As filed with the Securities and Exchange Commission on
January 9, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMWEST INSURANCE GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 6351 95-2672141
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial classification identification number)
incorporation or code number)
organization)
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------------------------
Steven R. Kay
Senior Vice President, Chief Financial Officer and Treasurer
Amwest Insurance Group, Inc.
6320 Canoga Avenue
Woodland Hills, California 91367
(818) 704-1111
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------------
The Commission is requested to send copies of all
communications to:
Jonathan K. Layne Stephen E. Newton
Gibson, Dunn & Crutcher Kindel & Anderson L.L.P.
333 South Grand Avenue 555 South Flower Street, 29th Floor
Los Angeles, California 90071-3197 Los Angeles, California 90071-2498
Approximate date of commencement of proposed sale to the public: As
soon as practicable following the effective date of the Registration
Statement and the satisfaction or waiver of all other conditions to the
merger described in the enclosed Proxy Statement/Prospectus.
CALCULATION OF REGISTRATION FEE
Title of Number of Proposed Maximum Proposed Maximum
Each Class of Shares Offering Aggregate
Securities to be to be Price Per Offering Registration
Registered Registered Share Price Fee
Common Stock,
$.01 par value(1) 992,000 shares $15.25(2) $15,128,000(2) $ 3025.60
(1) Includes an equal number of Preferred Stock Purchase Rights pursuant to
the Registrant's Stockholders' Rights Agreement dated May 10, 1989.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) and based on the average of the high and low
prices of the Common Stock of Amwest Insurance Group, Inc. on the
American Stock Exchange on January 4, 1996 of $15.25.
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
AMWEST INSURANCE GROUP, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING
LOCATIONS IN THE PROSPECTUS OF
THE INFORMATION REQUIRED BY PART 1 OF FORM S-4
<TABLE>
<CAPTION>
Form S-4 Caption Caption in Prospectus
<S> <C>
1. Forepart of the Registration Statement and Forepart of Registration Statement; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Available Information;
Prospectus Incorporation by Reference; Table of Contents.
3. Risk Factors, Ratio of Earnings to Fixed Summary; Risk Factors.
Charges, and Other Information
4. Terms of the Transaction Summary; General Information; The Merger; The Merger
Agreement; Certain Other Agreements; Description of
Capital Stock of Amwest; Comparison of Stockholder
Rights; Incorporation by Reference.
5. Pro Forma Financial Information Unaudited Pro Forma Condensed Combined Financial
Statements.
6. Material Contacts With the Company Being Acquired The Merger.
7. Additional Information Required For Reoffering Not applicable.
by Persons and Parties Deemed to Be Underwriters
8. Interests of Named Experts and Counsel The Merger-- Opinion of Jefferies; -- Opinion of Wedbush
Morgan; Legal Matters; Experts.
9. Disclosure of Commission Position on Not applicable.
Indemnification For Securities Act Liabilities
10. Information With Respect to S-3 Registrants Incorporation by Reference; Summary; Unaudited Pro Forma
Condensed Combined Financial Statements.
11. Incorporation of Certain Information by Reference Incorporation by Reference.
12. Information With Respect to S-2 or S-3 Not applicable.
Registrants
13. Incorporation of Certain Information by Reference Not applicable.
14. Information With Respect to Registrants Other Not applicable.
Than S-3 or S-2 Registrants
15. Information With Respect to S-3 Companies Incorporation by Reference; Summary; Unaudited Pro Forma
Condensed Combined Financial Statements.
16. Information With Respect to S-2 or S-3 Companies Not applicable.
17. Information With Respect to Companies Other Than Not applicable.
S-2 or S-3 Companies
18. Information if Proxies, Consents or Summary; General Information; The Condor Special Meeting;
Authorizations Are to be Solicited The Amwest Special Meeting; The Merger; The Merger
Agreement; Certain Other Agreements;
Dissenters' Rights; Management of Amwest after the
Merger; Description of Capital Stock of
Amwest; Comparison of Stockholder Rights;
Incorporation by Reference.
19. Information if Proxies, Consents or Not applicable.
Authorizations Are not to be Solicited or in an
Exchange Offer
</TABLE>
<PAGE>
February 12, 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders of Amwest Insurance Group, Inc. ("Amwest") to be held at 10:00
A.M. on _______, March __, 1996, at the Warner Center Hilton, 6360 Canoga
Avenue, Woodland Hills, California 91367.
At this important meeting, you will be asked to consider and vote upon
a proposal to approve and adopt an Agreement and Plan of Merger, dated as of
November 30, 1995 (the "Merger Agreement"), by and between Amwest and Condor
Services, Inc. ("Condor"), pursuant to which Condor will be merged with and into
Amwest (the "Merger"), and all transactions contemplated by the Merger,
including the issuance of shares of Amwest Common Stock pursuant to the Merger
Agreement. Your Board of Directors believes that the combination of Amwest and
Condor will create a stronger, more efficient and better diversified company.
Pursuant to the Merger, each outstanding share of Condor common stock
will be converted into the right to receive 0.5 of a share of Amwest common
stock, $0.01 par value per share (subject to adjustment if the Base Period
Trading Price of Amwest common stock is less than $12.50 or more than $17.50 per
share), including the corresponding percentage of rights to purchase Amwest's
Series A Junior Participating Preferred Stock. The proposed Merger is described
in the accompanying Joint Proxy Statement/Prospectus, the forepart of which
includes a summary of the terms of the Merger and certain other information
relating to the proposed transaction.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, AMWEST AND ITS STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY
APPROVED THE TERMS OF THE MERGER AND RECOMMENDS THAT YOU VOTE TO APPROVE AND
ADOPT THE MERGER AGREEMENT.
It is important that your shares be represented at the Special Meeting,
regardless of the number you hold. Therefore, please sign, date and return your
proxy card as soon as possible, whether or not you plan to attend the Special
Meeting. This will not prevent you from voting your shares in person if you
subsequently choose to attend the Special Meeting.
Sincerely,
Richard H. Savage
Chairman of the Board
and Co-Chief Executive Officer
<PAGE>
AMWEST INSURANCE GROUP, INC.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held March __, 1996
A Special Meeting of Stockholders of Amwest Insurance Group, Inc., a
Delaware corporation ("Amwest"), will be held at the Warner Center Hilton, 6360
Canoga Avenue, Woodland Hills, California 91367 at 10:00 A.M., ________, March
__, 1996., for the following purposes:
1. To approve and adopt an Agreement and Plan of Merger,
dated as of November 30, 1995 (the "Merger Agreement"),
between Amwest and Condor Services, Inc. ("Condor"),
pursuant to which each outstanding share of Condor common
stock, $0.01 par value per share (other than shares owned by
Condor as treasury stock or by Amwest or its subsidiaries,
all of which shall be canceled), will be converted into the
right to receive 0.5 of a share of Amwest common stock, $0.01
par value per share (subject to adjustment if the Base
Period Trading Price of Amwest common stock is less than
$12.50 or more than $17.50 per share), including the
corresponding percentage of rights to purchase Amwest's
Series A Junior Participating Preferred Stock. A copy of the
Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To transact such other business as may properly be
brought before the meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on February 9,
1996 as the record date for the determination of the holders of Amwest's common
stock entitled to notice of, and to vote at, the meeting. The Merger and other
related matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the annexes thereto, which form a part of this notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO
ENSURE YOUR REPRESENTATION AT THE MEETING, HOWEVER, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER
ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A
PROXY.
By order of the Board of Directors,
Richard H. Savage
Chairman of the Board and Co-Chief
Executive Officer
Dated: February 12, 1996
<PAGE>
CONDOR SERVICES, INC.
AND
AMWEST INSURANCE GROUP, INC.
JOINT PROXY STATEMENT
------------------
AMWEST INSURANCE GROUP, INC.
PROSPECTUS
------------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to the holders of common stock, par value $0.01 per share (the
"Condor Common Stock"), of Condor Services, Inc., a Delaware corporation
("Condor"), in connection with the solicitation of proxies by the Board of
Directors of Condor for use at a Special Meeting of Stockholders of Condor to be
held at the Radisson Park Hotel - LAX South, 1400 Park View Avenue, Manhattan
Beach , California, on March __, 1996, at 10:00 a.m., and any and all
adjournments or postponements thereof (the "Condor Special Meeting").
This Proxy Statement/Prospectus is also being furnished to the holders
of common stock, par value $0.01 per share (the "Amwest Common Stock"), of
Amwest Insurance Group, Inc., a Delaware corporation ("Amwest"), in connection
with the solicitation of proxies by the Board of Directors of Amwest for use at
a Special Meeting of Stockholders of Amwest to be held at the Warner Center
Hilton, 6360 Canoga Avenue, Woodland Hills, California, on March __, 1996, at
10:00 a.m., and any and all adjournments or postponements thereof (the "Amwest
Special Meeting").
This Proxy Statement/Prospectus relates, among other things, to the
proposed merger (the "Merger") of Condor into Amwest pursuant to an Agreement
and Plan of Merger, dated as of November 30, 1995 (the "Merger Agreement"), by
and between Amwest and Condor. Upon consummation of the Merger, the separate
existence of Condor shall thereupon cease. In the Merger, each outstanding share
of Condor Common Stock (other than shares owned by Condor as treasury stock or
by Amwest or its subsidiaries, all of which shall be canceled) will be converted
into the right to receive 0.5 of a share of Amwest Common Stock (subject to
adjustment if the Base Period Trading Price of Amwest Common Stock is less than
$12.50 or more than $17.50 per share). No fractional shares of Amwest Common
Stock will be issued in the Merger. Consummation of the Merger is subject to
various conditions, including the approval of the Merger by a majority of the
outstanding shares of Condor Common Stock at the Condor Special Meeting and the
approval of the Merger by a majority of the outstanding shares of Amwest Common
Stock at the Amwest Special Meeting.
Amwest has filed a Registration Statement on Form S-4 (such
Registration Statement and all exhibits relating thereto and any amendments
thereof, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the shares of Amwest Common Stock to be issued in
connection with the Merger. This Proxy Statement/Prospectus along with the
documents and portions of documents incorporated herein by reference also
constitutes the prospectus of Amwest filed as part of the Registration Statement
relating to the 992,000 shares of Amwest Common Stock expected to be issued to
Condor stockholders in connection with the Merger.
Amwest Common Stock is traded on the American Stock Exchange (the
"AMEX") under the symbol "AMW". On February 11, 1996, the closing sales price
for Amwest Common Stock as reported on AMEX was $___ per share.
All information contained in this Proxy Statement/Prospectus with
respect to Condor has been provided by Condor. All information contained in this
Proxy Statement/Prospectus with respect to Amwest has been provided by Amwest.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Amwest and Condor on or about February 12,
1996. A stockholder who has given a proxy may revoke it at any time prior to its
exercise. See "The Condor Special Meeting - Record Date; Voting Rights; Proxies"
and "The Amwest Special Meeting - Record Date; Voting Rights; Proxies".
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is
February __, 1996.
<PAGE>
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus and, if so given or made, such information or
representation not contained herein must not be relied upon as having been
authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, any of the securities offered
by this Proxy Statement/Prospectus, or the solicitation of a proxy, in any
jurisdiction to or from any person to or from whom it is unlawful to make such
offer or solicitation of an offer, or proxy solicitation in such jurisdiction.
Neither the delivery of this Proxy Statement/Prospectus nor the issuance or sale
of any securities hereunder shall under any circumstances create any implication
that there has been no change in the information set forth herein since the date
hereof or incorporated by reference herein since the date hereof.
AVAILABLE INFORMATION
Amwest and Condor each are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information filed
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should also be available for inspection and copying at the
regional offices of the Commission located at the Jacob K. Javits Federal
Building, 75 Park Place, New York, New York 10278 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such information may be
obtained at prescribed rates from the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. In addition,
material filed by Amwest can be inspected at the offices of the AMEX, 86 Trinity
Place, New York, New York 10006-1881, and the Pacific Stock Exchange
Incorporated, Additional Listing Department, 301 Pine Street, San Francisco,
California 94104, on which the shares of Amwest Common Stock are listed.
This Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement of which this Proxy Statement/Prospectus
is a part, and which Amwest has filed with the Commission under the Securities
Act. For further information with respect to Amwest and the securities to be
issued in the Merger, reference is made to the Registration Statement.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable documents filed with the
Commission or attached as an annex hereto.
INCORPORATION BY REFERENCE
Amwest and Condor hereby incorporate by reference into this Proxy
Statement/Prospectus the following documents previously filed with the
Commission pursuant to the Exchange Act:
(1) Amwest's Annual Report on Form 10-K for the year ended
December 31, 1994;
(2) Amwest's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995;
(3) Amwest's Current Reports on Form 8-K dated December 12, 1995
and December 21, 1995.
(4) The description of Amwest's common stock in Amwest's
Registration Statement on Form S-1, Number 33-21498, dated May
19, 1988.
(5) Condor's Annual Report on Form 10-K for the year ended
December 31, 1994;
(6) Condor's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995;
(7) Condor's Current Report on Form 8-K dated April 25, 1995.
All reports and other documents filed by Amwest and Condor pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Amwest Special Meeting
and the Condor Special Meeting shall be deemed to be incorporated by reference
into this Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Copies of any such
documents, other than exhibits to such documents which are not specifically
incorporated by reference therein, are available without charge to any person,
including any Condor Stockholder, to whom this Proxy Statement/Prospectus is
delivered upon written or oral request to Amwest Insurance Group, Inc.,
Attention: Corporate Secretary, P.O. Box 4500, Woodland Hills, California
91365-4500, telephone number (818) 704-1111. In order to ensure timely delivery
of the documents, any request should be made before March __, 1996.
--------------------------------
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION..................................................... iii
INCORPORATION BY REFERENCE................................................ iii
SUMMARY ................................................................. 1
The Companies.................................................... 1
The Special Meetings............................................. 2
Effective Time of the Merger..................................... 3
Surrender of Stock Certificates.................................. 3
Recommendations of the Boards of Directors....................... 3
Opinions of Investment Banking Firms............................. 4
The Merger....................................................... 4
Interests of Certain Persons in the Merger....................... 5
Certain Considerations........................................... 6
Certain Federal Income Tax Consequences.......................... 6
Dissenters' Rights............................................... 6
Comparative Rights of Stockholders............................... 6
Comparative Per Share Prices..................................... 7
Certain Other Agreements ........................................ 7
Selected Historical and Pro Forma Combined Financial Data........ 8
GENERAL INFORMATION....................................................... 11
RISK FACTORS.............................................................. 12
Proposition 103.................................................. 12
Regulatory Environment........................................... 12
Dependence on Key Personnel ..................................... 13
Risks of the Insurance Industry ................................. 13
THE CONDOR SPECIAL MEETING............................................... 14
Purpose of the Condor Special Meeting........................... 14
Record Date; Voting Rights; Proxies.............................. 14
Solicitation of Proxies.......................................... 14
Quorum........................................................... 14
Required Vote.................................................... 15
THE AMWEST SPECIAL MEETING................................................ 16
Purpose of the Amwest Special Meeting............................ 16
Record Date; Voting Rights; Proxies.............................. 16
Solicitation of Proxies.......................................... 16
Quorum........................................................... 16
Required Vote.................................................... 17
THE MERGER................................................................ 18
General.......................................................... 18
Effective Time................................................... 18
Conversion of Shares- Procedures for Exchange of Certificates.... 18
History of the Merger............................................ 19
Recommendation of the Board of Directors of Amwest; Reasons for
the Merger....................................................... 21
Recommendation of the Board of Directors of Condor; Reasons for
the Merger....................................................... 22
Opinion of Jefferies............................................. 24
Opinion of Wedbush Morgan........................................ 27
Certain Considerations........................................... 33
Interests of Certain Persons in the Merger....................... 33
Certain Federal Income Tax Consequences.......................... 34
Anticipated Accounting Treatment................................. 35
Effect on Employee Benefit Plans................................. 36
Regulatory Approvals............................................. 36
Insurance Department Regulatory Approvals........................ 36
Federal Securities Law Consequences.............................. 36
Stock Exchange Listing........................................... 37
THE MERGER AGREEMENT...................................................... 38
General.......................................................... 38
The Merger....................................................... 38
Effective Time................................................... 38
Terms of the Merger.............................................. 38
Fractional Shares................................................ 39
Surrender and Payment............................................ 39
Conditions to Consummation of the Merger......................... 40
Representations and Warranties................................... 42
Conduct of Business Pending the Merger........................... 42
Certain Other Covenants.......................................... 43
Other Potential Acquirors........................................ 44
Indemnification and Insurance.................................... 44
Termination and Abandonment...................................... 44
Amendment; Waiver................................................ 45
CERTAIN OTHER AGREEMENTS.................................................. 46
DISSENTERS' RIGHTS........................................................ 47
MANAGEMENT OF AMWEST AFTER THE MERGER..................................... 48
Directors and Executive Officers After the Merger................ 48
Security Ownership of Management................................. 49
Post Merger Dividend Policy...................................... 49
Principal Stockholders of Condor................................. 49
Principal Stockholders of Amwest................................. 50
Principal Stockholders of Amwest - Pro Forma..................... 52
COMPARATIVE PER SHARE PRICES AND DIVIDENDS................................ 54
CAPITALIZATION............................................................ 55
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............... 57
DESCRIPTION OF CAPITAL STOCK OF AMWEST.................................... 68
General.......................................................... 68
Common Stock..................................................... 68
Preferred Stock.................................................. 68
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 69
Stockholder Vote Required for Certain Transactions............... 69
Special Meetings of Stockholders................................. 69
Cumulative Voting................................................ 70
Rights Plans..................................................... 70
OTHER MATTERS............................................................. 71
LEGAL MATTERS............................................................. 71
EXPERTS ................................................................. 71
ANNEX A - Agreement and Plan of Merger
ANNEX B - Stockholder Agreement
ANNEX C - Opinion Jefferies & Company, Inc.
ANNEX D - Opinion Wedbush Morgan Securities
<PAGE>
SUMMARY
The following is a brief summary of certain information included
elsewhere in this Joint Proxy Statement/Prospectus and the Annexes hereto (the
"Proxy Statement/Prospectus"). This Summary does not contain a complete
statement of all material information relating to the Merger Agreement and the
Merger and is subject to, and is qualified in its entirety by, the more detailed
information and financial statements contained or incorporated by reference in
this Proxy Statement/Prospectus. Stockholders of Condor and Amwest should read
carefully this Proxy Statement/Prospectus in its entirety. Certain capitalized
terms used in this summary are defined elsewhere in this Proxy
Statement/Prospectus.
The Companies
Business of Condor - Condor, an insurance holding company incorporated
in the State of Delaware, is engaged through its wholly-owned subsidiaries,
Condor Insurance Company ("Condor Insurance") and Raven Claims Services, Inc.
("Raven Claims") in providing certain property and casualty insurance coverages
and services in California and Arizona. Condor Insurance writes insurance
packages which consist principally of commercial automobile liability and
physical damage coverage and, to a lesser extent, general liability and other
related coverages (excluding hazardous waste and environmental impairment except
with respect to policies written for the intermodal trucking industry) for
insureds involved in general trucking including solid waste disposal, sand,
gravel, transit mix, logging, farm to market, intermodal trucking, less than
total load, newspaper distribution, tow truck and limousine services industries.
Insurance coverages are written for members of the Waste Industry Loss
Prevention and Safety Association, d.b.a. The Safety Association. An applicant
for a commercial policy written by Condor Insurance must become a member of the
Safety Association. Condor Insurance offers automobile private passenger
coverage in Arizona.
As used herein, the term "Condor" refers to Condor Services, Inc. and
its subsidiaries, unless the context otherwise requires. The principal executive
offices of Condor are located at 2361 Rosecrans Avenue, El Segundo, California
90245, and its telephone number is (310) 640-2121.
Business of Amwest - Amwest underwrites a wide variety of surety bonds,
generally concentrating on principals who are unable to meet "standard"
underwriting criteria. Generally, "standard" surety underwriting involves larger
multi-line property and casualty insurance companies writing larger bond amounts
for larger principals on an uncollateralized basis. "Specialty" surety
underwriting typically involves smaller property and casualty companies, smaller
bond amounts, smaller principals, and bonds are underwritten using a variety of
factors, including the acceptance of partial or full collateral.
Amwest is an insurance holding company engaged, through its two wholly-owned
subsidiaries, Amwest Surety Insurance Company ("Amwest Surety") and Far West
Insurance Company ("Far West"), in underwriting surety bonds. In December 1995,
Amwest Surety and Far West redomesticated under the laws of the State of
Nebraska. Amwest operates through 33 branch offices, 8 of which are located in
California and the balance of which are located in 20 other states. Amwest
obtains business principally through approximately 14,000 independent agents and
brokers.
Amwest's major products are: (1) Contract performance bonds, which guarantee
the performance of specific contractual obligations between the principal and
the obligee and/or payments to labor and material suppliers; (2) Court bonds,
which guarantee that the principal will adequately discharge the obligations set
by a court; (3) Contractor's license bonds, which guarantee that the principal
will meet the licensing requirements of state or local laws applicable to
contractors; (4) Small Business Administration ("SBA") bonds, which are contract
performance bonds on which the SBA has guaranteed to the insurer reimbursement
of a portion of any loss in exchange for a portion of the premium; and (5)
Miscellaneous bonds, which guarantee a variety of non- classifiable obligations
including, but not limited to, license and permit, sales tax, income tax and
utility bonds.
Amwest individually analyzes the risk associated with each application
it receives, except for selected categories of miscellaneous bonds. This
underwriting evaluation includes verifying the credit history and financial
resources of the applicant. Amwest maintains control of the underwriting process
through the use of authority limits for each underwriter, through committee
underwriting of larger risks and through a system of limited delegation. Amwest
requires many contract bonds to be collateralized and will occasionally require
collateral on other types of bonds based upon risk characteristics. Collateral
can consist of irrevocable letters of credit, certificates of deposit, cash,
savings accounts, publicly traded securities and trust deeds or mortgages on
real property. The principal form of collateral accepted by Amwest currently
consists of irrevocable letters of credit and certificates of deposit.
As used herein, the term "Amwest" refers to Amwest Insurance Group,
Inc. and its subsidiaries, unless the context otherwise requires. The principal
executive offices of Amwest are located at 6320 Canoga Avenue, Woodland Hills,
California 91367, and its telephone number is (818)704-1111.
The Special Meetings
Time, Place and Date
A Special Meeting of the stockholders of Condor will be held on March
__, 1996, at 10:00 a.m., local time, at the Radisson Plaza Hotel - LAX South,
1400 Park View Avenue, Manhattan Beach, California (including any and all
adjournments or postponements thereof, the "Condor Special Meeting").
A Special Meeting of the Stockholders of Amwest will be held on March
__, 1996, at 10:00 a.m., local time, at the Warner Center Hilton, 6360 Canoga
Avenue, Woodland Hills, California (including any and all adjournments or
postponements thereof, the "Amwest Special Meeting").
Purpose of the Special Meetings
At the Condor Special Meeting, holders of Condor's common stock, par
value $0.01 per share (the "Condor Common Stock"), will consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
November 30, 1995, by and between Condor and Amwest, a copy of which is attached
as Annex A to this Proxy Statement/Prospectus (the "Merger Agreement"),
providing for the merger of Condor into Amwest (the "Merger"). As a result of
the Merger, the separate existence of Condor will thereupon cease. In the
Merger, each outstanding share of Condor Common Stock will be converted into the
right to receive 0.5 of a share (the "Conversion Number") of Amwest common
stock, par value $0.01 per share (the "Amwest Common Stock") (the shares of
Amwest Common Stock into which each share of Condor Common Stock is converted
shall be referred to as the "Merger Consideration"), subject to adjustment as
described below. If the average daily closing price per share of Amwest Common
Stock as reported on the American Stock Exchange (the "AMEX") for the 30
consecutive trading days ending on the second trading day preceding the date of
the closing of the Merger (the "Base Period Trading Price") is less than $12.50,
the Merger Consideration per share of Condor Common Stock shall be increased by
a factor of 12.5 divided by the Base Period Trading Price, and if the Base
Period Trading Price is greater than $17.50, the Merger Consideration per share
shall be decreased by a factor of 17.5 divided by the Base Period Trading Price.
Adjustment of the Conversion Number is subject to the right of Amwest not to
consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6
and the right of Condor not to consummate the Merger if the Conversion Number,
as adjusted, would be less than 0.4. Stockholders of Condor will also consider
and vote upon any other matter that may properly come before the meeting.
At the Amwest Special Meeting, holders of Amwest Common Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
all transactions contemplated thereby, including the issuance of Amwest Common
Stock pursuant to the Merger Agreement. Stockholders of Amwest will also
consider and vote upon any other matter that may properly come before the
meeting.
Votes Required; Record Date
The Merger will require approval and adoption of the Merger Agreement
by the affirmative vote of the holders of a majority of the outstanding shares
of Condor Common Stock entitled to vote thereon. Each outstanding share of
Condor Common Stock is entitled to one vote at the Condor Special Meeting. Only
holders of record of Condor Common Stock at the close of business on February 9,
1996 (the "Condor Record Date") will be entitled to notice of and to vote at the
Condor Special Meeting. See "The Condor Special Meeting." At the close of
business on the Condor Record Date, ________ shares of Condor Common Stock were
issued and outstanding. As of the Condor Record Date, directors and executive
officers of Condor and their affiliates were beneficial owners of approximately
___% of the outstanding shares of Condor Common Stock.
The Merger will require approval and adoption of the Merger Agreement
by the affirmative vote of the holders of a majority of the outstanding shares
of Amwest Common Stock entitled to vote thereon. Each outstanding share of
Amwest Common Stock is entitled to one vote at the Amwest Special Meeting. Only
holders of record of Amwest Common Stock at the close of business on February 9,
1996 (the "Amwest Record Date") will be entitled to notice of and to vote at the
Amwest Special Meeting. See "The Amwest Special Meeting." At the close of
business on the Amwest Record Date, ________ shares of Amwest Common Stock were
issued and outstanding. As of the Amwest Record Date, directors and executive
officers of Amwest and their affiliates were beneficial owners of approximately
__% of the outstanding shares of Amwest Common Stock. See "Management of Amwest
After the Merger --Security Ownership of Management".
Effective Time of the Merger
The Merger will become effective upon the filing of a Certificate of
Merger with the Secretary of State of Delaware, (the "Effective Time"). The
Effective Time is currently expected to occur on or shortly after March __,
1996, subject to approval by the stockholders of Amwest and Condor of the
matters described herein and satisfaction or waiver of the conditions precedent
to the Merger set forth in the Merger Agreement. See "The Merger -- Effective
Time" and "The Merger Agreement -- Conditions to the Consummation of the
Merger."
Surrender of Stock Certificates
As soon as practicable after the Effective Time, The American Stock
Transfer & Trust Company, or another person designated by Amwest and reasonably
acceptable to Condor, in its capacity as exchange agent for the Merger (the
"Exchange Agent"), will send a transmittal letter to each Condor stockholder.
The transmittal letter will contain instructions with respect to the surrender
of certificates representing Condor Common Stock to be exchanged for Amwest
Common Stock and cash in lieu of fractional shares. Holders of certificates
which prior to the Effective Time represented Condor Common Stock will not be
entitled to receive any payment of dividends or other distributions with respect
to Amwest Common Stock until such certificates have been surrendered for
certificates representing Amwest Common Stock. See "The Merger--Conversion of
Shares- Procedures for Exchange of Certificates."
Condor stockholders should not forward certificates for Condor Common
Stock to the Exchange Agent until they have received transmittal letters. Condor
stockholders should not return stock certificates with the enclosed proxy.
Recommendations of the Boards of Directors
The Boards of Directors of Condor and Amwest believe that the terms of
the Merger are fair to and in the best interests of their respective
stockholders and have unanimously approved the Merger Agreement and the related
transactions. The Boards of Directors of Condor and Amwest each unanimously
recommend that its stockholders approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the issuance of Amwest Common Stock
pursuant to the Merger Agreement. See "The Merger--History of the Merger,"
"--Recommendation of the Board of Directors of Condor; Reasons for the Merger,"
"--Recommendation of the Board of Directors of Amwest; Reasons for the Merger"
and "--Interests of Certain Persons in the Merger."
Opinions of Investment Banking Firms
Wedbush Morgan Securities ("Wedbush Morgan") has delivered its written
opinion to the Board of Directors of Condor that, as of November 30, 1995, the
consideration to be received by the Condor stockholders was fair, from a
financial point of view, to the public stockholders of Condor.
Jefferies & Company, Inc. ("Jefferies") has delivered its written
opinion to the Board of Directors of Amwest that, as of November 30, 1995, the
Conversion Number was fair, from a financial point of view, to the stockholders
of Amwest.
For information on the assumptions made, matters considered and limits
of the reviews undertaken by Jefferies and Wedbush Morgan see "The
Merger--Opinion of Wedbush Morgan," and " --Opinion of Jefferies." Stockholders'
are urged to read in their entirety the opinions of Jefferies and Wedbush Morgan
attached as Annexes C and D, respectively, to this Proxy Statement/Prospectus.
The Merger
Merger Consideration
In the Merger, each outstanding share of Condor Common Stock (other
than shares owned by Condor as treasury stock or by Amwest or its subsidiaries,
all of which shall be canceled) will be automatically converted into the right
to receive 0.5 of a share of Amwest Common Stock (subject to adjustment, as
described below, if the Base Period Trading Price of Amwest Common Stock is less
than $12.50 or more than $17.50 per share. Adjustment of the Conversion Number
is subject to the right of Amwest not to consummate the Merger if the Conversion
Number, as adjusted, would exceed 0.6 and the right of Condor not to consummate
the Merger if the Conversion Number, as adjusted, would be less than 0.4). Cash
will be paid in lieu of fractional shares. Upon consummation of the Merger,
Condor will be merged with and into Amwest and the separate existence of Condor
shall thereupon cease. See "The Merger Agreement--Terms of the Merger."
At the Effective Time, each outstanding option to purchase Condor
Common Stock granted by Condor ("Condor Stock Option"), other than those held by
non-employee directors, shall be canceled and the holder shall receive an option
("Amwest Stock Option") to purchase the same number of shares of Amwest Common
Stock as the holder would have been entitled to receive in the Merger had the
option been exercised in full immediately prior to the Effective Time. The
Amwest Stock Options will have substantially the same terms and conditions as
the Condor Stock Options, and the exercise price of each Amwest Stock Option
will be economically equivalent to the exercise price of the Condor Stock Option
being replaced. All Condor Stock Options held by non-employee directors
outstanding at the Effective Time will be canceled. It is anticipated that such
options will be exercised prior to the Effective Time.
Conditions to the Merger, Termination
The obligations of Amwest and Condor to consummate the Merger are
subject to various conditions, including, but not limited to: (i) obtaining
requisite stockholder and regulatory approvals; (ii) the absence of any
preliminary or permanent injunction or other order by any federal or state court
which prevents the consummation of the Merger; (iii) approval for listing on the
AMEX subject to official notice of issuance, of the Amwest Common Stock to be
issued in connection with the Merger; (iv) receipt of opinions of counsel at the
closing of the Merger covering such matters and in the form and substance agreed
upon; and (v) the absence of material adverse changes in the business of Amwest
or Condor that would have a material adverse effect on Amwest or Condor. See
"The Merger Agreement--Conditions to Consummation of the Merger."
The Merger Agreement may be terminated at any time prior to the
Effective Time, (a) by mutual written consent of Amwest and Condor; (b) by
either Amwest or Condor if the Merger has been enjoined by a court or if the
Merger shall not have been consummated on or before June 30, 1996 provided that
a party may not terminate the agreement pursuant to this clause if such party's
failure to fulfill any of its obligations under the Merger Agreement shall have
been the reason that the Effective Time shall not have occurred on or before
said date; (iii) by Condor if any of the conditions specified in Sections 7.01
and 7.03 of the Merger Agreement have not been met or waived by Condor at such
time as such condition is no longer capable of satisfaction; or (iv) by Amwest
if any of the conditions specified in Sections 7.01 and 7.02 of the Merger
Agreement have not been met or waived by Amwest at such time as such condition
is no longer capable of satisfaction. See "The Merger Agreement--Termination and
Abandonment."
The Merger Agreement may also be terminated by Condor in the event the
Condor Board of Directors, in the exercise of its fiduciary duties, determines
that termination is in the best interests of Condor and its stockholders to
enable Condor to accept an offer which the Board of Directors has determined to
be superior to the Merger (a "Superior Proposal").
Termination Fee
Condor will be required to pay Amwest a fee of $700,000 (the
"Termination Fee") in the event that Condor terminates the Merger Agreement in
order to accept a Superior Proposal. Condor will also be required to pay the
Termination Fee if the Merger Agreement is terminated by Amwest (i) for breach
of any of Condor's representations, warranties or covenants or because Condor
engages in negotiations which continue for more than 20 business days with a
third party seeking to acquire Condor (a "Third Party Acquisition") and, within
12 months of such termination, Condor enters into an agreement for, or
consummates, a Third Party Acquisition under certain circumstances, or (ii)
because the Condor Board of Directors has withdrawn, modified or changed its
recommendation of the Merger, has recommended a Third Party Acquisition or has
failed to call, give notice of, convene or hold a stockholders' meeting to
approve the Merger or because the Merger is not approved by the requisite vote
of the Condor Stockholders at the Condor Special Meeting. If the Merger
Agreement is terminated by Amwest under conditions requiring the payment of the
Termination Fee, Amwest will also be entitled to be reimbursed by Condor for its
reasonable expenses incurred in connection with the Merger. If the Merger
Agreement is terminated by Condor because of a breach by Amwest of its
representations, warranties or covenants or because the Merger is not approved
by the requisite vote at the Amwest Special Meeting, Condor will be entitled to
be reimbursed by Amwest for its reasonable expenses incurred in connection with
the Merger. In all other cases, Amwest and Condor will each bear their own
expenses.
Listing
It is a condition to the Merger that the shares of Amwest Common Stock
to be issued in the Merger be authorized for listing on the AMEX, subject to
official notice of issuance.
Regulatory Approvals Required
The Merger is subject to the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). Amwest
and Condor have both filed pre-merger notification forms with the Federal Trade
Commission and the Department of Justice under the HSR Act, and the required
waiting period will expire on January 17, 1996. See "The Merger-- Regulatory
Approvals."
The Merger and transactions contemplated thereby require approvals
of the Commissioners of the California Department of Insurance and the Arizona
State Department of Insurance. Amwest has filed a Form A with the California
Department of Insurance on January 2, 1996. See "The Merger-- Insurance
Department Regulatory Approvals."
Directors of Amwest After the Merger
Pursuant to an Agreement with Guy A. Main and the Main Family Trust,
Guy A. Main, currently Chairman of the Board, President and the Chief Executive
Officer of Condor, will be elected to the Amwest Board of Directors effective as
of the Effective Time. Upon the appointment of such person, the Amwest Board
will consist of 11 directors, 10 of whom were directors of Amwest as of the date
of the Merger Agreement.
Interests of Certain Persons in the Merger
In considering the recommendation of the Condor Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain members of Condor management and the
Condor Board of Directors have certain interests in the Merger that are in
addition to the interests of stockholders of Condor generally. Amwest will issue
substitute Amwest Stock Options to all holders of Condor Stock Options (other
than non-employee directors), including officers and management. Amwest has
agreed, subject to certain limitations, to indemnify each officer and director
of Condor from all losses, claims, damages, costs, expenses and liabilities
arising out of or related to the Merger or the Merger Agreement. Employees of
Condor who continue as employees after the Effective Time, including officers
and management will participate in Amwest Employee Benefit Plans. Mr. Main will
be employed by Amwest under a four year employment agreement, will be eligible
for bonuses under the Amwest Annual Executive Incentive Plan and will become a
member of the Board of Directors of Amwest. See "The Merger--Interests of
Certain Persons in the Merger."
Certain Considerations
In deciding whether to approve and adopt the Merger Agreement and the
transactions contemplated thereby stockholders of Amwest and Condor should
carefully evaluate the matters set forth under "The Merger--Certain
Considerations" and "Risk Factors." Factors to be considered include: (i) the
relative stock prices of Amwest Common Stock and Condor Common Stock at the
Effective Time may vary significantly from the prices as of the date of
execution of the Merger Agreement or the date of this Proxy Statement/Prospectus
or the date on which stockholders vote on the Merger; and (ii) the Conversion
Number is fixed at 0.5 Amwest shares for each Condor share, subject to
adjustment if the Base Period Trading Price of Amwest Common Stock is less than
$12.50 or more than $17.50. See "The Merger--Certain Considerations."
Certain Federal Income Tax Consequences
Except as more fully described under "The Merger--Certain Federal
Income Tax Consequences," no gain or loss will be recognized by Condor
stockholders for federal income tax purposes on the conversion of their Condor
Common Stock into Amwest Common Stock, except with respect to cash received in
lieu of fractional shares, and no gain or loss will be recognized by Amwest or
Condor. See "The Merger--Certain Federal Income Tax Consequences."
Dissenters' Rights
Pursuant to Section 262(b) of the Delaware General Corporation Law,
Condor stockholders are not entitled to dissenters' or appraisal rights in
connection with the Merger, because: (i) shares of Condor Common Stock were, at
the Condor Record Date, designated as a NASDAQ National Market security; (ii)
Condor stockholders will not be required to accept anything in exchange for
their Condor Common Stock other than Amwest Common Stock (i.e., shares of stock
of the corporation surviving the Merger) and cash in lieu of fractional shares
of such stock; and (iii) the Certificate of Incorporation of Condor does not
otherwise provide Condor stockholders with dissenters' or appraisal rights
applicable to the Merger. Amwest stockholders are also not entitled to
dissenters' or appraisal rights with respect to the Merger. See "Dissenters'
Rights."
Comparative Rights of Stockholders
The rights of stockholders of Condor currently are governed by Delaware
law, Condor's Certificate of Incorporation and Condor's Bylaws. Upon
consummation of the Merger, stockholders of Condor will become stockholders of
Amwest, which is also a Delaware corporation, and their rights as stockholders
of Amwest will be governed by Delaware law, Amwest's Certificate of
Incorporation, Amwest's Bylaws and the Amwest Rights Agreement (as hereinafter
defined). For a discussion of various differences between the rights of
stockholders of Condor and the rights of stockholders of Amwest, see "Comparison
of Stockholder Rights."
Comparative Per Share Prices
The following table sets forth the high, low and last sales prices as
reported on the AMEX and NASDAQ Composite Tapes of the companies' common shares
on November 30, 1995, the last trading day before the announcement of the
execution of the Merger Agreement.
Condor
Amwest Condor Equivalent(a)
High $17 5/8 (b) $3 1/2 $7
Low 17 1/2 (b) 3 1/2 7
Last 17 5/8 (b) 3 1/2 7
On February __, 1996, the last day before the printing of this Proxy
Statement/Prospectus the last sales prices of Amwest Common Stock and Condor
Common Stock as reported on the AMEX and NASDAQ NMS, were as follows:.
Condor
Amwest Condor Equivalent(a)
High $ $ $
Low
Last
(a) The Condor equivalent market value is computed by multiplying the high, low
and last sales price per share of Amwest Common Stock by the Conversion Number,
assuming the Conversion Number is 0.5.
(b) There were no trades for Amwest Common Stock on the AMEX on November 30,
1995. Therefore, the sales prices as reported on the AMEX on November 29, 1995
are shown.
See "Comparative Per Share Prices and Dividends."
Certain Other Agreements
In connection with the Merger Agreement, Amwest has entered or will
enter into certain agreements with various persons. Amwest, the Main Family
Trust and Mr. Main have entered into a Stockholder Agreement pursuant to which
the Main Family Trust (which holds 957,310 shares of Condor Common Stock for the
benefit of Mr. Main and his family) and Mr. Main have (i) agreed not to sell or
otherwise transfer any shares of Condor Common Stock prior to the Effective Time
or the termination of the Merger Agreement, (ii) agreed to vote all shares of
Condor Common Stock which they hold in favor of the Merger and against any
proposal in opposition to or in competition with the Merger, (iii) agreed to
call a special meeting of Condor Stockholders to consider and approve the Merger
if such a meeting has not taken place on or before May 1, 1996; and (iv) granted
an option to Amwest to purchase 825,000 shares of Condor Common Stock for a
price equivalent to the Merger Consideration exercisable at any time during the
period commencing with the termination of the Merger Agreement.
The directors and officers of Condor have executed and delivered to
Amwest an Affiliates Letter and Certificate of Continuity of Interest in which
they have made certain representations about their intentions to hold the shares
of Amwest Common stock to be received in the Merger and agreed to certain
restrictions on resales of such shares. The representations and restrictions of
resales are intended to preserve the characterization of the Merger for federal
income tax purposes as a reorganization, to comply with the requirements for
"pooling of interests" accounting treatment and to comply with restrictions on
resales of securities imposed by federal securities laws.
At the Effective Time, Amwest, the Main Family Trust and Mr. Main will
enter into an agreement pursuant to which Mr. Main will be elected a director of
Amwest as long as he remains a member of the management executive committee of
Amwest. The agreement will also include certain provisions which become
effective only in the event that the Merger does not qualify for "pooling of
interests" accounting treatment, including an agreement not to sell any Amwest
Common Stock received in the Merger for two years and an agreement to grant a
right of first refusal to Amwest to purchase any shares of Amwest Common Stock
received in the Merger. Amwest, the Main Family Trust and Mr. Main will also
enter into a Registration Rights Agreement pursuant to which Amwest will agree
to register shares of Amwest Common Stock received by the Main Family Trust in
the Merger for resale under the Securities Act of 1933.
At the Effective Time, Amwest and Mr. Main will also enter into an
Employment Agreement pursuant to which Mr. Main will be employed for four years
as Executive Vice President of Amwest and President of Condor Insurance. Mr.
Main will receive a base salary of $253,000, subject to annual review, and will
be eligible for bonuses under the Amwest Annual Executive Incentive Plan and
entitled to other benefits available to other Amwest officers generally,
including an automobile allowance.
Selected Historical and Pro Forma Combined Financial Data
The following table presents selected historical financial data of
Amwest and Condor, and selected pro forma combined financial data after giving
effect to the Merger under the "pooling of interests" method of accounting.
Amwest's historical financial data for each of the annual periods presented have
been derived from its audited consolidated financial statements previously filed
with the Commission. Condor's historical financial data for each of the annual
periods presented also have been derived from its financial statements
previously filed with the Commission. The selected historical financial data for
both companies for the nine-month periods ended September 30, 1994 and 1995 have
been prepared in accordance with generally accepted accounting principles
applicable to interim financial information and, in the opinions of Amwest's and
Condor's respective managements, include all adjustments necessary for a fair
presentation of results for such interim periods.
The selected pro forma combined financial data have been derived from,
or prepared on a basis consistent with, the unaudited pro forma condensed
combined financial statements included herein. This data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred or that will occur after
consummation of the Merger.
<TABLE>
<CAPTION>
As of or for the
nine months ended
As of or for the year ended December 31, September 30,
--------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Amwest Insurance Group, Inc. - Historical:
Net premiums earned $ 46,858 $ 48,487 $ 48,254 $ 50,090 $ 61,829 $ 44,074 $ 50,478
Net income from continuing operations (a) 5,158 3,493 3,398 4,041 4,588 1,834 2,937
Earnings per common share: (a)
Net income from continuing operations 2.16 1.42 1.44 1.70 1.91 0.76 1.22
Net income $ 2.16 $ 1.42 $ 1.44 $ 1.60 $ 1.91 $ 0.76 $ 1.22
Cash dividends declared per common share (b)$ 0.24 $ 0.28 $ 0.28 $ 0.28 $ 0.36 $ 0.27 $ 0.30
Weighted average shares outstanding 2,391 2,461 2,360 2,375 2,408 2,411 2,402
Total assets $112,652 $122,684 $134,404 $140,692 $146,713 $153,344 $150,761
Bank indebtedness 13,193 12,228 12,264 12,500 12,500 12,500 12,500
Stockholders' equity 25,981 28,885 31,749 36,383 35,994 34,536 42,002
Stockholders' equity per common share $ 10.87 $ 12.16 $ 13.52 $ 15.43 $ 15.42 $ 14.58 $ 17.80
Condor Services, Inc. - Historical:
Net premiums earned $ 18,266 $ 14,297 $ 15,289 $ 21,995 $ 19,460 $ 15,865 $ 13,229
Net income from continuing operations (362) 1,061 1,627 241 453 (21) 786
Earnings per common share:
Net income from continuing operations (0.15) 0.51 0.82 0.12 0.23 (0.01) 0.40
Net income $ (0.15) $ 0.51 $ 0.82 $ 0.12 $ 0.23 $ (0.01) $ 0.40
Cash dividends declared per common share -- -- -- -- -- -- --
Weighted average shares outstanding 2,342 2,060 1,976 1,978 1,981 1,983 1,967
Total assets $ 32,530 $ 35,904 $ 38,477 $ 55,164 $ 40,032 $ 48,253 $ 37,123
Stockholders' equity 8,087 8,876 10,435 11,964 10,163 10,037 12,127
Stockholders' equity per common share $ 4.22 $ 4.93 $ 5.29 $ 6.03 $ 5.16 $ 5.05 $ 6.22
Pro Forma Combined (d):
Net premiums earned $ 65,124 $ 62,784 $ 63,543 $ 72,085 $ 81,289 $ 59,939 $ 63,707
Net income from continuing operations 4,796 4,554 5,025 3,947 5,041 1,813 3,723
Earnings per common share: (c)
Net income from continuing operations 1.39 1.38 1.55 1.20 1.50 0.54 1.12
Net income $ 1.39 $ 1.38 $ 1.55 $ 1.12 $ 1.50 $ 0.54 $ 1.12
Cash dividends declared per common share $ 0.24 $ 0.28 $ 0.28 $ 0.28 $ 0.36 $ 0.27 $ 0.30
Weighted average shares outstanding 3,440 3,291 3,242 3,299 3,350 3,354 3,337
Total assets $130,480 $142,273 $172,030 $195,296 $186,514 $201,317 $187,470
Bank indebtedness 13,193 12,228 12,264 12,500 12,500 12,500 12,500
Stockholders' equity 33,705 37,351 41,500 47,921 46,005 44,332 53,311
Stockholders' equity per common share $ 10.37 $ 11.75 $ 12.89 $ 14.52 $ 14.07 $ 13.38 $ 16.26
</TABLE>
The above information should be read in conjunction with the companies'
historical and pro forma combined financial statements and notes thereto,
either incorporated by reference or included herein. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
Notes to Selected Historical and Pro Forma Combined Financial Data
(a) For 1993, Amwest's net income from continuing operations excludes an
extraordinary loss from early extinguishment of debt of $249,000, net
of income tax benefit of $128,000 due to the refinancing of $12,300,000
of bank indebtedness which was completed in August 1993.
(b) Pro forma dividends are assumed to be the same as the historical cash
dividend declarations of Amwest. Amwest has no present intention to
alter its current quarterly dividend subsequent to the Merger. However,
any determination to increase or decrease the per share cash dividend
amount is at the sole discretion of Amwest's Board of Directors,
subject to restrictions which may be imposed by law or contract.
(c) Pro forma combined earnings per share is based upon the combined
historical weighted average shares outstanding, after adjustment of
Condor's historical number of shares by the Conversion Number and
excluding any Condor shares held in treasury or owned by Amwest.
(d) The pro forma combined statements of income excludes investment
banking, legal, accounting and miscellaneous transaction costs and
expenses of the Merger, currently estimated to be $600,000. However,
the pro forma combined balance sheet as of September 30, 1995 includes
the adjustment, net of related taxes, of $396,000 for the above
estimated amount of transaction costs related to the Merger.
<PAGE>
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to stockholders of
each of Condor and Amwest in connection with the solicitation of proxies by and
on behalf of the Boards of Directors of Condor and Amwest, as the case may be,
for use at the Condor Special Meeting and the Amwest Special Meeting, as the
case may be. The Condor Special Meeting will be held at 10:00 A.M. on ________,
March __, 1996 at the Radisson Plaza Hotel - LAX South, 1400 Park View Avenue,
Manhattan Beach, California. The Amwest Special Meeting will be held at 10:00
a.m. on ________, March __, 1996 at the Warner Center Hilton, 6360 Canoga
Avenue, Woodland Hills, California. This Proxy Statement/Prospectus and the
related form of proxy for each of Condor and Amwest are first being mailed to
their respective stockholders on or about February 12, 1996.
<PAGE>
RISK FACTORS
In connection with the Merger, the Amwest stockholders are being asked
to approve and adopt the Merger Agreement and all transactions contemplated
thereby, including the issuance of Amwest Common Stock pursuant to the Merger
Agreement. If the Merger is consummated, the holders of Amwest Common Stock will
be subject to certain risks inherent to Condor's business, several of which are
also applicable to Amwest's business. Amwest stockholders should carefully
consider the following risk factors in evaluating whether to approve the Merger
Agreement and the issuance of Amwest Common Stock pursuant thereto.
The Condor stockholders are being asked to approve and adopt the Merger
Agreement. Pursuant to the Merger Agreement, the Condor stockholders will become
holders of Amwest Common Stock and should carefully consider the following risk
factors in connection therewith. Several of the risks set forth below are
applicable to Condor's business as well.
Proposition 103
In November 1988, California voters passed Proposition 103, an
insurance initiative which required a rollback in insurance rates for policies
(and bonds) written or renewed during the twelve month period beginning November
8, 1988 and provided that changes in insurance premiums after November 8, 1988
must be submitted for approval of the California Insurance Commissioner prior to
implementation. While the Proposition has the most significant impact on
automobile insurance, its provisions, as written, also apply to other property
and casualty insurers including surety insurers.
On August 26, 1991, The State of California enacted Insurance Code
Section 1861.135 ("Section 1861.135") exempting surety insurance from the rate
rollback and prior approval provisions of Proposition 103. Section 1861.135 does
not affect Proposition 103's prohibition against excessive, inadequate or
discriminatory rates. Due to the enactment of Section 1861.135, Amwest
terminated a previously established reserve for potential premium rebates.
Subsequently, the Department of Insurance ("Department") and Voter
Revolt brought a motion for writ of mandate challenging the validity of Section
1861.135. On March 21, 1992, the Los Angeles Superior Court concluded that
Section 1861.135 did not violate the California Constitution or the provisions
of Proposition 103. The Department and Voter Revolt appealed. On December 7,
1994, the Second District Court of Appeal overturned Section 1861.135 by a 2-1
vote. On February 24, 1994, the California Supreme Court agreed to hear Amwest's
petition for review, thereby staying the Court of Appeals opinion. On December
14, 1995, the Supreme Court of the State of California affirmed the decision of
the Second District Court of Appeal, overturning Insurance Code Section
1861.135, which exempted the surety insurance industry from major provisions of
Proposition 103. Accordingly, Amwest will no longer be exempted from the rate
rollback and prior approval provisions contained in Proposition 103.
To date, Amwest has not received any calculations from the California
Department of Insurance regarding Amwest's Proposition 103 rollback amount.
Amwest will accrue during the 4th quarter of 1995 its estimated rollback
obligation pursuant to Proposition 103, the amount of which has not yet been
determined. While such rollback obligation is not expected to materially
adversely impact Amwest's financial position, until a final settlement is
reached with the California Department of Insurance, no assurances can be given
as to the ultimate amount of premiums to be refunded to policyholders.
Regulatory Environment
The insurance industry is highly regulated. Both Amwest and Condor are
subject to the rules and regulation of and oversight by the various Departments
of Insurance and other regulatory authorities in the jurisdictions in which
Condor and Amwest operate.
Dependence on Key Personnel
The success of Condor is dependent upon Mr. Guy A. Main, its President,
whose loss or unavailability would have a material, adverse affect on its
operations. If the Merger is completed, Amwest will execute a four year
Employment Agreement with Mr. Main, pursuant to which Mr. Main will agree to
devote substantially all of his time to the business of Amwest.
Risks of the Insurance Industry
The profitability of both Amwest and Condor are subject to many
factors, including rate competition, the severity and frequency of claims,
defaults of reinsurers, interest rates, inflation, general business conditions,
regulatory measures and court decisions that define and expand the extent of
coverage and the amount of compensation due to claimants. The profitability of
Amwest and Condor may be adversely affected by such factors.
<PAGE>
THE CONDOR SPECIAL MEETING
Purpose of the Condor Special Meeting
At the Condor Special Meeting, holders of Condor Common Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
such other matters as may properly be brought before the meeting.
The Board of Directors of Condor has unanimously approved the Merger
Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement.
Record Date; Voting Rights; Proxies
The Condor Board of Directors has fixed the close of business on
February 9, 1996 as the Condor Record Date for determining holders entitled to
notice of and to vote at the Condor Special Meeting.
As of the Condor Record Date, there were ________ shares of Condor
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote. All shares of Condor Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such shares of Condor Common Stock will be voted in favor of the
Merger. Shares voted to abstain on a matter will be treated as entitled to vote
on the matter and will thus have the same effect as "no" votes. Broker non-votes
are not counted as entitled to vote on a matter in determining the number of
affirmative votes required for approval of the matter, but are counted as
present for quorum purposes. The term "broker non-votes" refers to shares held
by a broker in street name which are present by proxy but are not voted on a
matter pursuant to rules prohibiting brokers from voting on non-routine matters,
such as approval and adoption of the Merger Agreement, without instructions from
the beneficial owner of the shares. Condor does not know of any matters other
than as described in the Notice of Special Meeting that are to come before the
Condor Special Meeting. If any other matter or matters are properly presented
for action at the Condor Special Meeting, the persons named in the enclosed form
of proxy and acting thereunder will have the discretion to vote on such matters
in accordance with their best judgment, unless such authorization is withheld. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice thereof to the Secretary of Condor, by signing
and returning a later dated proxy, or by voting in person at the Condor Special
Meeting; however, mere attendance at the Condor Special Meeting will not in and
of itself have the effect of revoking the proxy. Votes cast by proxy or in
person at the Condor Special Meeting will be tabulated by the election
inspectors appointed for the meeting and will determine whether or not a quorum
is present.
Solicitation of Proxies
Condor will bear its own cost of solicitation of proxies. Solicitations
will be made by mail, telephone or telegram and personally by directors,
officers and other employees of the Company, but such persons will not receive
compensation for such services over and above their regular salaries. Brokerage
houses, fiduciaries, nominees and others will be reimbursed for their reasonable
charges and out-of-pocket expenses in forwarding proxy materials to beneficial
owners of stock held in their names.
Quorum
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Condor Common Stock is
necessary to constitute a quorum at the Condor Special Meeting.
Required Vote
Approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of Condor Common
Stock.
THE MATTERS TO BE CONSIDERED AT THE CONDOR SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF CONDOR. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
THE AMWEST SPECIAL MEETING
Purpose of the Amwest Special Meeting
At the Amwest Special Meeting, holders of Amwest Common Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby, and such other matters as may properly be
brought before the meeting. Stockholder approval and adoption of the Merger
Agreement and all of the transactions contemplated thereby will constitute the
approval required by the AMEX for the Merger Agreement and all of the
transactions contemplated thereby, including the issuance of the Amwest Common
Stock in connection with the Merger.
The Board of Directors of Amwest has unanimously approved the Merger
Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement.
Record Date; Voting Rights; Proxies
The Amwest Board of Directors has fixed the close of business on
February 9, 1996 as the Amwest Record Date for determining holders entitled to
notice of and to vote at the Amwest Special Meeting.
As of the Amwest Record Date there were _________ shares of Amwest
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote.
All shares of Amwest Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such shares of Amwest Common Stock will be voted in favor of the
Merger. Shares voted to abstain on a matter will be treated as entitled to vote
on the matter and will thus have the same effect as "no" votes. Broker non-votes
are not counted as entitled to vote on a matter in determining the number of
affirmative votes required for approval of the matter, but are counted as
present for quorum purposes. The term "broker non-votes" refers to shares held
by a broker in street name which are present by proxy but are not voted on a
matter pursuant to rules prohibiting brokers from voting on non-routine matters,
such as approval and adoption of the Merger Agreement, without instructions from
the beneficial owner of the shares. Amwest does not know of any matters other
than as described in the Notice of Special Meeting that are to come before the
Amwest Special Meeting. If any other matter or matters are properly presented
for action at the Amwest Special Meeting, the persons named in the enclosed form
of proxy and acting thereunder will have the discretion to vote on such matters
in accordance with their best judgment, unless such authorization is withheld. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice thereof to the Secretary of Amwest by signing
and returning a later dated proxy, or by voting in person at the Amwest Special
Meeting; however, mere attendance at the Amwest Special Meeting will not in and
of itself have the effect of revoking the proxy. Votes cast by proxy or in
person at the Amwest Special Meeting will be tabulated by the election
inspectors appointed for the meeting who will also determine whether or not a
quorum is present.
Solicitation of Proxies
Amwest will bear its own cost of solicitation of proxies. Brokerage
houses, fiduciaries, nominees and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy materials to beneficial owners of
stock held in their names.
Quorum
The presence in person or by properly executed proxy of holders of a
majority of all of the shares of Amwest Common Stock entitled to vote is
necessary to constitute a quorum at the Amwest Special Meeting.
Required Vote
The approval of the Merger Agreement requires the affirmative vote by
the holders of a majority of the outstanding shares of Amwest Common Stock.
THE MATTERS TO BE CONSIDERED AT THE AMWEST SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF AMWEST. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
THE MERGER
This section of the Proxy Statement/Prospectus as well as the next
section of the Proxy Statement/Prospectus entitled "The Merger Agreement"
describe certain aspects of the proposed Merger. To the extent that it relates
to the Merger Agreement, the following description does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement
which is attached as Annex A to this Proxy Statement/Prospectus and is
incorporated herein by reference. All stockholders are urged to read the Merger
Agreement in its entirety.
General
The Merger Agreement provides that the Merger will be consummated if
the approvals of the Condor and Amwest stockholders required therefor are
obtained and all other conditions to the Merger are satisfied or waived. Upon
consummation of the Merger, Condor will be merged with and into Amwest and the
separate existence of Condor will thereupon cease. Condor subsidiaries will
become wholly owned subsidiaries of Amwest. Amwest will, by operation of law,
succeed to all of the assets and become subject to all of the liabilities of
Condor.
Upon consummation of the Merger, each outstanding share of Condor
Common Stock (other than shares owned by Condor as treasury stock or by Amwest
or its subsidiaries all of which shall be canceled) will be automatically
converted into the right to receive 0.5 of a share of Amwest Common Stock
(subject to adjustment if the average daily closing price per share of Amwest
Common Stock as reported on the AMEX for the 30 consecutive trading days ending
on the close of trading on the second trading day preceding the closing date is
less than $12.50 per share, in which event the Conversion Number will be
increased by a factor of 12.5 divided by the Base Period Trading Price, or
greater than $17.50 per share in which event the Conversion Number will be
decreased by a factor of 17.5 divided by the Base Period Trading Price.
Adjustment of the Conversion Number is subject to the right of Amwest not to
consummate the Merger if the Conversion Number, as adjusted, would exceed 0.6
and the right of Condor not to consummate the Merger if the Conversion Number,
as adjusted, would be less than 0.4). Based upon the capitalization of Amwest
and Condor as of November 30, 1995, the stockholders of Condor will own
approximately 28% of the outstanding Amwest Common Stock following consummation
of the Merger. Such percentage could change depending on whether an adjustment
under the purchase price adjustment mechanism is required and whether shares of
Condor Common Stock and Amwest Common Stock issuable upon exercise of
outstanding Condor and Amwest stock options are issued.
Effective Time
The Merger will become effective upon the filing of a Certificate of
Merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware (the "Effective Time"). The filing of the Certificate of Merger will
occur on the date of the closing of the Merger. The Merger Agreement may be
terminated by either party if the Merger has not been consummated on or before
June 30, 1996 and under certain other conditions. (See "The Merger
Agreement--Conditions to Consummation of the Merger" and "--Termination and
Abandonment".)
Conversion of Shares - Procedures for Exchange of Certificates
The conversion at the Conversion Number of Condor Common Stock into the
right to receive Amwest Common Stock will occur automatically at the Effective
Time. As soon as practicable after the Effective Time, a form transmittal letter
will be mailed by the Exchange Agent to each stockholder of Condor, informing
such stockholder of the procedures to follow in forwarding his or her Condor
stock certificates to the Exchange Agent. Upon receipt of such Condor stock
certificates, the Exchange Agent will deliver certificates representing whole
shares of Amwest Common Stock to such stockholder and cash in lieu of any
fractional share pursuant to the terms of the Merger Agreement and in accordance
with the transmittal letter, together with any dividends or other distributions
to which such stockholder may be entitled.
If a transfer of ownership of Condor Common Stock has not been
registered in the transfer records of Condor, a certificate representing the
proper number of whole shares of Amwest Common Stock and cash in lieu of
fractional shares, if any, and any dividends and distributions will be issued to
a transferee upon surrender of the certificate representing such Condor Common
Stock accompanied by all documents required to evidence such transfer and by
evidence that any stock transfer taxes have been paid.
After the Effective Time and until surrendered, shares of Condor Common
Stock will be deemed to represent only the right to receive upon such surrender
the certificate representing the number of whole shares of Amwest Common Stock
and any cash in lieu of any fractional shares as contemplated by the Merger
Agreement. No dividends or other distributions, if any, payable to holders of
Amwest Common Stock will be paid to the holders of any certificates for shares
of Condor Common Stock until such certificates are surrendered. Upon surrender
of such certificates, all such declared dividends and distributions which shall
have become payable with respect to such Amwest Common Stock, in respect of a
record date after the Effective Time, will be paid to the holder of record of
the whole shares of Amwest Common Stock represented by the certificate issued in
exchange therefor, without interest.
CONDOR STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. CONDOR STOCKHOLDERS
SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
History of the Merger
In March 1990 Amwest's then investment manager brought Condor to the
attention of Amwest senior management. At the time, Condor's shares had fallen
significantly in value from previous levels. After reviewing the investment
opportunity, Amwest senior management concluded that the shares of Condor were
undervalued and that purchases of Condor shares in the open market would be a
good equity investment for Amwest. At various times during the remainder of the
year, Amwest acquired Condor shares and ultimately became one of its larger
stockholders.
From 1990 through early 1995, senior management of Amwest monitored the
results of Condor and met with Mr. Main on several occasions in order to
appropriately monitor Amwest's equity investment. During this period of time,
senior management of both Amwest and Condor became better acquainted and were
able to gain better understandings of the operations of both companies.
In 1993, Condor wrote off $1,870,022 related to the misappropriation of
premiums written for its private passenger automobile coverage line of business
in Arizona, and incurred associated legal expenses. On July 14, 1994, Condor was
awarded a judgment in the Superior Court of Arizona for approximately $1,947,000
against a former agent and an individual who represented that agent. The
individual against whom Condor has a judgment, filed for bankruptcy in Las Vegas
in December 1994. Condor has also initiated proceedings to collect its judgment
in the Las Vegas bankruptcy. The write-off related to the misappropriation of
premiums and other related losses and expenses has had a significant impact on
Condor's capital surplus and which has limited Condor's ability to expand its
business by writing additional insurance.
On June 16, 1995, a member of Amwest's senior management met with
Condor's Chairman and Chief Executive Officer. The Amwest executive expressed
Amwest's intent to diversify beyond the surety market place and indicated that
because of its familiarity with Condor and Condor's focus on its specialty
transportation programs, Condor might be a good candidate to help Amwest achieve
its strategic diversification objectives. Condor's Chairman replied that Condor
was not interested in an affiliation or business combination at that time, that
Condor was anticipating a major recovery in the Las Vegas bankruptcy proceeding
which would replenish its capital and expand its underwriting capacity and that
it was planning to move its headquarters to Carlsbad, California to achieve cost
savings. There was no further contact between Amwest and Condor regarding a
possible affiliation or business combination until September 1995.
In August 1995, the Las Vegas bankruptcy court postponed until 1996 any
further action on the Las Vegas bankruptcy proceeding in which Condor is seeking
a recovery and it became apparent that there would be no further recovery in
1995. The Condor Board of Directors decided that in the absence of such
recovery, Condor should not proceed to move its headquarters in order to avoid
significant moving expense.
Based on the foregoing events, Condor's Chairman decided in early
September 1995 to inquire as to whether Amwest still maintained an interest in
discussing a business combination. On September 5, 1995, a member of Amwest
senior management met with Condor's Chairman to discuss the operations of the
two companies and the possible benefits of combining the two companies.
On September 26, 1995, during a general strategy session of Amwest
executive management, the possibility of merging with Condor was discussed and
it was determined that, based on the information received to such date, the
possibility of a merger with Condor should be further investigated on a highly
confidential basis. At this time, it was agreed that a meeting with Amwest's and
Condor's executive management teams should be held to further explore the
possibility of a merger.
At an October 18, 1995 meeting between Amwest's Co-Chief Executive
Officers and Condor's Chairman, discussions were held regarding the benefits of
a combined entity and how the organization would operate going forward. At this
time, Condor's Chairman discussed with management of Amwest a possible
transaction whereby Condor might be acquired in a stock for stock transaction,
wherein each share of Condor Common Stock would be exchanged for 0.5 of a share
of Amwest Common Stock. At the conclusion of the meeting, management of Amwest
indicated that it would study the benefits of a proposed merger with Condor with
members of Amwest's Board of Directors. No agreements, understandings or
arrangements were reached regarding a transaction.
On November 1, 1995, Condor senior executives met with Amwest's
management executive committee to discuss both Condor's and Amwest's operations
in greater detail. Amwest management indicated that it would develop a
recommendation for Amwest's Board of Directors. In subsequent conversations,
Amwest's management indicated that it would recommend a Merger of Condor and
Amwest.
On November 9, 1995, the Board of Directors of Amwest held a meeting to
discuss the potential merger of Condor with and into Amwest. At this meeting,
the Board of Directors indicated that it was interested in pursuing a merger
with Condor, but that it needed more time to evaluate the proposed Conversion
Number and other matters. Additionally, at this meeting, one of the Co-Chief
Executive Officers was authorized to engage an investment banking firm for the
purpose of rendering an opinion as to the fairness of the proposed transaction
to Amwest stockholders. These conclusions were reported to Condor's Chairman on
November 9, 1995.
On November 11, 1995, the Condor Board of Directors met and discussed a
possible merger with Amwest, the terms which were under discussion and the
potential advantages to Condor and its stockholders. The conclusions of the
Board of Directors were that there were significant growth opportunities
available to Condor which could be exploited if it had access to greater capital
resources, that given Condor's current stock prices, the cost of raising equity
capital appeared excessive, and that merger with or acquisition by a larger
company with greater capital resources would allow Condor to expand its business
and reduce operating costs. The Board of Directors authorized the engagement of
an investment banking firm to furnish an opinion to the Condor Board of
Directors as to the fairness, from a financial point of view, to the public
stockholders of Condor of the consideration to be received by them in a
transaction that might be proposed by Amwest.
On November 14, 1995 Amwest engaged the services of Jefferies, in order
to advise Amwest as to the fairness of the proposed transaction with respect to
Amwest stockholders. On November 20, 1995, Condor engaged the services of
Wedbush Morgan, who similarly advised Condor as to the fairness, from a
financial point of view, to the public stockholders of Condor of the
consideration to be received by them in the proposed transaction. During this
time frame, representatives of Condor and Amwest and their respective counsel
held negotiations with respect to the proposed Merger.
On November 15, 1995, Amwest and Condor entered into a Confidentiality
Agreement, began to exchange certain information related to each other in order
to determine whether and on what basis a merger might be possible and began to
negotiate the structure and terms of the Merger.
A meeting of the Condor Board of Directors was held on November 16,
1995 to discuss in detail the terms that were proposed by Amwest, the structure
of the transaction and the status of the negotiations and to receive a briefing
from Wedbush Morgan as to the procedures it would follow in forming an opinion
as to the fairness, from a financial point of view, to the public stockholders
of Condor of the consideration to be received by them in the transaction.
On November 20, 1995, the Board of Directors of Amwest held a meeting
to review the proposed transaction and to receive a preliminary report from
Jefferies, regarding its analysis and progress in order to be in a position to
deliver an opinion as to the fairness of the transaction to Amwest stockholders.
The Board of Directors of Amwest authorized executive management to continue
negotiations with Condor.
On November 21, 1995 the Condor Board of Directors met to review and
discuss the progress that had been made in negotiating the terms of the
transaction, consider certain issues on which agreement had not yet been reached
between Condor and Amwest and receive a preliminary report from Wedbush Morgan
as to its work to date and the expected timing for reaching a conclusion. On
November 29, 1995, three members of Condor's Board of Directors had an informal
conference with Condor's counsel to discuss various issues still under
negotiation.
The negotiations between Amwest and Condor culminated in separate
meetings of the Boards of Directors of Amwest and Condor on November 30, 1995 at
which the Merger Agreement and related matters were approved by both Boards of
Directors. Thereafter on November 30, 1995, after the securities markets for
Amwest Common Stock and Condor Common Stock closed for the day, Amwest and
Condor entered into the Merger Agreement and related agreements. The terms of
the proposed Merger were announced in a joint press release issued prior to the
opening of securities markets on December 1, 1995.
Recommendation of the Board of Directors of Amwest; Reasons for the Merger
The Board of Directors of Amwest has unanimously approved the Merger
Agreement and has determined that the Merger is advisable and fair and in the
best interests of Amwest and its stockholders and unanimously recommends that
holders of shares of Amwest Common Stock vote FOR approval and adoption of the
Merger Agreement.
In reaching a decision to approve the Merger Agreement and to recommend
that Amwest stockholders vote to approve the Merger Agreement, Amwest's Board of
Directors considered among other things the following factors:
Amwest's knowledge of the business, operations, management and
financial results of Condor, gained as a result of its ongoing
stock ownership in Condor since 1990, together with information
gleaned during the negotiation process.
The compatibility of Condor's focused transportation programs
with Amwest's stated objective of diversifying beyond the business
of surety insurance.
The future prospects of Condor, subsequent to the Merger,
including the ability of Condor to expand its operations with
additional capital.
The opinion of Jefferies as to the fairness, from a financial
point of view, of the Conversion Number to stockholders of Amwest.
See "Opinion of Jefferies."
The terms of the Merger agreement which were the product of
extensive negotiations.
The compatibility of the executive management teams of Amwest and
Condor.
In view of the wide variety of factors considered by the Board in
connection with its evaluation of the Merger, the Board did not find it
practicable to quantify or otherwise attempt to assign relative weight to the
specific factors considered in making its determination, nor did it evaluate
whether such factors were of equal weight.
Recommendation of the Board of Directors of Condor; Reasons for the Merger
The Board of Directors of Condor has unanimously approved the Merger
Agreement and has determined that the Merger is fair to and in the best interest
of Condor and its stockholders and unanimously recommends that the Condor
stockholders vote FOR approval and adoption of the Merger Agreement.
In reaching its decision to approve the Merger Agreement and to
recommend that Condor stockholders vote to approve the Merger Agreement,
Condor's Board of Directors considered among other things the following factors:
The surplus position of Condor and the relative leverage of
premiums to surplus, which currently make it difficult for Condor
to expand its transportation programs.
The excess surplus position of Amwest and the ability to improve
the leverage of premium to surplus thus permitting Condor to
expand its transportation programs.
Knowledge about the stability of Amwest, together with Amwest
resources which can be utilized to assist Condor in expanding its
transportation programs.
The cost savings attributable to combining certain back-office
functions of Condor, together with reduced reinsurance costs as a
result of merging with a larger entity.
The opinion of Wedbush Morgan as to the fairness, from a
financial point of view, of the consideration to be received by
the public stockholders of Condor in the Merger. See "Opinion of
Wedbush Morgan."
The terms of the Merger Agreement, which were the product of
extensive negotiations.
The historical trading prices and dividend rates for Amwest
Common Stock.
The premium which the Conversion Number will represent over
recent trading prices of Condor Common Stock.
The compatibility of Condor and Amwest executive management
teams.
The opportunity for Condor stockholders to participate as holders
of Amwest Common Stock in a larger dividend paying company, of
which Condor would become a significant part, and to do so by
means of a transaction in which Condor stockholders will not
recognize gain or loss for Federal income tax purposes on the
exchange of their Condor Common Stock for Amwest Common Stock.
In reaching its conclusion that the holders of Condor Common Stock will
receive fair value in the form of shares of Amwest Common Stock pursuant to the
Merger, the Condor Board of Directors considered the opinion of Wedbush Morgan,
as to the fairness, from a financial point of view, to the public stockholders
of Condor of the Merger Consideration, and the Board's knowledge of Condor's
business and its prospects. The Condor Board of Directors also considered recent
and current market prices of both Condor Common Stock and Amwest Common Stock on
which the Conversion Number was based and concluded that Amwest Common Stock was
trading in a reasonable range prior to announcement of the transaction.
Additional value was seen in the diverse product lines and efficiencies and cost
savings to be experienced by the combined Condor/Amwest operations resulting
from the Merger, as compared to those of either Amwest or Condor alone.
In considering the fairness of the Merger, the Condor Board of
Directors considered the Proposition 103 potential premium rollback (the
"Proposition 103 Rollback"), the range of possible effects on Amwest's financial
position if the California Supreme Court decided the matter adversely to Amwest,
the effect of the outcome considered most likely by Amwest in such event and the
effect on the combined operations of Condor and Amwest going forward in the
event of various outcomes. The Condor Board of Directors also noted that the
Wedbush Morgan fairness opinion was based on the assumption that the outcome of
the Proposition 103 Rollback would not have a material adverse effect on the
financial position of Amwest. The Condor Board of Directors concluded that,
while the amount of Amwest surplus available to expand Condor's transportation
programs would be less than currently expected and could limit the future growth
of the combined entities if the outcome considered to be the "worst case"
occurred, the merger nevertheless represented a highly favorable improvement to
Condor stockholders in the value of their holdings. Based on that conclusion and
considering the possibility that the Proposition 103 Rollback could be resolved
more favorably than on a "worst case" basis, the Condor Board of Directors
concluded that the Merger was fair and in the best interests of the Condor
stockholders in spite of the uncertainties of the Proposition 103 Rollback and
that the risk of a "worst case" outcome was a reasonable risk to run in view of
the belief that the Merger would still, in such event, result in a highly
favorable increase in value to Condor stockholders.
The Condor Board of Directors also believed that certain terms of the
Merger Agreement, which were extensively negotiated, contributed to their
determination that the Merger is fair and in the best interests of Condor
Stockholders. Among such provisions are those which permit Condor to engage in
discussions with other potential acquirors who make unsolicited inquiries if the
Board of Directors determines, in the exercise of its fiduciary
responsibilities, that such discussions are appropriate and permit Condor to
terminate the Merger Agreement, subject to the payment of the Termination Fee,
if the Board of Directors determines that it is in the best interests of the
stockholders to accept a Superior Proposal. Another such provision is the
condition that Condor is not obligated to consummate the Merger if the Exchange
Ratio is less than 0.4.
In addition, the Condor Board of Directors considered that the
transaction was structured so that, except for cash paid in lieu of fractional
shares, Condor stockholders would not recognize a gain or loss for federal
income tax purposes as a result of the Merger and that Condor's Chief Executive
Officer was to be included on Amwest's Board of Directors and Management
Executive Committee.
Prior to commencing merger discussions with Amwest, Condor received two
casual inquiries, one direct and one indirect, as to its interest in being
acquired by other parties. Because Condor at the time was not interested in
being acquired, it did not follow up on such inquiries. While Condor was engaged
in merger discussions with Amwest, one of the earlier inquirers contacted Condor
to inquire again as to its interest in an acquisition. Condor management
questioned the inquirer about business acquisitions it had made in the past,
prices paid in such acquisitions and its experience in and knowledge of Condor's
business. Condor management also obtained from third party sources certain
information on the acquisition experience and practices of the other inquirer.
The Condor Board of Directors determined not to entertain discussions with the
entities that had made inquiries or to seek alternative offers to the Amwest
proposal for the following reasons: the confidential nature of the negotiations
with Amwest and the circumstances under which they occurred; Amwest's stated
refusal to continue negotiations if Condor were to seek alternative proposals;
the significant premium which the Amwest proposal represented over trading
prices for Condor Common Stock; information received by the Board of Directors
as to prices paid by the inquiring entities in other acquisitions which were
significantly less on a relative basis than the Amwest proposal; information
received by the Board of Directors as to prices commonly paid for small
insurance companies which led it to believe that a significantly superior
alternative offer was unlikely; the particular benefits that would result from a
Merger with Amwest; the terms of the Merger Agreement which allow Condor to
terminate it to accept a Superior Proposal; the Board of Directors belief that
the Termination Fee is not unreasonably high and would not constitute a
significant obstacle to receipt of a Superior Proposal; and the Board of
Directors high level of confidence, based on Amwest's strongly expressed desire
to acquire Condor, that the Merger with Amwest could be concluded on a timely
basis.
The Condor Board of Directors belief that the Merger is fair and in the
best interests of the Condor stockholders is supported by the fact that Condor
has received no inquiries from other potential acquirors since the public
announcement of the terms of the Merger.
The foregoing discussion of the information and factors considered and
weight given by the Condor Board of Directors is not intended to be exhaustive.
In view of the variety of factors considered in connection with its evaluation
of the Merger, the Condor Board of Directors did not find it practicable to and
did not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.
Opinion of Jefferies
Amwest retained Jefferies & Company, Inc. ("Jefferies") to act as its
financial advisor in connection with the Merger. Jefferies was selected by
Amwest's Board of Directors to act as Amwest's financial advisor, based on
Jefferies' qualifications, expertise and reputation.
Jefferies has rendered to Amwest's Board of Directors, its written
opinion, dated November 30, 1995 (the "Opinion"), that based upon and subject to
the various considerations set forth in the Opinion, on November 30, 1995, the
Conversion Number was fair from a financial point of view to the holders of
outstanding Common Stock of Amwest. No limitations were imposed by the Amwest
Board of Directors upon Jefferies with respect to the investigations made or
procedures followed by it in rendering its Opinion.
The Conversion Number was determined through negotiations among Amwest
and Condor, and Jefferies did not participate in such negotiations. Jefferies'
fairness opinion was only one factor considered by the Amwest Board of Directors
in making its determination to approve the Merger. The Amwest Board of Directors
requested the opinion of Jefferies, and Jefferies agreed to furnish its opinion
so that the Board would have the assistance of Jefferies in evaluating the
proposed transaction and in fulfilling the duties of the Board to Amwest
stockholders. Jefferies has consented to the references to its opinion in this
Proxy Statement/Prospectus, but has disclaimed any obligation to the Amwest
stockholders. The Opinion states that it is intended to be for the benefit of
the Amwest Board of Directors, and not for the benefit of stockholders or any
other third parties. Whether this disclaimer would be upheld by a court in a
lawsuit by Amwest stockholders or others is uncertain.
The full text of the Opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken is attached as Annex
C to this Proxy Statement/Prospectus. Amwest stockholders are urged to read the
Opinion carefully and in its entirety for information with respect to procedures
followed, assumptions made and matters considered by Jefferies in rendering its
Opinion.
In arriving at its Opinion, Jefferies did not ascribe a specific range
of fair value to the Common Stock, but made its determination on the basis of
financial and comparative analyses, including (without limitation) those
described below. The Opinion is based on economic, monetary and market
conditions prevailing, and stock prices and other circumstances and conditions
existing, on the date thereof, and Jefferies did not express any opinion as to
the market value of the Condor Common Stock or Amwest Common Stock, or the price
or trading range at which Amwest Common Stock will trade following consummation
of the Merger.
The Opinion is directed only to the Amwest Board of Directors and does
not constitute a recommendation to any stockholder of Amwest as to how such
stockholder should vote at the Special Meeting of Stockholders of Amwest. The
summary of the Opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such Opinion. In addition, Jefferies
was not requested to opine as to, and its Opinion did not address, the
underlying business decision of the Amwest Board of Directors to proceed with or
to effect the Merger.
In rendering its Opinion, Jefferies reviewed, among other things, the
draft of the Merger Agreement dated November 30, 1995 and certain financial and
other information about each of Amwest and Condor that was in each case publicly
available or furnished to Jefferies by Amwest or Condor, as the case may be,
including certain internal analyses, financial forecasts, an actuarial report
dated October 17, 1995 on the loss and loss adjustment reserves of Condor
Insurance Company as of September 30, 1995, reports and other information
prepared by Amwest and Condor Management. Jefferies also held discussions with
members of senior management of both Amwest and Condor concerning each company's
historical and current operations, financial conditions and prospects, as well
as the strategic and operating benefits anticipated from the business
combination. In addition, Jefferies conducted such financial studies, analyses
and investigations and reviewed such other factors as were deemed appropriate
for purposes of their Opinion. Jefferies assumed and relied upon without
independent investigation or verification, the accuracy, completeness and
fairness of all financial and other information reviewed by Jefferies for
purposes of rendering its Opinion, and their Opinion is expressly conditioned
upon all such information (whether written or oral) being accurate, complete and
fair in all respects.
With regard to the financial projections examined by Jefferies (the
"Projections"), which were provided by Amwest and Condor, Jefferies assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the respective managements of Amwest and
Condor as to the future performance of each company and, although Jefferies
performed sensitivity analyses thereon, in rendering its Opinion, Jefferies
assumed that each such company will perform in accordance with such projections
for all periods specified therein. Jefferies also assumed that the Merger will
be a tax free reorganization accounted for as a pooling of interests and that
all consents and authorizations necessary to consummate the Merger have been, or
will be, obtained without material expense. Jefferies has disclaimed any
undertaking or obligation to advise any person of any change in any fact or
matter affecting its Opinion of which it becomes aware after the date of the
Opinion. Jefferies was not requested to, and did not, participate in the
structuring or negotiation of the Merger, solicit third party indications of
acquiring all or any part of Amwest, or make any independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of Amwest or
Condor, nor were they furnished with any such evaluation or appraisals, other
than the actuarial report previously described.
The following is a brief summary of the report presented by Jefferies
to the Amwest Board of Directors on November 30, 1995. The following does not
purport to be a complete description of the analyses performed, or the matters
considered, by Jefferies in arriving at the Opinion.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its Opinion, Jefferies did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. According,
Jefferies' analyses must be considered as a whole. Considering any portion of
such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying the Opinion. In its analyses, Jefferies made many assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the merging companies.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predicting of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
Analysis of Comparable Publicly Traded Companies
As part of its analysis, Jefferies compared the financial information
of Amwest and Condor with a group of fifteen publicly traded insurance
companies. Among other things, Jefferies studied latest twelve month ("LTM") and
estimated December 1995 and 1996 price to earnings ratios ("P/E"s), market
capitalization divided by last fiscal year Generally Accepted Accounting
Principals ("GAAP") and statutory net income, price to GAAP and statutory book
values and price to GAAP tangible book values, as defined below. The multiples
and market capitalizations for Condor were calculated using an assumed stock
price reflecting the acquisition value of Condor assuming Amwest Common Stock
trades at $17.50 or above per share during the relevant calculation period. GAAP
tangible book values are calculated as book value less deferred acquisition
costs and other intangibles.
The range of comparables for the latest twelve months P/E ratios showed
a low of 8.5x, a high of 34.3x earnings, with an average 15.0x, compared to a
P/E ratio for Condor of 30.2x. With respect to estimated 1995 P/E ratios, the
low was 6.8x, the high was 29.2x, the average 14.3x, compared to 29.2x for
Condor. The range of comparables for estimated December 1996 P/E ratios was a
low of 5.6x, a high of 18.2x and an average of 10.9x, compared to 7.8x for
Condor.
The range of comparables for the ratio of market capitalization to last
fiscal year GAAP net income showed a low of 8.4x (7.6x based on statutory net
income), a high of 36.9x (36.4x based on statutory net income), and an average
of 15.8x (18.4x based on statutory net income), compared to 33.9x (57.0x based
on statutory net income) for Condor.
The price to GAAP book value for the comparables ranged from a low of
0.9x to a high of 2.8x, with an average of 1.5x, compared to 1.4x for Condor.
The price to GAAP tangible book value ranged from a low of 1.1x to a high of
6.3x with an average of 2.2x, compared to 1.4x for Condor. The ratio of price to
statutory book value ranged from a low of 0.9x to a high of 5.1x, with an
average of 2.2x, compared to 2.6x for Condor.
None of the companies used in the above analysis is identical to either
of the merger companies or to the surviving corporation. Consequently, an
appropriate use of a comparable company analysis in this instance necessarily
involves qualitative judgments concerning, among other things, differences
between the financial and operating characteristics of the merging companies and
the selected comparable companies that would affect the public trading values of
the merging companies and the selected comparable companies.
Contribution Analysis
Jefferies analyzed the contribution of each of Amwest and Condor to the
pro forma combined company if the Merger were to be consummated. Such analysis
was based on historical financial data provided by the managements of Amwest and
Condor. Such analysis showed that, based on LTM data, Condor would contribute
approximately 20% of net premiums earned, 10% of EBIT and 10% of net income of
the combined company, before taking into account any cost savings or other
synergies that may be achieved if the Merger were consummated. Based on data as
of September 30, 1995, Condor would contribute approximately 22% of GAAP book
value, 30% of GAAP tangible book value and 29% of Statutory Accounting
Principals ("SAP") book value of the combined company. Based on a price per
Amwest share of $12.50 to $17.50, during the calculation period, Condor would
receive approximately 28% of the equity and 24% of the total enterprise value
(equity plus debt) of the combined company.
Pro Forma Earnings Per Share Analysis
Jefferies analyzed certain pro forma effects of the Merger on the
earnings of the combined company. These analyses were based on the projections
provided by Amwest and Condor senior managements regarding the financial
performance of Amwest and Condor, respectively, as well as the estimate of cost
savings and other synergies provided by Amwest management. Jefferies expressed
no view on whether the savings could be obtained. Based on such analysis,
Jefferies observed that, after taking into account such estimated cost savings
and other synergies, the Merger would initially be dilutive to earnings per
share, but could be accretive for Amwest stockholders as early as 1996.
Merger and Acquisition Transactions
Jefferies examined fourteen mergers and acquisitions of property and
casualty insurance companies as screened by Securities Data Corporation that
have occurred since March 1990 where the percentage of shares acquired was
greater than 50% and offering ratios were available. For each transaction,
Jefferies studied the ratios of offer price to LTM earnings and offer price to
book value. Excluding the highest and lowest values, the P/E ratio of the
comparables ranged from a low of 6.8x to a high of 21.0x, with an average of
14.6x, compared to 30.2x for Condor, and the ratio of price to book value ranged
from a low of 0.8x to a high of 2.7x, with an average of 1.5x, compared to 1.4x
for Condor. Once again, the analyses assumed Amwest Common Stock will trade at
$17.50 or above per share during the calculation period. Jefferies noted that
the bid premium in the Merger is 145.6% of the closing market price of Condor
Common Stock on November 28, 1995 and that, on average, bid premiums for
publicly traded companies are approximately 25-35%.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were diverse and because of the inherent differences
between the operations of the merging companies and the companies engaged in the
selected transaction, an appropriate use of a comparable transaction analysis in
this instance necessarily involves qualitative judgments concerning, among other
things, differences between the characteristics of these transactions and the
Merger that would affect the acquisition value of the transaction comparables
and the merging companies.
Discounted Cash Flow Analysis
In performing its evaluation of the Merger, Jefferies also relied on a
discounted cash flow analysis. Using the Projections and other financial
information supplied by Amwest and Condor, Jefferies analyzed the sum of (i) the
present value of tax-effected operating cash flow for the years 1996 to 2000,
using discount rates of 12.3% to 14.3%, plus (ii) the estimated "terminal value"
of the appropriate entity based upon a range of multiples of 0.8x to 1.2x
projected 2000 capitalization, discounted to the present, less (iii) net debt of
the appropriate entity at September 30, 1995. The discounted cash flow analysis
implies a value of Condor of $9.6 million to $24.3 million, compared to an
acquisition valuation of Condor of $16.9 million, assuming Amwest Common Stock
trades at $17.50 during the relevant calculation period.
Other Matters
Pursuant to an engagement letter dated November 20, 1995 between Amwest
and Jefferies, Amwest has paid Jefferies a fee of $100,000 for delivering its
Opinion and shall reimburse Jefferies for out-of-pocket expenses incurred in
connection with rendering its services. Amwest has also agreed to indemnify
Jefferies against certain liabilities, including liability under the Federal
Securities Laws. The fee paid to Jefferies was payable upon delivery of a
fairness opinion, regardless of the conclusions contained therein. In the
ordinary course of its business, Jefferies may actively trade securities of
Amwest and Condor for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Opinion of Wedbush Morgan
The Board of Directors of Condor retained Wedbush Morgan to furnish an
opinion to the Board as to the fairness, from a financial point of view, to the
Public Stockholders of Condor of the Merger Consideration to be received by the
Public Stockholders in the Merger. The term "Public Stockholders" as used herein
refers to all stockholders of Condor other than Amwest and other than those that
are "affiliates" of Condor as that term is used in Rule 12b-2 under the
Securities Exchange Act of 1934. Wedbush Morgan is an investment banking firm
and a member of the New York Stock Exchange and other principal stock exchanges
in the United States, and is regularly engaged as part of its business in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements, secondary
distributions of listed and unlisted securities, and valuations for corporate,
estate and other purposes. The Condor Board of Directors retained Wedbush Morgan
based upon the firm's overall qualifications and reputation in the industry, and
its experience in valuation of securities and in furnishing opinions in
connection with mergers and acquisitions.
The Merger Consideration to be paid to the Public Stockholders was
determined through negotiations among Condor and Amwest, and Wedbush Morgan did
not participate in such negotiations. Wedbush Morgan's fairness opinion was only
one factor considered by the Condor Board of Directors in making its
determination to approve the Merger. The Condor Board of Directors requested the
opinion of Wedbush Morgan, and Wedbush Morgan agreed to furnish its opinion so
that the Board would have the assistance of Wedbush Morgan in evaluating the
proposed transaction and in fulfilling the duties of the Board to Condor Public
Stockholders. Wedbush Morgan has consented to the references to its opinion in
this Proxy Statement/Prospectus, but has disclaimed any obligation to the Condor
Public Stockholders. The Wedbush Morgan fairness opinion should not be viewed as
having been a recommendation in favor of merging Condor with Amwest in lieu of
Condor remaining as an independent entity or pursuing other alternative
transactions. The Wedbush Morgan opinion states that it is intended to be for
the benefit of the Condor Board of Directors, and not for the benefit of
stockholders or any other third parties. Whether this disclaimer would be upheld
by a court in a lawsuit by Condor Public Stockholders or others is uncertain.
On November 30, 1995, Wedbush Morgan delivered its written opinion to
the Condor Board of Directors to the effect that, as of that date and based upon
the factors described in its opinion, the Merger Consideration is fair, from a
financial point of view, to the Public Stockholders. The full text of the
Wedbush Morgan opinion, dated November 30, 1995, which sets forth the
assumptions made, the matters considered, and the nature of the review
undertaken by Wedbush Morgan in arriving at its opinion is attached to this
Proxy Statement/Prospectus as Annex D. All Condor Stockholders are urged to read
the opinion in its entirety. The summary opinion of Wedbush Morgan set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion.
In arriving at its opinion, Wedbush Morgan reviewed, among other
things, the Merger Agreement; the Stockholder Agreement by and between Amwest,
Mr. Main and the Main Family Trust; the Affiliates Letter and Continuity of
Interest Certificates executed by certain members of Condor Management; the
Agreement With Guy A. Main and Main Family Trust to be entered into by and
between such parties and Amwest; the Registration Rights Agreement to be entered
into between Mr. Main the Main Family Trust and Amwest; the Annual Report on
Form 10-K of Condor for the fiscal year ended December 31, 1994; Quarterly
Reports on Form 10-Q of Condor for the quarters ended June 30, 1995 and
September 30, 1995; financial statements and analyses of Condor prepared by
Condor Management for the fiscal years ended December 31, 1989 through December
31, 1993; the Proxy Statement for Annual Meeting of Stockholders of Condor dated
April 26, 1995; Quarterly Statement of Statutory Results of Condor as of
September 30, 1995; forecast and projections prepared by Condor with respect to
Condor for the five fiscal years ended December 31, 1999; Actuarial Report on
the Loss and Loss Adjustment Expense Reserves of Condor as of September 30,
1995, prepared by Timothy B. Perr & Company, Consulting Actuaries; the Annual
Report to Stockholders of Amwest for the fiscal year ended December 31, 1994;
the Annual Report on Form 10-K of Amwest for the fiscal year ended December 31,
1994; historical audited financial statements for the fiscal years ended
December 31, 1990 through December 31, 1993 of Amwest; Quarterly Report on Form
10-Q of Amwest for the quarter ended September 30, 1995; Proxy Statement for the
Annual Meeting of Stockholders of Amwest dated April 13, 1995; financial
forecast of Amwest alone for the five fiscal years ending December 3l, 1999 and
of Amwest combined with Condor for the five fiscal years ending December 31,
1999, prepared by Amwest Management.
Wedbush Morgan also held discussions with certain members of the senior
management of Condor regarding the past and current business operations,
financial condition, future prospects and projected operations and performance
of Condor. Wedbush Morgan held discussions with certain members of the senior
management of Amwest regarding the past and current business operations,
financial condition, future prospects and projected operations and performance
of Amwest and of the combined entities. Wedbush Morgan toured the headquarters
of Condor in El Segundo, California and the headquarters of Amwest in Woodland
Hills, California. In addition Wedbush Morgan reviewed the reported price and
trading activity of the Condor Common Stock and of Amwest Common Stock, compared
certain statistical and financial information for Condor and Amwest
respectively, with similar information for certain other companies in the same
industries as Condor and Amwest, respectively, reviewed and compared statistical
and financial data for recent acquisitions in the same industry as Condor and
conducted such other financial studies, analyses and inquiries and considered
such other matters as Wedbush Morgan deemed necessary and appropriate for its
opinion.
Wedbush Morgan did not undertake any obligation to verify independently
the accuracy or completeness of financial information or other information
furnished to Wedbush Morgan by Condor or Amwest orally or in writing, or other
information obtained from publicly available sources and reviewed by Wedbush
Morgan for purposes of its opinion. Wedbush Morgan was provided with information
represented to Wedbush Morgan as the best currently available estimates, in the
judgment of the management of Condor and Amwest, as to the expected future
financial and operating performance of Condor and Amwest, and Wedbush Morgan did
not undertake any responsibility for the accuracy of such forecasts, estimates,
or judgments, nor did it undertake any obligation to verify independently the
underlying assumptions made in connection with such forecasts, estimates or
judgments. In addition, Wedbush Morgan did not make an independent evaluation or
appraisal of any particular assets or liabilities of Condor or Amwest and was
not furnished with any such evaluation or appraisal.
The Wedbush Morgan fairness opinion notes that under Section 7.03(g) of
the Merger Agreement, the obligations of Condor to effect the Merger are subject
to the receipt at or prior to the date of the closing of the Merger of an
opinion of Amwest's consulting actuary, addressed to Condor, as of December 31,
1995, opining that as of such date the reserves for loss and loss adjustment
expense reflected on the balance sheet of Amwest and its affiliates entities
have been established in conformity with generally accepted actuarial principles
and practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance, and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Amwest under the terms of its policies and
agreements. The Wedbush Morgan opinion was based in part on Condor's ability to
obtain such assurances and is subject to receipt of such an actuarial opinion.
Wedbush Morgan's experience is in financial analyses of the kind customary in
the investment banking profession, and Wedbush Morgan did not undertake any
obligation to conduct or to supervise any actuarial analyses or review of the
quality of the reserves of Amwest or of Condor.
The Wedbush Morgan fairness opinion notes that Amwest is a party to
certain legal proceedings, which at the time such opinion was furnished were
pending before the California Supreme Court, regarding the validity of Section
1861.135 of the California Insurance Code. Section 1861.135 purported to exempt
surety insurance from the rate roll back and prior approval provisions of
Proposition 103, the insurance initiative adopted by California voters. On
December 14, 1995, the Supreme Court of the State of California affirmed the
decision of the Second District Court of Appeal overturning Insurance Code
Section 1861.135. Accordingly, the surety insurance industry will no longer be
exempted from the rate rollback and prior approval provisions contained in
Proposition 103.
The Wedbush Morgan opinion is based on the assumption that the outcome
of such legal proceedings will not have a material adverse effect (as such term
is defined in the Merger Agreement) on the financial position of Amwest.
The Wedbush Morgan opinion assumed that all relevant factors and
circumstances, as they existed as of the date of its opinion, would remain
substantially unchanged through the time the Merger is completed. Wedbush Morgan
did not undertake to update its fairness opinion for any changes occurring
between the date of such opinion and the Merger.
Certain financial analyses performed by Wedbush Morgan in connection
with the preparation of its opinion letter and reviewed with the Board are
summarized below.
These include public market comparable company analysis; discounted
cash flow analysis; merger and acquisition comparables valuation; pro forma
merger analysis; and contribution analysis. While the following summaries
describe all analyses and examinations that Wedbush Morgan deems material to its
opinion, they are not a comprehensive description of all analyses and
examinations actually conducted by Wedbush Morgan. The preparation of a fairness
opinion is not susceptible to partial analysis or summary description. Wedbush
Morgan believes that such analyses must be considered as a whole and that
selecting portions of such analysis and of the factors considered, without
considering all such analyses and factors, would create an incomplete view of
the process underlying the analyses set forth in its presentation to Condor's
Board of Directors. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Wedbush Morgan's view of the
actual value of Condor. It is not possible to assign exact weight given by
Wedbush Morgan to the various forms of analysis.
In performing its analyses, Wedbush Morgan made numerous assumptions
with respect to industry performance and general business and economic
conditions such as industry growth, inflation, interest rates and many other
matters, many of which are beyond the control of Condor and/or Amwest. Any
estimates contained in Wedbush Morgan's analyses are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Wedbush Morgan's analysis of the fairness of the Merger Consideration to
the Condor Public Stockholders. Additionally, indications of the values of
businesses and securities set forth below do not purport to be appraisals of the
assets or market values of Condor or Amwest or the company formed by the
combination of Condor and Amwest, or their respective securities, nor do they
necessarily reflect the prices at which such businesses or securities may
actually be sold.
Amwest and Condor Market Values
Wedbush Morgan noted that the closing price of Amwest's Common Stock on
November 28, 1995 was $17.75, which implied an aggregate value of the
consideration for Condor of $16.9 million, and a per share value of $8.75, based
on 1.935 million fully diluted Condor Common Shares then outstanding. Wedbush
Morgan noted that the proposed Merger Consideration would represent the
following range of multiples of the then current market price of Condor Common
Stock of $4.00, based on a range of Amwest stock prices:
Consideration as a Multiple
Amwest Stock Price of $4.00 Condor Stock Price
------------------ ---------------------------
$10.50 1.6x
$11.50 1.6x
$12.50 1.6x
$13.50 1.7x
$14.50 1.8x
$15.50 1.9x
$16.50 2.1x
$17.50 2.2x
$18.50 2.2x
$19.50 2.2x
$20.50 2.2x
Public Market Comparables Valuation
Using publicly available information, Wedbush Morgan compared selected
financial data of Condor and Amwest with similar data of selected publicly
traded companies engaged in businesses considered by Wedbush Morgan to be
comparable to those of Condor and Amwest. An analysis of comparable companies is
not purely mathematical; rather it involves complex considerations and judgments
concerning similarities and differences in financial, operational and other
characteristics of potentially comparable companies. It is a subject as to which
differences in professional judgment may well arise. In this regard, Wedbush
Morgan noted that although the companies selected were considered similar to
Condor or Amwest, none of the companies has the same management makeup, size or
combination of business as Condor or Amwest, as the case may be. For purposes of
this analysis, Wedbush Morgan treated the following companies as comparable to
Condor (the "Condor Comparable Companies"): Acceptance Insurance Cos., American
Eagle Group, Baldwin & Lyons, EMC Insurance Group, Guaranty National Corp., Home
State Holdings, MCM Corp. and Philadelphia Consolidated Holding Corp. For
purposes of this analysis, Wedbush Morgan considered the following companies as
comparable to Amwest (the "Amwest Comparable Companies"): Acmat Corp., Capsure
Holdings Corp. and Frontier Insurance Group.
Wedbush Morgan determined that for the Condor Comparable Companies, the
multiple range and median multiple of "market value" (defined as the number of
shares outstanding times the closing stock price on November 28, 1995) to
publicly reported latest twelve months ("LTM") net operating income (defined as
pre-tax income less any realized gains, losses and extraordinary items) were
5.8x to 24.6x and 8.8x, respectively, with the median multiple implying a
valuation of $3.59 per share of Condor Common Stock. Wedbush Morgan determined
that the multiple range and median multiple of market value (as defined above)
to 1996 estimated earnings per share ("EPS") (which estimates reflected a
composite of research analysts' estimates as reported by the Institutional
Brokers Estimate Service ("IBES")), were 4.9x to 10.5x and 7.6x, respectively,
with the median multiple implying a valuation (based on Condor management
projections) of $5.62 per share of Condor Common Stock. Wedbush Morgan
determined that the multiple range and median multiple of market value (as
defined above) to latest publicly reported book value of stockholders' equity
were 1.0x to 1.6x and 1.1x, respectively, with the median multiple implying a
valuation of $6.80 per share of Condor Common Stock. Wedbush Morgan determined
that the multiple range and median multiple of the market value (as defined
above) plus net debt to LTM premiums earned were 0.5x to 2.7x and 1.0x,
respectively, with the median multiple implying a valuation of $8.44 per share
of Condor Common Stock. Wedbush Morgan also compared Condor to the Condor
Comparable Companies in terms of certain financial ratios, including: (a) the
average "loss ratio" (defined as loss and loss adjustment expenses divided by
net earned premiums) over the last three fiscal year period, (b) the average
"combined ratio" (defined as the sum of loss and loss adjustment expenses plus
underwriting expenses, divided by net earned premiums) over the last three
fiscal year period, and (c) the average over the last three fiscal year period
of operating return on average equity (defined as net operating income divided
by the average book value of stockholders' equity for the period). Based on the
median multiples described above for the Condor Comparable Companies, the
Wedbush Morgan public market comparables valuation as a whole indicates an
implied value reference range for Condor of between $3.59 and $8.44 per share of
Condor Common Stock.
Wedbush Morgan determined that for the Amwest Comparable Companies the
multiple range and median multiple of market value (as defined above) to LTM net
operating income were 4.5x to 10.2x and 7.5x, respectively, with the median
multiple implying a valuation of $19.56 per share of Amwest Common Stock.
Wedbush Morgan determined that the multiple range and median multiple of market
value (as defined above) to LTM net income were 10.5x to 13.9x and 12.8x,
respectively, with the median multiple implying a valuation of $30.46 per share
of Amwest Common Stock. Wedbush Morgan determined that the multiple range and
median multiple of market value (as defined above) to 1995 and 1996 estimated
EPS (as reported by IBES) were 10.6x to 13.6x and 12.4x, respectively for 1995
and 9.5x to 11.7x and 11.6x, respectively, for 1996. The median multiples imply
valuations (based on Amwest management projections) of $23.79 (1995) and $23.04
(1996) per share of Amwest Common Stock. Wedbush Morgan determined that the
multiple range and median multiple of market value (as defined above) to latest
publicly reported book value of stockholders' equity were 0.9x to 2.0x and 1.1x,
respectively, with the median multiple implying a valuation of $19.99 per share
of Amwest Common Stock. Wedbush Morgan also compared Amwest to the Amwest
Comparable Companies in terms of certain financial ratios, including (a) the
average loss ratio over the last three fiscal year period, (b) the average
combined ratio over the last three fiscal year period, and (c) the average over
the last three fiscal year period of operating returns on average equity. Based
on the median multiples described above for the Amwest Comparable Companies, the
Wedbush Morgan public market comparables valuation as a whole indicates an
implied value reference range for Amwest of between $19.56 and $30.46 per share
of Amwest Common Stock.
Although, as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its public market comparables valuation overall as
supporting the conclusion expressed in its opinion.
Discounted Cash Flow
Wedbush Morgan analyzed the value of each of Condor and Amwest
utilizing a discounted cash flow analysis. Each of these analyses was based upon
projected financial information prepared or provided by the management of Condor
and Amwest, as the case may be. As part of its analyses, Wedbush Morgan also
considered certain sensitivity tests to evaluate the impact of changes in
certain variables on overall valuation, including, among other things, changes
in loss ratios and expense experiences.
Wedbush Morgan calculated ranges of equity values for Condor based upon
the discount to present value of Condor's projected four-year stream of
after-tax cash flows (as represented by GAAP net income) and its fiscal 1999
terminal values based upon a range of multiples of Condor's projected net
income. Wedbush Morgan utilized discount rates ranging from 19% to 24% and
terminal value multiples of 1999 net income ranging from 9.25x to 10.75x. Based
on the foregoing, Wedbush Morgan indicated a discounted cash flow implied value
reference range for Condor of between $5.11 and $6.49 per share of Condor Common
Stock.
Wedbush Morgan calculated ranges of equity values for Amwest based upon
the discount to present value of Amwest's projected four-year stream of
after-tax cash flows (as represented by GAAP net income) and its fiscal 1999
terminal values based upon a range of multiples of Amwest's projected net
income. Wedbush Morgan utilized discount rates ranging from 15% to 20% and
terminal value multiples of 1999 net income ranging from 9.25x to 10.75x. Based
on the foregoing, Wedbush Morgan indicated a discounted cash flow implied value
reference range for Amwest of between $19.96 and $25.80 per share of Amwest
Common Stock.
Wedbush Morgan calculated ranges of equity values on a pro forma basis
for the combined entity after the Merger based upon the discount to present
value of the projected pro forma four-year stream of after-tax cash flows (as
represented by GAAP net income) and fiscal 1999 terminal values based upon a
range of multiples of projected pro forma net income. Wedbush Morgan utilized
discount rates ranging from 20% to 25% and terminal value multiples of 1999 net
income ranging from 9.25x to 10.75x. Wedbush Morgan based these analyses on
management projections and on sensitivity projections which gave effect to the
enhanced growth rate expected as a result of the Merger and to the projected
cost savings resulting from the Merger, as estimated by management. No
assurances can be given that such projected growth or cost savings in the amount
estimated will be realized as a result of the Merger. Based on the foregoing,
Wedbush Morgan indicated a discounted cash flow implied value reference range
for the combined entity on a pro forma basis of between $20.50 and $26.32 per
share of Amwest Common Stock.
In determining the discount rates used in the discounted cash flow
analyses of Condor and Amwest, Wedbush Morgan noted, among other things, factors
such as inflation, prevailing market interest rates, the business risk inherent
to each of Condor and Amwest, the historical weighted average cost of capital
for each of Condor and Amwest, and the historical weighted average cost of
capital for public companies Wedbush Morgan deemed comparable to each of Condor
and Amwest. In determining the range of terminal value multiples used in the
discounted cash flow analyses of Condor and Amwest, Wedbush Morgan noted, among
other things, the multiples at which each of the Condor Common Stock and Amwest
Common Stock historically traded, the multiples at which public companies
Wedbush Morgan deemed comparable to each of Condor and Amwest historically
traded and the multiples observed in mergers and acquisitions which Wedbush
Morgan deemed relevant.
Although as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its discounted cash flow valuation as supporting the
conclusion expressed in its opinion.
Merger and Acquisition Comparables Valuation
Wedbush Morgan reviewed certain publicly available information
regarding selected merger and acquisition transactions involving companies
engaged in similar businesses to Condor occurring since November 1992. The
selection of comparable transactions, like the selection of comparable companies
for purposes of the public market comparables valuation, involves complex
considerations and judgments concerning similarities and differences in
financial, operational and other characteristics of potentially comparable
companies. None of the acquired companies utilized in the selected merger and
acquisition comparables valuation was identical to Condor or to Amwest and none
of the transactions was identical to the Merger. The transactions deemed
comparable (the "Condor Comparable Transactions") and the date each Condor
Comparable Transaction was announced were as follows: the acquisition of Leader
National Insurance Co. by Penn Central Corp. (March 1993); the acquisition of
Economy Fire & Casualty Co. by The St. Paul Cos. (August 1993); the acquisition
of American Ambassador Casualty by GRE Plc. (November 1993); the acquisition of
Bankers & Shippers Insurance by Integon Corp. (August 1994); the acquisition of
Victoria Financial by USF&G Corp. (December 1994); the acquisition of Viking
Insurance Holdings by Guaranty National Corp. (April 1995); and the acquisition
of Hoosier Insurance by General Casualty Co. (June 1995).
Wedbush Morgan determined that for the Condor Comparable Transactions,
the multiple range and median multiple of transaction value to LTM revenues were
0.7x to 1.2x and 0.8x respectively, with the median multiple implying a value of
$8.43 per share of Condor Common Stock. Wedbush Morgan determined that the
multiple range and median multiple of transaction value to LTM premium earned
were 0.4x to 1.3x and 0.9x, respectively, with the median multiple implying a
value of $8.09 per share of Condor Common Stock. Wedbush Morgan determined that
the multiple range and median multiple of transaction value to LTM net income
were 11.3x to 36.9x and 21.0x, respectively, with the median multiple implying a
value of $5.85 per share of Condor Common Stock. Wedbush Morgan determined that
the multiple range and median multiple of transaction value to book value were
1.1x to 2.2x and 1.4x, respectively, with the median multiple implying a value
of $8.62 per share of Condor Common Stock. Based on the foregoing median
multiples for the Condor Comparable Transactions, Wedbush Morgan indicated an
implied value reference range for Condor of between $5.85 and $8.62 per share of
Condor Common Stock.
Although as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its merger and acquisition comparables valuation as
supporting the conclusion expressed in its opinion.
Pro Forma Merger Analysis
Wedbush Morgan analyzed the changes in the per share amount of net
income, book value of stockholders' equity and indicated dividend represented by
one share of Condor Common Stock after the Merger. The analysis was performed on
the basis of financial information for both companies as of and for the last
twelve months ended September 30, 1995. The analysis indicated, among other
things, that exchanging one share of Condor Common Stock for an assumed 0.5 of a
share of Amwest Common Stock on a pro forma basis would have resulted in a 237%
increase in net income per share for each share of Condor Common Stock, a 23%
increase in projected 1996 net income per share for each share of Condor Common
Stock, a 30% increase in book value per share for each share of Condor Common
Stock and an increase in dividends per share from zero to $. 14 for each share
of Condor Common Stock based on Condor's and Amwest's indicated annual dividend
rate as of September 30, 1995.
Although, as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its pro forma merger analysis as supporting the
conclusion expressed in its opinion.
Contribution Analysis
Wedbush Morgan analyzed the contribution of each of Condor and Amwest
to, among other things, the premiums earned, net investment income, net
operating income, net income, total investments, total assets and total book
value of stockholders' equity of the combined pro forma company. This analysis
showed that for the last twelve months ended September 30, 1995, among other
factors, Condor would have contributed 19.8% of the premiums earned of the pro
forma combined company, 20.3% of the net investment income, 11.4% of the net
operating income, 8.8% of the net income, 19.7% of the total investments, 19.8%
of the total assets, and 22.4% of the total book value of stockholders' equity
compared with a proposed ownership of 29.1% of the combined company to be owned
by holders of Condor Common Stock.
Although, as noted above, Wedbush Morgan believes that the analyses
conducted must be considered as a whole in determining fairness, Wedbush Morgan
regards the results of its contribution analysis as supporting the conclusion
expressed in its opinion.
For furnishing its opinion, Wedbush Morgan received from Condor a fee
of $75,000 as follows: (a) a non-refundable retainer of $37,500, payable when
Wedbush Morgan was retained: (b) a further fee of $37,500, payable at the time
Wedbush Morgan notified the Condor Board of Directors that it was prepared to
deliver an oral or written opinion to the Board. Condor has also agreed to pay
all of Wedbush Morgan's expenses (including, but not limited to the fees and
expenses of Wedbush Morgan's legal counsel) reasonably incurred in connection
with its engagement. The amount of the fee payable to Wedbush Morgan was not
contingent on its conclusion regarding the fairness of the Merger Consideration
to the Condor Public Stockholders. Condor also has agreed to indemnify Wedbush
Morgan against certain potential liabilities, including liabilities under the
Federal securities laws.
Certain Considerations
In considering whether to approve the Merger Agreement and the
transactions contemplated thereby, stockholders should consider, among other
factors, the following: (i) the relative stock prices of the Amwest Common Stock
and the Condor Common Stock at the Effective Time may vary significantly from
the prices as of the date of execution of the Merger Agreement or the date
hereof or the date on which stockholders vote on the Merger due to changes in
the business, operations and prospects of Amwest or Condor, market assessments
of the likelihood that the Merger will be consummated and the timing thereof,
the effect of any conditions or restrictions imposed on or proposed with respect
to the combined companies by regulatory agencies in connection with or following
consummation of the Merger, general market and economic conditions, and other
factors; and (ii) the Conversion Number is fixed at 0.5 Amwest shares for each
share of Condor Common Stock unless the value of Amwest Common Stock is less
than $12.50, in which event the Merger Consideration will be increased by a
factor of 12.5 divided by the Base Period Trading Price, or more than $17.50, in
which event the Merger Consideration will be increased by a factor of 17.5
divided by the Base Period Trading Price, during the 30 consecutive trading days
ending on the second trading day preceding the date of the closing of the
Merger. Adjustment of the Conversion Number is subject to the right of Amwest
not to consummate the Merger if the Conversion Number, as adjusted, would exceed
0.6 and the right of Condor not to consummate the Merger if the Conversion
Number, as adjusted, would be less than 0.4.
Interests of Certain Persons in the Merger
Pursuant to the Agreement with Guy A. Main and the Main Family Trust,
Mr. Main will become a member of the Amwest Board of Directors. See "Management
of Amwest After the Merger."
At the Effective Time, Amwest will enter into an employment agreement
with Guy A. Main for a four year term at compensation levels consistent with the
compensation of comparable Amwest executives. The Employment Agreement will
provide that Guy A. Main will serve as Executive Vice President of Amwest and
President of Condor Insurance Company during the term of his employment, will
receive base compensation of $253,000 per year subject to annual review, will be
eligible for bonuses and will be entitled to participate in employee benefits
available to management generally. Under his employment agreement with Condor,
Mr. Main received base compensation for the year ended December 31, 1995 of
$310,589 (which is subject to consumer price index increases in future years),
is eligible for bonuses, receives certain other employee benefits and an
automobile allowance.
At the Effective Time, each outstanding option to purchase shares of
Condor Common Stock granted by Condor ("Condor Stock Option") shall be canceled
and, in lieu thereof, Amwest shall issue to each holder thereof (other than
non-employee directors) an option ("Amwest Option"), to acquire, on
substantially the same terms and subject to substantially the same conditions as
were applicable under such Condor Stock Option, the same number of shares of
Amwest Common Stock as the holder of such Condor Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time, at an aggregate exercise price
equal to the aggregate exercise price for the shares of Condor Common Stock
otherwise purchasable pursuant to such Condor Stock Option; provided, however,
that the number of shares of Amwest Common Stock that may be purchased upon
exercise of any Amwest Option shall not include any fractional share and, upon
exercise of the Amwest Option, a cash payment shall be made for any fractional
share based upon the closing price of a share of Amwest Common Stock on AMEX on
the trading day immediately preceding the date of exercise. Condor Stock Options
issued to non-employee directors of Condor which remain outstanding as of the
Effective Time shall be automatically canceled as of the Effective Time. It is
anticipated that Condor Stock Options held by non-employee directors will be
exercised prior to the Effective Time.
The Merger Agreement provides that, after the Effective Time, Amwest
will indemnify and hold harmless the directors, officers and employees of Condor
against any losses, claims, damages, expenses or obligations arising out of the
transactions contemplated by the Merger Agreement. Amwest agreed in the Merger
Agreement that all rights to indemnification existing in favor of directors,
officers, or employees of Condor as provided in Condor's Certificate of
Incorporation or Bylaws, in effect on the date of the Merger Agreement with
respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of three years
from the Effective Time. The indemnification provided by Amwest pursuant to the
Merger Agreement shall not, however, exceed the coverage provided by the
insurance currently provided the indemnified parties by Condor. See "The Merger
Agreement--Indemnification and Insurance."
At November 30, 1995, Steven R. Kay, Senior Vice President, Chief
Financial Officer and Director of Amwest, beneficially owned 1,550 shares of
Condor Common Stock and Edgar L. Fraser, Director of Amwest, beneficially owned
20,680 shares of Condor Common Stock (including 17,600 shares of Condor Common
Stock that may be acquired by Mr. Fraser upon exercise of outstanding stock
options).
Certain Federal Income Tax Consequences
The following description of certain federal income tax consequences of
the Merger is general in nature, is for general informational purposes only and
is not tax advice. This discussion does not cover all aspects of federal income
taxation that may be relevant to Amwest, Condor or Condor stockholders, nor does
the discussion deal with tax issues peculiar to certain types of taxpayers (such
as life insurance companies, S corporations, financial institutions, tax-exempt
organizations or retirement accounts and foreign taxpayers). No aspect of
foreign, state, local or estate and gift taxation is addressed. Therefore, the
following summary is not a substitute for careful tax planning and advice based
upon the individual circumstances of each Condor stockholder.
The following summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated and proposed thereunder,
judicial decisions and published administrative rulings and pronouncements of
the Internal Revenue Service ("IRS"), as in effect on the date hereof. Changes
in or additions to such rules, or new interpretations thereof, may have
retroactive effect and therefore could significantly affect the consequences
described below.
Treatment of Amwest, Condor and Their Stockholders Upon the Exchange of Condor
Common Stock for Amwest Common Stock
It is anticipated that Gibson, Dunn & Crutcher, counsel for Amwest, and
Kindel & Anderson, L.L.P., counsel for Condor (collectively "Counsel"), will
render an opinion to Amwest, at the closing of the Merger that the Merger will
qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
If the Merger qualifies as a "reorganization" within the meaning of Section
368(a) of the Code:
No gain or loss will be recognized by Amwest or Condor
stockholders as a result of the Merger (other than gain or
loss attributable to cash received by Condor stockholders in
lieu of fractional shares). See "Cash in Lieu of Fractional
Shares" below;
The basis of each share of Amwest Common Stock received by
each Condor stockholder will be the same as the basis of his
or her Condor Common Stock exchanged therefor, reduced by any
basis attributable to a fractional share of Amwest Common
Stock for which the stockholder receives cash; See "Cash in
Lieu of Fractional Shares" below. The holding period of the
shares of Amwest Common Stock received by each Condor
stockholder will include the stockholder's holding period for
his or her Condor Common Stock exchanged therefor, provided
the Condor Common Stock was held as a capital asset by the
Condor stockholder; and
Neither Amwest nor Condor will recognize taxable gain or loss
as a result of the Merger, and the tax basis of Condor's
assets in the hands of Amwest will be the same as Condor's tax
basis in those assets prior to the Merger.
It should be noted that no rulings or opinions have been requested from
the IRS with respect to any of the tax aspects of the Merger, and an opinion of
counsel is not binding on the IRS. Moreover, the opinions of Counsel will be
based on certain factual representations and assumptions which, if untrue or
incorrect, could affect the discussion set forth herein. In particular, in order
to qualify as a reorganization, among other things, the historic Condor
stockholders must maintain a sufficient "continuity of interest" in Amwest
following the Merger. The IRS has indicated in published rulings that the
continuity of interest requirement will be satisfied if the historic
stockholders of the acquired entity (i.e., Condor) receive and retain, in the
aggregate, 50% of the value of the stock of the acquired entity in the form of
stock of the acquiring corporation (i.e., Amwest). Shares received by
stockholders who at the time of receipt have an intention to sell or otherwise
dispose of such shares generally are treated as not having been retained for
purposes of this requirement. Moreover, Amwest Common Stock issued in exchange
for Condor Common Stock acquired in contemplation of the Merger may, in certain
cases, be treated as property other than stock for this purpose.
Condor stockholders holding approximately 58% of the Condor Common
Stock prior to the Merger have represented to Amwest that they have no current
plan or intention to sell, exchange, transfer, distribute, pledge, dispose or
otherwise engage in a transaction (a "Sale") that reduces those stockholders'
risk of ownership, whether directly or indirectly with respect to the Amwest
Common Stock received in the Merger. These stockholders are not, however,
prohibited from engaging in a Sale of Amwest Common Stock following the Merger,
other than as described below under "Certain Other Agreements ." These
restrictions alone are not sufficient to ensure that the continuity of interest
requirement will be satisfied with respect to the Merger. If Condor stockholders
undertake substantial Sales of Condor Common Stock in anticipation of the Merger
or substantial Sales of Amwest Common Stock after the Merger, pursuant to a plan
or intention existing at or around the time of the Merger which, when combined
with Amwest Common Stock converted to cash in lieu of the issuance of fractional
shares, exceed 50% of the value of the Condor Common Stock immediately prior to
the Merger, the continuity of interest test may not be met and the Merger may
not qualify as a reorganization within the meaning of Section 368(a) of the
Code.
If the IRS were to successfully challenge the status of the Merger as a
"reorganization" under Section 368(a) of the Code (based on a failure to satisfy
the "continuity of interest" requirement or otherwise), a Condor stockholder
would be treated as recognizing gain or loss as a result of the Merger equal to
the difference between the stockholder's tax basis in his or her shares of
Condor Common Stock and the fair market value of the Amwest Common Stock as of
the Effective Time. In such event, the stockholder's aggregate basis in the
Amwest Common Stock so received would equal the fair market value of such stock
as of the Effective Time, and the stockholder's holding period for the Amwest
Common Stock would begin the day after the Merger. In addition, if the Merger
were to not qualify as a "reorganization" under Section 368(a) of the Code, the
Merger would be treated as a taxable sale by Condor of its assets. The tax
liability from such treatment would have a material and adverse effect on
Amwest, as successor to the assets and liabilities of Condor pursuant to the
Merger.
Cash in Lieu of Fractional Shares
Any stockholder of Condor who receives cash in lieu of a fractional
share of Amwest Common Stock will recognize income or loss for federal income
tax purposes equal to the difference between the cash received and the basis
which would otherwise be allocable to the fractional share of Amwest Common
Stock. For this purpose, the basis of a fractional share of Amwest Common Stock
will be determined as if such stockholder had received such fractional share of
Amwest Common Stock in the Merger. Any gain or loss likely will be treated as
capital gain or loss, provided the Condor Common Stock was held as a capital
asset by the Condor stockholder.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. STOCKHOLDERS OF AMWEST AND CONDOR SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO
THEM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS.
Anticipated Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of Amwest and Condor will be carried forward
to the combined corporation at their recorded amounts, subject to any
adjustments required to conform the accounting policies of the companies; income
of the combined corporation will include income of Amwest and Condor for the
entire fiscal year in which the Merger occurs; and the reported income of the
separate corporations for prior periods will be combined and restated as income
of the combined corporation.
The Merger Agreement does not, however, provide that qualification for
"pooling of interests" accounting treatment is a condition to the consummation
of the Merger.
Effect on Employee Benefits Plans
Condor maintains a number of employee benefit plans and compensation
arrangements in which eligible employees of Condor and certain of its affiliates
participate. These programs will be discontinued following the Merger and
service with Condor and its Affiliated Entities and their predecessors prior to
the Effective Time will be taken into account for eligibility and vesting
purposes in connection with any benefit or payroll plan, practices, policy or
agreement of Amwest or any of its affiliates in which any employee of Condor or
an affiliated entity may become entitled to participate at or after the
Effective Time.
The Condor Stock Plan for Non-Employee Directors (the Non-Employee
Director Plan) shall be terminated at the Effective Time. Condor Stock Options
issued to non-employee directors of Condor which remain outstanding as of the
Effective Time shall be automatically canceled as of the Effective Time. See
"The Merger -- Effect on Employee Benefit Plans."
Regulatory Approvals
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), on December 18, 1995,
Condor and Amwest each filed a Notification and Report Form for review under the
HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice (the "Antitrust Division"). The waiting period
under the HSR Act with respect to such filing will expire on January 17, 1996.
Even though the HSR Act waiting period will expire in mid January, the FTC or
the Antitrust Division could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking
divestiture of substantial assets of Condor or Amwest. Consummation of the
Merger is conditioned upon, among other things, the absence of any preliminary
or permanent injunction or other order issued by any federal or state court in
the United States which prevents the consummation of the Merger. 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, of the result.
Insurance Department Regulatory Approvals
The Merger and transactions contemplated thereby require approvals by
the Commissioners of the California Department of Insurance and the Arizona
State Department of Insurance. Amwest filed a Form A with the California
Department of Insurance on January 2, 1996. Receipt of such approvals is a
condition of the Merger.
Federal Securities Law Consequences
All Amwest Common Stock issued in connection with the Merger will be
freely transferable, except that any Amwest Common Stock received by persons who
are deemed to be "affiliates" (as such term is defined under the Securities Act)
of Condor or Amwest prior to the Merger may be sold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act with
respect to affiliates of Condor, or Rule 144 under the Securities Act with
respect to persons who are or become affiliates of Amwest, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of Condor or Amwest generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal stockholders
of such party.
Affiliates of Condor may not sell their shares of Amwest Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration under the Securities Act covering such shares or in compliance with
Rule 145 (or Rule 144 under the Securities Act in the case of persons who become
affiliates of Amwest) or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for two years
following the Effective Time an affiliate of Condor (together with certain
related persons) would be entitled to sell shares of Amwest Common Stock
acquired in the Merger only through unsolicited "broker transactions" or in
transactions directly with a "market maker," as such terms are defined in Rule
144. Additionally, the number of shares to be sold by an affiliate of Condor
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 may not exceed the
greater of 1% of the outstanding shares of Amwest Common Stock or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. Rule 145 will only remain available, however, to affiliates of Condor
if Amwest remains current with its informational filings with the Commission
under the Exchange Act. Two years after the Effective Time, an affiliate of
Condor would be able to sell such Amwest Common Stock without such manner of
sale or volume limitations, provided that Amwest was current with its Exchange
Act informational filings and such affiliate was not then an affiliate of
Amwest. Three years after the Effective Time, an affiliate would be able to sell
such shares of Amwest Common Stock without any restrictions so long as such
affiliate had not been an affiliate of Amwest for at least three months prior
thereto.
Stock Exchange Listing
It is a condition to the Merger that the shares of Amwest Common Stock
to be issued in connection with the Merger be authorized for listing on the
AMEX, subject to official notice of issuance.
<PAGE>
THE MERGER AGREEMENT
General
The following description of the Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached hereto as Annex A and incorporated herein
by reference. Stockholders of Condor and Amwest are urged to read the Merger
Agreement in its entirety.
The Merger
The Merger Agreement provides that, subject to the approval of the
Merger by the stockholders of Condor and Amwest and the satisfaction or waiver
of the other conditions to the Merger, Condor will be merged with and into
Amwest in accordance with Delaware law and the separate existence of Condor
shall thereupon cease. Amwest will possess all of the rights, privileges, powers
and franchises and be subject to all of the restrictions, disabilities and
duties of each of Amwest and Condor. At the Effective Time, the conversion of
Condor Common Stock into the right to receive shares of Amwest Common Stock
pursuant to the Merger Agreement will be effected as described in "Terms of the
Merger", below. Condor's subsidiaries shall become wholly-owned subsidiaries of
Amwest.
Effective Time
Following the adoption of the Merger Agreement by the stockholders of
Amwest and Condor and subject to satisfaction or waiver of certain other terms
and conditions, including conditions to closing, contained in the Merger
Agreement, the Merger will become effective at such date and time as the
Certificate of Merger is duly filed with the Secretary of State of Delaware. The
date and time of such filing is herein referred to as "Effective Time". The
filing of the Certificate of Merger will be made immediately after all
conditions contemplated by the Merger Agreement have been satisfied or waived.
Terms of the Merger
At the Effective Time, by the virtue of the Merger and without any
action on the part of the holder:
(i) each share of Condor Common Stock held by Condor as treasury stock
or owned by Amwest or any subsidiary of Amwest at the Effective Time will be
canceled, and no payment will be made with respect thereto; and
(ii) each remaining outstanding share of Condor Common Stock shall be
converted into the right to receive 0.5 of a share of Amwest Common Stock
(subject to adjustment as described below).
If the average daily closing price per share of Amwest Common Stock as
reported on AMEX for the 30 consecutive trading days ending on the close of
trading on the second trading day preceding the date the Merger and the
transactions contemplated thereby are consummated (the "Closing Date") (the
"Base Period Trading Price") is less than $12.50, the Merger Consideration per
share of Condor Common Stock shall be increased by a factor of 12.5 divided by
the Base Period Trading Price, and if the Base Period Trading Price is greater
than $17.50, the Merger Consideration per share shall be decreased by a factor
of 17.5 divided by the Base Period Trading Price. Adjustment of the Conversion
Number is subject to the right of Amwest not to consummate the Merger if the
Conversion Number, as adjusted, would exceed 0.6 and the right of Condor not to
consummate the Merger if the Conversion Number, as adjusted, would be less than
0.4.
Each share of Amwest Common Stock issued to Condor stockholders in the
Merger will include a right, under certain specified conditions, to purchase one
one-hundredth of a share of Amwest Series A Junior Participating Preferred Stock
pursuant to the Amwest Rights Agreement (as hereinafter defined). See
"Comparison of Stockholder Rights---Rights Plan."
As of the Effective Time, present holders of Condor Common Stock will
cease to have any rights as holders of such shares, but will have the right to
receive shares of Amwest Common Stock and any cash in lieu of fractional shares.
After the Effective Time, the stock transfer books of Condor will be closed and
there shall be no further transfers of Condor Common Stock. See "The
Merger--Conversion of Shares- Procedures for Exchange of Certificates" and
"Comparison of Stockholder Rights."
Pursuant to Section 262(b) of the Delaware General Corporation Law,
Condor stockholders are not entitled to dissenters' or appraisal rights in
connection with the Merger, because: (i) shares of Condor Common Stock were, at
the Condor Record Date, designated as a NASDAQ National Market security; (ii)
Condor stockholders will not be required to accept anything in exchange for
their Condor Common Stock other than Amwest Common Stock (i.e., shares of stock
of the corporation surviving the Merger) and cash in lieu of fractional shares
of such stock; and (iii) the Certificate of Incorporation of Condor does not
otherwise provide Condor stockholders with dissenters' or appraisal rights
applicable to the Merger. Amwest stockholders are also not entitled to
dissenters' or appraisal rights with respect to the Merger. See "Dissenters'
Rights."
Fractional Shares
Fractional shares of Amwest Common Stock will not be issued in
connection with the Merger. In lieu of any such fractional share, each holder of
Condor Common Stock who would otherwise have been entitled to a fraction of a
share of Amwest Common Stock upon surrender of certificates, would be entitled
to receive an amount of cash (without interest) equal to the Base Period Trading
Price multiplied by the fractional share interest to which such holder would
otherwise be entitled.
Surrender and Payment
The Merger Agreement provides that as of the Effective Time, Amwest
will deposit with The American Stock Transfer & Trust Company, or such other
bank or trust company reasonably satisfactory to Condor, ( the "Exchange Agent")
certificates representing the appropriate number of shares of Amwest Common
Stock and cash to be paid in lieu of fractional shares in connection with the
Merger. As soon as practicable after the Effective Time, each holder of Condor
Common Stock will be entitled to receive, upon surrender to the Exchange Agent
of one or more certificates representing such stock for cancellation,
certificates representing the number of shares of Amwest Common Stock into which
such shares are converted in the Merger and cash in consideration of fractional
shares. Amwest Common Stock into which Condor Common Stock will be converted in
the Merger shall be deemed to have been issued at the Effective Time.
No dividends or other distributions that are declared or made on Amwest
Common Stock will be paid to persons entitled to receive certificates
representing Amwest Common Stock until such persons surrender their certificates
representing such Condor Common Stock. Upon such surrender, there shall be paid
to the person in whose name the certificates representing such Amwest Common
Stock shall be issued any dividends or other distributions which shall have
become payable with respect to such Amwest Common Stock in respect of a record
date after the Effective Time. In no event shall the person entitled to receive
such dividends be entitled to receive interest on such dividends or
distributions. In the event that any certificates representing shares of Amwest
Common Stock are to be issued in a name other than that in which the
certificates representing shares of Condor Common Stock surrendered in exchange
therefor are registered, it shall be a condition of such exchange that the
person requesting such exchange presents to the Exchange Agent such certificates
with all documents required to evidence and effect such transfer and evidence
that any applicable stock transfer taxes have been paid. Notwithstanding the
foregoing, neither Amwest nor Condor shall be liable to any holder of shares of
Condor Common Stock, or Amwest Common Stock, as the case may be, for any shares
of Amwest Common Stock (or dividends or distributions with respect thereto) or
cash in lieu of fractional shares delivered to a public official pursuant to any
applicable abandoned property, escheat or similar laws.
Detailed instructions, including a transmittal letter, will be mailed
to Condor stockholders promptly following the Effective Time as to the method of
exchanging certificates formerly representing shares of Condor Common Stock for
certificates representing shares of Amwest Common Stock. See "The
Merger--Conversion of Shares- Procedures for Exchange of Certificates."
Stockholders of Condor should not send certificates representing their shares to
Condor or to the Exchange Agent prior to receipt of the transmittal letter.
Conditions to Consummation of the Merger
The respective obligations of Amwest and Condor to effect the Merger
are subject to fulfillment at or prior to the date of the Closing of the
following conditions:
(a) any waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have expired or been terminated, and any other
governmental or regulatory notices or approvals required with respect to the
transactions contemplated by the Merger Agreement shall have been either filed
or received; (b) the Merger shall have been approved by the requisite vote of
the stockholders of Condor required by the Delaware General Corporation Law
("DGCL") , NASD and Condor's Certificate of Incorporation and Bylaws; (c) the
Merger shall be been approved by the requisite vote of the stockholders of
Amwest required by the DGCL, AMEX and Amwest's Articles of Incorporation and
Bylaws; (d) the Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall be in effect and no proceedings
for such purpose shall be pending or threatened before the Commission; (e) the
shares of Amwest Common Stock issuable in the Merger shall be approved for
listing on the AMEX upon official notice of issuance; (f) no order, statute,
rule, regulation, executive order, stay, decree, judgment, or injunction shall
have been enacted, entered, issued, promulgated or enforced by any court or
governmental authority which prohibits or restricts the effectuation of the
Merger; (g) no governmental action or proceeding shall have been commenced or
threatened seeking any injunction, restraining or other order which seeks to
prohibit, restrain, invalidate or set aside the effectuation of the Merger; (h)
the Merger and the transactions contemplated thereby shall have been approved by
the Commissioners of the California Department of Insurance and the Arizona
State Department of Insurance; and (i) Amwest shall have received from Union
Bank a written waiver with respect to consummation of the Merger and the
transactions contemplated thereby.
The obligations of Condor to effect the Merger are also subject to the
fulfillment at or prior to the date of the Closing of the following additional
conditions:
(a) Amwest shall have performed and complied in all material respects
with the agreements and obligations contained in the Merger Agreement that are
required to be performed and complied with by them at or prior to the date of
the Closing; (b) the representations and warranties of Amwest contained in the
Merger Agreement shall be true and correct in all material respects as of the
date of the Merger Agreement and shall be deemed to have been made again at and
as of the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect (as defined below) on
Amwest; (c) all corporate actions on the part of Amwest necessary to authorize
the execution, delivery and performance of the Merger Agreement and the
consummation of the transactions contemplated thereby shall have been duly and
validly taken; (d) Condor shall have received the opinion of counsel from
Gibson, Dunn & Crutcher, counsel to Amwest, covering such matters and in the
form and substance agreed upon; (e) there shall have been no material adverse
change in, and no event, occurrence or development in the business of Amwest
that, taken together with other events, occurrences and developments with
respect to such business, would have or would reasonably be expected to have a
Material Adverse Effect on Amwest, as defined below; (f) Condor shall have
received such certificates of officers of Amwest and such certificate of others
to evidence compliance with the conditions to the Merger Agreement as may be
reasonably requested by Condor; (g) Amwest shall have delivered to Condor an
opinion of Amwest's consulting actuary as of December 31, 1995, opining that as
of such date the reserves for loss and loss adjustment expense reflected on such
balance sheet of Amwest and its Affiliated Entities (which term includes each
direct or indirect subsidiary of Condor or Amwest, as the case may be, and each
business entity in which Condor or Amwest, as the case may be, has any direct or
indirect interest and for which it accounts on the equity method of accounting)
have been established in conformity with generally accepted actuarial principles
and practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Amwest under the terms of its policies and
agreements; and (h) the Conversion Number shall not be less than 0.4. "Material
Adverse Effect" means any change or effect (i) that is or is reasonably likely
to be materially adverse to the properties, business, results of operations,
condition (financial or otherwise) or prospects of Condor or Amwest or both
taken together, as the case may be, and any Affiliated Entity, taken as a whole,
other than any change or effect arising out of general economic conditions
unrelated to any businesses in which such party is engaged or (ii) that may
impair the ability of such party to consummate the transactions contemplated by
the Merger Agreement.
The obligations of Amwest to effect the Merger are also subject to the
fulfillment at or prior to the date of the Closing of the following additional
conditions:
(a) Condor shall have performed and complied in all material respects
with the agreements and obligations contained in the Merger Agreement that are
required to be performed and complied with by it at or prior to the date of the
Closing; (b) the representations and warranties of Condor contained in the
Merger Agreement shall be true and correct in all material respects, as of the
date of the Merger Agreement, and shall be deemed to have been made again at and
as of the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect on Condor; (c) all
corporate actions on the part of Condor necessary to authorize the execution,
delivery and performance of the Merger Agreement and the consummation of the
transactions contemplated thereby shall have been duly and validly taken; (d)
Condor shall have received consents to the Merger from all persons from whom
such consent or waiver is required; (e) Amwest shall have received the opinions
of Kindel & Anderson L.L.P., counsel to Condor, covering such matters and in the
form and substance agreed upon; (f) Amwest shall have received such certificates
of officers of Condor and such certificates of others to evidence compliance
with the conditions to the Merger Agreement as may be reasonably requested by
Amwest; (g) there shall have been no material adverse change in, and no event,
occurrence or development in the business of Condor that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect on
Condor; (h) Condor shall deliver to Amwest an agreement of stockholder, executed
by the principal stockholder of Condor (the "Condor Stockholder"); (i) the
Conversion Number shall not exceed 0.6; (j) Condor shall have delivered to
Amwest an opinion of Condor's consulting actuary as of the most recently
completed quarterly period of which actuarial information is available prior to
that date of Closing, opining that as of such date the reserves for loss and
loss adjustment expense reflected on such balance sheet of Condor and its
Affiliated Entities have been established in conformity with generally accepted
actuarial principles and practices consistently applied, that such reserves were
established in conformity with the requirements of the California Department of
Insurance and that such reserves make a reasonable provision for all unpaid loss
and loss adjustment expense obligations of Condor under the terms of its
policies and agreements; (k) Amwest shall have received from its consulting
actuary, an opinion of actuary as of the most recently completed monthly period
of which actuarial information is available prior to the date of Closing,
opining that as of such date the reserves for loss and loss adjustment expense
reflect on such balance sheet of Condor and its Affiliated Entities have been
established in conformity with generally accepted actuarial principles and
practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Condor under the terms of its policies and
agreements; (l) Guy A. Main and all members of the Condor Board of Directors and
any other person deemed an Affiliate shall have performed his obligations under
the Affiliates Letter and Continuity of Interest Certificate, and Amwest shall
have received a certificate signed by such persons to such effect; (m) A.M. Best
Company's ratings for each of Amwest Surety Insurance Company and Far West
Insurance Company shall not, as of the Effective Time (and after taking into
account the Merger and the transactions contemplated thereby), be lower than "A"
(Excellent); (n) Amwest shall have received an Officers' Certificate Regarding
Certain Tax Matters from the Chief Financial Officer and the Chief Executive
Officer of Condor; and (o) Amwest shall have received from Condor a
certification of non-foreign status described in Treasury Regulation Section
1.1445-2(c)(2), and shall have received from Condor and each Affiliated Entity
owned directly by Condor a certification that such entities are not and have not
been "United States real property holding corporations" during the periods set
forth in, and in the form described in, Treasury Regulation Section
1.1445-2(c)(3).
Representations and Warranties
The Merger Agreement contains various representations and warranties of
Amwest and Condor relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions as detailed in the Merger Agreement): (i) the due organization, power
and standing of, and similar corporate matters with respect to, each of Condor
and Amwest and the absence of any conflict with each of Condor's and Amwest's
certificate of incorporation and bylaws and compliance with applicable laws;
(ii) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement by each such party and of the transactions contemplated
thereby; (iii) each of Condor's and Amwest's capitalization; (iv) disclosure of
Affiliated Entities and commitments to invest funds in any other entity or
business; (v) reports and other documents filed with the Commission and other
regulatory authorities and the accuracy of the information contained therein;
(vi) the absence of any change or event having a Material Adverse Effect on
Condor or Amwest; (vii) the absence of any governmental or regulatory
authorization, consent or approval required to consummate the Merger; (viii) the
absence of any material undisclosed liabilities; (ix) compliance with tax laws
and regulations, including the absence of any tax delinquencies of Condor or
Amwest; (x) the compliance by each insurance subsidiary with the requirements of
the insurance laws and regulations of any applicable jurisdiction; (xi) the
right of Condor to use, to the extent they are now using, all proprietary
rights; (xii) the absence of any litigation that would have a Material Adverse
Effect on Condor or Amwest; (xiii) the validity of all material insurance
policies of Condor; (xiv) compliance in all material respects with laws and
regulations, a violation of which could have a Material Adverse Effect on Condor
or Amwest; (xv) the disclosure of all employee benefit plans and compliance with
statutes governing their administration; (xvi) absence of any employment related
agreements at Condor; (xvii) the absence of any collective bargaining agreements
at Condor; (xviii) compliance with environmental laws and the absence of
environmental claims which could have a material adverse impact on Condor or
Amwest; (xix) the absence of brokerage or finders fees associated with the
Merger; (xx) the absence of any misleading representation or warranty in any
document received from Condor or Amwest; (xxi) the proper recognition of
post-retirement and post-employment benefit obligations; (xxii) the absence of
any material untrue statements or omissions of material facts in the
Registration Statement and the Proxy Statement/Prospectus; (xxiii) the absence
of any questionable payments by either Condor, Amwest, Affiliated Entities or
directors, officers, agents or employees thereof; (xxiv) the absence of
guarantees for any liability or obligation other than for Affiliated Entities;
(xxv) the disclosure, validity and enforceability of all material contracts;
(xxvi) the validity of insurance contracts and the premium rates utilized on all
policies of insurance issued by Condor and Amwest; (xxvii) the disclosure and
validity of all reinsurance contracts of Amwest and Condor; (xxviii) the
adequacy of the loss and loss adjustment expense reserves established by Amwest
and Condor; and (xxix) the receipt of fairness opinions of Condor's and Amwest's
investment bankers. The representations and warranties of Amwest and Condor will
not survive the Effective Time.
Conduct of Business Pending the Merger
Prior to the Effective Time, unless the other party shall otherwise
agree in writing, Condor and Amwest have agreed, among other things, to and to
cause their Affiliated Entities to, carry on their respective businesses in the
ordinary course of business and use their best efforts to preserve intact their
present business organizations, keep available the services of their present
officers and employees and maintain satisfactory relationships with customers,
suppliers and others having advantageous business dealings with them. Neither
Condor or any of its Affiliated Entities, nor Amwest or any of it Affiliated
Entities without prior written consent of the other party (subject in certain
cases to specified exceptions) shall, among other things: (a) amend its Articles
or Certificates of Incorporation or Bylaws; (b) split, combine or reclassify any
shares of its capital stock or declare or pay any dividends other than Amwest's
regular quarterly dividend; (c) authorize for issuance, sell or deliver any of
its capital stock; (d) incur any material obligation other than in the ordinary
course of business; (e) adopt or amend any employment related agreement; (f)
acquire any other business organization for an amount in excess of $50,000; (g)
pay, discharge or satisfy any material claim, liability or obligation other than
in the normal course of business; (h) acquire any material assets or properties
other than in the ordinary course of business; (i) waive release grant or
transfer any material right; (j) change accounting principles except as a result
of a change in law or GAAP; (k) materially revalue any assets; (l) make or
revoke any tax election or settle or compromise any material tax liability; (m)
settle or compromise any pending or threatened suit relating to the transactions
contemplated by the Merger Agreement; (n) settle or compromise any pending or
threatened suit in the ordinary course of business, except Amwest may settle,
compromise and make payment with respect to its existing litigation relating to
California Proposition 103; or (o) take any action or agree to take action which
would make any representation or warranty in the Merger Agreement untrue or
incorrect.
Certain Other Covenants
Amwest and Condor have agreed to use all reasonable efforts to take, or
cause to be taken, all appropriate action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals and to effect all necessary registrations,
filings and stock listings.
Amwest and Condor have agreed to consult with each other before issuing
any press release or other public statements with respect to the Merger
Agreement or transactions contemplated thereby.
Amwest and Condor have agreed to give prompt notice to one another of
any event which would be likely to cause any of their respective representations
or warranties to be untrue or inaccurate in any material respect or any
condition to closing to become impossible or unlikely to be fulfilled and of any
failure to comply with any covenant contained in the Merger Agreement.
Prior to the date of Closing, Condor has agreed to deliver to Amwest a
letter identifying all persons who are, at the time the Merger Agreement is
submitted for approval by the Condor Stockholders, "affiliates" of Condor for
purposes of Rule 145 under the Securities Act (the "Affiliates"). Condor agrees
to use its best efforts to cause each Affiliate to deliver to Amwest on or prior
to the date of Closing an agreement that such Affiliate will not sell or in any
other way reduce such Affiliate's interest in or risk relative to any Amwest
Common Stock received in the Merger until such time as financial results
covering at least 30 days of post-Merger operations have been published.
Amwest has agreed to use its best efforts to list the Amwest Common
Stock issued pursuant to the Merger or on the exercise of Amwest Options to be
issued pursuant to the Merger Agreement on the AMEX.
Amwest has also agreed to enter into an employment agreement with Mr.
Main and an additional agreement with Mr.Main and the Main Family Trust pursuant
to which Amwest will agree to cause Mr. Main to be appointed to Amwest's Board
of Directors. See "The Merger--Interests of Certain Persons in the Merger."
Amwest and Condor agree to take such action as is necessary under
federal or state securities laws, the HSR Act, or the California or Arizona
Insurance Code in connection with the Merger and the transactions contemplated
by the Merger Agreement , and to use their best efforts to have declared
effective or approved all documents and notifications with the Commission, the
California Department of Insurance, the Arizona State Department of Insurance
and other appropriate regulatory bodies.
Condor shall take no action which would jeopardize the characterization
of the Merger as a reorganization within the meaning of Section 368(a)(I)(A) of
the Code and neither Condor nor Amwest shall take any action which could prevent
the Merger from being accounted for as a "pooling of interests" for accounting
purposes.
Amwest shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Amwest Common Stock for delivery upon
exercise of Amwest Options to be issued to replace certain Condor Stock Options
which will be terminated at the Effective Time. See "The Merger-- Interest of
Certain Persons in the Merger." As soon as practicable after the Effective Time,
Amwest shall file a registration statement on Form S-3 or Form S-8, as the case
may be (or any successor or other appropriate forms), or another appropriate
form with respect to the shares of Amwest Common Stock subject to such Amwest
Options and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
Other Potential Acquirors
Subject to the fiduciary duties of the Board of Directors of Condor, as
advised by outside counsel, neither Condor nor any of its Affiliated Entities
shall take nor shall Condor authorize or permit any of its or their officers,
directors, employees, representatives or agents to, directly or indirectly
encourage, solicit, participate in or initiate discussions or negotiations with,
or provide any information to any corporation, person, partnership or other
entity or group, other than Amwest or its Affiliated Entities or designees,
concerning any merger, sale of assets, sale of shares of capital stock or
similar transactions involving Condor or any Affiliated Entity or division
thereof. Condor will promptly provide to Amwest a copy of any written proposal
and a summary of any oral proposal received by Condor regarding such a
transaction and the terms of any proposal or inquiry, and thereafter keep Amwest
promptly advised of any development with respect thereto.
Further, the Condor Board of Directors shall not approve or recommend
or cause Condor to enter into any agreement with respect to any acquisition of
Condor by a third party of more than 30% of Condor's assets or outstanding
shares, or pursuant to a merger or other transaction, unless, after consultation
with counsel, the Condor Board of Directors determines that it is necessary to
do so in order to comply with its fiduciary duties to stockholders under
applicable law.
Indemnification and Insurance
The Merger Agreement provides that, after the Effective Time, Amwest
will indemnify and hold harmless the directors, officers and employees of Condor
against all losses, expenses, claims, damages or liabilities including those
arising out of the transactions contemplated by the Merger Agreement to the
fullest extent permitted or required under applicable law. All rights to
indemnification existing in favor of directors, officers, or employees of Condor
as provided in Condor's Certificate of Incorporation or Bylaws in effect on the
date of the Merger Agreement, with respect to matters occurring prior to the
Effective Time, shall survive the Merger and shall continue in full force and
effect for a period of three years from the Effective Time. The Merger Agreement
provides that, with respect to matters occurring prior to the Effective Time,
Amwest will indemnify Condor for three years provided that such indemnification
shall not exceed the coverage provided by the insurance currently provided the
indemnified parties by Condor.
Termination and Abandonment
The Merger Agreement may be terminated at any time prior to the
Effective Time: (i) by mutual written consent of Amwest and Condor or (ii) by
either Amwest or Condor if the Merger has been enjoined by a court or the Merger
shall not have been consummated on or before June 30, 1996 (provided the
terminating party's failure to fulfill its obligations under the Merger
Agreement is not the reason that the Merger has not been consummated).
The Merger Agreement may be terminated by Condor if (i) any
representation or warranty of Amwest is breached or becomes untrue and cannot be
cured by June 30, 1996, (ii) a breach of the Merger Agreement by Amwest which
could have a Material Adverse Effect on Amwest or materially adversely affect or
delay the consummation of the Merger has not been cured within 20 business days
after notice by Condor, (iii) Condor enters into a definitive agreement to be
acquired by a third party and pays the Termination Fee or (iv) the Merger
Agreement is not approved by the requisite vote at the Amwest Special Meeting.
The Merger Agreement may be terminated by Amwest if (i) any representation or
warranty of Condor is breached or becomes untrue and cannot be cured by June 30,
1996, (ii) a breach of the Agreement by Condor which could have a Material
Adverse Effect on Condor or materially adversely affect or delay the
consummation of the Merger has not been cured within 20 business days after
notice by Amwest, (iii) Condor engages in negotiations which continue for more
than 20 days with a third party seeking to acquire Condor, (iv) the Condor Board
of Directors has withdrawn, modified or changed its recommendation of the
Merger, has recommended an acquisition by a third party or has failed to call,
give notice of, convene or hold a stockholders meeting to approve the Merger,
(v) the Merger is not approved by the requisite vote at the Amwest Special
Meeting or (vi) the Merger is not approved by the requisite vote at the Condor
Special Meeting.
Condor will be required to pay Amwest a fee of $700,000 (the
"Termination Fee") in the event that Condor terminates the Merger Agreement in
order to accept a Superior Proposal. Condor will also be required to pay the
termination fee if the Merger Agreement is terminated by Amwest (i) for breach
of any of Condor's representations, warranties or covenants or because Condor
engages in negotiations which continue for more than 20 business days with a
third party seeking to acquire Condor (a "Third Party Acquisition") and, within
12 months of such termination, Condor enters into an agreement for, or
consummates, a Third Party Acquisition under certain circumstances, or (ii)
because the Condor Board of Directors has withdrawn, modified or changed its
recommendation of the Merger, has recommended a Third Party Acquisition or has
failed to call, give notice of, convene or hold a stockholders meeting to
approve the Merger or because the Merger is not approved by the requisite vote
of the Condor Stockholders at the Condor Special Meeting.
If the Merger Agreement is terminated by Amwest under conditions
requiring the payment of the termination fee or because of a breach by Condor of
its representations, warranties or covenants, as described above, Amwest will
also be entitled to be reimbursed by Condor for its reasonable expenses incurred
in connection with the Merger. If the Merger Agreement is terminated by Condor
because of a breach by Amwest of its representations, warranties or covenants,
as described above, or because the Merger is not approved by the requisite vote
at the Amwest Special Meeting, Condor will be entitled to be reimbursed by
Amwest for its reasonable expenses incurred in connection with the Merger. In
all other cases, Amwest and Condor will each bear their own expenses.
Amendment; Waiver
The Merger Agreement provides that it may be amended, modified or
supplemented only by written agreement of the parties thereto, at any time prior
to the Effective Time except that after approvals by the stockholders of Condor
and Amwest, the amount or form of consideration to be received by Condor
Stockholders may not be decreased or altered without the approval of such
stockholders.
Any failure of Amwest, on the one hand, or Condor on the other hand, to
comply with any obligation, covenant, agreement or condition in the Merger
Agreement may be waived in writing by Amwest or Condor, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever the Merger Agreement
requires or permits consent by or on behalf of Amwest or Condor, such consent
shall be given in writing.
<PAGE>
CERTAIN OTHER AGREEMENTS
In connection with the Merger Agreement, Amwest has entered or will
enter into certain agreements with various persons. Amwest, the Main Family
Trust and Mr. Main have entered into a Stockholder Agreement pursuant to which
the Main Family Trust (which holds shares of Condor Common Stock for the benefit
of Mr. Main and his family) and Mr. Main have (i) agreed not to sell or
otherwise transfer any shares of Condor Common Stock prior to the Effective Time
or the termination of the Merger Agreement, (ii) agreed to vote all shares of
Condor Common Stock which they hold in favor of the Merger and against any
proposal in opposition to or competition with the Merger, and (iii) granted an
option to Amwest to purchase 825,000 shares of Condor Common Stock for a price
equivalent to the Merger Consideration exercisable at any time during the period
commencing with the termination of the Merger Agreement.
The directors and officers of Condor have executed and delivered to
Amwest an Affiliates Letter and Certificate of Continuity of Interest in which
they have made certain representations about their intentions to hold the shares
of Amwest Common stock to be received in the Merger and agreed to certain
restrictions on resales of such shares. The representations and restrictions of
resales are intended to preserve the characterization of the Merger for federal
income tax purposes as a reorganization, to comply with the requirements for
pooling-of-interest accounting treatment and to comply with restrictions on
resales of securities imposed by federal securities laws.
At the Effective Time, Amwest, the Main Family Trust and Mr. Main will
enter into an agreement pursuant to which Mr. Main will be elected a director of
Amwest as long as he remains a member of the management executive committee of
Amwest. The agreement will also include certain provisions which become
effective only in the event that the Merger does not qualify for pooling-of
- -interest accounting treatment, including agreements not to sell any Amwest
Common Stock received in the Merger for two years and to grant a right of first
refusal to Amwest to purchase any shares of Amwest Common Stock received in the
Merger. Amwest, the Main Family Trust and Mr. Main will also enter into a
Registration Rights Agreement pursuant to which Amwest will agree to register
shares of Amwest Common Stock received by the Main Family Trust in the Merger
for resale under the Securities Act of 1933.
At the Effective Time, Amwest and Mr. Main will also enter into an
Employment Agreement pursuant to which Mr. Main will be employed for four years
as Executive Vice President of Amwest and President of Condor Insurance. Mr.
Main will receive a base salary of $253,000, subject to annual review, and will
be eligible for bonuses under the Amwest Annual Executive Incentive Plan and
entitled to other benefits available to other Amwest officers generally,
including an automobile allowance.
<PAGE>
DISSENTERS' RIGHTS
Pursuant to Section 262(b) of the Delaware General Corporation Law,
Condor stockholders are not entitled to dissenters' or appraisal rights in
connection with the Merger, because: (i) shares of Condor Common Stock were, at
the Condor Record Date, designated as a NASDAQ National Market security; (ii)
Condor stockholders will not be required to accept anything in exchange for
their Condor Common Stock other than Amwest Common Stock (i.e., shares of stock
of the corporation surviving the Merger) and cash in lieu of fractional shares
of such stock; and (iii) the Certificate of Incorporation of Condor does not
otherwise provide Condor stockholders with dissenters' or appraisal rights
applicable to the Merger. Amwest stockholders are also not entitled to
dissenters' or appraisal rights with respect to the Merger.
<PAGE>
MANAGEMENT OF AMWEST AFTER THE MERGER
Directors and Executive Officers After the Merger
Pursuant to the Agreement with Guy A. Main and the Main Family Trust,
Mr. Main will become a member of the Amwest Board of Directors. Upon the
appointment of such persons, the Amwest Board will consist of 11 directors, 10
of whom were directors of Amwest as of the date of the Merger Agreement.
Set forth below is certain information about each person who is
expected to be a member of the Board of Directors or an executive officer of
Amwest as of the Effective Time with the information expected to be true on the
Effective Time.
Year
Became A
Name Director Age
Richard H. Savage. . . . . . . . . . . . . . . . . . . . . 1970 75
Chairman of the Board, Co-Chief Executive Officer and
Director
John E. Savage. . . . . . . . . . . . . . . . . . . . . . 1976 42
. . . . . . . . . . . .
Co-Chief Executive Officer, President, Chief Operating
Officer and Director
Steven R. Kay. . . . . . . . . . . . . . . . . . . . . . . 1992 41
Senior Vice President, Chief Financial Officer,
Treasurer and Director
Arthur F. Melton. . . . . . . . . . . . . . . . . . . . . 1986 40
Senior Vice President and Director
Guy A. Main *. . . . . . . . . . . . . . . . . . . . . . . 1996 59
Executive Vice President and Director
Neil F. Pont. . . . . . . . . . . . . . . . . . . . . . . 1994 49
Senior Vice President and Director
Thomas R. Bennett. . . . . . . . . . . . . . . . . . . . . 1985 68
Director
Edgar L. Fraser. . . . . . . . . . . . . . . . . . . . . . 1985 76
Director
Jonathan K. Layne. . . . . . . . . . . . . . . . . . . . . 1989 42
Director
Bruce A. Bunner. . . . . . . . . . . . . . . . . . . . . . 1995 62
Director
Charles L. Schultz. . . . . . . . . . . . . . . . . . . . 1995 67
Director
- ---------------
* Became a Director of Condor in 1988 (and of its predecessor in 1974).
Except as set forth below, each of the directors has served in the
capacity indicated in the above table for the past five years. Mr. Kay joined
Amwest in April 1992. From 1977 he served in various positions with KPMG Peat
Marwick and served as an Audit Partner for KPMG Peat Marwick from 1987 until
April 1992. Mr. Pont joined Amwest in November 1991 as a Senior Vice
President. During 1991, he served as a retained consultant following his
tenure from 1987 until 1991 with Imperial Corporation of America, where he
served in various executive management positions, including Executive Vice
President Retail Banking, board member of First Imperial Investor Services,
an investment broker dealer, and Imperial Insurance Agency. Mr. Bunner
retired in 1994 as Chairman of Centre Reinsurance Company of New York.
Previously, he served with KPMG Peat Marwick for 22 years. In addition, Mr.
Bunner served as California State Insurance Commissioner from 1983 to 1986.
Mr. Bunner is also a member of the Board of Directors of Mercury Insurance
Group, Inc., a property and casualty insurer specializing in automobile
coverages. Mr. Schultz is currently a Director of U.S. Facilities Corporation
of Costa Mesa, California. He retired in 1993 as Senior Vice President, Finance
and Chief Financial Officer of Farmers Group, Inc. where he had served for 19
years in various capacities. Previously, Mr.Schultz had been with Great American
Insurance Company in senior management positions from 1950 to 1974.
Mr. Fraser, who was on the Board of Directors of both Amwest and
Condor, resigned from the Condor Board effective November 13, 1995 in light of
discussions between the two companies.
Additional information about directors as of December 31, 1994 is
contained in Amwest's and Condor's Proxy Statements for their respective 1995
Annual Meetings of Stockholders, relevant portions of which are incorporated by
reference in this Proxy Statement/Prospectus from Amwest's and Condor's Annual
Reports on Form 10-K for the years ended December 31, 1994. See "Incorporation
by Reference" and "Available Information."
Security Ownership of Management
As of the Amwest Record Date directors and executive officers of Amwest
and their affiliates were beneficial owners of approximately ___% of the
outstanding shares of Amwest Common Stock. As of the Condor Record Date,
directors and executive officers of Condor and their affiliates were beneficial
owners of approximately ___ % of the outstanding shares of Condor Common Stock.
Post-Merger Dividend Policy
It is the current intention of the Board of Directors of Amwest to
declare dividends on the Amwest Common Stock following the Merger initially in
the amount of $0.10 per quarter or $0.40 per year, in each case per share.
Stockholders should note that no such dividends have been declared and that
future dividends will be determined solely by Amwest's Board of Directors in
light of the earnings and financial condition of Amwest and its subsidiaries and
other factors.
Principal Stockholders of Condor
The following table sets forth certain information as to the ownership
of Condor Common Stock on January 3, 1996, by (i) each person who is known to
own beneficially more than 5% of the outstanding shares of the Condor Common
Stock, (ii) each director of Condor, (iii) certain executive officers and (iv)
all executive officers and directors as a group.
Number of Shares Percentage
Name Beneficially Owned (1) Ownership
Guy A. Main 991,810 (2) 50.8%
William A. Clary 26,100 (3) 1.3%
Robert W. Kleinschmidt 62,200 (4) 3.2%
William J. Van Beurden 116,370 (5) 5.9%
Zondra L. Hendrix 37,272 (6) 1.9%
All executive officers and
directors as a group (5 persons) 1,215,722 (7) 60.4%
Other Principal Stockholders:
Amwest Insurance Group, Inc. 97,350 5.03%
(1) Unless otherwise indicated, each executive officer and
director has sole voting and investment power with respect to
the shares listed.
(2) Includes (a) 13,200 shares of Condor Common Stock that may be
acquired by Mr. Main upon exercise of outstanding stock
options, (b) 18,000 shares of Condor Common Stock held by the
Condor Services, Inc. Profit Sharing Plan, of which Mr. Main
is co-trustee with Ms. Hendrix, as to which Mr. Main shares
voting and investment power and as to which he disclaims
beneficial ownership, and (c) 957,310 shares of Condor Common
Stock held by the Main Family Trust, of which Mr. Main and his
wife share voting and investment power. The address of Mr.
Main is 2361 Rosecrans Avenue, El Segundo, California 90245.
(3) Includes 18,700 shares of Condor Common Stock that may be
acquired by Mr. Clary upon exercise of outstanding stock
options.
(4) Includes 13,200 shares of Condor Common Stock that may be
acquired by Mr.Kleinschmidt upon exercise of outstanding stock
options.
(5) Includes (a) 9,900 shares of Condor Common Stock that may be
acquired by Mr. Van Beurden upon exercise of outstanding stock
options, and (b) 100,000 shares of Condor Common Stock held by
Van Beurden Insurance Services, Inc., of which Mr. Van Beurden
is the President and a shareholder, as to which Mr. Van
Beurden shares voting and investment power and as to which he
disclaims beneficial ownership. The address of Mr. Van Beurden
is 1600 Draper Street, Kingsburg, California 93631.
(6) Includes (a) 18,500 shares of Condor Common Stock that may be
acquired by Ms. Hendrix upon exercise of outstanding stock
options, (b) 792 shares of Common Stock held by her husband,
as to which Ms. Hendrix disclaims beneficial ownership, and
(c) 18,000 shares of Condor Common Stock held by the Condor
Services, Inc. Profit Sharing Plan, of which Ms. Hendrix is
co-trustee with Mr. Main, as to which Ms. Hendrix shares
voting and investment power.
(7) Includes 76,800 shares of Condor Common Stock that may be
acquired upon exercise of outstanding stock options.
Principal Stockholders of Amwest
The following table sets forth certain information as to the ownership
of Amwest Common Stock on January 3, 1996, by (i) each person who is known to
own beneficially more than 5% of the outstanding shares of the Amwest Common
Stock, (ii) each director of Amwest, (iii) certain executive officers and (iv)
all executive officers and directors as a group.
Number of Shares Percentage
Name Beneficially Owned (1) Ownership (15)
---- ---------------------- --------------
Directors:
Richard H. Savage 823,115 (2)(3)(4) 34.76%
John E. Savage 151,616 (5) 6.26%
Steven R. Kay 19,325 (6) (16)
Arthur F. Melton 31,375 (7) 1.31%
Neil F. Pont 6,880 (8) (16)
Thomas R. Bennett 11,550 (9) (16)
Bruce A. Bunner 0 (16)
Edgar L. Fraser 7,830 (10) (16)
Jonathan K. Layne 7,600 (11) (16)
Charles L. Schultz 0 (16)
All executive officers and
directors as a group
(8 persons) 1,059,291 42.66%
Other Principal Stockholders:
Savage Family Trust 115,274 (3)(4) 4.87%
Savage Diversified, Inc. 696,841 (4) 29.43%
Dimensional Fund Advisors Inc. 154,200 (12) 6.51%
Markel Corporation 178,300 (13) 7.53%
Heartland Advisors, Inc. 244,900 (14) 10.34%
(1) Based on information furnished by the persons named. The
persons in the table have sole voting and investment power
with respect to all shares of Amwest Common Stock shown as
beneficially owned by them, except as otherwise stated.
(2) Of the shares beneficially owned by Richard H. Savage:
(1) 115,274 shares represent shares owned by the Savage Family
Trust for which Mr. Savage serves as Trustee; and (2) 696,841
shares represent shares owned by Savage Diversified, Inc. a
California corporation, all the voting stock of which is owned
by the Savage Family Trust. Mr. Savage, as Trustee, has
sole voting power over shares owned by such trust.
(3) The Savage Family Trust owns 115,274 shares of Amwest Common
Stock. Richard H. Savage is the Trustee of the Savage Family
Trust, and as such, exercises sole voting and investment power
with respect to shares owned by the Trust. These shares are
included in the number of shares beneficially owned by Richard
H. Savage as set forth in Note 2. The address of the Savage
Family Trust is 6320 Canoga Avenue, Suite 300, Woodland Hills,
California 91367.
(4) Of the shares beneficially owned by Richard H. Savage, 696,841
shares are owned by Savage Diversified, Inc., a California
corporation, all the voting stock of which is owned by the
Savage Family Trust. Richard H. Savage, as Trustee, has sole
voting power over shares owned by such trust. These shares are
included in the number of shares beneficially owned by Richard
H. Savage as set forth in Note 2. The address of Savage
Diversified, Inc. is 6320 Canoga Avenue, Suite 300, Woodland
Hills, California 91367.
(5) John E. Savage serves as Trustee of the following Trusts: (1)
Savage Family Stock Trust FBO Sandra Lee Savage which owns
19,478 shares of Common Stock; (2) Savage Family Stock Trust
FBO Lorraine Ann Savage which owns 19,478 shares of Common
Stock; and (3) Savage Family Stock Trust FBO Geraldine K.
Thuresson which owns 19,479 shares of Common Stock. Mr. Savage
owns 40,606 shares of Common Stock. In addition, 52,575 shares
shown as beneficially owned by Mr. Savage represent shares
which may be acquired by Mr. Savage upon exercise of
outstanding stock options.
(6) Of the shares beneficially owned by Steven R. Kay: (1) 3,500
shares represent shares that are directly owned by Mr. Kay;
(2) 500 shares represent shares that are indirectly held
through his wife; (3) 200 shares represent shares that are
indirectly held through his son; and (4) 15,125 shares
represent shares which may be acquired by Mr.Kay upon exercise
of outstanding stock options.
(7) Of the shares beneficially owned by Arthur F. Melton:
(1) 9,050 shares represent shares that are jointly owned by
Mr. Melton and his wife; (2) 1,350 shares represent shares
that are directly owned by Mr. Melton; and (3) 20,975 shares
represent shares which may be acquired by Mr. Melton upon
exercise of outstanding stock options.
(8) Of the shares beneficially owned by Neil F. Pont: (1) 3,005
shares represent shares that are directly owned by Mr. Pont;
and (2) 3,875 shares represent which may be acquired by Mr.
Pont upon exercise of outstanding stock options.
(9) Of the shares beneficially owned by Thomas R. Bennett:
(1) 1,200 shares represent shares that are directly owned by
Mr. Bennett; (2) 2,550 shares represent shares that are
jointly owned by Mr. Bennett and his wife; (3) 300 shares
represent shares that are indirectly held through his wife;
and (4) 7,500 shares represent shares which may be acquired
by Mr. Bennett upon exercise of outstanding stock options.
(10) Of the shares beneficially owned by Edgar L. Fraser: (1) 330
shares represent shares that are directly owned by Mr. Fraser;
and (2) 7,500 shares represent hares which may be acquired by
Mr. Fraser upon exercise of outstanding stock options.
(11) Of the shares beneficially owned by Jonathan K. Layne:
(1) 100 shares represent shares that are directly owned by Mr.
Layne; and (2) 7,500 shares represent shares which may be
acquired by Mr. Layne upon exercise of outstanding stock
options.
(12) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of
154,200 shares of Amwest Insurance Group, Inc., all of which
shares are held in portfolios of DFA Investments Dimensions
Group Inc., a registered open-end investment company, or in a
series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc.
serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares. The address of Dimensional is
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
(13) Reflects the beneficial ownership of Markel Corporation
("Markel"), as set forth in Markel's filing with Amwest of a
Schedule 13G dated February 1, 1994. The filing states that
Markel has sole voting power over 148,500 shares, sole
dispositive power over 148,500 shares and shared dispositive
power over 29,800 shares. The address of Markel is 4551 Cox
Road, Glen Allen, Virginia 23060.
(14) Heartland Advisors, Inc. ("Heartland Advisors"), a registered
investment advisor, is deemed to have beneficial ownership of
244,900 shares of Amwest Common Stock pursuant to a filing on
Schedule 13G dated August 9, 1995. The filing states that
Heartland Advisors has sole voting power over 20,300 shares
and sole dispositive power over 244,900 shares. Of these total
shares beneficially owned by Heartland Advisors, 200,000
shares may be deemed beneficially owned by Heartland Group,
Inc. ("Heartland Group"), a registered investment company. The
Heartland Group has sole voting power over all 200,000 shares.
The address of Heartland Advisors is 790 North Milwaukee
Street, Milwaukee, Wisconsin 53202.
(15) Based on 2,367,964 shares of Amwest Common Stock outstanding
as of January 3, 1996.
(16) Less than 1% of the shares of Amwest Common Stock outstanding.
Principal Stockholders of Amwest - Pro Forma
The following table sets forth certain information as to the ownership
of Amwest Common Stock on January 3, 1996, by (i) each person who is known to
own beneficially more than 5% of the outstanding shares of the Amwest Common
Stock, (ii) each director of Amwest, (iii) certain executive officers and (iv)
all executive officers and directors as a group.
Number of Shares Percentage
Name Beneficially Owned (1)(2) Ownership (6)
Directors:
Richard H. Savage 823,115 25.04%
John E. Savage 151,616 4.54%
Steven R. Kay 20,100 (3) (7)
Guy A. Main 495,155 (4) 15.03%
Arthur F. Melton 31,375 (7)
Neil F. Pont 6,880 (7)
Thomas R. Bennett 11,550 (7)
Bruce A. Bunner 0 (7)
Edgar L. Fraser 18,170 (5) (7)
Jonathan K. Layne 7,600 (7)
Charles L. Schultz 0 (7)
All executive officers and
directors as a group
(8 persons) 1,565,561 45.81%
Other Principal Stockholders:
Savage Family Trust 115,274 3.51%
Savage Diversified, Inc. 696,841 21.20%
Dimensional Fund Advisors Inc. 154,200 4.69%
Markel Corporation 178,300 5.42%
Heartland Advisors, Inc. 244,900 7.45%
(1) Unless otherwise noted below, the footnotes provided under
"Principal Stockholders of Amwest" are applicable to the table
above.
(2) Based on information furnished by the persons named. The
persons in the table have sole voting and investment power
with respect to all shares of Amwest Common Stock shown as
beneficially owned by them, except as otherwise stated.
(3) Of the shares beneficially owned by Steven R. Kay: (1) 4,275
shares represent shares that are directly owned by Mr. Kay;
(2) 500 shares represent shares that are indirectly held
through his wife; (3) 200 shares represent shares that are
indirectly held through his son; and (4) 15,125 shares
represent shares which may be acquired by Mr.Kay upon exercise
of outstanding stock options.
(4) Includes (a) 6,600 shares of Amwest Common Stock that may be
acquired by Mr. Main upon exercise of outstanding stock
options, (b) 9,000 shares of Amwest Common Stock held by the
Condor Services, Inc. Profit Sharing Plan, of which Mr. Main
is co-trustee with Zondra Hendrix, as to which Mr. Main shares
voting and investment power and as to which he disclaims
beneficial ownership, and (c) 479,555 shares of Amwest Common
Stock held by the Main Family Trust, of which Mr. Main and his
wife share voting and investment power. The address of Mr.
Main is 2361 Rosecrans Avenue, El Segundo, California 90245.
(5) Of the shares beneficially owned by Edgar L. Fraser: (1) 1,870
shares represent shares that are directly owned by Mr. Fraser;
and (2) 16,300 shares represent shares which may be acquired
by Mr. Fraser upon exercise of outstanding stock options.
(6) Based on 3,286,942 shares of Amwest Common Stock outstanding
as of January 3, 1996.
(7) Less than 1% of the shares of Amwest Common Stock outstanding.
<PAGE>
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
Amwest Common Stock is listed on the AMEX. Condor Common Stock is
quoted on the NASDAQ. The following table sets forth the high and low sales
prices per share of the Amwest Common Stock and Condor Common Stock as reported
on the AMEX Composite Tape and NASDAQ NMS, respectively and the dividends paid
on such Amwest Common Stock and Condor Common Stock, for the below quarterly
periods, which correspond to the companies' respective quarterly fiscal periods
for financial reporting purposes.
<TABLE>
<CAPTION>
Amwest Common Stock Condor Common Stock
Period High Low Dividend High Low Dividend
- ------ ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter $11 1/2 $9 3/8 $.07 $9 1/2 $4 3/4 $.00
Second Quarter 11 3/8 9 3/4 .07 7 3/4 5 5/8 .00
Third Quarter 11 1/8 9 3/4 .07 7 1/8 4 1/2 .00
Fourth Quarter 13 1/4 10 3/8 .07 6 4 5/8 .00
1994
First Quarter $14 1/2 $12 $.09 $3 1/8 $2 1/4 $.00
Second Quarter 14 1/4 12 1/2 .09 4 7/8 2 1/2 .00
Third Quarter 13 7/8 12 1/8 .09 5 5/8 4 3/8 .00
Fourth Quarter 12 3/8 11 1/8 .09 7 4 1/2 .00
1995
First Quarter $15 1/4 $11 3/4 $.10
$ $ $
Second Quarter 15 14 1/8 .10 5 3/4 4 1/8 .00
Third Quarter 15 1/8 14 1/4 .10 5 1/2 4 1/8 .00
Fourth Quarter .10 .00
</TABLE>
The following table sets forth the high, low and last sales prices as
reported on the AMEX and NASDAQ Composite Tapes of the companies' common shares
on November 30, 1995. The public announcement of the Merger Agreement occurred
after the close of trading on that date and before trading commenced on December
1, 1995.
Condor
Amwest Condor Equivalent(a)
High $17 5/8 (b) $3 1/2 $7
Low 17 1/2 (b) 3 1/2 7
Last 17 5/8 (b) 3 1/2 7
(a) The Condor equivalent market value is computed by multiplying the high, low
and last sales price per share of Amwest Common Stock by the Conversion Number,
assuming the Conversion Number is 0.5.
(b) There were no trades for Amwest Common Stock on the AMEX on November 30,
1995. Therefore, the sales prices as reported on the AMEX on November 29, 1995
are shown.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization f Amwest and Condor
as of September 30, 1995, and as adjusted to give effect to the Merger and
related transactions. See "The Merger Agreement--Terms of the Merger."
<TABLE>
<CAPTION>
"As of September 30, 1995"
(In thousands)
-----------------------------------------------------------------
Historical Pro Forma (a)
------------------------------ ---------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Bank indebtedness $ 12,500 0 0 $ 12,500
----------- ------ ---- ---------
Stockholders' equity
Preferred stock, $.01 par value; Amwest- authorized:
1,000,000 shares, issued and outstanding: none;
Condor- authorized: 200,000 shares, issued and
outstanding: none 0 0 0 0
Common stock, $.01 par value; Amwest- authorized:
10,000,000 shares, issued and outstanding: 2,367,964;
Condor- authorized: 3,800,000 shares, issued and
outstanding: 1,935,306 24 19 (10) 33
Additional paid-in capital 9,358 7,810 10 17,178
Net unrealized appreciation of investments carried
at market, net of income taxes 1,554 307 (164) 1,697
Retained earnings 31,066 3,991 (654) 34,403
----------- ------ ---- ---------
Total stockholders' equity 42,002 12,127 (818) 53,311
----------- ------ ---- ---------
Total capitalization $ 54,502 12,127 (818) $ 65,811
=========== ====== ==== =========
</TABLE>
(a) The pro forma adjustments and resulting combined amounts reflect
actions to be taken at the Effective Time of the Merger to (i) cancel
all Condor Common Stock issued but held in Treasury, (ii) retire all
Condor Common Stock indirectly owned by Amwest, and (iii) convert all
other issued and outstanding shares of Condor Common Stock into 0.5 of
a share of Amwest Common Stock. In addition, as of the Effective Time,
all rights with respect to shares issuable pursuant to Condor employee
stock option awards shall immediately convert to equivalent rights with
respect to Amwest shares, utilizing the Conversion Number.
(b) For this table, the approximate number of shares of Amwest Common Stock
assumed exchanged in the Merger was based upon 1,837,956 Condor shares
issued and outstanding as of November 30, 1995, as adjusted by the
Conversion Number. Shares potentially issuable pursuant to Amwest's or
Condor's stock option plans are excluded .
(c) Additional paid in capital is adjusted for the effects of the
conversion of all issued and outstanding shares of Condor Common Stock
into 0.5 of a share of Amwest Common Stock.
(d) Net unrealized appreciation of investments carried at market, net of
income taxes is adjusted for the net unrealized gain of $164,000
associated with the equity investment of 97, 350 shares of Condor
Common Stock owned by Amwest Surety Insurance Company, a wholly-owned
subsidiary of Amwest.
(e) The net decrease in retained earnings is attributed to the pro forma
adjustments made to retire the 97,350 shares of Condor Common Stock
owned by a wholly-owned subsidiary of Amwest, the increased dividend
accrual associated with the assumed issuance of approximately 919,000
shares and the $396,000 after-tax effect for the estimate for
transaction costs associated with the Merger.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give
effect to the Merger of Amwest Insurance Group, Inc. ("Amwest") and Condor
Services, Inc. ("Condor") under the "pooling of interests" method of accounting.
These pro forma financial statements are presented for illustrative purposes
only, and therefore are not necessarily indicative of the operating results and
financial position that might have been achieved had the Merger occurred as of
an earlier date, nor are they necessarily indicative of operating results and
financial position which may occur in the future.
A pro forma combined balance sheet is provided as of September 30,
1995, giving effect to the Merger as though it had been consummated on that
date. Pro forma combined income statements are provided for the nine-month
periods ended September 30, 1995 and 1994, and the years ended December 31,
1994, 1993 and 1992, giving effect to the Merger as though it had occurred at
the beginning of the earliest period presented.
The historical statements of income for annual periods are derived from
the historical consolidated financial statements of Amwest and Condor, and
should be read in conjunction with the companies' separate 1994 Annual Reports
on Form 10-K. The historical financial statements as of or for the nine months
ended September 30, 1995 and 1994 have been prepared in accordance with
generally accepted accounting principles applicable to interim financial
information and, in the opinions of Amwest's and Condor's respective
managements, include all adjustments necessary for a fair presentation of
financial information for such interim periods.
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Amwest Condor Adjustments Combined
ASSETS
Investments:
Fixed maturities, held to maturity, at amortized cost $ 15,473 $ 15,473
Fixed maturities, available for sale, at market value 82,165 21,879 104,044
Equity securities, available for sale, at market value 7,439 3,555 (414) 10,580
Equity securities, trading, at market value 473 473
Other invested assets 333 333
Short-term investments 1,059 217 1,276
---------- ------ ---- ---------
Total investments 106,469 26,124 (414) 132,179
Cash and cash equivalents 5,028 85 5,113
Accrued investment income 1,267 332 1,599
Agents balances and premiums receivable 9,311 1,161 10,472
Reinsurance recoverable:
Paid loss and loss adjustment expenses 1,078 205 1,283
Unpaid loss and loss adjustment expenses 768 5,768 6,536
Ceded unearned premiums 2,959 2,959
Deferred policy acquisition costs 14,393 296 14,689
Furniture, equipment and improvements, net 2,324 855 3,179
Current Federal income taxes 668 145 813
Deferred Federal income taxes 1,229 1,229
Other assets 6,496 923 7,419
---------- ------ ---- ---------
Total assets $ 150,761 37,123 (414) $ 187,470
========== ====== ==== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 10,207 20,814 $ 31,021
Unearned premiums 34,431 1,188 35,619
Funds held as collateral 41,435 41,435
Commissions payable 280 280
Reinsurance funds held 106 106
Amounts due to reinsurers 345 1,793 2,138
Bank indebtedness 12,500 12,500
Current Federal income taxes 0
Deferred Federal income taxes 4,010 (288) 3,722
Deferred tax liability on holding gains on fixed
maturities and equity securities 158 158
Other liabilities 5,831 657 692 7,180
---------- ------ ---- ---------
Total liabilities 108,759 24,996 404 134,159
Stockholders' equity:
Preferred stock, $.01 par value
Common stock, $.01 par value 24 19 (10) 33
Additional paid-in capital 9,358 7,810 10 17,178
Net unrealized appreciation (depreciation) of
investments carried at market, net of income taxes 1,554 307 (164) 1,697
Retained earnings 31,066 3,991 (654) 34,403
---------- ------ ---- ---------
Total stockholders equity 42,002 12,127 (818) 53,311
---------- ------ ---- ---------
Total liabilities and stockholders'equity $ 150,761 37,123 (414) $ 187,470
========== ====== ==== =========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the nine months ended September 30, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ----------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 49,928 13,229 $ 63,157
Net change in unearned premiums 550 550
-------- ------ ---------
Net premiums earned 50,478 13,229 63,707
Underwriting expenses:
Net losses and loss adjustment expenses 16,440 9,368 25,808
Policy acquisition costs 25,302 3,392 28,694
General operating costs 8,927 2,099 11,026
-------- ------ ---------
Total underwriting expenses 50,669 14,859 65,528
-------- ------ ---------
Underwriting income (loss) (191) (1,630) (1,821)
Net investment income 4,787 1,211 5,998
Net unrealized gains (losses) on trading securities 73 73
Net realized investment gains (losses) 1,229 14 1,243
Interest expense (805) (805)
Collateral interest expense (1,305) (1,305)
Recovery on misappropriation of funds 890 890
Commissions and fees 453 453
Other revenue (6) (6)
-------- ------ ---------
Income before provision for income taxes 3,715 1,005 4,720
Provision for income taxes 778 219 997
-------- ------ ---------
Net income from continuing operations $ 2,937 786 $ 3,723
======== ====== =========
Earnings per common share, primary:
Net income from continuing operations $ 1.22 0.40 $ 1.12
======== ====== =========
Weighted average number of
common shares outstanding 2,402 1,967 3,337
======== ====== =========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.22 0.40 $ 1.11
======== ====== =========
Weighted average number of
common shares outstanding 2,405 1,967 3,340
======== ====== =========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the nine months ended September 30, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- --------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 51,507 15,865 $ 67,372
Net change in unearned premiums (7,433) (7,433)
---------- ------ ----------
Net premiums earned 44,074 15,865 59,939
Underwriting expenses:
Net losses and loss adjustment expenses 11,023 12,471 23,494
Policy acquisition costs 23,120 3,859 26,979
General operating costs 9,452 2,188 11,640
---------- ------ ----------
Total underwriting expenses 43,595 18,518 62,113
---------- ------ ----------
Underwriting income (loss) 479 (2,653) (2,174)
Net investment income 4,104 1,208 5,312
Net unrealized gains (losses) on trading securities (30) (30)
Net realized investment gains (losses) (214) 366 152
Interest expense (597) (597)
Collateral interest expense (1,507) (1,507)
Commissions and fees 772 772
Other revenue 31 31
---------- ------ ----------
Income before provision for income taxes 2,265 (306) 1,959
Provision for income taxes 431 (285) 146
---------- ------ ----------
Net income from continuing operations $ 1,834 (21) $ 1,813
========== ====== ==========
Earnings per common share, primary:
Net income from continuing operations $ 0.76 (0.01) $ 0.54
========== ====== ==========
Weighted average number of
common shares outstanding 2,411 1,983 3,354
========== ====== ==========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 0.76 (0.01) $ 0.54
========== ====== ==========
Weighted average number of
common shares outstanding 2,411 1,983 3,354
========== ====== ==========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ----------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 66,975 19,460 $ 86,435
Net change in unearned premiums (5,146) (5,146)
--------- ------ ---------
Net premiums earned 61,829 19,460 81,289
Underwriting expenses:
Net losses and loss adjustment expenses 14,095 14,633 28,728
Policy acquisition costs 31,755 4,709 36,464
General operating costs 12,734 3,034 15,768
--------- ------ ---------
Total underwriting expenses 58,584 22,376 80,960
--------- ------ ---------
Underwriting income (loss) 3,245 (2,916) 329
Net investment income 5,737 1,629 7,366
Net unrealized gains (losses) on trading securities (80) (80)
Net realized investment gains (losses) (269) 385 116
Interest expense (840) (840)
Collateral interest expense (1,921) (1,921)
Commissions and fees 1,379 1,379
Other revenue 44 44
--------- ------ ---------
Income before income taxes 5,952 441 6,393
Provision for income taxes 1,364 (12) 1,352
--------- ------ ---------
Net income from continuing operations $ 4,588 453 $ 5,041
========= ====== =========
Earnings per common share, primary:
Net income from continuing operations $ 1.91 0.23 $ 1.50
========= ====== =========
Weighted average number of
common shares outstanding 2,408 1,981 3,350
========= ====== =========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.91 0.23 $ 1.50
========= ====== =========
Weighted average number of
common shares outstanding 2,408 1,981 3,350
========= ====== =========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ --------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 54,331 21,995 $ 76,326
Net change in unearned premiums (4,241) (4,241)
--------- ------ --------
Net premiums earned 50,090 21,995 72,085
Underwriting expenses:
Net losses and loss adjustment expenses 11,909 16,456 28,365
Policy acquisition costs 25,077 4,176 29,253
General operating costs 11,387 2,838 14,225
Loss on broker misappropriation of funds 1,870 1,870
--------- ------ --------
Total underwriting expenses 48,373 25,340 73,713
--------- ------ --------
Underwriting income (loss) 1,717 (3,345) (1,628)
Net investment income 4,989 1,471 6,460
Net unrealized gains (losses) on trading securities (3) (3)
Net realized investment gains (losses) 1,810 1,052 (508) 2,354
Interest expense (1,050) (1,050)
Collateral interest expense (2,027) (2,027)
Commissions and fees 815 815
Other revenue 27 27
--------- ------ --------
Income before income taxes 5,439 17 (508) 4,948
Provision for income taxes 1,398 (224) (173) 1,001
--------- ------ --------
Net income from continuing operations $ 4,041 241 (335) $ 3,947
========= ====== ========
Earnings per common share, primary:
Net income from continuing operations $ 1.70 0.12 $ 1.20
========= ====== ========
Weighted average number of
common shares outstanding 2,375 1,978 3,299
========= ====== ========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.70 0.12 $ 1.20
========= ====== ========
Weighted average number of
common shares outstanding 2,376 1,978 3,300
========= ====== ========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1992
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- --------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 46,697 15,289 $ 61,986
Net change in unearned premiums 1,557 1,557
---------- ------ ----------
Net premiums earned 48,254 15,289 63,543
Underwriting expenses:
Net losses and loss adjustment expenses 10,955 9,923 20,878
Policy acquisition costs 25,016 2,889 27,905
General operating costs 10,871 3,012 13,883
---------- ------ ----------
Total underwriting expenses 46,842 15,824 62,666
---------- ------ ----------
Underwriting income (loss) 1,412 (535) 877
Net investment income 5,607 1,456 7,063
Net unrealized gains (losses) on trading securities 0
Net realized investment gains (losses) 728 222 950
Interest expense (1,359) (1,359)
Collateral interest expense (1,992) (1,992)
Commissions and fees 585 585
Other revenue 198 198
---------- ------ ----------
Income before income taxes 4,396 1,926 6,322
Provision for income taxes 998 299 1,297
---------- ------ ----------
Net income from continuing operations $ 3,398 1,627 $ 5,025
========== ====== ==========
Earnings per common share, primary:
Net income from continuing operations $ 1.44 0.82 $ 1.55
========== ====== ==========
Weighted average number of
common shares outstanding 2,360 1,976 3,242
========== ====== ==========
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.44 0.82 $ 1.55
========== ====== ==========
Weighted average number of
common shares outstanding 2,361 1,976 3,243
========== ====== ==========
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1991
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- ---------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 50,812 14,297 $ 65,109
Net change in unearned premiums (2,325) (2,325)
------------ ------ ------------
Net premiums earned 48,487 14,297 62,784
Underwriting expenses:
Net losses and loss adjustment expenses 9,871 10,374 20,245
Policy acquisition costs 26,598 2,493 29,091
General operating costs 12,505 3,838 16,343
------------ ------ ------------
Total underwriting expenses 48,974 16,705 65,679
------------ ------ ------------
Underwriting income (loss) (487) (2,408) (2,895)
Net investment income 5,096 1,544 6,640
Net unrealized gains (losses) on trading securities 0
Net realized investment gains (losses) 2,217 2,217
Interest expense (1,357) (1,357)
Collateral interest expense (1,784) (1,784)
Commissions and fees 1,965 1,965
Other revenue 38 38
------------ ------ ------------
Income before income taxes 3,685 1,139 4,824
Provision for income taxes 192 78 270
------------ ------ ------------
Net income from continuing operations $ 3,493 1,061 $ 4,554
============ ====== ============
Earnings per common share, primary:
Net income from continuing operations $ 1.42 0.57 $ 1.38
============ ====== ============
Weighted average number of
common shares outstanding 2,461 1,873 3,301
============ ====== ============
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 1.42 0.57 $ 1.38
============ ====== ============
Weighted average number of
common shares outstanding 2,461 1,873 3,301
============ ====== ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1990
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------
Amwest Condor Adjustments Combined
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 48,479 18,266 $ 66,745
Net change in unearned premiums (1,621) (1,621)
------------ ------ ------------
Net premiums earned 46,858 18,266 65,124
Underwriting expenses:
Net losses and loss adjustment expenses 7,966 17,683 25,649
Policy acquisition costs 24,421 1,215 25,636
General operating costs 11,019 3,739 14,758
------------ ------ ------------
Total underwriting expenses 43,406 22,637 66,043
Underwriting income (loss) 3,452 (4,371) (919)
Net investment income 5,135 1,242 6,377
Net unrealized gains (losses) on trading securities 0
Net realized investment gains (losses) (8) (8)
Interest expense (1,335) (1,335)
Collateral interest expense (1,477) (1,477)
Commissions and fees 2,415 2,415
Other revenue 297 297
------------ ------ ------------
Income before income taxes 5,767 (417) 5,350
Provision for income taxes 609 (55) 554
------------ ------ ------------
Net income from continuing operations $ 5,158 (362) $ 4,796
============ ====== ============
Earnings per common share, primary:
Net income from continuing operations $ 2.16 (0.17) $ 1.39
============ ====== ============
Weighted average number of
common shares outstanding 2,391 2,129 3,440
============ ====== ============
Earnings per common share, assuming full dilution:
Net income from continuing operations $ 2.16 (0.17) $ 1.39
============ ====== ============
Weighted average number of
common shares outstanding 2,391 2,129 3,440
============ ====== ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma combined financial statements are presented for
illustrative purposes only, giving effect to the Merger of Amwest Insurance
Group, Inc. and Condor Services, Inc. as accounted for by the "pooling of
interests" method. In accordance with Commission reporting rules, the pro forma
combined statements of income, and the historical statements from which they are
derived, present only income from continuing operations and, therefore, do not
include discontinued operations, extraordinary items, and the cumulative effects
of accounting changes.
Because the transaction has not been completed and transition plans are
currently being developed, transaction costs of the Merger and nonrecurring
costs and expenses expected to be incurred in connection with the integration of
the companies' business operations can only be estimated at this time. The pro
forma combined statements of income excludes investment banking, legal and
miscellaneous transaction costs and expenses of the Merger, currently estimated
to be $600,000. However, the pro forma combined balance sheet as of September
30, 1995 includes the adjustment, net of related taxes, of $396,000, for the
above estimated amount of transaction costs related to the Merger.
2. Pro Forma Adjustments
Pro Forma Combined Balance Sheet
Equity securities, available for sale, at market value; deferred Federal income
taxes
Amwest Surety Insurance Company, a wholly owned subsidiary of
Amwest, currently owns 97,350 shares of Condor which is classified as an
equity investment in the historical balances for Amwest. These shares will
be retired pursuant to the Merger Agreement. Based on the market value of
this investment at September 30, 1995, a decrease of $414,000 is reflected
in the pro forma combined balance sheet as of September 30, 1995.
Deferred Federal Income Taxes
The pro forma balance sheet at September 30, 1995 reflects an
adjustment of $288,000 which is attributed to the deferred taxes associated with
the gross unrealized gain of $247,000 on the equity investment in Condor (as
explained above), or $84,000 coupled with the deferred taxes associated with the
$600,000 estimate for transaction costs, or $204,000.
Other Liabilities
The pro forma balance sheet at September 30, 1995 reflects an
adjustment of $692,000 which is attributed to the $600,000 estimate for
transaction costs coupled with an increase in the cash dividend accrual
associated with the assumed issuance of approximately 919,000 shares as further
explained under Stockholder's Equity below. Amwest declared a cash dividend of
$.10 per share payable to stockholders of record as of September 30, 1995.
Stockholders' Equity
Stockholders' equity as of September 30, 1995 has been adjusted to
reflect the following:
Common Stock, $.01 par value, has been adjusted to reflect
the assumed issuance of approximately 919,000 shares of Amwest
Insurance Group, Inc. Common Stock, $.01 par value, in
exchange for 1,837,956 (net of 14,500 shares held by Condor in
treasury) shares of Condor Services, Inc. Common Stock issued
and outstanding as of November 30, 1995, utilizing the
exchange rate of 0.5 share of Amwest for each share of Condor
(and assuming that the 97,350 shares of Condor Common Stock
indirectly owned by Amwest will be retired). The number of
shares of Amwest Common Stock to be issued at consummation of
the Merger will be based upon the actual number of shares of
Condor Common Stock outstanding at that time.
Paid in capital is adjusted for the effects of the
aforementioned issuance of approximately 919,000 shares of
Amwest Common Stock having a par value of $.01 per share in
exchange for Condor Common Stock.
Net unrealized appreciation (depreciation) of investments
carried at market, net of income taxes is adjusted for the net
unrealized gain of $164,000 associated with the equity
investment of 97,350 shares of appreciated Condor Common Stock
owned by a wholly-owned subsidiary of Amwest.
The net decrease in retained earnings is attributed to the
pro forma adjustments made to retire the 97,350 shares of
Condor Common Stock owned by a wholly-owned subsidiary of
Amwest, the increased dividend accrual associated with the
assumed issuance of approximately 919,000 shares and the
$396,000 after-tax effect for the estimate for transaction
costs associated with the Merger.
Pro Forma Combined Statements of Income
Net realized investment gains
The pro forma results for net realized investment gains were adjusted
for the year ended December 31, 1993 pursuant to sale transactions of Condor
Common Stock made by a wholly-owned subsidiary of Amwest. For the year ended
December 31, 1993, the investment in Condor Common Stock was reduced from
212,850 shares at January 1, 1993 to 97,350 shares at December 31, 1993
resulting in realized investment gains, net of income taxes of $335,000.
Earnings per common share
To arrive at pro forma combined net income, adjustments have been made
as necessary to reflect such income on both a primary and fully diluted basis.
Pro forma weighted average number of common shares outstanding for the nine
month periods ended September 30, 1995 and 1994 and for the years ended December
31, 1994, 1993 and 1992 are based upon Amwest's and Condor's combined historical
weighted average shares, after adjustment of Condor's historical number of
shares by the Conversion Number and excluding any Condor shares held in treasury
or owned by Amwest.
3. Proposition 103
On December 14, 1995, the Supreme Court of the State of California
affirmed the decision of the Second District Court of Appeal overturning
Insurance Code Section 1861.135 which exempted the surety insurance industry
from major provisions of Proposition 103. Accordingly, the surety insurance
industry will no longer be exempted from the rate rollback and prior approval
provisions contained in Proposition 103.
To date, Amwest has not received any calculations from the California
Department of Insurance regarding Amwest's Proposition 103 rollback amount.
Amwest anticipates that it will accrue during the fourth quarter of 1995 its
estimated rollback obligation pursuant to Proposition 103, the amount of which
has not yet been determined. However, as previously disclosed in Amwest's Annual
Report on Form 10-K and subsequent filings on Form 10-Q, Amwest believes that
the ultimate rollback amount will have a significant impact on the Company's
1995 earnings, but is not expected to materially adversely impact Amwest's
financial position.
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF AMWEST
General
The authorized capital stock of Amwest consists of 10,000,000 shares of
Common Stock, par value $.01 per share, of which 2,367,964 shares are issued and
outstanding, and 1,000,000 shares of Preferred Stock, par value $.01 per share,
none of which are issued or outstanding.
Common Stock
The outstanding shares of Amwest Common Stock are, and the shares to be
issued in connection with this offering will be, validly issued, fully paid and
nonassessable. Holders of Amwest Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. The
shares of Amwest Common Stock have cumulative voting rights with respect to the
election of directors. Holders of Common Stock do not have any preemptive rights
or rights to subscribe for additional securities of Amwest. The Amwest Common
Stock is neither redeemable nor convertible into other securities, and there are
no sinking fund provisions. Subject to the preferences applicable to any shares
of Preferred Stock outstanding at the time, holders of Amwest Common Stock are
entitled to dividends if, when and as declared by the Board of Directors from
funds legally available therefor and are entitled, in the event of liquidation,
to share ratably in all assets remaining after payment of liabilities and
Preferred Stock preferences, if any.
Each outstanding share of Amwest Common Stock is accompanied by a right
to purchase one one-hundredth of a share of Amwest Series A Junior Participating
Preferred Stock, $0.01 par value per share. Each Right becomes exercisable on
the tenth business day after a person or group (other than Amwest and certain
related parties) has acquired or commenced a tender or exchange offer to acquire
20% or more of Amwest's Common Stock, or upon consummation of certain mergers,
business combinations or sales of Amwest's assets. If the Rights become
exercisable, a holder will be entitled to purchase in certain cases (i) one
one-hundredth of a share of Series A Junior Participating Preferred Stock, $.01
par value, at the then current exercise price (initially $50), (ii) shares of
common stock, $.01 par value, having a market price equal to two times the then
current exercise price, or (iii) in case of a merger, common stock of the
acquiring corporation having a market value equal to two times the then current
exercise price.
Amwest is entitled to redeem the Rights at $.01 per Right under certain
circumstances. The rights do not have voting or dividend rights, and cannot be
traded independently from Amwest's Common Stock until such time as they become
exercisable. See "Comparison of Stockholder Rights--Rights Plans."
The registrar and transfer agent for the Amwest Common Stock is the
American Stock Transfer & Trust Company.
Preferred Stock
There are 1,000,000 shares of Amwest Preferred Stock authorized for
issuance. There are currently no Amwest Preferred Stock outstanding.
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of material differences between the rights
of holders of Condor Common Stock and the rights of holders of Amwest Common
Stock. As each of Condor and Amwest is organized under the laws of Delaware,
these differences arise from various provisions of the Certificate of
Incorporation and By-laws of each of Condor and Amwest and the Amwest Rights
Agreement (as defined below).
Stockholder Vote Required for Certain Transactions
Certain Business Combinations. Condor's Certificate of Incorporation
contains provisions for the approval or authorization of any business
combination that has not been approved in advance by a majority of the Board of
Directors. These provisions require the affirmative vote of the holders of not
less than 66 2/3% of the shares of voting stock then outstanding. These
provisions are not applicable to the Merger because of action taken by the
Condor Board of Directors in connection with approving the Merger Agreement.
Amwest's Certificate of Incorporation contains similar provisions,
however, the affirmative vote of the holders of not less than 75% of the shares
of voting stock then outstanding is required.
Election of Directors for Vacant Positions. Condor's Certificate of
Incorporation provides that a Board vacancy resulting from the death,
resignation or removal of a director shall be filled by a person designated by
the majority of the remaining directors.
Amwest's Certificate of Incorporation contains similar provisions,
however, the person designated may be determined by the majority of the
remaining directors or, under certain circumstances, the affirmative vote of the
holders of not less than 75% of the shares of voting stock then outstanding.
Removal of Directors. Condor's Certificate of Incorporation provides
that directors may be removed from office with or without cause at any time, but
only by the affirmative vote of the holders of a majority of the shares of
voting stock then outstanding.
Amwest's Certificate of Incorporation provides that directors may be
removed from office at any time, but only (1) for cause, and (2) by the
affirmative vote of the holders of a majority of the voting stock.
Amendments to Certificate of Incorporation. Condor's Certificate of
Incorporation contains provisions for the alteration, amendment, repeal or
recission of any provision of the Certificate of Incorporation. These provisions
require the approval of a majority of the directors of the corporation then in
office and the affirmative vote of the holders of a majority of the voting stock
then outstanding. Certain provisions of the Certificate of Incorporation require
the approval of the majority of the authorized number of directors and the
affirmative vote of the holders of not less than 66 2/3% of the shares of voting
stock then outstanding.
Amwest's Certificate of Incorporation contains similar provisions,
however, for certain provisions of the Certificate of Incorporation, the
approval of the majority of the authorized number of directors and the
affirmative vote of the holders of not less than 75% of the shares of voting
stock then outstanding is required.
Special Meetings of Stockholders
Condor's Certificate of Incorporation provides that a special meeting
of stockholders may be called for any purpose or purposes at any time by a
majority of the members of the Board of Directors or, under certain
circumstances, by the holders of not less than 10% of the shares of voting stock
then outstanding.
Amwest's Certificate of Incorporation provides that a special meeting
of stockholders may be called for any purpose or purposes at any time by a
majority of the members of the Board of Directors. Amwest stockholders are not
permitted to call a special meeting of stockholders or to require that the Board
call such a special meeting.
Cumulative Voting
Condor's Certificate of Incorporation does not include a provision for
cumulative voting in the election of members of the Board of directors.
Amwest's Certificate of Incorporation includes a provision for
cumulative voting such that, in any election of directors of the corporation, a
holder of any class or series of stock then entitled to vote in such election
shall be entitled to as many votes as shall equal (i) the number of votes which
he would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by (ii) the number of directors to be elected in the
election in which his class or series of shares is entitled to vote, and each
stockholder may cast all of such votes for a single director or for any two or
more of them as he may see fit.
Rights Plans
On May 10, 1989, the Board of Directors of Amwest adopted a Stockholder
Rights Plan and declared a dividend of one Stock Purchase Right (a "Right") for
each share of common stock outstanding on May 22, 1989. Each Right becomes
exercisable on the tenth business day after a person or group (other than Amwest
and certain related parties) has acquired or commenced a tender or exchange
offer to acquire 20% or more of Amwest's Common Stock, or upon consummation of
certain mergers, business combinations or sales of Amwest's assets. If the
Rights become exercisable, a holder will be entitled to purchase in certain
cases (i) one one-hundredth of a share of Series A Junior Participating
Preferred Stock, $.01 par value, at the then current exercise price (initially
$50), (ii) shares of common stock, $.01 par value, having a market price equal
to two times the then current exercise price, or (iii) in case of a merger,
common stock of the acquiring corporation having a market value equal to two
times the then current exercise price.
Amwest is entitled to redeem the Rights at $.01 per Right under certain
circumstances. The rights do not have voting or dividend rights, and cannot be
traded independently from Amwest's common stock until such time as they become
exercisable.
The Merger does not trigger the Stockholder Rights Plan because it has
been approved by the Board of Directors and to Amwest's knowledge, no
stockholder owns greater than 20% of Amwest after the Merger, other than
previously excepted persons.
<PAGE>
OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement will be brought before the Condor Special Meeting or the Amwest
Special Meeting. If any other matters are presented, however, it is the
intention of the persons named in the Condor proxy and Amwest proxy to vote the
proxy in accordance with the discretion of the persons named in such proxy.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby and the Merger will be passed upon for Amwest by Gibson, Dunn &
Crutcher, 333 South Grand Avenue, Los Angeles, California 90071-3197. Jonathan
K. Layne, who is a member of Amwest's Board of Directors, is a partner of
Gibson, Dunn & Crutcher. Certain legal matters in connection with the Merger
will be passed upon for Condor by Kindel & Anderson LLP, 555 South Flower
Street, Los Angeles, California 90071-2498.
EXPERTS
The consolidated financial statements of Amwest Insurance Group, Inc.
and Condor Services, Inc. as of December 31, 1994 and 1993, and for each of the
years in the three year period ended December 31, 1994, have been incorporated
by reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick, LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in auditing and accounting.
The report of KPMG Peat Marwick LLP on the December 31, 1994 financial
statements of Condor Services, Inc. contains an explanatory paragraph that
states that Condor adopted the provisions of Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" in 1993.
<PAGE>
CONDOR SERVICES, INC.
AND
AMWEST INSURANCE GROUP, INC.
Annexes to the Joint Proxy Statement/Prospectus
Annex A -- Merger Agreement
Annex B -- Stockholder Agreement
Annex C --Opinion of Jefferies and Company
Annex D --Opinion of Wedbush Morgan
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at its request in such capacity in another
corporation or business association against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
As permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide: (i) the Registrant is required to
indemnify its directors, officers and employees and persons serving in such
capacities in other business enterprises (including, for example, subsidiaries
of the Registrant) at the Registrant's request, who are or were a party to, or
is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the Registrant,
and whether civil, criminal, administrative, investigative or otherwise, to the
fullest extent permitted by Delaware law; (ii) the Registrant shall pay all
expenses (including attorneys' fees), judgements, fines and amounts paid in
settlement and, in the manner provided by law, any such expenses may be paid by
the Registrant in advance of the final disposition of such action, suit or
proceeding.); (iii) the rights conferred in the Bylaws are not exclusive and the
Registrant is authorized to enter into indemnification agreements with any other
person for any such expenses to the fullest extent permitted by law; (iv) the
Registrant may purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person.; and (v) the
Registrant may not retroactively amend the Bylaw provisions in a way that is
adverse to such directors, officers, employees and agents. The Registrant has
also entered into an agreement with its directors and certain of its officers
indemnifying them to the fullest extent permitted by the foregoing. These
indemnification provisions, and the Indemnification Agreements entered into
between the Registrant and its directors and certain of its officers, may be
sufficiently broad to permit indemnification of the Registrants' officers and
directors for liabilities arising under the Securities Act.
The Registrant's Stock Plan, as amended, provides for indemnification
by the Registrant of any committee member, officer or director administering or
interpreting such plan for actions not undertaken in bad faith or fraud.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated as of November 30, 1995 by
and between Amwest Insurance Group, Inc. and Condor Services,
Inc., including Exhibits and Disclosure Schedules
(incorporated hereby by reference to Exhibit 2 to Amwest's
Form 8-K dated November 30, 1995).
3.1 Restated Certificate of Incorporation of Amwest as amended to
date (incorporated hereby by reference to Exhibit 3(3)(a) to
Amwest's Form 8-B Registration Statement No. 1-9580).
3.2 Bylaws of Amwest (incorporated hereby by reference to Exhibit
3.2 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.)
4.1 Specimen Common Stock Certificate (incorporated hereby by
reference to Exhibit 3(4) to Amwest's Form 8-B Registration
Statement No. 1-9580.)
5.1 *** Opinion of Gibson, Dunn & Crutcher Regarding Legality of Shares
Being Registered.
8.1 *** Opinion of Gibson, Dunn & Crutcher Regarding Tax Matters.
8.2 *** Opinion of Kindel & Anderson L.L.P. Regarding Tax Matters.
10.1 Lease Agreement dated April 1, 1986, by and between Amwest
Insurance Group, Inc. and Trillium / Woodland Hills.
(Incorporated by reference to exhibit 10.9 to Amwest's 1986
Form 10-K.)
10.2 First amendment to Lease Agreement dated January 30, 1987, by
and between Amwest Insurance Group, Inc. and Trillium/
Woodland Hills. (Incorporated by reference to 10.13 to
Amwest's 1987 Form 10-K.)
10.3 Second amendment to Lease Agreement dated June 11, 1987, by
and between Amwest Insurance Group, Inc. and Trillium/
Woodland Hills. (Incorporated by reference to 10.14 to
Amwest's 1987 Form 10-K.)
10.4 Third amendment to Lease Agreement dated September 1, 1988, by
and between Amwest Insurance Group, Inc. and Trillium/
Woodland Hills. (Incorporated by reference to 10.15 to
Amwest's 1988 Form 10-K.)
10.5 Fourth amendment to Lease Agreement dated November 20, 1989, by
and between Amwest Insurance Group, Inc. and Trillium/
Woodland Hills. (Incorporated by reference to 10.15 to
Amwest's 1989 Form 10-K.)
10.6 Fifth amendment to Lease Agreement dated December 20, 1989, by
and between Amwest Insurance Group, Inc. and Trillium/
Woodland Hills. (Incorporated by reference to 10.16 to
Amwest's 1989 Form 10-K.)
10.7 Sixth amendment to Lease Agreement dated December 31, 1989, by
and between Amwest Insurance Group, Inc. and Trillium/
Woodland Hills. (Incorporated by reference to 10.17 to
Amwest's 1989 Form 10-K.)
10.8 Contract between Amwest and Hewlett-Packard Company, dated
September 16, 1991. (Incorporated by reference to 10.22 to
Amwest's 1991 Form 10-K.)
10.9 Lease Agreement dated June 16, 1992 by and between Amwest
Insurance Group, Inc. and Hewlett-Packard Company.
(Incorporated by reference to 10.18 to Amwest's 1992 Form
10-K.)
10.10 First Excess of Loss Reinsurance Contract effective October 1,
1992 issued to Amwest Surety Insurance Company and Far West
Insurance Company by a syndicate of reinsurers lead by Kemper
Reinsurance Company. (Incorporated by reference to 10.19 to
Amwest's 1992 Form 10-K.)
10.11 Investment Management Agreement between Amwest and AAM Advisors,
Inc., dated August 11, 1992. (Incorporated by reference to
10.21 to Amwest's 1992 Form 10-K.)
10.12 Contract between Amwest and Scudder, Stevens & Clark, Inc.,
dated August 13, 1992. (Incorporated by reference to 10.22
to Amwest's 1992 Form 10-K.)
10.13 Revolving Credit Agreement dated August 6, 1993 between Amwest
Insurance Group, Inc. and Union Bank. (Incorporated by
reference to 10.13 to Amwest's 1993 Form 10-K.)
10.14 First Amendment to the First Excess of Loss Reinsurance Contract
effective October 1, 1993. (Incorporated by reference to
10.14 to Amwest's 1993 Form 10-K.)
10.15 Semiautomatic Bond Quota Share Reinsurance Contract effective
October 1, 1993 issued to Amwest Surety Insurance Company by
Kemper Reinsurance Company and Underwriters Reinsurance
Company. (Incorporated by reference to 10.15 to Amwest's 1993
Form 10-K.)
10.16 First Excess of Loss Reinsurance Contract effective October 1,
1994 issued to Amwest Surety Insurance Company and Far West
Insurance Company by a syndicate of reinsurers lead by Kemper
Reinsurance Company. (Incorporated by reference to 10.16 to
Amwest's 1994 Form 10-K.)
10.17 Semiautomatic Contract Surety Reinsurance Agreement effective
March 1, 1994 issued to Amwest Surety Insurance Company and Far
West Insurance Company by a syndicate of reinsurers lead by
Kemper Reinsurance Company. (Incorporated by reference to 10.17
to Amwest's 1994 Form 10-K.)
10.18 Stock Option Plan of Amwest, as amended. (Incorporated by
reference to Exhibit 4.1 to Amwest's Form S-8 Registration
Statement No. 33-82178.)
10.19 Form of Indemnity Agreement between Amwest and Individual
Directors and Certain Officers Designated by Amwest's Board
of Directors. (Incorporated by reference to Exhibit 3(10)
to Amwest's Form 8-B Registration Statement No. 1-9580.)
10.20 Form of Senior Executive Severance Agreement entered into by
Amwest and certain officers. (Incorporated by reference to
10.20 to Amwest's 1989 Form 10-K.)
10.21 Rights Agreement dated as of May 10, 1989 executed by Amwest
and Bankers Trust Company of California, N.A., as rights
agent. (Incorporated by reference to Exhibit 10.1 to Amwest's
Registration Statement on Form 8-A dated May 11, 1989.)
10.22 Non-Employee Director Stock Option Plan of Amwest. (Incorporated
by reference to Exhibit 4.2 to Amwest's Form S-8 Registration
Statement No. 33-82178.)
10.23 First Amendement to Revolving Credit Agreement. (Incorporated by
reference to Exhibit 19.1 to the Amwest's March 31, 1995 Form
10-Q.)
13.1** Amwest's 1994 Annual Report on Form 10-K.
13.2** Amwest's March 31, 1995 Quarterly Report on Form 10-Q.
13.3** Amwest's June 30, 1995 Quarterly Report on Form 10-Q.
13.4** Amwest's September 30, 1995 Quarterly Report on Form 10-Q.
21.1 List of Subsidiaries of Registrant (incorporated hereby by
reference to Exhibit 3(22) to Amwest's Form 8-B Registration
Statement No. 1-9580.)
23.1 * Consent of KPMG Peat Marwick LLP.
23.2 *** Consent of Gibson, Dunn & Crutcher (included as part of the
Opinion submitted as Exhibit 5.1 hereto).
24.1 * Power of Attorney (contained on page II-7 of the Registration
Statement).
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
<PAGE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report, to security holders that is
incorporated by reference in the prospectus and furnished pursuant
to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is
not set forth in the prospectus, to deliver, or cause to be delivered
to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(d) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus:
(i) that is filed pursuant to paragraph (1) immediately
preceding, or
(ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the
registration statement and will not be used until
such amendment is effective, and that, for purposes
of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating
to the securities offered therein, and the offering
of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Woodland Hills, State of California, on the 9th day of January, 1996.
AMWEST INSURANCE GROUP, INC.
By: /s/ Steven R. Kay
Steven R. Kay
Senior Vice President, Chief
Financial Officer and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to
this Registration Statement appears below hereby constitutes and appoints John
E. Savage, Steven R. Kay and Arthur F. Melton as such person's true and lawful
attorney-in-fact and agent with full power of substitution for such person and
in such person's name, place and stead, in any and all capacities, to sign and
to file with the Securities and Exchange Commission, any and all amendments and
post-effective amendments to this Registration Statement, with exhibits thereto
and other documents in connection therewith, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or any
substitute therefor, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
Chairman of the Board and Co-Chief
Executive Officer (Principal
/s/RICHARD H. SAVAGE Executive Officer)
Richard H. Savage
President, Chief Operating Officer,
/s/JOHN E. SAVAGE Co-Chief Executive Officer and Director
John E. Savage
Senior Vice President, Chief Financial
Officer, Treasurer and Director
(Principal Financial and Principal
/s/STEVEN R. KAY Accounting Officer)
Steven R. Kay
/s/ARTHUR F. MELTON Senior Vice President and Director
Arthur F. Melton
/s/NEIL F. PONT Senior Vice President and Director
Neil F. Pont
/s/THOMAS R. BENNETT Director
Thomas R. Bennett
/s/BRUCE A. BUNNER Director
Bruce A. Bunner
/s/EDGAR L. FRASER Director
Edgar L. Fraser
/s/JONATHAN K. LAYNE Director
Jonathan K. Layne
/s/CHARLES L. SCHULTZ Director
Charles L. Schultz
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Description Number
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of November 30, 1995 by and between
Amwest Insurance Group, Inc. and Condor Services, Inc., including Exhibits
and Disclosure Schedules (incorporated hereby by reference to Exhibit 2 to
Amwest's Form 8-K dated November 30, 1995).
3.1 Restated Certificate of Incorporation of Amwest as amended to date
(incorporated hereby by reference to Exhibit 3(3)(a) to Amwest's Form 8-B
Registration Statement No. 1-9580).
3.2 Bylaws of Amwest (incorporated hereby by reference to Exhibit
3.2 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.)
4.1 Specimen Common Stock Certificate (incorporated hereby by reference to
Exhibit 3(4) to Amwest's Form 8-B Registration Statement No. 1-9580.)
5.1 *** Opinion of Gibson, Dunn & Crutcher Regarding Legality of Shares Being
Registered.
8.1 *** Opinion of Gibson, Dunn & Crutcher Regarding Tax Matters.
8.2 *** Opinion of Kindel & Anderson L.L.P. Regarding Tax Matters.
10.1 Lease Agreement dated April 1, 1986, by and between Amwest Insurance Group,
Inc. and Trillium/Woodland Hills. (Incorporated by reference to exhibit 10.9
to Amwest's 1986 Form 10-K.)
10.2 First amendment to Lease Agreement dated January 30, 1987, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.13 to Amwest's 1987 Form 10-K.)
10.3 Second amendment to Lease Agreement dated June 11, 1987, by and between Amwest
Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by reference
to 10.14 to Amwest's 1987 Form 10-K.)
10.4 Third amendment to Lease Agreement dated September 1, 1988, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.15 to Amwest's 1988 Form 10-K.)
10.5 Fourth amendment to Lease Agreement dated November 20, 1989, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.15 to Amwest's 1989 Form 10-K.)
10.6 Fifth amendment to Lease Agreement dated December 20, 1989, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.16 to Amwest's 1989 Form 10-K.)
10.7 Sixth amendment to Lease Agreement dated December 31, 1989, by and between
Amwest Insurance Group, Inc. and Trillium/Woodland Hills. (Incorporated by
reference to 10.17 to Amwest's 1989 Form 10-K.)
10.8 Contract between Amwest and Hewlett-Packard Company, dated
September 16, 1991. (Incorporated by reference to 10.22 to
Amwest's 1991 Form 10-K.)
10.9 Lease Agreement dated June 16, 1992 by and between Amwest Insurance Group,
Inc. and Hewlett-Packard Company. (Incorporated by reference to 10.18 to
Amwest's 1992 Form 10-K.)
10.10 First Excess of Loss Reinsurance Contract effective October 1, 1992 issued to
Amwest Surety Insurance Company and Far West Insurance Company by a syndicate
of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference
to 10.19 to Amwest's 1992 Form 10-K.)
10.11 Investment Management Agreement between Amwest and AAM Advisors, Inc., dated
August 11, 1992. (Incorporated by reference to 10.21 to Amwest's 1992 Form
10-K.)
10.12 Contract between Amwest and Scudder, Stevens & Clark, Inc.,
dated August 13, 1992. (Incorporated by reference to 10.22 to
Amwest's 1992 Form 10-K.)
10.13 Revolving Credit Agreement dated August 6, 1993 between Amwest Insurance
Group, Inc. and Union Bank. (Incorporated by reference to 10.13 to Amwest's
1993 Form 10-K.)
10.14 First Amendment to the First Excess of Loss Reinsurance Contract effective
October 1, 1993. (Incorporated by reference to 10.14 to Amwest's 1993 Form
10-K.)
10.15 Semiautomatic Bond Quota Share Reinsurance Contract effective
October 1, 1993 issued to Amwest Surety Insurance Company by
Kemper Reinsurance Company and Underwriters Reinsurance Company.
(Incorporated by reference to 10.15 to Amwest's 1993 Form 10-K.)
10.16 First Excess of Loss Reinsurance Contract effective October 1, 1994 issued to
Amwest Surety Insurance Company and Far West Insurance Company by a syndicate
of reinsurers lead by Kemper Reinsurance Company. (Incorporated by reference
to 10.16 to Amwest's 1994 Form 10-K.)
10.17 Semiautomatic Contract Surety Reinsurance Agreement effective
March 1, 1994 issued to Amwest Surety Insurance Company and Far
West Insurance Company by a syndicate of reinsurers lead by
Kemper Reinsurance Company. (Incorporated by reference to 10.17
to Amwest's 1994 Form 10-K.)
10.18 Stock Option Plan of Amwest, as amended. (Incorporated by reference to
Exhibit 4.1 to Amwest's Form S-8 Registration Statement No. 33-82178.)
10.19 Form of Indemnity Agreement between Amwest and Individual Directors and
Certain Officers Designated by Amwest's Board of Directors. (Incorporated by
reference to Exhibit 3(10) to Amwest's Form 8-B Registration Statement No.
1-9580.)
10.20 Form of Senior Executive Severance Agreement entered into by Amwest and
certain officers. (Incorporated by reference to 10.20 to Amwest's 1989 Form
10-K.)
10.21 Rights Agreement dated as of May 10, 1989 executed by Amwest and Bankers Trust
Company of California, N.A., as rights agent. (Incorporated by reference to
Exhibit 10.1 to Amwest's Registration Statement on Form 8-A dated May 11,
1989.)
10.22 Non-Employee Director Stock Option Plan of Amwest. (Incorporated by reference
to Exhibit 4.2 to Amwest's Form S-8 Registration Statement No. 33-82178.)
10.23 First Amendement to Revolving Credit Agreement. (Incorporated by reference to
Exhibit 19.1 to the Amwest's March 31, 1995 Form 10-Q.)
13.1 ** Amwest's 1994 Annual Report on Form 10-K.
13.2 ** Amwest's March 31, 1995 Quarterly Report on Form 10-Q.
13.3 ** Amwest's June 30, 1995 Quarterly Report on Form 10-Q.
13.4 ** Amwest's September 30, 1995 Quarterly Report on Form 10-Q.
21.1 List of Subsidiaries of Registrant (incorporated hereby by reference to
Exhibit 3(22) to Amwest's Form 8-B Registration Statement No. 1-9580.)
23.1 * Consent of KPMG Peat Marwick LLP.
23.2 *** Consent of Gibson, Dunn & Crutcher (included as part of the
Opinion submitted as Exhibit 5.1 hereto).
24.1 * Power of Attorney (contained on page 112 of the Registration Statement).
</TABLE>
* Filed herewith.
** Previously filed.
*** To be filed by amendment
<PAGE>
ANNEX A
AGREEMENT
AND
PLAN OF MERGER
BY AND BETWEEN
AMWEST INSURANCE GROUP, INC.
AND
CONDOR SERVICES, INC.
DATED
November 30, 1995
<PAGE>
TABLE OF CONTENTS
Page(s)
CONTENTS
ARTICLE I THE MERGER......................................................... 1
Section 1.01 The Merger ................................................ 1
Section 1.02 Effective Time............................................. 1
Section 1.03 Certificate of Incorporation and Bylaws of the Surviving
Corporation........................................................ 2
Section 1.04 Board of Directors and Officers............................ 2
Section 1.05 Conversion of Shares....................................... 2
Section 1.06 Surrender of Certificates; Payment for and Exchange
of Shares.......................................................... 3
ARTICLE II RELATED MATTERS................................................... 5
Section 2.01 Treatment of Stock Options................................. 5
Section 2.02 Stockholder Approval....................................... 6
Section 2.03 Other Securities Matters................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONDOR......................... 7
Section 3.01 Corporate Organization..................................... 7
Section 3.02 Authorization.............................................. 8
Section 3.03 Capitalization............................................. 8
Section 3.04 Affiliated Entities........................................ 8
Section 3.05 Financial Statements....................................... 9
Section 3.06 Absence of Certain Changes or Events....................... 10
Section 3.07 Consents and Approvals; No Violation....................... 10
Section 3.08 No Undisclosed Liabilities................................. 11
Section 3.09 Taxes ..................................................... 11
Section 3.10 Insurance: Licenses, Permits and Filings................... 15
Section 3.11 Patents, Trademarks, and Other Intellectual Property....... 16
Section 3.12 Litigation ................................................ 16
Section 3.13 Insurance ................................................. 17
Section 3.14 Compliance with Laws....................................... 17
Section 3.15 Employee Benefit Plans..................................... 17
Section 3.16 Employment Related Agreements.............................. 18
Section 3.17 Labor Agreements and Controversies......................... 18
Section 3.18 Environmental Matters...................................... 19
Section 3.19 Certain Fees............................................... 19
Section 3.20 Disclosure ................................................ 19
Section 3.21 Post-Retirement and Post-Employment Benefit Obligations.... 20
Section 3.22 Registration Statement and Proxy Statement................. 20
Section 3.23 Absence of Questionable Payments........................... 20
Section 3.24 Guaranties................................................. 21
Section 3.25 Material Contracts......................................... 21
Section 3.26 Insurance Contracts and Rates.............................. 22
Section 3.27 Reinsurance................................................ 22
Section 3.28 Loss Reserves; Solvency.................................... 22
Section 3.29 Opinion of Financial Advisor............................... 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AMWEST.......................... 23
Section 4.01 Corporate Organization..................................... 23
Section 4.02 Authorization.............................................. 23
Section 4.03 Capitalization............................................. 24
Section 4.04 Financial Statements and Reports........................... 24
Section 4.05 Absence of Certain Changes................................. 25
Section 4.06 Consents and Approvals; No Violations...................... 25
Section 4.07 Litigation ................................................ 26
Section 4.08 Compliance with Laws....................................... 26
Section 4.09 Proxy Statement, Etc....................................... 26
Section 4.10 No Undisclosed Liabilities................................. 27
Section 4.11 Disclosure ................................................ 27
Section 4.12 Post-Retirement and Post-Employment Benefit Obligations.... 27
Section 4.13 Employee Benefit Plans..................................... 27
Section 4.14 Environmental Matters...................................... 28
Section 4.15 Absence of Questionable Payments........................... 29
Section 4.16 Certain Fees............................................... 30
Section 4.17 Taxes ..................................................... 30
Section 4.18 Affiliated Entities........................................ 33
Section 4.19 Reinsurance................................................ 33
Section 4.20 Insurance: Licenses, Permits and Filings................... 34
Section 4.21 Guaranties................................................. 35
Section 4.22 Material Contracts......................................... 35
Section 4.23 Insurance Contracts and Rates.............................. 36
Section 4.24 Loss Reserves; Solvency.................................... 36
ARTICLE V COVENANTS.......................................................... 37
Section 5.01 Conduct of Business of Condor and Amwest................... 37
Section 5.02 Access to Information...................................... 39
Section 5.03 All Reasonable Efforts..................................... 40
Section 5.04 Public Announcements....................................... 40
Section 5.05 Notification of Certain Matters............................ 40
Section 5.06 Indemnification and Insurance.............................. 40
Section 5.07 Regulatory Approvals....................................... 42
Section 5.08 Employee Matters........................................... 42
Section 5.09 No Actions Inconsistent With Tax-Free Reorganization....... 42
Section 5.10. Other Potential Acquirors................................. 42
Section 5.11 Letter of Condor's Accountants............................. 44
Section 5.12 Stock Exchange Listing..................................... 44
Section 5.13 Pooling of Interests....................................... 44
Section 5.14 Employment Agreement....................................... 44
Section 5.15 Condor Affiliates.......................................... 45
Section 5.16 Agreement with Guy A. Main................................. 45
ARTICLE VI CLOSING........................................................... 45
Section 6.01 Time and Place............................................. 45
Section 6.02 Deliveries at the Closing.................................. 45
ARTICLE VII CONDITIONS TO THE MERGER......................................... 45
Section 7.01 Conditions to the Obligations of Amwest and Condor......... 45
Section 7.02 Additional Conditions to the Obligations of Amwest......... 46
Section 7.03 Additional Conditions to the Obligations of Condor......... 48
ARTICLE VIII TERMINATION AND ABANDONMENT..................................... 49
Section 8.01 Termination................................................ 49
Section 8.02 Effect of Termination...................................... 50
Section 8.03 Fees and Expenses.......................................... 51
ARTICLE IX GENERAL PROVISIONS................................................ 52
Section 9.01 Amendment and Modification................................. 52
Section 9.02 Waiver of Compliance; Consents............................. 52
Section 9.03 Validity .................................................. 52
Section 9.04 Parties in Interest........................................ 53
Section 9.05 Survival of Representations, Warranties, Covenants and
Agreements......................................................... 53
Section 9.06 Notices ................................................... 53
Section 9.07 Governing Law.............................................. 54
Section 9.08 Counterparts............................................... 54
Section 9.09 Table of Contents and Headings............................. 54
Section 9.10 Entire Agreement........................................... 54
Section 9.11 Arbitration; Attorneys' Fees and Expenses.................. 54
Section 9.12 Miscellaneous.............................................. 55
EXHIBIT A STOCKHOLDER AGREEMENT.............................................. 57
EXHIBIT B AFFILIATES LETTER AND CONTINUITY OF INTEREST CERTIFICATE........... 61
EXHIBIT C AGREEMENT WITH GUY A. MAIN AND MAIN FAMILY TRUST................... 65
APPENDIX A TO EXHIBIT C...................................................... 73
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 30,
1995 (the "Agreement"), is between Amwest Insurance Group, Inc., a Delaware
corporation ("Amwest") and Condor Services, Inc., a Delaware corporation
("Condor").
RECITALS
A. Condor will be merged into Amwest pursuant to the terms of
this Agreement (the "Merger") and Condor will cease to exist as a separate
entity.
B. The Merger will be accomplished and will have the effects
set forth in this Agreement and as a result the shares of Condor common stock
will be converted into shares of common stock of Amwest.
C. A stockholder of Condor (the "Condor Stockholder") and
Amwest have entered into an agreement (the "Stockholder Agreement")
substantially in the form of Exhibit A to this Agreement by which the Condor
Stockholder has, among other things, consented to the Merger and agreed to vote
his shares in favor of the Merger.
ARTICLE I
THE MERGER
Section 1.01 The Merger
Upon the terms and subject to the satisfaction or, if
permissible, waiver of the conditions of this Agreement, at the Effective Time
(as defined in Section 1.02 hereof), Condor shall be merged with and into Amwest
in accordance with the applicable provisions of Delaware law and the separate
existence of Condor shall thereupon cease, and Amwest, which shall be and which
is hereinafter referred to as the "Surviving Corporation", shall continue its
corporate existence under the laws of the State of Delaware under the name
"Amwest Insurance Group, Inc." From and after the Effective Time, Amwest shall
possess all of the rights, privileges, powers and franchises of a public as well
as of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the constituent corporations, all as set forth in Section 259
of the General Corporation Law of the State of Delaware (the "DGCL").
Section 1.02 Effective Time
On the date of the closing of the Merger referred to in
Section 6.01 hereof, a Certificate of Merger in such form as required by, and
executed in accordance with, the relevant provisions of the DGCL shall be filed
with the Secretary of State of Delaware. The Merger shall become effective at
the date and time specified in such filing, and the date and time of such filing
is hereinafter referred to as the "Effective Time."
Section 1.03 Certificate of Incorporation and Bylaws of
the Surviving Corporation
The Certificate of Incorporation and Bylaws of Amwest, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by law.
Section 1.04 Board of Directors and Officers
The directors and officers of Amwest immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
each of such directors and officers to hold office, subject to the applicable
provisions of the Certificate of Incorporation and Bylaws of the Surviving
Corporation, until their successors are duly elected and qualified, or their
earlier death, resignation or removal.
Section 1.05 Conversion of Shares
At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof and subject to the conditions set forth
in Sections 7.02(i) and 7.03(h):
(a)......each share of Common Stock, par value $.01 per share,
of Condor (collectively, the "Condor Common Stock") then owned by Amwest or any
direct or indirect subsidiary of Amwest and each share of Condor Common Stock
then held in the treasury of Condor shall be canceled, and no payment shall be
made nor other consideration paid with respect thereto;
(b)......each then remaining outstanding share of Condor
Common Stock shall be converted into the right to receive 0.5 of a share
(subject to adjustment pursuant to Section 1.05(c) below, the "Conversion
Number") of common stock, par value $.01 per share, of Amwest (the "Amwest
Common Stock") (the shares of Amwest Common Stock into which each share of
Condor Common Stock is converted shall be referred to herein as the "Merger
Consideration"); and
(c)......(i) if the average daily Closing Price per share (as
defined in Section 2.01(a) below) of Amwest Common Stock as reported on the
American Stock Exchange ("ASE") for the 30 consecutive trading days ending on
the close of trading on the second trading day preceding the Closing Date (the
"Base Period Trading Price") is less than $12.50, the Merger Consideration per
share of Condor Common Stock shall be increased by a factor of 12.5 divided by
the Base Period Trading Price and (ii) if the Base Period Trading Price is
greater than $17.50, the Merger Consideration per Share shall be decreased by a
factor of 17.5 divided by the Base Period Trading Price.
Section 1.06 Surrender of Certificates; Payment for and
Exchange of Shares
(a)......As of the Effective Time, Amwest shall deposit with
American Stock Transfer & Trust Company, or another bank or trust company
designated by Amwest and reasonably acceptable to Condor (the "Exchange Agent"),
for the benefit of the holders of Condor Common Stock, for exchange in
accordance with this Article I, through the Exchange Agent: (i) certificates
representing the appropriate number of shares of Amwest Common Stock and (ii)
cash to be paid in lieu of fractional shares of Amwest Common Stock (such shares
of Amwest Common Stock and such cash are hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 1.06(f) in exchange for
outstanding Condor Common Stock.
(b)......As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Condor Common Stock (the "Certificates") whose shares were converted
into the right to receive shares of Amwest Common Stock pursuant to Section
1.05: (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Amwest and Condor may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Amwest Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Amwest, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Amwest Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Amwest Common Stock, which such holder has the right to receive
pursuant to the provisions of this Article I, and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of Condor
Common Stock which is not registered in the transfer records of Condor, a
certificate representing the proper number of shares of Amwest Common Stock,
together with a check, if applicable, for cash payable in lieu of a fractional
share, will be issued to a transferee if the Certificate representing such
Condor Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.06, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Amwest Common Stock and cash in
lieu of any fractional shares of Amwest Common Stock as contemplated by this
Section 1.06.
(c)......No dividends or other distributions declared or made
after the Effective Time with respect to Amwest Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Amwest Common Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 1.06(f) until the holder of record (or a valid
transferee) of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Amwest Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of Amwest Common Stock to which such holder is entitled pursuant to
Section 1.06(f) and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole shares
of Amwest Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Amwest Common Stock.
(d)......In the event that any certificate for Condor Common
Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue
in exchange therefor, upon the making of an affidavit of that fact by the holder
thereof such shares of Amwest Common Stock and cash in lieu of fractional
shares, if any, as may be required pursuant to this Agreement provided, however,
that Amwest may, in its discretion, require the delivery of a suitable bond or
indemnity.
(e)......All shares of Amwest Common Stock issued upon the
surrender for exchange of Condor Common Stock in accordance with the terms
hereof (including any cash paid pursuant to Section 1.06(c) or 1.06(f)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
Condor Common Stock, subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by Condor on such Condor
Common Stock in accordance with the terms of this Agreement or prior to the date
hereof and which remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the Condor Common Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article I.
(f)......No fractions of a share of Amwest Common Stock shall
be issued in the Merger, but in lieu thereof each holder of Condor Common Stock
otherwise entitled to a fraction of a share of Amwest Common Stock shall, upon
surrender of his or her certificate or certificates, be entitled to receive an
amount of cash (without interest) determined by multiplying the Base Period
Trading Price by the fractional share interest to which such holder would
otherwise be entitled. The parties acknowledge that payment of the cash
consideration in lieu of issuing fractional shares was not separately bargained
for consideration but merely represents a mechanical rounding off for purposes
of simplifying the corporate and accounting problems which would otherwise be
caused by the issuance of fractional shares.
(g)......Any portion of the Exchange Fund which remains
undistributed to the stockholders of Condor for six months after the Effective
Time shall be delivered to Amwest, upon demand, and any stockholders of Condor
who have not theretofore complied with this Article I shall thereafter look only
to Amwest for payment of their claim for Amwest Common Stock, as the case may
be, any cash in lieu of fractional shares of Amwest Common Stock and any
dividends or distributions with respect to Amwest Common Stock.
(h)......Neither Amwest nor Condor shall be liable to any
holder of Condor Common Stock, or Amwest Common Stock, as the case may be, for
such shares (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE II
RELATED MATTERS
Section 2.01 Treatment of Stock Options
(a)......At or immediately prior to the Effective Time, each
holder of a then outstanding option to purchase shares of Condor Common Stock,
other than those options held by non-employee directors of Condor, (whether or
not then currently exercisable) granted by Condor ("Condor Stock Option") as set
forth in Section 2.01 of the Condor Disclosure Schedule to this Agreement
executed by Condor and delivered simultaneously herewith (the "Condor Disclosure
Schedule") shall be canceled and, in lieu thereof, Amwest shall issue to each
holder thereof an option ("Amwest Option"), to acquire, on substantially the
same terms and subject to substantially the same conditions as were applicable
under such Condor Stock Option, the same number of shares of Amwest Common Stock
as the holder of such Condor Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time, at a price per share equal to (y) the per share
exercise price for the shares of Condor Common Stock otherwise purchasable
pursuant to such Condor Stock Option divided by (z) .5 as appropriately adjusted
pursuant to subsection (c) of Section 1.05; provided, however, that the number
of shares of Amwest Common Stock that may be purchased upon exercise of any
Amwest Option shall not include any fractional share and, upon exercise of the
Amwest Option, a cash payment shall be made for any fractional share based upon
the Closing Price (as hereinafter defined) of a share of Amwest Common Stock on
the trading day immediately preceding the date of exercise. "Closing Price"
shall mean, on any day, the last reported sale price for one share of Amwest
Common Stock on the ASE. Condor Stock Options issued to non-employee directors
of Condor which remain outstanding as of the Effective Time shall be
automatically canceled as of the Effective Time.
(b)......Amwest shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Amwest Common Stock for
delivery upon exercise of Amwest Options assumed in accordance with this Section
2.01. As soon as practicable after the Effective Time, Amwest shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), or another appropriate form with respect
to the shares of Amwest Common Stock subject to such options and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
Section 2.02 Stockholder Approval
(a)......(i) As promptly as practicable, Amwest will cause a
meeting of its stockholders to be duly called and will give notice of, convene
and hold such meeting as soon as practicable for the purpose of obtaining
approval of the Merger. The stockholder vote required for such approvals will be
no greater than that required by the applicable requirements of the DGCL and the
applicable rules of the ASE and the applicable requirements of Amwest's
Certificate of Incorporation and Bylaws. Amwest will solicit such approvals by
its stockholders and recommend that its stockholders vote in favor of such
approvals.
(ii) As promptly as practicable, Condor will cause a
meeting of its stockholders to be duly called and will give notice of, convene
and hold such meeting as soon as practicable for the purpose of obtaining
approval of the Merger. The stockholder vote required for such approvals will be
no greater than that required by the applicable requirements of the DGCL and the
applicable rules of the National Association of Securities Dealers ("NASD") and
the applicable requirements of Condor's Certificate of Incorporation and Bylaws.
Condor will solicit such approvals by its stockholders and recommend that its
stockholders vote in favor of such approvals.
(b)......In connection with any solicitations of approval of
the Merger by Amwest's and Condor's stockholders, Amwest and Condor will each
file with the Securities and Exchange Commission (the "Commission" or the "SEC")
under the Securities Exchange Act of 1934 (the "Exchange Act"), and will use all
reasonable efforts to have cleared by the Commission, and promptly thereafter
will mail to its respective stockholders proxy solicitation materials (including
a proxy statement and appropriate related forms of proxies) with respect to such
meeting. Except as provided in Section 9.12(b), such proxy statement of Amwest
will also constitute a prospectus of Amwest with respect to the shares of Amwest
Common Stock to be issued in the Merger and will be a part of a registration
statement filed by Amwest with the Commission for purposes of registering the
public offering of such shares under the Securities Act of 1933 (the "Securities
Act"). Amwest will promptly so file such registration statement and will use all
reasonable efforts to have it declared effective by the Commission. The term
"Proxy Materials" shall mean such proxy statement together with the related
forms of proxies and other proxy solicitation materials at the time initially
mailed to stockholders and all amendments or supplements thereto, if any,
similarly filed and mailed. The term "Registration Statement" shall mean the
registration statement of Amwest containing, as a part thereof, a prospectus in
the form of such proxy statement of Amwest, at the time it is declared effective
by the Commission.
(c)......The information provided and to be provided by Amwest
and Condor for use in the Registration Statement and the Proxy Materials will
not, in the case of the Registration Statement, on the date the Registration
Statement becomes effective and, in the case of the Proxy Materials, on the
respective dates on which either (i) the Proxy Materials are mailed to
stockholders of Amwest or Condor, as the case may be, or (ii) approval of the
Merger by Amwest's or Condor's stockholders, as the case may be, is obtained,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Amwest and Condor agree promptly to correct any such information
which shall have become false or misleading in any material respect and take all
steps necessary to file with the Commission and have declared effective or
cleared by the Commission any amendment or supplement to the Registration
Statement or the Proxy Materials so as to correct the same and to cause the
Proxy Materials as so corrected to be disseminated to their respective
stockholders, in each case as to the extent required by applicable law. The
Registration Statement and the Proxy Materials will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange Act
and other applicable law and will contain the recommendation of the Board of
Directors of Amwest and of Condor that Amwest's and Condor's stockholders vote
in favor of or consent to such approvals.
Section 2.03 Other Securities Matters
Amwest shall promptly prepare and file with respect to the
shares of Amwest Common Stock to be issued in the Merger any action required to
be taken under state blue sky or securities laws in connection with the issuance
of shares of Amwest Common Stock in the Merger and Condor shall furnish Amwest
with all information and shall take such other action as Amwest may reasonably
request in connection with any such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONDOR
Condor represents and warrants to Amwest as follows:
Section 3.01 Corporate Organization
Condor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or conduct of business requires such licensing
or qualification, except where the failure to be so qualified would not have a
Material Adverse Effect (as defined below) on Condor. Condor has delivered to
Amwest complete and correct copies of its Certificate of Incorporation and
Bylaws as in effect on the date hereof. "Material Adverse Effect" means any
change or effect (i) that is or is reasonably likely to be materially adverse to
the properties, business, results of operations, condition (financial or
otherwise) or prospects of Condor or Amwest or both taken together, as the case
may be, and any Affiliated Entity (as defined in Section 3.04 hereof), taken as
a whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which such party is engaged or (ii)
that may impair the ability of such party to consummate the transactions
contemplated hereby.
Section 3.02 Authorization
Condor has the requisite corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery by Condor of this Agreement, the performance by Condor of
its obligations hereunder and the consummation by Condor of the transactions
contemplated hereby have been duly authorized by Condor's Board of Directors
and, except for the approval of the stockholders of Condor Common Stock, no
other corporate proceeding on the part of Condor is necessary for the execution
and delivery thereof, and this Agreement is a legal, valid and binding
obligation of Condor, enforceable against it in accordance with its terms.
Section 3.03 Capitalization
The authorized capital stock of Condor and the ownership
thereof as well as the number of issued and outstanding shares of each class of
capital stock of Condor is as set forth in Section 3.03 of the Condor Disclosure
Schedule. All of such outstanding shares have been duly and validly issued, were
not issued in violation of any preemptive rights and are fully paid and
non-assessable with no personal liability attaching to the ownership thereof.
Except as set forth on Section 3.03 of the Condor Disclosure Schedule, there are
no options, warrants, subscriptions, conversion or other rights, agreements,
commitments, arrangements or understandings with respect to (i) the issuance of
shares of capital stock of Condor or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any such shares, (ii)
obligating Condor to purchase shares of Condor Common Stock or any security
convertible into Condor Common Stock or (iii) obligating any of Condor
stockholders to purchase, sell or transfer any Condor Common Stock. Section 3.03
of the Condor Disclosure Schedule lists all stock options granted by Condor,
true and correct copies of which have been provided by Condor to Amwest.
Section 3.04 Affiliated Entities
(a)......Except as set forth in Section 3.04(a) of the Condor
Disclosure Schedule, Condor has no direct or indirect "Affiliated Entities"
(which term includes each direct or indirect subsidiary of Condor or Amwest, as
the case may be, and each business entity in which Condor or Amwest, as the case
may be, has any direct or indirect interest and for which it accounts on the
equity method of accounting). Each Affiliated Entity of Condor listed on Section
3.04(a) of Condor Disclosure Schedule is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as now being conducted,
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which its ownership or leasing of property or conduct of
business requires such qualification or licensing, except where the failure to
be so qualified would not have a Material Adverse Effect on Condor. Condor has
delivered to Amwest complete and correct copies of the Articles or Certificate
of Incorporation and Bylaws of each such Affiliated Entity as in effect on the
date hereof.
(b)......Except as set forth in Section 3.04(b) of the Condor
Disclosure Schedule, Condor is, directly or indirectly, the record and
beneficial owner of all of the outstanding shares of capital stock of each of
its Affiliated Entities, and all of the outstanding shares of capital stock of
each such Affiliated Entity are duly and validly issued, were not issued in
violation of any preemptive rights, are fully paid and non-assessable and are
owned free and clear of any claim, lien, encumbrance or agreement with respect
thereto. Except as and to the extent set forth in Section 3.04(b) of the Condor
Disclosure Schedule, there are not any options, warrants, subscriptions,
conversion or other rights, agreements, or commitments, arrangements or
understandings with respect to the issuance of capital stock of any Affiliated
Entity of Condor or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any such shares.
(c)......Except as set forth in Section 3.04(c) of the Condor
Disclosure Schedule, Condor does not own, directly or indirectly, any capital
stock or other equity securities of any corporation, limited liability company
or limited partnership, other than of its Affiliated Entities, does not have any
direct or indirect equity or ownership interest in any other business or entity,
and does not have any direct or indirect obligation or any commitment to invest
any funds in any corporation or other business or entity other than investments
previously made in its Affiliated Entities.
Section 3.05 Financial Statements
Since January 1, 1994, Condor has filed with the SEC all
reports, registration statements and all other filings required to be filed with
the SEC under the rules and regulations of the SEC (collectively, the "Required
Condor Reports"), all of which, as of their respective effective dates, complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act. Condor has delivered to Amwest true and complete copies of
(i) Condor's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, as filed with the SEC, (ii) Quarterly Reports on Form 10-Q for the three
months ended March 31, 1995, June 30, 1995 and September 30, 1995, as filed with
the SEC, (iii) proxy statements relating to all meetings of Condor's
stockholders (whether annual or special) held or scheduled to be held since
January 1, 1994, (iv) all other forms, reports, statements and documents filed
by Condor with the SEC since January 1, 1994 and (v) all reports, statements and
other information provided by Condor to its stockholders since January 1, 1994
(collectively, the "Condor SEC Filings"). Except as set forth in Section 3.05 of
the Condor Disclosure Schedule, as of their respective dates, none of the
Required Condor Reports or Condor SEC Filings contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Except as set forth in
Section 3.05 of the Condor Disclosure Schedule, the consolidated financial
statements of Condor included or incorporated by reference in the Condor SEC
Filings were prepared in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP") (except as otherwise stated in
such financial statements or, in the case of audited statements, the related
report thereon of independent certified public accountants), and present fairly
the financial position and results of operations, cash flows and changes in
stockholders' equity of Condor and its consolidated Affiliated Entities as of
the dates and for the periods indicated, subject, in the case of unaudited
interim financial statements, to the absence of notes and to normal year-end
adjustments, and are consistent with the books and records of Condor.
Section 3.06 Absence of Certain Changes or Events
Except as set forth in Condor SEC Filings or in Section 3.06
of the Condor Disclosure Schedule, since December 31, 1994, Condor and its
Affiliated Entities have conducted their respective businesses only in the
ordinary and usual course and there has not been any event, change or
development which has had or will have a Material Adverse Effect on Condor.
Section 3.07 Consents and Approvals; No Violation
There is no requirement applicable to Condor or any of its
Affiliated Entities to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, other than (i) requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (ii) requirements of the California
Insurance Code (the "Insurance Code"), (iii) filings with the SEC pursuant to
the Securities Act and the Exchange Act, (iv) such filings and approvals as may
be required under the "blue sky," takeover or securities laws of various states,
(v) compliance with the requirements of the NASD, or (vi) where the failure to
make any such filing, or to obtain such permit, authorization, consent or
approval, would not prevent or delay consummation of the Merger or would not
otherwise prevent Condor from performing its obligations under this Agreement.
Except as set forth in Section 3.07 of the Condor Disclosure Schedule, neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (a) result in the acceleration of, or the
creation in any party of any right to accelerate, terminate, modify or cancel
any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which Condor or any Affiliated Entity is a party or
by which any of them is bound or to which any of their assets is subject, except
as would not have a Material Adverse Effect on Condor, (b) conflict with or
result in a breach of or constitute a default under any provision of the
Certificate of Incorporation or Bylaws (or other charter documents) of Condor or
any Affiliated Entity, or, except as would not have a Material Adverse Effect on
Condor, a default under or violation of any restriction, lien, encumbrance,
indenture, contract, lease, sublease, loan agreement, note or other obligation
or liability to which any of them is a party or by which any of them is bound or
to which any of their assets is subject or result in the creation of any lien or
encumbrance upon any of said assets, or (c) violate or result in a breach of or
constitute a default under any judgment, order, decree, rule or regulation of
any court or governmental agency to which Condor or any Affiliated Entity is
subject.
Section 3.08 No Undisclosed Liabilities
Except as and to the extent set forth on the consolidated
balance sheet of Condor as of December 31, 1994, included in the Required Condor
Reports, neither Condor nor any Affiliated Entities had, at such date, any
liabilities or obligations (absolute, accrued, contingent or otherwise) greater
than $50,000, taken as a whole and since that date neither Condor nor any
Affiliated Entities has incurred any liabilities or obligations material to
Condor and Affiliated Entities taken as a whole except those incurred in the
ordinary and usual course of business and consistent with past practice or in
connection with or as a result of the transactions contemplated by this
Agreement to which Condor is or is to be a party.
Section 3.09 Taxes
(a)......For purposes of this Agreement: (i) the term "Taxes"
means (A) all federal, state, local, foreign and other net income, gross income,
gross receipts, sales, use, ad valorem, value added, intangible, unitary,
capital gain, transfer, franchise, profits, license, lease, service, service
use, withholding, backup withholding, payroll, employment, estimated, excise,
severance, stamp, occupation, premium, property, prohibited transactions,
windfall or excess profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and (ii) the term "Returns" means all
returns, declarations, reports, statements and other documents required to be
filed in respect of Taxes; and the term "Return" means any one of the foregoing
Returns.
(b)......Section 3.09 of the Condor Disclosure Schedule sets
forth: (i) the taxable years of Condor and Tax Affiliates as to which the
respective statutes of limitations on the assessment of United States federal
income and any applicable state, local or foreign income, franchise and premium
Taxes have not expired, and (ii) with respect to such taxable years sets forth
those years for which examinations by the Internal Revenue Service or the state,
local or foreign taxing authority have been completed, those years for which
examinations by such agencies are presently being conducted, those years for
which notice of pending or threatened examination or adjustment has been
received, those years for which examinations by such agencies have not been
initiated, and those years for which required Returns for such Taxes have not
yet been filed. Except to the extent indicated in Section 3.09 of the Condor
Disclosure Schedule, all deficiencies asserted or assessments made as a result
of any examinations by the Internal Revenue Service or state, local or foreign
taxing authority have been fully paid, or are fully reflected as a liability in
the Required Condor Reports, or are set forth in Section 3.09 of the Condor
Disclosure Schedule, are being contested and an adequate reserve therefor has
been established and is fully reflected in the Required Condor Reports to the
extent required by GAAP. Section 3.09 of the Condor Disclosure Schedule sets
forth all Returns not otherwise described above that are presently under
examination with respect to Taxes and all assessments and deficiencies with
respect to the Returns that are presently being contested by Condor and Tax
Affiliates.
(c)......Condor represents and warrants to Amwest that, except
as described in Section 3.09 of the Condor Disclosure Schedule:
(i) Condor, its Affiliated Entities and every member of a consolidated,
combined,unitary, or other similar group for federal, state or local income tax
purposes(for the period during which Condor or Amwest, as the case may be, or
any of such Affiliated Entities were included in that group) (all such
Affiliated Entities and other entities collectively referred to herein
as "Tax Affiliates"), have filed on a timely basis all Returns required to
have been filed by it and have paid on a timely basis all Taxes shown thereon
as due. All such Returns are true, complete and correct in all material
respects. The provisions for taxes in the Required Condor Reports set forth
in all material respects the maximum liability of Condor and the Affiliated
Entities for Taxes relating to periods covered thereby. No liability for Taxes
has been incurred by Condor and the Affiliated Entities since the dates of
the Required Condor Reports other than in the ordinary course of their
business. No director, officer or employee of Condor or any of the
Affiliated Entities having responsibility for Tax matters has reason to
believe that any Taxing authority has valid grounds to claim or assess any
material additional Tax with respect to Condor or the Tax Affiliates in excess
of the amounts shown on the Required Condor Reports for the periods covered
thereby.
(ii) With respect to all amounts in respect of Taxes imposed upon Condor or
Tax Affiliates, or for which Condor or Tax Affiliates are or could be liable,
whether to taxing authorities (as, for example, under law) or to other persons
or entities (as, for example, under tax allocation agreements), and with respect
to all taxable periods or portions of periods ending on or before the Effective
Time, all applicable Tax laws and agreements have been fully complied with, and
all such amounts required to be paid by Condor and Tax Affiliates to taxing
authorities or others have been paid, in all material respects.
(iii) None of the Returns required to be filed by Condor and Tax Affiliates
contains, or were required to contain (in order to avoid the imposition of a
penalty), a disclosure statement under Section 6662 (or any predecessor
provision) of the Internal Revenue Code of 1986, as amended (the "Code"), or any
similar provision of state, local or foreign law;
(iv) Neither Condor nor any Tax Affiliate has received notice that the
Internal Revenue Service ("IRS") or any other taxing authority has asserted
against Condor or such Tax Affiliate any deficiency or claim for additional
Taxes in connection with any Return, and no issues have been raised (and are
currently pending) by any taxing authority in connection with any Return.
Neither Condor nor any Tax Affiliate has received notice that it is or may be
subject to Tax in a jurisdiction in which it has not filed or does not currently
file Returns;
(v) There is no pending or, to Condor's Knowledge, threatened action, audit,
proceeding, or investigation with respect to (i) the assessment or collection of
Taxes or (ii) a claim for refund made, of or by Condor and Tax Affiliates with
respect to Taxes;
(vi) All Tax deficiencies asserted or assessed against Condor and Tax
Affiliates have been paid or finally settled with no further amounts owed;
(vii) All amounts that were required to be collected or withheld by Condor and
Tax Affiliates have been duly collected or withheld in all material respects,
and all such amounts that were required to be remitted to any taxing authority
have been duly remitted in all material respects;
(viii) Condor and Tax Affiliates have not requested an extension of time to file
any Return not yet filed, and have not granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. No power of attorney granted by Condor or Tax Affiliates with respect
to Taxes is in force;
(ix) Condor and Tax Affiliates have not taken any action not in accordance
with past practice that would have the effect of deferring any material Tax
liability of Condor or any Tax Affiliate from any taxable period ending on or
before or including the Effective Time to any subsequent taxable period;
(x) Other than the Affiliated Entities, Condor has had no Tax Affiliates
during any period with respect to which the applicable statue of limitations on
the assessment of Taxes remains open;
(xi) Condor was not acquired in a "qualified stock purchase" under Section
338(d)(3) of the Code and no elections under Section 338(g) of the Code,
protective carryover basis elections, offset prohibition elections or similar
election are applicable to Condor or any Tax Affiliate;
(xii) Neither Condor nor any Tax Affiliate is required to include in income any
adjustment pursuant to Sections 481 or 263A of the Code (or similar provisions
of other law or regulations) by reason of a change in accounting method or
otherwise, following the Effective Time, and Condor has no Knowledge that the
IRS (or other taxing authority) has proposed, or is considering, any such change
in accounting method or other adjustment;
(xiii) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Condor or the Affiliated Entities;
(xiv) Neither Condor nor any of the Affiliated Entities are party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code, whether by reason of
the Merger or otherwise;
(xv) Neither Condor nor any Affiliated Entity is, and has not been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code (or any corresponding provision of state, local or foreign Tax law);
(xvi) Neither Condor nor any of the Affiliated Entities has or has had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country and neither Condor nor any of the Affiliated Entities has engaged in a
trade or business within any foreign country;
(xvii) Condor and the Affiliated Entities are not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes;
(xviii)Neither Condor nor any of the Affiliated Entities has not made a "waters
edge election" pursuant to California Revenue and Taxation Code Section 25110;
(xix) There are no excess loss accounts, deferred intercompany gains or losses,
or intercompany items, as such terms are defined in the Treasury Regulations,
that will be required to be recognized or otherwise taken into account as a
result of the acquisition of the Condor Common Stock pursuant to this Agreement;
(xx) Neither Condor nor any of the Affiliated Entities has filed a consent
under Section 341(f) of the Code (or any corresponding provision of state, local
or foreign Tax law); and
(xxi) Neither Condor nor any of the Affiliated Entities is a party to or bound
by any Tax sharing agreement nor has any current or contingent contractual
obligation to indemnify any other person with respect to Taxes, other than
obligations to indemnify a lessor for property Taxes, sales/use Taxes or gross
receipts Taxes (but not income, franchise or premium Taxes) imposed on lease
payments arising from terms that are customary for leases of similar property.
Section 3.10 Insurance: Licenses, Permits and Filings
Condor is duly organized and registered as a California
insurance holding company, and each Affiliated Entity which engages in an
insurance business ("Insurance Subsidiary") is duly organized and licensed as an
insurance company in California and is duly licensed or authorized as an insurer
or reinsurer in any other jurisdiction where it is required to be so licensed or
authorized to conduct its business, or is subject to no liability or disability
that would have a Material Adverse Effect by reason of the failure to be so
licensed or authorized in any such jurisdiction. Since January 1, 1994, Condor
has made all required filings under applicable insurance holding company
statutes. Each of Condor and its Insurance Subsidiaries has all other necessary
authorizations, approvals, orders, consents, certificates, permits,
registrations or qualifications of and from the California Department of
Insurance (the "Department") and any other applicable insurance regulatory
authorities (the "Insurance Licenses") to conduct their businesses as currently
conducted and all such Insurance Licenses are valid and in full force and
effect, except such Insurance Licenses which the failure to have or to be in
full force and effect individually or in the aggregate would not have a Material
Adverse Effect. Section 3.10 of the Condor Disclosure Schedule lists each order
and written understanding or agreement of or with the Department currently in
effect and applicable to Condor or any of its Insurance Subsidiaries. Neither
Condor nor any Affiliated Entity has received any notification (which
notification has not been withdrawn or otherwise resolved prior to the date of
this agreement) from the Department or any other insurance regulatory authority
to the effect that any additional Insurance License from such insurance
regulatory authority is needed to be obtained by Condor or any Affiliated Entity
in any case where it could be reasonably expected that (x) Condor or any
Affiliated Entity would in fact be required either to obtain any such additional
Insurance License, or cease or otherwise limit writing certain business and (y)
obtaining such Insurance License or the limiting of such business would have a
Material Adverse Effect. Each Insurance Subsidiary is in compliance with the
requirements of the insurance laws and regulations of California and the
insurance laws and regulations of any other jurisdiction which are applicable to
such Insurance Subsidiary, and has filed all notices, reports, documents or
other information required to be filed thereunder or in any such case is subject
to no Material Adverse Effect by reason of the failure to so comply or file.
Section 3.11 Patents, Trademarks, and Other
Intellectual Property
Except as set forth in Section 3.11 of the Condor Disclosure
Schedule, Condor and its Affiliated Entities possess or have the right to use to
the extent they are now using, all proprietary rights (including, without
limitation, patents, trade secrets, technology, know-how, copyrights,
trademarks, tradenames, and rights to any of the foregoing), the failure to
possess which would have a Material Adverse Effect on Condor or would prevent
Condor from carrying on its business and completing the development of new
products as currently contemplated ("Proprietary Rights"), and the consummation
of the transactions contemplated hereby will not alter or impair any such
rights. Set forth in Section 3.11 the of Condor Disclosure Schedule is a list of
all Proprietary Rights consisting of patents, patent applications, trademarks,
trademark applications, trade names and service marks owned or utilized by
Condor or its Affiliated Entities. Section 3.11 of the Condor Disclosure
Schedule also lists all licenses or other contracts related to Propriety Rights,
other than those entered into in the ordinary course. With respect to such
Proprietary Rights, and except as set forth in Section 3.11 of the Condor
Disclosure Schedule, (i) Condor has no Knowledge of any claim asserted by any
person challenging such Proprietary Rights which could have a Material Adverse
Effect on the business of Condor and its Affiliated Entities, (ii) to the
Knowledge of Condor, none of the aforesaid infringes or otherwise violates the
rights of others or is being infringed by others, and (iii) except for sales and
licenses in the ordinary course of business, no licenses, sublicenses or
agreements pertaining to any of the aforesaid have been granted by Condor or any
Affiliated Entity.
Section 3.12 Litigation
Except as set forth in Section 3.12 of the Condor Disclosure
Schedule, there is no Proceeding (as defined below) pending or, to the Knowledge
of Condor, threatened against or involving Condor or any of its Affiliated
Entities or any of their respective properties, assets, rights or obligations
before any court, arbitrator or administrative or governmental body, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Condor or any of its Affiliated Entities involving sums in excess of
$75,000. Neither Condor nor any of its Affiliated Entities is in violation of
any term of any judgment, decree, injunction or order outstanding against it.
There are no Proceedings pending or, to the Knowledge of Condor, threatened
against Condor or any of its Affiliated Entities arising out of or in any way
related to this Agreement or any of the transactions contemplated hereby. As
used in this Agreement, "Proceeding" means any action, suit, hearing,
arbitration or governmental investigation (whether public or private). None of
the Proceedings set forth in Section 3.12 of the Condor Disclosure Schedule
could result in any Material Adverse Effect.
Section 3.13 Insurance
All material policies of fire, liability, workmen's
compensation and other similar forms of insurance owned or held by Condor and
each Affiliated Entity are in full force and effect, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are valid, outstanding and enforceable policies, and will not in
any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Such policies, together with the self-insurance
reserves, if any, reflected on the most recent Condor SEC Filings, and such
other policies and reserves added since such date, provide, to the Knowledge of
Condor, insurance coverage that is adequate for the assets and operations of
Condor. Since January 1, 1994, Condor and its Affiliated Entities have been
covered by insurance in scope and amount customary and reasonable for business
in which it has engaged during such period.
Section 3.14 Compliance with Laws
Condor and each Affiliated Entity have complied in all
material respects with the laws and regulations of federal, state, local and
foreign governments and all agencies thereof which are applicable to the
business or properties of Condor or any Affiliated Entity, a violation of which
would result in a Material Adverse Effect on Condor. Except for all licenses,
permits, consents, authorizations and orders contained in Section 3.10, Condor
holds such licenses, permits, consents, authorizations and orders of such
governmental or regulatory authorities as are necessary to carry on its business
as currently being conducted and as anticipated to be conducted, the failure to
hold which could have a Material Adverse Effect on Condor, and such licenses,
permits, consents, authorizations and orders are in full force and effect and
have been and are being fully complied with by Condor.
Section 3.15 Employee Benefit Plans
(a)......Except as set forth in Section 3.15(a) to the Condor
Disclosure Schedule, (i) neither Condor nor any entity that together with Condor
is treated as a single employer pursuant to Section 414(b) or (c) of the Code or
Section 3(5) or 4001(b) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (an "ERISA Affiliate"), maintains or in the past has
maintained any Employee Benefit Plan, as defined in ERISA, under which Condor or
any of its Affiliated Entities has any present or future obligation or liability
or under which any present or former employee of Condor or its Affiliated
Entities has any present or future rights to benefits, (ii) each Employee
Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule has
been administered in accordance with the applicable requirements of ERISA and
the Code, and in the case of any such Plan that is funded for purposes of ERISA
and the Code, has not incurred any federal income or excise tax liability which
would have a Material Adverse Effect on Condor, (iii) all material reports and
information required to be filed with the United States Department of Labor,
Internal Revenue Service or Pension Benefit Guaranty Corporation, or distributed
to participants and their beneficiaries with respect to each Employee Benefit
Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, has been
timely filed or distributed and, with respect to each Employee Benefit Plan for
which an Annual Report has been filed, no change has occurred with respect to
the matters covered by the Annual Report since the date of the most recent such
Annual Report which could reasonably be expected to have a Material Adverse
Effect on Condor, and (iv) there have been no non-exempt "prohibited
transactions" (as that term is defined in the Code or in ERISA) with respect to
any Employee Benefit Plan listed in Section 3.15(a) of the Condor Disclosure
Schedule and no material penalty or tax under ERISA or the Code has been imposed
upon Condor or any of its Affiliated Entities and there are no pending or, to
Condor's Knowledge, threatened claims by or on behalf of any Employee Benefit
Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, by any
employee or beneficiary covered by Employee Benefit Plan listed in Section
3.15(a) of the Condor Disclosure Schedule, or otherwise involving an Employee
Benefit Plan listed in Section 3.15(a) of the Condor Disclosure Schedule, other
than claims for benefits in the ordinary course and other than claims which
would not have a Material Adverse Effect on Condor.
(b)......Each Employee Benefit Plan listed in Section 3.15(a)
of the Condor Disclosure Schedule which is an "employee pension benefit plan,"
as defined in ERISA and which is intended to be "qualified" within the meaning
of Section 401(a) of the Code, is so qualified, and, except as set forth in
Section 3.15(b) of the Condor Disclosure Schedule, a favorable determination
letter has been issued by the Internal Revenue Service with respect to such plan
and no such plan has been amended since the issuance of the most recent
determination letter issued by the Internal Revenue Service with respect
thereto. No Employee Benefit Plan listed in Section 3.15(a) of the Condor
Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the Code.
(c)......Condor or its Affiliated Entities has not maintained
or contributed to, or been obligated or required to contribute to, a
"multiemployer plan," as such term is defined in Section 3(37) of ERISA.
Section 3.16 Employment Related Agreements
Except as described in Section 3.03, 3.15 or 3.16 of the
Condor Disclosure Schedule, neither Condor nor any of its Affiliated Entities is
a party to any bonus, profit sharing, stock option, incentive, pension,
retirement, deferred compensation, consulting, severance, indemnification,
employment or similar arrangement or agreement with officers, directors or
employees of Condor or any of its Affiliated Entities ("Employment Related
Agreements").
Section 3.17 Labor Agreements and Controversies
Neither Condor nor any of its Affiliated Entities is a party
to any collective bargaining agreement nor are there any union representation
proceedings or labor controversies pending or, to the Knowledge of Condor,
threatened against Condor or any of its Affiliated Entities.
Section 3.18 Environmental Matters
(a)......Except as disclosed in Section 3.18 of the Condor
Disclosure Schedule, Condor is in full compliance with all laws, rules,
regulations, and other legal requirements relating to the prevention of
pollution and the protection of human health or the environment, including all
such legal requirements pertaining to human health and safety (collectively,
"Environmental Laws"), except for noncompliance that could not reasonably be
expected to have a Material Adverse Effect on Condor; and Condor possesses and
can transfer to Amwest all permits, licenses, and similar authorizations
required under Environmental Laws. Except as disclosed in Section 3.18 of the
Condor Disclosure Schedule, Condor or an Affiliated Entity has not received
written notice of, or, to the best Knowledge of Condor, is the subject of, any
action, cause of action, claim, investigation, demand or notice by any person or
entity alleging liability under or noncompliance with any Environmental Law (an
"Environmental Claim") that could reasonably be expected to have a Material
Adverse Effect on Condor; and to the best Knowledge of Condor, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.
(b)......Except as disclosed in Section 3.18 of the Condor
Disclosure Schedule, there are no Environmental Claims which could reasonably be
expected to have a Material Adverse Effect on Condor or an Affiliated Entity
that are pending or, to the best Knowledge of Condor, threatened against Condor
or an Affiliated Entity or, to the best Knowledge of Condor, against any person
or entity whose liability for any Environmental Claim Condor or an Affiliated
Entity has or may have retained or assumed either contractually or by operation
of law.
Section 3.19 Certain Fees
Neither Condor, nor any of its Affiliated Entities nor any of
their directors, officers or stockholders has employed any broker or finder or
incurred any liability for any financial advisory, brokerage or finders' fees or
similar fees or commissions in connection with the transactions contemplated by
this Agreement.
Section 3.20 Disclosure
To the best of Condor's Knowledge, no representation or
warranty by Condor in this Agreement and no statement contained in any document,
certificate or other writing furnished or to be furnished by Condor to Amwest or
Amwest contains or will contain any untrue statement of a material fact or omits
or will omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Section 3.21 Post-Retirement and Post-Employment
Benefit Obligations
All obligations associated with the benefits to be provided to
present and former employees after retirement or termination have been properly
recognized as liabilities on Condor's balance sheet at December 31, 1994 in
accordance with Financial Accounting Standards Board Statements No. 106 and 112.
Section 3.22 Registration Statement and Proxy Statement
None of the information with respect to Condor or any
affiliate or associate of Condor that has been supplied by Condor or any of its
accountants, counsel or other authorized representatives in writing (the "Condor
Information") specifically for use in the Proxy Materials or the Registration
Statement will, at the time the Registration Statement becomes effective,
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 therein not
misleading.
Section 3.23 Absence of Questionable Payments
(a)......Neither Condor nor any Affiliated Entity nor any
director, officer, agent or employee or any other person authorized to act on
behalf of Condor nor any Affiliated Entity has used any corporate or other funds
on behalf of Condor or any Affiliated Entity in any significant amount for
unlawful contributions, payments, gifts or entertainment, or made any unlawful
expenditures in any significant amount relating to political activity,
government officials or others and neither Condor nor any Affiliated Entity nor
any director, officer, agent or employee or any other person authorized to act
on behalf of Condor or any Affiliated Entity has accepted or received any
unlawful contributions, payments, gifts or expenditures in any significant
amount.
(b)......Neither Condor nor any director, officer, employee or
agent of Condor acting in such person's capacity as such, or any Affiliated
Entity (1) has solicited or received any remuneration (including any kickback,
bribe, rebate or other payment, whether in cash or in kind), directly or
indirectly, overtly or covertly in return for (A) referring a Person to another
Person in connection with the furnishing or arranging for the furnishing of any
item, product or service or (B) purchasing, leasing, ordering or arranging for
or recommending the purchase, lease or order of any good, facility, service or
item, where any of the foregoing has violated, or could be deemed to violate,
any applicable law, (2) has offered or paid any such remuneration directly or
indirectly, overtly or covertly, to any person to induce such Person to so refer
a Person or to so purchase, lease, order, arrange for or recommend, and (3) is a
party to any agreement or arrangement, written or oral, that may result in any
of the events described in clauses (1) or (2).
Section 3.24 Guaranties.
Other than risks or liabilities assumed pursuant to insurance
policies or contracts issued by any of Condor's Affiliated Entities, neither
Condor nor any of its Affiliated Entities is a guarantor or otherwise liable for
any liability or obligation of any other person other than Condor and the
Affiliated Entities.
Section 3.25 Material Contracts.
(a)......Section 3.25(a) of the Condor Disclosure Schedule
lists all of the following contracts not otherwise listed on the Condor
Disclosure Schedule to which Condor is a party or by which any of its properties
or assets are bound: (i) employment, consulting, non-competition, severance,
golden parachute or indemnification contract (including, without limitation, any
contract to which Condor is a party involving employees of Condor, but excluding
any insurance policies issued by Condor's Affiliated Entities); (ii) material
licensing, merchandising or distribution agreements; (iii) contracts granting a
right of first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets of Condor (by merger, purchase or sale of assets or stock
or otherwise) entered into since January 1, 1993; (vi) contracts or agreements
with any governmental entity; (vii) other contracts which materially affect the
business, properties or assets of Condor and its Affiliated Entities taken as a
whole and are not otherwise disclosed in this Agreement or were entered into
other than in the ordinary course of business; and (viii) all commitments and
agreements to enter into any of the foregoing (collectively, for purposes of
this Section 3.25 only, the "Contracts"). Condor has delivered or otherwise made
available to Amwest true, correct and complete copies of the Contracts listed in
Section 3.25(a) of the Condor Disclosure Schedule, together with all amendments,
modifications and supplements thereto and all side letters to which Condor is a
party affecting the obligations of any party thereunder.
(b)......Except as set forth in Section 3.25(b) of the Condor
Disclosure Schedule:
...........................(i) Each of the Contracts is valid and enforceable in
accordance with its terms, and there is no material default under any Contract
so listed either by Condor or, to the Knowledge of Condor, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a material default thereunder by Condor or, to
the Knowledge of Condor, any other party.
...........................(ii) No party to any such Contract has given
notice to Condor of or made aclaim against Condor with respect to any material
breach or material default thereunder.
(c)......With respect to those Contracts that were assigned or
subleased to Condor by a third party, all necessary consents to such assignments
or subleases have been obtained.
Section 3.26 Insurance Contracts and Rates.
All contracts, agreements, leases, policies or agreements of
insurance or reinsurance, contracts, notes, mortgages, indentures, arrangements
or other commitments or obligations, whether written or oral ("Insurance
Contracts") regarding insurance, written or issued by Condor or any of its
Insurance Subsidiaries as now in force are in all material respects, 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. True, complete and correct copies of such forms have been
furnished or made available to Amwest and there are no other forms of Insurance
Contracts used in connection with Condor's and its Insurance Subsidiaries'
business. Premium rates established by Condor or its Insurance Subsidiaries
which are required to be filed with or approved by insurance regulatory
authorities 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.
Section 3.27 Reinsurance.
Section 3.27 of the Condor Disclosure Schedule contains a list
of all reinsurance or coinsurance treaties or agreements, including
retrocessional agreements, to which Condor or any Insurance Subsidiary is a
party or under which Condor or any Insurance Subsidiary has any existing rights,
obligations or liabilities. All reinsurance and coinsurance treaties or
agreements, including retrocessional agreements, to which Condor or any
Insurance Subsidiary is a party or under which Condor or any Insurance
Subsidiary has any existing rights, obligations or liabilities are in full force
and effect. Neither Condor nor any Insurance Subsidiary, nor, to the knowledge
of Condor, any other party to a reinsurance or coinsurance treaty or agreement
to which Condor or any 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. Condor 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.
Section 3.28 Loss Reserves; Solvency.
Except as set forth in Section 3.28 of the Condor Disclosure
Schedule, the reserve for loss and loss adjustment expense liabilities set forth
in the most recent Condor SEC Filing and subsequent Condor SEC Filings provided
to Amwest after the date hereof was or will be determined in accordance with
generally accepted actuarial standards and principles consistently applied, is
fairly stated in accordance with sound actuarial principles and statutory
accounting principles and meets the requirements of the insurance statutes, laws
and regulations of the State of California. Except as disclosed in Section 3.28
of the Condor Disclosure Schedule, the reserves for loss and loss adjustment
expense liabilities reflected in the most recent Condor SEC Filing and
subsequent Condor SEC Filings provided to Amwest after the date hereof and
established on the books of Condor for all future insurance and reinsurance
losses, claims and expenses make or will make a reasonable provision for all
unpaid loss and loss adjustment expense obligations of Condor and its Insurance
Subsidiaries under the terms of its policies and agreements. Condor and each of
its Insurance Subsidiaries owns assets which qualify as admitted assets under
California state insurance laws in an amount at least equal to the sum of all of
their respective required insurance reserves and minimum statutory capital and
surplus as required by Sections 700.01 through 700.05 of the Insurance Code. The
value of the assets of Condor and its Affiliated Entities at their present fair
saleable value is greater than their total liabilities, including contingent
liabilities, and Condor and its Affiliated Entities have assets and capital
sufficient to pay their liabilities, including contingent liabilities, as they
become due.
Section 3.29 Opinion of Financial Advisor
Wedbush Morgan Securities (the "Condor Financial Advisor") has
delivered to the Condor board of directors its written opinion, dated the date
of this Agreement, to the effect that, as of such date, the Merger Consideration
is fair to the public holders of Condor Common Stock from a financial point of
view, a signed, true and complete copy of which opinion has been delivered to
Amwest, and such opinion has not been withdrawn or modified.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
AMWEST
Amwest represents and warrants to Condor as follows:
Section 4.01 Corporate Organization
Amwest is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or conduct of business requires such licensing
or qualification, except where the failure to be so qualified would not have a
Material Adverse Effect on Amwest. Amwest has delivered to Condor complete and
correct copies of its Certificate of Incorporation and Bylaws as in effect on
the date hereof.
Section 4.02 Authorization
Amwest has the requisite corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery by Amwest of this Agreement and the performance by it of
its obligations hereunder and the consummation by it of the transactions
contemplated hereby have been duly authorized by its Board of Directors and,
except for the approval of the stockholders of Amwest Common Stock contemplated
herein, no other corporate proceeding is necessary for the execution and
delivery thereof, and the performance of Amwest's obligations hereunder, and the
consummation by it of the transactions contemplated hereby. This Agreement is a
legal, valid and binding obligation of Amwest enforceable against Amwest in
accordance with its terms.
Section 4.03 Capitalization
The authorized capital stock of Amwest as well as the number
of issued and outstanding shares of each class of capital stock of Amwest is as
set forth on Section 4.03 of the Amwest Disclosure Schedule to this Agreement
executed by Amwest and delivered to Condor simultaneously with the execution of
this Agreement (the "Amwest Disclosure Schedule"). All of such outstanding
shares have been duly and validly issued, were not issued in violation of any
preemptive rights and are fully paid and non-assessable with no personal
liability attaching to the ownership thereof. Except as set forth on Section
4.03 of the Amwest Disclosure Schedule, there are no options, warrants,
subscriptions, conversion or other rights, agreements, commitments, arrangements
or understandings with respect to (i) the issuance of shares of capital stock of
Amwest or any other securities convertible into, exchangeable for or evidencing
the right to subscribe for any such shares, (ii) obligating Amwest to purchase
shares of Amwest Common Stock or any security convertible into Amwest Common
Stock, or (iii) obligating any of the stockholders of Amwest to purchase, sell
or transfer any Amwest Common Stock. Section 4.03 of Amwest Disclosure Schedule
lists each of Amwest's stock option plans and other stock award plans, true and
correct copies of which have been provided by Amwest to Condor.
Section 4.04 Financial Statements and Reports
Since January 1, 1994, Amwest has filed with the SEC all
reports, registration statements and all other filings required to be filed with
the SEC under the rules and regulations of the SEC (collectively, the "Required
Amwest Reports"), all of which, as of their respective effective dates, complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act. Amwest has delivered to Condor true and complete copies of
(i) Amwest's Annual Report on Form 10-K for the fiscal years ended December 31,
1994, as filed with the SEC, (ii) Quarterly Reports on Form 10-Q for the three
months ended March 31, 1995, June 30, 1995 and September 30, 1995, as filed with
the SEC, (iii) proxy statements relating to all meetings of Amwest's
stockholders (whether annual or special) held or scheduled to be held since
January 1, 1994, (iv) all other forms, reports, statements and documents filed
by Amwest with the SEC since January 1, 1994 and (v) all reports, statements and
other information provided by Amwest to its stockholders since January 1, 1994
(collectively, the "Amwest SEC Filings"). As of their respective dates, none of
the Required Amwest Reports or Amwest SEC Filings contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Amwest included or incorporated by reference in the
Amwest SEC Filings were prepared in accordance with GAAP applied on a consistent
basis (except as otherwise stated in such financial statements or, in the case
of audited statements, the related report thereon of independent certified
public accountants), and present fairly the financial position and results of
operations, cash flows and changes in stockholders' equity of Amwest and its
consolidated Affiliated Entities as of the dates and for the periods indicated,
subject, in the case of unaudited interim financial statements, to the absence
of notes and to normal year-end adjustments, and are consistent with the books
and records of Amwest.
Section 4.05 Absence of Certain Changes
Except as set forth in Amwest SEC Filings or in Section 4.05
of the Amwest Disclosure Schedule, since December 31, 1994, Amwest, and each
Affiliated Entity, have conducted their respective businesses only in the
ordinary and usual course and there has not been any event, change or
development which has had or will have a Material Adverse Effect on Amwest.
Section 4.06 Consents and Approvals; No Violations
There is no requirement applicable to Amwest or any of its
Affiliated Entities to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, other than (i) requirements of the HSR Act, (ii) requirements of
the Insurance Code, the Arizona State Department of Insurance and applicable
Arizona insurance code provisions and regulations thereunder, and any other
applicable insurance regulatory authorities and applicable insurance code
provisions and regulations thereunder, (iii) filings with the SEC pursuant to
the Securities Act and the Exchange Act, (iv) such filings and approvals as may
be required under the "blue sky," takeover or securities laws of various states,
(v) compliance with the requirements of the ASE, (vi) the written consent from
Union Bank regarding the Merger and the transactions contemplated thereby, or
(vii) where the failure to make any such filing, or to obtain such permit,
authorization, consent or approval, would not prevent or delay consummation of
the Merger or would not otherwise prevent Amwest from performing its obligations
under this Agreement. Except as set forth in Section 4.06 of the Amwest
Disclosure Schedule, neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (a) result in the
acceleration of, or the creation in any party of any right to accelerate,
terminate, modify or cancel any indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability to which Amwest or any
Affiliated Entity is a party or by which any of them is bound or to which any of
their assets is subject, except as would not have a Material Adverse Effect on
Amwest, (b) conflict with or result in a breach of or constitute a default under
any provision of the Certificate of Incorporation or Bylaws (or other charter
documents) of Amwest or any Affiliated Entity, or, except as would not have a
Material Adverse Effect on Amwest, a default under or violation of any
restriction, lien, encumbrance, indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability to which any of them is a party
or by which any of them is bound or to which any of their assets is subject or
result in the creation of any lien or encumbrance upon any of said assets, or
(c) violate or result in a breach of or constitute a default under any judgment,
order, decree, rule or regulation of any court or governmental agency to which
Amwest or any Affiliated Entity is subject.
Section 4.07 Litigation
Except as set forth in Section 4.07 of the Amwest Disclosure
Schedule, there is no action, proceeding or investigation pending or, to the
Knowledge of Amwest, threatened against or involving Amwest or any of its
Affiliated Entities or any of their respective properties, assets, rights or
obligations before any court, arbitrator or administrative or governmental body
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Amwest or any of its Affiliated Entities in which a decision
could have a Material Adverse Effect on Amwest. Neither Amwest nor any of its
Affiliated Entities is in violation of any term of any judgment, decree,
injunction or order outstanding against it. There are no actions, suits or
proceedings pending or, to the Knowledge of Amwest, threatened against Amwest or
any of its Affiliated Entities arising out of or in any way related to this
Agreement or any of the transactions contemplated hereby.
Section 4.08 Compliance with Laws
Amwest and each Affiliated Entity have complied in all
material respects with the laws and regulations of federal, state, local and
foreign governments and all agencies thereof which are applicable to the
business or properties of Amwest or any Affiliated Entity, a violation of which
would result in a Material Adverse Effect on Amwest, including the provisions of
the Insurance Code.
Section 4.09 Proxy Statement, Etc.
The Proxy Statement and Registration Statement (as defined in
Section 2.02) and all amendments and supplements thereto will comply as to form
in all material respects with the provisions of the Exchange Act, the Securities
Act and the rules and regulations promulgated thereunder. The Proxy Statement,
the Registration Statement and any amendments thereof or supplements thereto,
will not, on the date the Proxy Statement and Registration Statement are first
mailed to stockholders of Condor, at the time the meeting of the stockholders of
Amwest referred to in Section 2.02 hereof is convened or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that Amwest makes no representation or warranty with respect
to any information furnished to it by Condor or any of their accountants,
counsel or other authorized representatives in writing specifically for
inclusion in the Proxy Statement or the Registration Statement.
Section 4.10 No Undisclosed Liabilities
Except as set forth in Section 4.10 of the Amwest Disclosure
Schedule, and except as and to the extent set forth on the consolidated balance
sheet of Amwest as of December 31, 1994 (including those liabilities and
potential liabilities referred to in the financial footnotes thereto), included
in the Required Amwest Reports, neither Amwest nor any Affiliated Entities had,
at such date, any liabilities or obligations (absolute, accrued, contingent or
otherwise) greater than $100,000, taken as a whole and since that date neither
Amwest nor any Affiliated Entities has incurred any liabilities or obligations
material to Amwest and Affiliated Entities taken as a whole except those
incurred in the ordinary and usual course of business and consistent with past
practice or in connection with or as a result of the transactions contemplated
by this Agreement to which Amwest is or is to be a party.
Section 4.11 Disclosure
To the best of Amwest's knowledge, no representation or
warranty by Amwest in this Agreement and no statement contained or to be
contained in any document, certificate or other writing furnished or to be
furnished by Amwest to Condor, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.12 Post-Retirement and Post-Employment
Benefit Obligations
Except as described in Section 4.12 of the Amwest Disclosure
Schedule, all obligations associated with benefits to be provided to present and
former employees after retirement or termination have been properly recognized
as liabilities on Amwest's balance sheet at December 31, 1994 in accordance with
Financial Accounting Standards Board Statements Nos. 106 and 112.
Section 4.13 Employee Benefit Plans
(a)......Except as set forth in Section 4.13(a) to the Amwest
Disclosure Schedule, (i) neither Amwest nor any entity that together with Amwest
is treated as a single employer pursuant to Section 414(b) or (c) of the Code or
Section 3(5) or 4001(b) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (an "ERISA Affiliate"), maintains or in the past has
maintained any Employee Benefit Plan, as defined in ERISA, under which Amwest or
any of its Affiliated Entities has any present or future obligation or liability
or under which any present or former employee of Amwest or its Affiliated
Entities has any present or future rights to benefits, (ii) each Employee
Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule has
been administered in accordance with the applicable requirements of ERISA and
the Code, and in the case of any Employee Benefit Plan listed in Section 4.13(a)
of the Amwest Disclosure Schedule that is funded for purposes of ERISA and the
Code, has not incurred any federal income or excise tax liability which would
have a Material Adverse Effect on Amwest, (iii) all material reports and
information required to be filed with the United States Department of Labor,
Internal Revenue Service or Pension Benefit Guaranty Corporation, or distributed
to participants and their beneficiaries with respect to each Employee Benefit
Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, has been
timely filed or distributed and, with respect to each Employee Benefit Plan for
which an Annual Report has been filed, no change has occurred with respect to
the matters covered by the Annual Report since the date of the most recent such
Annual Report which could reasonably be expected to have a Material Adverse
Effect on Amwest, and (iv) there have been no non-exempt "prohibited
transactions" (as that term is defined in the Code or in ERISA) with respect to
any Employee Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure
Schedule and no material penalty or tax under ERISA or the Code has been imposed
upon Amwest or any of its Affiliated Entities and there are no pending or, to
Amwest's Knowledge, threatened claims by or on behalf of any Employee Benefit
Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, by any
employee or beneficiary covered by Employee Benefit Plan listed in Section
4.13(a) of the Amwest Disclosure Schedule, or otherwise involving an Employee
Benefit Plan listed in Section 4.13(a) of the Amwest Disclosure Schedule, other
than claims for benefits in the ordinary course and other than claims which
would not have a Material Adverse Effect on Amwest.
(b)......Each Employee Benefit Plan listed in Section 4.13(a)
of the Amwest Disclosure Schedule which is an "employee pension benefit plan,"
as defined in ERISA and which is intended to be "qualified" within the meaning
of Section 401(a) of the Code, is so qualified, and, except as set forth in
Section 4.13(b) of the Amwest Disclosure Schedule, a favorable determination
letter has been issued by the Internal Revenue Service with respect to such plan
and no such plan has been amended since the issuance of the most recent
determination letter issued by the Internal Revenue Service with respect
thereto. No Employee Benefit Plan listed in Section 4.13(a) of the Amwest
Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the Code.
(c)......Amwest has not maintained or contributed to, or been
obligated or required to contribute to, a "multiemployer plan," as such term is
defined in Section 3(37) of ERISA.
Section 4.14 Environmental Matters
(a)......Except as disclosed in Section 4.14 of the Amwest
Disclosure Schedule, Amwest is in full compliance with all laws, rules,
regulations, and other legal requirements relating to the prevention of
pollution and the protection of human health or the environment, including all
such legal requirements pertaining to human health and safety (collectively,
"Environmental Laws"), except for noncompliance that could not reasonably be
expected to have a Material Adverse Effect on Amwest, which compliance includes,
but is not limited to, the possession by Amwest of all material permits, and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof. Except as disclosed in
Section 4.14 of the Amwest Disclosure Schedule, Amwest or an Affiliated Entity
has not received written notice of, or, to the best Knowledge of Amwest, is the
subject of, an Environmental Claim that could reasonably be expected to have a
Material Adverse Effect on Amwest; and to the best Knowledge of Amwest, there
are no circumstances that are reasonably likely to prevent or interfere with
such material compliance in the future.
(b)......Except as disclosed in Section 4.14 of the Amwest
Disclosure Schedule, there are no Environmental Claims which could reasonably be
expected to have a Material Adverse Effect on Amwest or an Affiliated Entity
that are pending or, to the best Knowledge of Amwest, threatened against Amwest
or an Affiliated Entity or, to the best Knowledge of Amwest, against any person
or entity whose liability for any Environmental Claim Amwest or an Affiliated
Entity has or may have retained or assumed either contractually or by operation
of law.
Section 4.15 Absence of Questionable Payments
(a)......Neither Amwest nor any Affiliated Entity nor any
director, officer, agent or employee or any other person authorized to act on
behalf of Amwest nor any Affiliated Entity has used any corporate or other funds
on behalf of Amwest or any Affiliated Entity in any significant amount for
unlawful contributions, payments, gifts or entertainment, or made any unlawful
expenditures in any significant amount relating to political activity,
government officials or others and neither Amwest nor any Affiliated Entity nor
any director, officer, agent or employee or any other person authorized to act
on behalf of Amwest or any Affiliated Entity has accepted or received any
unlawful contributions, payments, gifts or expenditures in any significant
amount.
(b)......Neither Amwest, nor any director, officer, employee
or agent of Amwest acting in such person's capacity as such, or any Affiliated
Entity (1) has solicited or received any remuneration (including any kickback,
bribe, rebate or other payment, whether in cash or in kind), directly or
indirectly, overtly or covertly in return for (A) referring a Person to another
Person in connection with the furnishing or arranging for the furnishing of any
item, product or service or (B) purchasing, leasing, ordering or arranging for
or recommending the purchase, lease or order of any good, facility, service or
item, where any of the foregoing has violated, or could be deemed to violate,
any applicable law, (2) has offered or paid any such remuneration directly or
indirectly, overtly or covertly, to any Person to induce such Person to so refer
a Person or to so purchase, lease, order, arrange for or recommend, and (3) is a
party to any agreement or arrangement, written or oral, that may result in any
of the events described in clauses (1) or (2).
Section 4.16 Certain Fees
Neither Amwest, nor any of its Affiliated Entities nor any of
their directors, officers or stockholders has employed any broker or finder or
incurred any liability for any financial advisory, brokerage or finders' fees or
similar fees or commissions in connection with the transactions contemplated by
this Agreement.
Section 4.17 Taxes
(a)......Section 4.17 of the Amwest Disclosure Schedule sets
forth: (i) the taxable years of Amwest and Tax Affiliates as to which the
respective statutes of limitations on the assessment of United States federal
income and any applicable state, local or foreign income, franchise and premium
Taxes have not expired, and (ii) with respect to such taxable years sets forth
those years for which examinations by the Internal Revenue Service or the state,
local or foreign taxing authority have been completed, those years for which
examinations by such agencies are presently being conducted, those years for
which notice of pending or threatened examination or adjustment has been
received, those years for which examinations by such agencies have not been
initiated, and those years for which required Returns for such Taxes have not
yet been filed. Except to the extent indicated in Section 4.17 of the Amwest
Disclosure Schedule, all deficiencies asserted or assessments made as a result
of any examinations by the Internal Revenue Service or state, local or foreign
taxing authority have been fully paid, or are fully reflected as a liability in
the Required Amwest Reports, or are set forth in Section 4.17 of the Amwest
Disclosure Schedule, are being contested and an adequate reserve therefor has
been established and is fully reflected in the Required Amwest Reports to the
extent required by GAAP. Section 4.17 of the Amwest Disclosure Schedule sets
forth all Returns not otherwise described above that are presently under
examination with respect to Taxes and all assessments and deficiencies with
respect to the Returns that are presently being contested by Amwest and Tax
Affiliates.
(b)......Amwest represents and warrants to Condor that, except
as described in Section 4.17 of the Amwest Disclosure Schedule:
(i) Amwest and its Tax Affiliates have filed on a timely basis all Returns
required to have been filed by it and have paid on a timely basis all Taxes
shown thereon as due. All such Returns are true, complete and correct in all
material respects. The provisions for taxes in the Required Amwest Reports set
forth in all material respects the maximum liability of Amwest and the
Affiliated Entities for Taxes relating to periods covered thereby. No liability
for Taxes has been incurred by Amwest and the Affiliated Entities since the
dates of the Required Amwest Reports other than in the ordinary course of their
business. No director, officer or employee of Amwest or any of the Affiliated
Entities having responsibility for Tax matters has reason to believe that any
Taxing authority has valid grounds to claim or assess any material additional
Tax with respect to Amwest or the Tax Affiliates in excess of the amounts shown
on the Required Amwest Reports for the periods covered thereby.
(ii) With respect to all amounts in respect of Taxes imposed upon Amwest or
Tax Affiliates, or for which Amwest or Tax Affiliates are or could be liable,
whether to taxing authorities (as, for example, under law) or to other persons
or entities (as, for example, under tax allocation agreements), and with respect
to all taxable periods or portions of periods ending on or before the Effective
Time, all applicable Tax laws and agreements have been fully complied with, and
all such amounts required to be paid by Amwest and Tax Affiliates to taxing
authorities or others have been paid, in all material respects.
(iii) None of the Returns required to be filed by Amwest and Tax Affiliates
contains, or were required to contain (in order to avoid the imposition of a
penalty), a disclosure statement under Section 6662 (or any predecessor
provision) of the Code, or any similar provision of state, local or foreign law;
(iv) Neither Amwest nor any Tax Affiliate has received notice that the IRS or
any other taxing authority has asserted against Amwest or such Tax Affiliate any
deficiency or claim for additional Taxes in connection with any Return, and no
issues have been raised (and are currently pending) by any taxing authority in
connection with any Return. Neither Amwest nor any Tax Affiliate has received
notice that it is or may be subject to Tax in a jurisdiction in which it has not
filed or does not currently file Returns;
(v) There is no pending or, to Amwest's Knowledge, threatened action, audit,
proceeding, or investigation with respect to (i) the assessment or collection of
Taxes or (ii) a claim for refund made, of or by Amwest and Tax Affiliates with
respect to Taxes;
(vi) All Tax deficiencies asserted or assessed against Amwest and Tax
Affiliates have been paid or finally settled with no further amounts owed;
(vii) All amounts that were required to be collected or withheld by Amwest and
Tax Affiliates have been duly collected or withheld in all material respects,
and all such amounts that were required to be remitted to any taxing authority
have been duly remitted in all material respects;
(viii) Amwest and Tax Affiliates have not requested an extension of time to file
any Return not yet filed, and have not granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. No power of attorney granted by Amwest or Tax Affiliates with respect
to Taxes is in force;
(ix) Amwest and Tax Affiliates have not taken any action not in accordance
with past practice that would have the effect of deferring any material Tax
liability of Amwest or any Tax Affiliate from any taxable period ending on or
before or including the Effective Time to any subsequent taxable period;
(x) Other than the Affiliated Entities, Amwest has had no Tax Affiliates
during any period with respect to which the applicable statue of limitations on
the assessment of Taxes remains open;
(xi) Amwest was not acquired in a "qualified stock purchase" under Section
338(d)(3) of the Code and no elections under Section 338(g) of the Code,
protective carryover basis elections, offset prohibition elections or similar
election are applicable to Amwest or any Tax Affiliate;
(xii) Neither Amwest nor any Tax Affiliate is required to include in income any
adjustment pursuant to Sections 481 or 263A of the Code (or similar provisions
of other law or regulations) by reason of a change in accounting method or
otherwise, following the Effective Time, and Amwest has no Knowledge that the
IRS (or other taxing authority) has proposed, or is considering, any such change
in accounting method or other adjustment;
(xiii)There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Amwest or the Affiliated Entities;
(xiv) Neither Amwest nor any of the Affiliated Entities are party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code, whether by reason of
the Merger or otherwise;
(xv) Neither Amwest nor any Affiliated Entity is, and has not been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code (or any corresponding provision of state, local or foreign Tax law);
(xvi) Neither Amwest nor any of the Affiliated Entities has or has had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country and neither Amwest nor any of the Affiliated Entities has engaged in a
trade or business within any foreign country;
(xvii)Amwest and the Affiliated Entities are not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes;
(xviii)Neither Amwest nor any of the Affiliated Entities has not made a "waters
edge election" pursuant to California Revenue and Taxation Code Section 25110;
(xix) There are no excess loss accounts, deferred intercompany gains or losses,
or intercompany items, as such terms are defined in the Treasury Regulations,
that will be required to be recognized or otherwise taken into account as a
result of the acquisition of the Amwest Common Stock pursuant to this Agreement;
(xx) Neither Amwest nor any of the Affiliated Entities has filed a consent
under Section 341(f) of the Code (or any corresponding provision of state, local
or foreign Tax law); and
(xxi) Neither Amwest nor any of the Affiliated Entities is a party to or bound
by any Tax sharing agreement nor has any current or contingent contractual
obligation to indemnify any other person with respect to Taxes, other than
obligations to indemnify a lessor for property Taxes, sales/use Taxes or gross
receipts Taxes (but not income, franchise or premium Taxes) imposed on lease
payments arising from terms that are customary for leases of similar property.
Section 4.18 Affiliated Entities
(a)......Except as set forth in Section 4.18(a) of the Amwest
Disclosure Schedule, Amwest has no direct or indirect Affiliated Entities. Each
Affiliated Entity of Amwest listed on Section 4.18(a) of Amwest Disclosure
Schedule is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or conduct of business requires such
qualification or licensing, except where the failure to be so qualified would
not have a Material Adverse Effect on Amwest. Amwest has delivered to Condor
complete and correct copies of the Articles or Certificate of Incorporation and
Bylaws of each such Affiliated Entity as in effect on the date hereof.
(b)......Except as set forth in Section 4.18(b) of the Amwest
Disclosure Schedule, Amwest is, directly or indirectly, the record and
beneficial owner of all of the outstanding shares of capital stock of each of
its Affiliated Entities, and all of the outstanding shares of capital stock of
each such Affiliated Entity are duly and validly issued, were not issued in
violation of any preemptive rights, are fully paid and non-assessable and are
owned free and clear of any claim, lien, encumbrance or agreement with respect
thereto. Except as and to the extent set forth in Section 4.18(b) of the Amwest
Disclosure Schedule, there are not any options, warrants, subscriptions,
conversion or other rights, agreements, or commitments, arrangements or
understandings with respect to the issuance of capital stock of any Affiliated
Entity of Amwest or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any such shares.
Section 4.19 Reinsurance.
Section 4.19 of the Amwest Disclosure Schedule contains a list
of all reinsurance or coinsurance treaties or agreements, including
retrocessional agreements, to which Amwest or any Insurance Subsidiary is a
party or under which Amwest or any Insurance Subsidiary has any existing rights,
obligations or liabilities. All reinsurance and coinsurance treaties or
agreements, including retrocessional agreements, to which Amwest or any
Insurance Subsidiary is a party or under which Amwest or any Insurance
Subsidiary has any existing rights, obligations or liabilities are in full force
and effect. Neither Amwest nor any Insurance Subsidiary, nor, to the knowledge
of Amwest, any other party to a reinsurance or coinsurance treaty or agreement
to which Amwest or any 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. Amwest 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.
Section 4.20 Insurance: Licenses, Permits and Filings
Amwest is duly organized and registered as a California
insurance holding company, and each Insurance Subsidiary is duly organized and
licensed as an insurance company in California and is duly licensed or
authorized as an insurer or reinsurer in any other jurisdiction where it is
required to be so licensed or authorized to conduct its business, or is subject
to no liability or disability that would have a Material Adverse Effect by
reason of the failure to be so licensed or authorized in any such jurisdiction.
Since January 1, 1994, Amwest has made all required filings under applicable
insurance holding company statutes. Each of Amwest and its Insurance
Subsidiaries has all other necessary Insurance Licenses to conduct their
businesses as currently conducted and all such Insurance Licenses are valid and
in full force and effect, except such Insurance Licenses which the failure to
have or to be in full force and effect individually or in the aggregate would
not have a Material Adverse Effect. Section 4.20 of the Amwest Disclosure
Schedule lists each order and written understanding or agreement of or with the
Department currently in effect and applicable to Amwest or any of its Insurance
Subsidiaries. Neither Amwest nor any Affiliated Entity has received any
notification (which notification has not been withdrawn or otherwise resolved
prior to the date of this agreement) from the Department or any other insurance
regulatory authority to the effect that any additional Insurance License from
such insurance regulatory authority is needed to be obtained by Amwest or any
Affiliated Entity in any case where it could be reasonably expected that (x)
Amwest or any Affiliated Entity would in fact be required either to obtain any
such additional Insurance License, or cease or otherwise limit writing certain
business and (y) obtaining such Insurance License or the limiting of such
business would have a Material Adverse Effect. Each Insurance Subsidiary is in
compliance with the requirements of the insurance laws and regulations of
California and the insurance laws and regulations of any other jurisdiction
which are applicable to such Insurance Subsidiary, and has filed all notices,
reports, documents or other information required to be filed thereunder or in
any such case is subject to no Material Adverse Effect by reason of the failure
to so comply or file.
Section 4.21 Guaranties.
Other than risks or liabilities assumed pursuant to insurance
policies or contracts issued by any of Amwest's Affiliated Entities, neither
Amwest nor any of its Affiliated Entities is a guarantor or otherwise liable for
any liability or obligation of any other person other than Amwest and the
Affiliated Entities.
Section 4.22 Material Contracts.
(a)......Section 4.22(a) of the Amwest Disclosure Schedule
lists all of the following contracts not otherwise listed on the Amwest
Disclosure Schedule to which Amwest is a party or by which any of its properties
or assets are bound: (i) employment, consulting, non-competition, severance,
golden parachute or indemnification contract (including, without limitation, any
contract to which Amwest is a party involving employees of Amwest, but excluding
any insurance policies issued by Amwest's Affiliated Entities); (ii) material
licensing, merchandising or distribution agreements; (iii) contracts granting a
right of first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets of Amwest (by merger, purchase or sale of assets or stock
or otherwise) entered into since January 1, 1993; (vi) contracts or agreements
with any governmental entity; (vii) other contracts which materially affect the
business, properties or assets of Amwest and its Affiliated Entities taken as a
whole and are not otherwise disclosed in this Agreement or were entered into
other than in the ordinary course of business; and (viii) all commitments and
agreements to enter into any of the foregoing (collectively, for purposes of
this Section 4.22 only, the "Contracts"). Amwest has delivered or otherwise made
available to Condor true, correct and complete copies of the Contracts listed in
Section 4.22(a) of the Amwest Disclosure Schedule, together with all amendments,
modifications and supplements thereto and all side letters to which Amwest is a
party affecting the obligations of any party thereunder.
(b)......Except as set forth in Section 4.22(b) of the Amwest
Disclosure Schedule:
...........................(i) Each of the Contracts is valid and enforceable in
accordance with its terms, and there is no material default under any Contract
so listed either by Amwest or, to the Knowledge of Amwest, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a material default thereunder by Amwest or, to
the Knowledge of Amwest, any other party.
...........................(ii) No party to any such Contract has given
notice to Amwest of or made aclaim against Amwest with respect to any material
breach or material default thereunder.
(c)......With respect to those Contracts that were assigned or
subleased to Amwest by a third party, all necessary consents to such assignments
or subleases have been obtained.
Section 4.23 Insurance Contracts and Rates.
All Insurance Contracts regarding insurance, written or issued
by Amwest or any of its Insurance Subsidiaries as now in force are in all
material respects, 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. True, complete and correct
copies of such forms have been furnished or made available to Condor and there
are no other forms of Insurance Contracts used in connection with Amwest's and
its Insurance Subsidiaries' business. Premium rates established by Amwest or its
Insurance Subsidiaries which are required to be filed with or approved by
insurance regulatory authorities 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.
Section 4.24 Loss Reserves; Solvency.
Except as set forth in Section 4.24 of the Amwest Disclosure
Schedule, the reserve for loss and loss adjustment expense liabilities set forth
in the most recent Amwest SEC Filing and subsequent Amwest SEC Filings provided
to Condor after the date hereof was or will be determined in accordance with
generally accepted actuarial standards and principles consistently applied, is
fairly stated in accordance with sound actuarial principles and statutory
accounting principles and meets the requirements of the insurance statutes, laws
and regulations of the State of California. Except as disclosed in Section 4.24
of the Amwest Disclosure Schedule, the reserves for loss and loss adjustment
expense liabilities reflected in the most recent Amwest SEC Filing and
subsequent Amwest SEC Filings provided to Condor after the date hereof and
established on the books of Amwest for all future insurance and reinsurance
losses, claims and expenses make or will make a reasonable provision for all
unpaid loss and loss adjustment expense obligations of Amwest and its Insurance
Subsidiaries under the terms of its policies and agreements. Amwest and each of
its Insurance Subsidiaries owns assets which qualify as admitted assets under
California state insurance laws in an amount at least equal to the sum of all of
their respective required insurance reserves and minimum statutory capital and
surplus as required by Sections 700.01 through 700.05 of the Insurance Code. The
value of the assets of Amwest and its Affiliated Entities at their present fair
saleable value is greater than their total liabilities, including contingent
liabilities, and Amwest and its Affiliated Entities have assets and capital
sufficient to pay their liabilities, including contingent liabilities, as they
become due.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business of Condor and Amwest
Except as contemplated by this Agreement or to the extent that
the other party to this Agreement shall otherwise consent in writing, during the
period from the date of this Agreement to the Effective Time, Condor and its
Affiliated Entities and Amwest and its Affiliated Entities, respectively, will
conduct their respective operations only in, and Condor and its Affiliated
Entities and Amwest and its Affiliated Entities, respectively, will not take any
action, except in the ordinary course of business, and Condor and its Affiliated
Entities and Amwest and its Affiliated Entities, respectively, will use all
reasonable efforts to preserve intact in all material respects their respective
business organizations, assets, prospects and advantageous business
relationships, to keep available the services of their respective officers and
key employees and to maintain satisfactory relationships with their respective
licensors, licensees, suppliers, contractors, distributors, customers and others
having advantageous business relationships with them. Without limiting the
generality of the foregoing, except as contemplated by this Agreement, neither
Condor or any of its Affiliated Entities nor Amwest or any of its Affiliated
Entities, respectively, will, without the prior written consent of the other
parties to this Agreement:
(a)......amend its Articles or Certificate of Incorporation or
Bylaws or change its authorized number of directors, except that each of Amwest
Surety Insurance Company and its subsidiary, Far West Insurance Company, may
reincorporate or redomesticate under the laws of the State of Nebraska;
(b)......split, combine or reclassify any shares of its
capital stock, declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock, or directly or indirectly, redeem,
purchase or otherwise acquire any shares of its capital stock or other
securities, except that Amwest may pay regular quarterly cash dividends in
accordance with past practice;
(c)......authorize for issuance, issue, sell or deliver or
agree or commit to issue, sell, or deliver (whether through the issuance or
granting of any options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any of its capital stock or any securities convertible
into or exercisable or exchangeable for shares of its capital stock, other than
the issuance by Condor or Amwest of shares of its Common Stock pursuant to the
exercise of employee stock options and other rights set forth in the Condor or
Amwest Disclosure Schedule;
(d)......other than in the ordinary course of business, incur
any material liability or obligation (absolute, accrued, contingent or
otherwise) or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation become responsible for, the obligations of any
other individual or entity, or change any assumption underlying, or methods of
calculating, any bad debt, contingency or other reserve;
(e)......enter into, adopt or, except as determined by Condor
or Amwest to be necessary to comply with applicable law or maintain tax-favored
status (and any nonmaterial changes incidental thereto), amend any Employment
Related Agreement or Employee Benefit Plan or grant, or become obligated to
grant, any increase in the compensation payable or to become payable to any of
their officers or directors or any general increase in the compensation payable
or to become payable to their employees (including, in each case, any such
increase pursuant to any Employment Related Agreement or Employee Benefit Plan,
other than an increase pursuant to the terms of such an Employment Related
Agreement or Employee Benefit Plan in effect on the date of this Agreement and
reflected on the Condor or Amwest Disclosure Schedule), other than in connection
with individual performance reviews in the ordinary course of business and
consistent with past practice;
(f)......acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or make any investment either by purchase of stock or
securities, contributions to capital, property transfer, or purchase of an
amount in excess of $50,000 individually, or in the aggregate, of properties or
assets of any other individual or entity, provided, however, Condor and Amwest
may each continue to make investment portfolio purchases and sales at their
respective subsidiary levels in the ordinary course of their respective
businesses and provided, further, that Amwest may make additional investments or
acquisitions in an aggregate amount not to exceed $5 million;
(g)......pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of business
of liabilities reflected or reserved against on Condor's or Amwest's Latest
Balance Sheet, or subsequently incurred in the ordinary course of business, or
disclosed pursuant to this Agreement;
(h)......acquire (including by lease) any material assets or
properties or dispose of, mortgage or encumber any material assets or
properties, other than in the ordinary course of business, except that Amwest
may enter into a new real property lease or purchase agreement for a new
corporate headquarters facility and that Amwest may purchase from Amwest Surety
Insurance Company shares of Condor Common Stock;
(i)......waive, release, grant or transfer any material rights
or modify or change in any material respect any material existing license,
lease, contract or other document, other than in the ordinary course of business
and consistent with past practice, except that Amwest may amend or modify its
existing real property lease for its existing corporate headquarters facility;
(j)......except as may be required as a result of a change in
law or in generally acceptedaccounting principles, change any of the accounting
principles or practices used by it;
(k)......revalue in any material respect any of its assets,
including, without limitation, writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary course of
business;
(l)......make or revoke any Tax election or settle or
compromise any material Tax liability or change (or make a request to any taxing
authority to change) any material aspect of its method of accounting for Tax
purposes;
(m)......settle or compromise any pending or threatened suit,
action or claim relating tothe transactions contemplated hereby;
(n)......settle or compromise any pending or threatened suit,
action or claim in the ordinary course of Amwest's or Condor's respective
businesses, except that Amwest may settle, compromise or make payments with
respect to its existing litigation relating to California Proposition 103; or
(o)......take any action or agree, in writing or otherwise, to
take any of the foregoing actions or any action which would at any time make any
representation or warranty in Article III (other than Section 3.09 solely as it
relates to payment, Sections 3.12 with respect to the defense of any litigation,
arbitration or claim, and Section 3.13) or Article IV (other than Section 4.17
solely as it relates to payment and Section 4.07 with respect to the defense of
any litigation, arbitration or claim) untrue or incorrect.
Section 5.02 Access to Information
(a)......Between the date of this Agreement and the Effective
Time, Amwest and Condor will upon reasonable notice give to each other and the
other's authorized representatives access during regular business hours to all
of its personnel, plants, offices, warehouses and other facilities and to all of
its books and records and will permit the other to make such inspections as it
may require and will cause its officers and those of its Affiliated Entities to
furnish the other with such financial and operating data and other information
with respect to its business and properties as the other may from time to time
reasonably request.
(b)......Information obtained by the parties hereto pursuant
to this Section 5.02 shall be subject to the provisions of the confidentiality
agreement between Amwest and Condor dated November 15, 1995, which agreement
remains in full force and effect. If this Agreement is terminated, each party
will (i) deliver to the other all documents, work papers and other material
(including copies) obtained by such party or on its behalf from the other party
as a result of this Agreement or in connection herewith, and (ii) destroy or
provide to outside counsel for retention all material working papers reflecting
any of the confidential information contained in such documents, work papers and
other material. In addition, if this Agreement is terminated neither party shall
disclose, except as required by law, the basis or reason for such termination,
without the consent of the other party.
Section 5.03 All Reasonable Efforts
Upon the terms and subject to the conditions hereof, and
subject to the fiduciary duties of the Board of Directors of Condor and of
Amwest under applicable law, Amwest and Condor each agree to use all reasonable
efforts promptly to take, or cause to be taken, all appropriate action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and will use all reasonable efforts
to obtain all waivers, permits, consents and approvals and to effect all
registrations, filings and notices with or to third parties or governmental or
public bodies or authorities which are in the opinion of Amwest or Condor
necessary or desirable in connection with the transactions contemplated by this
Agreement, including, without limitation, filings and approvals to the extent
required under the DGCL, the Securities Act, the Exchange Act, the Insurance
Code and the HSR Act or any rule of the ASE or NASD. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers or directors of Amwest and
Condor will take such action.
Section 5.04 Public Announcements
Amwest, on the one hand, and Condor, on the other hand, will
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or the transactions
contemplated hereby and will not issue any such press release or make any such
public statement prior to such consultation. Notwithstanding the foregoing,
Amwest and Condor shall not be prohibited from issuing any press release or
making any public statement as may be required under applicable law, but in any
such event, Amwest or Condor, as the case may be, shall notify the other party
prior to taking such action.
Section 5.05 Notification of Certain Matters
Amwest and Condor will give prompt notice to one another of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would or would be likely to cause any of their respective
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect or would or would likely cause any condition
in Article VII to become impossible to fulfill, or unlikely to be fulfilled, at
any time from the date hereof to the Effective Time, and (ii) any failure on its
part or on the part of any of their respective officers, directors, employees,
representatives or agents to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by them under this Agreement;
provided, however, that no such notification will alter or otherwise affect such
representations, warranties, covenants, conditions or agreements.
Section 5.06 Indemnification and Insurance
(a)......From and after the Effective Time, Amwest shall
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of Condor or any Affiliated Entity or a holder of Condor
Common Stock (the "Indemnified Parties") against (i) all losses, claims,
damages, costs, expenses (including attorney's fees), liabilities or judgments
or amounts that are paid in settlement (which settlement shall require the prior
written consent of Amwest, which consent shall not be unreasonably withheld) of
or in connection with any claim, action, suit, proceeding or investigation (a
"Claim") in which an Indemnified Party is, or is threatened to be made, a party
or a witness based in whole or in part on or arising in whole or in part out of
the fact that such person is or was an officer, director or employee of Condor
or any Affiliated Entity, whether such Claim pertains to any matter or fact
arising, existing or occurring at or prior to the Effective Time (including,
without limitation, the Merger and other transactions contemplated by this
Agreement), regardless of whether such Claim is asserted or claimed prior to, at
or after the Effective Time (the "Indemnified Liabilities"), and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement or the transactions contemplated
hereby; in each case to the full extent Condor would have been permitted under
Delaware law and its Certificate of Incorporation and Bylaws to indemnify such
person (and Amwest shall pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent permitted
by law and under such Certificate of Incorporation or Bylaws, upon receipt of
any undertaking required by such Certificate of Incorporation, Bylaws or
applicable law). Any Indemnified Party wishing to claim indemnification under
this Section 5.06(a), upon learning of any Claim, shall notify Amwest (but the
failure to so notify Amwest shall not relieve it from any liability which Amwest
may have under this Section 5.06(a) except to the extent such failure prejudices
Amwest) and shall deliver to Amwest any undertaking required by such Certificate
of Incorporation, Bylaws or applicable law. Amwest shall use its best efforts to
assure, to the extent permitted under applicable law, that all limitations of
liability existing in favor of the Indemnified Parties as provided in Condor's
Certificate of Incorporation and Bylaws, as in effect as of the date hereof,
with respect to claims or liabilities arising from facts or events existing or
occurring prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), shall survive the Merger. The
obligations of Amwest described in this Section 5.06(a) shall continue in full
force and effect, without any amendment thereto, for a period of three years
from the Effective Time; provided, however, that all rights to indemnification
in respect of any Claim asserted or made within such period shall continue until
the final disposition of such Claim; and provided further that nothing in this
Section 5.06(a) shall be deemed to modify applicable Delaware law regarding
indemnification of former officers and directors. Notwithstanding anything
contained in this Section 5.06, the indemnification provided hereunder shall not
exceed the coverage provided by the insurance currently provided the Indemnified
Parties by Condor.
(b)......The obligations of Amwest under this Section 5.06 are
intended to benefit, and be enforceable against Amwest directly by the
Indemnified Parties, and shall be binding on all respective successors of
Amwest.
Section 5.07 Regulatory Approvals
Condor and Amwest will take all such action as may be
necessary under federal or state securities laws or the HSR Act or the
California Insurance Code applicable to or necessary for, and will file and, if
appropriate, use their best efforts to have declared effective or approved all
documents and notifications with the SEC, the California Department of
Insurance, the Arizona State Department of Insurance and other governmental or
regulatory bodies which they deem necessary or appropriate for, the consummation
of the Merger and the transactions contemplated hereby, and each party shall
give the other information reasonably requested by such other party pertaining
to it and Affiliated Entities to enable such other party to take such actions,
and Condor and Amwest shall file in a timely manner all reports and documents
required to be so filed by or under the Exchange Act or the Insurance Code which
they deem necessary or appropriate in relation to the Merger.
Section 5.08 Employee Matters
(a)......Amwest will cause service with Condor and its
Affiliated Entities and their predecessors prior to the Effective Time to be
taken into account for eligibility and vesting purposes in connection with any
benefit or payroll plan, practice, policy or agreement of Amwest or any of its
affiliates in which any employee of Condor or an Affiliated Entity may become
entitled to participate at or after the Effective Time.
(b)......Amwest hereby assumes and agrees to perform and pay
or cause to be performed and paid all of Condor's duties and obligations under
the employment and option agreements listed in Section 3.03 of the Condor
Disclosure Schedule, to the extent they have not been terminated prior to the
Effective Time.
(c)......The obligations of Amwest under Sections 5.08(a) and
5.08(b) are intended to benefit, and be enforceable against Amwest directly by,
the parties (other than Condor) to such agreements and the participants or
former participants in such plans and their respective beneficiaries and other
successors in interest, and shall be binding on all successors of Amwest.
Section 5.09 No Actions Inconsistent With Tax-Free
Reorganization
Condor shall take no action with respect to its capital stock,
assets or liabilities that would cause the Merger not to qualify as a
"reorganization" within the meaning of Sections 368(a)(1)(A) of the Code.
Section 5.10. Other Potential Acquirors
(a)......Condor, its Affiliated Entities and their respective
officers, directors, employees, representatives and agents shall immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, Condor or its Affiliated
Entities or any business combination with Condor or its Affiliated Entities.
Condor may, directly or indirectly, furnish information and access, in each case
only in response to unsolicited requests therefor, to any corporation,
partnership, person or other entity or group pursuant to confidentiality
agreements, and may participate in discussions and negotiate with such entity or
group concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving Condor or any Affiliated Entity or division of
Condor, if such entity or group has submitted a written proposal to the Condor
board of directors (the "Condor Board") relating to any such transaction and the
Condor Board by a majority vote determines in its good faith judgment, after
consultation with and based upon the advice of outside legal counsel that it is
required to do so to comply with its fiduciary duties to stockholders under
applicable law. The Condor Board shall provide a copy of any such written
proposal and a summary of any oral proposal to Amwest immediately after receipt
thereof and thereafter keep Amwest promptly advised of any development with
respect thereto. Except as set forth above, neither Condor nor any of its
Affiliated Entities shall, nor shall Condor authorize or permit any of its or
their respective officers, directors, employees, representatives or agents to
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Amwest,
any Affiliated Entity of Amwest or any designee of Amwest) concerning any
merger, sale of assets, sale of shares of capital stock or similar transaction
involving Condor or any Affiliated Entity or division of Condor; provided,
however, that nothing herein shall prevent the Condor Board from taking, and
disclosing to Condor's stockholders, a position contemplated by Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to any tender offer;
provided, further, that nothing herein shall prevent the Condor Board from
making such disclosure to Condor's stockholders as, in the good faith judgment
of the Condor Board, after consultation with and based upon the advice of
outside legal counsel, is required to comply with its fiduciary duties to
stockholders under applicable law.
(b)......Except as set forth in this Section 5.10, the Condor
Board shall not approve or recommend, or cause Condor to enter into any
agreement with respect to, any Third Party Acquisition (as defined below).
Notwithstanding the foregoing, if the Condor Board, after consultation with and
based upon the advice of outside legal counsel, determines in good faith that it
is necessary to do so in order to comply with its fiduciary duties to
stockholders under applicable law, the Condor Board may withdraw, modify or
change its approval or recommendation of this Agreement or the Merger and
approve or recommend a Superior Proposal (as defined below) or cause Condor to
enter into an agreement with respect to a Superior Proposal, but in each case
only (i) after providing reasonable written notice to Amwest (a "Notice of
Superior Proposal") advising Amwest that the Condor Board has received a
Superior Proposal and identifying the person making such Superior Proposal and
(ii) if Amwest does not make within seven business days of Amwest's receipt of
the Notice of Superior Proposal, an offer which the Condor Board, after
consultation with its financial advisors, determines is superior to such
Superior Proposal. In addition, if Condor proposes to enter into an agreement
with respect to any Third Party Acquisition, it shall concurrently with entering
into such an agreement pay, or cause to be paid, to Amwest the fee required by
Section 8.03(a) hereof. For purposes of this Agreement, a "Superior Proposal"
means any bona fide proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the Condor
Common Stock then outstanding or all or substantially all the assets of Condor
or any merger or similar transaction involving Condor or any Affiliated Entity
or division of Condor and otherwise on terms which the Condor Board determines
in its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to Condor's stockholders
than the Merger.
Section 5.11 Letter of Condor's Accountants
Condor shall use its best efforts to cause to be delivered to
Amwest a letter from KPMG Peat Marwick, Condor's independent auditors, dated a
date within two business days before the date on which the S-4 shall become
effective and addressed to Amwest, in form and substance reasonably satisfactory
to Amwest and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4.
Section 5.12 Stock Exchange Listing
Amwest shall use all reasonable efforts to cause the shares of
Amwest Common Stock to be issued in the Merger and the shares of Amwest Common
Stock to be reserved for issuance upon exercise of Amwest Options granted
pursuant to Section 2.01(a) to be approved for listing on the ASE, subject to
official notice of issuance, prior to the date of Closing.
Section 5.13 Pooling of Interests
Condor and Amwest each agrees that it will not take any action
which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes and each of Condor and Amwest
will bring to the attention of the other any actions which could reasonably
likely prevent Amwest from accounting for the Merger as a
"pooling-of-interests."
Section 5.14 Employment Agreement
Amwest shall, as of or prior to the Effective Time, enter into
an employment agreement with Guy Main on substantially the terms set forth in
the form of Employment Agreement agreed to as of the date hereof. Pursuant to
the Employment Agreement, Guy Main will be employed by Amwest for a four year
term at compensation levels consistent with the compensation for comparable
Amwest executives. The employment agreement will provide that Guy Main will have
the titles of Executive Vice President of Amwest and President of Condor
Insurance Company during the term of his employment.
Section 5.15 Condor Affiliates
Prior to the date of Closing, Condor shall deliver to Amwest a
letter identifying all persons who are, at the time this Agreement is submitted
for approval to the stockholders of Condor, "affiliates" of Condor for purposes
of Rule 145 under the Securities Act. Condor shall use its best efforts to cause
each such person to deliver to Amwest on or prior to the date of Closing a
written agreement, substantially in the form attached as Exhibit B hereto.
Section 5.16 Agreement with Guy A. Main
Condor and Amwest agree that, as of the Effective Time, Amwest
and Guy Main will enter into an Agreement substantially in the form attached as
Exhibit C hereto.
ARTICLE VI CLOSING
Section 6.01 Time and Place
Subject to the provisions of Articles VII and VIII, the
consummation of the transactions contemplated by this Agreement (the "Closing")
will take place at the offices of Gibson, Dunn & Crutcher, 333 S. Grand Avenue,
Los Angeles, California 90071, immediately after the approvals by stockholders
of Amwest and Condor referred to in Section 2.02 hereof and the fulfillment of
the other conditions to the Merger set forth in Article VII hereof has been
obtained or at such other place or at such other time as may be mutually agreed
upon by Amwest and Condor.
Section 6.02 Deliveries at the Closing
Subject to the provisions of Articles VII and VIII, at the
Closing:
(a)......There will be delivered to Amwest and Condor the
certificates and other documents and instruments the delivery of which is
contemplated under Article VII; and
(b)......Amwest and Condor will cause appropriate documents
necessary to effect the Merger to be filed in accordance with the provisions of
Section 251 of the DGCL and shall take any and all other lawful actions and do
any and all other lawful things necessary to cause the Merger to become
effective.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.01 Conditions to the Obligations of Amwest
and Condor
The respective obligations of Amwest and Condor to effect the
Merger are subject to fulfillment at or prior to the date of the Closing of the
following conditions:
(a)......Any waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have expired or been
terminated, and any other governmental or regulatory notices or approvals
required with respect to the transactions contemplated hereby shall have been
either filed or received;
(b)......The Merger shall have been approved by the requisite
vote of the stockholders of Condor required by the DGCL, NASD and Condor's
Certificate of Incorporation and Bylaws;
(c)......The Merger shall have been approved by the requisite
vote of the stockholders of Amwest required by the DGCL, ASE and Amwest's
Articles of Incorporation and Bylaws;
(d)......The Registration Statement shall have become
effective and no stop order suspending the effectiveness thereof shall be in
effect and no proceedings for such purpose shall be pending or threatened before
the Commission;
(e)......The shares of Amwest Common Stock issuable in the
Merger shall be approved for quotation on the ASE upon notice of issuance;
(f)......No order, statute, rule, regulation, executive order,
stay, decree, judgment, or injunction shall have been enacted, entered, issued,
promulgated or enforced by any court or governmental authority which prohibits
or restricts the effectuation of the Merger;
(g)......No governmental action or proceeding shall have been
commenced or threatened seeking any injunction, restraining or other order which
seeks to prohibit, restrain, invalidate or set aside the effectuation of the
Merger;
(h)......The Merger and the transactions contemplated thereby
shall have been approved by the Commissioners of the California Department of
Insurance and the Arizona State Department of Insurance; and
(i)......Amwest shall have received from Union Bank a written
waiver with respect to consummation of the Merger and the transactions
contemplated thereby.
Section 7.02 Additional Conditions to the Obligations
of Amwest
The obligations of Amwest to effect the Merger are also
subject to the fulfillment at or prior to the date of the Closing of the
following additional conditions:
(a)......Condor shall have performed and complied in all
material respects with the agreements and obligations contained in this
Agreement that are required to be performed and complied with by it at or prior
to the date of the Closing;
(b)......The representations and warranties of Condor
contained in this Agreement shall be true and correct in all material respects,
as of the date hereof and shall be deemed to have been made again at and as of
the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect on Condor;
(c)......All corporate actions on the part of Condor necessary
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby or thereby shall have been
duly and validly taken;
(d)......Condor shall have received consents to the Merger
from all persons from whom such consent or waiver is required, as referred to in
Section 4.06;
(e)......Amwest shall have received the opinions of counsel
from Kindel & Anderson, counsel to Condor covering such matters and in the form
and substance agreed upon as of the date hereof;
(f)......Amwest shall have received such certificates of
officers of Condor and such certificates of others to evidence compliance with
the conditions set forth in this Section 7.02 and in Section 7.01 as may be
reasonably requested by Amwest;
(g)......Since the date of this Agreement, there shall have
been no material adverse change in, and no event, occurrence or development in
the business of Condor that, taken together with other events, occurrences and
developments with respect to such business, would have or would reasonably be
expected to have a Material Adverse Effect on Condor;
(h)......Condor shall deliver to Amwest an agreement of
stockholder in the form ofExhibit A, executed by the Condor Stockholder;
(i)......The Conversion Number shall not exceed 0.6;
(j)......Condor shall have delivered to Amwest an opinion of
Condor's consulting actuary, executed by Tim Perr, as of the most recently
completed monthly period of which actuarial information is available prior to
the date of Closing, opining that as of such date the reserves for loss and loss
adjustment expense reflected on such balance sheet of Condor and its Affiliated
Entities have been established in conformity with generally accepted actuarial
principles and practices consistently applied, that such reserves were
established in conformity with the requirements of the California Department of
Insurance and that such reserves make a reasonable provision for all unpaid loss
and loss adjustment expense obligations of Condor under the terms of its
policies and agreements;
(k)......Amwest shall have received from its consulting
actuary, an opinion of actuary as of the most recently completed monthly period
of which actuarial information is available prior to the date of Closing,
opining that as of such date the reserves for loss and loss adjustment expense
reflected on such balance sheet of Condor and its Affiliated Entities have been
established in conformity with generally accepted actuarial principles and
practices consistently applied, that such reserves were established in
conformity with the requirements of the California Department of Insurance and
that such reserves make a reasonable provision for all unpaid loss and loss
adjustment expense obligations of Condor under the terms of its policies and
agreements;
(l)......Guy Main and all members of the Condor Board and any
other person deemed an Affiliate shall have performed his obligations under the
Affiliates Letter and Continuity of Interest Certificate in the form of Exhibit
B hereto, and Amwest shall have received a certificate signed by such persons to
such effect;
(m)......A.M. Best Company's ratings for each of Amwest Surety
Insurance Company and Far West Insurance Company shall not, as of the Effective
Time (and after taking into account the Merger and the transactions contemplated
thereby), be lower than "A" (Excellent);
(n)......Amwest shall have received an Officers' Certificate
Regarding Certain Tax Mattersfrom the Chief Financial Officer and the Chief
Executive Officer of Condor; and
(o)......Amwest shall have received from Condor a
certification of non-foreign status described in Treasury Regulation Section
1.1445-2(c)(2), and shall have received from Condor and each Affiliated Entity
owned directly by Condor a certification that such entities are not and have not
been "United States real property holding corporations" during the periods set
forth in, and in a the form described in, Treasury Regulation Section
1.1445-2(c)(3).
Section 7.03 Additional Conditions to the Obligations
of Condor
The obligations of Condor to effect the Merger are also
subject to the fulfillment at or prior to the date of the Closing of the
following additional conditions:
(a)......Amwest shall have performed and complied in all
material respects with the agreements and obligations contained in this
Agreement that are required to be performed and complied with by them at or
prior to the date of the Closing;
(b)......The representations and warranties of Amwest
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and shall be deemed to have been made again at and as of
the date of the Closing and shall then be true and correct in all material
respects except on each date, for breaches or inaccuracies, the combination of
which would not constitute a Material Adverse Effect on Amwest;
(c)......All corporate actions on the part of Amwest necessary
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken;
(d)......Condor shall have received the opinion of counsel
from Gibson, Dunn & Crutcher, counsel to Amwest, covering such matters and in
the form and substance agreed upon as of the date hereof;
(e) Since the date of this Agreement, there shall have been no
material adverse change in, and no event, occurrence or development in the
business of Amwest that, taken together with other events, occurrences and
developments with respect to such business, would have or would reasonably be
expected to have a Material Adverse Effect on Amwest;
(f)......Condor shall have received such certificates of
officers of Amwest and such certificates of others to evidence compliance with
the conditions set forth in this Section 7.03 and in Section 7.01 as may be
reasonably requested by Condor;
(g)......Amwest shall have delivered to Condor an opinion of
Amwest's consulting actuary as of December 31, 1995, opining that as of such
date the reserves for loss and loss adjustment expense reflected on such balance
sheet of Amwest and its Affiliated Entities have been established in conformity
with generally accepted actuarial principles and practices consistently applied,
that such reserves were established in conformity with the requirements of the
California Department of Insurance and that such reserves make a reasonable
provision for all unpaid loss and loss adjustment expense obligations of Amwest
under the terms of its policies and agreements; and
(h)......The Conversion Number shall not be less than 0.4.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.01 Termination
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time:
(a)......by mutual written consent of Amwest and Condor;
(b)......by Amwest or Condor if (i) any court of competent
jurisdiction in the United States or other United States governmental authority
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger has not been consummated by June 30, 1996; provided that no
party may terminate this Agreement pursuant to this clause (ii) if such party's
failure to fulfill any of its obligations under this Agreement shall have been
the reason that the Effective Time shall not have occurred on or before said
date;
(c)......by Condor if (i) there shall have been a breach of
any representation or warranty on the part of Amwest set forth in this
Agreement, or if any representation or warranty of Amwest shall have become
untrue, in either case such that the conditions set forth in Section 7.03(b)
would be incapable of being satisfied by June 30, 1996 (or as otherwise
extended), (ii) there shall have been a breach by Amwest of any of its covenants
or agreements hereunder having a Material Adverse Effect on Amwest or materially
adversely affecting (or materially delaying) the consummation of the Merger, and
Amwest has not cured such breach within twenty business days after notice by
Condor thereof, provided that Condor has not breached any of its obligations
hereunder, (iii) Condor enters into a definitive agreement relating to a
Superior Proposal in accordance with Section 5.10(b), provided that such
termination under this clause (iii) shall not be effective until payment of the
fee required by Section 8.03(a) hereof, or (iv) Amwest shall have convened a
meeting of its stockholders to vote upon the Merger and shall have failed to
obtain the requisite vote of its stockholders; or
(d)......by Amwest if (i) there shall have been a breach of
any representation or warranty on the part of Condor set forth in this
Agreement, or if any representation or warranty of Condor shall have become
untrue, in either case such that the conditions set forth in Section 7.02(b)
would be incapable of being satisfied by June 30, 1996 (or as otherwise
extended), (ii) there shall have been a breach by Condor of its covenants or
agreements hereunder having a Material Adverse Effect on Condor or materially
adversely affecting (or materially delaying) the consummation of the Merger, and
Condor has not cured such breach within twenty business days after notice by
Amwest thereof, provided that Amwest has not breached any of its obligations
hereunder, (iii) Condor shall engage in negotiations with any entity or group
(other than Amwest) that has proposed a Third Party Acquisition (as defined
below) and such negotiations shall have continued for more than 20 business days
after Condor has first furnished information to such entity or group or
commenced negotiations with such party (whichever is earlier), (iv) the Condor
Board shall have withdrawn, modified or changed its approval or recommendation
of this Agreement or the Merger, shall have recommended to the Condor
stockholders a Third Party Acquisition or shall have failed to call, give notice
of, convene or hold a stockholders' meeting to vote upon the Merger, or shall
have adopted any resolution to effect any of the foregoing, (v) Amwest shall
have convened a meeting of its stockholders to vote upon the Merger and shall
have failed to obtain the requisite vote of its stockholders or (vi) Condor
shall have convened a meeting of its stockholders to vote upon the Merger and
shall have failed to obtain the requisite vote of its stockholders.
"Third Party Acquisition" means the occurrence of any of the
following events (i) the acquisition of Condor by merger or otherwise by any
person (which includes a "person" as such term is defined in Section 13(d)(3) of
the Exchange Act) or entity other than Amwest or any affiliate thereof (a "Third
Party"); (ii) the acquisition by a Third Party of more than 30% of the total
assets of Condor and its Affiliated Entities, taken as a whole; or (iii) the
acquisition by a Third Party of 30% or more of the outstanding Shares.
Section 8.02 Effect of Termination
In the event of the termination and abandonment of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party hereto or its
affiliates, directors, officers or stockholders, other than the provisions of
this Section 8.02 and Sections 5.02(b), 5.04, 8.03 and Article IX hereof.
Nothing contained in this Section 8.02 shall relieve any party from liability
for any breach of this Agreement.
Section 8.03 Fees and Expenses
(a)......In the event that this Agreement shall be terminated
pursuant to:
(i) Section 8.01(c)(iii);
(ii) Sections 8.01(d)(i), (ii) or (iii) and, within
twelve months thereafter, Condor enters into an agreement with
respect to a Third Party Acquisition, or a Third Party
Acquisition occurs, involving any party (or any affiliate
thereof) (x) with whom Condor (or its agents) had negotiations
with a view to a Third Party Acquisition, (y) to whom Condor
(or its agents) furnished information with a view to a Third
Party Acquisition or (z) who had submitted a proposal or
expressed an interest in a Third Party Acquisition, in the
case of each of clauses (x), (y) and (z) after the date hereof
and prior to such termination;
(iii) Section 8.01(d)(iv); or
(iv) Section 8.01(d)(vi);
Amwest would suffer direct and substantial damages, which damages cannot be
determined with reasonable certainty. To compensate Amwest for such damages,
Condor shall pay to Amwest the amount of $700,000 in cash as liquidated damages
immediately upon such a termination. It is specifically agreed that the amount
to be paid pursuant to this Section 8.03(a) represents liquidated damages and
not a penalty.
(b)......Upon the termination of this Agreement pursuant to
Sections 8.01(d)(i), (ii), (iii), (iv) or (vi), Condor shall reimburse Amwest
and its affiliates (not later than ten business days after submission of
statements therefor) for all actual documented out-of-pocket fees and expenses,
actually and reasonably incurred by any of them or on their behalf in connection
with the Merger and the consummation of all transactions contemplated by this
Agreement (including, without limitation, fees payable to investment bankers,
counsel to any of the foregoing, and accountants). Amwest shall have provided
Condor with an estimate of the amount of such fees and expenses and, if Amwest
shall have submitted a request for reimbursement hereunder, will provide Condor
in due course with invoices or other reasonable evidence of such expenses upon
request. Condor shall in any event pay the amount requested within ten business
days of such request, subject to Condor's right to demand a return of any
portion as to which invoices are not received in due course.
(c)......Upon the termination of this Agreement pursuant to
Sections 8.01(c)(i), (ii) or (iv), Amwest shall reimburse Condor and its
affiliates (not later than ten business days after submission of statements
therefor) for all actual documented out-of-pocket fees and expenses, actually
and reasonably incurred by any of them or on their behalf in connection with the
Merger and the consummation of all transactions contemplated by this Agreement
(including, without limitation, fees payable to investment bankers, counsel to
any of the foregoing, and accountants). Condor shall have provided Amwest with
an estimate of the amount of such fees and expenses and, if Condor shall have
submitted a request for reimbursement hereunder, will provide Amwest in due
course with invoices or other reasonable evidence of such expenses upon request.
Amwest shall in any event pay the amount requested within ten business days of
such request, subject to Amwest's right to demand a return of any portion as to
which invoices are not received in due course.
(d)......Except as specifically provided in this Section 8.03,
each party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Amendment and Modification
Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of Amwest and Condor at any
time prior to the Effective Time with respect to any of the terms contained
herein except that after the approvals by stockholders contemplated by Section
2.02, the amount or form of consideration to be received by the holders of
voting shares of Condor may not be decreased or altered without the approval of
such holders.
Section 9.02 Waiver of Compliance; Consents
Any failure of Amwest, on the one hand, or Condor on the other
hand, to comply with any obligation, covenant, agreement or condition herein may
be waived in writing by Amwest or Condor, respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of Amwest or Condor, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 9.02.
Section 9.03 Validity
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
Section 9.04 Parties in Interest
This Agreement shall be binding upon and inure solely to the
benefit of Amwest and Condor, and nothing in this Agreement (except the
provisions of Sections 5.06 and 5.08), express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 9.05 Survival of Representations, Warranties,
Covenants and Agreements
Except as provided in the following sentence, the respective
representations and warranties of Amwest and Condor shall not survive the
Effective Time, but covenants that specifically relate to periods, activities or
obligations subsequent to the Merger shall survive the Merger. If this Agreement
is terminated pursuant to Section 8.01, the covenants contained in Sections
5.02(b), 5.04 and 8.03 shall survive such termination.
Section 9.06 Notices
All notices and other communications hereunder shall be in
writing and shall be deemed given on the date of delivery, if delivered
personally or faxed during normal business hours of the recipient, or three days
after deposit in the U.S. Mail, postage prepaid, if mailed by registered or
certified mail (return receipt requested) as follows:
(a)....if to Amwest or to Condor after the Effective Time, to:
Amwest Insurance Group, Inc.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
Attention: Co-Chief Executive Officers
and Chief Financial Officer
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-3197
Attention: Jonathan K. Layne, Esq.
(b)....if to Condor prior to the Effective Time, to:
Condor Services, Inc.
2361 Rosecrans Avenue
El Segundo, California 90245
Attention: Chief Executive Officer
with a copy to:
Kindel & Anderson
555 S. Flower St., 29th Fl.
Los Angeles, California 90071-2498
Attention: Stephen E. Newton, Esq.
Section 9.07 Governing Law
The Agreement shall be governed by and construed in accordance
with the law of the State of Delaware without regard to the conflicts of law
rules thereof.
Section 9.08 Counterparts
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
Section 9.09 Table of Contents and Headings
The table of contents and article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not affect in any way the meaning
or interpretation of this Agreement.
Section 9.10 Entire Agreement
This Agreement, including the exhibits and schedules hereto
and the documents and instruments referred to herein or executed
contemporaneously herewith, embodies the entire agreement and understanding of
Amwest and Condor in respect of the subject matter contained herein and
supersedes all prior agreements and understandings among them with respect to
such subject matter.
Section 9.11 Arbitration; Attorneys' Fees and Expenses
Any controversy, dispute, or claim arising out of, in
connection with, or in relation to, the interpretation, performance or breach of
this Agreement, including, without limitation, the validity, scope and
enforceability of this Section 9.11, may at the election of any party, be solely
and finally settled by arbitration conducted in California, by and in accordance
with the then existing rules for commercial arbitration of the American
Arbitration Association, or any successor organization. Judgment upon any award
rendered by the arbitrator(s) may be entered by the state or federal court
having jurisdiction thereof. Any of the parties may demand arbitration by
written notice to the other and to the American Arbitration Association ("Demand
for Arbitration"). Any Demand for Arbitration pursuant to this Section 9.11
shall be made before the earlier of (i) the expiration of the applicable statute
of limitations with respect to such claim, or (ii) 60 days from the date on
which a lawsuit is brought by any other party with respect to such claim. The
parties intend that this agreement to arbitrate be valid, enforceable and
irrevocable. Time is of the essence in the resolution of any such dispute, and
the parties agree to instruct the arbitrator to institute accelerated procedures
to resolve any dispute. The losing party shall reimburse the prevailing party in
such arbitration, or in any legal proceeding arising out of, in connection with
or in relation to this Agreement, including this Section 9.11, in any state or
federal court, for the prevailing party's legal fees and expenses reasonably
incurred in connection with such arbitration or proceeding. The parties being
represented by counsel hereby waive any and all rights to punitive or special
damages arising from or relating to this Agreement or the transactions
contemplated herein.
Section 9.12 Miscellaneous
(a) For purposes of this Agreement, the term "Knowledge" of an
entity means knowledge actually possessed by any Director or officer of such
entity.
(b) If the SEC does not allow or the parties believe the SEC
will not allow the use of a Registration Statement on Form S-4 to register
Amwest Common Stock being issued to Stockholders or Condor believes it is no
longer in the interest of Stockholders to use Form S-4, Condor may elect to
require Amwest to file and maintain in effect for a two-year period a
Registration Statement on Form S-3 as soon as is practicable after the Effective
Time to register such shares, subject to a limitation that no stockholder
receiving such shares may, pursuant to such registration, sell more than 1% of
the amount of Amwest Common Stock Outstanding during any calendar quarter.
<PAGE>
IN WITNESS WHEREOF, Amwest and Condor have caused this
Agreement to be signed on their behalf by their respective duly authorized
officers on the date first above written.
AMWEST INSURANCE GROUP, INC.
By:___________________________________
Richard H. Savage
Chairman of the Board and
Co-Chief Executive Officer
CONDOR SERVICES, INC.
By:___________________________________
Guy A. Main
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
ANNEX B
STOCKHOLDER AGREEMENT
This Stockholder Agreement (this "Agreement") dated as of
November 30, 1995, is entered into by and between Amwest Insurance Group, Inc.,
a Delaware corporation ("Amwest") and the undersigned stockholder (the
"Stockholder") of Condor Services, Inc., a Delaware corporation ("Condor").
RECITALS
A........Concurrently with the execution of this Agreement,
Condor is entering into an Agreement and Plan of Merger with Amwest dated
November 30, 1995 (the "Merger Agreement"), pursuant to which, among other
things, Condor shall merge with and into Amwest (the "Merger"), as a result of
which the stockholders of Condor immediately prior to such merger shall become
stockholders of Amwest.
B........As a condition to the execution of the Merger
Agreement, the Stockholder is willing to enter into and be bound by this
Agreement.
C........As of the date hereof, the Stockholder owns in the
aggregate 957,310 shares of Condor common stock, $.01 par value per share (the
"Main Shares").
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
1........AGREEMENT TO RETAIN SHARES.
1.1 Transfer and encumbrances. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Main
Shares, or to make any offer or agreement relating thereto, at any time
prior to the Expiration Date. As used herein, the term "Expiration
Date" shall mean the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement and (ii) such date and time as the
Merger Agreement shall be terminated pursuant to the terms thereof.
2........AGREEMENT TO VOTE SHARES AND CALL STOCKHOLDER
MEETING. At every meeting of the stockholders of Condor called with respect to
any of the following, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of Condor on or before the
Expiration Date with respect to any of the following, the Stockholder shall vote
the Main Shares: (i) in favor of approval of the Merger Agreement and the Merger
and any matter that could reasonably be expected to facilitate the Merger; and
(ii) against approval of any proposal made in opposition to or competition with
consummation of the Merger and against any liquidation or winding up of Condor
(each of the foregoing is referred to as a "Opposing Proposal"). In the event a
meeting of Condor stockholders to consider and approve the Merger and the
transactions contemplated thereby has not taken place on or before May 1, 1996,
Stockholder agrees to immediately call and cause to occur a special meeting of
Condor stockholders to consider and approve the Merger and to vote in favor of
same as provided in Section 2(i) above.
3........OPTION TO PURCHASE SHARES. The Stockholder hereby
grants to Amwest the irrevocable option to purchase 825,000 of the Main Shares
at a per share exercise price equal to the Merger Consideration as defined and
subject to comparable adjustments as set forth in the Merger Agreement. The
option granted hereby is exercisable for the period commencing immediately upon
the termination of the Merger Agreement, if any, and ending on December 31,
1996. Amwest shall in no event be obligated to exercise such option at any time.
4........REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
STOCKHOLDER. The Stockholder hereby represents, warrants and covenants to
Amwest as follows:
4.1 Ownership of shares. The Stockholder (i) is the beneficial
owner of the Main Shares, which at the date hereof and at all times up
until the Expiration Date will be free and clear of any liens, claims,
options, charges or other encumbrances; and (ii) has full power and
authority to make, enter into and carry out the terms of this
Agreement.
4.2 No proxy solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become "participants" in a "solicitation" (as such terms are
defined in Regulation 14A under the Exchange Act) with respect to an
Opposing Proposal or otherwise encourage or assist any party in taking
or planning any action that would compete with, restrain or otherwise
serve to interfere with or inhibit the timely consummation of the
Merger in accordance with the terms of the Merger Agreement; (ii)
initiate a stockholders' vote or action by consent of Condor
stockholders with respect to an Opposing Proposal; or (iii) become a
member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to any voting securities of Condor with
respect to an Opposing Proposal. Notwithstanding the above, the
Stockholder may take any actions in such Stockholder's role as director
and/or officer of Condor permitted under the Merger Agreement.
5........ADDITIONAL DOCUMENTS. The Stockholder hereby
covenants and agrees to execute and deliver any additional documents necessary
or desirable, in the reasonable opinion of Amwest to carry out the intent of
this Agreement.
6........CONSENT AND WAIVER. The Stockholder hereby gives any
consents or waivers that are reasonably required for the consummation of the
Merger under the terms of any agreements to which the Stockholder is a party or
pursuant to any rights Stockholder may have; provided that this Section 6 shall
not be deemed a consent of Stockholder in lieu of a meeting as contemplated by
Section 228 of the Delaware General Corporation Law.
7........TERMINATION. This Agreement shall terminate and shall
have no further force or effect after the later of: (i) the Expiration Date and,
(ii) the expiration of the option granted pursuant to Section 3 hereof.
8........MISCELLANEOUS.
8.1 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder
of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
8.2 Binding effect and assignment. This Agreement and all of
the provisions hereof shall be binding with respect to the specific
matters set forth herein and shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns, but, except as otherwise specifically provided
herein, neither this Agreement nor any of the rights, interests or
obligations of the Stockholder may be assigned by the Stockholder
without the prior written consent of the others.
8.3 Amendments and modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution
and delivery of a written agreement executed by the party against whom
enforcement is sought.
8.4 Specific performance; injunctive relief. The parties
hereto acknowledge that a violation of any of the covenants or
agreements of one party set forth herein will result in the other
parties being irreparably harmed (such other parties hereafter referred
to as an "Injured Party") and will leave an Injured Party with no
adequate remedy at law. Therefore, it is agreed that, in addition to
any other remedies that may be available to an Injured Party upon any
such violation, an Injured Party shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or
by any other means available to an Injured Party at law or in equity.
8.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date of delivery,
if delivered personally or faxed during normal business hours of the
recipient, or three days after deposit in the U.S. Mail, postage
prepaid, if mailed by registered or certified mail (return receipt
requested) as follows:
If to Amwest: Amwest Insurance Group, Inc.
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
Attention: Co-Chief Executive Officers
and Chief Financial Officer
With a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan K. Layne
If to the Stockholder: c/o Condor Services, Inc.
2361 Rosecrans Avenue
El Segundo, California 90245
or to such other address as any party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall only be effective upon receipt.
8.6 Governing law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the
State of Delaware.
8.7 Entire agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof,
and supersedes all prior negotiations and understandings between the
parties with respect to such subject matter.
8.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
8.9 Effect of headings. The section headings herein are for
convenience only and shall not affect the construction of
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Stockholder
Agreement to be duly executed on the day and year first above written.
AMWEST INSURANCE GROUP, INC.
By:______________________________
Richard H. Savage
Chairman of the Board and
Co-Chief Executive Officer
STOCKHOLDER:
_________________________________
Guy A. Main
MAIN FAMILY TRUST:
By:_______________________________
Guy A. Main
Trustee
By:_______________________________
Freda Main
Trustee
<PAGE>
ANNEX C
OPINION JEFFERIES & COMPANY, INC.
November 30, 1995
The Board of Directors
AMWEST INSURANCE GROUP, INC.
6320 Canoga Avenue, Suite 300
Woodland Hills, CA 91367
Re: The proposed merger (the "Merger") of Condor Services, Inc. ("Condor")
with and into Amwest Insurance Group, Inc. ("Amwest" or the "Company").
Gentlemen:
You have asked us to advise you on the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock, par value
$.01 per share (the "Amwest Common Stock"), of the Company (the "Stockholders")
of the Exchange Rate (defined below) contemplated by the Merger.
You have informed us that pursuant to the Merger, each outstanding
share of Common Stock, par value $.01 per share ("Condor Common Stock"), of
Condor (other than shares held by Amwest or its subsidiaries that will be
canceled pursuant to the Merger), will be converted into the right to receive
0.5 shares of Amwest Common Stock (the "Exchange Rate"), subject to an
adjustment as described in Section 1.05 of the draft of the Agreement and Plan
of Merger (the "Merger Agreement"), dated November 30, 1995, to be entered into,
by and between Amwest and Condor. The terms and conditions of the Merger,
including the adjustment, are more fully set forth in the Merger Agreement. We
note that the Merger has not yet been consummated. Any change in the Exchange
Rate or in the final form of the Merger Agreement could change the conclusions
expressed herein.
Jefferies & Company, Inc. ("Jefferies"), as part of its investment
banking activities, is regularly engaged in the evaluation of capital
structures. In addition, Jefferies performs valuations of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements, and other financial services. As you are aware, Jefferies
has been engaged by the Company to render, and has received a fee for rendering,
this opinion.
In connection with our opinion, we have, reviewed, among other things,
the draft of the Merger Agreement and certain financial and other information
about each of Amwest and Condor, that was, in each case, publicly available or
furnished to us by the Company or Condor, as the case may be, including certain
internal financial analyses, financial forecasts, the actuarial report on the
loss and loss adjustment reserves of Condor Insurance Company dated October 17,
1995, reports and other information prepared by Company and Condor management.
We have held discussions with members of senior management of the Company and
Condor concerning each company's historical and current operations, financial
conditions and prospects, as well as the strategic and operating benefits
anticipated from the business combination. In addition, we have conducted such
financial studies, analyses and investigations and reviewed such other factors
as we deemed appropriate for purposes of this opinion.
In rendering this opinion, we have relied, without independent
investigation or verification, on the accuracy, completeness and fairness of all
financial and other information reviewed by us and this opinion is conditioned
upon such information (whether written or oral), including, without limitation,
the information referred to in the preceding paragraph, being accurate, complete
and fair in all respects. You have informed us, and we have assumed, with your
permission, that all projections examined by us were reasonably prepared on
bases reflecting the best currently available estimates and good faith judgments
of the respective management of the Company and Condor as to the future
performance of each company. In addition, although we performed sensitivity
analysis thereon, in rendering this opinion we have assumed, with your
permission, that each such company will perform in accordance with such
projections for all periods specified therein. Although such projections did not
form the principal basis for our opinion, but rather was one among many items
employed, changes thereto could affect the opinion rendered herein. We have
assumed, with your permission, that the Merger will be a accounted for under the
"pooling of interest" accounting method.
We have not been requested to, and did not: (a) participate in the
structuring or negotiating of the Merger; (b) solicit third party indications of
interest in acquiring all or any part of the Company; or (c) make any
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of the Company or Condor, nor have we been furnished with any such
evaluation or appraisals, other than the actuarial report described herein.
We have assumed, with your permission, that all consents and
authorizations necessary to consummate the Merger have been, or will be
obtained, without material expense. Our opinion is addressed solely to the
fairness, from a financial point of view, of the Exchange Rate on the assumption
that the Company and its Board of Directors have determined that, from the
standpoint of its business and prospects, it is appropriate and desirable to
consummate the Merger. Our opinion is based on economic, monetary and market
conditions prevailing, and stock prices and other circumstances and conditions
existing, on the date of this letter, and we do not express any opinion as to
the market value of the Condor Common Stock or Amwest Common Stock, or the price
or trading range at which shares of Amwest Common Stock will trade following
consummation of the Merger. Without limiting the foregoing, we expressly
disclaim any undertaking or obligation to advise any person of any change in any
fact or matter affecting our opinion of which we become aware after the date
hereof.
In the ordinary course of Jefferies business, we may actively trade
securities of the Company and Condor for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the use of the Board of
Directors of the Company only and may not be used for any other purpose without
Jefferies prior, written consent, except that, the Company may include this
letter, in its entirety, and a description thereof, in any proxy statement,
registration statement or similar document distributed to the stockholders of
the Company in connection with the Merger. Without limiting the foregoing, this
letter does not constitute a recommendation to any stockholder of the Company as
to how such stockholder should vote with respect to the Merger.
Based upon and subject to the foregoing, it is our opinion that the
Exchange Rate is fair, from a financial point of view, to the Stockholders of
Amwest.
Very truly yours,
JEFFERIES & COMPANY, INC.
<PAGE>
ANNEX D
OPINION WEDBUSH MORGAN SECURITIES
November 30, 1995
Personal and Confidential
Board of Directors of Condor Services, Inc.
2041 Rosecrans Avenue
El Segundo, CA 90245
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the Public Shareholders of Condor Services, Inc. (the "Company") of the
consideration (the "Merger Consideration") to be received by the Public
Shareholders in the proposed merger (the "Merger") contemplated by the Agreement
and Plan of Merger dated November 30, 1995, by and between Amwest Insurance
Group, Inc. ("Amwest") and the Company (the "Merger Agreement"). The term
"Public Shareholders" as used herein refers to all shareholders of the Company
other than Amwest and other than those that are "affiliates" of the Company as
that term is used in Rule 12b-2 under the Securities Exchange Act of 1934.
The Merger Agreement defines the Merger Consideration as follows. At the
effective time of the Merger, each outstanding share of Condor Common Stock held
by a Public Shareholder shall be converted into the right to receive 0.5 of a
share (subject to adjustment pursuant to the following two sentences) of Amwest
Common Stock. If the average daily Closing Price (as defined in the Merger
Agreement) of Amwest Common Stock as reported on the American Stock Exchange for
the 30 consecutive trading days ending on the close of trading on the second
trading day preceding the closing date of the Merger (the "Base Period Trading
Price") is less than $12.50, the Merger Consideration would be increased by a
factor of 12.5 divided by the Base Period Trading Price. If the Base Period
Trading Price is greater than $17.50, the Merger Consideration would be
decreased by a factor of 17.5 divided by the Base Period Trading Price. In the
event that the portion of a share of Amwest Common Stock into which each share
of Condor Common Stock would be converted based upon the foregoing would be less
than four-tenths of a share (.4), Condor would have the right to terminate the
Merger Agreement without liability. In the event that the portion of a share of
Amwest Common Stock into which each share of Condor Common Stock would be
converted based upon the foregoing would exceed six-tenths of a share (.6),
Amwest would have the right to terminate the Merger Agreement without liability.
Wedbush Morgan Securities is an investment banking firm and a member of the New
York Stock Exchange and other principal stock exchanges in the United States,
and is regularly engaged as part of its business in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements, secondary distributions of listed and
unlisted securities, and valuations for corporate, estate and other purposes.
In arriving at our opinion set forth below, we have reviewed, among other
things, the Merger Agreement; the Stockholder Agreement by and between Amwest,
Guy A. Main, and the Main Family Trust; the Affiliates Letter and Continuity of
Interest Certificates executed by certain members of Condor management; the
Agreement With Guy A. Main and Main Family Trust to be entered into by and
between such parties and Amwest; the Registration Rights Agreement to be entered
into between Guy A. Main, the Main Family Trust and Amwest; the Annual Report on
Form 10-K of the Company for the fiscal year ended December 31, 1994; Quarterly
Reports on Form 10-Q of the Company for the quarters ended June 30, 1995 and
September 30, 1995; financial statements and analyses of the Company prepared by
Condor management for the fiscal years ended December 31, 1989 through December
31, 1993; the Proxy Statement for Annual Meeting of Stockholders of Condor dated
April 26, 1995; Quarterly Statement of Statutory Results of Condor as of
September 30, 1995; forecasts and projections prepared by Condor with respect to
Condor for the five fiscal years ending December 31, 1999; Actuarial Report on
the Loss and Loss Adjustment Expense Reserves of Condor as of September 30,
1995, prepared by Timothy B. Perr & Company, Consulting Actuaries; the
Annual Report to Shareholders of Amwest for the fiscal year ended December 31,
1994; Annual Reports on Form 10-K of Amwest for the fiscal year ended December
31, 1994; historical audited financial statements for the fiscal years ended
December 31, 1990 through December 31, 1993; Quarterly Report on Form 10-Q of
Amwest for the quarter ended September 30, 1995; Proxy Statement for Annual
Meeting of Stockholders of Amwest dated April 17,, 1995; financial forecasts of
Amwest alone for the five fiscal years ending December 31, 1999 and of Amwest
combined with Condor for the five fiscal years ending December 31, 1999 prepared
by Amwest management.
We have held discussions with certain members of the senior management of the
Company regarding the past and current business operations, financial condition,
future prospects and projected operations and performance of the Company. We
have held discussions with certain members of the senior management of Amwest
regarding the past and current business operations, financial condition, future
prospects and projected operations and performance of Amwest and of the combined
entities. We toured the headquarters of the Company in El Segundo, California
and the headquarters of Amwest in Canoga Park. In addition, we have reviewed the
reported price and trading activity of the Company Common Stock and of Amwest
Common Stock, compared certain statistical and financial information for the
Company and Amwest, respectively, with similar information for certain other
companies in the same industries as the Company and Amwest, respectively,
reviewed and compared statistical and financial data for recent acquisitions in
the same industry as the Company and conducted such other financial studies,
analyses and inquiries and considered such other matters as Wedbush deemed
necessary and appropriate for this opinion.
We note that under Section 7.03(g) of the Merger Agreement, the obligations of
the Company to effect the Merger are also subject to the receipt at or prior to
the date of the closing of the Merger of an opinion of Peat Marwick, consulting
actuary to Amwest, addressed to the Company, as of December 31, 1995, opining
that as of such date the reserves for loss and loss adjustment expense reflected
on such balance sheet of Amwest and its affiliated entities have been
established in conformity with generally accepted actuarial principles and
practices consistently applied, that such reserves were established in
conformity with applicable insurance regulatory requirements, and that such
reserves make a reasonable provision for all unpaid loss and loss adjustment
expense obligations of Amwest under the terms of its policies and agreements.
Our opinion is based in part on the Company's ability to obtain such assurances
and is subject to receipt of such an actuarial opinion. We note in this
connection that our experience is in financial analyses of the kind customary in
the investment banking profession and that we have not undertaken any obligation
to conduct or to supervise any actuarial analysis or review of the quality of
the reserves of Amwest or of the Company.
We further note that Amwest is a party to certain legal proceedings, currently
before the California Supreme Court, regarding the validity of Section 1861.135
of the California Insurance Code. Section 1861.135 exempts surety insurance from
the rate rollback and prior approval provisions of Proposition 103, the
insurance initiative adopted by California Voters. Our opinion is based on the
assumption that the outcome of such legl proceedings will not have a material
adverse effect on the financial position of Amwest.
We have not undertaken any obligation independently to verify the accuracy or
completeness of financial information or other information furnished to us by
the Company or Amwest orally or in writing, or other information obtained from
publicly available sources and reviewed by us for purposes of this opinion. We
were provided with information represented to us as the best currently available
estimates and judgments of the management of the Company and Amwest, as to the
expected future financial and operating performance of the Company and Amwest,
and we have not undertaken any responsibility for the accuracy of such
forecasts, estimates or judgments nor have we undertaken any obligation
independently to verify the underlying assumptions made in connection with such
forecasts, estimates or judgments. In addition, we have not made an independent
evaluation or appraisal of any particular assets or liabilities of the Company
or Amwest, and we have not been furnished with any such evaluation or appraisal.
We have not negotiated, or participated in any way in the negotiation of, the
terms of the Merger or advised you regarding strategic alternatives. We have not
been asked to consider, and this opinion does not address, the relative merits
of the Merger as compared to any alternative business strategies that might
exist for the Company or the effect of any other transaction in which the
Company might engage.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the Public
Shareholders.
This opinion is intended for the use of the Board of Directors of the Company in
connection with its consideration of the Merger. We recognize that the Company
may be required to disclose this opinion in any proxy statement related to the
Merger, and agree that the Company may do so, provided that the full text of the
opinion is attached to such proxy statement and that the descriptions of Wedbush
and the opinion in such proxy statement are approved by us in advance. We note,
however, that the opinion is intended to be for the benefit of the Board of
Directors, and not for the benefit of shareholders or any other third parties.
Our agreement to allow disclosure of the opinion in the Company's proxy
statement is intended solely to facilitate compliance by the Company with its
legal obligations, and should not be construed as (1) authorizing reliance on
such opinion by any shareholder of the Company or any other person, (2)
recommending to any shareholder how to vote regarding the Merger, or (3)
implying that Wedbush is, within the meaning of Section 7 or Section 11 of the
Securities Act of 1933, an "accountant, engineer, or appraiser, or any person
whose profession gives authority to a statement made by him, who has with his
consent been named as having prepared or certified" any part of any proxy
statement or registration statement in which such opinion may be included, or
any report or valuation used in connection therewith. Except as provided in this
paragraph, this opinion is not to be used, circulated, quoted or otherwise
referred to for any purpose, except in accordance with our prior written
consent.
Very truly yours,
WEDBUSH MORGAN SECURITIES
The Board of Directors
Amwest Insurance Group, Inc.:
We consent to the use of our reporsts incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
Los Angeles, California
January 8, 1996
