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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
FINANCIAL INSTITUTIONS INSURANCE GROUP,LTD.
(Name of the Issuer)
John A. Dore
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
------------
(CUSIP Number of Class of Securities)
WITH A COPY TO: JAMES M. VAN VLIET,JR.
SCHIFF HARDEN & WAITE
7200 SEARS TOWER
CHICAGO, IL 60606
(312) 876-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
THIS STATEMENT IS FILED IN CONNECTION WITH (CHECK THE APPROPRIATE BOX):
A. [x] THE FILING OF SOLICITATION MATERIALS OR AN INFORMATION STATEMENT
SUBJECT TO REGULATION 14A [17 CFR 240.14A-1 TO 240.14B-1], REGULATION
14C [17 CFR 240.14C-1 TO 240.14C-101] OR RULE 13E-3(C) [Section
240.13E-3(C)] UNDER THE SECURITIES EXCHANGE ACT OF 1934.
B. [ ] THE FILING OF A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933.
C. [ ] A TENDER OFFER.
D. [ ] NONE OF THE ABOVE.
CHECK THE FOLLOWING BOX IF THE SOLICITING MATERIALS OR INFORMATION STATEMENT
REFERRED TO IN CHECKING BOX (A) ARE PRELIMINARY COPIES: [x]
CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE
$54,139,930 $10,827.97
[x] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2)
AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID.
IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM
OR SCHEDULE AND THE DATE OF ITS FILING.
<TABLE>
<S> <C>
AMOUNT PREVIOUSLY PAID: $10,827.97 FILING PARTY: FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
FORM OF REGISTRATION NO.: SCHEDULE 14A DATE FILED: MAY 22, 1996
</TABLE>
* THE TRANSACTION VALUATION IS BASED UPON (I) $16.00, AS THE AMOUNT PER SHARE
WHICH WILL BE PAID BY THE ACQUIRING PARTY IN CASH, MULTIPLIED BY
(II) THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING PLUS THE
DIFFERENCE BETWEEN $16.00 AND THE EXERCISE PRICE FOR EACH OUTSTANDING OPTION
TO ACQUIRE COMMON STOCK OF THE ISSUER.
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INTRODUCTORY NOTE
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the
"Schedule 13E-3") relates to the proposed merger of FIIG Merger Corp. ("Buyer
Sub") with and into Financial Institutions Insurance Group, Ltd. (the
"Company") pursuant to the Merger Agreement dated as of April 12, 1996 by and
among the Company, Buyer Sub and FIIG Holding Corp. ("Buyer"). Buyer currently
is a wholly-owned subsidiary of Castle Harlan Partners II, L.P. ("CHP II"). It
is expected that John A. Dore, President and Chief Executive Officer of the
Company, will invest in the Buyer by rolling over a portion of the stock he
owns in the Company. It is anticipated that Mr. Dore will own approximately 3%
of the stock of Buyer after the Merger.
The cross reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement
of the information required to be included in response to the items of Schedule
13E-3. The information in the Proxy Statement is hereby expressly incorporated
herein by reference and the responses to each item are qualified in their
entirety by the information contained in the Proxy Statement.
2
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CROSS REFERENCE SHEET
(Pursuant to General Instruction F
to Schedule 13E-3)
Item in Location in
Schedule 13E-3 Proxy Statement
-------------- ---------------
Item 1 (a) Cover Page
(b) SUMMARY -- General; The Special Meeting;
INTRODUCTION -- Voting Rights; Vote Required For
Approval
(c) SUMMARY -- Comparative Market Price Data
(d) SUMMARY -- Dividends
(e) Not applicable
(f) STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS
Item 2 Cover Page; SUMMARY -- General
Item 3 SPECIAL FACTORS -- Interests of Certain Persons in the
Merger
Item 4 (a) SUMMARY; INTRODUCTION; SPECIAL FACTORS; THE MERGER
(b) SUMMARY -- General; SUMMARY -- Interests of Certain
Persons in the Merger; SPECIAL FACTORS -- Interest
of John A. Dore and Management in the Merger;
SPECIAL FACTORS -- Interests of Certain Persons in
the Merger; SPECIAL FACTORS -- Purpose and Certain
Effects of the Merger
Item 5 THE MERGER -- Plans or Proposals After the Merger;
SPECIAL FACTORS --Purposes and Certain Effects of
the Merger; SUMMARY -- Certain Effects of the Merger
Item 6 (a) THE MERGER -- Source and Amount of Funds; SPECIAL
FACTORS -- Interest of John A. Dore and Management
in the Merger
(b) THE MERGER AGREEMENT -- Expenses
(c)-(d) THE MERGER -- Source and Amount of Funds
3
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Item 7 (a)-(d) SPECIAL FACTORS - Background of the Merger; SPECIAL
FACTORS -- The Company's Reasons for the Merger;
Recommendation of the Company's Board of Directors;
SPECIAL FACTORS -- Purpose and Certain Effects of the
Merger; SPECIAL FACTORS -- Certain Federal Income Tax
Consequences of the Merger to the Company's Stockholders
Item 8 (a)-(b) SUMMARY; SPECIAL FACTORS -- The Company's Reasons for the
Merger; Recommendation of the Company's Board of
Directors; SPECIAL FACTORS -- Interest of John A. Dore
and Management in the Merger
(c) INTRODUCTION -- Voting Rights; Vote Required For Approval
(d)-(f) SPECIAL FACTORS -- The Company's Reasons for the
Merger; Recommendation of the Company's Board of
Directors; SPECIAL FACTORS -- Background of the Merger
Item 9 SPECIAL FACTORS -- The Company's Reasons for the Merger;
Recommendation of the Company's Board of Directors;
SPECIAL FACTORS -- Background of the Merger; SPECIAL
FACTORS -- Opinion of Investment Banker; Appendix C
Item 10 (a) STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
(b) Not applicable
Item 11 SPECIAL FACTORS -- Voting Agreements; SPECIAL FACTORS --
Interest of John A. Dore and Management in the Merger
Item 12 SPECIAL FACTORS -- The Company's Reasons for the Merger;
Recommendation of the Company's Board of Directors;
SPECIAL FACTORS -- Voting Agreements
Item 13 (a) THE MERGER -- Rights of Dissenting Stockholders
(b) Not applicable
(c) Not applicable
Item 14 (a) INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
(b) Not applicable
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Item 15 (a) SUMMARY; SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger
(b) INTRODUCTION -- Solicitation of Proxies
Item 16 Proxy Statement generally
Item 17 (b) Appendix C to Proxy Statement
(c) Appendix D to Proxy Statement
(d) Proxy Statement
(e) Appendix B to Proxy Statement
5
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) Reference hereby is made to the information set forth on the
cover page of the Proxy Statement, which information is incorporated herein by
reference.
(b) Reference hereby is made to the information set forth under
the headings "INTRODUCTION -- Voting Rights; Vote Required for Approval" and
"SUMMARY -- General; The Special Meeting" in the Proxy Statement, which
information is incorporated herein by reference.
(c) Reference hereby is made to the information set forth under
the heading "SUMMARY -- Comparative Market Price Data" in the Proxy Statement,
which information is incorporated herein by reference.
(d) Reference hereby is made to the information set forth under
the heading "SUMMARY -- Dividends" in the Proxy Statement, which information is
incorporated herein by reference.
(e) Not applicable.
(f) Reference hereby is made to the information set forth under
the heading "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" in
the Proxy Statement, which information is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) The person filing this statement is John A. Dore. Mr. Dore
has been President and Chief Executive Officer of the Company and its
subsidiaries since October, 1990. The address of the Company is 300 Delaware
Avenue, Suite 1704, Wilmington, Delaware 19801.
(e) None.
(f) None.
(g) John A. Dore is a citizen of the United States of America.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) Reference hereby is made to the information set forth under
the heading "SPECIAL FACTORS -- Interests of Certain Persons in the Merger" in
the Proxy Statement, which information is incorporated herein by reference.
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(b) Reference hereby is made to the information set forth under
the heading "SPECIAL FACTORS -- Background of Merger" in the Proxy Statement,
which information is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) Reference hereby is made to the information set forth under
the headings "SUMMARY," "INTRODUCTION," "SPECIAL FACTORS" and "THE MERGER" in
the Proxy Statement, which information is incorporated herein by reference.
(b) Reference hereby is made to the information set forth under
the headings "SUMMARY," "SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in
the Merger" and "SPECIAL FACTORS -- Purpose and Certain Effects of the Merger"
in the Proxy Statement, which information is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
Reference hereby is made to the information set forth under the
headings "THE MERGER -- Plans or Proposals After the Merger," "SPECIAL FACTORS
- -- Purposes and Certain Effects of the Merger" and "SUMMARY -- Certain Effects
of the Merger" in the Proxy Statement, which information is incorporated herein
by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Reference hereby is made to the information set forth under
the headings "THE MERGER -- Source and Amount of Funds" and "SPECIAL FACTORS --
Interest of John A. Dore and Management in the Merger" in the Proxy Statement,
which information is incorporated herein by reference.
(b) Reference hereby is made to the information set forth under
the heading "THE MERGER AGREEMENT -- Expenses" in the Proxy Statement, which
information is incorporated herein by reference.
(c)-(d) Reference hereby is made to the information set forth under
the heading "THE MERGER -- Source and Amount of Funds" in the Proxy Statement,
which information is incorporated herein by reference. John A. Dore does not
expect to borrow any funds in connection with the Merger.
ITEM 7. PURPOSE, ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d) Reference hereby is made to the information set forth under
the headings "SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
The Company's Reasons for the Merger; Recommendation of the Company's Board of
7
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Directors," "SPECIAL FACTORS -- Purpose and Certain Effects of the Merger,"
"SPECIAL FACTORS -- Certain Federal Income Tax Consequences of the Merger to
the Company's Stockholders," in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) Reference hereby is made to the information under the headings
"SUMMARY," "SPECIAL FACTORS -- The Company's Reasons for the Merger;
Recommendation of the Company's Board of Directors, and "SPECIAL FACTORS --
Interest of John A. Dore and Management in the Merger" in the Proxy Statement,
which information is incorporated herein by reference.
(c) The Merger is not structured to require approval by a majority
of unaffiliated stockholders. Reference hereby is made to the information
under the heading "INTRODUCTION -- Voting Rights; Vote Required For Approval"
in the Proxy Statement, which information is incorporated herein by reference.
(d)-(f) Reference is hereby made to the information under the headings
"SPECIAL FACTORS -- Background of the Merger" and "SPECIAL FACTORS -- The
Company's Reasons for the Merger; Recommendation of the Board of Directors" in
the Proxy Statement, which information is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) Reference hereby is made to the information in Appendix C of
the Proxy Statement and under the headings "SPECIAL FACTORS -- Background of
the Merger," "SPECIAL FACTORS -- Opinion of Investment Banker" and "SPECIAL
FACTORS -- The Company's Reasons for the Merger; Recommendation of the Board of
Directors" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 10. INTERESTS IN SECURITIES OF THE ISSUER.
(a) Reference hereby is made to the information under the heading
"STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" in the Proxy
Statement, which information is incorporated herein by reference.
(b) None.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
Reference hereby is made to the information under the headings
"SPECIAL FACTORS -- Voting Agreements," and SPECIAL FACTORS -- Interest of John
A. Dore
8
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and Management in the Merger" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION.
(a)-(b) Reference hereby is made to the information under the
headings "SPECIAL FACTORS -- Voting Agreements" and "SPECIAL FACTORS -- The
Company's Reasons for the Merger; Recommendation of the Company's Board of
Directors" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) Reference hereby is made to the information under the heading
"THE MERGER -- Rights of Dissenting Stockholders" in the Proxy Statement, which
information is incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) (1)-(2) Reference hereby is made to the information under the
heading "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in the Proxy
Statement, which information is incorporated herein by reference.
(3) Not Applicable.
(4) Book value per share as of December 31, 1995 was
$14.40/share and as of March 31, 1996 was $14.65/share.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Reference hereby is made to the information under the headings
"SUMMARY" and "SPECIAL FACTORS - Interest of John A. Dore and Management in the
Merger" in the Proxy Statement, which information is incorporated herein by
reference.
(b) Reference hereby is made to the information under the heading
"INTRODUCTION -- Solicitation of Proxies" in the Proxy Statement, which
information is incorporated herein by reference.
9
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ITEM 16. ADDITIONAL INFORMATION.
Reference hereby is made to the Proxy Statement, which contains
additional information regarding the Merger, which information is incorporated
herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(b) Opinion of William Blair & Company L.L.C. (Attached as
Appendix C to the Preliminary Proxy Statement)
(c) Form of Voting Agreement. (Attached as Appendix D to the
Preliminary Proxy Statement)
(d) A copy of the Preliminary Proxy Statement is incorporated
herein by reference.
(e) Section 262 of the Delaware General Corporation Law. (Attached
as Appendix B to the Preliminary Proxy Statement)
SIGNATURE
After due inquiry, and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
/s/ John A. Dore
----------------------------------------
John A. Dore
Date: May 21, 1996
10
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
17(d) Preliminary Proxy Statement . . . . . . . . . . . . . . . . .
</TABLE>
11
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FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
300 DELAWARE AVENUE
SUITE 1704
WILMINGTON, DELAWARE 19801
(302) 427-5800
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
of Financial Institutions Insurance Group, Ltd. ("FIIG" or the "Company"), to
be held at ___________________________ on _____________, 1996, at _____ time.
A notice of the Special Meeting, a proxy statement and related information
about the Company and a proxy card are enclosed. All holders of the Company's
outstanding shares of Common Stock as of _____________, 1996 (the "Record
Date") will be entitled to notice of and to vote at the Special Meeting.
At the Special Meeting, you will be asked to consider and to vote upon a
proposal to approve and adopt a Merger Agreement, dated as of April 12, 1996
(the "Merger Agreement"), by and among the Company, FIIG Holding Corp., a
Delaware corporation ("Buyer"), and FIIG Merger Corp., a Delaware corporation
and a wholly-owned subsidiary of Buyer ("Buyer Sub"), pursuant to which Buyer
Sub will be merged with and into the Company (the "Merger"). Buyer currently
is a wholly-owned subsidiary of Castle Harlan Partners II, L.P. It is expected
that John A. Dore, President and Chief Executive Officer of the Company, will
acquire approximately 3% of the outstanding shares of Buyer. If the Merger
Agreement is approved and the Merger becomes effective, each outstanding share
of Common Stock of the Company (other than dissenting shares) will be converted
into the right to receive $16.00 in cash. Approval of the Merger requires the
affirmative vote of the holders of a majority of all outstanding shares of the
Company's Common Stock.
Details of the proposed Merger and other important information are set
forth in the accompanying Proxy Statement, and you are urged to read it
carefully.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it in the enclosed prepaid
envelope. If you attend the Special Meeting, you may revoke such proxy and
vote in person if you wish, even if you have previously returned your proxy
card. Your prompt cooperation will be greatly appreciated.
R. Keith Long
Chairman of the Board
___________, 1996
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FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS ON ______________, 1996
To Stockholders of Financial Institutions Insurance Group, Ltd.:
A special meeting of the stockholders of Financial Institutions Insurance
Group, Ltd. ("FIIG" or the "Company"), will be held at ______________________
on _____________, 1996 at _______ time (the "Special Meeting"), to consider and
act upon the following matters:
1. To consider and vote upon a proposal to approve and adopt a Merger
Agreement dated as of April 12, 1996 (the "Merger Agreement"), by and
among the Company, FIIG Holding Corp., a Delaware corporation ("Buyer"),
and FIIG Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of Buyer ("Buyer Sub"), pursuant to which, among other things
(i) Buyer Sub will be merged with and into the Company (the "Merger"); and
(ii) each outstanding share of common stock, par value $1.00 per share, of
the Company (other than dissenting shares), will be converted into the
right to receive $16.00 in cash. A copy of the Merger Agreement is
attached as Appendix A to the accompanying Proxy Statement; and
2. The transaction of such other business as properly may come before
the Special Meeting or any adjournment or adjournments thereof.
Your attention is called to the Proxy Statement and other materials
concerning the Company which are mailed with this Notice for a more complete
statement regarding the matters to be acted upon at the Special Meeting. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Lana J. Braddock, Secretary
_____________, 1996
YOUR VOTE IS IMPORTANT. ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND
THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU
MAY NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
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PROXY STATEMENT
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
300 DELAWARE AVENUE
SUITE 1704
WILMINGTON, DELAWARE 19801
(302) 427-5800
This Proxy Statement is being furnished to the stockholders of Financial
Institutions Insurance Group, Ltd. ("FIIG" or the "Company") in connection with
the solicitation of proxies by the Company's Board of Directors for a Special
Meeting of Stockholders to be held on __________, 1996 at _________ time, at
______________________________________________ (the "Special Meeting"). At the
Special Meeting, the stockholders of the Company will consider and vote upon a
proposal to approve and adopt a Merger Agreement dated April 12, 1996 (the
"Merger Agreement"), among the Company, FIIG Holding Corp. ("Buyer") and FIIG
Merger Corp. ("Buyer Sub"). Buyer currently is a wholly-owned subsidiary of
Castle Harlan Partners II, L.P. ("CHP II"). It is expected that John A. Dore,
President and Chief Executive Officer of the Company, will own approximately 3%
of the outstanding shares of Buyer, and certain other officers and employees of
the Company will own up to approximately 1% of the outstanding shares of Buyer.
If the Merger is consummated, Buyer Sub will be merged into the Company, with
the Company being the surviving corporation (the "Surviving Corporation").
Pursuant to the Merger Agreement, each outstanding share of the Company's
common stock (other than dissenting shares) will be converted into the right to
receive $16.00 per share in cash. Each outstanding share of Buyer Sub common
stock will be converted into one share of the common stock of the Surviving
Corporation, which will become a wholly-owned subsidiary of Buyer.
This Proxy Statement is accompanied by copies of the Company's Annual
Report to Stockholders for the year ended December 31, 1995, and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. These
materials are included to assist stockholders in their deliberations. This
Proxy Statement is first being sent to stockholders on or about ___________,
1996.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 4
TABLE OF CONTENTS
PAGE
----
SUMMARY................................................................... S-1
General................................................................. S-1
The Special Meeting................................................... S-1
Purpose of the Special Meeting; Quorum; Vote Required................. S-1
The Parties to the Transaction........................................ S-1
The Merger............................................................ S-2
Certain Effects of the Merger......................................... S-2
Procedures for Exchange of Certificates............................... S-3
Recommendation of Board of Directors.................................. S-3
Voting of Shares of Certain Holders................................... S-3
Interests of Certain Persons in the Merger............................ S-3
Accounting Treatment.................................................. S-3
Federal Income Tax Consequences....................................... S-4
The Merger Agreement.................................................... S-4
Effective Time of the Merger.......................................... S-4
Conditions to Consummation of the Merger.............................. S-4
Termination of the Merger Agreement................................... S-4
Amendments to the Merger Agreement.................................... S-4
Dissenters' Rights.................................................... S-5
Comparative Market Price Data........................................... S-5
Dividends............................................................... S-5
Selected Consolidated Financial Data of the Company..................... S-6
INTRODUCTION.............................................................. 1
Proposal to be Considered at the Special Meeting........................ 1
Voting Rights; Vote Required for Approval............................... 1
Voting and Revocation of Proxies........................................ 2
Solicitation of Proxies................................................. 2
SPECIAL FACTORS........................................................... 2
Background of the Merger................................................ 2
Opinion of Investment Banker............................................ 5
The Company's Reasons for the Merger; Recommendation of the
Company's Board of Directors.......................................... 8
Voting Agreements....................................................... 10
Interest of John A. Dore and Management in the Merger................... 10
Purpose and Certain Effects of the Merger............................... 10
Interests of Certain Persons in the Merger.............................. 11
Stock Option Plan and Directors' Incentive Plan....................... 11
Acceleration of Stock Options......................................... 11
Employment Agreements................................................. 11
Indemnification and Insurance......................................... 12
Certain Federal Income Tax Consequences of the Merger to the Company's
Stockholders.......................................................... 12
THE MERGER................................................................ 13
Effects of the Merger................................................... 13
- i -
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PAGE
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Effective Time........................................................... 14
Procedures for Exchange of Certificates.................................. 14
Accounting Treatment..................................................... 15
Source and Amount of Funds............................................... 15
Plans or Proposals After the Merger...................................... 16
Rights of Dissenting Stockholders........................................ 16
Regulatory Approvals..................................................... 19
Connecticut Insurance Laws............................................... 19
THE MERGER AGREEMENT....................................................... 20
General.................................................................. 20
Effective Time........................................................... 20
Consideration to be Received by Stockholders of the Company.............. 21
Representations and Warranties........................................... 21
Covenants................................................................ 23
Termination Fee.......................................................... 27
Amendments and Waivers................................................... 28
Expenses................................................................. 28
Conditions to Consummation of the Merger................................. 28
Termination.............................................................. 29
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS................ 30
OTHER MATTERS.............................................................. 33
PROPOSALS BY HOLDERS OF COMPANY SHARES..................................... 33
EXPENSES OF SOLICITATION................................................... 33
INDEPENDENT PUBLIC ACCOUNTANTS............................................. 34
AVAILABLE INFORMATION...................................................... 34
INFORMATION INCORPORATED BY REFERENCE...................................... 34
Appendix A - Merger Agreement
Appendix B - Section 262 of DGCL
Appendix C - Opinion of William Blair & Company L.L.C.
Appendix D - Form of Voting Agreement
- ii -
<PAGE> 6
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. The following summary is not intended to be complete and
is qualified in its entirety by reference to the more detailed information
contained in this Proxy Statement, in the materials accompanying this Proxy
Statement and in the Appendices hereto. Stockholders are urged to review the
entire Proxy Statement and accompanying materials carefully.
GENERAL
The Special Meeting
The Special Meeting of Stockholders of Financial Institutions Insurance
Group, Ltd. ("FIIG" or the "Company") will be held on _____________, 1996 at
_________time, at_______________________ ____________________________________
(the "Special Meeting"). Only holders of record of shares of $1.00 par value
common stock of the Company (the "Common Stock" or the "Company Shares")
at the close of business on _________, 1996 are entitled to notice of and to
vote at the Special Meeting. On that date, there were approximately _______
holders of record of Common Stock and 3,210,584 shares of Common Stock
outstanding, with each share entitled to cast one vote at the Special Meeting.
See "INTRODUCTION--Voting Rights; Vote Required for Approval."
Purpose of the Special Meeting; Quorum; Vote Required
At the Special Meeting, stockholders will consider and vote upon a
proposal to approve and adopt the Merger Agreement, a copy of which is attached
as Appendix A to this Proxy Statement (the "Merger Agreement"). The Merger
Agreement provides for the merger of FIIG Merger Corp. with and into the
Company (the "Merger"). The Company, as the surviving corporation (the
"Surviving Corporation"), would then become a wholly-owned subsidiary of FIIG
Holding Corp. (the "Buyer"). All of the issued and outstanding capital stock
of the Buyer currently is owned by Castle Harlan Partners II, L.P. ("CHP II").
It is expected that John A. Dore, President and Chief Executive Officer of the
Company, will own approximately 3% of the outstanding shares of Buyer, and
certain other officers and employees of the Company will own up to
approximately 1% of the outstanding shares of Buyer. John A. Dore has been
President and Chief Executive Officer of the Company since 1990. See
"INTRODUCTION--Proposal to be Considered at the Special Meeting" and "SPECIAL
FACTORS -- Interest of John A. Dore and Management in the Merger." The
presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. Approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
Company Shares. See "INTRODUCTION--Voting Rights; Vote Required for Approval,"
and "THE MERGER AGREEMENT--Conditions to Consummation of the Merger."
The Parties to the Transaction
Castle Harlan Partners II, L.P. CHP II, which pursuant to the Merger will
become the ultimate parent of the Company, is a Delaware limited partnership
which invests in businesses for long-term appreciation. The principal
executive offices of CHP II are located at 150 East 58th Street, New York, NY
10155, and the telephone number is (212) 644-8600.
FIIG Holding Corp. and FIIG Merger Corp. FIIG Holding Corp. ("Buyer") and
FIIG Merger Corp., a wholly-owned subsidiary of Buyer ("Buyer Sub"), have been
formed solely for the purpose of the Merger. Neither company has engaged in
any business activity unrelated to the Merger. The principal executive offices
of Buyer and Buyer Sub are located at 150 East 58th Street, New York, NY 10155,
c/o Castle Harlan, Inc., and the telephone number is (212) 644-8600.
<PAGE> 7
Financial Institutions Insurance Group, Ltd. The Company is an insurance
holding company that, through its subsidiaries, underwrites insurance and
reinsurance. The principal lines of business include professional liability,
directors' and officers' liability, and other lines of property and casualty
insurance and reinsurance. The First Reinsurance Company of Hartford ("First
Re") is the Company's largest subsidiary. First Re is domiciled in the State
of Connecticut and maintains direct insurance licenses in 19 states and the
District of Columbia, with reinsurance approval or authority in 12 additional
states. The principal underwriting activity of the group is managed by the
Company's wholly-owned subsidiary, Oakley Underwriting Agency, Inc. ("Oakley").
Oakley underwrites directors' and officers' liability insurance and
professional liability insurance coverages on behalf of First Re and Virginia
Surety Company, Inc., an unaffiliated insurance company that maintains an
underwriting contract with Oakley. The insurance coverages underwritten by
Oakley on behalf of Virginia Surety Company, Inc. are generally reinsured by
First Re. First Re Management Company, Inc. ("FRM") is a wholly-owned
subsidiary of the Company which was organized to provide centralized management
and administrative service to the Company and its subsidiaries. F/I Insurance
Agency, Incorporated ("F/I Agency") is an Illinois-licensed insurance producer
and a wholly-owned subsidiary of the Company. The Company's Common Stock is
traded on The Nasdaq Stock Market under the symbol "FIRE." The principal
executive offices of the Company are located at 300 Delaware Avenue, Suite
1704, Wilmington, Delaware 19801, and the telephone number is (302) 427-5800.
The Merger
Pursuant to the Merger Agreement, Buyer Sub will merge into the Company,
with the Company being the Surviving Corporation. Each outstanding share of
Common Stock (except those shares held by the Company as treasury shares, or
held by Buyer or Buyer Sub, or shares as to which appraisal rights have not
been forfeited under the Delaware General Corporation Law ("DGCL"), if
effective notice of exercise of appraisal rights with respect to such shares
under Section 262 of the DGCL was required and given prior to the effective
time of the Merger ("Dissenting Shares")) will be converted into the right to
receive $16.00 in cash, without interest thereon (the "Merger Consideration").
Each of the outstanding stock options of the Company issued to certain
directors, officers and employees of the Company will be converted into the
right to receive a cash payment equal to the difference between $16.00 and the
exercise price of such options. Buyer intends to fund payment of the Merger
Consideration through third party debt financing and equity contributions by
CHP II and certain of its affiliates. The Merger is not contingent upon the
Buyer obtaining financing. The Buyer has requested approval from the
Commissioner of Insurance of the State of Connecticut for First Re to pay a
dividend to Buyer of up to $15,000,000 after the Merger. All shares of Common
Stock held by the Company as treasury shares and each share of Common Stock
held by Buyer or Buyer Sub will be canceled without consideration. Each
outstanding share of Buyer Sub's common stock will be converted into one share
of common stock of the Surviving Corporation. Holders of Dissenting Shares
will be entitled to receive from the Surviving Corporation a cash payment in
the amount of the "fair value" of such shares, determined in the manner
provided in Section 262 of the DGCL. See "THE MERGER--Rights of Dissenting
Stockholders." After the Merger, Buyer will own 100% of the outstanding shares
of the Company's Common Stock. See "THE MERGER AGREEMENT."
Certain Effects of the Merger
As a result of the Merger, Buyer will acquire the entire equity interest
in the Company. Therefore, following the Merger, the present holders of the
Company Shares will no longer have an equity interest in the Company and will
no longer share in future earnings and growth of the Company, the risks
associated with achieving such earnings and growth, or the potential to realize
greater value for their Company Shares through divestitures, strategic
acquisitions or other corporate opportunities that may be pursued by the
Company in the future. Instead, each holder of Company Shares at the effective
time of
S-2
<PAGE> 8
the Merger (the "Effective Time") will have the right to receive the
Merger Consideration (or, in the case of Dissenting Shares, the statutorily
determined "fair value") for each Company Share. The Company Shares will no
longer be listed or traded on The Nasdaq Stock Market and the registration of
the Company Shares under the Securities Exchange Act of 1934 (the "Exchange
Act") will be terminated. See "SPECIAL FACTORS--Purpose and Certain Effects of
the Merger," and "THE MERGER--Effects of the Merger."
Procedures for Exchange of Certificates
As soon as practicable after the Effective Time, a letter of transmittal
and instructions for surrendering stock certificates evidencing shares of the
Company's Common Stock will be mailed to each holder of the Company's Common
Stock for use in exchanging such holder's stock certificates for the Merger
Consideration to which such holder is entitled as a result of the Merger.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
See "THE MERGER-- Procedures for Exchange of Certificates."
Recommendation of Board of Directors
The Board of Directors has determined that the Merger and the Merger
Consideration are fair to, and in the best interests of, the Company's
stockholders. The Board of Directors has approved the Merger Agreement and
recommends that stockholders vote FOR the proposal to approve and adopt the
Merger Agreement. See "SPECIAL FACTORS--The Company's Reasons for the Merger;
Recommendation of the Company's Board of Directors."
Voting of Shares of Certain Holders
Certain stockholders of the Company, including certain executive officers
and members of the Board of Directors of the Company, have entered into Voting
Agreements with Buyer and Buyer Sub pursuant to which such stockholders have
agreed to vote in favor of the Merger at the Special Meeting. Pursuant
thereto, it is expected that shares representing approximately 20 percent of
the Company's outstanding shares of Common Stock will be voted in favor of the
Merger. See "SPECIAL FACTORS--The Voting Agreements."
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain members of management of the Company
and the Board of Directors of the Company have certain interests in the Merger
that are in addition to the interests of stockholders of the Company generally.
See "SPECIAL FACTORS--Interests of Certain Persons in the Merger; Interest of
John A. Dore and Management in the Merger."
Accounting Treatment
The Merger will be accounted for under the purchase method of accounting
by Buyer. See "THE MERGER--Accounting Treatment."
S-3
<PAGE> 9
Federal Income Tax Consequences
The receipt of $16.00 per share in cash for Company Shares pursuant to the
Merger will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended, and also may be a taxable
transaction under applicable state, local, foreign and other tax laws. For
federal income tax purposes, a stockholder of the Company will realize taxable
gain or loss as a result of the Merger measured by the difference, if any,
between the per share tax basis of such stockholder's Company Shares and
$16.00. Each holder of an option to acquire Company Shares who receives a cash
payment equal to the difference between $16.00 and the exercise price per share
of such option will have ordinary income to the extent of the cash received.
See "SPECIAL FACTORS--Certain Federal Income Tax Consequences of the Merger to
the Company's Stockholders."
THE MERGER AGREEMENT
Effective Time of the Merger
The Merger will become effective upon the filing of a properly executed
Certificate of Merger with the Secretary of State of the State of Delaware or
at such later date specified in the Certificate of Merger. The filing will
occur after all conditions to the Merger contained in the Merger Agreement have
been satisfied or waived. The Company, Buyer and Buyer Sub anticipate that the
Merger will be consummated as promptly as practicable following the Special
Meeting. See "THE MERGER AGREEMENT--General" and "THE MERGER
AGREEMENT--Effective Time."
Conditions to Consummation of the Merger
The respective obligations of the Company, Buyer and Buyer Sub to effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
various closing conditions. Such conditions include, among others, the
approval and adoption of the Merger Agreement by the holders of a majority of
the outstanding Company Shares, the obtaining of regulatory approvals and the
correctness in all material respects of each of the representations and
warranties of the parties to the Merger Agreement. In addition, Buyer and
Buyer Sub are not obligated to consummate the Merger if the holders of 5% or
more of the outstanding Company Shares have delivered written notice of their
intent to seek dissenters' rights. See "THE MERGER AGREEMENT--Conditions to
Consummation of the Merger" and "THE MERGER AGREEMENT--Termination."
Termination of the Merger Agreement
The Merger Agreement may, under specified circumstances, be terminated and
the Merger abandoned at any time prior to the Effective Time, notwithstanding
approval of the Merger Agreement by the stockholders of the Company. The
Merger Agreement provides under certain circumstances for the payment of a cash
fee in the amount of $3,500,000 to CHP II in the event the Company executes an
agreement with a third party involving a merger or other business combination
or sale of a substantial portion of the assets or stock of the Company prior to
February 17, 1997. See "THE MERGER AGREEMENT--Termination" and "THE MERGER
AGREEMENT--Termination Fee."
Amendments to the Merger Agreement
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties. After approval of the Merger
Agreement by the stockholders of the Company and without the further approval
of such stockholders, no amendment will be made in a manner which is
S-4
<PAGE> 10
materially adverse, as reasonably determined by the Company, to the rights of
the stockholders of the Company. See "THE MERGER AGREEMENT--Amendments and
Waivers."
Dissenters' Rights
Pursuant to the DGCL, any holder of Common Stock of the Company (i) who files a
proper demand for appraisal in writing prior to the vote taken at the Special
Meeting and (ii) whose shares are not voted in favor of the Merger, shall be
entitled to appraisal rights under Section 262 of the DGCL. A copy of Section
262 of the DGCL is attached as Appendix B to this Proxy Statement. See "THE
MERGER--Rights of Dissenting Stockholders."
COMPARATIVE MARKET PRICE DATA
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "FIRE." The following table sets forth the high and low sales price per
share of the Company's Common Stock on The Nasdaq Stock Market for the periods
indicated. All share amounts and per share prices set forth herein have been
adjusted to give effect to capital adjustments such as stock dividends and
stock splits.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter.......................... $10.24 $8.68
Second Quarter......................... 9.72 8.33
Third Quarter.......................... 9.54 7.99
Fourth Quarter......................... 9.20 8.33
1995
First Quarter.......................... $9.72 $9.03
Second Quarter......................... 12.84 9.20
Third Quarter.......................... 13.75 11.46
Fourth Quarter......................... 14.48 12.92
1996
First Quarter.......................... $15.75 $12.25
Second Quarter (through May 1, 1996)... 16.25 15.19
</TABLE>
On February 16, 1996 the last full day of trading prior to the
announcement by the Company of the execution of a letter of intent with respect
to the Merger, the reported high and low sales price per share of Common Stock
was $14.50. On ______________, 1996, the last full day of trading prior to the
printing of this Proxy Statement, the reported high and low sales prices per
share of Common Stock were $______________.
DIVIDENDS
Since January 1, 1994, the Company has paid the following cash and common
stock dividends to holders of record of Common Stock:
S-5
<PAGE> 11
<TABLE>
<CAPTION>
Dividend
Stockholder Paid Per
1996 Payment Date Record Date Common Share
------------------------------------------------------
<S> <C> <C>
February 22, 1996 January 25, 1996 20% Common Stock
February 22, 1996 January 25, 1996 $0.075
May 23, 1996 April 18, 1996 $0.075
<CAPTION>
Dividend
Stockholder Paid Per
1995 Payment Date Record Date Common Share
------------------------------------------------------
<S> <C> <C>
February 23, 1995 January 26, 1995 $0.075
May 25, 1995 April 20, 1995 $0.075
August 24, 1995 July 27, 1995 $0.075
August 24, 1995 July 27, 1995 20% Common Stock
November 24, 1995 October 26, 1995 $0.075
<CAPTION>
Dividend
Stockholder Paid Per
1994 Payment Date Record Date Common Share
------------------------------------------------------
<S> <C> <C>
February 24, 1994 January 20, 1994 $0.065
May 26, 1994 April 21, 1994 $0.065
August 25, 1994 July 28, 1994 $0.065
November 25, 1994 October 27, 1994 $0.065
</TABLE>
The State of Connecticut, under the statutes and regulations that govern the
operations and affairs of insurance companies that are domiciled in the state,
imposes a restriction on the amount of dividends that can be paid by First Re
to the Company without prior regulatory approval. The aggregate amount of
dividends that may be paid within a 12-month period by First Re without prior
regulatory approval is limited to the greater of (i) 10% of statutory
policyholders' surplus as of the preceding December 31 or (ii) 100% of net
income for the preceding fiscal year. Dividends also may not exceed earned
surplus. Dividends exceeding these limitations require regulatory approval.
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
Set forth below is a summary of certain consolidated selected financial
data with respect to the Company excerpted or derived from the information
contained in the Company's Annual Reports on Form 10-K for the fiscal years
ended December 31, 1995, 1994, 1993, 1992 and 1991, and Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 1996 and 1995. More
comprehensive financial information is included in such reports and other
documents filed by the Company with the Securities and Exchange Commission (the
"Commission"), and the following summary is qualified in its
S-6
<PAGE> 12
entirety by reference to such reports and other documents and all of the
financial information (including any related notes) contained therein. Such
reports and other documents may be inspected and copies may be obtained from
the offices of the Commission. See "AVAILABLE INFORMATION." In addition,
certain detailed financial information concerning the Company and its
subsidiaries is contained in the Company's Annual Report to Stockholders for
the year ended December 31, 1995, and in the Form 10-Q for the quarterly period
ended March 31, 1996, copies of which accompany each copy of this Proxy
Statement being provided to stockholders.
SELECTED FINANCIAL DATA OF THE COMPANY
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Premiums earned............... $11,356,083 $7,819,784 $7,433,716 $7,344,128 $8,872,195
Net investment income......... 4,050,602 3,277,864 3,470,202 3,344,198 3,936,098
Net realized gains on
investments................... 1,193,780 570,231 1,275,142 1,031,977 830,722
Other income.................. 556,941 742,546 582,465 427,072 138,896
Total revenue............. 17,157,406 12,410,425 12,761,525 12,147,375 13,777,911
Losses and loss adjustment
expenses...................... 4,843,484 2,613,394 4,923,662 4,597,056 5,622,158
Commission expenses........... 3,042,719 1,786,664 1,864,320 1,762,197 2,605,405
Other operating and
management expenses........... 3,683,860 3,467,801 2,885,953 2,228,570 1,962,772
Total Losses and Expenses..... 11,570,063 7,867,859 9,673,935 8,587,823 10,190,335
Income Before Income Taxes
and Cumulative Effect of
Change in Accounting
Principle..................... 5,587,343 4,542,566 3,087,590 3,559,552 3,587,576
Provision for income taxes.... 1,265,544 803,748 68,160 613,788 1,177,758
Income before cumulative
effect of change in
accounting principle.......... 4,321,799 3,738,818 3,019,430 2,945,764 2,409,818
Cumulative effect of change
in accounting for income
taxes......................... -- -- 192,515 -- --
Net Income.................... $ 4,321,799 $ 3,738,818 $ 3,211,945 $ 2,945,764 $ 2,409,818
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding..... 3,334,444 3,316,464 3,237,559 3,634,894 3,938,045
Income per share before
offset of change in
accounting principle.......... $1.30 $1.13 $0.99 $0.81 $0.61
Cumulative effect of change
in accounting for income
taxes......................... -- -- 0.09 -- --
Total Net Income Per
Share..................... $1.30 $1.13 $1.08 $0.81 $0.61
Total Assets At End of =========== =========== =========== =========== ===========
Period........................ $94,200,273 $86,128,532 $83,211,041 $79,132,178 $72,784,107
=========== =========== =========== =========== ===========
</TABLE>
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<PAGE> 13
SELECTED FINANCIAL DATA OF THE COMPANY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Premiums earned.............................. $3,610,824 $2,305,776
Net investment income........................ 939,676 1,170,565
Net realized gains on investments............ 2,119,748 83,962
Other income................................. 136,336 175,142
Total revenue................................ 6,806,584 3,735,445
Losses and loss adjustment expenses.......... 1,946,108 822,186
Commission expenses.......................... 720,692 588,228
Other operating and management expenses...... 936,588 850,955
Total Losses and Expenses.................... 3,603,388 2,261,369
Income Before Income Taxes and Cumulative
Effect of Change in Accounting Principle..... 3,203,196 1,474,076
Provision for income taxes................... 910,658 304,656
Income before cumulative effect of change in
accounting principle......................... 2,292,538 1,169,420
Cumulative effect of change in accounting for
income taxes................................. -- --
Net Income................................... $2,292,538 $1,169,420
=========== ===========
Weighted average number of common shares
outstanding.................................. 3,371,480 3,258,068
Income per share before offset of change in
accounting principle......................... $0.68 $0.36
Cumulative effect of change in accounting for
income taxes................................. -- --
Total Net Income Per Share................... $0.68 $0.36
===== =====
Total Assets at End of Period................ $94,461,064 $87,315,357
=========== ===========
</TABLE>
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<PAGE> 14
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Financial Institutions Insurance Group,
Ltd. ("FIIG" or the "Company") for a Special Meeting of Stockholders to be held
on _________, _____________, 1996 (the "Special Meeting"). Shares represented
by properly executed proxies received by the Company will be voted at the
Special Meeting or any adjournment thereof in accordance with the terms of such
proxies, unless revoked. Proxies may be revoked at any time prior to the
voting thereof either by written notice filed with the Secretary of the Company
or by oral notice to the presiding officers during the meeting.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will consider and
vote upon a proposal to approve and adopt a Merger Agreement dated April 12,
1996 (the "Merger Agreement") among the Company, FIIG Holding Corp., a Delaware
Corporation ("Buyer"), and FIIG Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of Buyer ("Buyer Sub").
The Merger Agreement provides for the merger (the "Merger") of Buyer Sub
into the Company, with the Company being the surviving corporation (the
"Surviving Corporation"). Pursuant to the Merger: (i) each outstanding share
of the common stock, $1.00 par value, of the Company (the "Common Stock" or
"Company Shares") (other than Company Shares held by the Company as treasury
shares, or held by Buyer or Buyer Sub, or shares as to which appraisal rights
have not been forfeited under the DGCL, if effective notice of exercise of
appraisal rights with respect to such shares under Section 262 of the DGCL was
required and given prior to the effective time of the Merger ("Dissenting
Shares")), will be converted into the right to receive $16.00 per share in
cash, without interest (the "Merger Consideration"); (ii) all Company Shares
held by the Company as treasury shares and each share of Common Stock held by
Buyer or Buyer Sub will be canceled without consideration; (iii) each
outstanding share of Buyer Sub common stock will be converted into one share of
common stock of the Surviving Corporation; and (iv) each of the outstanding
stock options of the Company issued to certain directors, officers and
employees of the Company will be converted into the right to receive a cash
payment equal to the difference between $16.00 and the exercise price per share
of such options. Holders of Dissenting Shares will be entitled to receive from
the Surviving Corporation a cash payment in the amount of the "fair value" of
such shares, determined in the manner provided in Section 262 of the DGCL, but
after the effective time of the Merger such shares will not represent any
interest in the Surviving Corporation other than the right to receive such cash
payment. See "THE MERGER--Rights of Dissenting Stockholders." A copy of the
Merger Agreement is attached as Appendix A to this Proxy Statement.
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
The record date for the Special Meeting is the close of business on
______________, 1996. At that date, there were approximately _______ holders
of record of Common Stock and ________ Company Shares outstanding. Each
Company Share entitles its holder to one vote concerning all matters properly
coming before the Special Meeting. Any stockholder entitled to vote may vote
either in person or by duly authorized proxy. A majority of the shares
entitled to vote, represented in person or by proxy, will constitute a quorum.
Abstentions and broker non-votes (i.e., shares held by brokers in street name,
voting on certain matters due to discretionary authority or instructions from
the beneficial owner but not voting on other matters due to lack of authority
to vote on such matters without instructions from the beneficial owner) are
counted for the purpose of establishing a quorum. The Merger Agreement must be
approved by the holders of at least a majority of the outstanding Company
Shares. Abstentions and broker non-votes have the same effect as a vote
"AGAINST" the approval of the Merger. Votes will be tabulated by the Company's
transfer agent, First Chicago Trust Company of New York.
<PAGE> 15
Certain directors and executive officers of the Company with ownership of
an aggregate of approximately 20 percent of the outstanding Company Shares have
entered into Voting Agreements, pursuant to which each such stockholder has
agreed to vote his shares of Common Stock in favor of the Merger. Accordingly,
the affirmative vote of holders of Common Stock representing approximately an
additional 30 percent of the outstanding Company Shares is required for
approval of the Merger. See "SPECIAL FACTORS -- Voting Agreements."
VOTING AND REVOCATION OF PROXIES
All Company Shares represented by properly executed proxies received prior
to or at the Special Meeting and not revoked will be voted in accordance with
the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND, IN THE DISCRETION OF THE PERSONS NAMED IN THE PROXY, ON SUCH
OTHER MATTERS AS PROPERLY MAY BE PRESENTED AT THE SPECIAL MEETING.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
The Board of Directors of the Company is not currently aware of any
business to be brought before the Special Meeting other than that described
herein. If, however, other matters are properly brought before the Special
Meeting, or any adjournments or postponements thereof, the persons appointed as
proxies will have discretionary authority to vote the shares represented by
duly executed proxies in accordance with their discretion and judgment as to
the best interest of the Company.
SOLICITATION OF PROXIES
Expenses in connection with the solicitation of proxies will be borne by
the Company. Upon request, the Company will reimburse brokers, dealers and
banks, or their nominees, for reasonable expenses incurred in forwarding copies
of the proxy material to the beneficial owners of Company Shares which such
persons hold of record. Solicitation of proxies will be made principally by
mail. Proxies may also be solicited in person, or by telephone or telegraph,
by officers and regular employees of the Company.
Although the Company has no present plans to retain any outside firm to
aid in the solicitation of proxies, the Company reserves the right to do so if
necessary to facilitate the Company's receipt of proxies. It is not
anticipated that the aggregate cost for any outside assistance will be material
in amount, or will exceed customary charges.
This proxy material is being mailed to stockholders commencing on or about
___________, 1996.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
On August 18, 1995, the Company received an unsolicited offer from its
Chairman of the Board, R. Keith Long, to acquire the Company for a cash price
of $13.33 per share of Common Stock by means of a merger with a company to be
organized by Mr. Long. The price of $13.33 per share represented an 8.4%
premium over the market price for the Common Stock at the close of business on
August 14, 1995 (one week prior to the announcement of Mr. Long's proposal).
2
<PAGE> 16
At a meeting of the Executive Committee of the Board of Directors of the
Company on September 12, 1995, it was determined to recommend to the Board of
Directors that a Special Committee be appointed to evaluate Mr. Long's proposal
as well as other alternative strategic actions for the Company. The Executive
Committee also recommended that the Special Committee be given authority to
hire a financial advisor to assist in its evaluation. Accordingly, John A.
Dore, at the request of the Executive Committee, contacted eight potential
financial advisors and obtained information from each on the services to be
performed and the related costs. The Executive Committee met with
representatives of seven of the firms.
At a meeting of the Board of Directors of the Company on September 20,
1995, the Board authorized the formation of a Special Committee of
disinterested directors to evaluate the proposal received from Mr. Long, as
well as to explore various alternative actions to position the Company for the
future, including internal growth, the acquisition of other companies, and the
potential acquisition of the Company by other companies.
The Special Committee further was authorized by the Board of Directors to
engage financial and other advisors deemed necessary in connection with its
consideration of strategic alternatives. Mr. Dore and the Executive Committee
presented the Special Committee with the information they had obtained on
financial advisors. The Special Committee met with representatives of William
Blair & Company L.L.C. ("William Blair") on September 28, 1995, and on
September 29, 1995 engaged William Blair as its financial advisor.
On October 10, 1995, John A. Dore requested that the Executive Committee
of the Company grant him permission to pursue the development of a friendly
proposal to acquire the Company. Permission was granted by the Executive
Committee and subsequently ratified by the Board of Directors.
Because of the appointment of the Special Committee, the engagement of
William Blair as independent financial advisor, and the fact that the majority
of the Board of Directors was independent, the Board of Directors did not
consider it necessary to retain any other unaffiliated representative to act
solely on behalf of the public stockholders for the purpose of negotiating the
Merger Agreement or preparing a report concerning the fairness to stockholders
of the Merger.
The Special Committee of the Company met with William Blair on October 18,
1995, November 8, 1995 and November 30, 1995 to receive reports from William
Blair of the results of its analysis of the Company. Based upon a review of
all information available to it, including the information presented by William
Blair, the Special Committee concluded that it was appropriate for the Company
to explore alternatives to maximize stockholder value, including the potential
sale of the Company. William Blair therefore was authorized to undertake a
review of potential strategic opportunities for the Company. In addition,
because the analysis of William Blair was ongoing, and because the market price
of the Company's Common Stock then exceeded the price offered by Mr. Long, no
action was taken on the proposal of Mr. Long. The conclusions of the Special
Committee were ratified by the Board of Directors at a meeting on December 6,
1995.
On December 28, 1995, Mr. Long revoked his offer of $13.33 per share. On
January 5, 1996, the Company received a joint proposal from CHP II and John A.
Dore to acquire the Company for $15.00 per share of Common Stock in cash, an
18.8% premium over the market price at the close of business on January 4,
1996, and a 22.1% premium over the market price at the close of business on
August 14, 1995. The Special Committee met on January 8, 1996 to discuss the
CHP II offer and William Blair's review of other strategic opportunities. The
Special Committee instructed William Blair to contact other potential
purchasers. Accordingly, William Blair contacted 24 parties who had been
identified as potential purchasers, either because such parties had previously
contacted the Company or William Blair,
3
<PAGE> 17
or because William Blair had identified the parties as those that might have
an interest in purchasing the Company. The parties contacted consisted
primarily of insurance companies and private investment firms. Of the 24
parties contacted, 15 expressed interest in receiving a package of
publicly-available information on the Company, which William Blair forwarded on
January 10, 1996. Between January 18, 1996 and January 24, 1996, William Blair
distributed a confidential selling memorandum to eight of the interested
parties who had expressed further interest and who had executed confidentiality
agreements. For various reasons, the number of potential acquirors was reduced
to two, including CHP II. The Company then entered into negotiations with the
two parties.
In the Company's negotiations with CHP II, CHP II insisted that the
Company enter into a letter of intent that provided, among other things, (i)
for the Company to deal exclusively with CHP II and Mr. Dore for a period of 45
days, and (ii) for a termination fee of $3,500,000 to be paid to CHP II in the
event the Company executed an agreement with a third party involving a merger
or other business combination or sale of a substantial portion of the assets or
stock of the Company prior to February 17, 1997. The Board of Directors
discussed the two proposals and the ongoing negotiations with both parties at
meetings on February 5-6, 1996, February 8, 1996 and February 14, 1996.
Further negotiations were conducted with CHP II in which CHP II indicated it
would increase its offer to $16.00 per share of Common Stock if the Company
entered into a letter of intent containing the exclusive period of 45 days and
the termination fee of $3,500,000 described above. On February 15, 1996, the
Company was notified by the other potential acquiror that it was unable to
pursue its outstanding indication of interest with the Company at that time.
The Special Committee discussed this notification as well as the CHP II
proposal at a meeting on February 16, 1996, and determined to recommend that
the Board accept the CHP II proposal. On February 17, 1996, CHP II submitted a
written proposal to acquire the Company at a cash price of $16.00 per share of
Common Stock, a 6.7% premium over its prior offer and a 30.1% premium over the
market price at the close of business on August 14, 1995. The proposal
included the exclusive period of 45 days and the termination fee of $3,500,000
described above. At a meeting of the Board of Directors of the Company on
February 19, 1996, the Board of Directors discussed in detail the CHP II
proposal, including the termination fee, and determined that acceptance of the
exclusive period and the termination fee was necessary in order to obtain
greater value for the Company's stockholders. Accordingly, the Board of
Directors determined that the CHP II offer was the best alternative available
for the Company and authorized the execution of a letter of intent with CHP II.
The letter of intent was executed and delivered by the Company on February 19,
1996.
CHP II conducted its due diligence evaluation of the Company through March
4, 1996, and on March 4, 1996 delivered to the Company written evidence of its
satisfactory conclusion of due diligence. During the next several weeks,
representatives of the Company and CHP II negotiated and prepared the Merger
Agreement. The Board of Directors of the Company reviewed the terms and
conditions of the Merger and Merger Agreement at meetings on March 20, 1996,
March 27, 1996 and March 29, 1996. William Blair also presented certain
information for consideration by the Board of Directors and advised the Board
that it was the opinion of William Blair that the Merger Consideration to be
received by the stockholders of the Company pursuant to the Merger was fair
from a financial point of view to the Company's stockholders. At a meeting of
the Board of Directors on April 10, 1996, by the unanimous vote of the
directors participating in the meeting, the Merger and Merger Agreement were
approved, and it was determined to submit the Merger Agreement to a vote of the
Company's stockholders. Messrs. Diesel and Morris, who were not present at the
meeting on April 10, 1996, later ratified and approved all actions taken by the
board. John A. Dore did not participate in any of the discussions by the Board
of Directors relating to the Merger. The Merger Agreement was executed by the
Company, Buyer and Buyer Sub on April 12, 1996, and a public announcement of
the execution of the Merger Agreement was made on April 15, 1996.
4
<PAGE> 18
OPINION OF INVESTMENT BANKER
On March 20, 1996, William Blair delivered its written opinion to the
Board that, as of such date, the Merger Consideration to be received by the
stockholders in the Merger was fair, from a financial point of view. The amount
of such consideration was determined pursuant to extensive negotiations between
the Company and CHP II. No limitations were imposed by the Company with
respect to the investigations made or the procedures followed by William Blair
in rendering its opinion. William Blair subsequently updated such opinion in
writing as of ________________, 1996.
The full text of the opinion of William Blair, which sets forth certain
assumptions made, matters considered and limitations on the reviews undertaken,
is attached as Appendix C to this Proxy Statement, and is incorporated herein
by reference. Stockholders are urged to read the opinion in its entirety. The
summary of the opinion of William Blair set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of the opinion.
William Blair's opinion is directed only to the consideration to be received by
the stockholders and does not constitute a recommendation to any stockholder as
to how such stockholder should vote at the Special Meeting. William Blair's
opinion does not address the likely tax consequences of the Merger to any
stockholder.
In arriving at its opinion, William Blair reviewed and analyzed, among
other data: (i) the audited financial statements of the Company for the years
1990 through 1995; (ii) the 10-K and 10-Q reports for the Company for the years
1990 through 1995; (iii) the statutory financial statements for First Re for
the years 1991 through 1995; (iv) other financial and operating information
which was provided to William Blair by the Company; (v) publicly available
information regarding the performance of certain other property and casualty
insurance companies whose business activities William Blair believed to be
generally comparable with the Company; (vi) the reported price and trading
activity of the Company's Common Stock and the dividends historically paid with
respect thereto, as well as the prices and sales activity for comparable
companies; (vii) the financial performance and condition of the Company
compared with that of certain other comparable companies; (viii) the financial
terms, to the extent publicly available, of certain comparable transactions;
(ix) the Merger Agreement; and (x) other information William Blair deemed
relevant. In addition, William Blair: (i) discussed the past and current
operations and financial condition and the prospects of the Company with senior
executives of the Company; and (ii) participated in discussions and
negotiations among representatives of the Company, CHP II and certain other
parties and their financial and legal advisors.
William Blair assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. William Blair did not make any independent valuation or appraisal
of the assets or liabilities of the Company. William Blair assumed without
independent verification that the reserves for unpaid losses and loss
adjustment expenses of the Company are adequate to cover such losses. William
Blair's opinions were necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of, the
dates of such opinions.
In preparing its opinion, William Blair reviewed certain financial
forecasts for the Company prepared by the Company's senior management. William
Blair assumed that the financial projections provided to it were reasonably
prepared on bases reflecting the best currently available estimates and
judgements of the future financial performance of the Company. The Company
does not, as a matter of course, publicly disclose its management's internal
financial analyses and forecasts of the type provided to William Blair. Such
analyses and forecasts were not prepared with a view towards public disclosure.
Such analyses and forecasts were based on numerous variables and assumptions
which are inherently uncertain, including, among others, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those projected by such analyses and forecasts.
5
<PAGE> 19
The following is a summary of the analyses William Blair utilized in
arriving at its opinion as to the fairness of the Merger Consideration to be
received by the stockholders in the Merger and that William Blair discussed
with the Special Committee and the Board.
Overview. William Blair reviewed certain financial information for the
Company prepared in accordance with generally accepted accounting principles
("GAAP") including net premiums earned, total revenues, operating earnings and
common book equity as well as the relationships between certain financial data,
including premiums earned to common equity and operating earnings to total
revenue. In addition, William Blair reviewed certain statutory financial
information, including loss ratio, expense ratio, combined ratio and the ratio
of net premiums written to surplus. William Blair reviewed the trading volume
and price history of the Common Stock since December 31, 1993.
William Blair noted that $16.00 per share of Common Stock, the
consideration to be received by stockholders in the Merger, represented a
31.3% premium over the closing market price on January 4, 1996, which was the
day before the CHP II offer was received and a 30.1% premium over the closing
market price on August 14, 1995, which was one week prior to the announcement
of Mr. Long's proposal. William Blair noted that $16.00 per share represented
multiples of 1.12x GAAP book value per share as of December 31, 1995 and 11.9x
earnings per share for 1995 calculated in accordance with GAAP. Furthermore,
William Blair noted that $16.00 per share represented multiples of 1.32x book
value per share at December 31, 1995 (as adjusted to reflect a similar capital
structure to that of the comparable companies) and 32.2x projected 1996 "core"
earnings per share (as adjusted to remove the effect of non-recurring revenue
and expense items).
Valuation Analysis. William Blair arrived at a range of values for the
Company by utilizing three principal valuation methodologies: (i) a comparable
company analysis; (ii) a precedent transactions analysis; and (iii) an
acquisition premium analysis. A comparable company analysis focuses upon a
company's operating performance and outlook relative to a group of publicly
traded peers to determine an implied market trading value (without distortion
from merger speculation). A precedent transactions analysis provides a
valuation range based upon amounts paid for companies in the same or similar
industries which have been acquired in selected recent transactions. An
acquisition premium analysis provides a valuation range based upon the amounts
paid in excess of the market price for the stock of publicly traded companies
in the same or similar industries which have been acquired in selected recent
transactions.
No company used in the comparable company analysis described below is
identical to the Company and no transaction used in the precedent transactions
analysis or acquisition premium analysis described below is identical to the
Merger. Accordingly, an analysis of the results of analyses described below
necessarily involves complex considerations and judgements concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value or the acquisition
value of, or the premium paid for the companies to which they are being
compared.
In accordance with accepted valuation practices, William Blair made
certain adjustments to the Company's financial data before applying the
multiples determined from the above-described valuation methodologies. These
adjustments primarily consisted of removing non-recurring revenue and expense
items from both historical and projected financial data, and adjusting the
Company's capital structure to that of the comparable companies.
Comparable Company Analysis. William Blair compared certain financial and
other information of the Company with similar information for the following
group of companies that William Blair believed to be appropriate for
comparison: Acceptance Insurance Company, Inc.; Capsure Holdings Corp.;
Executive Risk, Inc.; Exstar Financial Corp.; Gainsco, Inc.; Gryphon Holdings,
Inc.; Guaranty National
6
<PAGE> 20
Corp.; Markel Corp.; MMI Companies; and Titan Holdings Inc. The information
compared included current market price, market capitalization, premiums earned
and investment income growth over the last three years, return on assets for
1994 and 1995, return on equity for 1994 and 1995, price/earnings ratio for the
twelve months ended December 31, 1995 and projected for calendar 1996, reported
1995 GAAP expense ratio, loss ratio and combined ratio, 1995 statutory expense
ratio, loss ratio and combined ratio, latest twelve months operating expenses
plus commissions relative to premiums earned, the ratio of 1995 net premiums to
statutory surplus, price/book ratio, common equity/assets ratio, dividend yield
and market capitalization/operating income. In order to arrive at a public
market reference range for the Company, William Blair derived the multiples for
the comparable companies, including price as a multiple of: (i) book value per
share; (ii) last twelve months earnings per share; (iii) last twelve months
operating income per share; and (iv) 1996 estimated earnings per share. The
earnings per share estimates used were based upon several independent data
services that monitor and publish compilations of earnings estimates produced
by selected research analysts.
William Blair then derived from this and other data (based on the relative
comparability of the comparable companies to that of the Company) the multiples
deemed most meaningful for its analysis (which were 1.30x book value, 13.3x
last twelve months adjusted earnings, 10.8x last twelve months adjusted
operating income, and 11.0x 1996 earnings estimate) and applied these multiples
to the Company. This analysis resulted in a public market reference value of
$39.5 million (or $11.82 per share). William Blair derived an acquisition
reference value for the Company of $51.0 million (or $15.10 per share) by
applying a premium of approximately 28.8% (the premium that William Blair
believed, based on an analysis of comparable industry transactions, to be the
most appropriate) to the public market reference value above. Note that the
per share values assume the cashless exercise (pursuant to the Merger
Agreement) of the 295,056 options outstanding as of March 20, 1996.
Precedent Transactions Analysis. William Blair analyzed certain financial
data regarding selected acquisitions of companies which it deemed to be
comparable to the Company. The transactions used in the analysis included:
Unitrin, Inc.'s acquisition of Milwaukee Insurance Group, Inc.; Zurich
Reinsurance Centre Holdings, Inc.'s acquisition of Re Capital Corp.; Home State
Holdings, Inc.'s acquisition of Pinnacle Insurance Co.; Acceptance Insurance
Companies, Inc.'s acquisition of Redland Group, Inc.; Foundation Health Corp.'s
acquisition of Business Insurance Corp.; Vik Brothers International, U.S.A.'s
acquisition of American Reliance-Ins Business; Selective Insurance Group,
Inc.'s acquisition of Niagara Exchange Corp.; and Vista Resources, Inc.'s
acquisition of American Southern Insurance Co. In order to arrive at an
acquisition reference value for the Company, William Blair derived multiples
for the precedent transactions, including the price paid for the acquired
company as a multiple of: (i) book value; (ii) last twelve months net income;
and (iii) last twelve months operating earnings. William Blair then derived
from this data the multiples deemed most meaningful for its analysis (which
were 1.41x book value, 15.6x net income, and 14.4x operating earnings) and
applied these multiples to the Company. Applying the multiples derived from
the precedent transactions resulted in a reference value for the Company of
$47.5 million (or $14.11 per share). Note that the per share value assumes the
cashless exercise (pursuant to the Merger Agreement) of the 295,056 options
outstanding as of March 20, 1996.
Acquisition Premium Analysis. William Blair analyzed premiums paid for
companies which it believed to be comparable to the Company. The transactions
used in the analysis included: Michigan Physicians Mutual Liability Company's
acquisition of Kentucky Medical Insurance Co.; Unitrin, Inc.'s acquisition of
Milwaukee Insurance Group, Inc.; Sierra Health Services, Inc.'s acquisition of
CII Financial, Inc.; First Financial Management Corp.'s acquisition of Employee
Benefits Plans, Inc.; USF&G Corp.'s acquisition of Victoria Financial Corp.;
Beverly Enterprises, Inc.'s acquisition of Pharmacy Management Services;
Wellpoint Health Networks, Inc.'s acquisition of UniCare Financial Corp.; and
Foundation Health Corp.'s acquisition of National Health Care Systems. William
Blair
7
<PAGE> 21
compared the prices paid for the companies relative to their market price one
week prior to the announcement of the acquisition of the respective company.
Accordingly, William Blair determined that the comparable premium for use in
its analysis was 28.8%. Applying this premium to the Company's market price one
week prior to the announcement of the first offer resulted in a reference value
of $53.0 million (or $15.68 per share).
The summary set forth does not purport to be a complete description of the
review and analyses performed by William Blair. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis or summary
description. William Blair believes that its analyses must be considered as a
whole. William Blair may have given various analyses more or less weight than
other analyses, and may have deemed various assumptions more or less probable
than other assumptions.
In performing its analyses, William Blair made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company. Such
analyses were prepared solely as part of William Blair's analysis of the
fairness, from a financial point of view, of the Merger Consideration to be
received by the Company's stockholders, and were presented to the Special
Committee and the Board in connection with the delivery of William Blair's
opinion and should not be used for any other purpose. The term "fair from a
financial point of view" is a standard phrase contained in the fairness
opinions of investment banks and refers to the fact that William Blair's
opinion as to the fairness of the terms of the Merger Agreement are addressed
solely to the financial attributes of the Merger Agreement.
As described above, William Blair's opinion and presentation to the Board
was one of many factors taken into consideration by the Board in making its
determination to approve the Merger Agreement. Consequently, the William Blair
analysis described above should not be viewed as determinative of the Board's
conclusions with respect to the value of the Company or of the decision of the
Board to agree to the Merger.
Pursuant to the Special Committee's engagement of William Blair on
September 29, 1995, the Company agreed to pay William Blair the following for
its services: (i) an engagement fee of $50,000; (ii) quarterly retainer fees of
$25,000; (iii) an opinion fee of $100,000 payable upon the rendering of such
opinion; (iv) a success fee equal to 1.2% of the total consideration received
by the Company and its stockholders, less certain amounts previously paid; and
(v) reimbursement for out-of-pocket expenses, up to $50,000, reasonably
incurred by it in connection with its engagement.
William Blair and the Company entered into a separate letter agreement,
dated September 29, 1995, by which the Company agreed to indemnify William
Blair against certain liabilities, including liabilities which may arise under
the securities laws.
William Blair is a full service investment banking firm headquartered in
Chicago, Illinois, with over 60 years of experience in investment banking. In
particular, William Blair has extensive experience in middle market mergers and
acquisitions. William Blair also acts as a market maker in the Company Shares.
THE COMPANY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY'S BOARD
OF DIRECTORS
Each member of the Board of Directors of the Company (with the exception
of Mr. Dore who did not participate in any discussions of the Board regarding
the Merger) has determined that the Merger is fair to and in the best interests
of the Company's stockholders, has approved the Merger Agreement and the
transactions contemplated by the Merger Agreement, and has resolved to
recommend that the Company's stockholders vote for adoption of the Merger
Agreement. The Board of Directors of the
8
<PAGE> 22
Company held meetings on January 30, 1996, February 5-6, 1996, February 8, 1996,
February 14, 1996, February 19, 1996, March 20, 1996, March 27, 1996, March 29,
1996 and April 10, 1996 to receive advice and presentations from its financial
advisor and the Company's legal counsel concerning the then current status of
negotiations and the evolving terms of the Merger. The presentations by the
Company's financial and legal advisors described and explained: (i) the terms
and conditions of the proposed Merger and Merger Agreement; (ii) the terms of
the proposed Voting Agreement (discussed below); and (iii) the fiduciary duties
applicable to the Company's Board of Directors in the evaluation of the
proposed transaction. The Board of Directors, in discussing the Merger, was
aware of the special interests of John A. Dore in the transaction and
considered those interests and/or conflicts in making its evaluation. See
"Interest of John A. Dore and Management in the Merger" and "Interests of
Certain Persons in the Merger."
In reaching its conclusion to approve the Merger Agreement and to
recommend adoption of the Merger Agreement by the Company's stockholders, the
Company's Board of Directors considered a number of factors, including, without
limitation, the following:
(1) The condition, prospects and strategic direction of the Company's
business;
(2) Current market conditions and historical market prices, volatility
and trading information with respect to the Company Shares;
(3) The consideration to be received by the stockholders in the Merger,
including the fact that the Merger Consideration represents a substantial
premium over the market price of the Company Shares preceding announcement of
a proposed transaction, and the relationship between the Merger Consideration
and the Company's reported earnings and certain other measures;
(4) The fact that Buyer's offer did not have a financing contingency;
(5) The terms and conditions of the Merger and the Merger Agreement,
including the amount and form of the consideration, as well as the parties'
mutual representations, warranties and covenants, and the conditions to their
respective obligations;
(6) The fact that the Company, through its financial advisor, contacted
several prospective purchasers which executed confidentiality agreements and
reviewed due diligence materials resulting in one other expression of
interest, which was subsequently withdrawn; and
(7) The presentation and analysis of the Company made by William Blair
and its opinion that the proposed consideration to be received by the
Company's stockholders was fair from a financial point of view.
In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Merger, the Company's Board of Directors did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
conclusions. Based on the factors described above, the Company's Board of
Directors determined that the Merger is in the best interests of the Company's
stockholders and preferable to the other alternatives considered, approved the
Merger Agreement and the transactions contemplated by the Merger Agreement and
certain related agreements and resolved to recommend that the stockholders of
the Company vote for adoption of the Merger Agreement.
9
<PAGE> 23
VOTING AGREEMENTS
The following executive officers and directors of the Company with
ownership of an aggregate of approximately 20 percent of the outstanding
Company Shares have entered into Voting Agreements, pursuant to which each such
stockholder has agreed to vote his shares of Common Stock in favor of the
Merger: R. Keith Long, John A. Dore, John B. Zellars, Lonnie L. Steffen, W.
Dean Cannon, Jr., Herschel Rosenthal, William B. O'Connell, Joseph C. Morris,
Dale C. Bottom and John P. Diesel.
A copy of the form of Voting Agreement is attached hereto as Appendix D.
In addition, each of the other directors of the Company has indicated that he
intends to vote his Company Shares in favor of the Merger. See "The Company's
Reasons for the Merger; Recommendation of the Company's Board of Directors."
INTEREST OF JOHN A. DORE AND MANAGEMENT IN THE MERGER
John A. Dore, President and Chief Executive Officer of the Company, has
executed a letter agreement dated January 4, 1996 with Castle Harlan, Inc.
("CH"), the investment manager of CHP II ("Dore Agreement"). The Dore
Agreement states, among other things, that Mr. Dore is prepared to invest in
Buyer (which will own the Company after the Merger) by rolling over a portion
of the stock currently owned by Mr. Dore in the Company. As of
__________________, 1996, Mr. Dore owned, directly or indirectly, 181,108
Company Shares, valued at $2,897,728 ($16.00 x 181,108). It is expected that
Mr. Dore will hold approximately 3% of the outstanding shares of Buyer after
the Merger. In addition, certain officers and employees of the Company also
will be given the opportunity to invest in Buyer, and such persons are expected
to own up to approximately 1% of the outstanding shares of Buyer after the
Merger. Buyer has agreed to provide loans to such officers and employees up to
an aggregate amount of $500,000 in order to finance the acquisition of shares
of Buyer.
The Dore Agreement further provides that it is contemplated that Mr. Dore
will serve as Chief Executive Officer and as a director of Buyer, the Surviving
Corporation, and all of its subsidiaries after the Merger. Mr. Dore is
expected to enter into a three year employment agreement providing for an
annual salary of $300,000. The employment agreement would provide Mr. Dore
with a severance payment equal to two times his annual base salary in the event
he is terminated prior to the end of the contract term for any reason other
than death, disability or cause. All members of senior management of the
Surviving Corporation would be eligible to participate in an incentive - based
bonus plan.
Mr. Dore has indicated that he reasonably believes the Merger to be fair
to the Company's stockholders based upon the following factors: (i) the fact
that the Merger Consideration represents a substantial premium over the market
price of Company Shares preceding the announcement of a possible transaction;
(ii) the approval by all 11 of the independent directors of the Merger; and
(iii) the opinion of William Blair that the Merger Consideration is fair to the
Company's stockholders from a financial point of view.
PURPOSE AND CERTAIN EFFECTS OF THE MERGER
The purpose of the Merger is for Buyer and its owners, including CHP II
and John A. Dore and certain other officers and employees of the Company, to
acquire the entire equity interest in the Company. As a result of the Merger,
the Company will no longer be a publicly-held company, its shares will not be
traded on The NASDAQ Stock Market and the Company will not be subject to the
reporting requirements of the Securities Exchange Act of 1934. Consummation of
the Merger will eliminate any opportunity of the stockholders of the Company to
share in any future earnings and growth of the Company and any potential to
realize greater value for their Company Shares. The opportunity to hold
10
<PAGE> 24
opportunity to hold a continuing equity interest in the Company, which is
available to Mr. Dore and certain other officers and employees of the Company,
is not available for other stockholders of the Company. See also "THE
MERGER--Effects of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that, in addition to the matters discussed above,
certain members of both management and the Board of Directors of the Company
have interests in the Merger in addition to the interests of stockholders of
the Company generally.
Stock Option Plan and Directors' Incentive Plan
Pursuant to the Merger Agreement, each of the outstanding stock options of
the Company issued to certain directors, executive officers and other employees
of the Company under the Company's Stock Option Plan and Directors' Incentive
Plan (collectively, the "Plans") will be converted into the right to receive a
cash payment equal in amount to the difference between $16.00 and the exercise
price per share of such option (the "Spread"). At the date of this Proxy
Statement, stock options covering a total of 295,056 Company Shares with
exercise prices ranging from $3.13 to $10.70 per share were outstanding under
the Plans (including unvested options as described below under "Acceleration of
Stock Options"). The aggregate Spread on all stock options under the Plans
payable pursuant to the Merger is $2,770,586. The Company, Buyer and Buyer Sub
have agreed that, with respect to all stock options outstanding under the Plans
at the Closing, Buyer or the Surviving Corporation will pay out at the
Effective Time the Spread on each stock option outstanding at the Closing. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Acceleration of Stock Options
The Stock Option Agreements executed by the officers and employees of the
Company provide for the accelerated vesting of any unvested options outstanding
under the Stock Option Plan at the Closing. Currently there are 94,896 options
outstanding under the Plans which have not yet vested through the passage of
time, with an aggregate Spread of $821,949.
Employment Agreements
Currently, four key executives of the Company are parties to employment
agreements. Under the terms of these agreements, if employment is terminated
by the executive within six months immediately following the Merger, the
executive may elect to receive (i) a monthly termination payment equal to the
executive's base salary for the month immediately preceding the effective date
of termination, and continuing for a period consisting of one month for each
full year and final fraction of a year of employment (subject to a 6-month
minimum payment period, and in the case of Mr. Dore, subject to a 12-month
minimum payment period), or (ii) the present value of the monthly termination
payments described above. Mr. Dore is expected to enter into an employment
agreement with Buyer after the Merger. See "SPECIAL FACTORS -- Interest of
John A. Dore and Management in the Merger."
Pursuant to his employment agreement with the Company, Mr. Dore has
received the following compensation from the Company and its subsidiaries in
the last two fiscal years:
11
<PAGE> 25
<TABLE>
<CAPTION>
Year Annual Bonus Stock Awards Securities Exercise
- ---- Salary ----- (# Shares) Underlying Price
------ ------------ Options ($/Share)
Granted ---------
----------
<S> <C> <C> <C> <C> <C>
1994 $217,658 $50,000 7,200 21,600 $9.22
1995 $217,658 $40,000 7,200 14,400 $9.28
</TABLE>
In addition, pursuant to the Thrift Plan ("401(k) Plan") available to
employees of the Company, supplemental and matching contributions of $13,500
were made to Mr. Dore's 401(k) account in 1994 and 1995.
Indemnification and Insurance
The Merger Agreement provides that Buyer will cause the Surviving
Corporation to maintain the current directors' and officers' liability and
corporate indemnification insurance policy for all directors and officers of
the Company and its subsidiaries prior to the Merger for a period of at least
36 months (provided that the Surviving Corporation shall not be required to pay
an annual premium for any such policy in excess of 125% of the current
premium), and maintain in effect the provisions of the certificate of
incorporation and bylaws of the Surviving Corporation and its subsidiaries and
cause the Surviving Corporation to comply with all agreements between the
Company and its directors and officers providing for corporate indemnification
of all such persons.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE COMPANY'S
STOCKHOLDERS
Set forth below is a description of certain federal income tax aspects of
the Merger to holders of Company Shares disposed of in the Merger under current
law and regulations. The discussion is based on the Internal Revenue Code of
1986, as amended. The Company will not seek any rulings from the Internal
Revenue Service ("IRS") or an opinion of counsel with respect to the
transactions contemplated hereby.
The following discussion is limited to the material federal income tax
aspects of the Merger for a holder of Company Shares who is a citizen or
resident of the United States, and who, on the date of disposition of such
holder's Company Shares, holds such shares as capital assets. All holders are
urged to consult their own tax advisors regarding the federal, foreign, state
and local tax consequences of the disposition of Company Shares in the Merger.
The following discussion does not address potential foreign, state, local and
other tax consequences, nor does it address taxpayers subject to special
treatment under the federal income tax laws, such as life insurance companies,
tax-exempt organizations, S corporations and taxpayers subject to alternative
minimum tax.
A holder of Company Shares will realize gain or loss upon the surrender of
such holder's Company Shares pursuant to the Merger in an amount equal to the
difference, if any, between the amount of cash received and such holder's
aggregate adjusted tax basis in the Company Shares surrendered therefor.
In general, any gain or loss recognized by a stockholder in the Merger
will be eligible for capital gain or loss treatment. Any capital gain or loss
recognized by stockholders will be long-term capital gain or loss if the
Company Shares giving rise to such recognized gain or loss have been held for
more than one year; otherwise, such capital gain or loss will be short term.
An individual's long-term capital gain is subject to federal income tax at a
maximum rate of 28% while any capital loss can be offset only against
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other capital gains plus $3,000 of other income in any tax year. Any unutilized
capital loss will carry over as a capital loss to succeeding years for an
unlimited time until the loss is exhausted.
For corporations, a capital gain is subject to federal income tax at a
maximum rate of 35% while any capital loss can be offset only against other
capital gains. Any unutilized capital loss can be carried back three years and
forward five years to be offset against net capital gains generated in such
years.
Each holder of an option to acquire Company Shares who receives a cash
payment equal to the Spread on such stock option will have ordinary income to
the extent of the cash received.
Under the federal income tax backup withholding rules, unless an exemption
applies, the Paying Agent (as defined below) will be required to withhold, and
will withhold, 31% of all cash payments to which a holder of Company Shares or
other payee is entitled pursuant to the Merger Agreement, unless the
stockholder or other payee provides a tax identification number (social
security number, in the case of an individual, or employer identification
number, in the case of other Company stockholders) and certifies that such
number is correct. Each Company stockholder, and, if applicable, each other
payee, should complete and sign the Substitute Form W-9 included as part of the
letter of transmittal to be returned to the Paying Agent in order to provide
the information and certification necessary to avoid backup withholding, unless
an applicable exemption exists and is proved in a manner satisfactory to the
Paying Agent.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. EACH HOLDER OF COMPANY SHARES IS URGED TO CONSULT HIS OR HER
OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH
STOCKHOLDER OF THE MERGER (INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN,
STATE, LOCAL AND OTHER TAX LAWS).
THE MERGER
The following information describes certain material aspects of the
Merger. This description does not purport to be complete and is qualified in
its entirety by reference to the appendices hereto, including the Merger
Agreement, which is attached to this Proxy Statement as Appendix A and is
incorporated herein by reference. All stockholders are urged to read Appendix
A in its entirety. See also "THE MERGER AGREEMENT."
The Board of Directors of the Company has approved the Merger Agreement
and recommended approval of the Merger Agreement by the stockholders and has
determined that the transactions contemplated by the Merger Agreement are fair
to and in the best interests of the Company's stockholders. See "SPECIAL
FACTORS--The Company's Reasons for the Merger; Recommendation of the Company's
Board of Directors."
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT.
EFFECTS OF THE MERGER
Upon consummation of the Merger: (i) Buyer Sub will merge with and into
the Company, which will be the Surviving Corporation; (ii) the Company will
become a wholly-owned subsidiary of Buyer (and therefore, an indirect
subsidiary of CHP II); and (iii) each Company Share outstanding immediately
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prior to the Effective Time (other than Dissenting Shares, shares held by the
Company as treasury shares, and shares held by Buyer or Buyer Sub) will be
converted, in a taxable transaction, into the right to receive $16.00 in cash,
without interest.
As of the record date, there were 3,210,584 Company Shares outstanding and
295,056 Company Shares reserved for future issuance pursuant to currently
outstanding stock options. Assuming that no additional Company Shares or stock
options are outstanding at the Effective Time, then, upon consummation of the
Merger, holders of Company Shares and stock options would be entitled to
receive, in the aggregate, $54,139,930. Because John A. Dore and certain
officers and employees of the Company are expected to exchange certain of their
Company Shares for shares of the Buyer, the net consideration to be paid by
Buyer is approximately $52,639,930.
Each certificate previously representing Company Shares will thereafter
represent only the right to receive the Merger Consideration (or, in the case
of Dissenting Shares, the statutorily determined "fair value" of such shares).
Certificates previously representing Company Shares may be exchanged for the
Merger Consideration as provided below, without interest. All Company Shares
held as treasury shares by the Company and each share of Common Stock held by
Buyer or Buyer Sub will be canceled and no payment will be made with respect
thereto.
The "fair value" of Dissenting Shares will be determined and paid as
described in "Rights of Dissenting Stockholders."
For a description of the procedures for exchanging certificates
representing Company Shares, see "Procedures for Exchange of Certificates."
EFFECTIVE TIME
If the Merger Agreement is adopted by the requisite vote of the Company's
stockholders and the other conditions to the Merger are satisfied (or waived to
the extent permitted), the Merger will be consummated and become effective at
the time the Certificate of Merger is filed with the Secretary of State of the
State of Delaware or at such later date as is specified in the Certificate of
Merger (the "Effective Time").
The Merger Agreement provides that the parties will cause the Effective
Time to occur as promptly as practicable, but in any event within 5 days, after
the adoption of the Merger Agreement by the stockholders of the Company and the
satisfaction (or waiver, if permissible) of the other conditions set forth in
the Merger Agreement. The Merger Agreement may be terminated prior to the
Effective Time by either party in certain circumstances, whether before or
after the adoption of the Merger Agreement by the Company's stockholders. See
"THE MERGER AGREEMENT--Termination."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
As of the Effective Time, Buyer will deposit, or will cause to be
deposited, with Bankers Trust Company (the "Paying Agent"), for the benefit of
the holders of Company Shares for exchange in accordance with the terms of the
Merger Agreement, net consideration of approximately $52,639,930 (the "Payment
Fund") issuable pursuant to the Merger Agreement in exchange for outstanding
Company Shares. The Paying Agent will, pursuant to irrevocable instructions,
deliver to the holders of Company Shares their respective portions of the
Payment Fund according to the procedure summarized below.
After the Effective Time there will be no further transfers on the stock
transfer books of the Company of Company Shares which were outstanding
immediately prior to the Effective Time.
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As soon as practicable after the Effective Time, but in no event more than
20 days after the date upon which the Effective Time occurs (the "Effective
Date"), the Company will mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Company Shares (the "Certificates") (i) a notice and letter of
transmittal (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon proper delivery of the
Certificates to the Paying Agent); and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Consideration.
Upon surrender of a Certificate for cancellation to the Paying Agent together
with a letter of transmittal, duly executed, and any other documents as may be
required pursuant to such instructions, the holder of a Certificate will be
entitled to receive in exchange therefor the Merger Consideration. The
Certificate so surrendered will forthwith be canceled. In the event of a
transfer of ownership of Company Shares which is not registered in the stock
transfer records of the Company, it shall be a condition to such exchange that
a Certificate representing the proper number of Company Shares be presented by
a transferee to the Paying 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, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration upon surrender.
STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO
THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND SHOULD NOT RETURN THEIR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Any portion of the Payment Fund remaining undistributed 180 days after the
Effective Time will be returned to the Surviving Corporation upon demand, and
any holders of theretofore unsurrendered Company Shares will thereafter be able
to look only to the Surviving Corporation and only as general creditors thereof
for any portion of the Payment Fund to which they are entitled without interest
thereon. Neither Buyer, Buyer Sub, the Surviving Corporation nor the Paying
Agent will be liable to any person in respect of any cash, shares, dividends or
distributions payable from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
certificates representing shares of Common Stock have not been surrendered
prior to five (5) years after the Effective Date (or immediately prior to such
earlier date on which any Merger Consideration in respect of any such
certificate would otherwise escheat to or become the property of any
Governmental Entity), any such cash, shares, dividends or distributions payable
in respect of such certificates shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the Merger will be allocated among
the Surviving Corporation's consolidated assets and liabilities based on the
fair values of the assets acquired and liabilities assumed. At the Effective
Time, the Company will become a wholly-owned subsidiary of Buyer.
SOURCE AND AMOUNT OF FUNDS
Buyer intends to fund payment of the Merger Consideration through third
party debt financing and equity contributions by CHP II. John A. Dore and
certain other officers and employees of the Company will contribute Company
Shares valued at approximately $1,500,000 to Buyer in exchange for
approximately 4% of the outstanding shares of Buyer. The Merger is not
contingent upon the Buyer obtaining financing. In addition, the Buyer has
requested approval from the Commissioner of Insurance of the State of
Connecticut for First Re to pay a dividend of up to $15,000,000 to Buyer after
the Effective Date. The aggregate net cost to Buyer of acquiring all of the
Company Shares in the Merger,
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making required payments to holders of stock options (see "SPECIAL
FACTORS--Interests of Certain Persons in the Merger") and payment of its fees
and expenses will be approximately $54,564,930.
PLANS OR PROPOSALS AFTER THE MERGER
Following the Merger, the Company will be a wholly-owned subsidiary of
Buyer, the Company Shares will no longer be traded on The Nasdaq Stock Market
and the registration of the Company Shares under the Exchange Act will be
terminated. Except as set forth herein, it is expected that the Company and
its subsidiaries will continue to engage in insurance and reinsurance
activities on a basis substantially consistent with current operations.
CHP II currently is the owner of Homestead National Corporation, a
Delaware corporation ("HNC"). HNC is the parent company of Homestead Insurance
Company, a Pennsylvania property and casualty insurer ("HIC"). It is
contemplated that at some future date HNC may be combined with the Company, and
First Re, HIC and their affiliates will become subsidiaries of the combined
entity. There are, however, no definitive plans for such a combination at the
present time. HIC and First Re may also enter into a pooling arrangement
whereby the companies would share the premiums, losses and expenses of certain
insurance business based on proportions equivalent to the percentage of
capital/surplus of each company to their combined capital/surplus. It is
anticipated that some of the programs currently written in HIC will be written
in First Re. In addition, it is anticipated that management agreements between
certain affiliates of the Company and certain affiliates of HNC will be entered
into for the purpose of underwriting and marketing insurance products.
John A. Dore will continue to be a member of the board of directors of the
Company and its subsidiaries. See also "SPECIAL FACTORS--Interest of John A.
Dore and Management in the Merger." None of the other persons currently
serving on the Board of Directors of the Company will continue as a director.
It is expected that, to the extent permissible under Connecticut insurance
law, dividends will continue to be paid by First Re to the Company. See
"SUMMARY--Dividends." The Company in turn will pay dividends to Buyer in order
to, among other things, support principal and interest payments on any third
party debt financing obtained by Buyer to finance the Merger.
Other than as set forth herein, the Buyer has not indicated any present
plans or proposals that would result in an extraordinary corporate transaction
or other material change in the present business of the Company. It is
expected, however, that the Buyer will continue to review the business and
operations of the Company and may propose or develop additional plans or
proposals which it considers to be in the best interests of the Company and its
then stockholders.
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to the DGCL, any holder of Company Shares (i) who properly files
a demand for appraisal in writing prior to the vote taken at the Special
Meeting and (ii) whose shares are not voted in favor of the Merger, shall be
entitled to appraisal rights under Section 262 of the DGCL.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS APPENDIX B TO THIS PROXY
STATEMENT. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
APPENDIX B. THIS DISCUSSION AND APPENDIX B SHOULD BE REVIEWED CAREFULLY BY ANY
HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO
PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY
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WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF
APPRAISAL RIGHTS.
A holder of record of Company Shares as of the Record Date who makes the
demand described below with respect to such shares, who continuously is the
record holder of such shares through the Effective Time, who otherwise complies
with the statutory requirements of Section 262 and who neither votes in favor
of the Merger Agreement nor consents thereto in writing may be entitled to an
appraisal by the Delaware Court of Chancery (the "Delaware Court") of the fair
value of his or her shares of stock ("Dissenting Shares").
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Special Meeting, not less than 20 days prior
to the meeting each constituent corporation must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 262. This
Proxy Statement shall constitute such notice to the record holders of Company
Shares.
Voting stockholders of the Company who desire to exercise their appraisal
rights must not vote in favor of the Merger Agreement or the Merger and must
deliver a separate written demand for appraisal to the Company prior to the
vote by the stockholders of the Company on the Merger Agreement and the Merger.
A stockholder who signs and returns a proxy without expressly directing by
checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of Common Stock be voted against the proposal
or that an abstention be registered with respect to his or her shares of Common
Stock in connection with the proposal will effectively have thereby waived his
or her appraisal rights as to those shares of Common Stock because, in the
absence of express contrary instructions, such shares of Common Stock will be
voted in favor of the proposal. (See "Voting and Revocation of Proxies.")
Accordingly, a stockholder who desires to perfect appraisal rights with respect
to any of his or her shares of Common Stock must, as one of the procedural
steps involved in such perfection, either (i) refrain from executing and
returning the enclosed proxy card and from voting in person in favor of the
proposal to approve the Merger Agreement or (ii) check either the "Against" or
the "Abstain" box next to the proposal on such card or affirmatively vote in
person against the proposal or register in person an abstention with respect
thereto. A demand for appraisal must be executed by or on behalf of the
stockholder of record and must reasonably inform the Company of the identity of
the stockholder of record and that such record stockholder intends thereby to
demand appraisal of the Company Shares. A person having a beneficial interest
in shares of Common Stock that are held of record in the name of another
person, such as a broker, fiduciary or other nominee, must act promptly to
cause the record holder to follow the steps summarized herein properly and in a
timely manner to perfect whatever appraisal rights are available. If the
shares of Common Stock are owned of record by a person other than the
beneficial owner, including a broker, fiduciary (such as a trustee, guardian or
custodian) or other nominee, such demand must be executed by or for the record
owner. If the shares of Common Stock are owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand must be
executed by or for all joint owners. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Common Stock as a nominee for others, may exercise appraisal rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares covered by such demand. Where the
number of shares is not expressly stated, the demand will be presumed to cover
all shares of Common Stock outstanding in the name of such record owner.
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A stockholder who elects to exercise appraisal rights, if available,
should mail or deliver his or her written demand to: Financial Institutions
Insurance Group, Ltd., 300 Delaware Avenue, Suite 1704, Wilmington, DE, 19801,
Attention: Corporate Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Common Stock owned, and that the
stockholder is thereby demanding appraisal of his or her shares. A proxy or
vote against the Merger Agreement will not by itself constitute such a demand.
Within ten days after the Effective Time, the Surviving Corporation must
provide notice of the Effective Time to all stockholders who have complied with
Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the Surviving
Corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
Accordingly, stockholders of the Company who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in
Section 262. The Buyer does not have any present intentions as to whether it
would file any such petition in the event a stockholder makes a written demand.
If appraisal rights are available, within 120 days after the Effective Time,
any stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from the
Surviving Corporation a statement setting forth the aggregate number of shares
of Common Stock not voting in favor of the Merger Agreement and with respect to
which demands for appraisal were received by the Company, and the aggregate
number of holders of such shares. Such statement must be mailed within 10 days
after the written request therefor has been received by the Surviving
Corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of Common Stock owned by such stockholders, determining the
fair value of such shares exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In such event, the Delaware Court's appraisal may be more than, less than, or
equal to the Merger Consideration. In determining fair value, the Delaware
Court is to take into account all relevant factors. In relevant case law, the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered,
and that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and
any other facts ascertainable as of the date of the merger that throw light on
future prospects of the merged corporation. The Delaware Supreme Court also
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not
the product of speculation, may be considered." Section 262, however, provides
that fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in
the circumstances. Upon application of a dissenting
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stockholder of the Company, the Delaware Court may order that all or a portion
of the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
Any holder of Company Shares who has duly demanded appraisal in compliance
with Section 262 will not, after the Effective Time, be entitled to vote for
any purpose any shares subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal; after this period, the
stockholder may withdraw such demand for appraisal only with the consent of the
Surviving Corporation. If no petition for appraisal is filed with the Delaware
Court within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease. Any stockholder may withdraw such stockholder's demand
for appraisal by delivering to the Surviving Corporation a written withdrawal
of his or her demand for appraisal and an acceptance of the Merger, except that
(i) any such attempt to withdraw made more than 60 days after the Effective
Time will require written approval of the Surviving Corporation, and (ii) no
appraisal proceeding in the Delaware Court shall be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may
be conditioned upon such terms as the Delaware Court deems just.
ANY HOLDER WHO FAILS TO COMPLY FULLY WITH THE STATUTORY PROCEDURE
SUMMARIZED ABOVE WILL FORFEIT HIS OR HER RIGHTS OF DISSENT AND WILL RECEIVE THE
MERGER CONSIDERATION FOR HIS OR HER SHARES.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), certain acquisition transactions may not be consummated unless notice
has been given and certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. The
Merger is subject to these requirements.
The Company and the Buyer each filed with the Antitrust Division and the
FTC a Notification and Report Form with respect to the Merger on _________,
1996. Under the HSR Act, the Merger may not be consummated until the
expiration of a waiting period of at least 30 days following the receipt of
each filing, unless the waiting period is earlier terminated by the FTC and the
Antitrust Division, or unless the waiting period is extended by a request for
additional information. [On __________, 1996, the FTC notified the parties
that the waiting period was terminated as of that date.]
State Attorneys General and private parties also may bring legal actions
under the federal or state antitrust laws under certain circumstances. There
can be no assurance that a challenge to the proposed Merger on antitrust
grounds will not be made or of the result if such a challenge is made.
CONNECTICUT INSURANCE LAWS
Under Section 38a-130 of the General Statutes of Connecticut and related
regulations, the direct or indirect acquisition of control of a Connecticut
domestic insurer such as First Re must receive prior approval by the
Commissioner of Insurance of the State of Connecticut ("Connecticut
Commissioner"). Section 38a-132 of the General Statutes of Connecticut
provides that the Connecticut Commissioner shall approve the transaction
unless, after a public hearing, he finds that (a) after the acquisition of
control, the Connecticut domestic insurer would not satisfy the requirements to
be licensed to write the lines of
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business for which it is presently licensed; (b) the transaction would
substantially lessen competition in the insurance business in the State of
Connecticut; (c) the financial condition of the acquiring party might
jeopardize the financial stability of the Connecticut domestic insurer or
prejudice the interests of its policyholders; (d) any plans or proposals to
make material changes in the Connecticut domestic insurer's business, corporate
structure or management are unfair and unreasonable to its policyholders and
not in the public interest; (e) the competence, experience and integrity of the
persons who would control the operation of the Connecticut domestic insurer are
such that the transaction would not be in the interest of policyholders and the
general public; or (f) the acquisition is likely to be hazardous or prejudicial
to those buying insurance. Protection of stockholders is not a criterion of
the Connecticut Commissioners's review of change of control transactions. An
application on Form A for approval of the Merger and all related transactions
was submitted by CHP II, Buyer and Buyer Sub to the Connecticut Commissioner on
May 8, 1996. The Form A includes a request for approval for First Re to pay a
dividend to Buyer of up to $15,000,000 after the Merger. A waiver of
Connecticut General Statute Section 38-136(i)(2)(A) which requires the
approval of the Connecticut Commissioner for the payment of dividends for a
period of two years following a change-in-control also has been requested, and
the granting of such waiver is a condition to Buyer's obligation to close.
THE MERGER AGREEMENT
The following discussion of the Merger Agreement is qualified in its
entirety by reference to the complete text of the Merger Agreement, which is
included in this Proxy Statement as Appendix A (exclusive of all exhibits and
schedules) and is incorporated herein by reference.
GENERAL
The Merger Agreement provides for the merger of Buyer Sub into the
Company. The Company will be the Surviving Corporation of the Merger, and, as
a result of the Merger, Buyer will own all of the Surviving Corporation's
common stock. In the Merger, the stockholders of the Company (other than Buyer
and Buyer Sub and holders who perfect their dissenters' rights) will receive
the Merger Consideration described below. Pursuant to a letter agreement dated
as of April 12, 1996, CHP II has agreed to guaranty to the Company the full and
punctual payment and performance of all obligations of Buyer and Buyer Sub
under the Merger Agreement, provided that the liability of CHP II shall not
exceed $3,500,000.
EFFECTIVE TIME
The Effective Time of the Merger will occur upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware as
required by the DGCL or at such later date as may be specified in the
Certificate of Merger. It is anticipated that such Certificate of Merger will
be filed promptly after the approval and adoption of the Merger Agreement by
the stockholders of the Company at the Special Meeting. The Merger Agreement
provides that the parties will cause the Effective Time to occur as promptly as
practicable, but in any event within 5 days, after the adoption of the Merger
Agreement by the stockholders of the Company and the satisfaction (or waiver,
if permissible) of the other conditions set forth in the Merger Agreement.
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CONSIDERATION TO BE RECEIVED BY STOCKHOLDERS OF THE COMPANY
In connection with the Merger, each outstanding Company Share at the
Effective Time (except those Company Shares held by the Company as treasury
shares, or held by Buyer or Buyer Sub or shares as to which appraisal rights
have not been forfeited under the DGCL, if effective notice of exercise of
appraisal rights with respect to such Shares under Section 262 of the DGCL was
required and given prior to the Effective Time) will be converted into the
right to receive $16.00 in cash, without interest. All Company Shares held by
the Company as treasury shares and each share of Common Stock held by Buyer or
Buyer Sub will be canceled without consideration. Dissenting Shares will be
converted to cash in the manner described in "THE MERGER--Rights of Dissenting
Stockholders." Instructions with respect to the surrender of certificates
formerly representing Company Shares, together with the letter of transmittal
to be used for that purpose, will be mailed to stockholders as soon as
practicable after the Effective Time. As soon as practicable following receipt
from the stockholder of a duly executed letter of transmittal, together with
certificates formerly representing Company Shares and any other items specified
by the letter of transmittal, the Paying Agent will pay the Merger
Consideration to such stockholder, by check or draft.
Each of the outstanding shares of Buyer Sub will automatically be
converted into one share of common stock, par value $1.00 per share, of the
Surviving Corporation.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES FOR COMPANY SHARES WITH
THE ENCLOSED PROXY CARD.
After the Effective Time, the holder of a certificate formerly
representing Company Shares will cease to have any rights as a stockholder of
the Company, and such holder's sole right will be to receive the Merger
Consideration with respect to such shares (or, in the case of Dissenting
Shares, the statutorily determined "fair value"). If payment is to be made to
a person other than the person in whose name the surrendered certificate is
registered, it will be a condition of payment that the certificates so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the person requesting such payment shall pay any transfer or other taxes
required by reason of such payment or establish to the satisfaction of the
Surviving Corporation that such taxes have been paid or are not applicable. No
transfer of shares outstanding immediately prior to the Effective Time will be
made on the stock transfer books of the Surviving Corporation after the
Effective Time. Certificates formerly representing Company Shares presented to
the Surviving Corporation after the Effective Time will be canceled in exchange
for the Merger Consideration.
In no event will holders of Company Shares be entitled to receive payment
of any interest on the Merger Consideration to be distributed to them in
connection with the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
the Company relating to, among other things:
(a) corporate organization, existence, qualification and good standing
of the Company and corporate power and authority to own, operate and lease
its assets and properties and carry on its business and enter into and
perform its obligations under the Merger Agreement;
(b) organization, existence, qualification and good standing of the
Company's subsidiaries and corporate power and authority to own, lease and
operate their respective assets and properties and
21
<PAGE> 35
carry on their respective business and perform their respective obligations
under the Merger Agreement;
(c) the right, power and authority of the Company to enter into, execute
and deliver the Merger Agreement and perform its obligations thereunder, and
the Merger Agreement being the legal, valid and binding obligation of the
Company;
(d) the absence of conflicts with the certificate of incorporation or
bylaws of the Company or any subsidiary or with any agreement to which the
Company or any of its subsidiaries is a party, and the absence of any
violations of permits, licenses or applicable law;
(e) consents and approvals of governmental entities;
(f) the directors and officers of the Company and its subsidiaries;
(g) the charter, bylaws, and corporate records of the Company and its
subsidiaries;
(h) the capital structure of the Company and its subsidiaries;
(i) compliance with law and obtaining of permits and licenses;
(j) the proper filing by the Company with the Securities and Exchange
Commission of required documents and the accuracy of the information
contained in such documents;
(k) fair presentation of the financial statements and statutory
financial statements of the Company and its subsidiaries supplied by the
Company to the Buyer;
(l) reasonable provision for loss reserves;
(m) compliance with risk-based capital provisions and certain Insurance
Regulatory Information System guidelines;
(n) continuation of reinsurance agreements;
(o) policies and contracts of insurance and reinsurance being in
compliance in all material respects with applicable law;
(p) licensing of producers utilized by the Company and its subsidiaries;
(q) reasonable provision for premium balances receivable and ownership
of admitted assets;
(r) insurance and reinsurance claims having been paid or provided for in
accordance with the terms of the policies or contracts under which they
arose;
(s) certain matters related to federal, state and local taxes;
(t) certain matters related to employee benefit plans and employment and
labor agreements;
(u) investments of the Company and its subsidiaries;
(v) ownership of patents, trademarks, service marks, etc.;
22
<PAGE> 36
(w) ownership of tangible property, ownership and leasing of real
property, and title to assets;
(x) agreements for borrowed money;
(y) material contracts of the Company and its subsidiaries;
(z) absence of litigation;
(aa) certain environmental matters;
(bb) utilization of brokers and finders;
(cc) banking arrangements of the Company and subsidiaries;
(dd) maintenance of insurance with respect to properties and conduct of
business;
(ee) knowledge of legislation limiting the business of the Company or
its subsidiaries;
(ff) operations of the Company and its subsidiaries since December 31,
1995;
(gg) absence of potential conflicts of interest;
(hh) membership in guaranty funds and pools; and
(ii) full disclosure of information by the Company.
COVENANTS
Each of the parties to the Merger Agreement has agreed to use its best
efforts to fulfill or obtain the fulfillment of the conditions precedent to the
consummation of the Merger, including cooperation in the preparation and
filing of this Proxy Statement, obtaining the termination of waiting period
requirements under the HSR Act, making filings and obtaining approvals of
insurance regulatory authorities, and the execution and delivery of any
documents, certificates, instruments or other papers that are reasonably
required for the consummation of the Merger.
Pursuant to the Merger Agreement, the Company has agreed that, except as
expressly contemplated by the Merger Agreement or consented to in writing by
Buyer, from the date of the Merger Agreement until the Effective Time of the
Merger, the Company will not and will not permit any of its subsidiaries to:
(i) declare or pay or set aside dividends or other distributions
(whether in cash, stock or property) on its capital stock or make any
direct or indirect redemption, retirement, purchase or other acquisition
of any shares of capital stock;
(ii) issue, redeem, sell or dispose of any shares of the capital
stock of the Company or any of its subsidiaries or any rights relating to
capital stock (whether authorized but unissued or held in treasury) or
issue any option, warrant or other right to acquire any shares of its
capital stock;
(iii) effect any stock split, reclassification or combination;
23
<PAGE> 37
(iv) adopt a plan of, or resolutions providing for, complete or
partial liquidation, dissolution, restructuring, recapitalization or other
reorganization;
(v) amend or modify its certificate of incorporation or by-laws (or
equivalent charter documents);
(vi) merge or consolidate with any corporation or other entity
otherwise than as contemplated by the Merger Agreement or reclassify any
shares of its capital stock or change the character of its business;
(vii) enter into, adopt, modify or amend in any material respect any
written employment, severance, consulting, "change of control," "parachute
payment," bonus, incentive compensation, deferred compensation, profit
sharing, stock option, stock purchase, employee benefit, welfare benefit
or other agreement, plan or arrangement providing for compensation or
benefits to employees or directors or stockholders which would have effect
for any employee of the Company or its subsidiaries after the Effective
Time;
(viii) incur or contract for any capital expenditures in excess of
$25,000 in the aggregate;
(ix) amend, terminate or waive any right of value material to the
business of the Company or any of its subsidiaries;
(x) make any change in its accounting methods, principles or
practices or make any change in depreciation or amortization policies or
rates adopted by it, except insofar as may be required by a change in
generally accepted accounting principles, or make any change in its
accounting policies with respect to loss reserves;
(xi) revalue any portion of its assets, properties or businesses
other than in the ordinary course of business in a manner consistent with
past practice;
(xii) materially change any of its business policies, including,
without limitation, advertising, marketing, pricing, purchasing,
personnel, sales or budget policies;
(xiii) make any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any of its officers,
directors, employees, consultants or agents, other than to persons other
than its officers, directors or shareholders made in the ordinary course
of business in a manner consistent with past practice;
(xiv) make any loan or advance to any of its officers, directors,
employees, consultants, agents or other representatives (other than travel
advances made in the ordinary course of business in a manner consistent
with past practice) or make any other loan or advance;
(xv) make any payment or commitment to pay severance or termination
pay to any of its officers, directors, employees, consultants, agents or
other representatives;
(xvi) enter into any lease (as lessor or lessee); sell, abandon or
make any other disposition of any of its investments or other assets,
properties or businesses other than in the ordinary course of business
consistent with past practice; grant or suffer any lien on any of its
assets, properties or businesses or on any of the capital stock of the
Company (other than for taxes not yet due and payable); enter into or
amend any contract or other agreement to which it is a party or by or to
which it or its assets, properties or businesses are bound or subject,
except
24
<PAGE> 38
in the ordinary course of business in a manner consistent with past
practice; or enter into or amend any contract or other agreement pursuant
to which it agrees to indemnify any person or to refrain from competing
with any person (other than insurance policies and reinsurance treaties
and contracts entered into in the ordinary course of business);
(xvii) incur or assume any debt, obligation or liability, or issue
any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, liabilities of any other person or
make any loans or advances, individually or in the aggregate, material to
the business of the Company and its subsidiaries (other than insurance
policies and reinsurance treaties and contracts entered into in the
ordinary course of business);
(xviii) except for tangible property acquired in the ordinary course
of business in a manner consistent with past practice, make any
acquisition of all or any part of the assets, properties, capital stock or
business of any other person;
(xix) except in the ordinary course of business in a manner
consistent with past practice, amend, terminate or enter into any contract
or other agreement or amend, terminate or enter into any other material
transaction; or
(xx) directly or indirectly solicit proposals from, or cooperate
with, or furnish any information concerning the business, financial
condition, properties or assets of the Company or any of its subsidiaries,
or continue or enter into any discussion, negotiation, agreement or
understanding with any person concerning any acquisition of the Company or
any of its subsidiaries, except to the extent required by fiduciary
obligations.
In addition, the Merger Agreement provides that, except as expressly
contemplated by the Merger Agreement or consented to in writing by Buyer, the
Company has agreed that:
(i) the Company and each of its subsidiaries will conduct their
respective businesses in the ordinary course and consistent with past
practice and will use their reasonable best efforts to preserve intact
their business organization and goodwill, preserve the goodwill and
business relationships with all parties having business relationships with
each of them, keep available the services of their respective present
officers, employees, consultants and agents, defend and protect their
respective assets from infringement or usurpation, perform all of their
obligations under all contracts, leases and any and all other agreements
relating to or affecting its assets or its business, conduct their
respective businesses in such a manner so that the representations and
warranties contained in the Merger Agreement shall continue to be true,
complete and accurate on and as of the Effective Date with the same force
and effect as if made on and as of the Effective Date, and shall maintain
their books, accounts and records in the usual manner consistent with past
practice and comply in all material respects with all laws, ordinances and
regulations of governmental entities applicable to the Company and any of
its subsidiaries, including, without limitation, all applicable insurance
laws;
(ii) each of the Company and its subsidiaries will use accounting
policies in keeping its books and records and preparing its financial
statements in accordance with GAAP, applied consistently with the
application of such principles in preparing the annual financial
statements and in accordance with statutory accounting principles, applied
consistently with the application of such principles in preparing the
annual convention statements;
(iii) the Company shall, and shall cause each of its subsidiaries to,
use all reasonable efforts to afford Buyer and its authorized
representatives free and full access during normal
25
<PAGE> 39
business hours to the Company and its subsidiaries and to the employees,
properties, books and records, and contracts and other agreements,
documents and other papers, and copies, extracts and summaries of each of
the foregoing in order to afford Buyer the opportunity to make such
investigations of the affairs of the Company and its subsidiaries as it
deems desirable;
(iv) the Company and each of its subsidiaries shall furnish to Buyer
such information relating to their respective businesses and affairs (and
which is reasonably available to the Company and its subsidiaries) as
Buyer shall from time to time reasonably request and will cause their
officers, employees, agents and consultants to keep the officers of the
Buyer informed as to the affairs of the Company and its subsidiaries;
(v) the Company and its subsidiaries shall maintain in force
(including necessary renewals thereof) their insurance policies, except to
the extent that they may be replaced with equivalent policies appropriate
to insure the assets, properties and businesses of the Company and its
subsidiaries to the same extent as currently insured at the same or lower
rates or at rates approved by Buyer;
(vi) the Company shall promptly notify Buyer of any suits, actions,
claims, proceedings or investigations which are commenced after the date
of the Merger Agreement or, to the Company's knowledge, threatened,
against the Company or any of its subsidiaries or against any officer,
director, employee, consultant, agent or stockholder with respect to the
affairs of the Company or any of its subsidiaries;
(vii) the Company shall give prompt written notice to Buyer of: (a)
the occurrence, or failure to occur, of any event which would be likely to
cause any representation or warranty of the Company contained in the
Merger Agreement, to be untrue or inaccurate; (b) any failure of the
Company or any of its subsidiaries or of any officer, director, employee,
consultant or agent of the Company or any of its subsidiaries, to comply
with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it or them under the Merger Agreement; (c) any event of
which they have knowledge which will result, or which has a reasonable
prospect of resulting, in the failure to satisfy the conditions specified
in the Merger Agreement; (d) any notice of, or other communication
relating to, a default (or event which, with notice or lapse of time or
both, would constitute a default), received by the Company or any of its
subsidiaries subsequent to the date of the Merger Agreement and prior to
the Closing Date, under any contract or other agreement material to the
business of the Company or any of its subsidiaries; (e) the termination or
cancellation of any reinsurance agreement; (f) any notice or other
communication from any person alleging that the consent of such person is
or may be required in connection with the Merger; (g) any notice or other
communication from any foreign, federal, state, county or local government
or any other governmental, regulatory or administrative agency or
authority in connection with the Merger or any other material notice or
other material communication from any foreign, federal, state, county or
local government or any other governmental, regulatory or administrative
agency or authority; (h) any change which has a material adverse effect on
the business, operations, assets or prospects of the Company and its
subsidiaries taken as a whole, or the occurrence of any event which, so
far as can be foreseen at the time of its occurrence, would have such a
material adverse effect; or (i) any matter arising which, if existing,
occurring or known at the date of the Merger Agreement, would have been
required to be disclosed to Buyer;
(viii) the Company and its subsidiaries shall: (a) provide to Buyer
a monthly management report in scope and detail reasonably satisfactory to
Buyer; (b) timely prepare, and
26
<PAGE> 40
promptly deliver to Buyer, monthly financial statements in scope and
detail reasonably satisfactory to Buyer; (c) provide to Buyer a monthly
statement of investments in detail reasonably satisfactory to Buyer; (d)
provide to Buyer a monthly list of all claims paid under any insurance or
reinsurance policy issued by the Company or any of its subsidiaries in
excess of $50,000; (e) file with the Securities and Exchange Commission
all reports, schedules, forms, statements and other documents required to
be filed under the Securities Exchange Act of 1934 (the "SEC Filings") and
promptly provide Buyer with a copy of such SEC Filing; and (f) file all
reports, schedules, forms, statements and other documents required to be
filed under any applicable insurance laws and promptly provide Buyer with
a copy of any such filing; and
(ix) the Company shall cause a special meeting of its stockholders to
be called and held for the purporses of acting on the Merger Agreement and
the Merger, and shall, through its Board of Directors, and subject to its
fiduciary duties, recommend to its stockholders approval of the Merger.
Further, each of the Company and the Buyer have, pursuant to the Merger
Agreement, agreed to:
(i) promptly and timely file with the Federal Trade Commission and
the Department of Justice, all notifications, including responses to
requests for information, required by the HSR Act applicable to the
Company and Buyer;
(ii) use their respective best efforts to take all steps necessary or
appropriate to obtain the approval of the Connecticut Commissioner and any
other insurance regulatory approvals required for the consummation of the
Merger;
(iii) duly make all regulatory filings required to be made by each in
respect of the Merger Agreement or the transactions contemplated thereby,
including the filing of a Form A with the Connecticut Commissioner for
approval of the Merger and the filing of a request for a waiver of
Connecticut General Statute Section 38-136(i)(2)(A) which requires the
approval of the Connecticut Commissioner for the payment of dividends for
a period of two years following a change-in-control (the "Connecticut
Waiver");
(iv) comply as promptly as practicable with all governmental
requirements applicable to the Merger, and obtain promptly all necessary
permits, orders and other consents of governmental entities and consents
of third parties necessary for the consummation of the Merger; and
(v) execute such contracts and other agreements and documents and
other papers and take such further actions as may be reasonably required
or desirable to carry out the Merger, and use its best efforts to fulfill
or obtain the fulfillment of the conditions precedent to the consummation
of the Merger, including the execution and delivery of any documents,
certificates, instruments or other papers that are reasonably required for
the consummation of the Merger.
TERMINATION FEE
The Merger Agreement provides under certain circumstances for the payment
of a cash fee in the amount of $3,500,000 to CHP II, along with reimbursement
of expenses of Buyer up to $100,000, in the event the Company executes an
agreement with a third party involving a merger or other business combination
or sale of a substantial portion of the assets or stock of the Company prior to
February 17, 1997 (the "Termination Fee"). No Termination Fee shall be paid
if: (i) at any time Buyer lowers the cash consideration per share below
$16.00; (ii) the Merger is not consummated due to the failure by
27
<PAGE> 41
Buyer to satisfy the terms and conditions of the Merger Agreement; (iii) Buyer
for any reason (other than due to the failure by the Company to satisfy the
terms and conditions of the Merger Agreement) determines not to pursue the
transaction with the Company; (iv) any regulatory approval required for the
Merger is not obtained; or (v) the Merger Agreement is terminated as a result
of the Connecticut Department denying the Connecticut Waiver. The Termination
Fee is the sole and exclusive remedy of Buyer upon any such termination of the
Merger Agreement.
AMENDMENTS AND WAIVERS
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of the Company, Buyer and Buyer Sub. By mutual written
consent, the parties may (a) extend the time for performance of obligations,
(b) waive inaccuracies in representations and warranties, (c) waive compliance
with covenants and agreements, or (d) make other modifications as agreed to by
the parties' Boards of Directors. After approval of the Merger Agreement by
the stockholders of the Company, the Board of Directors of the Company will
not, without first obtaining the further approval of the stockholders, approve
any amendment which is materially adverse, as reasonably determined by the
Company, to the rights of the stockholders of the Company.
EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses, except for (i) the Termination Fee and (ii)
reimbursement to the Company for expenses of up to $50,000 if the Merger
Agreement is terminated as a result of the Connecticut Waiver being denied.
The following is an estimate of the costs and expenses incurred or
expected to be incurred by the Company in connection with the Merger:
<TABLE>
<S> <C>
Legal Fees and Expenses $250,000
Transfer Agent Fees $3,500
SEC and Other Filing Fees $10,830
Printing and Mailing Costs $12,000
Fees and Expenses to
Financial Advisor $685,000
--------
Total $961,330
</TABLE>
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of the parties to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of a number of
conditions typical in acquisition transactions, including: accuracy of
representations and warranties; performance of all covenants; receipt of all
necessary approvals, consents and clearances (including approval by the
Connecticut Commissioner of the Form A and the Connecticut Waiver); absence of
certain litigation; and approval by the holders of a majority
28
<PAGE> 42
of the Company's outstanding Common Stock. In addition, Buyer's obligation
to close is conditioned upon:
(a) receipt of a legal opinion from Lord, Bissell & Brook, special
counsel for the Company, with respect to certain legal matters;
(b) receipt of all required approvals, none of which shall contain
any terms, limitations or conditions which Buyer determines in good faith
to be materially burdensome to Buyer or its affiliates or to the Company
or its subsidiaries taken as a whole, or which restrict Buyer's rights as
a controlling stockholder of the Company (including without limitation its
right to participate actively in the management of the Company or its
subsidiaries), which would prevent Buyer, its affiliates or the Company
and its subsidiaries from conducting their respective businesses in
substantially the same manner as currently conducted;
(c) no legislation shall have been proposed in bill form or enacted
and no statute, law, ordinance, code, rule or regulation shall have been
adopted, revised or interpreted by any governmental entity that would
require the divestiture or cessation of the conduct of any business
presently conducted by the Company or any of its subsidiaries or by Buyer
or any of its affiliates, or which may individually or in the aggregate
have an adverse effect on Buyer or any of its affiliates, or which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Company or any of its subsidiaries;
(d) resignation of certain directors and officers of the Company and
its subsidiaries;
(e) receipt of notices of intent to dissent from the holders of not
more than 5 percent of the Company Shares; and
(f) no material adverse effect on the business or operations of the
Company and its subsidiaries taken as a whole.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any
time before the Effective Time, notwithstanding approval of the Merger
Agreement by the stockholders of the Company:
(i) by mutual written consent of Buyer and the Company;
(ii) at the election of the Company, if Buyer or Buyer Sub has
breached or failed to perform or comply with in any material respect any
representation, warranty, covenant or agreement contained in the Merger
Agreement, and such breach or failure is not cured within 15 days;
(iii) at the election of Buyer, if the Company or any of its
Subsidiaries has breached or failed to perform or comply with in any
material respect any representation, warranty, covenant or agreement
contained in the Merger Agreement, and such breach or failure is not cured
within 15 days;
(iv) by Buyer or the Company if the Effective Date shall not be on or
before September 30, 1996 or such later date as the parties may agree
upon, unless the failure to consummate the Merger is the result of a
willful and material breach of the Merger Agreement by the party seeking
to terminate the Merger Agreement;
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<PAGE> 43
(v) at the election of the Company, in the event of receipt of an
unsolicited acquisition proposal, if the Board of Directors determines in
good faith pursuant to a written opinion of outside counsel that its
fiduciary duties require it to consider such proposal, and the Company has
paid the Termination Fee; or
(vi) by Buyer 45 days following the date on which the Company first
actively participates in any discussions or negotiations regarding, or
furnishes to any person any confidential information with respect to, any
unsolicited acquisition proposal, unless prior to the expiration of such
45 day period the Company notifies Buyer that such acquisition proposal
has been rejected and any such negotiations have been terminated.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Since January 1, 1994, John A Dore has acquired 24,552 Company Shares at
prices ranging from $8.51 to $12.19. Of the 24,552 Company Shares so acquired,
6,552 were acquired in open market purchases and 18,000 were issued by the
Company to Mr. Dore pursuant to the terms of his employment agreement. In
addition, during such period, Mr. Dore received options to acquire 36,000
Company Shares pursuant to the terms of his employment agreement and as
incentive compensation awarded by the Executive Compensation Committee of the
Company. The average purchase price for the Company Shares acquired by John A.
Dore in open market purchases since January 1, 1994 is as follows:
<TABLE>
<CAPTION>
Average Purchase
Quarter Ended Price
------------- ----------------
<S> <C>
June 30, 1994 $9.03
September 30, 1994 $8.77
March 31, 1995 $9.38
</TABLE>
As of March 31, 1996 the following persons or entities were known by the
Company to be beneficial owners of 5 percent or more of the Company's Common
Shares:
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name and Address of Beneficial Ownership Class(1)
- ---------------- ----------------------- -----------
<S> <C> <C>
R. Keith Long Direct - 285,004 Shares
400 Royal Palm Way Indirect - 113,184 Shares(2)
Suite 204 -------
Palm Beach, Florida 33480 398,188 Shares(3) 12.6%
Pierpont Morgan Ltd./
Scott J. Seligman Direct - 196,150 Shares(4) 6.0%
1760 S. Telegraph Rd.
Bloomfield Hills, Michigan 48302
Jane Marvel Garnett Direct - 171,936 Shares(5) 5.4%
David G. Booth Direct - 73,468 Shares(5) 2.3%
24 Monroe Place
Brooklyn, New York 11238
John F. Fyfe Direct - 248,745 Shares(6) 7.8%
630 W. Fullerton Parkway
Chicago, Illinois 60614
</TABLE>
30
<PAGE> 44
<TABLE>
<S> <C> <C>
John A. Dore Direct - 107,114 Shares
First Re Management Company, Inc. Indirect - 73,994 Shares(7) 7.4% (8)
10 N. Dearborn Street -------
8th Floor 181,108 Shares
Chicago, Illinois 60602-4202
William M. Toll Direct - 370,344 Shares(9) 11.5% (9)
1904 Lamington Road
Bedminster, New Jersey 07921
</TABLE>
__________
(1) Calculated for each beneficial owner on the basis of shares outstanding at
March 31, 1996, plus shares subject to options exercisable by such
beneficial owner within 60 days of March 31, 1996.
(2) Owned directly by a limited partnership, the general partner of which is a
corporation owned by Mr. Long.
(3) Mr. Long also holds options to purchase 7,200 shares of the Company's
Common Stock.
(4) Schedule 13D dated June 26, 1992 filed with the Securities and Exchange
Commission reported ownership of 192,096 Common Shares. The Company's
records indicate an additional 4,054 shares subsequently were acquired.
(5) As reported in an Amendment to Schedule 13D dated March 8, 1995 filed with
the Securities and Exchange Commission. David G. Booth is the spouse of
Jane Marvel Garnett.
(6) As reported in a Schedule 13D dated December 16, 1994 filed with the
Securities and Exchange Commission.
(7) 6,336 shares of Common Stock are owned directly by the children of Mr.
Dore, and 67,658 shares of Common Stock are owned directly by the spouse of
Mr. Dore.
(8) Mr. Dore also holds options (currently exercisable or exercisable within
60 days of March 31, 1996) to acquire 59,040 shares of Common Stock.
(9) As reported in a Form 4 dated September 6, 1995 filed with the Securities
and Exchange Commission.
The amount and nature of beneficial ownership of Common Shares by the
directors and named executive officers of the Company as of March 31, 1996 is
set forth below:
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial Ownership(1) Percent of Class (2)
---- -------------------------- --------------------
<S> <C> <C>
Richard P. Ackerman Direct - 0 Shares 0%
Dale C. Bottom Direct - 8,823 Shares (*)
W. Dean Cannon, Jr. Direct - 24,984 Shares (*)
John P. Diesel Direct - 7,200 Shares (*)
John A. Dore Direct - 107,114 Shares
Indirect - 73,994 Shares(3) 7.4%
Gerald J. Levy Direct - 4,608 Shares (*)
R. Keith Long Direct - 285,004 Shares
Indirect - 113,184 Shares(4) 12.6%
Joe C. Morris Direct - 10,080 Shares
Indirect - 3,196 Shares(5) (*)
William B. O'Connell Direct - 4,176 Shares
Indirect - 10,137 Shares(6) (*)
Herschel Rosenthal Direct - 19,248 Shares
Indirect - 5,990 Shares(7) 1.2%
Thad Woodard Direct - 4,608 Shares (*)
</TABLE>
31
<PAGE> 45
<TABLE>
<S> <C> <C> <C>
B. Zellars Direct - 54,062 Shares
Indirect - 720 Shares(7) 1.9%
Lonnie L. Steffen Direct - 30,624 Shares
Indirect - 3,168 Shares(8) 1.8%
Robert E. Wendt Direct - 7,012 Shares (*)
-----------------
All directors and named executive
officers as a group 777,932 Shares 27.9%
</TABLE>
(*) Less than one percent.
- ---------------
(1) The directors and named executive officers also hold certain options to
purchase shares of the Company's Common Stock as described below.
(2) Calculated for each beneficial owner on the basis of shares outstanding at
March 31, 1996, plus shares subject to options exercisable by such
beneficial owner within 60 days of March 31, 1996.
(3) 6,336 shares of Common Stock are owned directly by the children of Mr. Dore
and 67,658 shares of Common Stock are owned directly by the spouse of Mr.
Dore.
(4) Owned directly by a limited partnership, the general partner of which is a
corporation owned by Mr. Long.
(5) Owned directly by a trust of which Mr. Morris is trustee.
(6) Owned directly by the estate of the spouse of the person whose ownership
is reported.
(7) Owned directly by the spouse of the person whose ownership is reported.
(8) Owned directly by the children of Mr. Steffen.
As used herein, "beneficially owned" means the sole or shared power to
vote or direct the voting of a security and/or sole or shared investment power
with respect to a security (i.e., the power to dispose or direct the
disposition of a security). Unless otherwise indicated, all directors and
executive officers have sole voting and sole investment power over the shares
listed.
As of March 31, 1996, the directors and named executive officers held
options to acquire the following Company Shares:
32
<PAGE> 46
Amount of Securities
Name Subject to Options
- ---- --------------------
William B. O'Connell 12,960
W. Dean Cannon, Jr. 5,760
R. Keith Long 7,200
John B. Zellars 5,760
Joe C. Morris 7,200
Thad Woodward 12,960
Dale C. Bottom 12,960
Gerald J. Levy 12,960
Herschel Rosenthal 12,960
John A. Dore 115,200
Lonnie L. Steffen 43,200
Robert E. Wendt 7,920
See "SPECIAL FACTORS--Stock Option Plan and Directors' Incentive Plan" and
"SPECIAL FACTORS--Acceleration of Stock Options."
OTHER MATTERS
The Board of Directors of the Company is not aware of any matters to be
presented for action at the Special Meeting other than those described herein
and does not intend to bring any other matters before the Special Meeting.
However, if other matters should come before the Special Meeting, it is
intended that the holders of proxies solicited hereby will vote thereon in
their discretion.
PROPOSALS BY HOLDERS OF COMPANY SHARES
In the event the Merger is not consummated for any reason, proposals of
stockholders intended to be presented at the 1996 annual meeting of
stockholders must be received by the Company at its principal executive offices
a reasonable time prior to the Company's solicitation of proxies in order to be
included in the Company's Proxy Statement and form of proxy relating to that
meeting. Once the date of any such annual meeting is scheduled, stockholders
will be informed in a timely manner of the date by which such proposals must be
received. In addition, a stockholder who intends to present business at any
annual meeting must comply with the notice requirements set forth in the
Company's Bylaws. Stockholders should mail any proposals by certified
mail-return receipt requested.
EXPENSES OF SOLICITATION
The expenses in connection with solicitation of the enclosed form of proxy
will be paid by the Company. In addition to solicitation by mail, officers or
regular employees of the Company, who will receive no compensation for such
services other than their regular salaries, may solicit proxies personally or
by telephone or facsimile. Arrangements will be made with brokerage houses,
nominees, participants in central certificate depository systems and other
custodians and fiduciaries to supply them with solicitation material for
forwarding to their principals, and arrangements may be made with such persons
33
<PAGE> 47
to obtain authority to sign proxies. The Company may reimburse such persons
for reasonable out-of-pocket expenses incurred by them in connection therewith.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1995, and for each of the years in the five-year period ended December 31,
1995, incorporated by reference have been audited by Coopers & Lybrand, LLP,
independent public accountants, as stated in their report.
It is not anticipated that a representative of Coopers & Lybrand will
attend the Special Meeting.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information can be inspected and copies made at the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of Commission at its Washington address at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission
(Commission File No. 0-15404) are hereby incorporated by reference into this
Proxy Statement:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, which is being provided herewith;
3. The Company's 1995 Annual Report to Stockholders, which is being
provided herewith; and
4. The Company's Current Reports on Form 8-K dated January 2, 1996,
January 5, 1996, February 22, 1996 and April 16, 1996.
Copies of the documents (without exhibits) incorporated by reference in
this Proxy Statement are available without charge upon written or oral request.
Requests should be sent to Office of the Corporate Secretary, Financial
Institutions Insurance Group, Ltd., 300 Delaware Avenue, Suite 1704,
Wilmington, Delaware 19801-1612, telephone (302) 427-5800.
By order of the Board of Directors
Lana J. Braddock
Secretary
____________, 1996
34
<PAGE> 48
APPENDIX A
MERGER AGREEMENT
<PAGE> 49
MERGER AGREEMENT
by and among
FIIG HOLDING CORP.,
FIIG MERGER CORP.
and
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
Dated as of: April 12, 1996
<PAGE> 50
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
RECITALS ................................................................... 1
ARTICLE I DEFINITIONS ..................................................... 1
SECTION 1.1. Definitions 1
ARTICLE II THE MERGER ..................................................... 3
SECTION 2.1. Merger 3
SECTION 2.2. Effective Time 3
SECTION 2.3. Certificate of Incorporation 3
SECTION 2.4. By-Laws 3
SECTION 2.5. Officers and Directors 3
SECTION 2.6. Effect of Merger 4
ARTICLE III CONVERSION .................................................... 5
SECTION 3.1. Conversion 5
SECTION 3.2. Exchange of Certificates; Paying Agent 6
SECTION 3.3. Letter of Transmittal 6
SECTION 3.4. Exchange Procedures 6
SECTION 3.5. No Further Ownership Rights in Common Stock 7
SECTION 3.6. Payment Fund 7
SECTION 3.7. Options 8
ARTICLE IV DISSENTING STOCKHOLDERS ........................................ 8
SECTION 4.1. Election 8
SECTION 4.2. Payment 8
ARTICLE V THE CLOSING ..................................................... 9
SECTION 5.1. Closing 9
SECTION 5.2. Certificate of Merger 9
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY .................. 9
SECTION 6.1. Incorporation; Qualification and Standing 9
</TABLE>
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<TABLE>
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SECTION 6.2. Subsidiaries 10
SECTION 6.3. Authority 10
SECTION 6.4. Absence of Conflicts 11
SECTION 6.5. Consents and Approvals 11
SECTION 6.6. Directors and Officers 12
SECTION 6.7. Charter and By-Laws 12
SECTION 6.8. Capitalization 12
SECTION 6.9. Compliance; Insurance Regulatory Licenses 13
SECTION 6.10. SEC Reports 15
SECTION 6.11. Financial Statements 15
SECTION 6.12. Reinsurance 17
SECTION 6.13. Written Insurance Policies; Regulatory Filings 17
SECTION 6.14. Producers: Fronting 18
SECTION 6.15. Premium Balances Receivable 18
SECTION 6.16. Certain Business Practices 19
SECTION 6.17. Tax Matters 19
SECTION 6.18. Employee Benefit Plans; Employment and Labor Agreements 20
SECTION 6.19. Investments 23
SECTION 6.20. Intangible Property 23
SECTION 6.21. Tangible Property 23
SECTION 6.22. Real Property; Leases 24
SECTION 6.23. Assets 24
SECTION 6.24. Agreements for Borrowed Money, Etc. 24
SECTION 6.25. Contracts and Commitments 25
SECTION 6.26. Litigation 26
SECTION 6.27. Environmental Matters 27
SECTION 6.28. Brokers and Finders 28
SECTION 6.29. Banks 28
SECTION 6.30. Maintenance of Insurance 28
SECTION 6.31. Legislation 29
SECTION 6.32. Operations of the Company and its Subsidiaries 29
SECTION 6.33. Potential Conflicts of Interest 31
SECTION 6.34. Guaranty Funds, Pools and Associations 32
SECTION 6.35. Full Disclosure 32
</TABLE>
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<TABLE>
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ARTICLE VII REPRESENTATIONS AND WARRANTIES OF BUYER
AND BUYER SUB ......................................................................... 33
SECTION 7.1. Organization and Standing 33
SECTION 7.2. Certificate of Incorporation and By-Laws 33
SECTION 7.3. Authority 33
SECTION 7.4. Absence of Conflicts 33
SECTION 7.5. Consents and Approvals 34
SECTION 7.6. Brokers and Finders 34
SECTION 7.7 SEC Filings 34
ARTICLE VIII COVENANTS AND AGREEMENTS OF THE COMPANY ................................... 35
SECTION 8.1. Conduct of Business 35
SECTION 8.2. Access to Properties, Books and Records; Confidentiality 36
SECTION 8.3. Insurance 36
SECTION 8.4. Litigation 37
SECTION 8.5. Advice of Changes 37
SECTION 8.6. Subsequent Financial Statements; SEC Documents; and Insurance 37
Filings
SECTION 8.7. No Solicitation 38
SECTION 8.8. Proxy Statement; Approval by the Company's Stockholders 39
SECTION 8.9. Options 39
ARTICLE IX ADDITIONAL COVENANTS ........................................................ 40
SECTION 9.1. HSR Act 40
SECTION 9.2. Insurance Regulatory Approvals 40
SECTION 9.3. Filings and Approvals 40
SECTION 9.4. Continued Effectiveness of Representations and Warranties 41
SECTION 9.5. Advice of Changes 41
SECTION 9.6. Proxy Statement 41
SECTION 9.7. Further Assurances 41
SECTION 9.8. Directors' and Officers' Insurance 41
ARTICLE X CONDITIONS TO OBLIGATIONS OF BUYER AND BUYER SUB ............................. 42
SECTION 10.1. Compliance with Agreements 42
SECTION 10.2. Representations and Warranties 42
</TABLE>
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<TABLE>
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SECTION 10.3. Opinion of Counsel for the Company 42
SECTION 10.4. Approvals 43
SECTION 10.5. Legislation 43
SECTION 10.6. Absence of Preventative Litigation 43
SECTION 10.7. Secretary's Certificate; Certified Copies 44
SECTION 10.8. Resignations 44
SECTION 10.9. Dissenting Stock 44
SECTION 10.10. No Material Adverse Effect 44
SECTION 10.11. Stock Option Plan and Directors' Incentive Plan; Options 44
ARTICLE XI CONDITIONS TO OBLIGATIONS OF THE COMPANY .................................... 45
SECTION 11.1. Compliance with Agreement 45
SECTION 11.2. Representations and Warranties 45
SECTION 11.3. Opinion of Counsel for Buyer 45
SECTION 11.4. Approvals 45
SECTION 11.5. Secretary's Certificate 45
SECTION 11.6. Absence of Preventative Litigation 46
SECTION 11.7. Good Standing 46
ARTICLE XII TERMINATION, AMENDMENT, WAIVERS ............................................ 46
SECTION 12.1. Termination 46
SECTION 12.2. Effect of Termination 47
SECTION 12.3. Amendments, Modifications, Etc. 47
SECTION 12.4. Waivers 48
ARTICLE XIII MISCELLANEOUS PROVISIONS .................................................. 48
SECTION 13.1. Publicity 48
SECTION 13.2. Certain Expenses 48
SECTION 13.3. Notices 48
SECTION 13.4. Entire Agreement 50
SECTION 13.5. No Third Party Beneficiaries 50
SECTION 13.6. No Assignment 50
SECTION 13.7. Governing Law 50
SECTION 13.8. Counterparts 50
SECTION 13.9. Headings 50
</TABLE>
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<TABLE>
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SECTION 13.10. Severability 51
SECTION 13.11. Survival of Representation and Warranties 51
</TABLE>
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<PAGE> 55
SCHEDULES
Schedule 3.7 - Options
Schedule 6.1 - Jurisdictions where Company Qualified to do Business
Schedule 6.2 - Subsidiaries' Jurisdictions of Incorporation and where
Qualified to do Business
Schedule 6.4 - Conflicts
Schedule 6.5 - Consents and Approvals
Schedule 6.6 - Officers and Directors
Schedule 6.8 - Capitalization
Schedule 6.9 - Permits
Schedule 6.11 - NAIC IRIS Ratios; Liabilities not Reserved Against
Schedule 6.12 - Reinsurance Agreements
Schedule 6.13 - Underwriting Management Agreements
Schedule 6.14 - Producers; Fronting Agreements
Schedule 6.16 - Pending Claims
Schedule 6.17 - Tax
Schedule 6.18 - Employee Benefit Plans
Schedule 6.19 - Investments
Schedule 6.20 - Intangible Property
Schedule 6.21 - Tangible Property
Schedule 6.22 - Real Property
Schedule 6.24 - Agreements for Borrowed Money
Schedule 6.25 - Contracts
Schedule 6.26 - Litigation
Schedule 6.29 - Banks
Schedule 6.30 - Insurance
Schedule 6.32 - Operations
Schedule 6.33 - Potential Conflicts
Schedule 7.4 - Conflicts
Schedule 7.5 - Consents
Schedule 8.1 - Conduct of Business
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<PAGE> 56
EXHIBITS
Exhibit A - Voting Agreement
Exhibit B - Opinion of Company's Counsel
Exhibit C - Opinion of Buyer's Counsel
-vii-
<PAGE> 57
MERGER AGREEMENT
MERGER AGREEMENT, dated as of April 12, 1996 (this "Agreement"), by and
among FIIG Holding Corp. ("Buyer"), a Delaware corporation, FIIG Merger Corp.,
a wholly-owned subsidiary of Buyer and a Delaware corporation ("Buyer Sub"),
and Financial Institutions Insurance Group, Ltd., a Delaware corporation (the
"Company").
RECITALS:
WHEREAS, subject to the terms and conditions of this Agreement, each of
the boards of directors of Buyer, Buyer Sub and the Company have approved the
merger (the "Merger") of Buyer Sub into the Company, in accordance with the
Delaware General Corporation Law (the "DGCL") and subject to the terms and
conditions set forth in this Agreement;
WHEREAS, holders in excess of, in the aggregate, 20% of the issued and
outstanding Common Stock (as hereinafter defined) have contemporaneously
herewith entered into voting agreements in the form of Exhibit A hereto (the
"Voting Agreement"), pursuant to which such stockholders agree to vote all of
their shares of Common Stock to approve the Merger and the transactions
contemplated hereby; and
WHEREAS, in furtherance of the consummation of the Merger and transactions
contemplated herein, the parties hereto desire to enter into this Agreement;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
Buyer, Buyer Sub and the Company contained in this Agreement, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Buyer, Buyer Sub and the Company agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. (a) The following terms shall have the meaning
specified in the indicated section of this Agreement:
<PAGE> 58
<TABLE>
<CAPTION>
Term Section Term Section
---- ------- ---- -------
<S> <C> <C> <C>
Acquisition Proposal ............... Section 8.7.
Acquiror Approvals ................. Section 7.5.
Affiliated Group ................... Section 6.17.
Agreement .......................... Recitals.
Annual Convention Statements ....... Section 6.11.
Annual Financial Statements ........ Section 6.11.
Applicable Insurance Law ........... Section 6.11.
Benefit Plan ....................... Section 6.18.
Buyer .............................. Recitals.
Buyer Related Agreements ........... Section 7.3
Buyer Sub .......................... Recitals.
Buyer Sub Common Stock ............. Section 3.1.
Cash Consideration Per Option ...... Section 3.7
Cash Consideration Per Share ....... Section 3.1.
CHPII .............................. Section 8.2.
Closing ............................ Section 5.1.
Closing Date ....................... Section 5.1.
Code ............................... Section 6.17.
Common Stock ....................... Section 3.1.
Company ............................ Recitals.
Confidentiality Agreement .......... Section 8.2.
Connecticut Approval ............... Section 9.3.
Connecticut Waiver ................. Section 9.3.
Constituent Corporations ........... Section 2.1.
DGCL ............................... Recitals.
Dissenting Stockholder ............. Section 4.1.
Effective Date ..................... Section 2.2.
Effective Time ..................... Section 2.2.
Environmental Actions .............. Section 6.27.
Environmental Laws ................. Section 6.27.
ERISA .............................. Section 6.18.
ERISA Affiliate .................... Section 6.18.
Exchange Act ....................... Section 6.10.
FRH ................................ Section 6.5.
Governmental Entity ................ Section 6.9.
Hazardous Substances ............... Section 6.27.
HSR Act ............................ Section 6.5.
Merger ............................. Recitals.
Insurance Regulatory Approvals ..... Section 6.5. NAIC ............................... Section 6.11.
Investments ........................ Section 6.19. Options ............................ Section 3.7.
IRS ................................ Section 6.18. Paying Agent ....................... Section 3.2.
IRIS ............................... Section 6.11. Payment Fund ....................... Section 3.2.
Letter of Transmittal .............. Section 3.3. Payment Fund Investment ............ Section 3.6.
Lien ............................... Section 6.4. Permits ............................ Section 6.5.
Loss Reserves ...................... Section 6.11. Preventative Litigation ............ Section 10.6.
Material Adverse Effect ............ Section 6.1. Producer ........................... Section 6.14
</TABLE>
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<TABLE>
<S> <C>
Proxy Statement .................... Section 8.8.
Quarterly Convention Statements .... Section 6.11.
Reinsurance Agreements ............. Section 6.12.
Related Agreements ................. Section 6.3.
Rights ............................. Section 6.8.
SEC ................................ Section 6.5.
SEC Documents ...................... Section 6.10.
SEC Filing ......................... Section 8.6.
Securities Act ..................... Section 6.10.
Sellers Approvals .................. Section 6.5.
Subsidiary ......................... Section 6.2
Surviving Corporation .............. Section 2.1.
Surviving Corporation By-laws ...... Section 2.4.
Surviving Corporation Certificate .. Section 2.3.
Surviving Corporation Common Stock Section 3.1.
Tangible Property .................. Section 6.21.
Tax ................................ Section 6.17.
Third Party Consents ............... Section 6.5.
Unsolicited Sale ................... Section 8.7.
Voting Agreement ................... Recitals.
</TABLE>
(b) All references herein to dollars or "$" shall be to United States
dollars.
(c) As used herein, the phrase "to the Company's knowledge", or "to the
best knowledge of the Company" or other similar phrase refers to the knowledge
of the officers of the Company and its Subsidiaries.
ARTICLE II
THE MERGER
SECTION 2.1. Merger. Upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the DGCL, at the Effective Time,
Buyer Sub shall be merged with and into the Company, whereupon the Company
shall continue as the surviving corporation (sometimes referred to herein as
the "Surviving Corporation") and the separate corporate existence of Buyer Sub
shall cease. The Company and Buyer Sub are sometimes referred to herein,
collectively, as the "Constituent Corporations".
SECTION 2.2. Effective Time. (a) The Merger shall be effective when a
properly executed certificate of merger setting forth the information required
by Section 251 of the DGCL, (together with any other documents, certificates
and instruments required by law to effectuate and consummate the Merger) shall
be filed with the Secretary of State of the State of Delaware (or at such other
time as shall be specified in such certificate of merger), which filing shall
be made as soon as practicable after satisfaction (or waiver) of the conditions
set forth in Articles X and XI.
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<PAGE> 60
(b) When used herein, the term "Effective Time" shall mean the date and
time at which the Merger becomes effective and the term "Effective Date" shall
mean the date upon which the Effective Time occurs.
SECTION 2.3. Certificate of Incorporation. The Certificate of
Incorporation of the Company in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation (the
"Surviving Corporation Certificate"), unless and until amended as provided by
the Surviving Corporation Certificate or by law.
SECTION 2.4. By-Laws. The by-laws of the Company in effect immediately
prior to the Effective Time shall be the by-laws of the Surviving Corporation
(the "Surviving Corporation By-laws") unless and until altered, amended or
repealed as provided by law, the Surviving Corporation Certificate or the
Surviving Corporation By-laws.
SECTION 2.5. Officers and Directors. The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation until their successors shall have been duly elected and qualified,
or as otherwise provided in the Surviving Corporation By-laws. The directors
of the Surviving Corporation shall be the directors of Buyer Sub until their
successors shall have been duly elected and qualified, or as otherwise provided
in the Surviving Corporation Certificate, the Surviving Corporation By-laws or
as otherwise provided by applicable law.
SECTION 2.6. Effect of Merger. (a) At the Effective Time, the Merger
shall have the effects set forth in Section 259 of the DGCL. Without limiting
the generality of the foregoing, and subject thereto: (i) the Surviving
Corporation shall possess all the rights, privileges, powers and franchises, of
a public and private nature, and shall be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; (ii) all
property, real, personal and mixed, and all debts due to either Constituent
Corporation on whatever account, including all choses in action and other
things belonging to the Constituent Corporations, shall be vested in the
Surviving Corporation; (iii) all property, rights, privileges, powers and
franchises, and every other interest of each of the Constituent Corporations
shall be, from and after the Effective Date, the property of the Surviving
Corporation and the title to any real estate vested by deed or otherwise in the
Constituent Corporations shall not revert or be impaired in any way by this
Agreement or the Merger provided for herein, but all rights of creditors and
all liens upon any property of either Constituent Corporation shall be
preserved unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall, from and after the Effective Time, attach to and become the
debts, liabilities and duties of the Surviving Corporation, and may be enforced
against the Surviving Corporation to the same extent as if said debts,
liabilities and duties had been incurred or contracted by the Surviving
Corporation; and (iv) all transfers vesting in the Surviving
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<PAGE> 61
Corporation referred to herein shall be deemed to occur by operation of
law and no consent or approval of any other person shall be required in
connection with any such transfer or vesting unless such consent or approval is
specifically required in the event of merger or consolidation by law or express
provision of any contract, agreement, decree, order or other instrument to
which either or both of the Constituent Corporations is a party or is bound.
(b) The Surviving Corporation shall assume and be liable for all the
liabilities, obligations and penalties of each of the Constituent Corporations.
No liability or obligation due or to become due, claim or demand for any cause
existing against either Constituent Corporation, or any stockholder, officer or
director thereof, shall be released or impaired by the Merger. No action or
proceeding, whether civil or criminal, then pending by or against either
Constituent Corporation, or any stockholder, officer or director thereof, shall
abate or be discontinued by the Merger, but may be enforced, prosecuted,
settled or compromised as if the Merger had not occurred, or the Surviving
Corporation may be substituted in such action or special proceeding in place of
either Constituent Corporation.
(c) All corporate acts, plans, policies, approvals and authorizations of
the Constituent Corporations and their respective Boards of Directors,
committees appointed by such Boards of Directors and their officers and agents,
which were valid and effective immediately prior to the Effective Time, shall
be taken for all purposes as the acts, plans, policies, approvals and
authorizations of the Surviving Corporation and shall be as effective and
binding thereon as the same were with respect to the Company and Buyer Sub.
ARTICLE III
CONVERSION
SECTION 3.1. Conversion. The manner and basis of converting the shares
of common stock of each of the Constituent Corporations, and the consideration
that the holders of such shares shall receive, are as follows:
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of the common stock, par value
$1.00 per share, of the Company ("Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares held by Buyer or
Buyer Sub or shares as to which appraisal rights have not been forfeited under
the DGCL, if an effective notice of exercise of appraisal rights with respect
to such shares under Section 262 of the DGCL was required and given
prior to the Effective Time) shall be converted into the right to receive $16
cash (the "Cash Consideration Per Share") without interest thereon, after the
date when such holder satisfies the procedures contemplated by
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Section 3.4, in accordance with the provisions of this Agreement.
Following the Effective Time, all certificates or other instruments
representing shares of Common Stock outstanding immediately prior to the Merger
(other than shares held by Buyer or Buyer Sub or shares as to which appraisal
rights have not been forfeited under the DGCL, if an effective notice of
exercise of appraisal rights with respect to such shares under Section 262 of
the DGCL was required and given prior to the Effective Time) shall thereafter
only represent the right to receive, upon surrender thereof and conversion of
such shares in accordance with this Agreement, the Cash Consideration Per
Share. At and after the Effective Time, a holder of Common Stock, other than
Buyer or Buyer Sub, shall cease to have any rights as a stockholder of the
Company, except for the right to surrender the certificate or certificates
representing such holder's Common Stock in exchange for the payments required
to be made under this Agreement or to perfect such holder's right, if any, to
receive payment with respect to the Common Stock for which such holder has
validly demanded appraisal rights in accordance with the DGCL (which demand has
not been withdrawn). As of the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
on the records of the Company of shares of Common Stock and, if a certificate
formerly representing such shares is presented to the Company or the Surviving
Corporation, it shall be canceled and exchanged for cash, as herein provided.
At the Effective Time, each share of Common Stock issued and outstanding prior
to the Effective Time (which shares will be converted into the right to receive
the Cash Consideration Per Share (other than shares held by Buyer or Buyer Sub
or shares as to which appraisal rights have not been forfeited under the DGCL,
if an effective notice of exercise of appraisal rights with respect to such
shares under Section 262 of the DGCL was required and given prior to the
Effective Time)) shall be canceled and retired and shall cease to exist.
(b) Each share of Common Stock which shall be held by Buyer or Buyer Sub
or in the treasury of the Company, at the Effective Time, shall, by virtue of
the Merger and without further action, be canceled and retired and shall cease
to exist.
(c) At the Effective Time, each share of common stock, par value $.01 per
share, of Buyer Sub (the "Buyer Sub Common Stock"), issued and outstanding
immediately prior to the Effective Time, shall be converted into and become one
(1) share of the common stock, par value $1.00 per share, of the Surviving
Corporation (the "Surviving Corporation Common Stock"), by virtue of the Merger
and without any action on the part of the holder thereof. Immediately upon
such conversion into shares of Surviving Corporation Common Stock, each share
of Buyer Sub Common Stock shall be canceled and retired and shall cease to
exist.
SECTION 3.2. Exchange of Certificates; Paying Agent. As of the Effective
Time, Buyer shall deposit, or shall cause to be deposited, with or for the
account of a bank or trust company designated by the Company and reasonably
acceptable to Buyer (the "Paying Agent"), for the benefit of the holders of
shares of Common Stock, funds in an aggregate amount equal to
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the Cash Consideration Per Share multiplied by the number of shares of
Common Stock issued and outstanding (other than those shares held by Buyer or
Buyer Sub) and for which appraisal rights were not effectively exercised (the
"Payment Fund").
SECTION 3.3. Letter of Transmittal. As soon as practicable after the
Effective Time but in no event more than 20 days after the Effective Date, the
Company shall mail to each record holder of certificates that, immediately
prior to the Effective Time, shall represent shares of Common Stock which shall
be converted pursuant to Section 3.1 hereof, a notice and letter of transmittal
(the "Letter of Transmittal") advising such stockholder of the Merger and the
procedure for surrendering such certificates and receiving the consideration to
which such holder shall be entitled therefor pursuant to the terms thereof or
Section 3.1 hereof.
SECTION 3.4. Exchange Procedures. As soon as practicable after the
Effective Time, each holder of an outstanding certificate or certificates
which, prior thereto, represented shares of Common Stock shall, upon surrender
no later than 180 days after the Effective Date to the Paying Agent of such
certificate or certificates, together with a duly executed and completed
transmittal form, and acceptance thereof by the Paying Agent, be entitled to
the Cash Consideration Per Share for each share of Common Stock represented by
such certificate or certificates so surrendered. The Paying Agent shall accept
such certificates (or an indemnity in form reasonably satisfactory to Buyer and
the Paying Agent, if such certificate is lost, stolen or destroyed) upon
compliance with such terms and conditions as is reasonably necessary for the
Paying Agent to effect an orderly exchange thereof in accordance with normal
exchange practices. If the Cash Consideration Per Share is to be paid to any
person other than the person in whose name the certificate representing shares
of Common Stock surrendered in exchange therefor is registered, it shall be a
condition to such exchange that the certificate so surrendered shall be
properly endorsed or be accompanied by appropriate stock powers or otherwise be
in proper form for transfer and that the person requesting such payment shall
pay to the Paying Agent any transfer or other taxes required by reason of the
payment of such consideration to a person other than the registered holder of
the certificate surrendered, or shall establish to the reasonable satisfaction
of the Paying Agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 3.4, each certificate representing
shares of Common Stock (other than certificates representing shares held by
Buyer or Buyer Sub, shares to be canceled in accordance with Section 3.1 hereof
or shares of Common Stock of Dissenting Stockholders), shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Cash Consideration Per Share, as contemplated by Section 3.1(a)
hereof. No interest will be paid or will accrue on any cash payable as Cash
Consideration Per Share.
SECTION 3.5. No Further Ownership Rights in Common Stock. The Cash
Consideration Per Share paid upon the surrender for exchange of certificates
representing shares
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of Common Stock in accordance with the terms of this Article III shall
be deemed to be full satisfaction of all rights pertaining to the shares of
Common Stock theretofore represented by such certificates.
SECTION 3.6. Payment Fund. (a) Any portion of the Payment Fund which
remains undistributed to the holders of Common Stock for 180 days after the
Effective Time shall be delivered to the Surviving Corporation upon demand, and
any such holders that have not theretofore complied with the provisions of this
Article III, shall thereafter look only to the Surviving Corporation and only
as general creditors thereof for payment of their claim for any Cash
Consideration, without any interest thereon.
(b) None of Buyer, Buyer Sub, the Surviving Corporation nor the Paying
Agent shall be liable to any person in respect of any cash, shares, dividends
or distributions payable from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
certificates representing shares of Common Stock shall not have been
surrendered prior to five (5) years after the Effective Date (or immediately
prior to such earlier date on which any Cash Consideration Per Share in respect
of any such certificate would otherwise escheat to or become the property of
any Governmental Entity), any such cash, shares, dividends or distributions
payable in respect of such certificates shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
(c) The Paying Agent shall invest the Payment Fund, as directed by Buyer,
in: (i) direct obligations of the United States of America; (ii) obligations
for which the full faith and credit of the United States of America is pledged
to provide for the payment of principal and interest; or (iii) commercial paper
rated the highest quality by both Moody's Investors Services, Inc. and Standard
& Poor's Corporation (each a "Payment Fund Investment"); provided, however,
that any such investment or any such payment of earnings shall not delay the
receipt by holders of shares of Common Stock of the Cash Consideration or
otherwise impair such holders' respective rights hereunder. In the event the
Payment Fund shall realize a loss on any such Payment Fund Investment, Buyer
shall promptly thereafter deposit in the Payment Fund on behalf of the
Surviving Corporation cash or a Payment Fund Investment in an amount sufficient
to enable the Payment Fund to satisfy all remaining obligations originally
contemplated to be paid out of the Payment Fund.
(d) Any portion of the Payment Fund for which appraisal rights have been
perfected shall be returned to the Surviving Corporation, upon demand.
SECTION 3.7. Options. On the Effective Date, Buyer shall pay or cause to
be paid to each of the persons listed on Schedule 3.7 hereto with respect to
the outstanding options
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for Common Stock (the "Options") set forth opposite such person's name
on Schedule 3.7 hereto an amount per share of Common Stock subject to an Option
equal to the excess of the Cash Consideration Per Share over the exercise price
per share of such Option, as set forth on Schedule 3.7 hereto (the "Cash
Consideration Per Option"). Concurrently with the payment of the Cash
Consideration Per Option, each holder of an Option shall deliver to Buyer
evidence satisfactory to Buyer of the cancellation of such Option. At the
Effective Time, each Option shall be canceled and retired and shall cease to
exist and shall be deemed to represent only the right to receive the Cash
Consideration Per Option. Payment of the Cash Consideration Per Option in
accordance with this Section 3.7 shall be deemed to be full satisfaction of all
rights pertaining to the Options. All amounts payable under this Section 3.7
shall be subject to any required withholding of taxes and shall be paid without
interest.
ARTICLE IV
DISSENTING STOCKHOLDERS
SECTION 4.1. Election. Any shares of Common Stock as to which the holder
thereof shall have properly demanded appraisal in accordance with the
requirements of Section 262 of the DGCL (any holder duly making such demand is
referred to herein as a "Dissenting Stockholder") shall not be converted into
the right to receive the Cash Consideration Per Share, unless and until such
holder shall have failed to perfect, or shall have effectively withdrawn or
lost, the right to appraisal of and payment for such shares of Common Stock
under the DGCL. The Company shall give Buyer prompt notice of any demands for
appraisal with respect to shares of Common Stock which shall have been made in
accordance with the DGCL, and Buyer shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer, make any payment with
respect to, or settle or offer to settle or otherwise negotiate, any such
demands. In the event that a notice of exercise of appraisal rights under
Section 262 of the DGCL was not required prior to the Effective Time, at such
time as a holder of shares of Common Stock subsequently properly demands
appraisal rights, certificates for shares of Common Stock as to which such
appraisal rights are properly demanded shall thereupon cease to represent the
right to receive the Cash Consideration Per Share, and shall represent only the
right to receive payment for such shares under Section 262 of the DGCL.
SECTION 4.2. Payment. Each Dissenting Stockholder who becomes entitled,
pursuant to the provisions of Section 262 of the DGCL, to payment of the value
of its shares of Common Stock shall receive payment therefor from the Surviving
Corporation (but only after the value thereof shall have been agreed upon or
finally determined pursuant to such provisions). If a Dissenting Stockholder
fails to perfect, or effectively withdraws or loses the right to receive
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payment for such shares of Common Stock, pursuant to Section 262 of the DGCL,
such Dissenting Stockholder shall be entitled to convert such shares of Common
Stock as provided in Section 3.1 hereof.
ARTICLE V
THE CLOSING
SECTION 5.1. Closing. The closing of the transactions provided for
herein (the "Closing") shall take place at the offices of Schulte Roth & Zabel,
900 Third Avenue, New York, New York 10022 at 10 a.m., New York City time, as
promptly as practicable, and in any event within 5 days of the date on which
the conditions to Closing set forth in Articles X and XI hereof have been
waived or satisfied, or at such other time and place as the Buyer and the
Company mutually agree in writing. The date upon which the Closing occurs is
hereinafter referred to as the "Closing Date".
SECTION 5.2. Certificate of Merger. If this Agreement and the Merger has
been duly approved and adopted by the affirmative vote or consent of the
holders of at least a majority of all outstanding shares of Common Stock
entitled to vote thereon as provided in Section 8.8 hereof, and upon the
satisfaction (or waiver in writing) of the conditions precedent to the
consummation of the Merger as provided for herein, including those set forth in
Articles X and XI hereof (and if this Agreement has not been terminated and the
Merger has not been abandoned as permitted by the provisions of this
Agreement), at the Closing the Certificate of Merger shall be executed and
delivered on behalf of Buyer Sub and the Company and submitted to the Secretary
of State of the State of Delaware for filing in accordance with Sections 103
and 251 of the DGCL.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to and agrees with Buyer and Buyer Sub
that:
SECTION 6.1. Incorporation; Qualification and Standing. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation and has all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as now being conducted and to enter into and, subject to receipt
of all Seller Approvals, to perform its obligations under this Agreement and
under the other agreements and instruments provided for herein to which it is a
party. The Company is duly qualified and licensed to do business as a foreign
corporation and is in good standing in each jurisdiction where the properties
owned, leased or operated or the business conducted by it requires such
qualification or licensing, each of which jurisdictions is listed on Schedule
6.1 hereto, except where the failure to be so qualified, licensed or in good
standing, individually or in the aggregate, is not reasonably likely to have a
material adverse effect on the business, operations, assets, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries taken
as a whole or the ability to consummate the transactions contemplated by this
Agreement (a "Material Adverse Effect").
SECTION 6.2. Subsidiaries. Schedule 6.2 contains a list of all of the
Company's Subsidiaries, their jurisdictions of incorporation and the
jurisdictions in which they are qualified to do business as a foreign
corporation. Each of the Company's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation as set forth on Schedule 6.2 hereto,
and has the requisite corporate power and lawful authority to own, lease and
operate its respective assets, properties and business and to carry on its
respective business as it is now being conducted and, subject to receipt of all
Seller Approvals, to perform its obligations under this Agreement and to enter
into and perform its obligations under the other agreements and instruments
provided for herein to which it is a party. Each of the Company's Subsidiaries
is duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction where the properties owned, leased or
operated or the business conducted by it requires such qualification or
licensing, each of which jurisdiction is listed on Schedule 6.2 hereto, except
where the failure to be so qualified, licensed or in good standing,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect. Except for shares of capital stock of the Company's
Subsidiaries and as set forth on Schedule 6.19 hereto, the Company does not,
directly or indirectly, own or control or have any capital or other equity
interest or participation, or any interest convertible, exchangeable or
exercisable for, any capital or other equity interest or participation in, nor
is the Company, directly
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or indirectly, subject to any obligation or requirement to provide
funds to or invest in, any person. The term "Subsidiary" shall mean any person
as to which the Company directly or indirectly owns or has the power to vote,
or to exercise a controlling influence with respect to, fifty percent (50%) or
more of the securities of any class of such person, the holders of which class
are entitled to vote for the election of directors (or persons performing
similar functions) of such person.
SECTION 6.3. Authority. The Company has the full legal right and power
and all authority required to enter into, execute and deliver this Agreement
and each other agreement entered into or to be entered into in connection
herewith (the "Related Agreements") to which the Company is or is to be a party
and, subject to receipt of all Seller Approvals, to perform fully its
obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize the execution, delivery and performance of this Agreement, the
Related Agreements, the Merger and the transactions contemplated hereby and
thereby, except for the approval of the stockholders of the Company as provided
in Sections 5.2 and 8.8 hereof. This Agreement has been, and each Related
Agreement will be, duly executed and delivered by the Company and this
Agreement and the Related Agreements each constitutes or will constitute the
legal, valid and binding obligation of the Company enforceable against it in
accordance with its terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by the availability of equitable remedies (regardless of
whether a proceeding is considered at law or in equity).
SECTION 6.4. Absence of Conflicts. Neither the execution nor the
delivery of this Agreement nor any of the Related Agreements, nor the
consummation of the transactions and performance of the obligations
contemplated hereby or thereby will: (i) conflict with or result in a breach
or violation of any of the terms, conditions or provisions of the certificate
of incorporation or by-laws of the Company or any of its Subsidiaries; (ii)
except as set forth in Schedule 6.4 hereto, conflict with or result in a breach
or violation of, or default (or event which, with the giving of notice or the
passage of time or both, would constitute a breach, violation or default) or
loss of a benefit under, result in the termination or modification of or
creation of any lien, security interest, pledge, charge, option, right of first
refusal, claim, mortgage, lease, easement or any other encumbrance whatsoever
("Lien") under, or permit the acceleration or modification of any obligation
under any provision of any agreement, indenture, mortgage, lien, lease or other
instrument or restriction of any kind to which the Company or any of its
Subsidiaries is a party or by which any of their assets, properties or
securities are otherwise bound; or (iii) except as set forth on Schedule 6.4
hereto, conflict with or violate any permit, license, judgment, order, writ,
injunction, award, decree, statute, law, ordinance, code, rule or regulation
applicable to the
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Company or any of its Subsidiaries or any of their assets or
properties; except in the case of clauses (ii) and (iii) above, those which,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect.
SECTION 6.5. Consents and Approvals. The execution and delivery by the
Company of this Agreement and the Related Agreements, the performance by the
Company of its obligations hereunder and thereunder and the consummation by the
Company and its Subsidiaries of the transactions contemplated hereby and
thereby do not require the Company or any of its Subsidiaries to obtain any
permit, license, variance, waiver, exemption, franchise, order, consent,
approval, authorization or action of (including, without limitation, any
consent or approval of any insurance regulatory authority, debtholder, landlord
or mortgagee), or make any report to or filing with or give any notice to or
register with, any Governmental Entity (collectively, "Permits") or any third
party ("Third Party Consents") except (i) for the approval of the stockholders
of the Company as provided in Sections 5.2 and 8.8 hereof, (ii) filings made
with the Securities and Exchange Commission (the "SEC"), as listed in Schedule
6.5 hereto, and the receipt of clearance from the SEC with respect thereto,
(iii) the filings and termination of the applicable waiting period required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the "HSR Act"), as provided
in Section 9.1 hereof, (iv) the consents and approvals of the insurance
regulatory authorities in the State of Connecticut and other jurisdictions
where The First Reinsurance Company of Hartford ("FRH") conducts business and
as listed in Schedule 6.5 hereto ("Insurance Regulatory Approvals"), (v) the
filing of the Certificate of Merger under the DGCL, (vi) the other consents,
approvals, authorizations or notices set forth in Schedule 6.5 hereto, and
(vii) those which if not obtained, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect. The consents, approvals,
authorizations, actions, filings and notices set forth in clauses (i) through
(vi), inclusive, of this Section 6.5 or in Schedule 6.5 hereto are referred to
herein as the "Sellers Approvals".
SECTION 6.6. Directors and Officers. Schedule 6.6 includes a list of the
officers and directors of the Company and its Subsidiaries. None of such
officers and none of the other key employees of the Company or its Subsidiaries
has indicated in writing to the Company or its Subsidiaries that he or she
intends to resign or retire as a result of the transactions contemplated hereby
or otherwise.
SECTION 6.7. Charter and By-Laws. Copies of the charter and by-laws of
the Company and its Subsidiaries have heretofore been delivered to Buyer or
Buyer's counsel and are true, accurate and complete and reflect all amendments
or changes in effect. Copies of the stock books and minute books of
the Company and its Subsidiaries have heretofore been delivered to Buyer or
Buyer's counsel and are true, accurate and complete, and such minute books
contain true, accurate and complete records of all meetings and consents in
lieu of meetings of their
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respective Board of Directors (and any committees thereof) and
stockholders, in the case of FRH and JBR Holdings, Inc., since August 23, 1991
and, in the case of the Company and its other Subsidiaries, since the time of
their respective organization, except for minutes of meetings of the Board of
Directors of the Company and the Special Committee thereof relating to the
proposed transaction between Buyer and the Company as contemplated hereby,
copies of which will be delivered to Buyer prior to the Closing.
SECTION 6.8. Capitalization. (a) The Company. As of the date hereof,
the authorized capital stock of the Company consists of 6,000,000 shares of
Common Stock, 3,210,591 shares of which are issued and outstanding, and 75,000
shares of preferred stock, par value $1,000 per share, of which no shares are
issued and outstanding. All of the issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable. Except for the Options and except as set forth on Schedule 6.8
hereto, there are no other shares of capital stock of the Company authorized or
outstanding and no outstanding options, warrants, convertible or exchangeable
securities, subscriptions, rights (including any preemptive rights), stock
appreciation rights, calls or commitments of any character whatsoever
("Rights") requiring the issuance or sale by the Company of shares of any
capital stock of the Company, and there are no contracts or other agreements to
issue additional shares of capital stock of the Company or any Rights relating
to such shares. Except as set forth on Schedule 6.8 hereto, no shares of
capital stock of the Company are held in treasury.
(b) The Subsidiaries. Schedule 6.8 hereto sets forth a list of the
authorized and outstanding shares of capital stock of each Subsidiary of the
Company, together with the number of shares of each class of capital stock
owned by the Company or by its Subsidiaries. All of the issued and outstanding
shares of capital stock of the Company's Subsidiaries are duly authorized,
validly issued, fully paid and nonassessable; are owned, directly or indirectly
through another Subsidiary of the Company or by the Company, of record and
beneficially; and are free and clear of all Liens. There are no other shares
of capital stock of any of such Subsidiaries authorized or outstanding and no
outstanding Rights requiring the issuance or sale of shares by such Subsidiary
of any capital stock of any such Subsidiary, and there are no contracts or
other agreements to issue additional shares of capital stock of any such
Subsidiary or any Rights relating to such shares. No shares of capital stock
of any of the Company's Subsidiaries are held in treasury.
(c) Other Agreements. Except as set forth in the Schedule 6.8 hereto,
neither the Company nor any of its Subsidiaries is a party to any agreement or
understanding, including, without limitation, any stockholder or
shareholders, registration rights, voting trust, proxy or other agreement, with
respect to the capital stock or other securities of the Company or its
Subsidiaries, nor is there any proposed amendment to the charters of the
Company or its Subsidiaries for increasing the amount of authorized capital
stock of such corporation. To the best knowledge of the Company, except for
the Voting Agreement and as set forth on Schedule
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6.8 hereto, there are no shareholder or stockholder agreements, voting trusts
or voting agreements, proxies or other similar agreements or understandings
between or among stockholders of the Company or its Subsidiaries.
(d) Options. Schedule 3.7 hereto sets forth the number of outstanding
Options as of the date hereof, the name of the holder of each Option and the
exercise price for each Option. All such Options are currently exercisable by
the holder thereof or by the terms thereof will be exercisable by the holder
thereof on the Effective Date as a result of the Merger.
SECTION 6.9. Compliance; Insurance Regulatory Licenses. (a) No
Violations. Except as set forth on Schedule 6.9 hereto, the Company and its
Subsidiaries are in compliance in all material respects with all foreign,
federal, state, county and local laws, statutes, rules, regulations, ordinances
and governmental and administrative requirements applicable to the operation of
its business, including all Applicable Insurance Laws (other than Environmental
Laws and laws with respect to ERISA which are covered by Sections 6.27 and 6.18
hereto). Other than as included in any final examination report listed on
Schedule 6.9 hereto, there is no judgment, ruling, order, writ, injunction,
award or decree of any Governmental Entity applicable to the Company or any of
its Subsidiaries or to their respective assets, properties, businesses or
operations. Except as set forth in Schedule 6.9 hereto, no investigation or
review by any Governmental Entity with respect to the Company or its
Subsidiaries is pending, or, to the best knowledge of the Company, threatened
nor has any Governmental Entity indicated an intention to conduct the same.
The term "Governmental Entity" shall mean any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administration functions of or pertaining
to government, including the SEC or any other government authority, agency,
department, board, commission or instrumentality of the United States, any
foreign government, any State of the United States or any political subdivision
thereof, and any court, tribunal or arbitrator(s) of competent jurisdiction,
and any governmental or non-governmental self-regulatory organization, agency
or authority.
(b) Permits. The Company and each of its Subsidiaries have obtained all
Permits required in connection with the conduct of the businesses of the
Company and its Subsidiaries as presently conducted, except as set forth on
Schedule 6.9 hereto. Such Permits are listed on Schedule 6.9 hereto. Schedule
6.9 hereto includes a true and complete list of the jurisdictions in which FRH
is licensed and authorized to engage in insurance and reinsurance
business either as a licensed, admitted carrier or as an approved unlicensed
reinsurer and the lines of insurance or types of business which it is licensed
to write or engage in each such jurisdiction and a true and complete list of
the jurisdictions in which credit is allowed for reinsurance without posting
security for such reinsurance. Neither the Company nor any of its Subsidiaries
other than FRH engages in any activity that requires it to be licensed as an
insurer or reinsurer. The Company has heretofore made available to Buyer true
and complete copies of all such Permits as
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are currently in effect or evidence that the Company otherwise has such
Permits. Neither the Company nor any of its Subsidiaries has received written
notice pursuant to which any other jurisdiction has claimed that the Company or
any of its Subsidiaries is required to qualify or otherwise be licensed to
transact any insurance or reinsurance business therein. All Permits are valid
and in full force and effect and neither the Company nor any of its
Subsidiaries are in violation of any Permit, except where such violation,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect and except as set forth on Schedule 6.9 hereto. No such Permit
is the subject of a proceeding for suspension or revocation or similar
proceedings. No violations are or have been recorded in respect of any Permit
and no proceeding is pending, or to the knowledge of the Company threatened, to
revoke or limit any Permit. Except as set forth on Schedule 6.9 hereto, none
of the Permits contain any terms, limitations or conditions which would,
following the consummation of the transactions contemplated hereby, prevent the
Company and its Subsidiaries from conducting their respective businesses as
currently conducted. No jurisdiction has demanded or requested that the
Company or any of its Subsidiaries qualify or become licensed as a foreign
corporation, except with respect to FRH's insurance or reinsurance business.
(c) Examination Report. Schedule 6.9 hereto includes a true and complete
list of all draft and final examination reports received by the Company and its
Subsidiaries since August 23, 1991. The Company has delivered true and
complete copies of each such report to Buyer. Except for generally applicable
legal requirements, there are no agreements or understandings between the
Company or its Subsidiaries, and any regulatory authority with respect to the
payment of dividends or the maintenance of any reserves.
(d) Dividends. FRH has not during the twelve months preceding the date
hereof declared or paid an "extraordinary dividend" within the meaning of
Connecticut General Statute Section 38a - 136(f) and all dividends paid by FRH
within the past twelve months did not contravene, or constitute a default under
any provision of applicable law or regulation, including without limitation,
Connecticut General Statute Section 38a - 136(f) and (h), or the certificate
of incorporation or by-laws of the Company or any of its Subsidiaries, or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Company or any of its Subsidiaries or result in the creation or
imposition of any Lien on any asset of the Company or any of its Subsidiaries.
SECTION 6.10. SEC Reports. The Company has heretofore furnished the
Buyer with true and complete copies of (i) the Company's Annual Reports on Form
10-K for the years ended December 31, 1991 through December 31, 1995, as filed
with the SEC, (ii) the Company's Quarterly Reports on Form 10-Q for each
quarterly period from December 31, 1991 through the nine months ended September
30, 1995, and (iii) all other reports, including Current Reports on Form 8-K,
filed with, and other filings made with, the SEC since December 31, 1991 by any
of
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the Company or the Subsidiaries pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which are all the documents (other than
preliminary material) that the Company was required to file with the SEC since
such date. As of their respective dates, all such reports, statements and
filings (the "SEC Documents") complied in all material respects with the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 6.11. Financial Statements.
(a) GAAP Financial Statements. The audited consolidated balance sheets of
the Company and its Subsidiaries as of December 31, 1991, 1992, 1993, 1994 and
1995 and the related audited consolidated statements of income, stockholders'
equity and cash flows, together with all related notes and schedules thereto,
for the years then ended included in the SEC Documents (such 1995 financial
statements are hereinafter referred to as the "Annual Financial Statements"),
copies of all of which have been heretofore delivered to Buyer or Buyer's
counsel, comply as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto and present
fairly the consolidated financial position and results of the operations of the
Company and its Subsidiaries as of the dates and for the periods indicated
therein in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated, except as may otherwise be
specifically indicated in such financial statements. All material agreements,
contracts and other documents required to be filed as exhibits to any of the
SEC Documents have been so filed.
(b) Statutory Financial Statements. All annual convention statements
("Annual Convention Statements") required to be filed since January 1, 1992 and
the quarterly convention statements ("Quarterly Convention Statements")
required to be filed since January 1, 1992 with any insurance regulatory
agencies by FRH have been duly filed and, except where the failure to file in a
timely fashion, individually or in the aggregate, is not reasonably likely to
have a Material Adverse Effect, all such filings have been timely. Such Annual
Convention Statements for the fiscal years ended December 31, 1992,
1993, 1994 and 1995 (including the financial statements on a statutory basis
and the accompanying exhibits and schedules), copies of all of which have
heretofore been delivered to Buyer or Buyer's counsel, were prepared in
accordance with statutory accounting practices prescribed or permitted for
insurance companies by the Connecticut Insurance Department, applied on a
consistent basis throughout such periods except as otherwise stated therein or
required by the rules and regulations of the Connecticut Insurance Department,
and in accordance with the books and records of FRH, and present fairly, in
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accordance with such practices, the statutory financial position as at
the date of, and the statutory results of its operations for the periods
covered by, such Annual Convention Statements.
(c) Loss Reserves; Statutory Capital. The reserves of FRH including, but
not limited to, the reserves for incurred losses, incurred loss adjustment
expenses, incurred but not reported losses and loss adjustment expenses for
incurred but not reported losses (the "Loss Reserves") as set forth in each of
the Company's audited consolidated financial statements, the Company's
unaudited interim financial statements, and the Annual Convention Statements
and the Quarterly Convention Statements (i) are computed and are fairly stated
in accordance with generally accepted loss reserving standards and principles,
(ii) are based upon actuarial assumptions which are relevant to policy
provisions, (iii) are established using reserving techniques applied on a
consistent basis throughout the periods covered by such statements except as
otherwise stated therein or as required by the rules and regulations of the
Connecticut Insurance Department, (iv) are in compliance with the requirements
of the insurance laws, rules and regulations of the State of Connecticut
(collectively "Applicable Insurance Law") and (v) as of the date of such
statements made a reasonable provision for all unpaid loss and loss adjustment
expense obligations, including incurred but not reported losses and loss
adjustment expenses for incurred but not reported losses, under the terms of
the policies and agreements which FRH has incurred or to which it is subject.
Since December 31, 1995, there has been no material adverse change in the Loss
Reserves.
(d) Risk Based Capital. For the year ended December 31, 1995, FRH had a
ratio of total adjusted capital to authorized control level of 2.0 or more
pursuant to the risk based capital system of the National Association of
Insurance Commissioners ("NAIC").
(e) NAIC IRIS Ratios. Except as set forth on Schedule 6.11(e) hereto, for
the year ended December 31, 1995, all of the relevant financial relationships
specified under the Insurance Regulatory Information System ("IRIS") of the
NAIC of FRH were all within the "usual ranges" specified in the NAIC guidelines
for using IRIS.
(f) Liabilities. Except as set forth on Schedule 6.11 hereto (i) as at
December 31, 1995, the Company and its Subsidiaries did not have any
liabilities or obligations (whether or not of a kind required by generally
accepted accounting principles to be set forth on a financial statement) that
were not fully and adequately reflected or reserved against on the Annual
Financial Statements and (ii) the Company and its Subsidiaries do not have any
liabilities or obligations other than those reflected on the Annual Financial
Statements (less liabilities or obligations that have been discharged in the
ordinary course of business since December 31, 1995) and those incurred since
December 31, 1995 in the ordinary course of business. The Company has no
knowledge of any circumstances, conditions, events or arrangements which may
hereafter give rise to any material liabilities, except in the ordinary course
of business.
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SECTION 6.12. Reinsurance. Schedule 6.12 sets forth a true and complete
list of all reinsurance treaties and contracts currently in effect under which
FRH cedes or retrocedes any business (individually a "Reinsurance Agreement"
and collectively the "Reinsurance Agreements"). None of the Reinsurance
Agreements will terminate because of a change in control of the Company or its
Subsidiaries. No other party to any Reinsurance Agreement has given written
notice that it intends to terminate or cancel any such Reinsurance Agreement as
a result of the Merger or the contemplated operations of the Company and its
Subsidiaries after the Merger is consummated.
SECTION 6.13. Written Insurance Policies; Regulatory Filings. (a) Except
as set forth on Schedule 6.9 hereto, all of FRH's policies and contracts of
insurance and reinsurance now in force are in compliance in all material
respects, and at their respective dates of issuance were in compliance in all
material respects, with all applicable laws and, to the extent required under
applicable law, are on forms approved by the appropriate Governmental Entities
in the jurisdictions where issued or have been filed with and not objected to
by such Governmental Entities within the period provided for objection. Any
premium rates with respect to FRH's insurance or reinsurance policies or
contracts now in force which are required to be filed with or approved by any
Governmental Entity have been so filed or approved in accordance with
applicable law, and such premiums charged thereon conform thereto.
(b) Schedule 6.13 hereto sets forth a true and complete list of all
underwriting management agreements to which the Company or its Subsidiaries are
a party.
(c) Each Reinsurance Agreement to which the Company or its Subsidiaries
are party is valid, binding and in full force and effect in accordance with its
terms. FRH is not in default in any respect with respect to any such
Reinsurance Agreement (other than defaults which, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect or
result in termination of such Reinsurance Agreement) and no such Reinsurance
Agreement contains any provision providing that the other party thereto may
terminate the same by reason of the transactions contemplated by this Agreement
or any other provision which would be altered or otherwise become applicable by
reason of such transactions.
SECTION 6.14. Producers; Fronting. (a) Schedule 6.14 hereto sets forth a
true and complete list of all persons through whom FRH placed or sold insurance
under policies currently in force (each, a "Producer"). To the knowledge of
the Company, each Producer is duly licensed (to the extent that such licenses
are required) in the jurisdictions where the Producer places or sells such
insurance. Each Producer is duly authorized and appointed by FRH pursuant to
applicable insurance statutes if any and all contracts or agreements between
any Producer, on the one hand, and FRH, on the other hand, are in compliance
with such statutes, except where the
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failure to be so authorized and appointed or for such noncompliance which,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect. To the knowledge of the Company, no Producer is the subject of,
or party to, any disciplinary action or proceeding under applicable insurance
statutes.
(b) Except as set forth in the Schedule 6.14 hereto, no Producer
represented more than 5% of the gross premiums written by FRH, taken as a whole
during the year ended December 31, 1995.
(c) No Producers have advised the Company in writing that they intend to
terminate or materially change their relationships with the Company or any of
its Subsidiaries as a result of the Merger or the contemplated operations of
the Company and its Subsidiaries after the Merger is consummated.
(d) Except as set forth in the Schedule 6.14 hereto, FRH is not (i) a
party to any reinsurance agreement under which it assumes business written by a
licensed insurer in jurisdictions where FRH is not licensed, or (ii) acting as
a broker or reinsurance intermediary.
SECTION 6.15. Premium Balances Receivable. (a) The premium balances
receivable, as reflected in the Annual Financial Statements for the fiscal year
ended December 31, 1995, to the extent uncollected on the date hereof, and the
premium balances receivable reflected on the Company's and its Subsidiaries'
books as of the date hereof, are valid and existing and represent monies due,
and (x) as of the date of the Annual Financial Statements such Annual Financial
Statements made reasonable provision, (y) as of the date hereof the Company and
its Subsidiaries made reasonable provision on their books and (z) as of the
Closing Date the Company and its Subsidiaries will have made reasonable
provision on their books, for receivables not collectible in the ordinary course
of business and (subject to reserves for uncollectible receivables) the premium
balances receivable are (i) not disputed by the account debtor, (ii) not subject
to any prior sale, pledge or assignment and are free and clear of any Liens, and
(iii) are not subject to any adjustments, offset, counterclaim, defense or
credit in favor of the account debtor, except to the extent that any items set
forth in clauses (i), (ii) or (iii) above, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect.
(b) FRH owns assets that qualify as admitted assets under Applicable
Insurance Law in an amount at least equal to the sum of its Loss Reserves,
other liabilities and its statutory capital and surplus as set forth on FRH's
Annual Convention Statement for the fiscal year ended December 31, 1995.
SECTION 6.16. Certain Business Practices. (a) Schedule 6.16 hereto
lists (i) all pending claims arising from insurance or reinsurance policies
issued by FRH for which amounts
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reserved exceed $25,000, and (ii) all pending litigation by or against FRH's
policyholder involving FRH in which damages are sought by or from FRH in excess
of $25,000.
(b) All insurance or reinsurance claims that have become payable by FRH,
and are not currently in the course of being settled in good faith by the
relevant party, have been paid, or provided for, in accordance with the terms
of the insurance or reinsurance policy or contract under which they arose.
SECTION 6.17. Tax Matters. Except as set forth in the Schedule 6.17
hereto:
(a) The Company, each of its Subsidiaries and each consolidated,
affiliated, combined or unitary group of which the Company or any of its
Subsidiaries is or has been a member (each such group, an "Affiliated Group")
have timely filed or caused to be filed all federal, state, local and foreign
Tax returns required to be filed prior to the date hereof and have paid or
caused to be paid, or have made adequate provision or set up an adequate
reserve on the books of the Company or applicable Subsidiary of the Company for
the payment of, all Taxes required to be paid in respect of the periods covered
by said returns, and has established an adequate reserve on the books of the
applicable Company or Subsidiary of the Company for the payment of all Taxes
payable by the Company, any such Subsidiary or any Affiliated Group in respect
of any period, including portions thereof, subsequent to the last of such
periods and will establish such reserves up to and including the close of the
Closing Date. For these purposes, the Tax attributable to the period up to and
including the close of the Closing Date shall be determined as if the taxable
year of the Company, its Subsidiaries and any Affiliated Group ended as of the
close of the Closing Date.
(b) No deficiency or dispute in respect of any Tax has been claimed,
proposed or assessed against the Company, any Subsidiary of the Company or any
Affiliated Group.
(c) No waiver or extension of time to assess any Taxes has been granted
by the Company, any Subsidiary of the Company or any Affiliated Group.
(d) Neither the Company, any Subsidiary of the Company nor any
Affiliated Group has made any consent under Section 341 of the Internal Revenue
Code of 1986, as amended (the "Code").
(e) The Company, each Subsidiary of the Company and each Affiliated
Group has in all material respects satisfied all Federal, state, local and
foreign withholding tax requirements including but not limited to income, social
security and employment tax withholding.
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(f) There is no contract, agreement or other understanding pursuant to
which the Company or any Subsidiary of the Company has or may at any time after
the Closing have any obligation in respect of Taxes of any person or entity
other than the Company or any Subsidiary of the Company.
(g) There have been no accounting method changes of any Company, its
Subsidiaries or any Affiliated Group that could give rise to an adjustment
under Section 481 of the Code for periods after the Closing Date.
(h) Neither the Company nor any of its of its Subsidiaries has made any
payments or is or may be obligated to make any payments that are or will be not
deductible for tax purposes as a result of the application of Section 162(m) or
280G of the Code.
(i) Neither the Company nor any of its Subsidiaries has any liability
for Taxes of any person other than the Company or any of its Subsidiaries (A)
under Section 1.1502-6 of the Treasury Regulations, (B) as transferee or
successor, or (C) otherwise.
For the purposes of this Agreement, the term "Tax" shall include all
taxes, charges, withholdings, fees, levies, penalties, additions, interest or
other assessments imposed by any federal, state, local, foreign or other taxing
authority including, but not limited to, those related to gross or net income
or receipts, sales, use, occupation, services, leasing, valuation, transfer,
license, customs duties or franchise.
SECTION 6.18. Employee Benefit Plans; Employment and Labor Agreements.
(a) (i) Schedule 6.18 hereto contains a true and complete list of all
employee benefit plans, agreements, arrangements, funds, and programs
(including, without limitation, all "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (A) which are sponsored, maintained or
contributed to by the Company, its Subsidiaries or any trade or business
under common control with the Company or its Subsidiaries within the meaning
of Section 414 of the Code (an "ERISA Affiliate") for the benefit of current
or former employees, officers or directors of any of the Company, its
Subsidiaries or any ERISA Affiliate, or (B) with respect to which the
Company, its Subsidiaries or any ERISA Affiliate has any liability, whether
direct or indirect, actual or contingent (individually, a "Benefit Plan" and
collectively, the "Benefit Plans").
(ii) With respect to each Benefit Plan, the Company has provided to
Buyer: (A) descriptions of all Benefit Plans; (B) the two most recent annual
reports (Form 5500 series, including all schedules and attachments); (C) the
three most recent annual and
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periodic accountings of plan assets, if applicable; (D) the three most recent
actuarial valuations, if applicable; and (E) the most recent determination
letter received from the Internal Revenue Service ("IRS").
(iii) Except as set forth on Schedule 6.18 hereto, with respect to
each Benefit Plan: (A) such Benefit Plan has been administered in compliance
in all material respects with its terms and all applicable laws; (B) no actions,
suits or claims are pending or threatened in respect to any Benefit Plan or any
assets thereof other than routine claims for benefits and domestic relations
orders; and (C) if such Benefit Plan is intended to qualify under Section 401(a)
of the Code such Benefit Plan (and the trust created thereunder) so qualifies
and a determination letter has been received from the IRS indicating that such
Benefit Plan is qualified under the Code.
(iv) With respect to each Benefit Plan which is an "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA): (A) the trust
relating thereto, if any, satisfies the requirements of Section 501(c)(9) of
the Code; (B) such Benefit Plan has been administered in compliance in all
material respects with all requirements imposed under Section 4980B of the Code
and Sections 601-608 of ERISA; and (C) no such Benefit Plan provides health or
death benefits to any individual beyond his retirement or other termination of
employment (other than statutorily mandated continuation coverage or conversion
rights to individual coverage).
(v) No Benefit Plan which is currently maintained or has been
maintained at any time within the six years preceding the date hereof is a
"multiemployer plan" defined in Section 3(37) or 4001 of ERISA and neither the
Company, its Subsidiaries nor any ERISA Affiliate has any liability or
obligation, whether actual or contingent, with respect to such a multiemployer
plan.
(vi) No Benefit Plan which is currently maintained or has been
maintained at any time during the six (6) years preceding the date hereof is
subject to Title IV of ERISA.
(vii) There has been no transaction involving any Benefit Plan which
is a "prohibited transaction" under ERISA or the Code in connection with which
the Company, its Subsidiaries or any ERISA Affiliate would be subject to
liability under ERISA or the Code, or which would subject such Benefit Plan, the
Company, its Subsidiaries or any ERISA Affiliates to a penalty under ERISA or
the Code.
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(viii) None of the Benefit Plans listed in Schedule 6.18 hereto
provides for additional or accelerated payments or other consideration to be
made on account of the transactions contemplated hereby.
(ix) All contributions or payments required to be made to such
Benefit Plans by their terms or by law, before or after the Closing Date, with
respect to all periods or events occurring prior to the Closing Date (including
all insurance premiums) will be properly paid or accrued on the books of account
of the Company, its Subsidiaries and the ERISA Affiliates prior to the Closing
Date (including, without limitation, a pro rata share with respect to any period
including the Closing Date based on the ratio of the number of days in such
period to the total number of days in the plan year).
(x) There were no Benefit Plans in effect at any time during the
three years preceding the Closing Date with respect to which the Company, its
Subsidiaries or any ERISA Affiliate has taken action during such period which
has or will result in termination of such Benefit Plans.
(b) To the best knowledge of the Company, no union has attempted to
organize or represent the labor force of the Company or any of its Subsidiaries
in the 24 months immediately prior to the date hereof. Neither the Company nor
any of its Subsidiaries has any knowledge of any present or threatened walkout,
strike or any other similar occurrence. The Company has provided Buyer with a
list of all of the unions that have entered into collective bargaining
agreements with respect to employees of the Company or its Subsidiaries that are
now certified or claiming to be certified as collective bargaining agents to
represent any such employees. Neither the Company nor any of its Subsidiaries
has (i) taken any action that would constitute a plant closing or mass layoff
(within the meaning of the Workers Adjustment and Retraining Notification Act)
or (ii) incurred any material liability or obligation under the Workers
Adjustment and Retraining Notification Act or similar state laws which remains
unpaid or unsatisfied.
(c) To the knowledge of the Company, the employer-employee relations of
the Company and its Subsidiaries are generally satisfactory. The employment
practices of the Company and each of its Subsidiaries comply with all applicable
anti-discrimination laws, including, without limitation, the Age Discrimination
in Employment Act and the Americans with Disabilities Act, except where the
failure to so comply, individually or in the aggregate, is not reasonably likely
to have a Material Adverse Effect.
(d) No person (including, but not limited to, any Governmental Entity) has
any claim or basis for any suit, action, claim, proceeding or investigation
against the Company or any of its Subsidiaries arising out of any statute, law,
ordinance, code, rule or regulation relating to
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discrimination in employment or employment practices or occupational safety
and health standards (including, without limitation, The Fair Labor
Standards Act, as amended, Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. Section 1981, the Rehabilitation Act of 1973, as amended,
the Age Discrimination in Employment Act of 1967, as amended, the Family and
Medical Leave Act of 1993 or the Americans with Disabilities Act) which, if
upheld, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect.
SECTION 6.19. Investments. Schedule 6.19 hereto contains a list of all
bonds, stocks, other securities and other investments (including, without
limitation, real estate and other partnership interests) of any type owned by
the Company or any of its Subsidiaries, including a list of investments held on
deposit pursuant to applicable law or subject to trust arrangements
("Investments"), other than shares of capital stock of the Company or any of
its Subsidiaries held by the Company or any of its Subsidiaries, as of the date
hereof, all of which Investments, comply with Applicable Insurance Law, except
to the extent that noncompliance, individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect. Schedule 6.19 hereto sets
forth for each such Investment the category to which it has been assigned by
the Company pursuant to Statement of Financial Accounting Standard No. 115.
Except to the extent that, taken in the aggregate, the failure of the
Investments of FRH to be admitted to the full extent of their carrying value is
not reasonably likely to have a Material Adverse Effect, all Investments of FRH
are admitted assets to the full extent of their carrying value under Applicable
Insurance Law and statutory accounting practices. Except as disclosed on
Schedule 6.19 hereto, the Company and its Subsidiaries have good and marketable
title to all of the Investments listed on Schedule 6.19 or acquired in the
ordinary course of business since the date hereof other than with respect to
those Investments which have been disposed of in the ordinary course of
business since such date, free and clear of all Liens except for Liens for
taxes not yet due and payable. Neither the Company nor any of its Subsidiaries
has received notice that any of the Investments listed on Schedule 6.19 hereto
or acquired in the ordinary course of business since the date hereof is
currently in default in the payment of principal or interest.
SECTION 6.20. Intangible Property. The Company and its Subsidiaries own,
have registered or have valid rights to use the patents, trademarks, service
marks, trade names, copyrights and other intellectual property listed on
Schedule 6.20 hereto, which are the only such rights, patents, trademarks,
service marks, copyrights or other intellectual property that are material to
the business of the Company or any of its Subsidiaries. Neither the Company
nor any of its Subsidiaries has received written notice that any of them is
infringing any patents, trademarks, service marks, trade names, copyrights or
any application pending therefor. Neither the Company nor any of its
Subsidiaries is a party to a proceeding asserting, and none is aware, that any
third party is infringing on its or their rights thereunder. Neither the
Company nor any of its Subsidiaries have any notice of any adversely held
patent, trademark, service mark, trade name, copyright or franchise of any
other person or notice of any claim of any other person relating to
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any of the property set forth on Schedule 6.20 hereto or any process or
confidential information of the Company or any of its Subsidiaries, and neither
the Company nor any of its Subsidiaries has any knowledge of any basis for any
such charge or claim.
SECTION 6.21. Tangible Property. Except for items with a book value of
less than $5,000, Schedule 6.21 hereto sets forth all interests owned or
claimed by the Company or any of its Subsidiaries (including, without
limitation, options) in or to the plant, machinery, equipment, furniture,
leasehold improvements, fixtures, vehicles, structures, any related capitalized
items and other tangible property and which is treated by the Company or any of
its Subsidiaries as depreciable or amortizable property (collectively, the
"Tangible Property"). The Tangible Property of the Company and its
Subsidiaries is in good operating condition and repair, ordinary wear and tear
excepted, and the Company has not received any written notice that any of the
Tangible Property is in violation of any existing statute, law, or any health,
safety or other ordinance, code, rule or regulation. The Tangible Property is
owned by the Company and its Subsidiaries free and clear of all Liens except
those that, individually or in the aggregate, are not reasonably likely to have
a Material Adverse Effect.
SECTION 6.22. Real Property; Leases. Neither the Company nor any of its
Subsidiaries owns any land, buildings or other interests of any kind in any
real property (regardless of where located). Schedule 6.22 hereto includes a
list of all leases and subleases of real property to which either the Company
or any of its Subsidiaries is a party and all leases of equipment to which
either any of the Company or any of its Subsidiaries is a party that obligate
the Company or any such Subsidiary to expend more than $25,000 during any
fiscal year. To the best knowledge of the Company, all of such leases to which
either the Company or any of its Subsidiaries is a party are legal, valid and
binding; and neither the Company nor any of its Subsidiaries nor, to the best
knowledge of the Company, any other party is in default thereunder, nor has the
Company or any of its Subsidiaries received any written notice of default or
written notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any of its Subsidiaries under
any such lease or sublease, or affecting or questioning the rights of such
corporation to the continued possession of such leased or subleased premises
under any such lease or sublease, except for claims that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 6.23. Assets. Each of the Company and its Subsidiaries has good
and marketable title to all of its assets reflected in the Annual Financial
Statements or described in Sections 6.15, 6.19, 6.20, 6.21 and 6.22 hereof, in
each case, free and clear of any Liens, except for: (i) Liens specifically
described in the notes to the Annual Financial Statements; (ii) assets disposed
of in the ordinary course of business since the date of the Annual Financial
Statements; (iii) Liens securing taxes, assessments, governmental charges or
levies, or the claims of materialmen, carriers, landlords and like persons, all
of which are not yet due and payable or are
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being contested in good faith, so long as such contest does not materially
detract from the value of, or prohibit the use of, such assets as currently
used; (iv) minor imperfections of title and encumbrances, if any, which (a) do
not materially detract from the value of the properties subject thereto, (b) do
not interfere with either the present and continued use of such property or
the conduct of normal operations or (c) have arisen only in the ordinary course
of business; or (v) assets held or used pursuant to any lease listed on
Schedule 6.22 hereto. Each of the Company and its Subsidiaries own (or lease,
in the case of leased assets) all of the assets necessary for the operation of
its business as now operated.
SECTION 6.24. Agreements for Borrowed Money, Etc. Neither the Company
nor any of its Subsidiaries is a party to or bound by any agreement, instrument
or indenture with respect to indebtedness for borrowed money or obligations in
the nature of guarantees of the indebtedness of another person.
SECTION 6.25. Contracts and Commitments. There is no material contract
or document of a character required to be described in the SEC Documents or to
be filed as an exhibit to any SEC Document that is not described and filed as
required by the Securities Act or the Exchange Act. As of the Effective Date,
all contracts or documents described in or filed within an SEC Document shall
have been provided or made available to the Buyer by the Company. Other than
policies of insurance written in the ordinary course of business, Schedule
6.25 hereto sets forth a list of all agreements, contracts and instruments to
which the Company or any of the Subsidiaries is a party or by which it or its
assets or properties is bound which involve an amount in excess of $25,000 or
are otherwise material to the business of the Company or any of its
Subsidiaries. Except as set forth in Schedule 6.25 hereto, neither the Company
nor any of its Subsidiaries is a party to any written or oral:
(i) contracts or agreements containing covenants limiting the freedom
of the Company or any of its Subsidiaries in any material respect to engage
in any line of business in any geographic area or to compete with any
person;
(ii) employment agreements or contracts, including, without limitation,
contracts to employ executive officers and other contracts or arrangements
with officers or directors of the Company or any of its Subsidiaries;
(iii) management, management services, investment management or
consulting agreements (other than those which will be terminated prior to
the Closing) calling for annual payments in excess of $25,000;
(iv) contracts for the purchase or sale of personal property for a
purchase price in excess of $25,000;
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(v) leases of personal property requiring annual payments in excess of
$25,000 per year;
(vi) patent, trademark, service mark, trade name, and copyright and
franchise licenses, royalty agreements or similar contracts and other
agreements;
(vii) joint venture contracts and other agreements;
(viii) contracts and other agreements under which the Company or any of
its Subsidiaries has guaranteed the obligations of any person;
(ix) contracts and other agreements under which the Company or any of
its Subsidiaries agrees to indemnify any person or to share tax liability
with any person;
(x) representative, management, marketing, sales agency, printing or
advertising contracts material to the business;
(xi) contracts for the grant to any person of any preferential rights
to purchase any of the assets or properties material to the business;
(xii) contracts relating to the acquisition by the Company or any of
its Subsidiaries of any operating business or the capital stock of any
person;
(xiii) Benefit Plans; or
(xiv) any other contract, whether or not made in the ordinary course of
business, that is material to the business.
Neither the Company nor any of its Subsidiaries is (and to the best knowledge
of the Company, no other party is) in breach or violation of, or default under,
any of the contracts, commitments or agreements listed on Schedule 6.25 hereto,
and no event has occurred which, with the giving of notice or the passage of
time or both, would constitute a breach, violation or default by the Company or
its Subsidiaries (or, to the best knowledge of the Company, of any other party
thereto) of any of such contracts, commitments or agreements, nor has any
notice of default been received, except for such breaches, violations and
defaults which, individually or in the aggregate, are not reasonably like to
have a Material Adverse Effect. To the best knowledge of the Company, all of
the contracts, commitments or agreements listed on Schedule 6.25 hereto to
which the Company or its Subsidiaries is a party are legal, valid and binding.
There are no oral modifications to any of such contracts or other
agreements. None of the contracts or other
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agreements listed in Schedule 6.25 hereto provides for additional or
accelerated payments or other consideration to be made on account of the
transactions contemplated hereby. No Permit is needed in order that such
contracts, commitments or agreements continue in full force and effect (without
breach by the Company or any of its Subsidiaries, as the case may be, of, or
giving any contractual party a right to terminate or modify, any such contract,
commitment or agreement) following the consummation of the transactions
contemplated hereby. The Company and its Subsidiaries has paid in full or
accrued all amounts due under the contracts set forth on Schedule 6.25 hereto
and has satisfied in full or provided adequate reserves for all of their
liabilities thereunder.
SECTION 6.26. Litigation. Except as set forth on Schedule 6.26 hereto,
there are no actions, suits, proceedings, claims, investigations or
examinations (other than claims under insurance policies issued by the Company
or any of its Subsidiaries) pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries or any of their
respective businesses, properties, assets, or securities, at law or in equity,
before or by any Governmental Entity or before any private arbitration panel.
None of the actions, suits, proceedings, claims, investigations or examinations
set forth on Schedule 6.26 hereto, individually or in the aggregate,
will result in any judgment, ruling, order, writ, injunction, award or decree
of any court or any Governmental Entity or arbitral tribunal that is not
adequately reserved against in the Annual Financial Statements or covered by
insurance from unrelated third party insurers. There are no outstanding
judgments, rulings, orders, writs, injunctions, awards or decrees of any court
or Governmental Entity or arbitral tribunal against or involving the Company or
any of its Subsidiaries.
SECTION 6.27. Environmental Matters.
(a) The operations of the Company and its Subsidiaries are in compliance
with all applicable federal, state and local laws, rules, regulations and
ordinances imposing liability or establishing standards for the protection of
human health and the environment including, but not limited to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, the Resource Conservation and Recovery Act, as amended, the Clean
Air Act, as amended, the Clean Water Act, as amended, the Toxic Substances
Control Act, as amended, the Occupational Safety and Health Act, as amended and
any other federal, state, local or municipal laws, statutes, regulations, rules
or ordinances imposing liability or establishing standards of conduct for
protection of the environment (collectively, "Environmental Laws"), except
where failure to comply, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect.
(b) The Company and its Subsidiaries have all permits, authorizations, and
approvals required under any applicable Environmental Laws and are each in
compliance with
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their respective requirements, except where failure to comply,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect.
(c) There are no petroleum products, asbestos-containing materials,
polychlorinated biphenyls, or other materials that are defined as hazardous
substances, hazardous wastes, extremely hazardous, special wastes, pollutants,
toxic substances or pollutants, or contaminants under Environmental Laws
("Hazardous Substances") stored, contained or disposed on any property owned or
operated by the Company or any of its Subsidiaries except in compliance with
Environmental Laws, except where failure to comply, individually or in the
aggregate, is not reasonably likely to have a Material Adverse Effect.
(d) To the knowledge of the Company, there has not been any release or
discharge of any Hazardous Substances at any facility owned or operated by the
Company or any of its Subsidiaries or by an insured or at any facility that
received Hazardous Substances generated by the Company or any of its
Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries have received written
notice of or are a party to any proceeding, citation, summons, notice of
violation, administrative order or a notice of potential liability filed by a
Governmental Entity or third party involving the release of Hazardous
Substances or violation of Environmental Laws ("Environmental Actions").
(f) Neither the Company nor any of its Subsidiaries are subject to an
Environmental Action relating to a direct action statute authorizing recovery
against an insurance carrier for releases of Hazardous Substances by an insured
at a facility owned or operated by the insured or a facility which received
Hazardous Substances generated by the insured.
(g) The Company has received no written notice that any of the properties
owned or operated by an insured have been placed or proposed to be placed on
the National Priorities List or comparable state hazardous waste site registry.
(h) The Company has received no written notice that any insured is subject
to an Environmental Action that will likely result in a Material Adverse
Effect.
SECTION 6.28. Brokers and Finders. The Company and its Subsidiaries have
utilized the services of William Blair & Company, L.L.C. and the Company and
its Subsidiaries will be solely responsible for the expenses of such firm. No
other agent, broker, investment banker, person or firm acting on behalf of the
Company or its Subsidiaries, or under authority of any of them is or will be
entitled to any broker's, finder's or investment banker's fee or any other
commission or similar fee directly or indirectly from any of the other parties
hereto in connection with the negotiation of any of the transactions
contemplated hereby.
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SECTION 6.29. Banks. Schedule 6.29 hereto includes a true and complete
list of all banks or other financial institutions in which the Company or any
of its Subsidiaries has an account, letter of credit or a line of credit,
showing a description of each account, letter of credit or line of credit, or
in which the Company or any of its Subsidiaries has a safe deposit box or a
lock-box arrangement.
SECTION 6.30. Maintenance of Insurance. Schedule 6.30 hereto includes a
true and complete list of all policies or binders of insurance maintained by
the Company and its Subsidiaries with respect to their respective properties
and the conduct of their respective businesses, showing the insurer, the
subject matter, the policy number or covering note number with respect to
binders, the beneficiary and the amount of coverage for each policy, and
describing each pending claim thereunder of more than $5,000, and setting forth
the aggregate amounts paid out under each such policy through the date hereof
(which information may be updated as of the Closing Date provided that coverage
and premiums continue to be substantially similar to those reflected in
Schedule 6.30 hereto as of the date hereof). Such policies are valid and
binding in accordance with their terms and are in full force and effect and
insure against risks and liabilities customary for the businesses in which the
Company and its Subsidiaries are engaged. Neither the Company nor any of its
Subsidiaries have received a notice of cancellation or nonrenewal of any such
policy or binder or have any knowledge of any state of facts which might form
the basis for termination of any such insurance. Each of the Company and its
Subsidiaries has, or has made or will make provision for, insurance coverage
consistent with current practices through the Closing Date. None of the
insurance policies for the benefit of the Company and its Subsidiaries is in
default, and neither the Company nor its Subsidiaries has failed to give any
notice or present any claim thereunder in due or timely fashion or as required
by any of such insurance policies so as to jeopardize full recovery under such
policies. The Company and its Subsidiaries paid or will pay all premiums
payable for periods prior to the Closing Date with respect to such insurance
policies.
SECTION 6.31. Legislation. To the knowledge of the Company, since
December 31, 1995, there has not been any legislation, statute, law, ordinance,
code, rule or regulation, either proposed or adopted, by any foreign, federal,
state, county or local government or any other governmental, regulatory or
administrative agency or authority prohibiting or in any way limiting the
business, operations or prospects of the Company or any of its Subsidiaries
except for such prohibitions or limitations which, individually or in the
aggregate, would not have a Material Adverse Effect.
SECTION 6.32. Operations of the Company and its Subsidiaries.
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(a) Since December 31, 1995, the Company and its Subsidiaries have
conducted their respective businesses only in the ordinary course of business
in a manner consistent with past practice.
(b) Since December 31, 1995, there has not occurred any change or event
which, individually or in the aggregate, has or could reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has any knowledge of any change or event which is threatened
which, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect.
(c) Except as set forth on Schedule 6.32 hereto, since December 31, 1995
neither the Company nor any of its Subsidiaries has:
(i) declared or paid or set aside dividends or other distributions
(whether in cash, stock or property) on its capital stock or made any
direct or indirect redemption, retirement, purchase or other acquisition
of any shares of capital stock;
(ii) issued, redeemed, sold or disposed of, or created any
obligation to issue, redeem, sell or dispose of, any shares of the
capital stock of the Company or any of its Subsidiaries or any Rights
relating to capital stock (whether authorized but unissued or held in
treasury) or issued any option, warrant or other right to acquire any
shares of its capital stock;
(iii) effected any stock split, reclassification or combination;
(iv) adopted a plan of, or resolutions providing for, complete or
partial liquidation, dissolution, restructuring, recapitalization or
other reorganization;
(v) amended or modified its certificate of incorporation or by-laws
(or equivalent charter documents);
(vi) merged or consolidated with any corporation or other entity
otherwise than as contemplated by this Agreement or subdivided or in any
way reclassified any shares of its capital stock or changed or agreed to
change in any manner the rights of its outstanding capital stock or the
character of its business;
(vii) entered into, adopted, modified or amended in any material
respect any written employment, severance, consulting, "change of
control", "parachute payment", bonus, incentive compensation, deferred
compensation, profit sharing, stock option, stock purchase, employee
benefit, welfare benefit or other agreement, plan or arrangement
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providing for compensation or benefits to employees or directors or
stockholders which would have effect for any employee of the Company or
its Subsidiaries after the Closing Date;
(viii) incurred or contracted for any capital expenditures in excess
of $25,000 in the aggregate;
(ix) amended, terminated or waived any right of value material to
the business of the Company or any of its Subsidiaries;
(x) made any change in its accounting methods, principles or
practices or made any change in depreciation or amortization policies or
rates adopted by it, except insofar as may have been required by a
change in generally accepted accounting principles, or made any change in
its accounting policies with respect to Loss Reserves;
(xi) revalued any portion of its assets, properties or businesses
other than in the ordinary course of business in a manner consistent with
past practice;
(xii) materially changed any of its business policies, including,
without limitation, advertising, marketing, pricing, purchasing,
personnel, sales or budget policies;
(xiii) made any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any of its officers,
directors, employees, consultants or agents or any accrual for or
contract or other agreement to make or pay the same, other than to
persons other than its officers, directors or shareholders made in the
ordinary course of business in a manner consistent with past practice;
(xiv) made any loan or advance to any of its officers, directors,
employees, consultants, agents or other representatives (other than
travel advances made in the ordinary course of business in a manner
consistent with past practice) or made any other loan or advance;
(xv) made any payment or commitment to pay severance or termination
pay to any of its officers, directors, employees, consultants, agents or
other representatives;
(xvi) entered into any lease (as lessor or lessee); sold, abandoned
or made any other disposition of any of its Investments or other assets,
properties or businesses other than in the ordinary course of business
consistent with past practice; granted or suffered any Lien on any of its
assets, properties or businesses or on any of the
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capital stock of the Company (other than for Taxes not yet due and
payable); entered into or amended any contract or other agreement to
which it is a party or by or to which it or its assets, properties or
businesses are bound or subject, except in the ordinary course of
business in a manner consistent with past practice; or entered into or
amended any contract or other agreement pursuant to which it agrees to
indemnify any person or to refrain from competing with any person (other
than insurance policies and reinsurance treaties and contracts entered
into in the ordinary course of business);
(xvii) incurred or assumed any debt, obligation or liability, or
issued any debt securities or assumed, guaranteed, endorsed or otherwise
as an accommodation became responsible for, liabilities of any other
person or made any loans or advances, individually or in the aggregate,
material to the business of the Company and its Subsidiaries (other than
insurance policies and reinsurance treaties and contracts entered into in
the ordinary course of business);
(xviii) except for Tangible Property acquired in the ordinary course
of business in a manner consistent with past practice, made any
acquisition of all or any part of the assets, properties, capital stock
or business of any other person;
(xix) except in the ordinary course of business in a manner
consistent with past practice, amended, terminated or entered into any
contract or other agreement or amended, terminated or entered into any
other material transaction; or
(xx) agreed to do any of the foregoing.
SECTION 6.33. Potential Conflicts of Interest. Except as set forth on
the Schedule 6.33, no officer or director of the Company or any of its
Subsidiaries, or any entity controlled by an officer or director of the
Company, or any member of the immediate family of an officer or director, nor
to the best knowledge of the Company, no stockholder of the Company and no
entity controlled by a stockholder of the Company, or any immediate family
member of any stockholder of the Company:
(i) owns, directly or indirectly, any interest in (excepting not
more than five percent stock holdings held solely for investment purposes
in securities of any person which are listed on any national securities
exchange or regularly traded in the over-the-counter market) or is an
owner, sole proprietor, shareholder, partner, director, officer,
employee, consultant or Producer of any person which is a competitor,
lessor, lessee, reinsurer, customer or supplier of the Company or any of
its Subsidiaries or any person which is party to any contract set forth
in Schedule 6.25 hereto;
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(ii) owns, directly or indirectly, in whole or in part, any Tangible
Property, patent, trademark, service mark, trade name, copyright,
franchise, invention, permit, license or secret or confidential
information which the Company or any of its Subsidiaries is using or the
use of which is necessary for the business of the Company or any of its
Subsidiaries; or
(iii) has any pending cause of action or other suit, action or claim
whatsoever against, or owes any amount to, the Company or any of its
Subsidiaries, except for claims in the ordinary course of business,
such as for accrued vacation pay, accrued benefits under Benefit Plans
and similar matters.
As used in this Section 6.33, a person's immediate family shall mean such
person's spouse, parents, children, siblings, mothers- and fathers-in-law,
sons- and daughters-in-law, and brothers- and sisters-in-law.
SECTION 6.34. Guaranty Funds, Pools and Associations. Except as required
by the laws of the jurisdiction in which it transacts business, neither the
Company nor any of its Subsidiaries is a member of any guaranty fund, pool,
joint underwriting association, assigned risk plan or similar entity or subject
to any present or known future assessment by any such entities.
SECTION 6.35. Full Disclosure. All documents delivered by or on behalf
of the Company in connection with this Agreement and the transactions
contemplated hereby are true, complete, accurate and authentic. The
information furnished by or on behalf of the Company to Buyer in connection
with this Agreement and the transactions contemplated hereby does not contain
any untrue statement of a material fact and does not omit to state a material
fact required to be stated therein or necessary to make the statements made, in
the context in which made, not false or misleading. There is no fact relating
to the operations of the Company and its Subsidiaries which the Company has not
disclosed to Buyer in writing which, individually or in the aggregate, has a
Material Adverse Effect, or so far as the Company can now foresee, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER SUB
The Buyer and Buyer Sub represent and warrant to the Company as follows:
SECTION 7.1. Organization and Standing. Each of Buyer and Buyer Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its
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incorporation and has all requisite corporate power and authority to
enter into this Agreement and the other agreements provided for herein to which
it is a party and to perform its obligations hereunder and thereunder.
SECTION 7.2. Certificate of Incorporation and By-Laws. The copies of the
Certificate of Incorporation and by-laws of Buyer and Buyer Sub which have
heretofore been delivered to the Company are true, accurate and
complete and reflect all amendments or changes in effect.
SECTION 7.3. Authority. Buyer and Buyer Sub have the full legal right
and power and all authority required to enter into, execute and deliver this
Agreement and each other agreement entered into or to be entered into in
connection herewith to which Buyer or Buyer Sub is or is to be a party (the
"Buyer Related Agreements"), and subject to receipt of all Acquiror Approvals,
to perform fully their respective obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and the Buyer Related
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of Buyer and Buyer Sub and no other corporate proceedings on the
part of Buyer or Buyer Sub are necessary to authorize the execution, delivery
and performance of this Agreement, the Buyer Related Agreements, the Merger and
the transactions contemplated hereby and thereby. This Agreement has been, and
each Buyer Related Agreement will be, duly executed and delivered by Buyer and
Buyer Sub and this Agreement and the Buyer Related Agreements each constitutes
or will constitute the legal, valid and binding obligation of Buyer and Buyer
Sub enforceable against each of Buyer and Buyer Sub in accordance with its
terms except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally and by the availability of equitable remedies (regardless of whether
a proceeding is considered at law or in equity).
SECTION 7.4. Absence of Conflicts. Neither the execution nor the
delivery of this Agreement nor any of the Buyer Related Agreements, nor the
consummation of the transactions and performance of the obligations
contemplated hereby or thereby will: (i) conflict with or result in a breach
or violation of any of the terms, conditions or provisions of the certificate
of incorporation or by-laws of Buyer or Buyer Sub; (ii) except as set forth in
Schedule 7.4 hereto, conflict with or result in a breach or violation of, or
default (or event which, with the giving of notice or the passage of time or
both, would constitute a breach, violation or default) or loss of a benefit
under, result in the termination or modification of or creation of any Lien
under, or permit the acceleration or modification of any obligation under any
provision of any agreement, indenture, mortgage, lien, lease or other
instrument or restriction of any kind to which Buyer or Buyer Sub is a party or
by which any of their assets, properties or securities are otherwise bound; or
(iii) except as set forth on Schedule 7.4 hereto, conflict with or violate any
permit, license,
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judgment, order, writ, injunction, award, decree, statute, law, ordinance,
code, rule or regulation applicable to Buyer or Buyer Sub or any of their
assets or properties; except in the case of clauses (ii) and (iii) above,
those which, individually or in the aggregate, are not reasonably likely to
have a material adverse effect on the ability of Buyer and Buyer Sub to
consummate the transactions contemplated by this Agreement.
SECTION 7.5. Consents and Approvals. The execution and delivery by Buyer
and Buyer Sub of this Agreement and the Buyer Related Agreements, the
performance by Buyer and Buyer Sub of their obligations hereunder and
thereunder and the consummation by Buyer and Buyer Sub of the transactions
contemplated hereby and thereby do not require Buyer or Buyer Sub to obtain any
Permit or Third Party Consent, except for (i) the approval of the stockholders
of the Company as provided in Sections 5.2 and 8.8 hereof, (ii) the filings and
termination of the applicable waiting period required under the HSR Act, as
provided in Section 9.1 hereof, (iii) the Insurance Regulatory Approvals, (iv)
the filing of the Certificate of Merger under the DGCL, (v) the other consents,
approvals, authorizations or notices set forth in Schedule 7.5 hereto, and (vi)
those which if not obtained, individually or in the aggregate, are not
reasonably likely to have a material adverse effect on the ability of Buyer and
Buyer Sub to consummate the transactions contemplated by this Agreement. The
consents, approvals, authorizations, actions, filings and notices set forth in
clauses (i) through (v), inclusive, of this Section 7.5 or in Schedule 7.5
hereto are referred to herein as the "Acquiror Approvals".
SECTION 7.6. Brokers and Finders. CHPII has utilized the services of
Gill and Roeser, Inc. and CHPII will be solely responsible for the expenses of
such firm. No other agent, broker, investment banker, person or firm acting on
behalf of Buyer or Buyer Sub or under authority of Buyer or Buyer Sub is or
will be entitled to any broker's, finder's or investment banker's fee or any
other commission or similar fee directly or indirectly from the Company in
connection with the negotiation of any of the transactions contemplated hereby.
SECTION 7.7 SEC Filings. None of the written information supplied or to
be supplied by Buyer or Buyer Sub expressly provided by it for inclusion in the
Proxy Statement will, at the time of the first mailing thereof to the Company's
stockholders and on the date of the meeting of FIIG's stockholders referred to
in Section 8.8 hereof, 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.
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ARTICLE VIII
COVENANTS AND AGREEMENTS OF THE COMPANY
SECTION 8.1. Conduct of Business. From the date of this Agreement until
the earlier of the Effective Time of the Merger or the termination of this
Agreement in accordance with Article XII hereof (except with the prior written
consent of Buyer or except as expressly provided in other sections of this
Agreement or the Schedules hereto), the Company agrees that:
(i) the Company and each of its Subsidiaries will conduct their
respective business in the ordinary course and consistent with past practice
and will use their reasonable best efforts to preserve intact their business
organization and goodwill, preserve the goodwill and business relationships
with suppliers, customers, licensees, licensors, agents, reinsurers and all
others having business relationships with each of them, keep available the
services of their respective present officers, employees, consultants and
agents, defend and protect their respective assets from infringement or
usurpation, perform all of their obligations under all contracts, leases and
any and all other agreements relating to or affecting its assets or its
business, conduct their respective businesses in such a manner so that the
representations and warranties contained in Article VI hereof shall continue
to be true, complete and accurate on and as of the Closing Date with the
same force and effect as if made on and as of the Closing Date in a manner
so as to satisfy the condition set forth in Section 10.2 hereof and shall
maintain their books, accounts and records in the usual manner consistent
with past practice and comply in all material respects with all laws,
ordinances and regulations of Governmental Entities applicable to the
Company and any of its Subsidiaries, including, without limitation, all
Applicable Insurance Law;
(ii) each of the Company and its Subsidiaries will use accounting
policies in keeping its books and records and preparing its financial
statements in accordance with U.S. generally accepted accounting principles,
applied consistently with the application of such principles in preparing
the Annual Financial Statements and in accordance with statutory accounting
principles, applied consistently with the application of such principles in
preparing the Annual Convention Statements;
(iii) the Company will not, and will not permit any of its Subsidiaries
to, pay any bonus to any employees of the Company or any of its Subsidiaries
without the prior written consent of Buyer (which consent shall not be
unreasonably withheld or delayed); and
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(iv) except as set forth in Schedule 8.1 hereto, the Company will not,
and will not permit any of its Subsidiaries to, undertake any of the actions
specified in Section 6.32 hereof.
SECTION 8.2. Access to Properties, Books and Records; Confidentiality.
From the date hereof through the Closing Date, the Company shall, and shall
cause each of its Subsidiaries to, use all reasonable efforts to cause to be
afforded upon reasonable notice to the officers, directors, employees,
attorneys, accountants, consultants and other authorized representatives of
Buyer including, without limitation, any banks, other financial institutions
and investment bankers arranging or providing for, or advising with respect to,
any financing, free and full access during normal business hours to the Company
and its Subsidiaries and to the employees, properties, books and records, and
contracts and other agreements, documents and other papers, and copies,
extracts and summaries thereof (certified, if requested) of each of the
foregoing in order to afford Buyer the opportunity to make such investigations
of the affairs of the Company and its Subsidiaries as it deems desirable. The
Company and each of its Subsidiaries shall furnish to Buyer such information
relating to their respective businesses and affairs (and which is reasonably
available to the Company and its Subsidiaries) as Buyer shall from time to time
reasonably request and will cause their officers, employees, agents and
consultants to keep the officers of the Buyer informed as to the affairs of the
Company and its Subsidiaries. The Company and its Subsidiaries shall cause
their officers, employees, agents and consultants to meet with officers,
employees, agents and consultants and other authorized representatives of
Buyer, including, without limitation, any banks, other financial institutions
and investment bankers arranging or providing for, or advising with respect to,
any financing, from time to time upon Buyer's reasonable request. No
investigation pursuant to this Section 8.2 shall affect any representations or
warranties of the Company or the conditions to the obligations of the Company
hereunder. Notwithstanding any right of Buyer to fully investigate the affairs
of the Company and its Subsidiaries and notwithstanding any knowledge of facts
determined or determinable by Buyer pursuant to such investigation or right of
investigation, Buyer has the right to rely fully upon the representations,
warranties, covenants and agreements of the Company contained in this
Agreement. Buyer and Buyer Sub agree to be bound by and comply with the
provisions set forth in the Confidentiality Agreement, dated February 22, 1996
(the "Confidentiality Agreement"), between William Blair & Company, L.L.C. as
agent for the Company and Castle Harlan Partners II, L.P., a Delaware limited
partnership ("CHPII"), as if such provisions were set forth herein, and such
provisions are hereby incorporated herein by reference.
SECTION 8.3. Insurance. From the date hereof through the Closing Date,
the Company and its Subsidiaries shall maintain in force (including necessary
renewals thereof) the insurance policies listed in Schedule 6.30 hereto, except
to the extent that they may be replaced with equivalent policies
appropriate to insure the assets, properties and businesses of the
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Company and its Subsidiaries to the same extent as currently
insured at the same or lower rates or at rates approved by Buyer.
SECTION 8.4. Litigation. The Company shall promptly notify Buyer of any
suits, actions, claims, proceedings or investigations which after the date of
this Agreement are commenced or, to the Company's knowledge, threatened,
against the Company or any of its Subsidiaries or against any officer,
director, employee, consultant, agent or shareholder with respect to the
affairs of the Company or any of its Subsidiaries.
SECTION 8.5. Advice of Changes. The Company shall give prompt written
notice to Buyer of: (i) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty of the Company contained in this Agreement, if made on or as of the
date of such event or as of the Closing Date, to be untrue or inaccurate; (ii)
any failure of the Company or any of its Subsidiaries or of any officer,
director, employee, consultant or agent of the Company or any of its
Subsidiaries, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it or them under this Agreement; (iii) any
event of which they have knowledge which will result, or in the opinion of such
party, has a reasonable prospect of resulting, in the failure to satisfy the
conditions specified in Article X hereof; (iv) any notice of, or other
communication relating to, a default (or event which, with notice or lapse of
time or both, would constitute a default), received by the Company or any of
its Subsidiaries subsequent to the date hereof and prior to the Closing Date,
under any contract or other agreement material to the business of the Company
or any of its Subsidiaries; (v) the termination or cancellation of any
Reinsurance Agreement; (vi) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the transactions contemplated hereby; (vii) any notice or other
communication from any foreign, federal, state, county or local government or
any other governmental, regulatory or administrative agency or authority in
connection with the transactions contemplated hereby or any other material
notice or other material communication from any foreign, federal, state, county
or local government or any other governmental, regulatory or administrative
agency or authority; (viii) any change which has a Material Adverse Effect, or
the occurrence of any event which, so far as can be foreseen at the time of its
occurrence, would have a Material Adverse Effect; or (ix) any matter hereafter
arising which, if existing, occurring or known at the date hereof, would have
been required to be disclosed to Buyer; provided, however, that no such
notification shall affect the representations or warranties of the Company or
the conditions to the obligations of the Company hereunder.
SECTION 8.6. Subsequent Financial Statements; SEC Documents; and
Insurance Filings. (a) From the date hereof to and including the Closing Date,
the Company and its Subsidiaries shall: (i) provide to Buyer a monthly
management report in scope and detail reasonably satisfactory to Buyer; (ii)
timely prepare, and promptly deliver to Buyer, monthly
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financial statements in scope and detail reasonably
satisfactory to Buyer; (iii) provide to Buyer a monthly statement of
Investments in detail reasonably satisfactory to Buyer; and (iv) provide to
Buyer a monthly list of all claims paid under any insurance or reinsurance
policy issued by the Company or any of its Subsidiaries in excess of $50,000.
Each such report or statement shall present fairly the information set forth
therein in accordance with accounting policies and procedures consistent with
those historically used by the Company.
(b) The Company will file with the SEC all reports, schedules, forms,
statements and other documents required to be filed under the Exchange Act from
the date hereof through the Effective Date (the "SEC Filings") and promptly
provide Buyer with a copy of such SEC Filing. Each SEC Filing, as of its
respective date: (i) will comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to each such SEC Filing; (ii) will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (iii) in the case of the Annual Report on Form 10-K for the
year ended December 31, 1995, will be accompanied by a report of the Company's
independent accountants which report shall be unqualified except for references
therein to the adoption of new accounting policies.
(c) The Company will file all reports, schedules, forms, statements and
other documents required to be filed under any Applicable Insurance Law from
the date hereof through the Effective Date and promptly provide Buyer with a
copy of any such filing.
SECTION 8.7. No Solicitation. (a) During the term of this Agreement,
the Company and its Subsidiaries shall not, directly or indirectly, solicit any
Acquisition Proposal, or cooperate with, furnish or cause to be furnished any
information concerning the business, financial condition, properties or assets
of the Company or any of its Subsidiaries to, or continue or enter into any
discussion, negotiation, agreement or understanding concerning any Acquisition
Proposal with, any person making any Acquisition Proposal (other than any of
the parties hereto and their agents and representatives or any governmental or
regulatory authority whose consent is required in connection with the
transactions contemplated by this Agreement), except that the Company shall be
permitted to consider and negotiate any unsolicited Acquisition Proposal and
furnish information to and enter into an acquisition agreement with a third
party making an unsolicited Acquisition Proposal if the Board of Directors of
the Company determines in good faith, based upon a written opinion of outside
counsel, that its fiduciary duties require it to do so (an "Unsolicited Sale").
The Company shall promptly notify Buyer of any inquiry or proposal
received by the Company or any of its Subsidiaries with respect to any such
Acquisition Proposal. As used herein, the term "Acquisition Proposal" shall
mean any proposal, offer or indication of
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interest for a merger or other business combination or joint venture
involving the Company or for the acquisition of a substantial portion of the
assets or the stock of the Company.
(b) In the event that the Company enters into an agreement involving an
Unsolicited Sale prior to February 17, 1997, then the Company shall be
obligated concurrently with the execution of such agreement: (i) to reimburse
to Buyer, Buyer Sub and CHPII all of their out-of-pocket fees and expenses in
connection with the transactions contemplated by this Agreement in an amount
not to exceed $100,000 (a written itemization of which shall be delivered to
the Company); (ii) to pay to CHPII (or its designee) a cash fee of $3,500,000;
and (iii) to terminate this Agreement.
(c) In the event that the Company enters into an agreement involving a
merger or other business combination or joint venture involving the Company or
for the acquisition of a substantial portion of the assets or the stock of the
Company other than with Buyer at any time after the termination of this
Agreement pursuant to Article XII hereof and prior to February 17, 1997, then
the Company shall be obligated concurrently with the execution of such
agreement: (i) to reimburse to Buyer, Buyer Sub and CHPII all of their
out-of-pocket fees and expenses in connection with the transactions
contemplated by this Agreement in an amount not to exceed $100,000 (a written
itemization of which shall be delivered to the Company); and (ii) to pay to
CHPII (or its designee) a cash fee of $3,500,000.
(d) Upon payment of the amounts specified in clauses (i) and (ii) of
Section 8.7(b) or 8.7(c) of this Agreement, the Company shall have no further
liability or obligation whatsoever to Buyer, Buyer Sub or CHPII. The
provisions of Sections 8.7(b) and 8.7(c) hereof shall be of no force and effect
and no payment shall be made to CHPII if: (i) at any time Buyer lowers the
Cash Consideration Per Share below $16.00; (ii) the Merger is not consummated
due to the failure by Buyer to satisfy the terms and conditions of this
Agreement; (iii) Buyer for any reason (other than due to the failure by the
Company to satisfy the terms and conditions of this Agreement) determines not
to pursue the transaction with the Company; (iv) any regulatory approval
required for the Merger is not obtained; or (v) this Agreement is terminated
pursuant to clause (i) or (iv) of Section 12.1 hereof as a result of the
Connecticut Waiver being denied.
SECTION 8.8. Proxy Statement; Approval by the Company's Stockholders. The
Company shall cause a special meeting of its stockholders to be called and held
promptly following the date hereof for the purposes of acting on this Agreement
and the Merger and the transactions contemplated hereby. The Company shall,
through its Board of Directors, and subject to its fiduciary duties, recommend
to its stockholders approval of the Merger and the transactions contemplated
hereby. As soon as practicable after the date hereof, the Company shall prepare
(with the cooperation of, and reasonable approval by, Buyer and Buyer Sub) and
file with the SEC under the Exchange Act, and use all reasonable efforts to have
cleared by the SEC and
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promptly thereafter mail to the Company's stockholders, a proxy
statement and form of proxy with respect to the meeting of the Company's
stockholders (the "Proxy Statement"). Simultaneously herewith, stockholders of
the Company holding in excess of 20% of the outstanding Common Stock have
executed and delivered to Buyer the Voting Agreement.
SECTION 8.9. Options. The Company shall cause each of the persons listed
on Schedule 3.7 hereto to deliver to Buyer on or before the Effective Date
evidence satisfactory to Buyer of the cancellation of the Options set forth
next to the name of such person on Schedule 3.7 hereto.
ARTICLE IX
ADDITIONAL COVENANTS
SECTION 9.1. HSR Act. The Company and Buyer shall promptly and timely
after the date hereof file, or cause to be filed, with the Federal Trade
Commission and the Department of Justice, all notifications, including
responses to requests for information, required by the HSR Act applicable to
the Company and Buyer as the case may be, and each party shall request early
termination of the applicable waiting period thereunder. The Company and Buyer
will cooperate with one another to the extent necessary to prepare their
separate filings and to supply any additional information that may be submitted
to the Federal Trade Commission or the Department of Justice relating to the
status of the transaction contemplated hereby under the antitrust laws, whether
or not such additional information is requested or required under the HSR Act.
SECTION 9.2. Insurance Regulatory Approvals. Each of the parties hereto
will use its best efforts to take all steps necessary or appropriate to obtain
the Connecticut Waiver, the Connecticut Approval and the other Insurance
Regulatory Approvals required for the consummation of the Merger.
SECTION 9.3. Filings and Approvals. The Company, its Subsidiaries, Buyer
and Buyer Sub shall, as applicable: (i) file a Form A with the Connecticut
Commissioner of Insurance with respect to the grant of prior approval or
exemption by the Connecticut Commissioner of Insurance under Connecticut
General Statute Section 38a-132 in connection with the Merger (the
"Connecticut Approval") and make a request for waiver of Connecticut General
Statute Section 38a-136(i)(2)(A) with the Connecticut Commissioner of
Insurance (the "Connecticut Waiver") all of which filings shall be made on or
before May 8, 1996; (ii) duly make all other regulatory filings required to be
made by each in respect of this Agreement or the transactions contemplated
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hereby; (iii) comply as promptly as practicable with all governmental
requirements applicable to the transactions contemplated hereby; and (iv)
obtain promptly all necessary permits, orders and other consents of
Governmental Entities and consents of third parties necessary for the
consummation of the Merger. Buyer shall use its reasonable best efforts to
obtain, and each of the Company and its Subsidiaries shall use its reasonable
best efforts to assist Buyer in obtaining, the Connecticut Waiver, the
Connecticut Approval and all other Acquiror Approvals. The Company and its
Subsidiaries shall each use its reasonable best efforts to obtain, and Buyer
shall use its reasonable best efforts to assist the Company and the
Subsidiaries in obtaining, the Connecticut Waiver, the Connecticut Approval and
all other Sellers Approvals. Buyer will promptly notify the Company of all
material communications with the Connecticut Department of Insurance with
respect to the Connecticut Approval and the Connecticut Waiver. Buyer will
furnish the Company with a copy of the aforementioned Form A and request for
waiver promptly after the same are filed with the Connecticut Department of
Insurance.
SECTION 9.4. Continued Effectiveness of Representations and Warranties.
Buyer and Buyer Sub shall use their reasonable best efforts to cause the
representations and warranties contained in Article VII hereof to continue to
be true, complete and accurate on and as of the Closing Date with the same
force and effect as if made on and as of the Closing Date in a manner so as to
satisfy the condition set forth in Section 11.2 hereof.
SECTION 9.5. Advice of Changes. Buyer shall give prompt written notice
to the Company of the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
of Buyer or Buyer Sub contained in this Agreement, if made on or as of the date
of such event or as of the Closing Date, to be untrue or inaccurate; provided,
however, that no such notification shall affect the representations and
warranties of Buyer or Buyer Sub or the conditions to the obligations of Buyer
or Buyer Sub hereunder.
SECTION 9.6. Proxy Statement. Buyer and Buyer Sub shall use all
reasonable efforts to obtain and furnish to the Company the information
relating to it required to be included in the Proxy Statement.
SECTION 9.7. Further Assurances. In addition to the actions, contracts
and other agreements and documents and other papers specifically required to be
taken or delivered pursuant to this Agreement, each of the parties hereto shall
execute such contracts and other agreements and documents and other
papers and take such further actions as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
Each such party shall, on or prior to the Effective Time, use its best efforts
to fulfill or obtain the fulfillment of the conditions precedent to the
consummation of the Merger, including the
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execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Merger.
SECTION 9.8 Directors' and Officers' Insurance. After the Effective
Time, Buyer will cause the Surviving Corporation, or another affiliate of
Buyer, to (i) maintain the current directors' and officers' liability and
corporate indemnification insurance policy of the Company and its Subsidiaries,
or a substantially similar policy, subject to terms and conditions no less
advantageous than under such current policy, for all officers and directors of
the Company and its Subsidiaries on the date of this Agreement, for 36 months
after the Effective Time to cover acts and omissions of directors and officers
of the Company and its Subsidiaries occurring prior to the Effective Time,
provided, however, that in no event shall the Surviving Corporation be required
to pay an annual premium for any such policy in excess of 125% of the current
annual premium in effect as of the date hereof, but shall instead in such case
obtain the greatest amount of coverage available at a premium equal to 125% of
the current premium, and (ii) maintain in effect provisions of the certificate
of incorporation and by-laws of the Surviving Corporation and its subsidiaries,
as the case may be, and cause the Surviving Corporation to comply with all
agreements between the Company and its directors and officers providing for
indemnification, all relating to the rights of officers and directors with
respect to indemnification for acts and omissions occurring prior to the
Effective Time on terms no less advantageous to such officers and directors as
in effect prior to the Effective Time.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF BUYER AND BUYER SUB
The obligations of Buyer and Buyer Sub under this Agreement are subject to
the satisfaction (or waiver in writing, in whole or in part), at or before the
Effective Time, of each of the following conditions:
SECTION 10.1. Compliance with Agreements. The Company and each of its
Subsidiaries shall have performed and complied in all material respects with
all of the obligations required of any of them by this Agreement and the other
agreements provided herein to be performed or complied with by each of them on
or before the Closing Date, and Buyer shall have received from the Company and
each of its Subsidiaries at the Closing a certificate, dated the Closing Date,
to such effect and stating that all conditions to the Buyer's obligations
hereunder have been satisfied.
SECTION 10.2. Representations and Warranties. The representations and
warranties made by the Company in this Agreement shall be true, complete and
accurate (i) in all
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respects (in the case of any representation or warranty
containing any materiality qualification) or (ii) in all material respects (in
the case of any representation or warranty without any materiality
qualification), in each case as of the Closing Date as though such
representations and warranties were made at and as of such time (except for any
representation and warranty made or given as of a specified date, which shall
have been true and correct as of such specified date, and except for any
changes expressly permitted by the terms hereof or consented to in writing by
Buyer). Buyer shall have received from the Company at the Closing a
certificate, dated the Closing Date, to that effect.
SECTION 10.3. Opinion of Counsel for the Company. Buyer shall have
received an opinion from Lord, Bissell & Brook, special counsel for the Company
and its Subsidiaries, dated the Closing Date, substantially to the effect set
forth in Exhibit B hereto.
SECTION 10.4. Approvals. The Connecticut Waiver, the Connecticut
Approval, all other Acquiror Approvals and all other Sellers Approvals shall
have been obtained and shall be in full force and effect on the Closing Date,
and the continued conduct by the Company or any of its Subsidiaries of their
respective businesses in substantially the same manner as currently conducted
and the consummation of the transactions contemplated hereby shall not violate
or conflict with any judgment, code, ruling, order, writ, injunction, decree,
award, statute, law, ordinance, rule or regulation or other restriction binding
upon or applicable to the Company or any of its Subsidiaries. None of the
Connecticut Waiver, the Connecticut Approval or any such other approvals shall
contain any terms, limitations or conditions which Buyer determines in good
faith to be materially burdensome (restrictions under Connecticut General
Statute Section 38a-136(i), other than Connecticut General Statute Section
38a-136(i)(2)(A), shall be deemed not to be materially burdensome) to Buyer or
its affiliates or to the Company or its Subsidiaries taken as a whole, or which
restrict Buyer's rights as the controlling shareholder of the Company
(including, without limitation, its right to participate actively in the
management of the Company and its Subsidiaries), or which would prevent Buyer,
its affiliates or the Company and its Subsidiaries from conducting their
respective businesses in substantially the same manner as conducted on the date
hereof.
SECTION 10.5. Legislation. No legislation shall have been proposed in
bill form or enacted since the date hereof, and no statute, law, ordinance,
code, rule or regulation shall have been adopted, revised or interpreted, by
any Governmental Entity, which would require, upon or as a condition to the
Merger, the divestiture or cessation of the conduct of any business presently
conducted by the Company or any of its Subsidiaries, on the one hand, or, by
Buyer or any of its affiliates, on the other hand, or, in the event that the
transactions contemplated hereby are consummated, which may, individually or in
the aggregate, have an adverse effect on Buyer or on any of its affiliates or
which, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on the Company or any or its Subsidiaries.
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SECTION 10.6. Absence of Preventative Litigation. On the Closing Date:
(i) there shall be no injunction, restraining order or order of any nature
issued by any court of competent jurisdiction which direct that this Agreement
or any transaction contemplated hereby shall not be consummated as herein
provided or compels or would compel CHPII to dispose of or discontinue any
portion of the business conducted by CHPII and its subsidiaries or of the
business conducted by the Company or any of its Subsidiaries as a result of the
consummation of the transactions contemplated hereby, and (ii) there shall be
no suit, action, claim, proceeding or investigation instituted or threatened by
or before any court or any foreign, federal, state, county or local government
or any other governmental, regulatory or administrative agency or authority
seeking to restrain, prohibit or invalidate the consummation of the
transactions contemplated hereby or to seek damages in connection with such
transactions or which might affect the right of Buyer to own, operate or
control, after the Closing, the assets, properties and businesses of the
Company and its Subsidiaries or which has or may have, in the opinion of the
Buyer, a Material Adverse Effect (the matters referred to in this Section
being collectively referred to as "Preventative Litigation").
SECTION 10.7. Secretary's Certificate; Certified Copies. The Buyer shall
have received: (i) a secretary's certificate for the Company attached to which
shall be a certified copy of the resolutions of the Board of Directors of the
Company and a copy certified by the secretary of the corporation of the vote or
written consent of the Company's stockholders, in each case authorizing this
Agreement, the Merger and the transactions contemplated hereby, and an
incumbency certificate for each officer executing any agreement, certificate or
other instrument provided for herein to be executed and delivered by the
Company; and (ii) copies of the certificate of incorporation of the Company and
each of its Subsidiaries certified by the Secretary of State of the
jurisdiction of its incorporation and copies of by-laws certified by the
secretary of the applicable corporation. The Company shall deliver to Buyer
copies of certificates of good standing (together with tax clearance) for the
Company and each of its Subsidiaries from the Secretary of State or other
appropriate official of the respective jurisdictions of incorporation and
jurisdictions in which the Company or any of its Subsidiaries is qualified to
do business.
SECTION 10.8. Resignations. Buyer shall have received resignations
from those directors and officers of the Company and its Subsidiaries as shall
be designated by Buyer not less than five days prior to the Closing Date, such
resignations to be effective at the Effective Time of the Merger.
SECTION 10.9. Dissenting Stock. The aggregate number of shares of
Dissenting Stock shall be less than 5% of the number of shares of Common Stock
outstanding at the time of the stockholders' meeting referred to in Section 8.8
hereof.
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SECTION 10.10. No Material Adverse Effect No Material Adverse Effect
shall have occurred and be existing as of the Closing Date.
SECTION 10.11. Stock Option Plan and Directors' Incentive Plan;
Options. Buyer shall have received evidence satisfactory to it that: (i) the
Company Stock Option Plan, effective February 28, 1991 and the Directors'
Incentive Plan, as amended March 8, 1995, shall have been terminated; and (ii)
all Options and any other options for Common Stock have been canceled.
ARTICLE XI
CONDITIONS TO OBLIGATIONS OF
THE COMPANY
The obligations of the Company under this Agreement are subject to the
satisfaction (or waiver in writing in whole or in part), at or before the
Effective Time, of each of the following conditions:
SECTION 11.1. Compliance with Agreement. Buyer and Buyer Sub shall have
performed and complied in all material respects with all the obligations
required by this Agreement to be performed or complied with by it on or before
the Closing Date, and the Company shall have received from Buyer and Buyer Sub
at the Closing a certificate, dated the Closing Date, to such effect and
stating that all conditions to the Buyer's obligations hereunder have been
satisfied.
SECTION 11.2. Representations and Warranties. The representations and
warranties made by Buyer and Buyer Sub in this Agreement shall be true,
complete and accurate (i) in all respects (in the case of any representation or
warranty containing any materiality qualification) or (ii) in all material
respects (in the case of any representation or warranty without any materiality
qualification), in each case as of the Closing Date as though such
representations and warranties were made at and as of such time (except for any
representation and warranty made or given as of a specified date, which shall
have been true and correct as of such specified date, and except for any
changes expressly permitted by the terms hereof or consented to in writing by
the Company). The Company shall have received from Buyer and Buyer Sub at the
Closing a certificate, dated the Closing Date, to that effect.
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SECTION 11.3. Opinion of Counsel for Buyer. The Company shall have
received an opinion from Schulte Roth & Zabel, special counsel for Buyer and
Buyer Sub, dated the Closing Date, substantially to the effect set forth in
Exhibit C hereto.
SECTION 11.4. Approvals. All Sellers Approvals specified in clauses (i)
through (iv), inclusive, of Section 6.5 hereof shall have been obtained and be
in full force and effect on the Closing Date.
SECTION 11.5. Secretary's Certificate. The Company shall have received a
secretary's certificate of Buyer and Buyer Sub, attached to which certificate
shall be a certified copy of the resolutions of the Board of Directors of Buyer
and Buyer Sub, in each case authorizing this Agreement, the Merger and the
transactions contemplated hereby, and a certificate of incumbency as to each
officer executing and delivering to the Company any agreement or certificate
pursuant hereto.
SECTION 11.6. Absence of Preventative Litigation. There shall be no
Preventative Litigation.
SECTION 11.7. Good Standing. The Company shall have received
certificates of good standing for the Buyer and Buyer Sub from the Delaware
Secretary of State.
ARTICLE XII
TERMINATION, AMENDMENT, WAIVERS
SECTION 12.1. Termination. At any time prior to the Effective Time of
the Merger, this Agreement may be terminated and the Merger provided for herein
abandoned, whether before or after and notwithstanding adoption and approval
thereof by the stockholders of the Company:
(i) by mutual written consent of Buyer and the Company;
(ii) at the election of the Company, if Buyer or Buyer Sub has breached
or failed to perform or comply with in any material respect any
representation, warranty, covenant or agreement contained in this Agreement;
provided, however, that if such breach or failure is curable, notice of such
breach or failure shall have been given to Buyer and Buyer
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Sub and Buyer or Buyer Sub, as the case may be, shall not have cured such
failure within 15 days;
(iii) at the election of Buyer, if the Company or any of its
Subsidiaries has breached or failed to perform or comply with in any
material respect any representation, warranty, covenant or agreement
contained in this Agreement; provided, however, that if such breach or
failure is curable, notice of such breach or failure shall have been given
to the Company and such breaching party shall not have cured such failure
within 15 days;
(iv) by Buyer or the Company if the Effective Date shall not be on or
before September 30, 1996 or such later date as the parties hereto may agree
upon, unless the failure to consummate the Merger is the result of a willful
and material breach of this Agreement by the party seeking to terminate this
Agreement;
(v) at the election of the Company, in the event of an Unsolicited
Sale and the payments required by Section 8.7(b) of this Agreement have been
made; or
(vi) by Buyer 45 days following the date on which the Company first
actively participates in any discussions or negotiations regarding, or
furnishes to any person any confidential information with respect to, any
unsolicited Acquisition Proposal in accordance with Section 8.7(a) hereof,
unless prior to the expiration of such 45 day period the Company notifies
Buyer that such Acquisition Proposal has been rejected and any such
negotiations have been terminated.
The termination of this Agreement shall be effectuated by the delivery by
the party terminating this Agreement to each other party of a written notice of
such termination. If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided in Section 12.2.
SECTION 12.2. Effect of Termination. In the event of any termination
pursuant to this Article XII, the parties hereto shall be released from all
liabilities and obligations arising under this Agreement with respect to
matters contemplated by this Agreement, other than (i) for damages to the
extent arising from the failure to perform any obligation or breach of any
representation or covenant made in this Agreement arising prior to the time of
such termination, provided, however, that in no event shall Buyer and Buyer Sub
or the Company, as the case may be, be liable for aggregate damages resulting
from such failure to perform or breach in excess of $3,500,000, (ii) for the
expenses set forth in Section 13.2 hereof, (iii) for the amounts required to be
paid to CHPII pursuant to Sections 8.7(b) and 8.7(c) hereof and (iv) for the
obligations arising under the Confidentiality Agreement. Notwithstanding
anything in this Agreement to the contrary, in the event of any breach by the
Company of Section 8.7(a) hereof as a result of
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entering into an agreement involving an Acquisition Proposal other than an
agreement involving an Unsolicited Sale entered into in accordance with the
terms and provisions of Section 8 hereof, then the Company shall be obligated
concurrently upon the execution of such agreement, to pay to Buyer, Buyer Sub
and CHPII damages for such breach in an aggregate amount equal to the amounts
specified in clauses (i) and (ii) of Section 8.7(c) hereof, and upon making
such payment shall have no further liability or obligation whatsoever to Buyer,
Buyer Sub or CHPII.
SECTION 12.3. Amendments, Modifications, Etc. At any time prior to the
Effective Time of the Merger, this Agreement may be amended, modified,
superseded or supplemented to the extent permitted by applicable law only by an
instrument in writing executed and delivered on behalf of each of the parties
hereto, which instrument when so executed and delivered shall thereupon become
a part of this Agreement and the provisions thereof shall be given effect as if
contained in this Agreement as of the date hereof; provided that if the Merger
and this Agreement shall have been prior thereto approved by vote or consent of
the stockholders of the Company, no amendment shall be made in a manner which
is materially adverse, as reasonably determined by the Company, to the right of
stockholders of the Company without the vote or written consent of the
stockholders of the Company thereto.
SECTION 12.4. Waivers. The representations, warranties, covenants or
conditions of this Agreement may be waived only by a written instrument
executed by the party so waiving. The failure of any party at any time or times
to require performance of any provision hereof shall in no manner affect the
right of such party at a later time to enforce the same. No waiver by any
party of any condition, or breach of any term, covenant, agreement,
representation or warranty contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of any other
condition or of the breach of any other term, covenant, agreement,
representation or warranty contained in this Agreement.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.1. Publicity. Buyer and Company will consult with one another
before issuing, and provide one another the opportunity to review, comment upon
and consent to (which consent shall not be unreasonably withheld) any press
release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation
except as may be required by applicable law, court process or by any stock
exchange rule, regulation, or consent, or as may be advised by counsel.
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SECTION 13.2. Certain Expenses. Other than as provided in Sections
8.7(b) and 8.7(c) hereof, if the Merger is not consummated, Buyer and Buyer
Sub, on the one hand, and the Company, on the other hand, each shall pay their
respective direct and indirect expenses incurred in connection with this
Agreement or in consummating the transactions contemplated hereby (including,
without limitation, the fees and disbursements and expenses of its attorneys,
accountants and advisors), provided, however, that in the event that this
Agreement is terminated pursuant to clause (i) or (iv) of Section 12.1 hereof
as a result of the Connecticut Waiver being denied, Buyer shall be obligated to
reimburse to the Company its out-of-pocket fees and expenses in connection with
the transactions contemplated by this Agreement in an amount not to exceed
$50,000 (a written itemization of which shall be delivered to Buyer).
SECTION 13.3. Notices. All notices or other communications required or
permitted under this Agreement shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery personally,
by facsimile transmission, or by registered, certified or express mail, postage
prepaid, addressed as follows:
If to Buyer or Buyer Sub, to
c/o Castle Harlan, Inc.
150 East 58th Street
37th Floor
New York, New York 10155
Attention: Mr. Jeffrey M. Siegal
Facsimile: (212) 207-8042
Telephone: (212) 644-8600
with a copy to
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Marc Weingarten, Esq.
Facsimile: (212) 593-5955
Telephone: (212) 758-0404
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If to the Company, to
Financial Institutions Insurance Group, Ltd.
400 Royal Palm Way
Suite 204
Palm Beach, Florida 33480
Attention: R. Keith Long
Facsimile: (407) 655-6902
Telephone: (407) 832-4110
with a copy to
Lord, Bissell & Brook
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Colleen M. Hennessy, Esq.
Facsimile: (312) 443-0336
Telephone: (312) 443-0700
Any party may change the person and addresses to which notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice.
SECTION 13.4. Entire Agreement. Except as otherwise provided herein,
this Agreement, together with the exhibits and schedules hereto and the
Confidentiality Agreement set forth the entire agreement and understanding of
the parties hereto in respect of the transactions contemplated hereby, and
supersedes all prior agreements, arrangements and understandings relating to
the subject matter hereof.
SECTION 13.5. No Third Party Beneficiaries. Except as set forth in
Section 9.8 hereof, nothing in this Agreement is intended or shall be construed
to give any person, other than the parties hereto, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
SECTION 13.6. No Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the respective successors and assigns of the parties
hereto; provided,
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however, that no assignment of any rights or delegation of
any obligations provided for herein shall be made by any party hereto without
the express prior written consent of the other party, except that Buyer shall
be permitted, without such consent, to assign any of its rights hereunder (but
not to delegate any of its obligations hereunder) to any wholly-owned domestic
subsidiary of CHPII or to a lender providing financing for the transactions
contemplated hereby.
SECTION 13.7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, except (i)
matters related to the validity of corporate action, which shall be governed by
the laws of the state or other jurisdiction of organization of the relevant
corporation and (ii) matters related to compliance of the transactions
contemplated hereby with applicable insurance regulatory statutes, which shall
be governed by the laws of the state or other jurisdiction the insurance
regulatory statutes of which apply.
SECTION 13.8. Counterparts. This Agreement may be executed in any number
of separate counterparts, each of which shall be deemed to be an original, but
which together shall constitute one and the same instrument.
SECTION 13.9. Headings. The section headings contained in this Agreement
are inserted for convenience of reference only and shall not affect the meaning
or interpretation of this Agreement.
SECTION 13.10. Severability. If any term, provision, covenant or
restriction of this Agreement, or any part thereof, is held by a court of
competent jurisdiction or any foreign, federal, state, county or local
government or any other governmental, regulatory or administrative agency or
authority to be invalid, void, unenforceable or against public policy for any
reason, 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.
SECTION 13.11. Survival of Representations and Warranties. No
representations, warranties or agreements contained herein shall survive beyond
the Effective Time; provided however, that this Section shall not limit any
covenant or agreement of the parties hereto which by its terms specifically
contemplates performance after the Effective Time.
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed on the date first above written.
FIIG HOLDING CORP.
By: ______________________________
Name:
Title:
FIIG MERGER CORP.
By: ______________________________
Name:
Title:
FINANCIAL INSTITUTIONS INSURANCE GROUP,
LTD.
By: ______________________________
Name:
Title:
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APPENDIX B
SECTION 262 OF DGCL
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SECTION 262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with the provisions of subsection (d) of this
Section and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to Section 228 of this Chapter shall be
entitled to an appraisal by the Court of Chancery of the fair value of his
shares of stock under the circumstances described in subsections (b) and (c) of
this Section. As used in this Section, the word "stockholder" means a holder
of record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a non-stock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Section Section
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
(a) Shares of stock of the corporation surviving or resulting from
such merger or consolidation or depository receipts in respect thereof;
(b) Shares of stock of any other corporation or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealer's Inc. or held of record by more than 2,000
stockholders;
(c) Cash in lieu of fractional shares or fractional depository
receipts of the corporations described in the foregoing subparagraphs a.
and b. of this paragraph; or
(d) Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be sent
by certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation.
Any stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or
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within 10 days after expiration of the period for delivery of demands for
appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this section and who have
become entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court may dismiss
the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed at trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and in the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
other state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
of the shares entitled to an appraisal.
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(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX C
OPINION OF WILLIAM BLAIR & COMPANY L.L.C.
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March 20, 1996
Board of Directors
Financial Institutions Insurance Group, Ltd.
10 North Dearborn Street
Chicago, IL 60602-4202
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Financial Institutions Insurance Group, Ltd. (the
"Company") of the consideration to be received pursuant to the terms of the
draft merger agreement dated as of March 18, 1996 (the "Draft Merger
Agreement") by and among FIIG Holding Corp., FIIG Merger Corp., and the
Company.
Pursuant to the Draft Merger Agreement, FIIG Merger Corp. will be merged with
and into the Company (the "Merger"), and each outstanding share of common stock
(the "Common Stock") of the Company will be converted into the right to receive
$16.00 per share in cash. Furthermore, optionholders of the Company will
receive an amount per share of Common Stock subject to an option equal to
$16.00 minus the exercise price per share (the "Option Conversion" and together
with the Merger, the "Transaction").
We have acted as financial advisor to the Company in connection with this
transaction. For purposes of the opinion set forth herein, we have: (i)
analyzed certain publicly available financial statements of the Company; (ii)
analyzed certain financial projections prepared by the management of the
Company; (iii) discussed the past and current operations and financial
condition and the prospects of the Company with senior executives of the
Company; (iv) reviewed the reported prices and trading activity for the
Company's common stock; (v) reviewed the financial performance of the Company
and the prices of the Company's common stock with that of certain other
comparable publicly-traded companies and their securities; (vi) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (vii) reviewed the Draft Merger Agreement; and (viii)
performed such other analyses as we have deemed relevant.
We assumed and relied upon without independent verification the accuracy and
completeness of the information reviewed by us for the purposes of this
opinion. We did not make any independent valuation or appraisal of the assets
or liabilities of the Company, nor were we furnished with any such appraisals.
With respect to the financial projections, we have assumed that they have been
reasonably prepared on the bases reflecting the best currently available
estimates and judgements of the Company's management. We assume no
responsibility for, and express no view as to, such
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Financial Institutions Insurance Group, Ltd. March 20, 1996
forecasts or the assumptions on which they are based. Our opinion is
necessarily based solely upon information available to us and business, market,
economic and other conditions as they exist on, and can be evaluated as of, the
date hereof. Our opinion does not address the Company's underlying business
decision to effect the Transaction.
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Draft Merger Agreement, without any
waiver of any material terms or conditions by the Company, and that obtaining
the necessary regulatory approvals for the Transaction will not have an adverse
effect on the Company.
William Blair & Company, L.L.C. has been engaged in the investment banking
business since 1935. We undertake the valuation of investment securities in
connection with public offerings, private placements, business combinations,
estate and gift tax valuations and similar transactions. For our services,
including the rendering of this opinion, the Company will pay us a fee, a
significant portion of which is contingent upon consummation of the
Transaction, and indemnify us against certain liabilities.
It is understood that this letter may not be disclosed or otherwise referred to
without our prior written consent. We hereby consent, however, to the
inclusion of this opinion as an exhibit to any proxy statement distributed in
connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of March 20, 1996, the consideration to be received by the
stockholders of the Company in the Transaction is fair, from a financial point
of view, to such stockholders.
Very truly yours,
WILLIAM BLAIR & COMPANY, L.L.C.
By:____________________________
Title:_________________________
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APPENDIX D
FORM OF VOTING AGREEMENT
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VOTING AGREEMENT
VOTING AGREEMENT, dated as of April __, 1996, among FIIG Holding Corp., a
Delaware corporation ("Buyer"), FIIG Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of Buyer ("Buyer Sub") and the stockholder of the
Company named on the signature page hereto (the "Stockholder").
WHEREAS, as of the date hereof, the Stockholder owns the number of shares
of common stock, par value $1.00 per share ("Common Stock"), of Financial
Institutions Insurance Group, Ltd. (the "Company") set forth opposite such
Stockholder's name on the signature page hereto;
WHEREAS, concurrently herewith, the Company, Buyer and Buyer Sub have
entered into a Merger Agreement, dated the date hereof (the "Merger
Agreement"), pursuant to which and subject to the terms and conditions thereof
(i) Buyer Sub shall be merged (the "Merger") with and into the Company with the
Company as the surviving corporation (the "Surviving Corporation"), (ii) each
share of Common Stock (other than shares of Common Stock held by Buyer or Buyer
Sub) shall be converted into the right to receive $16 cash, (iii) each share of
Common Stock held by Buyer or Buyer Sub shall be canceled, and (iv) each share
of common stock, par value $.01 per share, of Buyer Sub shall be converted into
and become one share of common stock, par value $1.00 per share, of the
Surviving Corporation;
WHEREAS, the consummation of the Merger is subject to the approval by
holders of a majority of all outstanding shares of Common Stock entitled to
vote thereon;
WHEREAS, the Board of Directors of the Company has deemed the consummation
of the Merger to be in the best interests of the Company and its stockholders;
WHEREAS, each of the stockholders of the Company listed on Schedule A
hereto owns the number of shares of Common Stock set forth opposite such
stockholder's name on Schedule A hereto, and concurrently herewith is entering
into a Voting Agreement with Buyer and Buyer Sub identical to this Agreement;
WHEREAS, Buyer and Buyer Sub are not willing to enter into the Merger
Agreement without the prior agreement by the Stockholder and the other
stockholders listed on Schedule A hereto to vote in favor of the Merger and the
Merger Agreement as provided herein;
NOW THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
Buyer, Buyer Sub and the Stockholder contained in this Agreement, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
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ARTICLE I
PROXY OF THE STOCKHOLDERS
SECTION 1.01. Voting Agreement.
(a) The Stockholder hereby agrees, that during the time this Agreement is
in effect, at any meeting of the stockholders of the Company, and in any action
by consent of the stockholders of the Company, the Stockholder shall vote all
shares of Common Stock which the Stockholder owns or is otherwise entitled to
vote in favor of any proposal for the adoption or approval of the Merger and
the Merger Agreement.
(b) The Stockholder hereby agrees, that during the time this Agreement is
in effect, at any meeting of the stockholders of the Company, and in any action
by consent of the stockholders of the Company, the Stockholder shall vote all
of the shares of Common Stock which the Stockholder owns or is otherwise
entitled to vote: (i) against any proposal relating to (A) the sale of stock or
assets of the Company or any of its Subsidiaries or any interest therein other
than as contemplated by the Merger Agreement, (B) the merger, consolidation or
other combination of the Company or any of its Subsidiaries with any person,
other than as contemplated by the Merger Agreement, (C) the liquidation,
dissolution or reorganization of the Company or any of its Subsidiaries, or (D)
any other action or agreement that would result in a breach of any covenant,
representation, warranty or any other obligation or agreement of the Company or
any of its Subsidiaries under the Merger Agreement or which could result in any
of the conditions to Buyer and Buyer Sub's obligations under the Merger
Agreement not being fulfilled; and (ii) as otherwise necessary or appropriate
to enable the Company and Buyer to consummate the transactions contemplated by
the Merger Agreement.
SECTION 1.02. Irrevocable Proxy. In the event the Stockholder shall
fail or threaten to fail to comply with the provisions of Section 1.01 hereof
as determined by Buyer in its sole discretion, the Stockholder hereby agrees
that such failure or threatened failure shall result, without any further
action by the Stockholder, in the irrevocable appointment of John K. Castle,
until termination of the Merger Agreement, as the Stockholder's attorney and
proxy pursuant to the provisions of Section 212(c) of the General Corporation
Law of the State of Delaware, with full power of substitution, to vote, and
otherwise act (by written consent or otherwise) with respect to the shares of
Common Stock which the Stockholder is entitled to vote at any meeting of the
stockholders of the Company (whether annual or special and whether or not an
adjourned or postponed meeting) or consent in lieu of any such meeting or
otherwise, on the matters specified in Section 1.01 hereof in such manner as
Buyer or its substitute shall, in its sole discretion, deem proper. THIS PROXY
AND POWER OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. The
Stockholder hereby revokes all other proxies and powers of attorney with
respect to the shares of
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Common Stock owned by the Stockholder which the Stockholder may have
heretofore appointed or granted (other than a proxy to vote in accordance with
Section 1.0 1 hereof), and no subsequent proxy or power of attorney shall be
given or written consent executed (and if given or executed, shall not be
effective) by the Stockholder with respect thereto (other than in accordance
with Section 1.01 hereof). All authority herein conferred or agreed to be
conferred shall survive the death, incapacity, bankruptcy or liquidation of the
Stockholder and any obligation of the Stockholder under this Agreement shall be
binding upon its heirs, representatives, assigns and successors.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Buyer as follows:
SECTION 2.01. Authority Relative to This Agreement. The Stockholder has
all requisite power and authority to enter into this Agreement and to perform
its obligations hereunder. This Agreement has been duly authorized, executed
and delivered by the Stockholder and, assuming this Agreement constitutes a
valid and binding obligation of the other parties hereto, constitutes a legal,
valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except to the extent that the
enforceability thereof may be limited by: (i) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement of creditors'
rights and remedies; and (ii) general principles of equity, including, without
limitation, principles of reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in equity or at law).
SECTION 2.02. No Conflict. The execution and delivery of this Agreement
by the Stockholder and performance of such Stockholder's obligations hereunder
do not (i) conflict with or violate any laws applicable to the Stockholder or
by which the shares of Common Stock of the Stockholder are bound or affected or
(ii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the shares of
Common Stock of the Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the shares of Common Stock of the Stockholder are bound or affected.
SECTION 2.03. Title to the Shares. As of the date hereof, the
Stockholder is the beneficial owner of the number of shares of Common Stock
set forth opposite the Stockholder's name on the signature page hereto. Such
shares of Common Stock are all of such shares as are owned, either of record or
beneficially, by the Stockholder. The Stockholder owns all the shares of
Common
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Stock set forth opposite the Stockholder's name on the signature page
hereto free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, contracts, limitations on the Stockholder's
voting rights, charges and other encumbrances of any nature whatsoever. Except
as provided in this Agreement, the Stockholder has not appointed or granted
(and will not, after the date hereof, appoint or grant) any proxy, which
appointment or grant is still effective, with respect to the shares set forth
opposite the Stockholder's name on the signature page hereto, other than in
accordance with Section 1.01 hereof.
ARTICLE III
COVENANTS OF THE STOCKHOLDERS
SECTION 3.01. No Disposition or Encumbrance of Shares. The Stockholder
hereby covenants and agrees that, except as contemplated by this Agreement, the
Stockholder shall not, and shall not offer or agree to, sell, transfer, tender,
assign, hypothecate or otherwise dispose of, grant a proxy (other than the
irrevocable proxy granted herein) or power of attorney with respect to, create
or permit to exist any security interest, lien, claim, pledge, option, right of
first refusal, contract, limitation on the Stockholder's voting rights, charge
or other encumbrance of any nature whatsoever with respect to, the
Stockholder's shares of Common Stock, or directly or indirectly, initiate,
solicit or encourage any person to take actions which could reasonably be
expected to lead to the occurrence of any of the foregoing; provided however
that if the Stockholder is currently serving as a director or officer of the
Company, the Stockholder, acting in such capacities, shall not be precluded
from taking any such action or any action precluded by Section 3.02, based upon
the advice of counsel, that his or her fiduciary duties to the Company obligate
the Stockholder to do so; provided, further, however that the Stockholder may
transfer all or part of such Stockholder's shares of Common Stock to a
charitable remainder trust or other similar trust established for estate
planning purposes or to an entity which has claimed an exemption under Section
501(c)(3) of the Internal Revenue Code of 1986.
SECTION 3.02. No Negotiations. The Stockholder shall not, and shall not
permit any of its subsidiaries, affiliates, representatives, agents or any
other person acting for or on behalf of such Stockholder to, solicit, entertain
offers from, negotiate with, or in any manner discuss, encourage, recommend or
agree to any proposal relating to (a) the sale of the stock or assets of the
Company or any of its Subsidiaries or any interest therein, (b) the merger,
consolidation or other combination of the Company or any of its Subsidiaries
with any person, or (c) the liquidation, dissolution or reorganization of the
Company or any of its Subsidiaries, except as specifically contemplated by the
Merger Agreement. Without limiting the generality of the foregoing, the
Stockholder shall not, and shall not permit any of its subsidiaries,
affiliates, representatives, agents or any other person acting for or on behalf
of the Stockholder to, furnish or cause to be furnished any information with
respect to the Company or any of its Subsidiaries to any person (other than the
Buyer and its employees and agents and other than as required by law). If the
Stockholder or any of its subsidiaries, affiliates,
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representatives, agents or any other person acting for or on behalf of the
Stockholder receives from any person any offer, proposal or informational
request that may be subject to this Section, the Stockholder shall promptly
advise such person, by written notice, of the terms of this Section and shall
promptly deliver a copy of such notice to the Buyer. Nothing herein shall, to
the extent not prohibited by the Merger Agreement, prohibit any Stockholder who
is an officer of the Company from acting in his capacity as such, or who is a
director of the Company from participating in meetings of the Board or
Committees thereof.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Termination. This Agreement shall remain in effect until
the first to occur of (i) the Closing Date or (ii) the termination of the
Merger Agreement; provided, however, that the provisions set forth in Section
4.03 shall survive the Closing.
SECTION 4.02. Definitions. Any terms used but not defined herein shall
have the meanings ascribed to them in the Merger Agreement.
SECTION 4.03. Further Assurances. The Stockholders will execute and
deliver all such further documents and instruments and take all such further
action as may reasonably be necessary in order to consummate the transactions
contemplated hereby, including, without limitation, the transactions
contemplated by the Merger Agreement.
SECTION 4.04. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 4.05. Entire Agreement. This Agreement constitutes the entire
agreement between the Stockholder and the Buyer with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between the Buyer and the Stockholder with respect to the
subject matter hereof.
SECTION 4.06. Amendment. This Agreement may not be amended, altered or
modified except by a written instrument executed by the parties hereto.
SECTION 4.07. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
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economic or legal substance of this Agreement is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the terms of this Agreement remain as
originally contemplated to the fullest extent possible.
-6-
<PAGE> 127
SECTION 4.08. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New York applicable to
contracts made and to be performed wholly within such state.
SECTION 4.09. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Stockholder has duly executed this Agreement.
_____________________________________
Number of Shares of Name:
Common Stock owned:
AGREED TO AND ACCEPTED:
FIIG HOLDING CORP.
By:
__________________________
Name:
Title:
FIIG MERGER CORP.
By:
__________________________
Name:
Title:
-7-
<PAGE> 128
SCHEDULE A - VOTING AGREEMENT
<TABLE>
<CAPTION>
Shareholder # of shares %*
- ------------------------------------------------------------------
<S> <C> <C>
R. Keith Long 398,188 12.41%
John A. Dore 113,450 3.54%
John B. Zellars 54,022 1.68%
Lonnie L. Steffen 33,792 1.05%
Wilbur Dean Cannon 24,984 .78%
Herschel Rosenthal 19,248 .60%
William B. O'Connell 14,313 .45%
Joseph C. Morris 13,276 .41%
Dale C. Bottom 8,823 .28%
John P. Diesel 7,200 .22%
- -------------- ------- ------
Total 687,296 21.42%
</TABLE>
*Based on % outstanding of 3,207,711 at January 31, 1996
-1-
