioned that important factors could
affect the future results of MMI and cause those results to differ materially
from those expressed in such forward-looking statements. These factors include
successful execution of MMI's operating plans, the level of continued demand for
its products and services, actions of competitors with respect to products and
pricing, future reserve development, levels of future expenses, evolution of the
healthcare industry, MMI's principal market, general equity market conditions,
and regulatory and legal uncertainties.
MARKET PRICE OF MMI COMMON STOCK AND DIVIDEND HISTORY
MMI common stock is traded on the New York Stock Exchange under the symbol
"MMI." The following tables set forth the high and low daily closing prices of
the MMI common stock as reported on the New York Stock Exchange for the fiscal
quarters indicated. MMI's fiscal year end is December 31.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1998
- -----------------------------------------------------
First Quarter........................................ 26 23 7/16
Second Quarter....................................... 24 3/4 20 3/4
Third Quarter........................................ 23 1/4 15 1/2
Fourth Quarter....................................... 19 1/16 13 7/8
1999
- -----------------------------------------------------
First Quarter........................................ 17 11/16 14 1/2
Second Quarter....................................... 17 1/4 14 7/16
Third Quarter........................................ 16 5/16 10 3/8
Fourth Quarter....................................... 10 7/8 3 7/16
2000
- -----------------------------------------------------
First Quarter (through )....................... [ ] [ ]
</TABLE>
In 1999, MMI declared quarterly dividends of $0.09 per share, compared to
quarterly dividends of $0.08 per share in 1998.
Set forth below are the high, low and closing sale prices of MMI common
stock on December 17, 1999 and , 2000. December 17, 1999 was the
last full trading day prior to the public announcement of the merger, and
, 2000 was the last practicable trading day for which information
was available prior to the date of the first mailing of this document.
<TABLE>
<CAPTION>
MMI COMMON STOCK
---------------------------------
HIGH LOW CLOSE
--------- --------- ---------
<S> <C> <C> <C>
December 17, 1999......................... 4 3 13/16 3 15/16
, 2000.......................
</TABLE>
We urge you to obtain current market quotations of MMI common stock.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF MMI
The following selected financial data are derived from MMI's consolidated
financial statements. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
incorporated by reference into this document.
<TABLE>
<CAPTION>
9 MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
PREMIUMS AND INCOME DATA (1):
Gross premiums written............. $ 392,822 $ 362,932 $ 439,021 $ 372,173 $ 357,718 $ 366,802 $ 323,071
Net premiums earned (2)............ 273,180 255,104 346,735 287,497 281,391 272,903 267,976
Consulting and fee income.......... 46,074 33,649 44,485 44,862 32,314 21,544 18,587
Net investment income.............. 54,014 57,110 76,556 75,490 73,681 62,936 51,150
Net realized gains (losses) on
investments...................... (623) 1,990 2,678 2,182 (890) 1,692 (35,261)
Total revenues (2)................. 372,645 347,853 470,454 410,031 386,496 359,075 302,452
Income (loss) from continuing
operations (3)................... (58,105) 6,260 14,060 36,897 46,490 35,294 6,983
Per share (5)...................... (3.04) 0.33 0.73 1.90 2.57 2.62 0.55
Operating income (loss) (4)(6)..... (57,700) 4,967 12,320 35,487 47,086 34,187 30,550
Per share (5)...................... (3.02) 0.26 0.64 1.83 2.60 2.54 2.42
Cash dividends per common share.... 0.27 0.24 0.32 0.22 0.17 0.15 0.11
Weighted average number of common
and common equivalent shares
(5).............................. 19,089 19,409 19,385 19,396 18,087 13,446 12,634
BALANCE SHEET DATA (AT END OF
PERIOD) (1):
Investments........................ $1,160,513 $1,284,273 $1,259,422 $1,230,800 $1,212,556 $1,166,825 $ 849,049
Total assets....................... 1,987,717 2,008,318 1,959,409 1,884,067 1,804,421 1,741,758 1,401,315
Loss and loss adjustment expense
reserves......................... 1,220,156 1,182,628 1,176,073 1,125,146 1,149,918 1,199,870 1,002,839
Long-term notes payable............ -- -- -- -- 93,000 89,000 97,000
Mandatorily redeemable preferred
capital securities............... 118,975 118,778 118,817 118,724 -- -- 16,899
Unrealized gains (losses) on
investments...................... (3,076) 34,568 29,147 24,332 13,456 22,709 (9,470)
Stockholders' equity............... 314,818 411,516 412,928 399,002 355,166 272,266 136,952
Book value per share............... 16.42 21.67 21.67 21.16 19.01 16.39 11.04
GAAP RATIOS (7)(8):
Loss ratio......................... 112.5% 87.5% 84.1% 72.8% 74.2% 75.6% 74.8%
Expense ratio...................... 33.1% 30.6% 31.7% 38.3% 31.0% 29.4% 26.7%
Combined ratio..................... 145.6% 118.1% 115.8% 111.1% 105.2% 105.0% 101.5%
</TABLE>
- ------------------------------
(1) MMI acquired Unionamerica Holdings plc in December 1997 in a transaction
accounted for as a pooling of interests. As such, the consolidated financial
statements include Unionamerica's balance sheet and results of operations
for all periods presented.
(2) MMI reclassified certain premiums related to Unionamerica in 1997. There was
no effect on pre-tax income. See Note 14 to the Consolidated Financial
Statements.
(3) Income from continuing operations excludes a loss from discontinued
operations, net of tax, of $3,643,000 for the nine months ended
September 30, 1999, $2,084,000 for the nine months ended September 30, 1998,
$2,696,000 in 1998, $1,830,000 in 1997, $6,370,000 in 1996, $1,163,000 in
1995 and $185,000 in 1994 related to former affiliates. See Note 15 to the
Consolidated Financial Statements.
(4) Operating income represents income from continuing operations before
extraordinary losses of $707,000 in 1997 and $4,737,000 in 1995 and
after-tax realized investments gains (losses) of $(405,000) for the nine
months ended
11
<PAGE>
September 30, 1999, $1,293,000 for the nine months ended September 30, 1998,
$1,740,000 in 1998, $1,410,000 in 1997, $(596,000) in 1996, $1,106,000 in
1995 and $(23,567,000) in 1994.
(5) MMI adopted a new standard on earnings per share in 1997. All earnings per
share amounts have been restated to conform to the new requirements. Per
share and weighted average shares are presented on a diluted basis.
(6) In 1997, operating income includes a charge, net of tax, of $8,937,000 or
$.46 per share related to the acquisition of Unionamerica.
(7) GAAP ratios have been derived from the results of MMI's domestic and
international insurance segments. The 1997 expense ratio includes 3.4
percentage points related to expenses incurred in connection with the
Unionamerica acquisition.
(8) The expense ratio for 1997 and prior periods has been restated to exclude
interest expense, consistent with the 1998 calculation.
THE MMI SPECIAL MEETING
TIME, PLACE AND DATE
This document is being furnished to MMI stockholders as part of the
solicitation of proxies by the MMI board for use at a special meeting of
stockholders of MMI to be held on , 2000, at 9:00 a.m., local time, at 540
Lake Cook Road, Deerfield, Illinois, and at any adjournment or postponement
thereof. This document and the enclosed form of proxy are first being mailed to
stockholders of MMI on or about , 2000.
PURPOSE OF THE SPECIAL MEETING
At the MMI special meeting, the holders of shares of MMI common stock will
vote on:
- the approval of the merger agreement;
- the transaction of such other business as may properly come before the MMI
special meeting. Only such business that is brought before the special
meeting by or at the direction of the board of directors will be conducted
at the special meeting.
The MMI board, after careful consideration, has approved the merger
agreement and recommends that you vote "FOR" approval and adoption of the merger
agreement.
RECORD DATE, OUTSTANDING SHARES AND VOTING
Holders of record of MMI common stock at the close of business on the record
date of January 31, 2000 are entitled to notice of and to vote at the MMI
special meeting. On the record date, there were shares of MMI common
stock outstanding held by approximately 550 record holders. Each share of MMI
common stock as of the record date entitles its owner to one vote.
QUORUM
The representation, in person or by properly executed proxy, of the holders
of a majority of all of the shares of stock entitled to vote at the MMI special
meeting is necessary to constitute a quorum at the MMI special meeting.
VOTE REQUIRED
The holders of a majority of the voting power represented by the shares of
MMI common stock outstanding on the record date must vote affirmatively to
approve and adopt the merger agreement.
Shares of MMI common stock represented in person or by proxy will be counted
for the purposes of determining whether a quorum is present at the MMI special
meeting. Shares which
12
<PAGE>
abstain from voting will be treated as shares that are present and entitled to
vote at the MMI special meeting for purposes of determining whether a quorum
exists, but abstentions will have the same effect as votes against approval of
the merger agreement. Broker non-votes, which are shares held by brokers or
nominees for which no instructions are given by the beneficial owners of such
shares, will have the same effect as shares voted against approval of the merger
agreement.
As of the record date, directors and executive officers of MMI and their
affiliates may be deemed to be beneficial owners of approximately 2.1% of the
outstanding shares of MMI common stock.
VOTING OF PROXIES
All shares of MMI common stock which are entitled to vote and are
represented at the MMI special meeting by properly executed proxies received
prior to or at such meeting, and not revoked, will be voted at the MMI special
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies, other than broker non-votes, will be
voted for approval and adoption of the merger agreement.
The MMI board does not know of any matters other than those described in the
notice of the MMI special meeting that are to come before the MMI special
meeting. If any other matters are properly presented at the MMI special meeting
for consideration, including consideration of a motion to adjourn or postpone
such meeting to another time and/or place for the purposes of soliciting
additional proxies or allowing additional time for the satisfaction of
conditions to the merger, the persons named in the enclosed form of proxy and
acting under such proxy generally will have discretion to vote on such matters
in accordance with their best judgment.
REVOCATION OF PROXIES
Any proxy given in accordance with this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by:
- giving the Secretary of MMI, at or before the taking of the vote at the
MMI special meeting, a written notice of revocation bearing a later date
than the proxy;
- duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of MMI before the taking of the vote at the
MMI special meeting; or
- attending the MMI special meeting and voting in person, although
attendance at the MMI special meeting will not in and of itself constitute
a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to MMI
Companies, 540 Lake Cook Road, Deerfield, IL 60015, Attention: Wayne Sinclair,
Secretary, or hand delivered to the Secretary of MMI at or before the taking of
the vote at the MMI special meeting. Stockholders that have instructed a broker
to vote their shares must follow directions received from such broker in order
to change their vote or to vote at the MMI special meeting.
SOLICITATION OF PROXIES
MMI will bear its own cost of solicitation of proxies. MMI will reimburse
brokerage houses, fiduciaries, nominees and others for their out-of- pocket
expenses in forwarding proxy materials to beneficial owners of MMI common stock
held in their names. MMI has retained the services of ChaseMellon Consulting
Services to assist in the solicitation. Fees for such services are estimated to
be approximately $7,500.
13
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
MMI, through its subsidiaries, provides insurance products and related
specialized services in two principal markets: the United States healthcare
industry and the international insurance and reinsurance markets. MMI has
experienced intense competitive conditions in its target markets in recent
years, which have contributed to a decline in earnings. MMI reported income from
continuing operations before extraordinary loss of $14.1 million in 1998,
compared to $36.9 million in 1997 and $46.5 million in 1996. Furthermore, the
medical malpractice and reinsurance segments of the insurance industry have
experienced consolidation in recent years, in part as a result of customer
demand for larger, more well-capitalized carriers with broad product and
distribution capabilities, as well as industry competitive efforts to achieve
productivity improvement and expense reduction.
In June 1999, MMI met with representatives of Salomon Smith Barney, Inc., to
assist in exploring potential strategic alternatives to maximize shareholder
value, including strategic business combinations and the sale or merger of MMI.
During July and August, 1999, twenty-six potential strategic and financial
partners were contacted to ascertain their interest in pursuing an acquisition
of, a merger with or some other strategic partnering with MMI. Of these
organizations, seven parties signed confidentiality agreements and were provided
with selected information. From August through September 1999, MMI's management
team met with these parties, including The St. Paul, and presented additional
information regarding MMI and its future prospects. MMI provided additional
information during September and October, 1999 to three parties that expressed
continuing interest following the initial meeting.
On October 29, 1999, The St. Paul and one other party submitted a
preliminary expression of interest.
On October 31, 1999, the MMI board met to discuss the preliminary
indications of interest received. Both parties were invited to conduct
additional due diligence. Members of the MMI management team met with the
parties during November and provided additional due diligence material.
On November 1, 1999, MMI issued a press release and current report on Form
8-K that summarized expected third quarter reserve increases and restructuring
charges. On November 12, 1999, MMI filed a quarterly report on Form 10-Q for the
third quarter of 1999.
On December 10, 1999, The St. Paul and the other party submitted proposals
outlining terms of a potential acquisition of MMI. The MMI board considered the
proposal from the other party to be insufficient based on its price, terms and
conditions and completeness. Accordingly, the MMI board instructed its advisors
to continue to negotiate with The St. Paul. Subsequent negotiations with The St.
Paul resulted in a revised offer of $10.00 for each share of MMI common stock.
On December 14, 1999, The St. Paul board met and The St. Paul directors were
apprised of the resolution of the outstanding material issues pertaining to the
merger agreement. The St. Paul board voted unanimously to approve the merger
agreement and authorized the execution of the merger agreement, subject to
negotiation of remaining issues within the ranges authorized by The St. Paul
board.
On December 16, 1999, the MMI board met to consider the revised offer from
The St. Paul and authorized finalization of a definitive agreement with The St.
Paul.
14
<PAGE>
On December 19, 1999, the MMI board again met to consider the proposed
merger with The St. Paul. Management presentations included a discussion of
industry competitive conditions, expected financial performance for 2000 and the
proposed transaction. At the meeting, the MMI board reviewed and discussed with
Dewey Ballantine LLP, MMI's special counsel for the transaction, and Wildman
Harrold Allen & Dixon, MMI's outside legal counsel, and Salomon Smith Barney,
the material terms and provisions of the merger agreement. Also at this meeting,
Salomon Smith Barney delivered to the MMI board its oral opinion (which opinion
was confirmed by delivery of a written opinion dated December 20, 1999, the date
of execution of the merger agreement) to the effect that, as of the date of the
opinion and based on and subject to the matters described in the opinion, the
merger consideration was fair, from a financial point of view, to the holders of
MMI common stock. After a review of relevant legal considerations and other
discussions among the MMI board, the MMI directors voted to approve the merger
agreement and authorized the execution of the merger agreement and recommended
that MMI stockholders approve and adopt the merger agreement.
The MMI directors also took action at the December 19 meeting to amend the
Amended and Restated Rights Agreement, dated as of September 24, 1998, by and
between MMI and ChaseMellon Shareholder Services L.L.C., as rights agent (the
"Rights Agreement"). Each share of MMI common stock includes the associated
Right (as defined in the Rights Agreement) to purchase one one-hundredth of a
share of Series B Junior Participating Preferred Stock, par value $20 per share,
of MMI, or in certain circumstances, common stock or to receive other securities
pursuant to the Rights Agreement. The amendment to the Rights Agreement had the
effect of excepting The St. Paul from the definition of an Acquiring Person and
thereby avoid the triggering of the provisions of the Rights Agreement upon the
consummation of the merger.
On December 20, 1999, the merger agreement was executed and publicly
announced.
MMI'S REASONS FOR THE MERGER
In reaching its determination to approve the merger, and to recommend that
MMI stockholders vote to approve the merger agreement and the merger, the MMI
board considered the following material factors:
- The MMI board considered the information and presentations by MMI
management and its legal and financial advisors concerning the terms of
the merger and the business, technology, products, operations, financial
condition, and industry position of MMI, on both a historical and
prospective basis;
- The value to be received per share of MMI common stock in the merger
represented a 140% premium over the average closing sale price of MMI
common stock for the prior 30 day period, and a 154% premium over the
closing sale price of MMI common stock on December 15, 1999;
- The present and anticipated environment of MMI's business, including the
potential for further consolidation within the medical malpractice and
reinsurance industries and the need for substantial capital in order for
MMI to compete effectively, and the belief that stockholder value may be
maximized by selling MMI to a larger, better capitalized company;
- The financial condition, results of operations, business and prospects of
MMI, including a prolonged soft insurance market with limited potential
for price increases;
- The results of the process undertaken by MMI to solicit indications of
interest in MMI; and
15
<PAGE>
- The financial presentation of Salomon Smith Barney, including its opinion
as to the fairness, from a financial point of view, of the merger
consideration to the holders of MMI common stock, as described below under
the caption "Opinion of MMI's Financial Advisor".
The MMI board also took into account the fact that as a result of the
merger, that MMI stockholders would no longer participate in any future growth
and prospects of MMI. However, the MMI board believed that a sale of MMI under
the terms of the merger would achieve greater value at this time for the MMI
stockholders as compared with remaining a public company. The MMI board
concluded that the potential benefits of the merger outweighed the potential
risks.
The MMI board did not quantify or otherwise assign relative weights to these
factors or determine that any factor was of particular importance. Rather, the
MMI board made its recommendation based on the totality of the information
presented to and considered by it.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF MMI
The MMI board has determined that the merger agreement and the merger are
advisable, fair to and in the best interests of MMI and its stockholders.
Accordingly, the MMI board has approved and adopted the merger agreement and the
merger and recommends that MMI stockholders vote in favor of approval of the
merger agreement and the merger at the MMI special meeting.
OPINION OF MMI'S FINANCIAL ADVISOR
MMI retained Salomon Smith Barney to act as its financial advisor in
connection with the proposed merger. In connection with its engagement, MMI
requested that Salomon Smith Barney evaluate the fairness, from a financial
point of view, of the consideration to be received in the merger by holders of
MMI common stock. On December 19, 1999, at a meeting of the MMI board held to
evaluate the proposed merger, Salomon Smith Barney delivered to the MMI board an
oral opinion (which opinion was confirmed by delivery of a written opinion dated
December 20, 1999, the date of execution of the merger agreement) to the effect
that, as of the date of the opinion and based on and subject to the matters
described in the opinion, the merger consideration was fair, from a financial
point of view, to the holders of MMI common stock.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the merger agreement;
- held discussions with senior officers, directors and other representatives
and advisors of MMI and with senior officers and other representatives and
advisors of The St. Paul concerning the business, operations and prospects
of MMI;
- examined publicly available business and financial information relating to
MMI;
- examined financial forecasts and other information and data for MMI which
were provided to or otherwise discussed with Salomon Smith Barney by the
management of MMI, including actuarial reserve analyses and valuations
prepared by the independent and internal actuaries of MMI;
- reviewed the financial terms of the merger as described in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of MMI common stock, the historical and
projected earnings and other operating data of MMI, and the capitalization
and financial condition of MMI;
- considered, to the extent publicly available, the financial terms of other
transactions recently effected which Salomon Smith Barney considered
relevant in evaluating the merger;
16
<PAGE>
- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon
Smith Barney considered relevant in evaluating those of MMI; and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as Salomon Smith Barney deemed appropriate in
arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, on the accuracy and completeness of all financial and
other information and data that it reviewed or considered. With respect to these
financial forecasts and other information and data, the management of MMI
advised Salomon Smith Barney that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of MMI as to the future financial performance of MMI.
Salomon Smith Barney also was advised that the actuarial reserve analyses
and valuations relating to MMI prepared by its independent and internal
actuaries were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the actuaries as to MMI's reserves. Salomon
Smith Barney is not an actuarial firm and its services did not include any
actuarial determinations or evaluations by it or an attempt to evaluate
actuarial assumptions, nor did Salomon Smith Barney express any views as to
matters relating to MMI's reserves, including, without limitation, the adequacy
of MMI's reserves. Salomon Smith Barney did not make and, except for the
actuarial reserve analyses and valuations prepared by MMI's independent and
internal actuaries, was not provided with an independent evaluation or appraisal
of the assets, liabilities (contingent or otherwise) or reserves of MMI, and did
not make any physical inspection of the properties or assets of MMI. Salomon
Smith Barney assumed, with MMI's consent, that in the course of obtaining the
necessary regulatory approvals for the merger, no limitations, restrictions or
conditions would be imposed that would have a material adverse effect on the
contemplated benefits of the merger to MMI.
In connection with its engagement, Salomon Smith Barney was requested to
approach, and held discussions with, third parties to solicit indications of
interest in the possible acquisition of MMI. Salomon Smith Barney expressed no
view as to, and its opinion does not address, the relative merits of the merger
as compared to any alternative business strategies that might exist for MMI or
the effect of any other transaction in which MMI might engage. Salomon Smith
Barney's opinion was necessarily based on information available, and financial,
stock market and other conditions and circumstances existing and disclosed to
Salomon Smith Barney, as of the date of its opinion. Although Salomon Smith
Barney evaluated the merger consideration from a financial point of view,
Salomon Smith Barney was not asked to and did not recommend the specific
consideration payable in the merger, which was determined through negotiation
between MMI and The St. Paul. No other instructions or limitations were imposed
by MMI on Salomon Smith Barney with respect to the investigations made or
procedures followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED DECEMBER 20,
1999, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B AND
IS INCORPORATED INTO THIS PROXY STATEMENT BY REFERENCE. SALOMON SMITH BARNEY'S
OPINION IS DIRECTED TO THE MMI BOARD AND RELATES ONLY TO THE FAIRNESS OF THE
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE
PROPOSED MERGER.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation
17
<PAGE>
of a fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, a fairness opinion is not readily susceptible to summary
description. Accordingly, Salomon Smith Barney believes that its analyses must
be considered as a whole and that selecting portions of its analyses and
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
MMI. No company, transaction or business used in those analyses as a comparison
is identical to MMI or the proposed merger, and an evaluation of those analyses
is not entirely mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the acquisition, public trading or other
values of the companies, business segments or transactions analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the MMI board in its evaluation of the merger and should not be
viewed as determinative of the views of the MMI board or management with respect
to the merger consideration or the proposed merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion dated
December 20, 1999:
SELECTED COMPANIES ANALYSIS.
Using publicly available information, Salomon Smith Barney analyzed the
market values and trading multiples of the following five selected publicly
traded medical malpractice insurance companies:
- Medical Assurance, Inc.
- SCPIE Holdings Inc.
- The MIIX Group, Incorporated
- Professionals Group, Inc.
- FPIC Insurance Group, Inc.
All multiples were based on closing stock prices December 17, 1999.
Estimated financial data for the selected companies were based on research
analysts' estimates, and estimated financial data for MMI were based on internal
estimates of MMI's management. Salomon Smith Barney compared the relationship
between the price to book value and calendar year 2000 estimated return on
average equity for MMI and the selected companies, which indicated an implied
equity value for MMI of approximately $10.08 per share. Salomon Smith Barney
also compared market values of MMI and the selected companies as a multiple of,
among other things, calendar year 2000 estimated earnings computed in accordance
with generally accepted accounting principles, commonly known
18
<PAGE>
as GAAP, and latest GAAP book value as of September 30, 1999. Salomon Smith
Barney then applied a range of selected multiples derived from the selected
companies of calendar year 2000 estimated GAAP earnings and latest GAAP book
value as of September 30, 1999 to corresponding financial data of MMI in order
to derive an implied equity reference range for MMI. Salomon Smith Barney also
applied a 15% to 30% premium to the implied equity reference range derived for
MMI, taking into consideration the premiums paid in selected transactions in the
specialty insurance industry. This analysis resulted in an implied equity
reference range for MMI of approximately $8.28 to $9.86 per share before
applying a 15% to 30% premium and approximately $9.48 to $12.83 after applying a
15% to 30% premium, as compared to the merger consideration of $10.00 per share.
PRECEDENT TRANSACTIONS ANALYSIS.
Using publicly available information, Salomon Smith Barney reviewed the
purchase prices and implied transaction value multiples paid or proposed to be
paid in the following nine selected transactions in the medical malpractice
insurance and specialty insurance industries:
MEDICAL MALPRACTICE INSURANCE COMPANIES
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
- Employers Reinsurance Corporation - The Medical Protective Company
- Professionals Group, Inc. - Physicians Protective Trust Fund
- Frontier Insurance Group, Inc. - Western Indemnity Insurance Company
- Physicians Insurance Company of Ohio - Citation Insurance Group
</TABLE>
SPECIALTY INSURANCE COMPANIES
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
- Markel Corporation - Terra Nova (Bermuda) Holdings Ltd.
- Trenwick Group Inc. - Chartwell Re Corporation
- Toa Fire & Marine Re Co. - Mercantile and General Re of America
- MMI Companies, Inc. - Unionamerica Holdings plc.
- Fairfax Financial Holdings Ltd. - Sphere Drake Holdings Ltd.
</TABLE>
Salomon Smith Barney compared purchase prices in the selected transactions
as a multiple of, among other things, estimated one-year forward GAAP earnings
and latest GAAP book value. All multiples were based on publicly available
financial information for the selected transactions. Salomon Smith Barney then
applied a range of selected multiples derived from the selected transactions of
estimated one-year forward GAAP earnings and latest GAAP book value to MMI's
calendar year 2000 estimated GAAP earnings and latest GAAP book value as of
September 30, 1999 in order to derive an implied equity reference range for MMI.
This analysis resulted in an implied equity reference range for MMI of
approximately $10.34 to $16.32 per share, as compared to the merger
consideration of $10.00 per share.
DISCOUNTED CASH FLOW ANALYSIS.
Salomon Smith Barney performed a discounted cash flow analysis of MMI's
projected free cash flows during calendar years 2000 through 2004 based on
internal estimates of MMI's management. Salomon Smith Barney derived an implied
equity reference range for MMI by applying a range of selected terminal value
multiples of 8.0x to 10.0x to MMI's calendar year 2004 estimated GAAP earnings.
The cash flows and terminal values of MMI were then discounted to present value
using selected weighted average costs of capital ranging from 9.0% to 12.0% to
derive an implied equity reference range for MMI. This analysis resulted in an
implied equity reference range for MMI of
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approximately $6.53 to $11.15 per share, as compared to the merger consideration
of $10.00 per share.
OTHER FACTORS.
In rendering its opinion, Salomon Smith Barney also reviewed and considered
other factors, including:
- historical and projected financial data for MMI, including MMI's financial
performance and financial position as well as financing options available
to MMI;
- historical trading prices for MMI common stock and a comparison of MMI's
actual and estimated earnings results for the period September 1996 to
December 1999;
- the relationship between movements in MMI's relative stock price,
movements in the relative stock prices of the S&P 500 index and movements
in the relative stock prices of selected medical malpractice insurance
companies for the period December 11, 1998 to December 17, 1999; and
- a business and financial profile of The St. Paul.
MISCELLANEOUS.
Under the terms of its engagement, MMI has agreed to pay Salomon Smith
Barney for its financial advisory services upon completion of the merger an
aggregate fee of $3.0 million. MMI also has agreed to reimburse Salomon Smith
Barney for reasonable travel and other out-of-pocket expenses incurred by
Salomon Smith Barney in performing its services, including the fees and expenses
of its legal counsel, and to indemnify Salomon Smith Barney and related persons
against liabilities, including liabilities under the federal securities laws,
arising out of its engagement.
In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of MMI and The St. Paul for their own
account or for the account of customers and, accordingly, may at any time hold a
long or short position in those securities. Salomon Smith Barney and its
affiliates have in the past provided investment banking services to MMI and The
St. Paul unrelated to the proposed merger, for which services Salomon Smith
Barney and its affiliates have received compensation. In addition, Salomon Smith
Barney and its affiliates, including Citigroup Inc. and its affiliates, may
maintain relationships with MMI, The St. Paul and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by MMI based on its experience, expertise and familiarity
with MMI and its business. Salomon Smith Barney regularly engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the MMI board, MMI stockholders should
be aware that certain of the directors and executive officers of MMI may have
interests in the merger that are different from, or in addition to, the
interests of MMI stockholders generally, and that may create potential conflicts
of interest. MMI directors, officers and employees have rights with respect to
severance provisions under existing employment contracts, indemnification
provisions and liability insurance in connection with the merger. The MMI board
was aware of these interests and
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considered them, among other factors, in approving the merger agreement. These
interests are summarized below.
SHARE OWNERSHIP
As of the record date, directors and executive officers of MMI and their
affiliates may be deemed to be beneficial owners of approximately % of the
outstanding shares of MMI common stock. See "Security Ownership of Certain
Beneficial Owners and Management of MMI."
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
MMI is a party to an employment agreement with B. Frederick Becker, MMI's
Chairman and Chief Executive Officer, which contains a change of control
provision entitling Mr. Becker to two times base salary and two times maximum
bonus upon a change of control plus the occurrence of one other triggering
event, including an involuntary termination of Mr. Becker's employment or a
voluntary termination of Mr. Becker's employment within sixty days following a
reduction in his responsibilities or title, any reduction of salary, bonus
opportunity or benefits, or a relocation of MMI's principal place of business in
excess of 75 miles from its existing location.
MMI is a party to change of control severance agreements with the following
persons who are executive officers of MMI: Paul M. Orzech, Wayne A. Sinclair and
Anna M. Hajek. Under these agreements, all of which are substantially identical,
in the event there is a change of control in MMI, plus the occurrence of at
least one other triggering event, such executives are entitled to compensation
equal to either one times or 1.5 times base salary.
In addition, the executive officers of MMI are eligible for benefits that
are available to all MMI employees under MMI's severance policy in the event of
involuntary termination of their employment.
OPTION GRANTS
On November 5, 1999, MMI granted to its employees options to purchase an
aggregate of 611,000 shares of common stock, at an exercise price of $5.06 per
share, of which an aggregate of 265,000 option shares were issued to executive
officers of MMI. All of these options vest immediately upon a change of control
and pursuant to the merger agreement will be cancelled prior to the effective
time of the merger, The holders thereof will receive cash for each option equal
to the excess, if any, of the merger consideration over the exercise price per
share of such option, less applicable withholding taxes. See "Security Ownership
of Principal Stockholders and Management of MMI" on page .
INDEMNIFICATION AND INSURANCE
Under the terms of the merger agreement, from and after the merger, The St.
Paul is obligated to indemnify and hold harmless each present and former
director and officer of MMI. These individuals will be indemnified against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation arising out of matters existing or occurring
at or prior to the effective time of the merger, to the fullest extent that MMI
would have been permitted under Delaware law and its charter or by-laws in
effect on the date of the merger agreement to indemnify such person. In
addition, The St. Paul is obliged 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.
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FINANCING FOR THE MERGER
The St. Paul intends to fund the merger consideration with cash from
operations.
EXPECTED ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for using the purchase method of accounting for
financial reporting purposes under accounting principles generally accepted in
the United States. Under this method of accounting, the aggregate consideration
paid by The St. Paul in connection with the merger will be allocated to MMI's
assets and liabilities based on their fair values, with any excess or deficit
being treated as goodwill. Goodwill from such an acquisition is generally
amortized in equal annual installments over a period of time. The assets and
liabilities and results of operations of MMI will be consolidated into the
assets and liabilities and results of operations of The St. Paul from the date
of the merger.
REGULATORY APPROVALS
Completion of the merger is subject to the approvals of certain regulatory
agencies and certain filings with regulatory agencies.
HART-SCOTT-RODINO FILINGS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR" Act), and the rules promulgated thereunder, certain transactions,
including the merger, may not be consummated until Notification and Report Forms
pursuant to the HSR Act have been filed with the Antitrust Division of the
Department of Justice and the Federal Trade Commission and specified waiting
period requirements have been satisfied. On January 20, 2000, each of The St.
Paul and MMI filed a Notification and Report Form pursuant to the HSR Act with
the Antitrust Division and the FTC. The waiting period under the HSR Act has not
yet been terminated. At any time before or after the effective time of the
merger, the FTC, the Antitrust Division or others could take action under the
antitrust laws with respect to the merger, including seeking to enjoin the
consummation of the merger, to rescind the merger or to require either The St.
Paul or MMI to divest substantial assets. Neither MMI nor The St. Paul believe
the merger will violate the antitrust laws. There can be no assurance that a
challenge to the merger on antitrust grounds will not be made or, if such a
challenge is made, that it would not be successful.
STATE REGULATORY APPROVALS
The insurance laws and regulations of all U.S. jurisdictions generally
require that, prior to the acquisition of control of an insurance company doing
business in such jurisdiction through the acquisition of or merger with the
holding company of such insurance company, the surviving company obtain the
prior approval of, or file notification with and meet waiting period
requirements imposed by, such jurisdictions.
The completion of the merger is subject to certain approvals of and/or
notices, to and the expiration of applicable waiting periods required by, the
insurance department of Missouri. The St. Paul has filed applications for
approval with the insurance department of Missouri. A hearing on an application
for approval of the merger is mandatory in Missouri. In addition, The St. Paul
has made notice filings in certain other jurisdictions, including insurance
departments in numerous states where The St. Paul's subsidiaries and MMI's
subsidiaries together have sufficiently large market shares in particular
insurance lines to require a notification prior to a merger. Approval of the
merger is not required in these states, but the insurance departments could
determine to take action to impose conditions on the merger that could prevent
its consummation.
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FOREIGN APPROVALS
The St. Paul and MMI conduct operations in a number of foreign countries,
including the United Kingdom and Ireland, where regulatory filings or approvals
may be required in connection with the consummation of the merger. In
particular, The St. Paul and MMI are required to receive certain approvals,
consents, indications, decisions or confirmations from the UK Office of Fair
Trading (or the Commission of the European Communities), the UK Financial
Services Authority, the Council of Lloyd's and the Minister for Enterprise Trade
and Employment of Ireland.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Upon consummation of the merger each outstanding share of MMI common stock
(except for those shares with respect to which statutory appraisal rights are
properly exercised, those shares which are held by MMI or by any of MMI's
subsidiaries and those shares held by The St. Paul, Merger Sub or any other
subsidiary of The St. Paul) will be converted into the right to receive $10.00
in cash, without interest. The following discussion is a summary of the
principal federal income tax consequences of the merger to the stockholders of
MMI whose shares of common stock are surrendered pursuant to the merger
(including any cash amounts received by dissenting stockholders pursuant to the
exercise of appraisal rights). The discussion below does not purport to deal
with all aspects of federal income taxation that may affect particular
stockholders in light of their individual circumstances, and is not intended for
stockholders subject to special treatment under the federal income tax law,
including insurance companies, tax exempt organizations, financial institutions,
broker-dealers, foreign persons, stockholders who hold their stock as part of a
hedge, appreciated financial position, straddle or conversion transaction,
stockholders who do not hold their stock as capital assets and stockholders who
have acquired their stock upon the exercise of employee options or otherwise as
consideration. In addition, the discussion below does not consider the effect of
any applicable state, local or foreign tax laws. The discussion below is based
upon current provisions of the Internal Revenue Code of 1986, as amended,
currently applicable treasury regulations promulgated thereunder, and judicial
and administrative decisions and rulings. Future legislative changes, judicial
administrative changes or interpretations could alter or modify the statements
and conditions set forth herein, and these changes or interpretations could be
retroactive and could affect the tax consequences to the stockholders of MMI.
THIS DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE IMPORTANT TO A STOCKHOLDER BASED ON SUCH HOLDER'S PARTICULAR
CIRCUMSTANCES AND DOES NOT ADDRESS ANY ASPECT OF STATE, LOCAL OR FOREIGN TAX
LAWS. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS URGED TO
CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE
RULES DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
FOREIGN STOCKHOLDERS SHOULD CONSULT WITH LOCAL ADVISORS AS TO THE TAX
CONSEQUENCES OF THE MERGER.
The receipt of cash pursuant to the merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of appraisal
rights) will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended. In general, for federal income tax
purposes, a stockholder will recognize gain or loss equal to the difference
between the cash received by the stockholder pursuant to the merger agreement
and the stockholder's adjusted tax basis in the shares of common stock
surrendered pursuant to the merger agreement. Such gain or loss will be a
capital gain or loss. The rate at which any such gain will be taxed to
non-corporate
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stockholders (including individuals, estates and trusts) will, as a general
matter, depend upon each stockholder's holding period for the shares of common
stock at the effective time of the merger. If a non-corporate stockholder's
holding period for the shares of common stock is more than one year, either a 20
percent or a 10 percent capital gains rate generally will apply to such gain,
depending on the amount of taxable income of such stockholder for such year. If
the stockholder's holding period for the shares of common stock is one year or
less, such gain will be taxed at the same rates as ordinary income. Capital loss
generally is deductible only to the extent of capital gain plus ordinary income
of up to $3,000. Net capital loss in excess of $3,000 may be carried forward to
subsequent taxable years.
For corporations, capital losses are allowed only to the extent of capital
gains, and net capital gain is taxed at the same rate as ordinary income.
Corporations generally may carry capital losses back up to three years and
forward up to five years.
Payment in connection with the merger may be subject to "backup withholding"
at a 31% rate. Backup withholding generally applies if the stockholder fails to
furnish such stockholder's social security number or other taxpayer
identification number ("TIN"), or furnishes an incorrect TIN. Backup withholding
is not an additional tax but merely a creditable advance payment which may be
refunded to the extent it results in an overpayment of tax, provided that
specific required information is furnished to the Internal Revenue Service.
Certain persons generally are exempt from backup withholding, including
corporations and financial institutions. Certain penalties apply for failure to
furnish correct information and for failure to include reportable payments in
income. Stockholders should consult with their own tax advisers as to the
qualifications and procedures for exemption from backup withholding.
DELISTING AND DEREGISTRATION OF MMI COMMON STOCK
MMI common stock currently is traded on The New York Stock Exchange under
the symbol "MMI." Upon consummation of the merger, MMI common stock will be
delisted from the NYSE and deregistered under the Securities Exchange Act of
1934, as amended. Following the merger, MMI stockholders will be instructed to
exchange their outstanding stock certificates for the merger consideration. See
"The Merger Agreement--Procedures for Exchange of Stock Certificates" on
page .
AMENDMENT OF THE RIGHTS AGREEMENT
On December 19, 1999, the MMI board amended the Rights Agreement to except
The St. Paul from the definition of an Acquiring Person thereunder, thereby
avoiding the triggering of the provisions of the Rights Agreement upon the
consummation of the merger.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, a copy of which is attached as Appendix A to this document and is
incorporated in this document by reference. The summary is not complete and is
qualified in its entirety by reference to the merger agreement. We urge all
stockholders of MMI to read the merger agreement in its entirety for a more
complete description of the terms and conditions of the merger.
THE MERGER
The merger agreement provides that Bowman Acquisition Corp. will be merged
with and into MMI. At the time of the merger, the separate corporate existence
of Bowman Acquisition Corp. will cease and MMI will continue as the surviving
corporation. The merger will become effective at the time a certificate of
merger is filed with the Secretary of State of the State of Delaware or at such
later time as agreed to by MMI and The St. Paul and established under the
certificate of merger.
TREATMENT OF MMI COMMON STOCK
At the time of the merger, each issued and outstanding share of MMI common
stock including the associated Right will be converted into the right to receive
$10.00 in cash, other than shares held by stockholders who are entitled to and
who have perfected their appraisal rights, shares held by MMI or any of MMI's
subsidiaries or shares held by The St. Paul, Merger Sub or any other subsidiary
of The St. Paul, in each case not held on behalf of third parties.
PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES
As of the time of the merger, The St. Paul will cause one of its
subsidiaries to deposit with a paying agent, for the benefit of holders of MMI
common stock, cash sufficient to pay the aggregate merger consideration in
exchange for shares of MMI common stock outstanding immediately prior to the
effective time of the merger upon due surrender of the certificates representing
MMI common stock. Promptly after the effective time of the merger, the paying
agent will mail to each record holder of MMI common stock, a letter of
transmittal and instructions for use in effecting the surrender of the
certificates for payment. Holders of certificates who surrender their
certificates to the paying agent together with a duly executed letter of
transmittal will be entitled to receive $10.00 in cash per share payable to the
holders thereof, without interest. The surrendered MMI certificates will be
canceled.
After the effective time of the merger, there will be no further transfers
of shares of MMI common stock that were outstanding immediately prior to the
effective time of the merger, on the stock transfer books of MMI.
Any portion of the cash deposited with the paying agent that remains
unclaimed by MMI stockholders for 180 days after the effective time of the
merger will be returned to The St. Paul. After such 180 day period, any MMI
stockholder must look only to The St. Paul for payment of the consideration
under the merger agreement.
The St. Paul is entitled to deduct and withhold from the consideration
otherwise payable to any holder of MMI common stock the amounts it is required
to deduct and withhold with respect to the payment of such consideration under
the Internal Revenue Code or any provision of state, local or foreign tax law.
Any amounts withheld will be treated as having been paid to the holder of the
shares of MMI common stock.
If any MMI certificate is lost, stolen or destroyed, the MMI stockholder
must provide an appropriate affidavit of that fact. The St. Paul may require the
owner of such lost, stolen or destroyed MMI certificate to post a bond in a
customary amount as indemnity against any claim that
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may be made against The St. Paul with respect to the MMI certificate alleged to
have been lost, stolen or destroyed.
HOLDERS OF MMI COMMON STOCK SHOULD NOT SEND IN THEIR MMI CERTIFICATES TO THE
PAYING AGENT UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM THE PAYING AGENT.
APPRAISAL RIGHTS
Notwithstanding any provision of the merger agreement to the contrary, any
shares of common stock held by a holder who does not vote to approve the merger
and complies with all the provisions of the Delaware General Corporation Law
concerning the right to dissent from the merger and require payment of fair
value shall not be converted into the right to receive the merger consideration
pursuant to the merger agreement, but the holder shall only be entitled to the
right to receive such consideration as may be determined to be due to such
holder pursuant to the Delaware General Corporation Law. If a holder of shares
of common stock who demands appraisal of such shares under the Delaware General
Corporation Law withdraws his or her demand or fails to perfect or otherwise
loses his or her right of appraisal, his or her shares will be deemed to be
converted as of the effective time of the merger into the right to receive the
merger consideration. The merger agreement requires that MMI give The St. Paul
(a) prompt notice of any demands for appraisal of any shares of common stock
received by MMI and (b) the opportunity to participate in and direct all
negotiations and proceedings with respect to demands for appraisal under the
Delaware General Corporation Law. The merger agreement further provides that MMI
shall not, without the prior written consent of The St. Paul, make any payment
with respect to any demands for appraisal of common stock or offer to settle or
otherwise negotiate any such demands.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by MMI,
relating to, among other things:
- its and its subsidiaries' organization, good standing and qualification;
- its capitalization;
- its corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and to consummate the merger;
- governmental or regulatory consents and approvals required for the
consummation of the merger;
- its reports and financial statements and the statements of its insurance
subsidiaries filed with insurance regulatory authorities;
- absence of certain changes since December 31, 1998 and absence of
undisclosed liabilities;
- litigation;
- employee benefit plans and labor matters;
- compliance with laws and permits;
- inapplicability of any takeover statute to the merger or the transactions
contemplated by the merger agreement;
- environmental matters;
- taxes;
- intellectual property and Year 2000 compliance matters;
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- material contracts;
- that it has amended the Amended and Restated Rights Agreement to provide
that The St. Paul will not be deemed an "Acquiring Person" (as defined in
the Rights Agreement), the "Distribution Date" (as defined in the Rights
Agreement) will not be deemed to occur, and the rights issuable pursuant
to the Rights Agreement will not separate from the MMI common stock as a
result of the merger;
- title to assets and absence of liens;
- insurance matters and insurance reserves;
- brokers and finders fees;
- absence of separate accounts maintained by its insurance subsidiaries;
- certain investment advisory related matters; and
- its joint ventures.
In addition, the merger agreement contains representations and warranties
made by The St. Paul and Bowman Acquisition Corp. relating to, among other
things:
- capitalization of Bowman Acquisition Corp.;
- their organization, good standing and qualification;
- their corporate power and authority to execute, deliver and perform their
obligations under the merger agreement and to consummate the merger;
- governmental or regulatory consents and approvals required for the
consummation of the merger;
- financing;
- brokers and finders; and
- share ownership in MMI.
COVENANTS PENDING THE MERGER
OPERATIONAL COVENANTS. The merger agreement provides for covenants pending
the merger. MMI has agreed that until the merger, MMI and its subsidiaries will,
and MMI and its subsidiaries will use their commercially reasonable efforts to
cause their joint ventures to:
- conduct business in the ordinary and usual course; and
- use reasonable best efforts to preserve intact their business organization
and maintain their existing business relations and goodwill.
The merger agreement also restricts the ability of MMI and its subsidiaries
to:
- issue, sell, pledge, dispose of or encumber any capital stock owned by
them in any of their subsidiaries;
- amend its organizational documents; amend its charter or by-laws or amend,
modify or terminate the Rights Agreement, except as contemplated by the
merger agreement;
- split, combine or reclassify its outstanding shares of capital stock;
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- 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
direct or indirect wholly-owned subsidiaries and other than regular
quarterly cash dividends paid by MMI not in excess of $.09 per share;
- repurchase, redeem or otherwise acquire, except in connection with MMI's
1999 Stock Option Plan, 1993 Employee Stock Plan, 1993 Non-Employee
Director Formula Stock Option Plan, 1997 Long Term Incentive Plan or
Savings Related Shares Option Scheme, 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;
- 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
capital stock of any class or any other property or assets (other than
shares issuable pursuant to options outstanding on the date of the merger
agreement under any of MMI's stock plans);
- 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;
- make or authorize or commit for any capital expenditures, including
entering into capital lease obligations, other than in amounts not
exceeding $1 million in the aggregate or, by any means, make any
acquisition of, or investment in, assets or stocks of any other person or
entity, including by way of assumption of, or investment in, assets or
stock of any other person or entity, including by way of assumption
reinsurance, in excess of $100,000 individually or $1 million in the
aggregate (other than in connection with ordinary course investment and
reinsurance activities);
- enter into, amend or terminate any material contract;
- permit any insurance policy naming it as a beneficiary or loss-payable
payee to be canceled or terminated except in the ordinary and usual course
of business;
- terminate, establish, adopt, enter into, make any new grants or awards
under, amend or otherwise modify, any employee benefit or incentive plan
or employment or other agreement or hire or terminate the employment of
key employees, or increase the salary, wage, bonus or other compensation
of any employees except increases occurring in the ordinary and usual
course of business;
- pay, discharge, settle or satisfy any claims, liabilities or obligations,
other than (1) payment, discharge or satisfaction of such claims,
liabilities or obligations legally due and payable and arising in the
ordinary and usual course of business, (2) amounts not in excess of
$1,000,000 in the aggregate, or (3) regular semi-annual payments paid by
MMI Capital Trust I on its 7 5/8% Series B Capital Trust Securities,
pursuant to the Indenture dated December 23, 1997, between The Chase
Manhattan Bank and MMI, pursuant to which such trust securities were
issued;
- make, change or revoke any 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, 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, in the ordinary course of
business and consistent with MMI's past practice in respect of tax at
issue in the jurisdiction in question, or with the consent of The
St. Paul;
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- enter into any agreement containing any provision or covenant limiting in
any material respect the ability of MMI or any of its subsidiaries or
affiliates 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 MMI or any of its subsidiaries or
affiliates;
- enter into any new quota share or other reinsurance transaction (1) which
does not contain standard cancellation and termination provisions,
(2) which, except in the ordinary course of business, materially increases
or reduces MMI's insurance subsidiaries' consolidated ratio of net written
premiums to gross written premiums or (3) pursuant to which $1,000,000 or
more in gross written premiums are ceded by MMI's insurance company
subsidiaries to any person other than MMI or any of its subsidiaries;
- take any action or not take any action that that would cause any of its
representations and warranties to become untrue in any material respect;
and
- alter or amend in any material respect its existing underwriting, claim
handling, loss control, investment, actuarial, financial reporting or
accounting practices, guidelines or policies or any material assumption
underlying an actuarial practice or policy, except as may be required by
GAAP or statutory accounting practices (SAP).
ACQUISITION PROPOSALS. The merger agreement provides that MMI will not, and
will not permit or cause any of its subsidiaries or any of their executive
officers and directors to, and will direct its and its subsidiaries' employees,
agents and 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 an acquisition proposal. The term "acquisition proposal"
means, 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 MMI;
- the purchase of 15% or more of the assets (including equity securities of
MMI's subsidiaries) of MMI and its subsidiaries taken as a whole; or
- the purchase of shares of MMI common stock not in the ordinary course
(purchases pursuant to a compensation and benefit plan are considered to
be in the ordinary course).
In addition, the merger agreement provides that MMI will not, and will not
permit or cause any of its subsidiaries to, and will use commercially reasonable
efforts to cause any of its or its subsidiaries' officers and directors not to
and will direct its and its subsidiaries' employees, agents and representatives
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, or otherwise facilitate any
effort or attempt to make or implement an acquisition proposal.
However, the terms of the merger agreement do not prevent MMI or its board
of directors from:
- complying with Rule 14e-2 promulgated under the Exchange Act with regard
to an acquisition proposal, or
- if the merger has not been approved by the holders of MMI common stock
(1) providing information in response to a request therefor by a person
who has made an unsolicited bona fide written acquisition proposal if
the MMI board of directors receives from the person so requesting
such information an executed confidentiality
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agreement on terms substantially equivalent to those contained in the
confidentiality agreement between The St. Paul and MMI;
(2) engaging in any negotiations or discussions with any person who has
made an unsolicited bona fide written acquisition proposal; or
(3) recommending such an acquisition proposal to the stockholders of MMI,
if and only to the extent that (i) the MMI board of directors
determines in good faith after consultation with outside legal
counsel that such action is necessary in order for its directors to
comply with their respective fiduciary duties under applicable law
and (ii) the MMI board of directors determines in good faith (after
consultation with its financial advisor) that such an 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 transaction more favorable to MMI's
stockholders from a financial point of view than the merger (any such
more favorable acquisition proposal is defined in the merger
agreement as a "superior proposal").
MMI has agreed to notify The St. Paul within 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, and thereafter will
keep The St. Paul informed, on a current basis, of the status of any such
proposals or offers and the status of any such discussions or negotiations. MMI
has agreed to cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
STOCKHOLDERS MEETINGS. Pursuant to the merger agreement, MMI has agreed to
take all actions necessary to convene a meeting of the holders of common stock
as promptly as practicable, but in no event more than 35 days (to the extent
legally permissible) after the proxy statement is first mailed to stockholders
to consider and vote upon the approval of the merger. In addition, MMI has
agreed that the MMI board of directors, subject to its fiduciary obligations
under applicable law, will recommend approval of the merger, will not withdraw
or modify such recommendation and will take all lawful action to solicit such
approval.
FILINGS; OTHER ACTIONS; NOTIFICATION. The St. Paul and MMI have agreed to
cooperate with one another to prepare and file this proxy statement with the SEC
as soon as practicable and respond promptly to any SEC comments. The St. Paul
and MMI have also agreed to promptly file notifications under the
Hart-Scott-Rodino Act and to respond as promptly as practicable to any inquiries
received from the FTC and the Justice Department for additional information or
documentation.
In addition, MMI and The St. Paul each has agreed to cooperate with the
other and use (and to cause its subsidiaries to use) all reasonable efforts to
cause to be done all things, necessary, proper or advisable on its part under
the merger agreement and applicable laws to consummate and make effective the
merger and the other transactions contemplated by the merger agreement,
including preparing and filing all documentation to effect all necessary
notices, reports and other filings and 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
order to consummate the transactions contemplated by the merger agreement. The
merger agreement further provides that it does not and it should not be
construed to require The St. Paul, in connection with the receipt of any
regulatory approval, to proffer to, or agree to any conditions relating to, or
changes or restrictions in, the operations of any such asset or businesses
which, in either case would be reasonably expected to materially and adversely
impact the economic or business benefits to The St. Paul and its subsidiaries of
the transactions contemplated by the merger
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agreement or materially impair its ability to conduct its business in the manner
as such business is now being conducted.
STOCK EXCHANGE LISTING. Pursuant to the merger agreement, MMI, as the
surviving corporation, will use its best efforts to cause the shares of common
stock to be de-listed from the NYSE and de-registered under the Exchange Act as
soon as practicable following the effective time of the merger.
STOCK OPTIONS AND STOCK PLANS. The merger agreement provides that prior to
the effective time of the merger, MMI will take necessary actions to cause each
outstanding option to purchase MMI common stock under each of the MMI stock
plans, whether or not then exercisable, to be canceled as of the effective time
of the merger. Thereafter, the holder of such option, upon surrender of the
option, will receive an amount in cash equal to the excess, if any, of the
merger consideration over the exercise price per share of such option multiplied
by the number of shares of common stock previously subject to such option, less
any required withholding taxes. As promptly as practicable following the
execution of the merger agreement, MMI will mail to each holder of outstanding
options granted pursuant to MMI stock plans (regardless of whether such stock
options are vested or exercisable at the time) a letter which describes the
treatment of and payment for such options and provides instructions for use in
obtaining payment for such options. Each such holder will sign a release by
which such holder effectively relinquishes all rights with respect to such
holder's outstanding stock options upon payment therefor prior to or as soon as
practicable following the closing. MMI will take all actions necessary to cause
MMI stock plans to be terminated effective as of the effective time of the
merger.
EMPLOYEE BENEFITS. Pursuant to the merger agreement, The St. Paul has
agreed that, during the period commencing at the effective time of the merger
and ending on the first anniversary thereof, the employees of MMI and its
subsidiaries will continue to be provided with benefits (other than benefits
involving the issuance of shares of MMI common stock) that are no less favorable
in the aggregate than those benefits currently provided by MMI and its
subsidiaries to such employees under existing employee benefit plans.
To the extent that employees of MMI and its subsidiaries become participants
in any plans maintained by The St. Paul or its subsidiaries:
- any such employees will receive credit under such plans of The St. Paul or
any of its subsidiaries for service with MMI or any of its subsidiaries or
predecessors (to the extent service with such predecessors was credited
under the MMI compensation and benefit plans) prior to the effective time
of the merger for the purpose of determining eligibility and vesting, but
not for purposes of benefit accrual, and
- The St. Paul will cause any and all pre-existing condition limitations (to
the extent such limitations did not apply to a pre-existing condition
under the compensation and benefit plans) and eligibility waiting periods
under group health plans of The St. Paul or any of its subsidiaries to be
waived with respect to such participants and their eligible dependents.
With respect to any plan maintained by The St. Paul or any of its
subsidiaries which covers employees of MMI or its subsidiaries prior to
January 1, 2001, The St. Paul will, or will cause the surviving
corporation to, provide each 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
employees are eligible to participate in after the plan entry date. All
discretionary awards and benefits under any employee benefit plans of The
St. Paul or any of its subsidiaries shall be subject to the discretion of
the persons or committee administering such plans.
EXPENSES. The surviving corporation will pay all charges and expenses,
including those of the paying agent, in connection with the transactions
relating to the surrender of the MMI common
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stock in exchange for the merger consideration. Except as otherwise provided in
the merger agreement, whether or not the merger is consummated, all costs and
expenses incurred in connection with the merger agreement, the merger and the
other transactions contemplated by the merger agreement will be paid by the
party incurring such expense, except that expenses incurred in connection with
the printing and mailing of the proxy statement will be shared equally by The
St. Paul and MMI, up to a maximum of $150,000 by The St. Paul.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The merger agreement
provides that from and after the effective time of the merger, The St. Paul will
indemnify and hold harmless each present and former director and officer of MMI
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation arising out of matters existing or
occurring at or prior to the effective time of the merger, to the fullest extent
that MMI would have been permitted under Delaware law and its charter or by-laws
in effect on the date of the merger agreement to indemnify such person. In
addition, The St. Paul is obliged 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.
The merger agreement further provides that the surviving corporation will
maintain MMI's existing directors' and officers' liability insurance (or
directors' and officers' liability insurance that is substantially comparable to
MMI's existing insurance) for a period of six years after the effective time of
the merger, so long as the annual premium therefor would not be in excess of
300% of the last annual premium paid for the insurance prior to the date of the
merger agreement. However, if the existing directors' and officers' insurance or
substantially comparable insurance cannot be acquired during the six-year period
for not in excess of 300% of the last annual premium paid for the insurance
prior to the date of the merger agreement, then the surviving corporation will
obtain as much directors' and officers' insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
300% of the last annual premium paid for the insurance prior to the date of the
merger agreement.
ASSUMPTION OF DEBENTURES. The St. Paul and MMI each agrees that MMI, as the
surviving corporation, will continue to assume the payment of the principal and
redemption price of and interest on the debentures issued under the Indenture
dated as of December 23, 1997 between MMI and The Chase Manhattan Bank, as
trustee, if required under the terms of the Indenture, and the punctual
performance and observance of all the covenants and conditions of the Indenture
to be observed or performed by MMI. The surviving corporation, if required under
the terms of the Indenture, will execute and deliver to the trustee a
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the trustee, whereupon
the surviving corporation will succeed to and be substituted for MMI and MMI
will then be relieved of any further liability or obligation thereunder or upon
the debentures.
ACCESS. During the period prior to the earlier of the termination of the
merger agreement or the effective time of the merger, upon receiving reasonable
notice, MMI will (and will cause its subsidiaries to) afford The St. Paul's
directors, officers, employees, counsel, accountants, financial advisors,
environmental consultants, and other authorized agents and representatives
reasonable access, during normal business hours to MMI'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). MMI will (and will cause its subsidiaries to) also
furnish promptly to The St. Paul all information concerning MMI and its
subsidiaries' business, properties and personnel as may reasonably be requested.
However, MMI will not be required to permit any inspection, or to disclose any
information, that in the reasonable judgment of its board of directors would
result in the disclosure of any trade secrets of third parties or violate any of
its obligations with respect to confidentiality if MMI shall have used all
reasonable efforts to obtain the consent of such third party to such inspection
or disclosure.
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PUBLICITY. The merger agreement provides that The St. Paul and MMI will
consult with each other prior to issuing any press releases or otherwise making
public announcements with respect to the merger and the other transactions
contemplated by the merger 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.
RIGHTS. If requested by The St. Paul prior to the effective time of the
merger, the board of directors of MMI will take all necessary action to
terminate all of the outstanding rights to purchase MMI Series B Junior
Participating Preferred Stock (or, in certain circumstances, common stock or to
receive other securities) issued pursuant to the Rights Agreement and to
terminate the Rights Agreement, effective immediately prior to the effective
time of the merger.
TAKEOVER STATUTE. If any takeover statute is or may become applicable to
the merger or the other transactions contemplated by the merger agreement, each
of The St. Paul and MMI and its board of directors will 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 the merger agreement or
by the merger and otherwise act to eliminate or minimize the effects of such
statute or regulation on such transactions.
CONDITIONS TO THE MERGER
The respective obligations of each party to effect the merger are subject to
the satisfaction or waiver of the following conditions:
- approval of the merger by the MMI stockholders;
- the waiting period applicable to the consummation of the merger under the
HSR Act having expired or been terminated;
- all notices, reports and other filings required to be made prior to the
effective time of the merger by MMI or The St. Paul or any of their
respective subsidiaries having been made, and all consents, registrations,
approvals, permits and authorizations required to be obtained prior to the
effective time of the merger by MMI or The St. Paul or any of their
respective subsidiaries and joint ventures from any governmental entity,
in connection with the execution and delivery of the merger agreement and
the consummation of the merger and the other transactions contemplated by
the merger agreement having been made or obtained, except for any
non-insurance related and/or non-HSR Act related governmental consents for
which the failure obtain such consents or approvals would not reasonably
be expected, individually or in the aggregate, to have a material adverse
effect on the surviving corporation;
- all required indications, decisions, confirmations, authorizations,
consents, orders and approvals and filings of the UK Office of Fair
Trading, the Commission of the European Communities, UK Financial Services
Authority and/or the Council of Lloyd's having been obtained, declared or
filed; and
- no court or governmental entity of competent jurisdiction having enacted,
issued, promulgated, enforced or entered any law, statute, ordinance,
rule, regulation, judgment, decree, injunction or other order that is in
effect and restrains, enjoins or otherwise prohibits consummation of the
merger.
The obligations of The St. Paul and Bowman Acquisition Corp. to effect the
merger are also subject to the satisfaction or waiver by The St. Paul at or
prior to the effective time of the following conditions:
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- the representations and warranties of MMI set forth in the merger
agreement not being untrue or incorrect in any material respect as of the
date of the merger agreement and the representations and warranties of MMI
set forth in the merger agreement being true and correct as of the closing
date as though made on and as of the closing 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 would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect (as
defined in the merger agreement);
- MMI having performed in all material respects all obligations required to
be performed by it under the merger agreement at or prior to the closing
date;
- MMI having obtained the consent or approval of each person whose consent
or approval will be required under any contract to which MMI or any of its
subsidiaries is a party except those for which the failure to obtain such
consents or approvals, individually or in the aggregate, is not reasonably
likely to have a Company Material Adverse Effect or is not reasonably
likely to materially impact the economic or business benefits to The St.
Paul and its subsidiaries of the transactions contemplated by the merger
agreement.
The obligation of MMI to effect the merger is also subject to the
satisfaction or waiver by MMI at or prior to the effective time of the merger of
the following conditions:
- the representations and warranties of The St. Paul and Bowman Acquisition
Corp. set forth in the merger agreement not being untrue or incorrect in
any material respect as of the date of the merger agreement and the
representations and warranties of The St. Paul and Bowman Acquisition
Corp. set forth in the merger agreement being true and correct as of the
closing date as though made on and as of the closing 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 would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect
(as defined in the merger agreement);
- each of The St. Paul and Bowman Acquisition Corp. having performed in all
material respects all obligations required to be performed by it under the
merger agreement at or prior to the closing date; and
- the merger having been duly approved by the sole stockholder of Bowman
Acquisition Corp. in accordance with applicable law.
TERMINATION
BY MUTUAL CONSENT. The merger agreement may be terminated and the merger
may be abandoned at any time prior to the effective time of the merger, whether
before or after the approval by stockholders of MMI, by mutual written consent
of MMI and The St. Paul by action of their respective boards of directors.
BY EITHER THE ST. PAUL OR MMI. The merger agreement may be terminated and
the merger may be abandoned by action of the board of directors of either The
St. Paul or MMI if:
- the merger has not been consummated by August 31, 2000, whether such date
is before or after the date of approval by stockholders of MMI; provided,
however, that this right to terminate the merger agreement will not be
available to any party that has breached in any material respect its
obligations under the merger agreement in any manner that will have
proximately contributed to the occurrence of the failure of the merger to
be consummated;
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- the approval by MMI stockholders of the merger has not been obtained at
the MMI special meeting or at any adjournment or postponement thereof; or
- any order permanently restraining, enjoining or otherwise prohibiting
consummation of the merger becomes final and non-appealable.
BY MMI. The merger agreement may be terminated and the merger may be
abandoned at any time prior to the effective time of the merger by action of the
board of directors of MMI:
- if (1) MMI is not in material breach of any of the terms of the merger
agreement; (2) the merger has not been approved by the holders of MMI
common stock; (3) the MMI board of directors authorizes MMI to enter into
a binding written agreement concerning a transaction that constitutes a
"superior proposal" and MMI notifies The St. Paul in writing that it
intends to enter into such an agreement, attaching the most current
version of such agreement to such notice; (4) The St. Paul does not make,
prior to four business days after receipt of MMI's written notification of
its intention to enter into a binding agreement for a superior proposal,
an offer that the MMI board determines, in good faith after consultation
with its financial advisors, is at least as favorable, to the stockholders
of MMI as the superior proposal; and (5) MMI prior to such termination
pays to The St. Paul in immediately available funds the termination fee
and The St. Paul's expenses required to be paid pursuant to the merger
agreement; or
- if there is a material breach by The St. Paul or Bowman Acquisition Corp.
of any representation, warranty, covenant or agreement contained in the
merger agreement that would cause the condition relating to either The St.
Paul's or Bowman Acquisition Corp.'s representations and warranties or
obligations pursuant to the merger agreement not to be satisfied or
incapable of being satisfied and such breach is either not curable or, if
curable, is not cured within 20 days after written notice of such breach
is given by MMI to the party committing such breach.
BY THE ST. PAUL. The merger agreement may be terminated and the merger may
be abandoned at any time prior to the effective time of the merger by action of
the board of directors of The St. Paul if:
- MMI enters into a binding agreement for a superior proposal or the MMI
board withdraws or adversely modifies its approval or recommendation of
the merger agreement;
- there is a material breach by MMI of any representation, warranty,
covenant or agreement contained in the merger agreement that would cause
the condition relating to MMI's representations and warranties or
obligations pursuant to the merger agreement not to be satisfied or
incapable of being satisfied and such breach is either not curable or, if
curable, is not cured within 20 days after written notice of such breach
is given by The St. Paul to the party committing such breach.
TERMINATION FEES
The merger agreement provides that in the event that the merger agreement is
terminated by action of the directors of The St. Paul or MMI after a failure to
obtain stockholder approval at the special meeting, MMI will pay The St. Paul
its reasonable, documented, out-of-pocket expenses incurred in connection with
the merger agreement and the transactions contemplated by the merger agreement,
in an amount up to $1 million, within two business days of receiving such
documentation.
In the event that the merger agreement is terminated (1) by either The St.
Paul or MMI after a failure to obtain stockholder approval at the special
meeting and prior to or at the time of the
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special meeting any person has publicly made, or has publicly announced an
intention (whether or not conditional) to make, and has not withdrawn, a bona
fide proposal with respect to an Alternative Transaction, and within 12 months
of termination MMI enters into a definitive agreement with respect to an
Alternative Transaction or an Alternative Transaction is consummated, (2) by MMI
if MMI enters into an agreement concerning a superior proposal or (3) by The St.
Paul if MMI enters into an agreement for a superior proposal or if the MMI Board
withdraws or modifies its recommendation of the merger, then MMI will pay The
St. Paul a termination fee of $7.5 million, payable by wire transfer of same day
funds, provided that, in the case of clause (1), the amount of such fee will be
multiplied by a percentage equal to the percentage of the stock of MMI or the
assets of MMI and its subsidiaries taken as a whole represented by the
Alternative Transaction with respect to which an agreement is signed or which is
consummated. Any fee payable pursuant to this paragraph will be decreased by the
expenses paid or to be paid as described in the foregoing paragraph. In no event
shall the aggregate amount paid pursuant to this and the preceding paragraph
exceed $7.5 million.
If MMI fails to promptly pay the amount due and, in order to obtain such
payment, The St. Paul or Bowman Acquisition Corp. commences a suit against MMI
for such payment, the prevailing party will be paid its costs and expenses
(including attorneys' fees) in connection with such suit. Any amounts payable
will be paid with interest thereon at the prime rate of The Chase Manhattan
Bank, in effect from time to time during the period such amounts are owing plus
two percent.
APPRAISAL RIGHTS
If the merger is consummated, a holder of record of shares of common stock
who objects to the terms of the merger may seek an appraisal under Section 262
of the Delaware General Corporation Law of the "fair value" of such holder's
shares. The following is a summary of the principal provisions of Section 262
and does not purport to be a complete description. A copy of Section 262 is
attached to this proxy statement as Appendix C. Failure to take any action
required by Section 262 will result in a termination or waiver of a
stockholder's rights under Section 262.
1. A stockholder electing to exercise appraisal rights must (a) deliver to
MMI, before the MMI stockholders vote on the merger agreement, a written
demand for appraisal that is made by or on behalf of the person who is
the holder of common stock for which appraisal is demanded (b) not vote
in favor of adopting the merger agreement. The demand must be delivered
to MMI Companies, Inc. at 540 Lake Cook Road, Deerfield, IL 60015,
Attention: Secretary. A proxy or vote against adopting the merger
agreement does not constitute a demand. A stockholder electing to take
such action must do so by a separate written demand that reasonably
informs MMI of the identity of the holder of record and of such
stockholder's intention to demand appraisal of such holder's common
stock. Because a proxy left blank will, unless revoked, be voted FOR
adoption of the merger agreement, a stockholder electing to exercise
appraisal rights who votes by proxy must not leave the proxy blank but
must vote AGAINST adoption of the merger agreement or ABSTAIN from voting
for or against adoption of the merger agreement.
2. Only the holder of record of common stock is entitled to demand
appraisal rights for common stock registered in that holder's name. The
demand must be executed by or for the holder of record, fully and
correctly, as the holder's name appears on the holder's stock
certificates. If common stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, the demand should be
executed in that capacity. If common stock is owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or for all owners. An authorized agent, including
one of two or more joint owners, may execute the demand for appraisal for
a holder of record; however, the agent must identify the owner or owners
of record and
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expressly disclose the fact that, in executing the demand, the agent is
acting as agent for the owner or owners of record. A holder of record,
such as a broker, who holds common stock as nominee for beneficial owners
may exercise a holder's right of appraisal with respect to common stock
held for all or less than all of such beneficial owners. In such case,
the written demand should set forth the number of shares of common stock
covered by the demand. Where no number of shares of common stock is
expressly mentioned, the demand will be presumed to cover all shares of
common stock standing in the name of the holder of record.
3. Within 10 days after the effective time of the merger, MMI will send
notice of the effectiveness of the merger to each person who prior to the
effective time of the merger satisfied the foregoing conditions. Any
stockholder entitled to appraisal rights may, within 20 days after the
date of the mailing of the notice, demand in writing from MMI the
appraisal of his or her MMI shares.
4. Within 120 days after the effective time of the merger, MMI or any
stockholder who has satisfied the foregoing conditions may file a
petition in the Delaware Court of Chancery demanding a determination of
the fair value of the common stock held by all stockholders entitled to
appraisal. Stockholders seeking to exercise appraisal rights should not
assume that MMI will file a petition to appraise the value of their
common stock or that MMI will initiate any negotiations with respect to
the "fair value" of such common stock. Accordingly, holders of common
stock should initiate all necessary action to perfect their appraisal
rights within the time periods prescribed in Section 262.
5. Within 120 days after the effective time of the merger, any stockholder
who has complied with the requirements for exercise of appraisal rights,
as discussed above, is entitled, upon written request, to receive from
MMI a statement setting forth the aggregate number of shares of common
stock not voted in favor of the merger and with respect to which demands
for appraisal have been made and the aggregate number of holders of such
common stock. MMI is required to mail such statement within 10 days after
it receives a written request to do so.
6. If a petition for an appraisal is timely filed, after a hearing on the
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the common stock owned by
such stockholders, determining its "fair value" exclusive of any element
of value arising from the accomplishment or expectation of the merger and
will determine the amount of interest, if any, to be paid upon the value
of the common stock of the stockholders entitled to appraisal. Any such
judicial determination of the "fair value" of common stock could be based
upon considerations other than or in addition to the price paid in the
merger and the market value of common stock, including asset values, the
investment value of the common stock and any other valuation
considerations generally accepted in the investment community. The value
so determined for common stock could be more than, less than or the same
as the consideration paid pursuant to the merger agreement. The Court may
also order that all or a portion of any stockholder's expenses incurred
in connection with an appraisal proceeding, including, without
limitation, reasonable attorneys' fees and fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the
value of all common stock entitled to appraisal.
7. Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled
to vote the shares subject to such demand for any purpose or be entitled
to dividends or other distributions on that common
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stock (other than those payable or deemed to be payable to stockholders
of record as of a date prior to the effective time of the merger).
8. Holders of common stock lose the right to appraisal if no petition for
appraisal is filed within 120 days after the effective time of the
merger, or if a stockholder delivers to MMI a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger,
except that any such attempt to withdraw made more than 60 days after the
effective time of the merger requires MMI's written approval. If
appraisal rights are not perfected or a demand for appraisal rights is
withdrawn, a stockholder will be entitled to receive the consideration
otherwise payable pursuant to the merger agreement.
If an appraisal proceeding is timely instituted, such proceeding may not be
dismissed without the approval of the Delaware Court of Chancery as to any
stockholder who has perfected a right of appraisal.
INFORMATION CONCERNING MMI
MMI Companies, Inc. provides insurance products and related specialized
services in two principal markets: the United States healthcare industry and the
international insurance and reinsurance markets.
Domestically, MMI offers specialized medical malpractice insurance products
and consulting services that are designed to assist healthcare providers manage
the cost and quality of care. MMI integrates its professional liability
insurance with certain of its fee-based risk management services and does not
offer such insurance or that set of risk management services on a stand-alone
basis. Accordingly, insurance clients are required to purchase a specific set of
risk modification services consisting of consulting, education and information
in order to have access to MMI's professional liability coverage. In addition,
MMI offers a variety of other consulting and fee-based services to healthcare
providers, including strategic and management consulting, employee relations
consulting, risk management services and property and casualty claims management
services.
Internationally, MMI operates as a specialty casualty and property reinsurer
and insurer operating in the London-based reinsurance and insurance market (the
"London Market"), primarily through its subsidiary, Unionamerica Insurance
Company Limited (together with its affiliates, "Unionamerica"). Unionamerica's
core businesses are professional liability reinsurance, including malpractice
reinsurance for healthcare providers, as well as lawyers and other
professionals, and reinsurance and insurance for a variety of property and
casualty risks. Of Unionamerica's insurance gross premiums written,
approximately 85% are generated in the U.S.
38
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT OF MMI
As of January 31, 2000, there were approximately 550 holders of record of
shares of outstanding MMI common stock. Each share of common stock is entitled
to one vote per share, with no right of cumulative voting.
The following table sets forth information regarding the beneficial
ownership of MMI common stock as of the most recent practicable date, December
31, 1998, by each person or entity known by MMI to beneficially own more than 5%
of the outstanding shares of MMI common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------ ----------------------- ----------------
<S> <C> <C>
Franklin Resources, Inc. (1) ............................ 1,879,700 9.8%
777 Mariners Island Blvd.
San Mateo, California 94404
The Prudential Insurance Company of America (2) ......... 1,697,097 8.8%
751 Broad Street
Newark, New Jersey 07102
FMR Corp. (3) ........................................... 1,395,000 7.3%
82 Devonshire Street
Boston, Massachusetts 02109
Wellington Management Company, LLP (4) .................. 1,057,100 5.5%
75 State Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------
(1) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
Franklin Resources, Inc. had the sole power to vote 1,656,900 shares, and
the sole power to direct the disposition of 1,879,700 shares.
(2) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
The Prudential Insurance Company of America had the sole power to vote
956,330 shares, shared power to vote 740,767 shares, the sole power to
direct the disposition of 956,330 shares, and shared power to direct the
disposition of 740,767 shares.
(3) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
FMR Corp. had the sole power to direct the disposition of 1,395,000 shares
and neither sole nor shared power to vote the shares.
(4) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
Wellington Management Company, LLP had shared power to vote 855,100 shares,
and shared power to direct the disposition of 1,057,100 shares.
39
<PAGE>
The following table sets forth information regarding the beneficial
ownership of MMI common stock as of December 31, 1999, the most recent
practicable date, by each MMI director, each MMI executive officer, and all MMI
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
--------------------------------
SHARES OPTIONS WITH EXERCISE
OWNED PRICE OF LESS THAN PERCENT
NAME OF BENEFICIAL OWNER (2) $10 PER SHARE OF CLASS
------------------------ -------- --------------------- --------
<S> <C> <C> <C>
DIRECTORS
Richard R. Barr.................................... 10,325 -- *%
B. Frederick Becker (1)(3)......................... 50,706 125,000 *
George B. Caldwell................................. 26,882 -- *
K. James Ehlen, M.D................................ -- -- *
F. Laird Facey, M.D................................ 41,292 -- *
Alan C. Guy........................................ 2,396 -- *
William M. Kelley.................................. 8,192 -- *
Andrew D. Kennedy.................................. 12,304 -- *
Timothy R. McCormick............................... 17,676 -- *
Gerald L. McManis (1)(4)........................... 4,949 -- *
Scott S. Parker.................................... 17,425 -- *
Edward C. Peddie................................... 10,982 -- *
Joseph D. Sargent.................................. 4,420 -- *
Robert A. Spass.................................... 57,786 -- *
CERTAIN EXECUTIVE OFFICERS
Anna Marie Hajek (1)............................... 6,457 50,000 *
Paul M. Orzech (1)................................. 36,647 50,000 *
Ian G. Sinclair.................................... 101,136 20,000 *
Wayne A. Sinclair (1).............................. 4,056 20,000 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(18) persons....................................... 413,631 265,000 3.5%
</TABLE>
- ------------------------
* Represents less than 1% of MMI common stock.
(1) Includes ESIP or 401(k) shares only through December 31, 1998.
(2) Does not include out-of-the money options for each listed director or
officer as follows: Messrs. Barr, Caldwell, McCormick, Kelley, Parker,
Peddie, Sargent and Dr. Facey--12,375 options; Mr. Becker--527,375 options;
Dr. Ehlen--6,875 options; Messrs. Guy and Spass--5,500 options;
Mr. Kennedy--8,250 options; Mr. McManis--32,000 options; Ms. Hajek--97,750
options; Mr. Orzech--75,500 options; Mr. I. Sinclair--190,351 options; and
Mr. W. Sinclair--64,775 options.
(3) Does not include 114,000 shares that Mr. Becker may be deemed to own
indirectly by virtue of an interest in a private investment limited
partnership. Mr. Becker disclaims beneficial ownership of such shares.
(4) Includes 3,500 shares held by a corporation, with respect to which shares
Mr. McManis has joint investment power.
40
<PAGE>
SUPPLEMENTAL INFORMATION REGARDING MMI
On January 25, 2000, MMI filed a Current Report on Form 8-K reporting that
its financial results for the fourth quarter ended December 31, 1999 will
include a charge totaling $65 million for increasing reserves in its
international insurance operations. The majority of the reserve increase relates
to casualty lines, primarily United States medical malpractice and surplus lines
business. The reserve increase relates to reserve development that occurred
during the fourth quarter and applies principally to business written by
Unionamerica Insurance Company Limited from 1995 to 1999, reflecting a
continuation of competitive market conditions and increasing trends in severity.
The net of tax impact of the charge to net income is expected to be $45.5
million, or $2.37 per share.
INFORMATION CONCERNING ST. PAUL
The St. Paul is incorporated as a general business corporation under the
laws of the State of Minnesota. The St. Paul and its subsidiaries constitute one
of the oldest insurance organizations in the United States, dating back to 1853.
The St. Paul is a management company principally engaged, through its
subsidiaries, in providing property-liability and life insurance, and
reinsurance products and services worldwide. The St. Paul also has a presence in
the asset management industry through its majority ownership of The John Nuveen
Company (Nuveen). As a management company, The St. Paul oversees the operations
of its subsidiaries and provides them with capital, management and
administrative services. At March 1, 1999, The St. Paul and its subsidiaries
employed approximately 14,000 persons. As of September 30, 1999, The St. Paul
had total assets of $39.2 billion and stockholders' equity of $6.4 billion. In
1998, The St. Paul had total revenues from continuing operations of $7.7 billion
and net income of $89.3 million.
INFORMATION CONCERNING BOWMAN ACQUISITION CORP.
Bowman Acquisition Corp. (the "Merger Sub") is a corporation formed by a
subsidiary of The St. Paul to effect the merger. Merger Sub will not have any
significant assets or liabilities or engage in any activities other than those
related to completing the merger.
STOCKHOLDER PROPOSALS
Due to the contemplated consummation of the merger, MMI does not currently
expect to hold a 2000 Annual Meeting of Stockholders, as MMI common stock will
not be publicly traded after the merger. If the merger is not consummated and
such a meeting is held, stockholder proposals for inclusion in proxy materials
for such meeting would have to have been submitted to the Secretary of MMI in
writing and received at the executive offices of MMI by November 22, 1999. Such
proposals must also meet the other requirements of the rules of the SEC relating
to stockholders' proposals.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, MMI files annual, quarterly and special reports, proxy
statements and other information with the SEC. These reports, proxy statements
and other information contain additional information about MMI. You may read and
copy any reports, statements or other information MMI files at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. MMI's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at http://WWW.SEC.GOV. A copy of MMI's SEC filings are available without charge
to stockholders upon written request addressed to Paul M. Orzech, Executive Vice
President and Chief Financial Officer, MMI Companies, Inc., 540 Lake Cook Road,
Deerfield, Illinois 60015.
41
<PAGE>
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this proxy statement, except
for any information superseded by information in this proxy statement. This
proxy statement incorporates by reference the documents and amendments thereto
set forth below that we have previously filed with the SEC. These documents
contain important information about our company.
<TABLE>
<CAPTION>
SEC FILING PERIOD/FILING DATE
- ---------- ------------------
<S> <C>
Annual Report on Form 10-K/A Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarter ended September 30, 1999
Quarter ended June 30, 1999
Quarter ended March 31, 1999
Current Reports on Form 8-K Filed January 25, 2000
Filed December 22, 1999
Filed November 1, 1999
</TABLE>
We are also incorporating by reference all documents that we file with the
SEC pursuant to sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between
the date of this proxy statement and the date on which the special meeting of
stockholders is held.
You should rely only on the information contained in this document to vote
on the proposals at the special meeting. We have not authorized anyone to
provide you with information that is different from what is contained in this
document. This document is dated , 2000. You should not assume that
the information contained in this document is accurate as of any date other than
, , and the mailing of the document to you shall not create
any implication to the contrary.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP, independent auditors, are expected to
be present at the MMI special meeting with an opportunity to make a statement if
they desire to do so and such representatives are expected to be available to
respond to appropriate questions.
42
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
MMI COMPANIES, INC.,
THE ST. PAUL COMPANIES, INC.
AND
BOWMAN ACQUISITION CORP.
DATED AS OF DECEMBER 20, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
RECITALS
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. The Merger.................................................. A-1
1.2. Closing..................................................... A-1
1.3. Effective Time.............................................. A-1
ARTICLE II
CHARTER AND BY-LAWS OF THE SURVIVING CORPORATION
2.1. The Charter................................................. A-2
2.2. The By-Laws................................................. A-2
ARTICLE III
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
3.1. Directors................................................... A-2
3.2. Officers.................................................... A-2
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock..................................... A-2
(a) Merger Consideration................................... A-2
(b) Dissenting Shares...................................... A-2
(c) Cancellation of Shares................................. A-3
(d) Merger Subsidiary...................................... A-3
4.2. Exchange of Cash for Shares................................. A-3
(a) Paying Agent........................................... A-3
(b) Payment Procedures..................................... A-3
(c) Transfers.............................................. A-4
(d) Termination of Exchange Fund........................... A-4
(e) Lost, Stolen or Destroyed Certificates................. A-4
4.3. Adjustments to Prevent Dilution............................. A-4
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company............... A-4
(a) Organization, Good Standing and Qualification.......... A-5
(b) Capital Structure...................................... A-5
(c) Corporate Authority; Approval and Fairness............. A-6
(d) Governmental Filings; No Violations.................... A-7
(e) Company Reports; Financial Statements.................. A-8
(f) Absence of Certain Changes............................. A-9
(g) Litigation and Liabilities............................. A-9
(h) Employee Benefits...................................... A-10
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C> <C>
(i) Compliance with Laws; Permits.......................... A-12
(j) Takeover Statutes...................................... A-13
(k) Environmental Matters.................................. A-13
(l) Taxes.................................................. A-13
(m) Labor Matters........................................... A-15
(n) Intellectual Property; Year 2000....................... A-15
(o) Material Contracts..................................... A-16
(p) Rights Plan............................................ A-17
(q) Title to Assets; Liens................................. A-17
(r) Insurance Matters...................................... A-17
(s) Liabilities and Reserves............................... A-19
(t) Brokers and Finders.................................... A-19
(u) Separate Account; Investment Advisor................... A-19
(v) Joint Ventures......................................... A-20
Representations and Warranties of Parent and Merger
5.2. Subsidiary.................................................. A-20
(a) Capitalization of Merger Subsidiary.................... A-20
(b) Organization, Good Standing and Qualification.......... A-20
(c) Corporate Authority.................................... A-21
(d) Governmental Filings; No Violations.................... A-21
(e) Financing.............................................. A-21
(f) Brokers and Finders.................................... A-21
(g) Share Ownership........................................ A-21
ARTICLE VI
COVENANTS
6.1. Interim Operations.......................................... A-22
6.2. Acquisition Proposals....................................... A-23
6.3. Stockholders Meetings....................................... A-24
6.4. Filings; Other Actions; Notification........................ A-25
6.5. Access...................................................... A-26
6.6. Stock Exchange De-listing................................... A-26
6.7. Publicity................................................... A-27
6.8. Benefits.................................................... A-27
(a) Stock Options and Stock Plans.......................... A-27
(b) Employee Benefits...................................... A-27
6.9. Expenses.................................................... A-27
6.10. Indemnification; Directors' and Officers' Insurance......... A-28
6.11. Assumption of Debentures.................................... A-29
6.12. Other Actions by the Company and Parent..................... A-29
(a) Rights................................................. A-29
(b) Takeover Statute....................................... A-29
ARTICLE VII
CONDITIONS
Conditions to Each Party's Obligation to Effect the
7.1. Merger...................................................... A-29
(a) Stockholder Approval................................... A-29
(b) Regulatory Consents.................................... A-29
(c) Certain U.K. and Ireland Consents...................... A-30
(d) Litigation............................................. A-30
7.2. Conditions to Obligations of Parent and Merger Subsidiary... A-31
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C> <C>
(a) Representations and Warranties......................... A-31
(b) Performance of Obligations of the Company.............. A-31
(c) Consents............................................... A-31
7.3. Conditions to Obligation of the Company..................... A-31
(a) Representations and Warranties......................... A-31
(b) Performance of Obligations of Parent and Merger
Subsidiary.................................................. A-31
(c) Stockholder Approval................................... A-31
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent............................... A-32
8.2. Termination by Either Parent or the Company................. A-32
8.3. Termination by the Company.................................. A-32
8.4. Termination by Parent....................................... A-32
8.5. Effect of Termination and Abandonment....................... A-33
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Survival.................................................... A-34
9.2. Modification or Amendment................................... A-34
9.3. Waiver of Conditions........................................ A-34
9.4. Counterparts................................................ A-34
9.5. GOVERNING LAW; WAIVER OF JURY TRIAL......................... A-34
9.6. Notices..................................................... A-35
9.7. Entire Agreement; No Other Representations.................. A-35
9.8. No Third Party Beneficiaries................................ A-36
9.9. Obligations of Parent and of the Company.................... A-36
9.10. Severability................................................ A-36
9.11. Interpretation.............................................. A-36
9.12. Assignment.................................................. A-36
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of December 20,
1999, among MMI COMPANIES, INC., a Delaware corporation (the "COMPANY"), THE ST.
PAUL COMPANIES, INC., a Minnesota corporation ("PARENT"), and BOWMAN ACQUISITION
CORP., a Delaware corporation and a wholly-owned indirect subsidiary of Parent
("MERGER SUBSIDIARY") (the Company and Merger Subsidiary sometimes being
hereinafter collectively referred to as the "CONSTITUENT CORPORATIONS.")
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger
Subsidiary and the Company have determined that 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 is advisable and have approved the
Merger; 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
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 unaffected by the Merger, except as set forth in Article IV. The Merger
shall have the effects specified in the Delaware General Corporation Law, as
amended (the "DGCL").
1.2. CLOSING. The closing of the Merger (the "CLOSING") shall take place
(i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York,
at 9:00 A.M. on the second business day on which the last to be fulfilled or
waived of the conditions set forth in Article VII shall be satisfied or waived
in accordance with this Agreement (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. As soon as practicable following the Closing on the
Closing Date, the Company and Parent will cause a certificate of merger (the
"CERTIFICATE OF MERGER") to be executed, acknowledged and 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 of State of the State of
Delaware, or at such later time agreed by the parties and established under the
Certificate of Merger (the "EFFECTIVE TIME").
A-1
<PAGE>
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
as provided therein or by applicable Law (as defined below).
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 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 Company at the Effective Time shall,
from and after the Effective Time, be the officers 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.
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
4.1. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) MERGER CONSIDERATION. Each share of the common stock, par value $0.10
per share, of the Company (the "COMMON STOCK"), including the associated right
to purchase one one-hundredth of a share of Series B Junior Participating
Preferred Stock, par value $20 per share, of the Company ("SERIES B PREFERRED
STOCK"), or, in certain circumstances, Common Stock or to receive other
securities (each a "RIGHT" and together with the Common Stock, a "SHARE" and,
collectively, the "SHARES") issued pursuant to the Amended and Restated Rights
Agreement, dated as of September 24, 1998, by and between the Company and Chase
Mellon Shareholder Services L.L.C., as Rights Agent (the "RIGHTS AGREEMENT"),
issued and outstanding immediately prior to the Effective Time (other than
Shares owned by Parent, Merger Sub or any other direct or indirect Subsidiary of
Parent (collectively, the "PARENT COMPANIES")) or Shares that are owned by the
Company or any direct or indirect Subsidiary of the Company and in each case not
held on behalf of third parties or Shares ("DISSENTING SHARES") that are owned
by shareholders ("DISSENTING SHAREHOLDERS") who do not vote to approve the
Merger and comply with all the provisions of the DGCL concerning the right of
holders of Shares to dissent from the Merger and require payment of fair value
(as that term is used in the DGCL) for their Shares (each, an "EXCLUDED SHARE"
and collectively, "EXCLUDED SHARES")) shall be converted into the right to
receive $10.00 in cash (the "MERGER CONSIDERATION"). At the Effective Time, all
Shares shall no longer be outstanding and shall be canceled and retired and
shall cease to exist, and each certificate (a "CERTIFICATE") formerly
representing any of such Shares (other than Excluded Shares) shall thereafter
represent only the right to receive the Merger Consideration.
(b) DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, any Shares held by a Person (a "DISSENTING SHAREHOLDER") who does not
vote to approve the Merger and
A-2
<PAGE>
complies with all the provisions of the DGCL concerning the right of holders of
Shares to dissent from the Merger and require payment of fair value (as that
term is used in the DGCL) for their Shares ("DISSENTING SHARES") shall not be
converted as described in Section 4.1(a), but shall be converted into the right
to receive such consideration as may be determined to be due to such Dissenting
Shareholder pursuant to the DGCL. If, after the Effective Time, such Dissenting
Shareholder withdraws his demand or fails to perfect or otherwise loses his
rights as a Dissenting Shareholder to payment of fair value, in any case
pursuant to the DGCL, his Shares shall be deemed to be converted as of the
Effective Time into the right to receive the Merger Consideration. The Company
shall give Parent (i) prompt notice of any demands for fair value for 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.
(c) CANCELLATION OF SHARES. Each Share issued and outstanding immediately
prior to the Effective Time and owned by any of the Parent Companies or owned by
the Company or any direct or indirect Subsidiary of the Company (in each case
other than Shares that are owned on behalf of third parties), shall, by virtue
of the Merger and without any action on the part of the holder thereof, cease to
be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(d) MERGER SUBSIDIARY. At the Effective Time, each share of Common Stock,
par value $.01 per share, of Merger Subsidiary issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation.
4.2. EXCHANGE OF CASH FOR SHARES.
(a) PAYING AGENT. As of the Effective Time, Parent shall cause one of its
Subsidiaries to deposit with a bank or trust company selected by Parent with the
Company's prior approval, which shall not be unreasonably withheld or delayed
(the "PAYING AGENT"), for the benefit of the holders of Shares, cash sufficient
to pay the aggregate Merger Consideration in exchange for Shares outstanding
immediately prior to the Effective Time (other than Excluded Shares) upon due
surrender of the Certificates (or affidavits of loss in lieu thereof) pursuant
to the provisions of this Article IV (such cash being hereinafter referred to as
the "EXCHANGE FUND"). The funds deposited with the Paying Agent shall be
invested by the Paying Agent as Parent reasonably directs and any net profit
resulting from, or interest or income produced by, such investments will be
payable to the Surviving Corporation or Parent, as Parent directs.
(b) PAYMENT PROCEDURES. Promptly after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each holder of record of
Shares (other than holders of Excluded Shares) (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or affidavits
of loss in lieu thereof) to the Paying Agent, such letter of transmittal to be
in such form and have such other provisions as Parent and the Company may
reasonably agree, and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate (or affidavit of loss in lieu thereof) for cancellation to the
Paying Agent together with such letter of transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor a check in
the amount (after giving effect to any required tax withholdings) of the number
of Shares represented by such Certificate (or affidavit of loss in lieu thereof)
multiplied by the Merger Consideration, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount payable
upon due surrender of the Certificates. In the event of a transfer of ownership
of Shares that is not registered in the transfer records of the Company, a check
for any cash to be paid upon due surrender of the Certificate may be paid to
A-3
<PAGE>
such a transferee if the Certificate formerly representing such Shares is
presented to the Paying Agent, accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid or are not applicable.
For the 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 (as defined in Section 5.1(d)) or
other entity of any kind or nature organized or existing under the Laws of any
jurisdiction.
(c) TRANSFERS. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time.
(d) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) that remains unclaimed by
the shareholders of the Company for 180 days after the Effective Time shall be
returned to Parent. Any shareholders of the Company who have not theretofore
complied with this Article IV shall thereafter look only to Parent for payment
of (after giving effect to any required tax withholdings) the Merger
Consideration upon due surrender of their Certificates (or affidavits of loss in
lieu thereof) without any interest thereon. Notwithstanding the foregoing, none
of Parent, the Surviving Corporation, the Paying Agent or any other Person shall
be liable to any former holder of Shares for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
Laws.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificates to be lost, stolen or
destroyed and, if required by Parent, the posting by such Person of a bond in
customary amount as indemnity against any claim that may be made against it with
respect to such Certificates, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificates a check in the amount (after giving
effect to any required tax withholdings) of the number of Shares represented by
such lost, stolen or destroyed Certificate multiplied by the Merger
Consideration upon due surrender of, and deliverable in respect of, the Shares
represented by such Certificates pursuant to this Agreement.
4.3. ADJUSTMENTS TO PREVENT DILUTION. In the event that the Company
changes the number of Shares issued and outstanding prior to the Effective Time
as a result of a reclassification, stock split (including a reverse stock
split), stock dividend or distribution, recapitalization, merger, subdivision,
issuer tender or exchange offer, or other similar transaction, the Merger
Consideration shall be equitably adjusted to reflect such change.
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 during the period beginning on March 1, 1999, and ending on the date
hereof, including the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and the Company's Quarterly Reports on Form 10-Q for the
periods ended March 31, 1999, June 30, 1999 and September 30, 1999, excluding
any exhibits thereto or documents incorporated by reference therein
(collectively, the "1999 COMPANY REPORTS") (provided, however, the 1999 Company
Reports shall not qualify any of the representations and warranties of the
Company set forth in Sections 5.1(a), 5.1(b), 5.1(c), 5.1(d), 5.1(e), 5.1(p),
5.1(t), or 5.1(u)
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contained herein), 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 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, is not reasonably likely to have a Company Material Adverse Effect
(as defined below). The Company has made available to Parent a complete and
correct copy of articles or certificate of incorporation and by-laws, or other
similar governing documents or local equivalent, each as amended to date
(collectively, the "GOVERNING DOCUMENTS"), of the Company and each of its
Subsidiaries. The Company's and its Subsidiaries' Governing Documents so made
available are in full force and effect.
As used in this Agreement, the term (i)"SUBSIDIARY" means, with respect to
the Company, 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, business, operations or
results of operations of the Company and its Subsidiaries, taken as a whole, or
any effect which prevents or materially impairs the ability of the Company to
consummate the transactions contemplated by this Agreement; provided, however,
that the term "COMPANY MATERIAL ADVERSE EFFECT" shall not be deemed to include
any (i) changes in the property and casualty insurance industry in general,
(ii) events resulting from changes in general United States, United Kingdom or
global economic or financial market conditions, (iii) changes in GAAP or SAP,
(iv) non-renewal of premiums due primarily and directly to the execution of this
Agreement and the announcement of the transaction and the identity of Parent
and/or Merger Subsidiary, (v) changes resulting from actions of the Parent or
Merger Subsidiary in breach of this Agreement, or (vi) adverse changes in the
Company's financial condition or results of operations following the date hereof
resulting from the matters 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 (the "COMPANY INSURANCE
SUBSIDIARIES"). Each of the Company Insurance Subsidiaries is, where applicable,
(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 Company SAP Statements (as defined below), except, in any such case,
where the failure to be so licensed or authorized, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse Effect.
The Company has made all required filings under applicable insurance holding
company statutes except where the failure to file, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse Effect.
(b) CAPITAL STRUCTURE. The authorized stock of the Company consists of
30,000,000 shares of Common Stock, of which 19,150,270 were outstanding as of
the close of business on December 17, 1999, and 5,000,000 shares of preferred
stock (the "PREFERRED SHARES"), $20 par value, of which
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300,000 shares have been authorized as Series B Junior Participating Preferred
Stock, none of which were outstanding as of December 17, 1999. All of the
outstanding shares of Common Stock have been duly authorized and are validly
issued, fully paid and non-assessable. The Company has no commitments to issue
or deliver shares of Common Stock, except that, as of December 17, 1999, there
were not more than 3,160,888 shares of Common Stock subject to issuance pursuant
to the Company's 1999 Stock Option Plan, 1993 Stock Plan, 1993 Non-Employee
Director Formula Stock Option Plan and the 1997 Long Term Incentive Plan and
100,000 shares of Common Stock reserved for issuance pursuant to the Company's
Savings Related Share Option Scheme (collectively referred to as, the "COMPANY
STOCK PLANS"). The Company has no commitments to issue or deliver Preferred
Shares, except that as of the date hereof, there were 300,000 shares of
Series B Junior Participating Preferred Stock subject to issuance pursuant to
the Rights Agreement. The Company Disclosure Letter contains a correct and
complete list of each outstanding option to purchase or acquire shares of Common
Stock under each of the Company Stock Plans (each a "COMPANY OPTION"), including
the plan, the holder, date of grant, exercise price and number of Shares subject
thereto. 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 non-assessable 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, 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 or other securities 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.
(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 to consummate the Merger,
subject only to approval of the Merger by the holders of at least a majority
of the outstanding shares of Common Stock (the "COMPANY REQUISITE VOTE").
This Agreement is the valid and binding agreement of the Company enforceable
against the Company in accordance with its 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 prior to the execution hereof, (A) has unanimously (with respect to
those directors present at such meeting, which number of directors
constituted a quorum) declared that the Agreement, the Merger and the other
transactions contemplated hereby are advisable, fair to and in the best
interests of the Company and its stockholders, (B) has authorized, approved
and adopted in all respects this Agreement, the Merger and the other
transactions contemplated hereby, (C) has recommended the approval of this
Agreement and the Merger by the holders of the shares of Common Stock and
directed that the Merger be submitted for consideration by the Company's
stockholders at the Stockholder Meeting (as defined in Section 6.3) and
(D) has received the opinion of Salomon Smith Barney, Inc., its financial
advisors, a copy of which has been delivered to Parent, to the effect that
the consideration to be received by the holders of the Shares in the Merger
is fair from a financial point of view to such holders.
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(d) GOVERNMENTAL FILINGS; NO VIOLATIONS.
(i) Other than the filings, reports 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"), the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") and the Securities Act of 1933, as amended (the
"SECURITIES ACT"), (C) to comply with state securities or "blue-sky" Laws,
(D) required to be made with the New York Stock Exchange (the "NYSE"), and
(E) 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
(F) required to be made with the United Kingdom ("UK") Office of Fair
Trading or the Commission of the European Communities, the UK Financial
Services Authority, the Council of Lloyds and the Minister for Enterprise
Trade and Employment of Ireland and such notices and consents and expiry of
waiting periods as may be required under the insurance company controller
laws of the UK and 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 or its Subsidiaries or Joint
Ventures with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company or its Subsidiaries or
Joint Ventures from, any foreign or domestic governmental or regulatory
authority, agency, commission, body or other governmental entity
("GOVERNMENTAL ENTITY"), in connection with the execution and delivery of
this Agreement by the Company and the consummation by the Company of the
Merger and the other transactions contemplated hereby, except those that the
failure to make or obtain are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect.
(ii) Except as set forth in Section 5.1(d)(ii) of the Company Disclosure
Letter, the execution, delivery and performance of this Agreement by the
Company do not, and the consummation by the Company 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, any Governing Document of
the Company or any of its Subsidiaries or Joint Ventures, (B) a breach or
violation of, or a default under, the right of cancellation, the termination
or the acceleration of any obligations by any Person or the creation of a
lien, pledge, security interest, claim or other encumbrance on the
properties or assets of the Company or any of its Subsidiaries or Joint
Ventures (with or without notice, lapse of time or both) pursuant to, any
agreement, lease, license permit, contract, note, mortgage, indenture,
arrangement or other obligation ("CONTRACTS") binding upon the Company or
any of its Subsidiaries or Joint Ventures (provided, as to consummation, the
filings and notices are made, and approvals are obtained, as referred to in
Section 5.1(d)(i)), 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 or Joint Ventures is subject or (C) any change in
the rights or obligations of any party pursuant to any of the Contracts,
except, in the case of clause (B) or (C) above, for any breach, violation,
default, acceleration, creation or change that, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse
Effect or materially impair the ability of Parent or any of its Affiliates
(as defined below), including the Company, its Subsidiaries and Joint
Ventures, following the Effective Time, to conduct its business in the
manner as such business is being conducted as of the date of this Agreement.
None of the Company or any of its Subsidiaries or Joint Ventures 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 by the Company or the performance by the Company of its
obligations hereunder, except those the failure to obtain, individually or
in the aggregate, is not reasonably likely to have a Company Material
Adverse Effect.
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As used herein, "JOINT VENTURE" of a Person shall mean any corporation or
other Person, together with any Subsidiaries thereof, that is not a Subsidiary
of such Person, in which such Person owns directly or indirectly an equity,
voting or other membership interest, other than equity, voting or other
membership interests representing less than 5% of each class of the outstanding
voting securities or equity or other voting or membership interests of any such
Person and owned for passive investment purposes.
Any representations and warranties made herein as to the Company's Joint
Ventures shall be made in reference to and limited to the knowledge of the Chief
Executive Officer and the Chief Financial Officer of both the Company and
Unionamerica Holdings, PLC, and Alisdair Bishop, which knowledge shall include
the knowledge that such persons would have obtained after due inquiry with
respect to those areas of the business for which they are responsible.
(e) COMPANY REPORTS; FINANCIAL STATEMENTS.
(i) The Company has delivered or made available to Parent each
registration statement, report, proxy statement or information statement
prepared by it since December 31, 1997 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 Reports on Form 10-Q for the periods ended
March 31, 1999, June 30, 1999 and September 30, 1999, each in the form
(including exhibits, annexes and any amendments thereto) filed with the
Securities and Exchange Commission (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) presents fairly, or will present fairly,
the consolidated financial position of the Company and its Subsidiaries as
of its respective date and each of the consolidated statements of income and
of stockholders' equity and of cash flows 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 cash flows, 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 notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods indicated, except as may be noted
therein.
(ii) The Company has made available or provided to Parent true and
complete copies of the annual and quarterly statements of each of the
Company Insurance Subsidiaries as filed with the applicable insurance
regulatory authorities for the years ended December 31, 1996, 1997 and 1998
and the quarterly periods ended March 31, 1999, June 30, 1999 and
September 30, 1999, including all exhibits, interrogatories, notes,
schedules and any actuarial opinions, affirmations or certifications or
other supporting documents filed in connection therewith, or the local
equivalent in its respective jurisdiction (collectively with any such
statement filed subsequent to the date hereof, the "COMPANY SAP
STATEMENTS"). The Company SAP Statements were and will be prepared in
conformity with statutory accounting practices prescribed or permitted by
the applicable insurance regulatory authority ("SAP") consistently
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applied for the periods covered thereby, were and will be prepared in
accordance with the books and records of the Company or the Company
Insurance Subsidiary, as the case may be, and 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 SAP Statements complied
and 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 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 annual statutory balance sheets and income
statements included in the Company SAP Statements have been audited by
Ernst & Young LLP, and the Company has provided to Parent true and complete
copies of all audit opinions related thereto. The Company has provided to
Parent true and complete copies of all examination reports of insurance
departments and any insurance regulatory agencies since January 1, 1995
relating to the Company Insurance Subsidiaries and a list of all pending
market conduct examinations, or the local equivalent in its respective
jurisdiction.
(f) ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 5.1(f) of
the Company Disclosure Letter, since the Audit Date, the Company and its
Subsidiaries and Joint Ventures have conducted their businesses only in, and
have not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses and there has not been (i) any
change, event, circumstance, development or combination of events, circumstances
and developments which, individually or in the aggregate, has had or is
reasonably likely to have a Company Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution in
cash, stock or property in respect of the capital stock of the Company, except
for regular quarterly cash dividends on its shares of Common Stock publicly
announced prior to the date hereof; (iii) any change by the Company in
accounting principles, practices or methods other than those required by GAAP or
SAP or the local equivalent in its respective jurisdiction; (iv) any material
addition, or any development involving a prospective material addition, to the
Company's consolidated reserves for future policy benefits or other policy
claims and benefits; or (v) any change in the accounting, actuarial, investment,
reserving, underwriting or claims administration policies, practices,
procedures, methods, assumptions or principles of any Company Insurance
Subsidiary. Since the Audit Date, except as expressly provided for herein, or as
set forth in Section 5.1(f) of the Company Disclosure Letter, there has not been
any: (i) increase in the compensation payable or that could become payable by
the Company or any of its Subsidiaries to officers or key employees; (ii) any
amendment of any of the Compensation and Benefit Plans (as hereinafter below)
other than amendments in the ordinary course which are generally applicable to
employees of the Company; (iii) adoption of any new employee benefit plan or
agreement providing for severance benefits or other benefits; or (iv) stock
option grants to officers and key employees of the Company or any of its
Subsidiaries other than in the ordinary course.
(g) LITIGATION AND LIABILITIES. Except as disclosed in the 1999 Company
Reports, there are no (i) civil, criminal or administrative actions, suits,
claims, hearings, investigations or proceedings pending or, to the Knowledge of
the Company (as defined below), threatened against the Company or any of its
Affiliates (as defined below), (ii) orders, judgments, decrees, injunctions or
rules of any Governmental Entity to which the Company or any of its Subsidiaries
or Joint Ventures is subject, (iii) except as incurred in the ordinary course of
business consistent with past practice, obligations or liabilities, whether or
not accrued, contingent or otherwise and whether or not required to be
disclosed, or any facts or circumstances that is reasonably likely to result in
any claims against, or
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obligations or liabilities of, the Company or any of its Affiliates or
(iv) developments since the date of such Company Reports with respect to such
disclosed actions, suits, claims, hearings, investigations or proceedings,
except, in each case, for those that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect. As used herein, the
term "AFFILIATE" shall have the meaning ascribed to such term in Rule 1sec-2
under the Exchange Act, and "KNOWLEDGE OF THE COMPANY" shall mean the knowledge
of those persons referred to in Section 5.1(g) of the Company Disclosure Letter,
which knowledge shall include the knowledge that such persons would have
obtained after due inquiry with respect to those areas of the business of the
Company for which they are responsible.
(h) EMPLOYEE BENEFITS.
(i) A copy of each 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 employees, directors, former
employees or former directors of the Company and its Subsidiaries (the
"COMPENSATION AND BENEFIT PLANS") and any trust agreement or insurance
contract forming a part of such Compensation and Benefit Plans has been
provided to Parent prior to the date hereof. The Compensation and Benefit
Plans are listed in Section 5.1(h) of the Company Disclosure Letter and any
"change of control" or similar provisions therein are specifically
identified in Section 5.1(h)(i) of the Company Disclosure Letter. All bonus
accruals in respect of the employees of the Company and its Subsidiaries
have been disclosed to Parent either in the most recent consolidated balance
sheet or in Section 5.1(h)(i) of the Company Disclosure Letter.
(ii) All Compensation and Benefit Plans are in substantial compliance
with all applicable Law, including the Internal Revenue Code of 1986, as
amended (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") with respect to "TRA" (as
defined in Section 1 of Rev. Proc. 93-39), and the Company is not aware of
any circumstances reasonably likely to result in revocation of any such
favorable determination letter. The Unionamerica (1993) Pension Scheme and
the Unionamerica (1993) Death Benefits Scheme are approved by Inland Revenue
for the purposes of Chapter I Part XIV of the Income and Corporation Taxes
Act 1988 and the Company is not aware of any circumstances reasonably likely
to result in the withdrawal of such approval. 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.
(ix) 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;
(x) none of the Company or any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f) of the Code;
(xi) any material 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
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(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 "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 Subsidiaries have not
contributed, or been obligated to contribute, to a multi-employer 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 by any ERISA
Affiliate within the 12-month period ending on the date hereof or will be
required to be filed in connection with the transactions contemplated by
this Agreement.
(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 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. The Unionamerica
1993 Pension Scheme is sufficiently funded on an ongoing basis, using
actuarial assumptions within the range of generally accepted actuarial
practice to secure all benefits currently, prospectively and contingently
payable under the 1993 Scheme as of the Closing Date.
(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in the Pension Plan's most recent
actuarial valuation), did not exceed the then current value of the assets of
such Pension Plan, and there has been no material change in the financial
condition of such Pension Plan since the last day of the most recent plan
year.
(vi) Neither the Company nor its Subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan,
except as set forth in Section 5.1(h)(vi) of the Company Disclosure Letter.
The Company or its Subsidiaries may amend or terminate any such plan under
the terms of such plan at any time without incurring any material liability
thereunder.
(vii) Except as described in Section 5.1(h)(vii) of the Company
Disclosure Letter or as otherwise 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 or redundancy pay, (y) accelerate the time of
payment or vesting or trigger any payment or funding (through a grantor
trust or otherwise) of compensation or benefits under, increase the amount
payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans or (z) result in any breach or violation of,
or a default under, any of the Compensation and Benefit Plans.
(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 the vesting of cash, options or property) directly or
indirectly as a result of any of the transactions contemplated by this
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Agreement 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 fail to be deductible
under Section 280G of the Code.
(ix) Except as set forth in Section 5.1(h)(ix) of the Company Disclosure
Letter, no employees are seconded or leased to the Company or any of its
Subsidiaries.
(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 statutes, regulations and rules of any jurisdiction of which
each is respectively subject 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 is not, individually or in
the aggregate, reasonably likely to have a Company Material Adverse Effect.
Notwithstanding the generality of the foregoing, except where the failure to do
so is not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect, each Company Insurance Subsidiary and its agents have
marketed, sold and issued insurance products in compliance, in all respects,
with Insurance Laws applicable to the business of such Company Insurance
Subsidiary and in the respective jurisdictions in which such products have been
sold, including, without limitation, in compliance with (i) all applicable
published prohibitions against "redlining" or withdrawal of business lines,
(ii) all applicable published requirements relating to the disclosure of the
nature of insurance products as policies of insurance and (iii) all applicable
published requirements relating to insurance product projections and
illustrations. In addition, (i) there is no pending or, to the Knowledge of the
Company, threatened charge by any insurance regulatory authority that any of the
Company Insurance Subsidiaries has violated, nor any pending or, to the
Knowledge of the Company, threatened investigation by any insurance regulatory
authority with respect to possible violations of, any applicable Insurance Laws
where such violations are, individually or in the aggregate, reasonably likely
to have a Company Material Adverse Effect; (ii) none of the Company Insurance
Subsidiaries is subject to any order or decree of any insurance regulatory
authority or limitation of license or restriction to conduct its business
relating specifically to such Company Insurance Subsidiary which is,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect; and (iii) the Company Insurance Subsidiaries have 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 is,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect.
In addition to Insurance Laws, the businesses of each of the Company, its
Subsidiaries and Joint Ventures have not been, and are not being, conducted in
violation of any federal, state, local or foreign Law, statute, ordinance, rule,
regulation, judgment, default under or non-compliance with order, injunction,
decree, arbitration award, agency requirement, writ, franchise, variance,
exemption, approval, license or permit of any Governmental Entity (collectively
with Insurance Laws, "LAWS"), except for violations, defaults or non-compliance
that are not, individually or in the aggregate, reasonably likely to have a
Company Material Adverse Effect. No investigation or review by any Governmental
Entity with respect to the Company or any of its Subsidiaries or Joint Ventures
is pending or, to the Knowledge of the Company, threatened, nor has any
Governmental Entity indicated an intention to conduct the same, except for those
the outcome of which are not, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect. No material change is required
in the Company's or any of its Subsidiaries' or any of its Joint Ventures'
processes, properties or procedures in connection with any such 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 and Joint Ventures each has all permits,
licenses, trademarks, patents, trade names, domain names, copyrights, service
marks,
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franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business as presently conducted
except those the absence of which are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect.
(j) TAKEOVER STATUTES. The board of directors of the Company has adopted,
approved and found advisable the Merger and the other transactions contemplated
by this Agreement, and such adoptions, approvals and findings are sufficient to
render inapplicable to the Merger and the other transactions contemplated by
this Agreement the provisions of Section 203 of the DGCL, the Rights Plan and
the Rights. To the Knowledge of the Company, no other "fair price",
"moratorium", "control share acquisition" or other form of anti-takeover statute
or regulation or similar Law (collectively, the "TAKEOVER STATUTES"), or any
provision of the Company's Certificate or By-Laws, applies or purports to apply
to the Merger or any of the transactions contemplated by this Agreement.
(k) ENVIRONMENTAL MATTERS. 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 or Joint Ventures 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 or Joint Ventures 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 or Joint Ventures 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 or common law, 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 byproduct, 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:
(i) the Company and each of its Subsidiaries have filed all material 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, and have paid,
or made adequate provision for the payment of, all material Taxes (as
defined below) which have or may become due and payable pursuant to said Tax
Returns and all other Taxes, governmental charges or assessments received to
date other than those Taxes being contested in good faith for which adequate
provision has been made on the most recent balance sheet included in the
Company Reports. The Tax Returns of the Company and its Subsidiaries have
been prepared, in all material respects, in accordance with all applicable
Laws consistently applied;
(ii) all material 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
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timely manner, to the proper Taxing Authorities (as defined below) to the
extent due and payable;
(iii) no liens for a material amount of Taxes exists with respect to any
of the assets or properties of the Company or its Subsidiaries, except for
statutory liens for Taxes not yet due and payable or that are being
contested in good faith;
(iv) neither the Company nor any of its Subsidiaries have executed any
written waiver to extend the applicable statute of limitations in respect of
any material Tax liabilities of the Company or its Subsidiaries;
(v) 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;
(vi) 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, 1995;
(vii) all material 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;
(viii) there is no suit, claim, dispute, audit, deficiency or refund
litigation pending with respect to material Taxes of the Company or any of
its Subsidiaries for which adequate provision has not been made on the most
recent balance sheet included in the Company Reports;
(xii) the Company does not own any material interests in real property
located in the United States or the Virgin Islands and to the best of the
knowledge and belief of the corporate officers with knowledge of the tax
affairs of the Company, 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)(l)(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, leasing, lease, user, 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, windfall profit or environmental tax, customs, duties, or
other tax, or like assessments or charges of any kind whatsoever, together with
any interest, levies, assessments, charges, 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 known
joint or several liability of such Person with any 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 material 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
informational 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.
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(m) LABOR MATTERS.
(i) Except as set forth in Section 5.1(m) of the Company Disclosure
Letter, (a) the Company and each of its Subsidiaries are in substantial
compliance with all applicable Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours;
(b) neither the Company nor its Subsidiaries have received written notice of
any material 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 Entity or court or
other tribunal regarding an unlawful employment practice; (c) there are no
material complaints, lawsuits or other proceedings pending, or to the
Knowledge of the Company, 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) neither the Company
nor its Subsidiaries have received notice that any material representation
petition respecting the employees of the Company or its Subsidiaries has
been filed with the National Labor Relations Board; (e) the Company and each
of 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 pending
or threatened, nor has there been any since January 1, 1997, labor strike,
slowdown or stoppage against or affecting the Company and its Subsidiaries.
(ii) Except as set forth in the Company Disclosure Letter, 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.
(iii) The Company has distributed to Parent a true, complete and
accurate list containing the following information: as of the date hereof,
the number of employees employed by the Company and its Subsidiaries (by
employer or location) including such employee's date of hire (or period of
service) and current base salary or rate of pay.
(n) INTELLECTUAL PROPERTY; YEAR 2000.
(i) The Company and/or each of its Subsidiaries and Joint Ventures
owns, or is licensed or otherwise possesses legally enforceable rights to
use all patents, trademarks, brand marks, brand names, trade names, domain
names, service marks, copyrights, and any applications therefor, technology,
know-how, computer software programs, databases 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 are not,
individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect. To the Knowledge of the Company, all patents,
trademarks, trade names, domain names, service marks and copyrights held by
the Company and/or its Subsidiaries are valid and subsisting.
(ii) All computer systems and computer software used by the Company or
any of its Subsidiaries, and, to the Knowledge of the Company, the material
computer systems and computer software of its material commercial
counterparties, recognize the advent of the year A.D. 2000 and can correctly
recognize and manipulate date information relating to dates on or after
January 1, 2000 and the operation and functionality of such computer systems
and such computer software has not been and 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
("MILLENNIUM FUNCTIONALITY"), except in each case for such computer systems
and computer software, the failure of which to achieve Millennium
Functionality, individually or in the aggregate, has not had and is not
reasonably likely to have a Company Material Adverse
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Effect. The costs of the adaptions necessary to achieve Millennium
Functionality have not had and are not reasonably likely to have a Company
Material Adverse Effect.
(iii) Except as are not, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect:
(A) the Company, its Subsidiaries and Joint Ventures is not, nor will
it be as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any licenses,
sublicenses and other agreements as to which the Company is a party and
pursuant to which the Company is authorized to use any third-party
patents, trademarks, domain names, service marks, and copyrights
("THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS");
(B) no claims with respect to (I) the patents, registered and
material unregistered trademarks, domain names and service marks,
registered copyrights, trade names, and any applications therefor owned
by the Company or any its Subsidiaries (the "COMPANY INTELLECTUAL
PROPERTY RIGHTS"); (II) any trade secret material to the Company; or
(III) Third-Party Intellectual Property Rights are currently pending or,
to the Knowledge of the Company, are threatened by any Person;
(C) to the Knowledge of the Company, there are no valid grounds for
any bona fide claims (I) to the effect that the sale, licensing or use of
any product as now used, sold or licensed or proposed for use, sale or
license by the Company or any of its Subsidiaries, infringes on any
copyright, patent, trademark, service mark or trade secret; (II) against
the use by the Company or any of its Subsidiaries, of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the business of the
Company or any of its Subsidiaries as currently conducted or as proposed
to be conducted; (III) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property Rights or other
trade secret material to the Company; or (IV) challenging the license or
legally enforceable right to use of the Third-Party Intellectual Rights
by the Company or any of its Subsidiaries; and
(D) to the Knowledge of the Company, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual
Property Rights by any third party, including any employee or former
employee of the Company or any of its Subsidiaries.
(o) MATERIAL CONTRACTS. Except as set forth in Section 5.1(o) of the
Company Disclosure Letter, all of the material Contracts of the Company and its
Subsidiaries that are required to be described in the Company Reports or the
Company SAP Statements, or to be filed as exhibits thereto, are described in the
Company Reports or filed as exhibits thereto. Each material Contract is valid,
binding and enforceable against the Company and its Subsidiaries 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 except for such breaches and defaults as are not, individually
or in the aggregate, reasonably likely to have a Company Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is party to any Contract
containing any provision or covenant limiting in any respect the ability of the
Company or any of its Subsidiaries or, except as specifically identified on
Section 5.1(o) of the Company Disclosure Letter, 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.
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(p) RIGHTS PLAN.
(i) Prior to Parent entering into this Agreement, 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 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 shares of
Common Stock, as a result of Parent's entering into this Agreement or
consummating the Merger and/or the other transactions contemplated hereby.
(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, (A) neither the Company, Parent nor Merger Subsidiary will have any
obligations under the Rights or the Rights Agreement and (B) the holders of
the Rights will have no rights under the Rights or the Rights Agreement.
(q) TITLE TO ASSETS; LIENS. Except as set forth in Section 5.1(q) of the
Company Disclosure Letter, the Company and its Subsidiaries and Joint Ventures
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 are not reasonably likely, individually or in the aggregate,
to 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 its
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 are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect, all policies,
binders, slips, certificates, annuity contracts, participation agreements
and agents, brokers, managing general agents agreements and other agreements
of insurance, whether individual or group, (including all applications,
supplements, endorsements, riders and ancillary agreements in connection
therewith) that are or have been issued by the Company Insurance
Subsidiaries (the "COMPANY INSURANCE CONTRACTS") and any and all marketing
materials, are, and have been, 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
the insurance statutes, regulations and rules 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 the insurance statutes, regulations and rules
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 are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect. Neither the
Company nor any Company Insurance Subsidiary, nor, to the Knowledge of the
Company, any other party to a reinsurance or coinsurance treaty or binder or
other agreement to which the Company or any Company Insurance Subsidiary is
a party, is in default in any material respect as to any provision thereof,
and no such agreement contains any provision providing that the other party
thereto may terminate such agreement by reason of the transactions
contemplated by this Agreement. The
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Company has not received any notice to the effect that the financial
condition of any other party to any such agreement is impaired with the
result that a default thereunder may reasonably be anticipated, whether or
not such default may be cured by the operation of any offset clause in such
agreement. No broker, 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 two 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, the Company and/or the Company
Insurance Subsidiaries are entitled to take credit for reinsurance.
(iii) Prior to the date hereof, the Company has provided to Parent a
true and complete copy of all actuarial reports prepared by actuaries,
independent or otherwise, with respect to the Company or any Company
Insurance Subsidiary since December 31, 1996, and all attachments, addenda,
supplements and modifications thereto (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 were accurate in all material respects.
Each Company Actuarial Analysis was based upon an accurate inventory of
policies in force for the Company and the Company Insurance Subsidiaries, as
the case may be, at the relevant time of preparation, was prepared using
appropriate modeling procedures accurately applied and in conformity with
generally accepted actuarial standards consistently applied, and the
projections contained therein were properly prepared in accordance with the
assumptions stated therein.
(iv) Except as set forth in Section 5.1(r)(iv) of the Company
Disclosure Letter, none of Standard & Poor's Corporation, Moody's Investors
Service, Inc. or A.M. Best Company has announced that it has under
surveillance or review its rating of the financial strength or claims-
paying ability of any Company Insurance Subsidiary and the Company, as of
the date hereof, has no Knowledge that any rating presently held by the
Company Insurance Subsidiaries is likely to be modified, qualified, lowered
or placed under such surveillance for any reason, including as a result of
the transactions contemplated hereby.
(v) Except as is not reasonably likely to have a Company Material
Adverse Effect, all annuity contracts and life insurance policies issued by
each Company Insurance Subsidiary to an annuity holder domiciled in the
United States meet all definitional or other requirements for qualification
under the Code section applicable (or intended to be applicable) to such
annuity contracts or life insurance policies, including, without limitation,
the following: (A) each life insurance policy meets the requirements of
sections 101(f), 817(h) or 7702 of the Code, as applicable; (B) no life
insurance contract issued by any Company Insurance Company is a "modified
endowment contract" within the meaning of section 7702A of the Code unless
and to the extent that the holders of the policies have been notified of
their classification; (C) each annuity contract issued, entered into or sold
by any Company Insurance Subsidiary qualifies as an annuity under federal
tax Law; (D) each annuity contract meets the requirements of, and has been
administered consistent with section 817(h) and 72 of the Code including but
not limited to section 72(s) of the Code (except for those contracts
specifically excluded from such requirement pursuant to section 72(s)(5) of
the Code); (E) each annuity contract intended to qualify under sections 130,
403(a), 403(b) or 408(b) of the Code contains all provisions required for
qualification under such sections of the Code; (F) each annuity contract
marketed as, or in connection with, plans that are intended to qualify under
section 401, 403, 408 or 457 of the Code complies with the requirements of
such section; and (G) none of the Company Insurance Subsidiaries have
entered into any agreement or are involved in any discussions or
negotiations and there are no audits, examinations, investigations or other
proceedings with the
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IRS with respect to the failure of any life insurance policy under
section 7702 or 817(h) of the Code or the failure of any annuity contract to
meet the requirements of section 72(s) of the Code. There are no "hold
harmless" indemnification agreements respecting the tax qualification or
treatment of any product or plan sold, issued, entered into or administered
by the Company Insurance Subsidiaries, and there have been no claims
asserted by any Person under such "hold harmless" indemnification agreements
so set forth.
(vi) All material insurance policies maintained by the Company or any of
its Subsidiaries or Joint Ventures are with reputable insurance carriers,
provide reasonable coverage for all normal risks incident to the business
and are, to the Knowledge of the Company, in character and amount at least
equivalent to that carried by Persons engaged in similar businesses and
subject to the same or similar perils or hazards, and are sufficient for
compliance with all Laws currently applicable to the Company or any of its
Subsidiaries or Joint Ventures, except for any such failures to maintain
insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect. Neither the
Company nor any of its Subsidiaries or Joint Ventures has received any
notice of cancellation or termination with respect to any insurance policy
of the Company or any of its Subsidiaries or Joint Ventures.
(s) LIABILITIES AND RESERVES.
(i) The reserves carried on the Company SAP Statements of each Company
Insurance Subsidiary for future insurance policy benefits, losses, claims
and similar purposes 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, and were fairly stated in all material
respects in accordance with sound actuarial and statutory accounting
principles. Except as set forth in Section 5(r) of the Company Disclosure
Letter, such reserves were adequate in the aggregate to cover the total
amount of all reasonably anticipated liabilities of the Company and each
Company Insurance Subsidiary under all outstanding insurance, reinsurance
and other applicable agreements as of the respective dates of such Company
SAP Statements. The admitted assets of each Company Insurance Subsidiary as
determined under applicable Laws are in an amount at least equal to the
minimum amounts required by such applicable Laws. In addition, the Company
provided to Parent copies of substantially all work papers used as the basis
for establishing the reserves for the Company and the Company Insurance
Subsidiaries at December 31, 1997 and December 31, 1998, respectively.
(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 associations in connection with such
association's fund relating to insolvent insurers which if determined
adversely, individually or in the aggregate, is reasonably likely to have a
Company Material Adverse Effect.
(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 finder's fees in connection
with the Merger or the other transactions contemplated in this Agreement except
that the Company has employed Salomon Smith Barney Inc. as its financial
advisor, the arrangements with which have been disclosed to Parent prior to the
date hereof.
(u) SEPARATE ACCOUNT; INVESTMENT ADVISOR. None of the Company Insurance
Subsidiaries maintains any separate accounts. Neither the Company nor any of its
Subsidiaries conducts activities of or is otherwise deemed under applicable Law
to control an "investment advisor" as such term is
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defined in Section 2(a)(20) of the 1940 Act, whether or not registered under the
Investment Advisers Act of 1940, as amended. Neither the Company nor any of its
Subsidiaries is an "investment company" as defined under the 1940 Act, and
neither the Company nor any of its Subsidiaries sponsors any Person that is such
an investment company.
(v) JOINT VENTURES. Section 5.1(v) of the Company Disclosure Letter sets
forth a correct and complete list of the Company's Joint Ventures, including,
for each such entity (i) its name and the Company's interest therein, (ii) a
brief description of its principal line of business, (iii) a summary of all
restrictions (contractual, regulatory or otherwise) which are reasonably likely
to have a Parent Material Adverse Effect (as defined in Section 5.2(b)), and
(iv) a summary of any commitment (whether or not contingent) for future
investment of capital or otherwise to be directly or indirectly made by Parent,
the Company or any of their respective Subsidiaries. With respect to each of the
Company's Joint Ventures, the Company has made available to Parent correct and
complete copies (or descriptions of oral agreements, if any) of all agreements
which (i) have affected or are reasonably likely to affect the ability of
Parent, together with the remaining co-owners of each such entity, to direct and
control its business operations after consummation of the Merger or
(ii) evidence any commitment (whether or not contingent) for future investment
of capital or otherwise to be directly or indirectly made by Parent, the Company
or any of their respective Subsidiaries.
5.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUBSIDIARY. Except as set forth in the corresponding sections or subsections of
the disclosure letter delivered to the Company by Parent on or prior to entering
into this Agreement (the "Parent Disclosure Letter") or in any Parent Report (as
hereinafter defined) filed prior to the date hereof, 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,
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 directly or indirectly by 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. 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 incorporation 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, is not reasonably likely, individually or in
the aggregate, to have a Parent Material Adverse Effect (as defined below).
As used in this Agreement, the term "PARENT MATERIAL ADVERSE EFFECT" means a
material adverse effect on the condition (financial or otherwise), assets,
properties, business, operations, results of operations or prospects of Parent
and its Subsidiaries taken as a whole, or any effect which prevents, materially
delays or materially impairs the ability of Parent or Merger Subsidiary to
consummate the transactions contemplated by this Agreement.
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(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 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, the Securities Act and the Exchange Act, (C) to
comply with state securities or "blue sky" Laws, (D) required to be made
with the NYSE, and (E) the filing of appropriate documents with, and
approval of, the respective Commissioners of Insurance of the states set
forth in Section 5.1(d) of the Company Disclosure Letter, and (F) required
to be made with the UK Office of Fair Trading or the Commission of the
European Communities, the UK Financial Services Authority, the Council of
Lloyds and the Minister for Enterprise Trade and Employment of Ireland, and
such notices and consents and expiry of waiting periods as may be required
under the antitrust notification insurance Laws of any state 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 are not, individually or in the aggregate, reasonably likely to 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, or a default under, the acceleration of any obligations 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 (provided, as to consummation, the filings and notices are
made, and approvals are obtained, as referred to in Section 5.2(d)(i)) or
any Law or governmental or non-governmental permit or license to which
Parent or any of its Subsidiaries is subject or (C) any change in the rights
or obligations of any party under any of the Contracts, except, in the case
of clause (B) or (C) above, for breach, violation, default, acceleration,
creation or change that is not, individually or in the aggregate, reasonably
likely to have a Parent Material Adverse Effect.
(e) FINANCING. Parent has, or will have prior to the Effective Time,
sufficient funds available to pay the Merger Consideration and all fees and
expenses related to the transactions contemplated by this Agreement.
(f) BROKERS AND FINDERS. Neither Parent 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 Merger or
the other transactions contemplated by this Agreement, except that Parent has
employed Credit Suisse First Boston as its financial advisors.
(g) SHARE OWNERSHIP. Parent, Merger Subsidiary and their respective
Subsidiaries beneficially own in the aggregate 484,500 shares of Common Stock.
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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 and undertakes as to itself and its Subsidiaries to use
commercially reasonable efforts in relation to its Joint Ventures as though for
the purpose of the remainder of this Article VI its Joint Ventures were
Subsidiaries that, after the date hereof and prior to the Effective Time (unless
Parent shall otherwise approve in writing, which shall not be unreasonably
withheld or delayed, and except as otherwise expressly contemplated by this
Agreement):
(a) its and its Subsidiaries' businesses shall be conducted 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, to enter into or engage in new lines of business, to utilize new
distribution methods, expand into new geographic territories outside of the
United States, or to exit any current business of the Company or its
Subsidiaries, without Parent's prior written approval);
(b) to the extent consistent with (a) above it and its Subsidiaries shall
use their 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) issue, sell, pledge, dispose of or encumber any capital
stock owned by it in any of its Subsidiaries; (ii) amend its Charter or by-laws
or amend, modify or terminate the Rights Agreement except as contemplated by
Section 5.1(o)(ii); (iii) split, combine or reclassify its outstanding shares of
capital stock; (iv) 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 direct or indirect wholly-owned Subsidiaries and other than regular
quarterly dividends paid by the Company on its Common Shares not in excess of
$.09 per share, with usual record and payment dates and in accordance with the
Company's past dividend policy; or (v) repurchase, redeem or otherwise acquire,
except in connection with any of the Company Stock Plans, 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 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 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; (iii) make or authorize
or commit for any capital expenditures, including entering into capital lease
obligations, other than in amounts not exceeding $1 million 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
$100,000 individually or $1 million in the aggregate (other than in connection
with ordinary course investment and reinsurance activities); (iv) enter into,
amend or terminate any material Contract or (v) permit any insurance policy
naming it as a beneficiary or loss-payable payee to be canceled or terminated
except in the ordinary and usual course of business;
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(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 employee benefit or incentive plan or employment or other agreement
(including the Compensation and Benefit Plans) or hire or terminate the
employment of key employees, 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);
(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, discharge,
settlement or satisfaction of claims, liabilities or obligations legally due and
payable and arising in the ordinary and usual course of business and such other
claims, liabilities or obligations as shall not exceed $1 million in the
aggregate and other than regular semi-annual payments paid by MMI Capital Trust
I on its 7 5/8% Series B Capital Trust Securities (the "Trust Securities")
pursuant to the Indenture, dated December 23, 1997, between The Chase Manhattan
Bank and the Company, pursuant to which the Trust Securities were issued;
(g) neither it nor any of its Subsidiaries shall make, change or revoke any
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 (A) sell any products
or services of or to any other Person, (B) engage in any line of business or
(C) 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 new quota
share or other reinsurance transaction (A) which does not contain standard
cancellation and termination provisions, (B) 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 (C) pursuant to which $1 million or more 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 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;
(k) neither it nor any of the Company Insurance Subsidiaries will alter or
amend in any material respect their existing underwriting, claim handling, loss
control, investment, actuarial, financial reporting or accounting practices,
guidelines or policies or in any material assumption underlying an actuarial
practice or policy, except as may be required by GAAP or SAP; and
(l) 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 their officers and directors to, and
shall direct its and its Subsidiaries'
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employees, agents and Representatives (as defined below) not to, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to (i) a merger,
reorganization, share exchange, consolidation, business combination,
recapitalization or similar transaction involving the Company, (ii) the purchase
of 15% or more of the assets (including equity securities of the Company's
subsidiaries) of the Company and its subsidiaries taken as a whole, or
(iii) the purchase of Shares not in the ordinary course (purchases pursuant to a
Compensation and Benefit Plan being in the ordinary course), but not, in any
case, including the matters set forth in Section 6.2(a) of the Company
Disclosure Letter (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 to, and will use commercially reasonable efforts to
cause any of the officers and directors of it or its Subsidiaries not to and
shall direct its and its Subsidiaries' employees, agents and Representatives 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) if the Merger shall not have been approved by
the Company Requisite Vote by such date (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 below); (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, (i) in each such case referred to in
clause (A), (B) or (C) above, the board of directors of the Company determines
in good faith after consultation with outside legal counsel that such action is
necessary in order for its directors to comply with their respective fiduciary
duties under applicable Law and (ii) in each case referred to in clause (B) or
(C) above, 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, be reasonably likely to result in a more
favorable transaction than the transaction contemplated by this Agreement (any
such more favorable 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 (as defined in
Section 9.7). 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.
6.3. STOCKHOLDERS MEETINGS. The Company will take, in accordance with its
Charter and by-laws, all action necessary to convene a meeting of the holders of
shares of Common Stock (the "STOCKHOLDERS MEETING") as promptly as practicable,
but in no event more than 35 days (to the
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extent legally permissible), after the Proxy Statement (as defined in
Section 6.4) is first mailed to stockholders to consider and vote upon the
approval of the Merger. Subject to fiduciary obligations under applicable Law,
the Company's board of directors shall recommend such approval, shall not
withdraw or modify such recommendation and shall take all lawful action to
solicit such approval. 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 cause the Stockholders Meeting to
be convened and a vote taken with respect to the Merger and the board of
directors shall communicate to the Company's stockholders its basis for such
withdrawal or modification as contemplated by Section 251 of the DGCL.
6.4. FILINGS; OTHER ACTIONS; NOTIFICATION.
(a) In connection with the Stockholders Meeting, the Company shall prepare
and deliver to Parent as promptly as practicable after the date hereof a draft
of a proxy statement (the "PROXY STATEMENT"). Thereafter, the Company and Parent
shall use their reasonable 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.
(b) The Company and Parent shall use and shall cause their "ultimate parent
entities," (if applicable) to use, their reasonable best efforts to as promptly
as practicable file notifications under the HSR Act in connection with the
Merger and the transactions contemplated hereby, 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
transactions contemplated by this 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 transactions contemplated by this 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, individually or in the
aggregate with all other agreements, changes and restrictions, could, in the
reasonable judgment of the board of directors of Parent, materially and
adversely impact the economic or business benefits to Parent 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 January 21, 2000. 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 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
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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 Merger and
the other transactions contemplated by this Agreement. 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 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 Merger and the other transactions contemplated by
this Agreement.
(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 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 is reasonably likely to result in a Company Material Adverse Effect or a
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 6.4(e)(ii) shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
6.5. ACCESS. 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, environmental consultants, and other authorized agents and
representatives ("REPRESENTATIVES") reasonable access, during normal business
hours throughout the period prior to the earlier of the termination of this
Agreement or the Effective 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 6.5(a) shall be directed
to an executive officer of the Company or such Person as may be designated by
the Company's officers. All such information shall be governed by the terms of
the Confidentiality Agreement (as defined below).
6.6. STOCK EXCHANGE DE-LISTING. The Surviving Corporation shall use its
best efforts to cause the shares of Common Stock to be de-listed from the NYSE
and de-registered under the Exchange Act as soon as practicable following the
Effective Time.
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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 Merger and
the other transactions contemplated by this 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. BENEFITS.
(a) STOCK OPTIONS AND STOCK PLANS. Prior to the Effective Time, the
Company shall take all such actions as may be necessary to cause each Company
Option outstanding pursuant to the Company Stock Plans, whether or not then
exercisable, to be canceled as of the Effective Time and to thereafter only
entitle the holder thereof, upon surrender thereof, to receive an amount - in
cash equal to the excess, if any, of the Merger Consideration over the exercise
price per Share of such Company Option multiplied by the number of Shares
previously subject to such Company Option, less any required withholding taxes.
As promptly as practicable following the execution of this Agreement, the
Company shall mail to each Person who is a holder of outstanding Company Options
granted pursuant to the Company Stock Plans (regardless of whether such stock
options are vested or exercisable at the time) a letter in a form acceptable to
Parent which describes the treatment of and payment for such options pursuant to
this Section 6.8(a) and provides instructions for use in obtaining payment for
such options hereunder. Each such holder shall sign a release by which such
holder effectively relinquishes all rights with respect to such holder's
outstanding stock options upon payment therefor - in accordance with this
Section 6.8(a) prior to or as soon as practicable following the Closing. The
Company shall take all actions necessary to cause the Company Stock Plans to be
terminated effective as of the Effective Time.
(b) EMPLOYEE BENEFITS. Parent agrees that, during the period commencing at
the Effective Time and ending on the first anniversary thereof, the employees of
the Company and its Subsidiaries will continue to be provided with benefits
(other than benefits involving the issuance of Shares) that are no less
favorable in the aggregate than those currently provided by the Company and its
Subsidiaries to such employees under the Company's and its Subsidiaries'
existing employee benefit plans which are listed in Section 6.8(b) of the
Company Disclosure Letter. To the extent that employees of the Company and its
Subsidiaries become participants in any plans maintained by Parent or its
Subsidiaries, (i) any such employees will receive credit under such plans of
Parent or any of its Subsidiaries for service with the Company or any of its
Subsidiaries or predecessors (to the extent service with such predecessors was
credited under the Compensation and Benefit Plans disclosed in the Company
Disclosure Letter) prior to the Effective Time for the purpose of determining
eligibility and vesting, but not for purposes of benefit accrual, and (ii) and
Parent shall cause any and all pre-existing condition limitations (to the extent
such limitations did not apply to a pre-existing condition under the
Compensation and Benefit Plans) and eligibility waiting periods under group
health plans of the Parent or any of its Subsidiaries to be waived with respect
to such participants and their eligible dependents. With respect to any plan
maintained by Parent or its Subsidiaries which covers employees of the Company
or its Subsidiaries prior to January 1, 2001, Parent shall, or shall cause the
Surviving Corporation to, provide each 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
employees are eligible to participate in after the plan entry date. All
discretionary awards and benefits under any employee benefit plans of Parent or
any of its Subsidiaries shall be subject to the discretion of the Persons or
committee administering such plans.
6.9. EXPENSES. 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
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expenses incurred in connection with this Agreement and 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 Proxy Statement shall be shared equally by Parent and the
Company, up to a maximum of $150,000 by Parent.
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, 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 would have been permitted under Delaware Law and its Charter or by-laws
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). In addition, from and after the Effective Time, Parent agrees
that it will not make any changes to the Charter or by-laws of the Company
and/or its Subsidiaries that would adversely affect the indemnification provided
to any Persons under its Charter or by-laws in effect on the date hereof.
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.10, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify 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 Parent shall not 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 counsel
for the Indemnified Parties advises that there are issues which 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 or the Surviving Corporation shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received; PROVIDED, HOWEVER, that Parent 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 shall
not be liable for any settlement effected without its prior written consent; and
PROVIDED, FURTHER, that Parent shall not 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 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 300% 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
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cannot be acquired during the six-year period for not in excess of 300% of the
Current Premium, then the Surviving Corporation 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 300% of the Current Premium.
(d) The provisions of this Section 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. ASSUMPTION OF DEBENTURES. The Company and Parent each agrees that
the Surviving Corporation shall continue to assume the payment of the principal
and redemption price of and interest on the Series A Debentures and Series B
Debentures (the "DEBENTURES") issued under the Indenture dated as of
December 23, 1997 (the "INDENTURE") between the Company and The Chase Manhattan
Bank, as trustee (the "TRUSTEE"), if required under the terms of the Indenture,
according to their tenor and the due and punctual performance and observance of
all the covenants and conditions of the Indenture kept or performed by the
Company. The Surviving Corporation, if required under the terms of the
Indenture, shall execute and deliver to the Trustee a supplemental indenture
(which shall conform to the provisions of the Trust Indenture Act, as then in
effect) satisfactory in form to the Trustee, whereupon the Surviving Corporation
shall succeed to and be substituted for the Company and the Company thereupon
shall be relieved of any further liability or obligation thereunder or upon the
Debentures.
6.12. OTHER ACTIONS BY THE COMPANY AND PARENT.
(a) RIGHTS. If requested by Parent prior to the Effective Time, the board
of directors of the Company shall take all necessary action to terminate all of
the outstanding Rights and to terminate the Rights Agreement, effective
immediately prior to the Effective Time.
(b) TAKEOVER STATUTE. If any Takeover Statute is or may become applicable
to the Merger or the other transactions contemplated by this Agreement, each of
Parent and the Company and its 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 by the
Merger and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
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 waiver at or prior to the Effective Time of each of the
following conditions:
(a) STOCKHOLDER APPROVAL. The Merger shall have been duly approved by
holders of Shares constituting the Company Requisite Vote.
(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 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 and Joint Ventures from, and the expiry of all waiting periods
imposed by, any Governmental Entity (collectively, "GOVERNMENTAL CONSENTS"), in
connection with the 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), except for any non-insurance
related and/or non-HSR Act related Governmental Consents for which the failure
to obtain such consents or approvals would not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on the
Surviving Corporation.
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(c) CERTAIN U.K. AND IRELAND CONSENTS.
(i) Either (i) The UK Office of Fair Trading shall have indicated,
in terms reasonably satisfactory to the Company and Parent, that the
Secretary of State for Trade and Industry does not intend to refer the
proposed acquisition of the Common Shares or any matter relating thereto
to the Competition Commission; or (ii) the Commission of the European
Communities shall have (x) issued a decision pursuant to
article 6(l)(b), article 6(2) or article 8.2 of Council
Regulation 4064/S 9 as amended by the Council Regulation 13 10/97
("REGULATION 4064/89") that the proposed acquisition of Common Shares
falls within the scope of Regulation 4064/89 but is compatible with the
common market (and, if such decision is given subject to conditions, such
conditions shall have been approved by Parent in its reasonable
discretion) and no prior decision pursuant to article 9(3)(b) shall have
been made; or (y) issued a decision pursuant to article 6(1)(a) of
Regulation 4064/89 that the proposed acquisition of the Common Shares
does not fall within the scope of Regulation 4064/89 and the competent
national authorities in the European Union the consent, approval,
clearance or confirmation of which is either required or considered by
Parent to be desirable shall have granted all such consents, approvals,
clearances or confirmations on terms satisfactory to the parties; or
(z) issued a decision pursuant to article 9(3)(b) and the competent
authorities of the member state concerned granting their consent,
approval, clearance or confirmation on terms reasonably satisfactory to
Parent;)
(ii) the UK Financial Services Authority shall have confirmed in
accordance with Section 61 of the UK Insurance Companies Act 1982 (the
"1982 ACT") that there is no objection to Parent and any relevant
stockholders or officers of Parent becoming controllers of any relevant
Person or, in the absence of such confirmation in relation to any such
Person, the period during which the UK Financial Services Authority may
serve a notice of objection pursuant to Section 61 of the 1982 Act in
relation to such Person shall have elapsed without the UK Financial
Services Authority having served any such notice of objection;
(iii) the Council of Lloyd's shall have consented in accordance with
paragraph 13A of the Underwriting Agents Bylaw (No 4 of 1984 (as
amended)) to Parent and any relevant stockholders or officers of Parent
becoming controllers of any relevant Person or, in the absence of such
consent in relation to any such Person, the period during which the
Council of Lloyd's may serve a notice of objection pursuant to such Bylaw
in relation to such Person having elapsed without the Council of Lloyd's
having served any such notice of objection;
(iv) the Council of Lloyd's shall have consented in accordance with
paragraph 14 of the Membership Bylaw (No 17 of 1993 (as amended)) to
Parent and any relevant stockholders or officers of Buyer becoming
controllers of any relevant Person or, in the absence of such consent in
relation to any such Person, the period during which the Council of
Lloyd's may serve a notice of objection pursuant to such Bylaw in
relation to such Person shall have elapsed without the Council of Lloyd's
having served any such notice of objection.
(d) LITIGATION. 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").
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7.2. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. The
obligations of Parent and Merger Subsidiary to effect the Merger are also
subject to the satisfaction or waiver by Parent at or prior to the Effective
Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement; and the representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the Closing Date as though made on and as of the Closing 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 as to "Company
Material Adverse Effect", "material" or similar qualifications) are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect, and Parent shall have received a certificate signed on behalf of
the Company by an executive officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by an executive officer
of the Company to such effect.
(c) CONSENTS. The Company shall have obtained the consent or approval of
each Person whose consent or approval 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 is not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect; and no
such consent or approval, and no Governmental Consent shall impose any condition
or conditions relating to, or requiring changes or restrictions in, the
operations of any asset or businesses of the Company, Parent or their respective
Subsidiaries which would be reasonably likely, individually or in the aggregate,
to materially impact the economic or business benefits to Parent and its
Subsidiaries of the transactions contemplated by this Agreement.
7.3. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent and Merger Subsidiary set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement; and the
representations and warranties of Parent and Merger Subsidiary set forth in this
Agreement shall be true and correct as of the Closing Date as though made on and
as of the Closing 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 as to "Parent Material Adverse Effect", "material" or
similar qualifications) are not, individually or in the aggregate, reasonably
likely to have a Parent Material Adverse Effect, and the Company shall have
received a certificate signed on behalf of Parent by an executive officer of
Parent and on behalf of Merger Subsidiary by an executive officer of Merger
Subsidiary to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. Each of
Parent and Merger Subsidiary shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by an executive officer of Parent and on behalf of Merger
Subsidiary by an executive officer of Merger Subsidiary to such effect.
(c) STOCKHOLDER APPROVAL. The Merger shall have been duly approved by the
sole stockholder of Merger Subsidiary in accordance with applicable Law.
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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 and Parent 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 Merger may be abandoned (i) by action of the board of
directors of either Parent or the Company if the Merger shall not have been
consummated by August 31, 2000, whether such date is before or after the date of
approval by the stockholders of the Company (the "TERMINATION DATE"), (ii) by
action of the board of directors of Parent or the Company, if the Company
Requisite Vote shall not have been obtained at a meeting duly convened therefor
or at any adjournment or postponement thereof, or (iii) 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 Merger shall
become final and non-appealable (whether before or after the approval by the
stockholders of the Company or Parent); PROVIDED, that 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 Merger to be consummated.
8.3. TERMINATION BY THE COMPANY. 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 the Company:
(a) if (i) the Company is not in material breach of any of the terms of
this Agreement, (ii) the Merger shall not have been approved by the Company
Requisite Vote, (iii) 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, attaching the most current version of such agreement to
such notice, (iv) Parent does not make, prior to four 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 advisors, is at least as
favorable, as the Superior Proposal, and (v) the Company prior to such
termination pays to Parent in immediately available funds the fees required to
be paid pursuant to Section 8.5.
(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 would cause the condition set forth in Section 7.3(a) or (b) not to be
satisfied or not capable of being satisfied, and such breach 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, whether before
or after the approval by the stockholders of the Company referred to in
Section 7.1(a), by action of the board of directors of Parent if (a) the Company
enters into a binding agreement for a Superior Proposal or the board of
directors of the Company shall have withdrawn or adversely modified its approval
or recommendation of this Agreement, (b) there has been a material breach by the
Company of any representation, warranty, covenant or agreement contained in this
Agreement that would cause the condition set forth in Section 7.2(a) or (b) not
to be satisfied or not capable of being satisfied, and
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such breach 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 on
the part of any party hereto (or of any of its directors, officers, employees,
agents, legal and financial advisors or other representatives); PROVIDED,
HOWEVER, except as otherwise provided herein, no such termination shall relieve
any party hereto of any liability or damages resulting from any breach of this
Agreement.
(b) In the event that this Agreement is terminated by Parent or the Company
pursuant to Section 8.2(ii), the Company shall pay Parent, Parent's reasonable,
documented, out-of-pocket expenses incurred in connection with this Agreement
and the transactions contemplated hereby, up to $1 million, within two business
days of receiving documentation therefore.
In the event that this Agreement is terminated (i) by Parent or the Company
pursuant to Section 8.2(ii) and prior to or at the time of the meeting referred
to therein any Person shall have publicly made, or shall have publicly announced
an intention (whether or not conditional) to make, and not shall not have
withdrawn, a bona fide proposal with respect to an Alternative Transaction (as
defined below), and within 12 months of termination the Company enters into a
definitive agreement with respect to an Alternative Transaction or an
Alternative Transaction is consummated, (ii) by the Company pursuant to
Section 8.3(a) or (iii) by Parent pursuant to Section 8.4(a), then the Company
shall pay Parent a termination fee of $7.5 million, payable by wire transfer of
same day funds, provided that, in the case of clause (i), the amount of such fee
shall be multiplied by a percentage equal to the percentage of the stock of the
Company or the assets of the Company and its subsidiaries taken as a whole
represented by the Alternative Transaction with respect to which an agreement is
signed or which is consummated. Any fee payable pursuant to this paragraph shall
be decreased by the expenses paid or to be paid pursuant to the immediately
preceding paragraph (appropriate adjustment shall be made if the fee
contemplated by this paragraph is due before the expenses contemplated by the
preceding paragraph). In no event shall the aggregate amount paid pursuant to
this paragraph and the immediately preceding paragraph exceed $7.5 million. For
purposes of this paragraph, an "ALTERNATIVE TRANSACTION" shall mean (i) a
merger, reorganization, share exchange, consolidation, business combination,
recapitalization or similar transaction involving the Company, (ii) the purchase
of 15% or more of the assets of the Company and its subsidiaries taken as a
whole, or (iii) the purchase of 15% or more of the outstanding Shares, but shall
not include the matters set forth in Section 6.2(a) of the Company Disclosure
Schedule.
The fee contemplated by Section 8.5(b) shall be paid (x) in the case of
Section 8.5(b)(i), within one business day of the earlier of the date the
Company enters into an agreement or consummates a transaction contemplated
thereby, (y) in the case of Section 8.5(b)(ii), no later than simultaneously
with such termination and (z) in the case of Section 8.5(b)(iii), no later than
two business days following the date the Company enters into a definitive
agreement with respect to an Alternative Transaction or consummates an
Alternative Transaction.
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 enter into this Agreement; accordingly, if the Company fails to
promptly pay the amount due pursuant to this Section 8.5(b), and, in order to
obtain such payment, Parent or Merger Subsidiary commences a suit against the
Company for such payment, the prevailing party shall be paid its costs and
expenses (including attorneys' fees) in connection with such suit. Any amounts
payable pursuant to this Section 8.5(b) shall be paid with interest thereon at
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the prime rate of The Chase Manhattan Bank, in effect from time to time during
the period such amounts are owing plus two percent.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. SURVIVAL. This Article IX and the agreements of the Company, Parent
and Merger Subsidiary contained in Section 6.8 (Benefits), and Section 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 6.7 (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.
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; WAIVER OF JURY TRIAL.
(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 LAW OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
(c) THE COMPANY 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 OR THE STATE COURTS OF THE STATE 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.
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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 delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
<TABLE>
<S> <C>
IF TO PARENT OR MERGER SUBSIDIARY
John MacColl, Esq.
Executive Vice President and
General Counsel
The St. Paul Companies, Inc.
385 Washington Street
St. Paul, Minnesota 55102-1396
fax: (651) 310-8204
with a copy to:
Joseph B. Frumkin, Esq.,
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
fax: (212) 558-3588
if to the Company
Mr. Paul M. Orzech
Executive Vice President and
Chief Financial Officer
MMI Companies, Inc.
540 Lake Cook Road
Deerfield, IL 60015
fax: (847) 374-1286
with a copy to:
Jerald P. Esrick, Esq.
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, IL 60606-1229
fax: (312) 201-2555
and
Morton A. Pierce and Richard D. Pritz
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
fax: (212) 259-6333
</TABLE>
or to such other Persons or addresses as may be designated in writing by the
party to receive such notice as provided above. All notices shall be effective
upon receipt.
9.7. ENTIRE AGREEMENT; NO OTHER REPRESENTATIONS. This Agreement (including
any exhibits hereto), the Company Disclosure Letter, the Parent Disclosure
Letter and the Confidentiality
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Agreement between Parent and the Company (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 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 or Exhibit, such
reference shall be to a Section of or Exhibit 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.
9.12. ASSIGNMENT. This Agreement shall not be assignable by operation of
Law or otherwise; PROVIDED, HOWEVER, that Parent may designate, by written
notice to the Company, another wholly-owned direct or indirect Subsidiary 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, except that all representations and warranties made herein with
respect to Merger Subsidiary as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other Subsidiary as of
the date of such designation.
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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.
<TABLE>
<S> <C> <C>
MMI COMPANIES, INC.
By: /s/ B. FREDERICK BECKER
-----------------------------------------
Name: B. Frederick Becker
Title: Chairman and Chief Executive
Officer
THE ST. PAUL COMPANIES, INC.
By: /s/ D. W. LEATHERDALE
-----------------------------------------
Name:
Title:
BOWMAN ACQUISITION CORP.
By: /s/ D. W. LEATHERDALE
-----------------------------------------
Name:
Title:
</TABLE>
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<PAGE>
APPENDIX B
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
December 20, 1999
The Board of Directors
MMI Companies, Inc.
540 Lake Cook Road
Deerfield, Illinois 60015
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of MMI Companies, Inc. ("MMI") of
the Merger Consideration (defined below) provided for in the Agreement and
Plan of Merger, dated as of December 20, 1999 (the "Merger Agreement"), among
MMI, The St. Paul Companies, Inc. ("St. Paul") and Bowman Acquisition Corp.,
a wholly owned indirect subsidiary of St. Paul ("Merger Sub"). As more fully
described in the Merger Agreement, (i) Merger Sub will be merged with and
into MMI (the "Merger") and (ii) each outstanding share of the common stock,
par value $0.10 per share, of MMI (the "MMI Common Stock") will be converted
into the right to receive $10.00 in cash (the "Merger Consideration").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of MMI and certain senior officers and other representatives and
advisors of St. Paul concerning the business, operations and prospects of
MMI. We examined certain publicly available business and financial
information relating to MMI as well as certain financial forecasts for MMI
and other information and data for MMI which were provided to or otherwise
discussed with us by the management of MMI, including certain actuarial
reserve analyses and valuations prepared by the independent and internal
actuaries of MMI. We reviewed the financial terms of the Merger as set forth
in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of the MMI Common Stock; the
capitalization of MMI; and the financial condition and historical and
projected earnings and other operating data of MMI. We considered, to the
extent publicly available, the financial terms of other transactions recently
effected which we considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations we considered
relevant in evaluating those of MMI. In connection with our engagement, we
were requested to approach, and we held discussions with, third parties to
solicit indications of interest in the possible acquisition of MMI. In
addition to the foregoing, we conducted such other analyses and examinations
and considered such other financial, economic and market criteria as we
deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with
us, we have been advised by the management of MMI that such forecasts and
other information and data were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of MMI as
to the future financial performance of MMI. We also have been advised that
the actuarial reserve analyses and valuations relating to MMI prepared by its
independent and internal actuaries were reasonably prepared on bases
reflecting the best currently available estimates and judgments of such
actuaries as to the reserves of MMI. We are not actuaries and our services
did not include any actuarial determinations or evaluations by us or an
attempt to evaluate actuarial assumptions, nor are we expressing any views as
to matters relating to the reserves of MMI, including, without limitation,
the adequacy of such reserves. We have not made or, with the exception of
certain actuarial reserve analyses and valuations prepared by the independent
and internal actuaries of MMI, been provided with an independent evaluation
or appraisal of the assets, liabilities (contingent or otherwise) or reserves
of MMI nor have we made any physical inspection of the properties or assets
of MMI. We have assumed, with your consent, that in the
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The Board of Directors
MMI Corporation
December 20, 1999
Page 2
course of obtaining the necessary regulatory approvals for the Merger, no
limitations, restrictions or conditions will be imposed that would have a
material adverse effect on the contemplated benefits of the Merger to MMI. We
express no view as to, and our opinion does not address, the relative merits
of the Merger as compared to any alternative business strategies that might
exist for MMI or the effect of any other transaction in which MMI might
engage. Our opinion is necessarily based upon information available to us,
and financial, stock market and other conditions and circumstances existing
and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to MMI in connection
with the proposed Merger and will receive a fee for such services, a
significant portion of which is contingent upon the consummation of the
Merger. We also will receive a fee upon the delivery of this opinion. We and
our affiliates have in the past provided investment banking services to MMI
and St. Paul unrelated to the proposed Merger, for which services we have
received compensation. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of MMI and St. Paul for
our own account or for the account of our customers and, accordingly, may at
any time hold a long or short position in such securities. In addition, we
and our affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with MMI, St. Paul and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of MMI in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on the proposed Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the holders of MMI Common Stock.
Very truly yours,
/S/ SALOMON SMITH BARNEY INC.
SALOMON SMITH BARNEY INC.
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APPENDIX C
Section 262 of the Delaware General Corporation Law regarding Appraisal
Rights provides:
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each consitutent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constitutent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the
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effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such
a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constitutent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition, shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented
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by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court may dismiss
the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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PROXY PROXY
MMI COMPANIES, INC.
DEERFIELD, ILLINOIS, U.S.A.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints B. Frederick Becker and George B. Caldwell,
or any one of them, with power of substitution, attorneys and proxies to
represent the undersigned at the special meeting of the stockholders of MMI
Companies, Inc. (the "Company") to be held on _________________________,
2000, and at any adjournments or postponements thereof, with all powers which
the undersigned would possess if personally present, and to vote, as and to
the extent indicated below, all shares of stock which the undersigned may be
entitled to vote at said meeting or any adjournments or postponements
thereof, upon all matters that may properly come before the meeting,
including the matter listed on the reverse side of this card which is more
fully described in the Notice of Special Stockholders Meeting and Proxy
Statement relating to said meeting. The shares represented by this proxy
will be voted as and to the extent directed on the reverse side hereof. If
no directions are given, the proxies will vote: (a) in accordance with the
Board of Directors' recommendation on the matters listed on the reverse side
of this card and (b) at their discretion on any other matter that may
properly come before the meeting.
If you do not sign and return a proxy card, or attend the meeting, your
shares cannot be voted.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1 AND ITEM 2.
ITEM 1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER BETWEEN THE COMPANY
AND THE ST. PAUL COMPANIES, INC. DATED AS OF DECEMBER 20, 1999:
FOR AGAINST ABSTAIN
/ / / / / /
ITEM 2. APPROVAL OF ANY POSTPONEMENT(S) OR ADJOURNEMNT(S) OF THE SPECIAL
MEETING OF THE STOCKHOLDERS FOR THE PURPOSE OF SOLICITING ADDITIONAL
VOTES:
FOR AGAINST ABSTAIN
/ / / / / /
I PLAN TO ATTEND THE MEETING / /
Please sign this proxy and return it promptly whether or not you plan to
attend the meeting. If signing for a corporation or partnership or as agent,
attorney or fiduciary, indicate the capacity in which you are signing. If
you do attend the meeting and decide to vote by ballot, such vote will
supersede this proxy.
Dated: _______________________, 2000
______________________________________
Signature
______________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
