AGREEMENT AND PLAN OF MERGER
among
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
MIGI ACQUISITION CORP.,
and
MERIDIAN INSURANCE GROUP, INC.
October 25, 2000
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TABLE OF CONTENTS
Page
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AGREEMENT AND PLAN OF MERGER 1
Background Information 1
Statement of Agreement 1
ARTICLE I THE MERGER 1
1.1 The Merger 1
1.2 Closing 2
1.3 Effective Time 2
1.4 Directors and Officers 2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS 2
2.1 Effect on Capital Stock 2
(a) Capital Stock of MergerCo 2
(b) Cancellation of Treasury Stock and
MergerCo-Owned Stock 2
2.2 Conversion of Securities 3
2.3 Company Stock Options and Related Matters 3
ARTICLE III PAYMENT FOR SHARES 3
3.1 Payment for Shares of Old Common 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERGERCO AND PARENT 5
4.1 Representations and Warranties of MergerCo 5
(a) Organization 5
(b) Authorization; Validity of Agreement;
Necessary Action 5
(b) Ownership 5
(d) Consents and Approvals; No Violations 6
(e) Formation of MergerCo; No Prior
Activities 6
4.2 Representations and Warranties of Parent 6
(a) Organization 6
(b) Authorization; Validity of Agreement;
Necessary Action 6
(c) Consents and Approvals; No Violations 7
(d) Litigation 7
(e) No Brokers 7
(f) Compliance with Laws 7
(g) Contracts; Debt Instruments 7
(h) Investment Company Act of 1940 8
(i) Sufficient Funds 8
(j) Complete Discloure 8
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY 8
5.1 Existence; Good Standing; Authority; Compliance
With Law 8
5.2 Authorization, Validity and Effect of Agreements 9
5.3 Capitalization 9
5.4 Subsidiaries 10
5.5 No Violation; Consents 10
5.6 SEC Documents; Financial Matters 11
5.7 Litigation 12
5.8 Absence of Certain Changes 12
5.9 Taxes 12
5.10 Properties 13
5.11 Environmental Matters 13
5.12 Employee Benefit Plans 13
5.13 Labor Matters 15
5.14 No Brokers 15
5.15 Opinion of Financial Advisor 15
5.16 Insurance 15
5.17 Contracts and Commitments 15
5.18 Related Party Transactions 17
5.19 Absence of Undisclosed Liabilities 17
5.20 Insurance Issued by Company Subsidiaries 18
5.21 Cancellations 19
5.22 Rating Agencies 19
5.23 Investment Company 20
5.24 No Other Representations or Warranties 20
5.25 Limitation on Parent's and MergerCo's Representations 20
5.26 Definition of the Company's Knowledge 20
5.27 Complete Disclosure 20
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER 20
6.1 Conduct of Business by the Company 20
6.2 Tax Treatment 24
ARTICLE VII ADDITIONAL AGREEMENTS 24
7.1 Shareholders Meeting 24
7.2 Other Filings 25
7.3 Additional Agreements 26
7.4 Fees and Expenses 26
7.5 No Solicitations 26
7.6 Officers' and Directors' Indemnification 27
7.7 Access to Information; Confidentiality 29
7.8 Public Announcements 29
7.9 Notification of Certain Matters 29
7.10 Post-Merger Operations 29
7.11 Meridian Citizens Mutual Insurance Company 31
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ARTICLE VIII CONDITIONS TO THE MERGER 31
8.1 Conditions to the Obligations of Each Party
to Effect the Merger 31
(a) Shareholder Approval 31
(b) Hart-Scott-Rodino Act 31
(c) Other Regulatory Approvals 31
(d) Other Consents 31
(e) No Injunctions, Orders or Restraints; Illegality 32
(f) Merger of Mutuals 32
8.2 Conditions to Obligations of MergerCo and Parent 32
(a) Representations and Warranties 32
(b) Performance and Obligations of the Company 32
(c) Material Adverse Change 32
(d) Opinions 32
8.3 Conditions to Obligations of the Company 33
(a) Representations and Warranties 33
(b) Performance of Obligations of MergerCo and Parent 33
(c) Material Adverse Change 33
(d) Opinions 33
8.4 Frustration of Closing Conditions 33
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 33
9.1 Termination 33
9.2 Effect of Termination 35
ARTICLE X GENERAL PROVISIONS 37
10.1 Notices 37
10.2 Interpretation 38
10.3 Non-Survival of Representations, Warranties,
Covenants and Agreements 38
10.4 Miscellaneous 38
10.5 Assignment 38
10.6 Severability 38
10.7 Choice of Law/Consent to Jurisdiction 38
10.8 No Agreement Until Executed 39
10.9 Extension; Waiver 39
10.10 Amendment 39
10.11 Additional Definitions 39
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INDEX OF DEFINED TERMS
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Term Section
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Acquisition Proposal 7.5(c)
Affiliate 5.12(e)(iii)
A.G. Edwards 5.14
Agreed Courts 10.7
Agreement Introduction
Annual Statements 10.11
Applicable Laws 5.1(d)
Articles of Incorporation 1.1
Articles of Merger 1.3
Assets 10.11
Break-Up Fee 9.2(b)
Bylaws 1.1
Cashed Shares 3.1(c)
Certificates 3.1(b)
Closing 1.2
Closing Date 1.2
COBRA 5.12(e)
Code 3.1(i)
Company Introduction
Company Benefit Plan 5.12(e)(i)
Company Board Background Information
Company Disclosure Schedule Article V, Introduction
Company Expenses 9.2(f)
Company Liquidated Damages 9.2(e)
Company Material Adverse Effect 5.1(a)
Company Properties 5.10(a)
Company Subsidiary SAP 5.6(b)
Statements
Company SEC Reports 5.6
Company Stock Plans 2.3
Company Subsidiary 2.1(b)
Computer Software 10.11
Confidentiality Agreement 7.7
Current Company Benefits 7.10(f)
Package
Current Company Employee 7.10(e)
Effective Time 1.3
Environmental Claim 10.11
Environmental Permit 10.11
Environmental Law 10.11
ERISA 5.12(b)
Exchange Act 4.1(d)
Exchange Agent 3.1(a)
Exchange Fund 3.1(a)
Form 10-K 5.10(a)
FTC 7.2
GAAP 5.6
Good Reason 7.10(b)
Governmental Entity 4.1(d)
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Hazardous Substance 10.11
HSR Act 5.5
IBCL Background Information
Indemnified Liabilities 7.6(a)
Indemnified Party 7.6(a)
Indemnifying Party 7.6(a)
Injunction 8.1(e)
Insurance Commissioner 1.3
Insurance Contract 10.11
Insurance Laws 1.3
Insurance License 10.11
Intellectual Property 10.11
Investment Assets 10.11
Investment Advisers Act 5.20(f)
Investment Company Act 5.20(f)
Liability 10.11
License 10.11
Liens 5.10(a)
Maintains (re: Company Benefit Plan) 5.12(e)(ii)
Material Contracts 5.17
Merger Background Information
Merger Consideration 2.2(a)
MergerCo Introduction
MergerCo Board 4.1(b)
MergerCo Common Stock 2.1(a)
MergerCo Expenses 9.2(d)
Merger Law Background Information
MergerCo Liquidated Damages 9.2(c)
MergerCo Material Adverse 4.1(a)
Effect
Meridian Minnesota 7.11
Meridian Mutual 2.1(b)
Multiemployer Plan 5.12(e)(iv)
Mutual Company Agreement Background Information
NAIC 10.11
Old Common Background Information
Option 2.3
Option Cancellation 2.3
Consideration
Other Filings 7.2
Parent Introduction
Parent Material Adverse Effect 4.2(a)
Parties Background Information
Permitted Liens 10.11
Person 10.11
Pooling Agreement 10.11
Preferred Stock 5.3
Proceeding 10.11
Proxy Statement 7.1(a)(ii)(B)
Quarterly Statements 10.11
Rating Agencies 5.22
Reporting Tail Coverage 7.6(b)
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SAP 10.11
SAP Statements 10.11
SEC 10.2
Securities Act 5.3
Securities Laws 5.6
Special Meeting 7.1(a)(ii)(A)
Spread 2.3
Subsidiary 10.2
Superior Acquisition Proposal 7.5(c)
Surviving Corporation 1.1
Taxes 5.9(b)
Tax Returns 5.9(c)
Tax Ruling 10.11
Termination Benefit Agreement 7.10(b)
Transactions Background Information
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made as of October
25, 2000, among State Automobile Mutual Insurance Company, an Ohio mutual
insurance company ("Parent"), MIGI Acquisition Corp., an Indiana corporation and
a wholly-owned subsidiary of Parent ("MergerCo"), and Meridian Insurance Group,
Inc., an Indiana corporation (the "Company").
Background Information
A. The respective Boards of Directors of MergerCo and the Company have
approved the merger of MergerCo with and into the Company (the "Merger") in
accordance with the Indiana Business Corporation Law (the "IBCL" or the "Merger
Law"), and, upon the terms and subject to the conditions set forth in this
Agreement, holders of common shares of the Company ("Old Common") issued and
outstanding immediately prior to the Effective Time (as hereinafter defined),
other than Parent, will be entitled to the right to receive cash. It is intended
that the Merger will qualify, for federal income tax purposes, as a
reorganization under Section 368(a) of the Code (as defined below).
B. The Board of Directors of the Company (the "Company Board") has, in
light of and subject to the terms and conditions set forth in this Agreement,
determined that the Merger Consideration (as hereinafter defined) to be paid for
each share of Old Common in the Merger is fair to the shareholders of the
Company and that the Merger is otherwise advisable and fair to and in the best
interests of the Company and its shareholders. The Company Board has approved
this Agreement and the transactions contemplated or required by this Agreement,
including the Merger (collectively, the "Transactions"), and has recommended
approval and adoption by the shareholders of the Company of this Agreement and
the Transactions. In addition, concurrently with the execution of this
Agreement, Parent and Meridian Mutual (as defined below) are entering into an
Agreement to Merge (the "Mutual Company Agreement"), the transactions
contemplated by which are intended to be consummated immediately prior to the
consummation of the Merger.
C. MergerCo, Parent and the Company (collectively, the "Parties") desire to
make certain representations, warranties, covenants and agreements in connection
with the Transactions and to prescribe various conditions to the Transactions.
Statement of Agreement
The Parties acknowledge the accuracy of the foregoing Background
Information and agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company and MergerCo shall consummate the Merger
pursuant to which (a) MergerCo shall be merged with and into the Company and the
separate corporate existence of MergerCo shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Indiana, and (c) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The articles of
incorporation of the Company (the "Articles of Incorporation"), as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Surviving Corporation from and after the Effective Time until further
amended in accordance with law and such Articles of Incorporation. The bylaws of
the Company (the "Bylaws") as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation from and after the Effective
Time until further amended in accordance with law, the Articles of Incorporation
and such Bylaws. The Merger shall have the effects specified in the Merger Law.
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1.2 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated herein shall have been abandoned pursuant to Section
9.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VIII hereof, the closing of the Merger (the "Closing") shall take place
at 10:00 a.m., Columbus, Ohio, time, on the second business day after
satisfaction or waiver (by the applicable party entitled to the benefit thereof)
of all of the conditions set forth in Article VIII hereof (the "Closing Date"),
at the offices of Baker & Hostetler LLP, 65 East State Street, Suite 2100,
Columbus, Ohio 43215, unless another time, date or place is agreed to in writing
by the Parties.
1.3 Effective Time. As soon as practicable following the execution of this
Agreement, the Parties shall cause this Agreement to be provided to the
commissioners or superintendents of insurance, as applicable (each, an
"Insurance Commissioner"), of the respective states of domicile of the Company
Subsidiaries (as defined below) in accordance with the applicable insurance laws
of such states (collectively, the "Insurance Laws"). Subject to the conditions
set forth in Article VIII of this Agreement, on the Closing Date, MergerCo and
the Company shall duly execute and file articles of merger (the "Articles of
Merger") with the Secretary of State of the State of Indiana, each in accordance
with the Merger Law, and the Merger shall become effective (the "Effective
Time") upon the last to occur of (a) the filing of the Articles of Merger with
the Indiana Secretary of State and (b) such later time as the Parties may agree
to designate in such filing; provided, however, that the Effective Time shall
not be more than 31 (thirty-one) days from the date of approval by the last
Insurance Commissioner to approve the Merger. Upon the terms and subject to the
conditions of this Agreement, the Parties shall use all reasonable efforts to
assure that the filings contemplated hereby are made, and the Effective Time
occurs, as soon as is practicable.
1.4 Directors and Officers. The directors and officers of MergerCo
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of the Surviving Corporation.
Notwithstanding the foregoing to the contrary, the vice chairman of the
Surviving Corporation and the president of the Surviving Corporation, effective
as of the Effective Time, shall be Norma J. Oman and Steven R. Hazelbaker,
respectively, each of whom shall hold such office from and after the Effective
Time in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of any holder of shares of Old Common or any
holder of shares of capital stock of MergerCo:
(a) Capital Stock of MergerCo. Each common share of MergerCo (the
"MergerCo Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
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(b) Cancellation of Treasury Stock and MergerCo-Owned Stock. Each
share of Old Common, and all other shares of capital stock of the Company,
that are owned by Meridian Mutual Insurance Company, an Indiana mutual
insurance company ("Meridian Mutual"), the Company, or any Subsidiary (as
defined below) of the Company (a "Company Subsidiary") and all shares of
Old Common and other shares of capital stock of the Company owned by
MergerCo or Parent, shall be canceled and retired and shall cease to exist,
and no consideration shall be delivered or deliverable in exchange
therefor.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of MergerCo, the Company or the
holders of any shares of Old Common:
(a) Subject to the other provisions of this Section 2.2 and to Section
3.1(i), each share of Old Common issued and outstanding immediately prior
to the Effective Time, excluding shares of Old Common owned by Meridian
Mutual, the Company, any Company Subsidiary, MergerCo, or Parent, shall be
converted into the right to receive Thirty Dollars and Zero Cents ($30.00)
per share, payable in cash to the holder thereof, without any interest
thereon (the "Merger Consideration"), upon surrender of the Certificate (as
defined below) representing such share of Old Common.
(b) All such shares of Old Common, when converted as provided in
Section 2.2(a), shall no longer be considered outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
Certificate previously evidencing such shares shall thereafter represent
only the right to receive the Merger Consideration as provided herein. The
holders of Certificates (as defined below) previously evidencing shares of
Old Common outstanding immediately prior to the Effective Time shall cease
to have any rights with respect to the Old Common except as otherwise
provided herein or by law and, upon the surrender of Certificates in
accordance with Section 3.1, shall only have the right to receive for their
shares of Old Common the Merger Consideration as provided herein, without
any interest thereon.
2.3 Company Stock Options and Related Matters. As of and subject to the
occurrence of the Effective Time, each outstanding option, warrant or similar
right (including any related stock appreciation right) (an "Option") issued,
awarded or granted pursuant to any plan, agreement or arrangement of the Company
or any Company Subsidiary and entitling the holder thereof to purchase one or
more shares of Old Common (the "Company Stock Plans") shall, as of the Effective
Time, become fully vested regardless of the vesting schedule contained in any
Option agreement or any of the Company Stock Plans. At the Effective Time, after
giving effect to any such vesting, each Option shall be canceled, and each
holder of a canceled Option shall be entitled to receive, in consideration for
the cancellation of such Option, an amount in cash equal to the result obtained
when the number of shares of Old Common with respect to which such canceled
Option has not been exercised as of the cancellation of such Option is
multiplied by the excess of the Merger Consideration over the exercise price per
share of such canceled Option (such result obtained, the "Spread"). The total
consideration to be paid for the cancellation of all Options is hereinafter
referred to as the "Option Cancellation Consideration." The amount of Option
Cancellation Consideration to be delivered to the holder of any such Options
shall be subject to reduction to satisfy applicable withholding tax obligations.
With respect to each such Option, the Company shall take, or cause to be taken,
prior to the Effective Time, all such action so that each such Option shall be
automatically canceled as of the Effective Time and the holders of each such
Option shall only be entitled to receive from the Surviving Corporation, at the
Effective Time or as soon as practicable thereafter, an amount in cash equal to
the Spread, if any, in exchange for the cancellation of such Option, subject in
each case to applicable withholding tax obligations.
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ARTICLE III
PAYMENT FOR SHARES
3.1 Payment for Shares of Old Common.
(a) Prior to the Effective Time, MergerCo shall appoint a bank or
trust company reasonably acceptable to the Company to act as exchange agent
(the "Exchange Agent"). At or prior to the Effective Time, MergerCo shall
deposit, or MergerCo shall otherwise take all steps necessary to cause to
be deposited, with the Exchange Agent in an account (the "Exchange Fund")
the aggregate Merger Consideration to which holders of shares of Old Common
shall be entitled at the Effective Time pursuant to Section 2.2(a).
(b) Promptly after the Effective Time, MergerCo shall cause the
Exchange Agent to mail to each record holder of certificates (the
"Certificates") that immediately prior to the Effective Time represented
shares of Old Common a form of letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent.
(c) In effecting the payment of the Merger Consideration with respect
to shares of Old Common represented by Certificates entitled to payment of
the Merger Consideration pursuant to Section 2.2(a) (the "Cashed Shares"),
upon the surrender of each such Certificate, the Exchange Agent shall pay
the holder of such Certificate the Merger Consideration multiplied by the
number of Cashed Shares, in consideration therefor. Upon such payment such
Certificate shall forthwith be canceled.
(d) From and after the Effective Time until surrendered in accordance
with paragraph (c) above, each Certificate representing shares of Old
Common shall represent solely the right to receive the Merger Consideration
relating thereto. No interest or dividends shall be paid or accrued on the
Merger Consideration. If the Merger Consideration (or any portion thereof)
is to be delivered to any person other than the person in whose name the
Certificate formerly representing shares of Old Common surrendered therefor
is registered, it shall be a condition to the right to receive such Merger
Consideration that the Certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person surrendering
such shares of Old Common shall pay to the Exchange Agent any transfer or
other taxes required by reason of the payment of the Merger Consideration
to a person other than the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable.
(e) Promptly following the date which is 180 days after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all
cash, Certificates and other documents in its possession relating to the
Transactions, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate formerly representing shares of Old Common may
surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in
consideration therefor the Merger Consideration relating thereto without
any interest or dividends thereon.
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(f) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Old Common
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates formerly representing shares of Old Common
are presented to the Surviving Corporation or the Exchange Agent, they
shall be surrendered and canceled in return for the payment of the Merger
Consideration relating thereto, as provided in this Article III.
(g) None of MergerCo, the Company or the Exchange Agent shall be
liable to any person in respect of any cash from the Exchange Fund
delivered to a public official in good faith pursuant to any applicable
abandoned property, escheat or similar law.
(h) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the provision of reasonable and customary indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration payable to such
person pursuant to this Agreement.
(i) The Surviving Corporation shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement
to any holder of shares of Old Common such amounts as the Surviving
Corporation is required to deduct and withhold with respect to the making
of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the shares of Old Common with respect to which such
deduction and withholding was made by the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGERCO AND PARENT
4.1 Representations and Warranties of MergerCo. MergerCo and Parent,
jointly and severally, hereby represent and warrant to the Company as follows:
(a) Organization. MergerCo is a corporation duly organized and validly
existing, for which the most recent required biennial report has been filed
in the office of the Indiana Secretary of State and no articles of
dissolution have been filed in such office, and has all requisite corporate
power and authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business as now being and
proposed to be conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority, and
governmental approvals would not reasonably be expected to have a material
adverse effect on the business, results of operations or condition
(financial or otherwise) of MergerCo (a "MergerCo Material Adverse
Effect").
(b) Authorization; Validity of Agreement; Necessary Action. MergerCo
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the Transactions. The execution, delivery and
performance by MergerCo of this Agreement and the consummation of the
Transactions have been duly authorized by the Board of Directors of
MergerCo (the "MergerCo Board") and by the shareholders of MergerCo, and no
other corporate action on the part of MergerCo is necessary to authorize
the execution and delivery by MergerCo of this Agreement and the
consummation of the Transactions. This Agreement has been duly executed and
delivered by MergerCo and, assuming the due and valid authorization,
execution and delivery hereof by the Company, is a valid and binding
obligation of MergerCo enforceable against MergerCo in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights generally and to general
principles of equity.
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(c) Ownership. MergerCo is a wholly owned Subsidiary of Parent.
(d) Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under,
and other applicable requirements of, applicable Insurance Laws, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the HSR
Act (as hereinafter defined), and state securities or state "Blue Sky"
laws, none of the execution, delivery or performance of this Agreement by
MergerCo, the consummation by MergerCo of the Transactions or compliance by
MergerCo with any of the provisions hereof will (i) conflict with or result
in any breach of any provision of the articles of incorporation or bylaws
of MergerCo, (ii) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity (as hereinafter defined),
(iii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right
of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which
MergerCo is a party or by which it or any of its properties or assets may
be bound, or (iv) violate any order, writ, injunction, decree, statute,
rule, regulation or other law applicable to MergerCo or any of its
properties or assets, excluding from the foregoing clauses (ii), (iii) and
(iv) such violations, breaches or defaults which would not, individually or
in the aggregate, reasonably be expected to have a MergerCo Material
Adverse Effect. For purposes of this Agreement, "Governmental Entity" means
any governmental or quasi- governmental authority including, without
limitation, any federal, state, territorial, county, municipal or other
governmental or quasi-governmental agency, board, branch, bureau,
commission, court, department or other instrumentality or political unit or
subdivision, whether domestic or foreign.
(e) Formation of MergerCo; No Prior Activities. MergerCo was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement. As of the date hereof and as of the Effective Time, except for
(i) obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by this
Agreement and (ii) this Agreement and any other agreements or arrangements
contemplated by this Agreement or in furtherance of the transactions
contemplated hereby, MergerCo has not incurred, directly or indirectly,
through any subsidiary or affiliate, any obligations or liabilities or
engaged in any business activities of any type or kind whatsoever or
entered into any agreements or arrangements with any person.
4.2 Representations and Warranties of Parent. Parent hereby represents and
warrants to the Company as follows:
(a) Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of its state of formation and
has all requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power,
authority, and governmental approvals would not reasonably be expected to
have a material adverse effect on the business, results of operations or
condition (financial or otherwise) of Parent (a "Parent Material Adverse
Effect").
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(b) Authorization; Validity of Agreement; Necessary Action. Parent has
all requisite power and authority to execute and deliver this Agreement and
to consummate the Transactions (subject to the authorizations, consents,
and approvals described in Section 4.2(c), below). The execution, delivery
and performance by Parent of this Agreement and the consummation of the
Transactions have been duly authorized by all necessary action on the part
of Parent and no other action on the part of Parent is necessary to
authorize the execution and delivery by Parent of this Agreement and the
consummation of the Transactions. This Agreement has been duly executed and
delivered by Parent and, assuming due and valid authorization, execution
and delivery hereof by the Company, is a valid and binding obligation of
Parent enforceable against Parent in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights generally and to general principles of
equity.
(c) Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under,
and other applicable requirements of, applicable Insurance Laws, the
Exchange Act, the HSR Act, and state securities or state "Blue Sky" laws,
none of the execution, delivery or performance of this Agreement by Parent,
the consummation by Parent of the Transactions or compliance by Parent with
any of the provisions hereof will (i) conflict with or result in any breach
of any provision of the organizational documents of Parent, (ii) require
any filing with, or permit, authorization, consent or approval of, any
Governmental Entity, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent is a party or by which it or any
of its properties or assets may be bound, or (iv) violate any order, writ,
injunction, decree, statute, rule, regulation or other law applicable to
Parent or any of its properties or assets, excluding from the foregoing
clauses (ii), (iii) and (iv) such violations, breaches or defaults which
would not, individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect.
(d) Litigation. There are no actions, suits, proceedings,
investigations or claims pending against MergerCo or Parent, at law or in
equity, or before or by any court, commission, governmental department,
board, bureau, agency, administrative officer or executive, or
instrumentality, whether federal, state, local or foreign, or before any
arbitrator, that would, individually or in the aggregate, reasonably be
expected to prevent or delay the consummation of the Transactions or to
have a Parent Material Adverse Effect or a MergerCo Material Adverse
Effect, as the case may be.
(e) No Brokers. Neither MergerCo nor Parent has entered into any
contract, arrangement or understanding with any person or firm, other than
Philo Smith & Co., which may result in the obligation of such entity or the
Company to pay any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement
or consummation of the Transactions.
(f) Compliance with Laws. MergerCo and Parent are in compliance with
all Applicable Laws (as hereinafter defined), except where the failure to
comply would not, individually or in the aggregate, reasonably be expected
to have a MergerCo Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be.
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(g) Contracts; Debt Instruments. Neither Parent nor any of its
Subsidiaries has received a written notice that Parent or any of its
Subsidiaries is in violation of or in default under any material loan or
credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or any other material contract, agreement,
arrangement or understanding, to which it is a party or by which it or any
of its properties or assets is bound, nor does any violation or default
exist, except to the extent such violation or default would not,
individually or in the aggregate, have a Parent Material Adverse Effect or
a MergerCo Material Adverse Effect, as the case may be.
(h) Investment Company Act of 1940. Neither Parent nor any of its
Subsidiaries is, or at the Effective Time will be, required to be
registered under the Investment Company Act (as defined below).
(i) Sufficient Funds. Parent has sufficient funds to consummate, and
to cause MergerCo to consummate, the Transactions, including, without
limitation, to (i) pay, with respect to all shares of Old Common in the
Merger, the Merger Consideration pursuant to Section 2.2(a), (ii) pay to
the Company all Option Cancellation Consideration provided for in Section
2.3, (iii) perform its post-Closing obligations set forth in Article VII,
and (iv) pay all fees and expenses in connection with the Transactions.
Parent has provided to the Company true, complete and correct copies of its
financing arrangements with respect to the Transactions.
(j) Complete Disclosure. No representation or warranty by Parent or
MergerCo in this Agreement contains, or will contain as of the Effective
Time, any untrue statement of a material fact or omits, or will omit as of
the Effective Time, a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedules delivered at or prior to
the execution hereof to MergerCo (the "Company Disclosure Schedule"), the
Company represents and warrants to Parent and MergerCo as follows:
5.1 Existence; Good Standing; Authority; Compliance With Law.
(a) The Company is a corporation duly organized and validly existing,
for which the most recent required biennial report has been filed in the
office of the Indiana Secretary of State and no articles of dissolution
have been filed in such office. The Company is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the
laws of any other state of the United States in which the ownership of its
property or the conduct of its business makes such qualification necessary,
except where the failure to be so licensed or qualified or in good standing
would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect (as hereinafter defined). For purposes of
this Agreement, an event shall be deemed to have a "Company Material
Adverse Effect" if such event has a material adverse effect on the
business, results of operations or condition (financial or otherwise) of
the Company and the Company Subsidiaries taken as a whole; provided,
however, that the effects of changes that are generally applicable to (i)
the insurance industry and the markets for insurance and insurance-related
products and the other industries and markets in which the Company and the
Company Subsidiaries operate or (ii) the United States securities markets
for debt and equity securities, shall be excluded from the determination of
a Company Material Adverse Effect; and provided, further, that any adverse
effect on the Company or the Company Subsidiaries resulting from the
announcement of Parent's proposal to acquire the Company, the execution and
announcement of this Agreement, or the Transactions or regulatory approvals
contemplated hereby shall also be excluded from the determination of a
Company Material Adverse Effect. The Company has all requisite corporate
power and authority to own, operate, lease and encumber its properties and
carry on its business as now conducted.
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(b) Except as set forth in Section 5.1 of the Company Disclosure
Schedule, each of the Company Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has the corporate power and authority to own
its properties and to carry on its business as it is now being conducted,
and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which
such failure to be so qualified or to be in good standing would not
reasonably be expected to have a Company Material Adverse Effect.
(c) Except as set forth in Section 5.1 of the Company Disclosure
Schedule, to the knowledge of the Company, the Company and the Company
Subsidiaries possess all licenses, permits and other authorizations
required to conduct their businesses as now conducted by them, except where
the failure to possess such licenses, permits and other authorizations
would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect. Each Company Subsidiary (i) possesses an
Insurance License (as defined below) in each jurisdiction in which it is
required to possess an Insurance License and (ii) is duly authorized in its
jurisdiction of incorporation and each other applicable jurisdiction to
write each line of business reported as being written in the Company
Subsidiary SAP Statements (as defined below). All such Insurance Licenses,
including, but not limited to, authorizations to transact reinsurance are
in full force and effect without amendment, limitation or restriction,
other than as described in the Company Disclosure Schedule, and, to the
Company's knowledge, there is no event, inquiry or Proceeding (as defined
below) which is reasonably likely to lead to the revocation, amendment,
failure to renew, limitation, suspension or restriction of any such
Insurance License.
(d) Except as set forth in Section 5.1 of the Company Disclosure
Schedule, to the knowledge of the Company, the Company and the Company
Subsidiaries are in compliance with all applicable laws, statutes, orders,
rules, regulations, policies or guidelines promulgated, or judgments,
decisions or orders entered, by any federal, state or local court or
governmental authority applicable to the Company or to any of the Company
Subsidiaries or to their respective businesses or properties (collectively,
the "Applicable Laws"), except where the failure to comply would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
5.2 Authorization, Validity and Effect of Agreements. Each of the Company
and the Company Subsidiaries, as applicable, has the requisite power and
authority to enter into the Transactions and to execute and deliver this
Agreement. The Company Board has approved this Agreement and the Transactions.
Subject only to the approval of this Agreement by the holders of the Old Common,
the execution by the Company of this Agreement and the consummation of the
Transactions have been duly authorized by all requisite corporate action on the
part of the Company. This Agreement has been duly executed and delivered by the
Company and, subject to approval by holders of the Old Common, and assuming due
and valid authorization, execution and delivery thereof by MergerCo and Parent,
constitutes a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights generally and to general principles of equity.
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5.3 Capitalization. The authorized capital stock of the Company consists of
20,000,000 shares of Old Common and 500,000 preferred shares of the Company (the
"Preferred Stock"). As of the date of this Agreement, (a) 7,838,219 shares of
Old Common were issued and outstanding; (b) zero shares of Preferred Stock were
issued and outstanding; and (c) 445,302 shares of Old Common and zero shares of
Preferred Stock were held in the treasury of the Company. All such issued and
outstanding shares of Old Common have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights. Except as set
forth in Section 5.3 of the Company Disclosure Schedule, (i) there are no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the shareholders of the Company on any
matter, (ii) there are no outstanding options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate the Company to issue, transfer or sell any shares of capital stock of
the Company, (iii) there are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock, partnership interests or any other securities of the
Company or any Company Subsidiary, and (iv) neither the Company nor any Company
Subsidiary is under any obligation, contingent or otherwise, by reason of any
agreement to register the offer and sale or resale of any of its securities
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"). As of the date hereof, there are
no declared but unpaid dividends outstanding with respect to the Old Common.
5.4 Subsidiaries. Section 5.4 of the Company Disclosure Schedule sets forth
a list of the Company Subsidiaries. Except as set forth in Section 5.4 of the
Company Disclosure Schedule, the Company owns directly or indirectly each of the
outstanding shares of capital stock or other equity interests of each of the
Company Subsidiaries free and clear of all liens, pledges, security interests,
claims or other encumbrances. Each of the outstanding shares of capital stock of
each of the Company Subsidiaries that is a corporation has been duly authorized
and validly issued and is fully paid and nonassessable. Except as set forth in
Section 5.4 of the Company Disclosure Schedule or in Schedule D to the Company's
or any Company Subsidiary's statutory annual statement as amended from time to
time to reflect the Company's or such Company Subsidiary's investment activity
in the ordinary course of business, neither the Company nor any Company
Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, limited liability company,
joint venture, business, trust or other entity (other than investments in
short-term investment securities and trade receivables).
5.5 No Violation; Consents. Neither the execution and delivery by the
Company of this Agreement nor the consummation by the Company of the
Transactions in accordance with the terms hereof will conflict with or result in
a breach of any provisions of the Articles of Incorporation, Bylaws, or other
organizational documents of the Company or of any Company Subsidiary. Except as
set forth in Section 5.5 of the Company Disclosure Schedule, to the knowledge of
the Company, the execution and delivery by the Company of this Agreement and
consummation by the Company of the Transactions in accordance with the terms
hereof will not violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
or in a right of termination or cancellation of, or accelerate the performance
required by, or result in the creation of any lien, security interest, charge or
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encumbrance upon any of the properties of the Company or the Company
Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of (a) any
note, bond, mortgage, indenture, deed of trust or (b) any license, permit,
contract, agreement or obligation to which the Company or any of the Company
Subsidiaries is a party, or by which the Company or any of the Company
Subsidiaries or any of their properties is bound, except as would not (i)
prevent or delay consummation of the Merger in any material respect or otherwise
prevent the Company from performing its obligations under this Agreement in any
material respect, or (ii) individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. Other than the filings
provided for in the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), and the Exchange Act or applicable state securities and "Blue Sky"
laws, and other than filings required by the Insurance Commissioners and state
Governmental Entities with regulatory authority over the Company Subsidiaries,
the execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company and consummation of the
Transactions do not, require any consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, except as would not (A) prevent or delay consummation of the Merger
in any material respect or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect or (B) individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
5.6 SEC Documents; Financial Matters.
(a) The Company has filed all forms, reports and documents required to
be filed by it with the SEC (collectively, the "Company SEC Reports"), in
accordance with the Exchange Act, the Securities Act and the rules and
regulations promulgated thereunder (the "Securities Laws"). Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company SEC Reports (including the related notes and
schedules) fairly presents in all material respects the consolidated
financial position of the Company and the Company Subsidiaries as of its
date, and each of the consolidated statements of income, retained earnings
and cash flows of the Company included in or incorporated by reference into
the Company SEC Reports (including any related notes and schedules) fairly
presents in all material respects the results of operations, retained
earnings or cash flows, as applicable, of the Company and the Company
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not
be material in amount or effect), in each case in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the
periods involved, except as may be noted therein and except, in the case of
the unaudited statements, as permitted by Form 10-Q pursuant to Section 13
or 15(d) of the Exchange Act.
(b) The Company has previously made available to Parent and MergerCo
true and complete copies of the following: (i) the Annual Statements (as
defined below) for each Company Subsidiary as of and for the years ended
December 31, 1997, 1998 and 1999; (ii) the Quarterly Statement (as defined
below) for each Company Subsidiary as of and for the calendar quarters
ended March 31, June 30, and September 30, 2000; (iii) any supplemental or
separate statutory annual statements or quarterly statements for any
Company Subsidiary for any of the periods ended December 31, 1997, 1998 or
1999 or March 31, June 30, and September 30, 2000 that are filed with any
insurance Governmental Entity and that differ from the Annual Statements or
the Quarterly Statements described in Section 5.6(b)(i) or (ii), above; and
(iv) the audited SAP (as defined below) balance sheets of each Company
Subsidiary as of December 31, 1997, 1998 and 1999 and the related audited
summary of operations and statements of change in capital and surplus and
cash flows of each Company Subsidiary for each of such years, together with
the notes related thereto and the reports thereon of PricewaterhouseCoopers
LLP (collectively with the items described in Section 5.6(b)(i), (ii) and
(iii), the "Company Subsidiary SAP Statements"). Since December 31, 1999,
the Company has filed, or caused to be filed, all SAP Statements required
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to be filed with or submitted to the appropriate regulatory authorities,
except for such filings or submissions, the failure so to file or submit is
not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect. Each Company Subsidiary SAP Statement complied
(and, as to SAP Statements filed after the date of this Agreement, will
comply) in all material respects with all Applicable Laws when so filed,
and all material deficiencies with respect to any such Company Subsidiary
SAP Statement have been cured or corrected. Each Company Subsidiary SAP
Statement (and the notes related thereto) referred to in Section 5.6(b)(i),
(ii) and (iv), above, was prepared (and, as to SAP Statements filed after
the date of this Agreement, will be prepared) in accordance with SAP and
presents (and, as to SAP Statements filed after the date of this Agreement,
will present) fairly, in all material respects, the financial position of
the Company Subsidiary to which such SAP Statement applies as of the
respective dates thereof and the related summaries of operations and
changes in capital and surplus and cash flows of such Company Subsidiary
for the respective periods covered thereby. To the Company's knowledge,
each Company Subsidiary SAP Statement (including the notes related thereto)
referred to in Section 5.6(b)(iii) hereof was prepared (or, in the case of
similar SAP Statements filed after the date of this Agreement, will be
prepared) in accordance with the statutory accounting practices required by
the insurance Governmental Entity in the jurisdiction in which such
statement was (or will be) filed.
(c) Except as set forth in Section 5.6(c) of the Company Disclosure
Schedule, with respect to each Company Subsidiary, the aggregate actuarial
reserves and other actuarial amounts held in respect of Liabilities (as
defined below) with respect to Insurance Contracts (as defined below) of
such Company Subsidiary as established or reflected in its December 31,
1999 Annual Statement and in its September 30, 2000 Quarterly Statement:
(i)(A) were determined in accordance with generally accepted actuarial
standards consistently applied, (B) were fairly stated, in all material
respects, in accordance with sound actuarial principles, and (C) were based
on actuarial assumptions that are in accordance with or are more
conservative than those specified in the related Insurance Contracts; and
(ii) complied with, in all material respects, the requirements of the
Insurance Law of the jurisdiction applicable to such Company Subsidiary.
Each Company Subsidiary owns Assets (as defined below) that qualify as
admitted assets under applicable Insurance Laws in an amount at least equal
to the sum of such Company Subsidiary's statutory reserves and other
similar amounts.
5.7 Litigation. Except as disclosed in the Company SEC Reports or as would
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, to the knowledge of the Company there are no actions,
suits, proceedings, investigations or claims pending or threatened against the
Company, at law or in equity, or before or by any court, commission,
governmental department, board, bureau, agency, administrative officer or
executive, or instrumentality (including, without limitation any actions, suits,
proceedings or investigations with respect to the transactions contemplated by
this Agreement), whether federal, state, local or foreign, or before any
arbitrator.
5.8 Absence of Certain Changes. Except as set forth in Section 5.8 of the
Company Disclosure Schedule and except as disclosed in the Company SEC Reports
filed after December 31, 1999, since January 1, 2000, the Company and the
Company Subsidiaries have conducted their businesses in the ordinary course of
business and there has not been: (a) any event or events that have taken place
that would, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect or (b) except as required by SAP or any
Applicable Law, any action taken by the Company that would require the consent
of MergerCo under Section 6.1 if taken after the execution of this Agreement.
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5.9 Taxes.
(a) Except as set forth in Section 5.9 of the Company Disclosure
Schedule, each of the Company and the Company Subsidiaries has filed all
Tax Returns (as hereinafter defined) which the Company was required to file
(after giving effect to any filing extension granted by a Governmental
Entity), and has paid all Taxes (as hereinafter defined) required to be
paid by it, except, in each case, where the failure to file such Tax
Returns or pay such Taxes would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. To the
knowledge of the Company, no deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of the Company
Subsidiaries, and no requests for waivers of the time to assess any such
Taxes are pending. Except as set forth in Section 5.9 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary is a
party to any Tax sharing agreement, or agreement for an exemption with any
Governmental Entity.
(b) For purposes of this Agreement, "Taxes" means all federal, state,
local and foreign income, property, sales, franchise, employment, payroll,
withholding, estimated minimum, excise and other taxes, tariffs and
governmental charges of any nature whatsoever, together with any interest,
penalties or additions to tax with respect thereto.
(c) For purposes of this Agreement, "Tax Returns" means all reports,
returns, declarations, statements and other information required to be
supplied to a taxing authority in connection with Taxes, including any
amendments thereof.
5.10 Properties.
(a) All of the real estate properties owned or leased by the Company
or any of the Company Subsidiaries are set forth in Section 5.10 of the
Company Disclosure Schedule. Except as set forth in Section 5.10 of the
Company Disclosure Schedule, the Company or a Company Subsidiary owns good
and marketable title to each of the owned real properties identified in
Section 5.10 of the Company Disclosure Schedule (the "Company Properties")
free and clear of all liens, mortgages, hypothecations, deeds of trust,
deeds to secure debt, pledges, security interests, charges, claims, levies
or other encumbrances of any kind (collectively, "Liens"), other than Liens
which secure indebtedness which is properly reflected in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"Form 10-K"), or in a Company SEC Report filed subsequent to the filing of
the Form 10-K.
(b) The Company and the Company Subsidiaries own or lease all
machinery, equipment and other tangible personal property and assets
necessary for the conduct of their business as presently conducted, except
where the absence of such ownership or leasehold interest would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company and the Company Subsidiaries own good
title, free and clear of all Liens, to all of the personal property and
assets reflected in the Form 10-K or in a Company SEC Report filed
subsequent to the filing of the Form 10-K, except for (i) assets which have
been disposed of to nonaffiliated third parties in the ordinary course of
business (except as set forth in Section 5.10 of the Company Disclosure
Schedule) or (ii) Liens which secure indebtedness which is properly
reflected in the Form 10-K or in a Company SEC Report filed subsequent to
the filing of the Form 10-K.
5.11 Environmental Matters. Except as set forth in Section 5.11 of the
Company Disclosure Schedule, to the knowledge of the Company, the Company
and the Company Subsidiaries are in compliance with all Applicable Laws
relating to environmental matters except where the failure to comply would
not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. There is no administrative or judicial
enforcement proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Company Subsidiary under any
Applicable Law relating to environmental matters.
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5.12 Employee Benefit Plans.
(a) Section 5.12 of the Company Disclosure Schedule sets forth a list
of each Company Benefit Plan (as hereinafter defined) that is maintained by
the Company or an Affiliate (as hereinafter defined) on the date hereof.
(b) Except as set forth in Section 5.12 of the Company Disclosure
Schedule, to the knowledge of the Company, (i) each Company Benefit Plan
(and any related trust, insurance contract or fund) complies in form and in
operation in all material respects with all Applicable Laws, including, but
not limited to, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code; and (ii) all contributions to, payments to
be made from, or premiums owing with respect to, any Company Benefit Plan
for all periods ending on or prior to the Closing Date have been paid or
accrued in accordance with GAAP and are reflected in the Form 10-K or in
the Company SEC Reports filed subsequent to the filing of the Form 10-K. To
the knowledge of the Company, no litigation or governmental administrative
proceeding (or investigation) or other proceeding (other than those
relating to routine claims for benefits) is pending or threatened with
respect to any such Company Benefit Plan.
(c) Neither the Company nor any Affiliate has ever maintained a
Multiemployer Plan (as hereinafter defined). Except as set forth in Section
5.12 of the Company Disclosure Schedule, the Company has complied with the
health care coverage continuation requirements of Part 6 of Subtitle B of
Title I of ERISA and Code Section 4980B ("COBRA"), and the Company has no
obligation under any Company Benefit Plan or otherwise to provide life or
health insurance benefits to current or future terminated or retired
employees of the Company, except as specifically provided by COBRA.
(d) With respect to each Company Benefit Plan, complete and correct
copies of the following documents (if applicable to such Company Benefit
Plan) have previously been delivered or made available to MergerCo: (i) all
documents embodying or governing such Company Benefit Plan, and any funding
medium for such Company Benefit Plan, trust agreement or insurance
contract, as they may have been amended to the date hereof; (ii) the most
recent IRS determination or approval letter with respect to such Company
Benefit Plan under Code Section 401(a), and any applications for
determination or approval subsequently filed with the IRS; (iii) if
applicable, the three most recently filed IRS Forms 5500, with all
applicable schedules and accountants' opinions attached thereto; (iv) the
current summary plan description for such Company Benefit Plan (or other
descriptions of such Company Benefit Plan provided to employees) and all
modifications thereto; and (v) any insurance policy (including any
fiduciary liability insurance policy or fidelity bond) related to such
Company Benefit Plan.
(e) For purposes of this Section:
(i) "Company Benefit Plan" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3) maintained by the Company or
any Affiliate, including without limitation multiple employer welfare
arrangements (within the meaning of ERISA Section 3(40)), plans to
which more than one unaffiliated employer contributes, and employee
benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; (B) all stock option plans, stock purchase plans,
bonus or incentive award plans, severance pay policies or agreements,
deferred compensation agreements, supplemental income arrangements,
vacation plans, and all other employee benefit plans, agreements, and
arrangements not described in (A), above, maintained by the Company or
any Affiliate, including without limitation any arrangement intended
to comply with Code Section 120, 125, 127, 129 or 137; and (C) all
plans or arrangements providing compensation to employee and
non-employee directors maintained by the Company or any Affiliate. In
the case of a Company Benefit Plan funded through a trust or any other
insurance contract each reference to such Company Benefit Plan shall
include a reference to such trust, organization or insurance contract;
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(ii) An entity "maintains" a Company Benefit Plan if such entity
contributes to or provides benefits under or through such Company
Benefit Plan or has any obligation (by agreement or under applicable
law) to contribute to, or provide benefits under, or through such
Company Benefit Plan, or if such Company Benefit Plan provides
benefits to, or otherwise covers, employees of such entity (or their
spouses, dependents, or beneficiaries);
(iii) An entity is an "Affiliate" of the Company for purposes of
this Section 5.12 if it would have ever been considered a single
employer with the Company under ERISA Section 4001(b) or part of the
same "controlled group" as the Company for purposes of ERISA Section
302(d)(8)(C); and
(iv) "Multiemployer Plan" means an employee pension or welfare
benefit plan to which more than one unaffiliated employer contributes
and which is maintained pursuant to one or more collective bargaining
agreements as defined in ERISA Section 3(37).
5.13 Labor Matters. Neither the Company nor any Company Subsidiary is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization. To
the knowledge of the Company, there is no unfair labor practice or labor
arbitration proceeding pending or threatened against the Company or any of the
Company Subsidiaries, except for any such proceeding which would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. To the knowledge of the Company, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of the Company or of
any of the Company Subsidiaries.
5.14 No Brokers. Neither the Company nor any of the Company Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or MergerCo to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that the Company has retained A.G. Edwards & Sons, Inc.
("A.G. Edwards") to render a fairness opinion with respect to the Transactions.
The Company has furnished to MergerCo complete and correct copies of all
agreements between the Company and A.G. Edwards pursuant to which such firm
would be entitled to any payment relating to the transactions contemplated by
this Agreement.
5.15 Opinion of Financial Advisor. The Company has received the opinion of
A.G. Edwards to the effect that, as of the date hereof, the Merger Consideration
is fair from a financial point of view to the holders of the Old Common.
5.16 Insurance. The Company and the Company Subsidiaries are insured by
financially sound and reputable insurers, unaffiliated with the Company, with
respect to their properties and the conduct of their businesses in such amounts
and against such risks as are sufficient for compliance with law and as are in
accordance with normal industry practice.
5.17 Contracts and Commitments. Section 5.17 of the Company Disclosure
Schedule lists each written and, to the knowledge of the Company, each oral
contract, agreement, instrument, arrangement and understanding to which either
the Company or any Company Subsidiary is a party, including all amendments and
supplements thereto, which is material to the business operations, assets,
properties, or condition (financial or otherwise) of the Company or any Company
Subsidiary (collectively, the "Material Contracts" and each a "Material
Contract"), including without limitation the following:
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(a) All employment, consultation, retirement, termination, sign-on,
buy-out or other contracts with any present or former officer, director,
trustee, employee, agent, broker or independent contractor of the Company
or any Company Subsidiary (including, but not limited to, loans or advances
to any such Person (as defined below) or any Affiliate of such Person)
providing for annual compensation of $100,000 or more or for compensation
over the term of the contract, and any renewal thereof, of $200,000 or more
(including, but not limited to, base salary, bonus and incentive payments
and other payments or fees, whether or not any portion thereof is
deferred);
(b) All contracts (other than, with respect to Investment Assets (as
defined below), contracts containing customary restrictions on the ability
to own or operate competing real property in a specified geographic area)
with any Person including, but not limited to, any Governmental Entity,
containing any provision or covenant (i) limiting the ability of the
Company or any Company Subsidiary to engage in any line of business, to
compete with any Person, to do business with any Person or in any location
or to employ any Person or (ii) limiting the ability of any Person to
compete with or obtain products or services from the Company or any Company
Subsidiary, which, in the case of any such contract described in clauses
(i) and (ii) is, individually or together with other such contracts,
reasonably likely to have a Company Material Adverse Effect;
(c) All contracts relating to the borrowing of money in excess of
$250,000 by the Company or any Company Subsidiary or the direct or indirect
guarantee by the Company or any Company Subsidiary of any obligation of any
Person for borrowed money or other financial obligation of any Person in
excess of $250,000 (other than indebtedness in respect of Investment
Assets), or any other Liability of the Company or any Company Subsidiary in
respect of indebtedness for borrowed money or other financial obligation of
any Person in excess of $250,000 (other than indebtedness in respect of
Investment Assets), including, but not limited to, any Contract relating to
or containing provisions with respect to (i) the maintenance of
compensating balances that are not terminable by the Company or any Company
Subsidiary without penalty upon not more than ninety (90) days' notice,
(ii) any lines of credit or similar facilities, (iii) the payment for
property, products or services of any other Person even if such property,
products or services are not conveyed, delivered or rendered, or (iv) any
obligation to satisfy any financial obligation or covenants, including, but
not limited to, take-or-pay, keep-well, make-whole or maintenance of
working capital, capital or earnings levels or financial ratios or to
satisfy similar requirements;
(d) All contracts (other than Insurance Contracts and other contracts
entered into in the ordinary course of business) with any Person containing
any provision or covenant relating to the indemnification or holding
harmless by the Company or any Company Subsidiary of any Person which is
reasonably likely to result in a Liability to the Company or any of the
Company Subsidiaries of $250,000 or more;
(e) All leases or subleases of real property used in the conduct of
the business of the Company or any Company Subsidiary and all other leases,
subleases or rental or use contracts providing for annual rental payments
to be paid by or on behalf of the Company or any Company Subsidiary,
involving, in the case of each of the foregoing, annual payments in excess
of $100,000;
(f) All contracts relating to the future disposition (including, but
not limited to, restrictions on transfer or rights of first refusal) or
future acquisition of any interest in any business enterprise, and all
contracts relating to the future disposition of a material portion of the
Assets of the Company or any Company Subsidiary other than in each case any
Investment Asset or interest in any business enterprise or Assets to be
acquired or disposed of in the ordinary course of business;
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(g) All Insurance Contracts (including, but not limited to, any
contract pursuant to which the Company receives or has received surplus
relief) including, with respect to each such contract, the ceding and
assuming Person, the business reinsured and the amount of the Liability
reinsured;
(h) All other contracts (other than (i) Insurance Contracts, (ii)
contracts relating to Investment Assets entered into in the ordinary course
of business, (iii) employment contracts that are not otherwise required to
be set forth in the Company Disclosure Schedule, (iv) contracts solely
between the Company or any Company Subsidiary, on the one hand, and any
Company Subsidiary, on the other hand, and (v) other contracts which are
expressly excluded under any other subsection of this Section 5.17) that
involve or are reasonably likely to involve the payment pursuant to the
terms of such contracts by or to the Company or any Company Subsidiary of
$200,000 or more (other than contracts with insurance agents or brokers) or
the termination of which is reasonably likely to have a Company Material
Adverse Effect;
(i) All contracts or arrangements (including, but not limited to,
those relating to allocations of expenses, personnel, services or
facilities) between or among the Company and any Subsidiary or Affiliate of
the Company, other than those contracts disclosed in the Company SEC
Reports;
(j) All outstanding proxies (other than routine proxies in connection
with annual meetings), powers of attorney or similar delegations of
authority of the Company or any Company Subsidiary to an unrelated Person,
other than those entered into in the ordinary course of business in
connection with Investment Assets; and
(k) All contracts the terms of which provide that the Merger will give
rise to a severance Liability for the Company, any Company Subsidiary or
the Surviving Company.
Each of the Material Contracts is in full force and effect and constitutes
a valid and binding obligation of each of the Company and the Company
Subsidiaries to the extent that it is a party thereto. Neither the Company nor
any Company Subsidiary is in breach or default of any Material Contract except
where such breach or default would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
5.18 Related Party Transactions. Except as set forth in Section 5.18 of the
Company Disclosure Schedule, the Company SEC Reports set forth a list of all
arrangements, agreements and contracts entered into by the Company or any of the
Company Subsidiaries (which are or will be in effect as of or after the date of
this Agreement) involving payments in excess of $60,000 with any person who is
an officer, director or affiliate of the Company or any of the Company
Subsidiaries, any relative of any of the foregoing, or any entity of which any
of the foregoing is an affiliate.
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5.19 Absence of Undisclosed Liabilities. Except as set forth in Section
5.19 of the Company Disclosure Schedule, and except as and to the extent
reflected in the Form 10-K or in a Company SEC Report filed subsequent to the
filing of the Form 10- K, neither the Company nor any Company Subsidiary has, or
is subject to, any liability or obligation of any nature required to be
reflected in a balance sheet prepared in accordance with GAAP, whether accrued,
absolute, contingent or otherwise, other than liabilities or obligations arising
in the ordinary course since the date of the last such filing.
5.20 Insurance Issued by Company Subsidiaries. Except as set forth in the
Company Disclosure Schedule:
(a) All material contracts, arrangements, treaties and agreements to
which the Company or any Company Subsidiary is a party with respect to
reinsurance applicable to insurance in force on the date of this Agreement,
and all material contracts, arrangements, treaties and agreements under
which the Company or any Company Subsidiary has any obligation to cede
insurance, are valid, binding and in full force and effect in accordance
with their terms. Neither the Company nor any Company Subsidiary is in
material default of any such material contract, arrangement, treaty or
agreement, except for any default which, individually or in the aggregate,
is not reasonably likely to have a Company Material Adverse Effect;
(b) Each insurance policy or certificate form, as well as any related
application form, written advertising material and rate or rule currently
marketed by the Company or any Company Subsidiary, the use or issuance of
which requires filing or approval, has been appropriately filed, and if
required, approved by the insurance regulatory authorities of any state in
which such policies and forms are required to be filed, except where the
failure to make any such filing or receive any such approval would not be
reasonably expected to have a Company Material Adverse Effect. To the
Company's knowledge, all such policies and certificates, forms,
applications, advertising materials and rates or rules are in compliance in
all material respects with all Applicable Laws;
(c) Since January 1, 1995, all claims and benefits claimed by any
Person under any Insurance Contract of the Company or any Company
Subsidiary have or will have in all material respects been paid (or
provision for payment thereof has been made) in accordance with the terms
of the contracts under which they arose, and such payments were not
materially delinquent and were paid without fines or penalties, except for
any such claims or claim for benefits of less than $100,000 for which the
Company reasonably believes there is a reasonable basis to contest payment
and is taking (or is preparing to take) such action;
(d) Except as set forth in the SAP Statements referred to in Section
5.6, above, and except as provided by Applicable Law, no provision in any
policy in force gives policyholders the right to receive dividends or
distributions on their policies (other than accruals of interest on cash
values or as claim benefits) or otherwise share in the benefits, revenue or
profits of the Company or any Company Subsidiary, provided that the
practice in certain instances of making dividends based upon policyholder
loss experience or favorable earnings experience shall not violate the
representation contained in this sentence. Except as incurred in the
ordinary course of business, neither the Company nor any Company Subsidiary
is liable to pay commissions upon the renewal of any insurance policy nor
is it a party to any agreement providing for the collection of insurance
premiums payable to the Company or any Company Subsidiary by any other
Person;
(e) The Company has made available to Parent and MergerCo a copy of
all written investment policies and procedures for the Company and the
Company Subsidiaries;
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(f) Except as set forth in the Company Disclosure Schedule, neither
the Company nor any Company Subsidiary is engaged in any activity that
would require registration by the Company or any Company Subsidiary as an
investment company, broker-dealer, investment advisor or fund administrator
under any state or federal law, including the Exchange Act, the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the
Investment Advisers Act of 1940, as amended (the "Investment Advisers
Act"). Neither the Company nor any Company Subsidiary maintains or manages
any open-end management investment company or portfolio;
(g) Neither the Company nor any Company Subsidiary is engaged in the
business of serving as a custodian or transfer agent;
(h) The Company has duly and validly filed or caused to be so filed
all material reports, statements, documents, registrations, filings or
submissions that were required by applicable Insurance Laws to be filed
with respect to it and the Company Subsidiaries, except where the failure
to make any such filing would not be reasonably likely to have a Company
Material Adverse Effect; all such filings complied with all Applicable Laws
in all material respects when filed; and no material deficiencies have been
asserted with respect to any such filings which have not been satisfied in
all material respects. All outstanding insurance policies, annuity
contracts and assumption certificates issued by the Company or any Company
Subsidiary and now in force are, to the extent required under Applicable
Laws, on forms approved by the insurance regulatory authority of the
jurisdiction where issued and utilize premium rates which if required to be
filed with or approved by insurance regulatory authorities have been so
filed or approved, except where the failure to file or obtain the approval
of such premium rates would not be reasonably likely to have a Company
Material Adverse Effect, and the premiums charged conform thereto, except
where the failure to conform would not have a Company Material Adverse
Effect;
(i) To the Company's knowledge, no other party to any reinsurance,
coinsurance or other similar agreement with the Company or any Company
Subsidiary is in default thereunder, except for such defaults that would
not reasonably be expected to have a Company Material Adverse Effect;
(j) To the Company's knowledge, (i) each insurance agent or broker, at
the time such agent or broker wrote, sold or produced business for the
Company or any Company Subsidiary, was duly licensed as an insurance agent
or broker (for the type of business written, sold or produced by such
insurance agent or broker) in the particular jurisdiction in which such
agent or broker wrote, sold or produced such business for the Company or
such Company Subsidiary, and (ii) no such insurance agent or broker
violated (or with notice or lapse of time or both would have violated) any
term or provision of any Applicable Law applicable to any aspect
(including, but not limited to, the marketing, writing, sale or production)
of the business of the Company or any Company Subsidiary.
5.21 Cancellations. Except as set forth in the Company Disclosure Schedule,
between December 31, 1999 and the date of this Agreement, no Person or group of
Persons acting in concert writing, selling or producing insurance business,
which in the aggregate accounted for one percent (1%) or more of the gross
premium income of the Company or any Company Subsidiary for the year ended
December 31, 1999, has terminated or substantially reduced, or threatened to
terminate or substantially reduce, its relationship with the Company or such
Company Subsidiary.
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5.22 Rating Agencies. Except as disclosed in the Company Disclosure
Schedule, since December 31, 1999, none of A.M. Best and Company, Standard &
Poor's Corporation or Moody's Investor Services, Inc. (collectively, the "Rating
Agencies") has, other than as a result of the announcement of the Merger or the
transactions contemplated hereby, (a) imposed conditions (financial or
otherwise) on retaining any currently held rating assigned to the Company or any
Company Subsidiary, or (b) indicated to the Company that it is considering the
downgrade of any rating assigned to the Company or any Company Subsidiary.
5.23 Investment Company. None of the Company Subsidiaries maintains any
separate accounts. Neither the Company nor any Company Subsidiary conducts
activities of or is otherwise deemed under applicable law to control an
"investment adviser" as such term is defined in Section 2(a)(20) of the
Investment Company Act, whether or not registered under the Investment Advisers
Act. Neither the Company nor any Company Subsidiary is an "investment company"
as defined under the Investment Company Act, and neither the Company nor any
Company Subsidiary sponsors any Person that is such an investment company.
5.24 No Other Representations or Warranties. Except for the representations
and warranties contained in this Agreement, neither the Company nor any other
Person makes any other express or implied representation or warranty on behalf
of the Company, including without limitation any financial information, whether
historical or projected, delivered or made available to Parent or MergerCo or
their respective agents and representatives.
5.25 Limitation on Parent's and MergerCo's Representations. The Company
acknowledges that in entering into this Agreement it has not relied on any
representations or warranties of Parent or MergerCo or on any materials given to
or made available to the Company or any Company Subsidiary or any of their
respective agents or representatives by Parent or MergerCo or any of their
respective agents or representatives other than the representations and
warranties of Parent and MergerCo, respectively, set forth in this Agreement.
5.26 Definition of the Company's Knowledge. As used in this Agreement, the
phrase "to the knowledge of the Company" or any similar phrase means the
knowledge of those individuals identified in Section 5.26 of the Company
Disclosure Schedule.
5.27 Complete Disclosure. No representation or warranty by the Company in
this Agreement or the Company Disclosure Schedule contains, or will contain as
of the Effective Time, any untrue statement of a material fact or omits, or will
omit as of the Effective Time, a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 Conduct of Business by the Company. The Company covenants and agrees as
to itself and the Company Subsidiaries that, at all times up to and including
the Effective Time, unless Parent shall otherwise consent in writing, which
consent shall not be unreasonably withheld, or as otherwise expressly permitted
or contemplated by this Agreement or as set forth on the Company Disclosure
Schedule:
(a) The Company shall, and shall cause each Company Subsidiary to,
conduct its business only in the ordinary course and in substantially the
same manner as heretofore conducted since December 31, 1999, and the
Company and each Company Subsidiary shall use all reasonable efforts to
preserve intact its present business organization and preserve its regular
services to, and maintain its relationships with, policyholders, insurers,
reinsurers, agents, sales and distribution organizations, underwriters,
investment customers, brokers, suppliers and all others having business
dealings with it;
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(b) Except as contemplated by this Agreement, the Company shall not,
and shall not permit any Company Subsidiary to, make or propose to make any
change in its dividend practices or policies or in its underwriting,
pricing, claims, risk retention, investment, reinsurance practices or
policies in any material respect; and the Company agrees that it will
notify Parent and provide Parent with information in reasonable detail
regarding any material transactions (excluding investment transactions in
the ordinary course of business consistent with past practice, but
including transactions involving the securitization of Assets of the
Company or of any Company Subsidiary and transactions involving derivative
securities), whether involving a purchase or sale, that it or any Company
Subsidiary is seriously considering;
(c) The Company shall not make any material change in accounting
methods or practices, including without limitation any change with respect
to establishment of reserves for unearned premiums, losses (including
without limitation incurred but not reported losses) and loss adjustment
expenses, or any change in depreciation or amortization policies or rates
adopted by it, except as required by Applicable Law, GAAP or SAP;
(d) The Company shall not, and shall not permit any Company Subsidiary
to, (i) amend its charter or by-laws (unless contemplated hereby), (ii)
incur any individual Liability or series of related Liabilities in excess
of $200,000 other than in the ordinary course of business consistent with
past practice, (iii) incur any indebtedness for money borrowed in the
aggregate for the Company and the Company Subsidiaries in excess of
$200,000 for any such indebtedness having a maturity of 90 days or less or
$200,000 for any such indebtedness having a maturity of more than 90 days,
(iv) agree to any merger, consolidation, demutualization, acquisition,
redomestication, sale of all or a substantial portion of its Assets, bulk
or assumption reinsurance arrangement or other similar reorganization,
arrangement or business combination, other than a Superior Acquisition
Proposal as permitted herein, (v) prior to notifying Parent, enter into any
material partnership, joint venture or profit sharing contract, other than
contracts with insurance agents in the ordinary course of business
consistent with past practices, (vi) enter into any contract limiting the
ability of the Company or of any Company Subsidiary to engage in any
business, to compete with any Person, to do business with any Person or in
any location or to employ any Person, (vii) enter into any contract
relating to the direct or indirect guarantee of any obligation of any
Person in respect of indebtedness for borrowed money or other financial
obligation of any Person other than in the ordinary course of business
consistent with past practice, (viii) enter into any contract that is
reasonably likely to materially and adversely affect the consummation of
the transactions contemplated hereby, (ix) violate any of its covenants
under the Pooling Agreement (as defined below), or (x) modify any contract
with respect to the subject of any of the foregoing clauses;
(e) The Company shall not, nor shall it permit any Company Subsidiary
to, issue or sell any shares of or interests in, or rights of any kind to
acquire any shares of or interests in, or to receive any payment based on
the value of, the capital stock of or other equity interests in or any
securities convertible into shares of any capital stock of or other equity
interests in the Company or any Company Subsidiary;
(f) Except (x) as set forth in the Company Disclosure Schedule, (y) in
the ordinary course of business consistent with past practice, or (z) as
required by the terms of agreements or plans already in effect or
Applicable Law, the Company shall not, and shall not permit any Company
Subsidiary to (i) adopt or implement, or commit to adopt or implement, or
materially amend, any collective bargaining, compensation, employment,
consulting, pension, profit sharing, bonus, incentive, group insurance,
termination, retirement or other employee benefit contract, plan or policy,
(ii) enter into or materially amend any severance contract, (iii) increase
in any manner the compensation of, or enter into any contract relating to
the borrowing of money by, its directors, officers or other employees,
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except pursuant to the terms of agreements or plans as currently in effect
provided that in no event shall any such individual increase in annual
compensation exceed $100,000 per year, (iv) increase by more than 5% the
aggregate number of its employees, (v) pay or agree to pay any pension,
retirement allowance or other employee benefit not required by the current
terms of any existing plan, agreement or arrangement to any director,
officer or other employee, whether past or present, (vi) voluntarily
recognize, or involuntarily become subject to, any labor organization or
any other Person as a collective bargaining representative of one or more
bargaining units comprising a material number of employees, or (vii) other
than obligations that arise by operation of law or under the by-laws of a
party as they exist on the date of this Agreement, or as contemplated by
this Agreement, enter into, adopt or increase any indemnification or hold
harmless arrangements with any directors, officers or other employees or
agents of such party or any of its Subsidiaries or any other Person;
(g) Other than in the ordinary course of business consistent with past
practice, the Company shall not, and shall not permit any Company
Subsidiary to, make any capital expenditures or expenditures or commitments
for expenditures for the purchase or lease of any products or services or
group of products or services (other than with respect to Investment
Assets) which in one or a series of related transactions exceed $100,000 or
which in the aggregate for the Company and the Company Subsidiaries taken
as a whole exceed $200,000, except for expenditures relating to this
Agreement and the consummation of the transactions contemplated hereby, and
expenditures required to be made pursuant to existing contracts to which
the Company or any Company Subsidiary is a party;
(h) Other than in the ordinary course of business consistent with past
practice, the Company shall not, and shall not permit any Company
Subsidiary to, waive any rights with a value in excess of $100,000 or any
other rights which are material to any contract or make any payment, direct
or indirect, of any Liability in excess of $100,000 before the same comes
due in accordance with its terms, in each case, including, but not limited
to, any provision of any Insurance Contract to permit a cash-out thereof;
(i) The Company shall not, and shall not permit any Company Subsidiary
to, other than pursuant to the operation of separate accounts in the
ordinary course of business, consistent with existing strategies, (i) sell,
lease, mortgage, encumber or otherwise grant any interest in or dispose of
any of its Assets which, individually or in the aggregate, are material to
the financial condition of the Company, any Company Subsidiary, or the
Company and the Company Subsidiaries taken as a whole, and, in addition, in
the case of Liens, for Permitted Liens (as defined below) and Liens not
individually in excess of $100,000 and not aggregating in excess of
$200,000 or (ii) restructure, amend, modify or otherwise affect any
Investment Asset or any contract relating thereto which is material to the
financial condition of the Company, any Company Subsidiary, or the Company
and the Company Subsidiaries taken as a whole, and, in either case
described in clauses (i) and (ii), only in accordance with the statement of
investment policy set forth in the Company Disclosure Schedule; and the
Company shall furnish to Parent a monthly report, in detail reasonably
acceptable to Parent, of all such transactions or other changes (other than
changes in market values or ordinary course changes such as interest
payments, maturities, etc.) affecting Investment Assets of the Company or
any Company Subsidiary which took place since the last such report;
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(j) The Company agrees that it shall not, nor shall it permit any
Company Subsidiary to, other than pursuant to the operation of separate
accounts involved in real estate in the ordinary course, consistent with
existing strategies, make any equity real estate investments (other than
through restructuring or foreclosure or pursuant to commitments existing at
the date hereof or to protect the value of existing investments in the
exercise of reasonable business judgment) and that neither the Company nor
any Company Subsidiary shall take any action, other than in the exercise of
reasonable business judgment and following discussion with Parent, which
results, individually or in the aggregate, in (i) the realization of any
gross capital loss or losses in an amount of $250,000 or more or (ii) an
adverse impact on the surplus of the Company or of an Company Subsidiary in
an amount of $250,000 or more;
(k) Other than in the ordinary course of business consistent with past
practice, the Company shall not, and shall not permit any Company
Subsidiary to, enter into any material contract or amend or waive any
material provision of any material contract which would involve the payment
by the Company or any Company Subsidiary of $200,000 or more;
(l) Other than in the ordinary course of business consistent with past
practice, the Company shall not, and shall not permit any Company
Subsidiary to, settle or compromise any claim in any action, proceeding or
investigation which could result in an expenditure for the Company and the
Company Subsidiaries in excess of $200,000;
(m) The Company shall not, and shall not permit any Company Subsidiary
to, purchase or otherwise acquire, except pursuant to a contract in effect
on the date of this Agreement, (i) any controlling equity interest in any
Person (other than Investment Assets), (ii) any non-publicly traded
securities in excess of $1,000,000 per transaction or $1,000,000 per issuer
or credit, (iii) any investments in fixed income securities rated in NAIC
(as defined below) Class 4, 5 or 6, non-publicly traded equity securities
or Assets required to be shown on Schedule BA of a Person's Annual
Statement in excess of $250,000 per transaction or $250,000 per issuer or
credit, or (iv) any real property or mortgage investments except in the
ordinary course of managing the existing portfolio of real property and
mortgage investments, including foreclosing purchase money mortgages,
extensions and refinancings;
(n) The Company shall not, and shall not permit any Company Subsidiary
to, enter into any new, or materially amend or terminate any existing,
reinsurance contracts or arrangements, except in accordance with existing
reinsurance agreements or in the ordinary course of business and consistent
with past practice;
(o) The Company shall, and shall cause each Company Subsidiary to,
maintain uninterrupted its existing insurance coverage of all types in
effect or procure substantially similar substitute insurance policies with
financially sound and reputable insurance companies in at least such
amounts and against such risks as are currently covered by such policies if
such coverage is available, except for insurance coverage the failure to so
keep would not have a Company Material Adverse Effect;
(p) The Company shall deliver to Parent as promptly as practicable
after the filing thereof with applicable regulatory authorities, unaudited
or audited, as the case may be, SAP Statements filed by or on behalf of the
Company or any Company Subsidiary after the date hereof;
(q) The Company shall not, nor shall the Company permit any Company
Subsidiary to, take any actions that would be reasonably likely to
adversely affect the status of the Merger as a reorganization under Section
368 of the Code;
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(r) Neither the Company nor any Company Subsidiary shall (i) make or
rescind any material express or deemed election relating to Taxes, (ii)
make a request for a tax ruling or enter into a Tax Ruling (as defined
below), settlement or compromise with respect to any material Tax matter,
or (iii) with respect to any material Tax matter, change any of its methods
of reporting income or deductions for federal income tax purposes from
those employed in the preparation of its federal income Tax Return for the
taxable year ending December 31, 1999, except as may be required by
Applicable Law;
(s) Other than in the ordinary course of business and consistent with
past practice, neither the Company nor any Company Subsidiary shall
declare, set aside or pay any dividends or distributions (whether in cash,
stock or property) in respect of any capital stock of the Company or any
Company Subsidiary or redeem, purchase or otherwise acquire any of the
capital stock of the Company or any Company Subsidiary; and
(t) Neither the Company nor any Company Subsidiary shall agree, in
writing or otherwise, to take any of the actions prohibited by the
foregoing clauses (a) through (s).
6.2 Tax Treatment. The Parties intend the Merger to qualify as a
reorganization under Section 368(a) of the Code; each Party and its Affiliates
shall use its best efforts to cause the Merger so to qualify. Each of the
Parties agrees that neither it nor any of its Affiliates shall take any action,
including any transfer or other disposition of assets or any interest in the
Company after the Closing, that would cause the Merger not to qualify as a
reorganization under Section 368(a) of the Code. Parent shall report the Merger
for income tax purposes as a reorganization within the meaning of Section 368(a)
of the Code and any comparable state or local tax statute.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Shareholders Meeting.
(a) Unless (i) the Company has received an Acquisition Proposal (as
hereinafter defined) that was unsolicited and did not otherwise result from
a breach of Section 7.5(a) herein and (ii) the Company Board determines
that such Acquisition Proposal is reasonably likely to lead to a Superior
Acquisition Proposal (as hereinafter defined), then the Company, acting
through the Company Board, shall, in accordance with applicable law:
(A) Duly call, give notice of, convene and hold a special meeting
of its shareholders (the "Special Meeting") as soon as practicable
following the execution of this Agreement for the purpose of
considering and taking action upon this Agreement and the
Transactions; and
(B) Together with MergerCo prepare and file with the SEC a
preliminary proxy statement relating to this Agreement and the
Transactions, and use its reasonable efforts to (1) obtain and furnish
the information required to be included by the SEC in a definitive
proxy statement (the "Proxy Statement") and, after consultation with
MergerCo, respond promptly to any comments made by the SEC with
respect to the preliminary proxy statement and cause the Proxy
Statement to be mailed to its shareholders, and (2) obtain the
necessary approval of this Agreement and the Transactions by its
shareholders; and (3) include in the Proxy Statement the
recommendation of the Company Board that shareholders of the Company
vote in favor of the approval of this Agreement and the Transactions.
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(b) MergerCo and Parent shall furnish all information about
themselves, their business and operations and their owners and all
financial information to the Company as may be reasonably necessary in
connection with the preparation of the Proxy Statement. The Company shall
give Parent and MergerCo and their counsel the opportunity to review, prior
to their being filed with, or sent to the SEC, (i) the Proxy Statement and
(ii) all amendments and supplements to the Proxy Statement and all
responses to requests for additional information and replies to comments.
Each of the Company, on the one hand, and MergerCo, on the other hand,
agrees to correct promptly any information provided by it for use in the
Proxy Statement if and to the extent that such information shall have
become false or misleading in any material respect, and the Company further
agrees to take all necessary steps to cause the Proxy Statement as so
corrected to be filed with the SEC and to be disseminated to the
shareholders of the Company, in each case, to the extent required by
applicable Securities Laws. The Company shall notify MergerCo of the
receipt of any comments of the SEC with respect to the preliminary proxy
statement.
(c) None of the information supplied by the Company specifically for
inclusion or incorporation by reference in (i) the Proxy Statement, or (ii)
the Other Filings (as hereinafter defined) will, at the respective times
filed with the SEC or other Governmental Entity and, in addition, in the
case of the Proxy Statement, as of the date it or any amendment or
supplement thereto is mailed to shareholders and at the time of any meeting
of shareholders to be held in connection with the Merger, contains any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement, insofar as it relates to the Company or
other information supplied by the Company for inclusion therein, will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder. The
Company makes no representation, warranty or covenant with respect to
information concerning MergerCo or Parent or their affiliates included in
the Proxy Statement or information supplied by MergerCo or Parent or their
affiliates for inclusion in the Proxy Statement.
(d) None of the information supplied by MergerCo or Parent or their
affiliates specifically for inclusion or incorporation by reference in (i)
the Proxy Statement, or (ii) the Other Filings, will, at the respective
times filed with the SEC or other Governmental Entity and, in addition, in
the case of the Proxy Statement, as of the date it or any amendment or
supplement thereto is mailed to shareholders and at the time of any meeting
of shareholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement, insofar as it relates to MergerCo or
Parent or their affiliates or other information supplied by MergerCo or
Parent or their affiliates for inclusion therein, will comply as to form in
all material respects with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder. MergerCo and Parent make no
representations, warranties or covenants with respect to information
concerning the Company included in the Proxy Statement or information
supplied by the Company for inclusion in the Proxy Statement.
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7.2 Other Filings. As promptly as practicable, each of the Company and
MergerCo shall prepare and file any other filings required under the Exchange
Act or any other federal or state law relating to the Merger and the
Transactions (including filings, if any, required under the HSR Act)
(collectively, the "Other Filings"). Each of the Company and MergerCo shall
promptly notify the other of the receipt of any comments on, or any request for
amendments or supplements to, any of the Other Filings by the SEC or any other
Governmental Entity or official, and each of the Company and MergerCo shall
supply the other with copies of all correspondence between it and each of its
Subsidiaries and representatives, on the one hand, and the SEC or the members of
its staff or any other appropriate governmental official, on the other hand,
with respect to any of the Other Filings. Each of the Company and MergerCo shall
use its reasonable best efforts to obtain and furnish the information required
to be included in any of the Other Filings. MergerCo hereby covenants and agrees
to use its commercially reasonable best efforts to secure termination of any
waiting periods under the HSR Act and obtain the approval of the Federal Trade
Commission (the "FTC") or any other Governmental Entity required for
consummation of the Transactions.
7.3 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the parties agrees to use its reasonable best efforts (a) to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Transactions and to cooperate with each other in
connection with the foregoing, including the taking of such actions as are
necessary to obtain any necessary consents, approvals, orders, exemptions or
authorizations by or from any public or private third party, including without
limitation any that are required to be obtained under any federal, state or
local law or regulation or any contract, agreement or instrument to which
MergerCo, the Company or any Company Subsidiary is a party or by which any of
their respective properties or assets are bound, (b) to defend all lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
Transactions, (c) to cause to be lifted or rescinded any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the Transactions, (d) to effect all necessary registrations and
Other Filings, including without limitation filings under the HSR Act, if any,
and submissions of information requested by any Governmental Entity and (e) to
execute and deliver any additional instruments necessary to consummate the
Transactions and to carry out fully the purposes of this Agreement. The Company
will use its reasonable best efforts to ensure that the conditions set forth in
Sections 8.1 and 8.3 hereof are satisfied, insofar as such matters are within
the control of the Company, and MergerCo and Parent will use their reasonable
best efforts to ensure that the conditions set forth in Sections 8.1 and 8.2
hereof are satisfied, insofar as such matters are within the control of MergerCo
and Parent.
7.4 Fees and Expenses. Except as set forth in Section 9.2 hereof, whether
or not the Merger is consummated, all fees, costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs or expenses.
7.5 No Solicitations.
(a) The Company represents and warrants that it has terminated any
discussions or negotiations relating to, or that could reasonably be
expected to lead to, an Acquisition Proposal (as hereinafter defined).
Except as explicitly permitted hereunder, the Company shall not, and shall
not authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it, directly or indirectly, to (i) solicit,
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initiate or encourage (including by way of furnishing non-public
information), or take any other action to facilitate, any inquiries or the
making of any proposal that constitutes an Acquisition Proposal, (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal or (iii) enter into any agreements, definitive or otherwise,
regarding an Acquisition Proposal; provided, however, that, at any time
prior to the approval of this Agreement by the shareholders of the Company,
if the Company receives an Acquisition Proposal that was unsolicited or
that did not otherwise result from a breach of this Section 7.5(a), the
Company may furnish non-public information with respect to the Company and
the Company Subsidiaries to the person who made such Acquisition Proposal
and may participate in discussions and negotiations regarding such
Acquisition Proposal if the Company Board determines (A) based on the
advice of legal counsel, that the failure to do so would be reasonably
likely to be inconsistent with its fiduciary duties to the Company's
shareholders under applicable law, and (B) that such Acquisition Proposal
is reasonably likely to lead to a Superior Acquisition Proposal (as defined
below).
(b) At any time prior to the approval of this Agreement by the
shareholders of the Company, the Company Board shall not (i) withdraw or
modify in a manner adverse to MergerCo its approval or recommendation of
this Agreement or the Merger, (ii) approve or recommend an Acquisition
Proposal to its shareholders or (iii) cause the Company to enter into any
agreement with respect to an Acquisition Proposal, unless in any such case
the Company Board shall have determined in good faith, based on the advice
of legal counsel, that failure to do so would be inconsistent with its
fiduciary duties to the Company's shareholders under applicable law and, in
the case of clause (iii) above, the Company shall have complied with the
provisions of Section 9.1(c)(i) hereof.
(c) As used in this Agreement, the term "Acquisition Proposal" shall
mean any proposed or actual (i) merger, consolidation or similar
transaction involving the Company, (ii) sale, lease or other disposition,
directly or indirectly, by merger, consolidation, share exchange or
otherwise, of any assets of the Company or the Company Subsidiaries
representing 25% or more of the consolidated assets of the Company and the
Company Subsidiaries, (iii) issue, sale or other disposition by the Company
of (including by way of merger, consolidation, share exchange or any
similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 25%
or more of the votes associated with the outstanding securities of the
Company, (iv) tender or exchange offer in which (A) any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3 under
the Exchange Act) or the right to acquire beneficial ownership of or (B)
any "group" (as such term is defined under the Exchange Act) shall have
been formed which beneficially owns, or has the right to acquire beneficial
ownership of, 25% or more of the outstanding shares of Old Common, (v)
recapitalization, restructuring, liquidation, dissolution, or other similar
type of transaction with respect to the Company, or (vi) transaction which
is similar in form, substance or purpose to any of the foregoing
transactions; provided, however, that the term "Acquisition Proposal" shall
not include the Merger and the Transactions. The term "Superior Acquisition
Proposal" shall mean an Acquisition Proposal that the Company Board
determines based on the advice of its financial advisors is more favorable
to the shareholders of the Company than the Transactions (taking into
account all the terms and conditions of such Acquisition Proposal and the
Transactions, including without limitation the price, any conditions to
consummation, and the likelihood of such Superior Acquisition Proposal and
the Transactions being consummated).
(d) The Company shall advise MergerCo promptly (but in any event
within 48 hours) in writing of (i) the receipt of any inquiry, indication
of interest or proposal relating to an Acquisition Proposal, (ii) the
status of any material developments in the negotiations with respect
thereto and (iii) the taking of any action referred to in Section 7.5(a) or
(b).
(e) Nothing in this Section 7.5 shall (i) permit the Company to
terminate this Agreement other than pursuant to Article IX hereof or (ii)
affect any other obligation of the Company under this Agreement.
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7.6 Officers' and Directors' Indemnification.
(a) The Company shall, and from and after the Effective Time, the
Surviving Corporation shall, indemnify, defend and hold harmless the
present and former directors, officers, employees and agents of the Company
and of the Company Subsidiaries (each, an "Indemnified Party") against all
losses, claims, damages, costs, expenses (including reasonable attorneys'
fees and expenses), liabilities, judgments or amounts that are paid in
settlement with the approval of the Company or the Surviving Corporation,
as the case may be (the "Indemnifying Party") of, or in connection with,
any threatened or actual claim, action, suit, proceeding or investigation
based in whole or in part on, or arising in whole or in part out of, or
pertaining to, the fact that such person is or was a director or officer of
the Company or any of the Company Subsidiaries, whether pertaining to any
matter existing at or prior to the Effective Time and whether asserted or
claimed prior to, at the time of, or after, the Effective Time
("Indemnified Liabilities"), including all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining
to, this Agreement or the transactions contemplated hereby, in each case to
the fullest extent a corporation is permitted under the IBCL as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits broader rights than such law
permitted prior to such amendment, and only to the extent such amendment is
not retroactively applicable) to indemnify its own directors or officers,
as the case may be. Without limiting the foregoing, in the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i)
the Indemnified Party may retain counsel satisfactory to it and the
Surviving Corporation, and the Company or the Surviving Corporation shall
pay all fees and expenses of such counsel for the Indemnified Party
promptly as statements therefor are received and otherwise advance to such
Indemnified Party upon request for reimbursement of documented expenses
incurred, in either case to the fullest extent and in the manner permitted
by the IBCL; and (ii) the Company or the Surviving Corporation will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither the Company nor the Surviving Corporation shall be
liable for any settlement effected without its prior written consent. Any
Indemnified Party wishing to claim indemnification under this Section 7.6,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Company (or, after the Effective Time, the Surviving
Corporation) (but the failure so to notify shall not relieve such
Indemnifying Party from any liability which it may have under this Section
7.6 except to the extent such failure materially prejudices such
Indemnifying Party), and shall to the extent required by the IBCL deliver
to the Company (or, after the Effective Time, the Surviving Corporation)
the undertaking contemplated by Section 23-1-37-10(a) of the IBCL. The
Indemnified Parties as a group may retain only one law firm to represent
them with respect to each such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue
between the positions of any two or more of the Indemnified Parties. The
Company and MergerCo agree that all rights to indemnification, including
provisions relating to advances or expenses incurred in defense of any
action or suit, existing in favor of the Indemnified Parties with respect
to matters occurring through the Effective Time, shall survive the Merger
and shall continue in full force and effect for a period of not less than
six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Indemnified Liabilities asserted or made
within such period shall continue until the disposition of such Indemnified
Liabilities. This Section 7.6 is intended for the irrevocable benefit of,
and to grant third party rights to, the Indemnified Parties and shall be
binding on all successors and assigns of MergerCo, the Company and the
Surviving Corporation. Each of the Indemnified Parties shall be entitled to
enforce the covenants contained in this Section 7.6.
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<PAGE>
(b) Prior to the Effective Time, the Company shall purchase an
extended reporting period endorsement ("Reporting Tail Coverage") under the
Company's existing directors' and officers' liability insurance coverage
for the Company's directors and officers in a form acceptable to the
Company which shall provide such directors and officers with coverage for
six years following the Effective Time of not less than the existing
coverage under, and have other terms not materially less favorable to the
insured persons than, the directors' and officers' liability insurance
coverage presently maintained by the Company.
7.7 Access to Information; Confidentiality. From the date hereof until the
Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries and each of the Company's and Company Subsidiaries' officers,
employees and agents to, afford to Parent and MergerCo and to the officers,
employees and agents of Parent and MergerCo, respectively, complete access at
all reasonable times and upon reasonable advance notice (which notice shall not
be required to be in writing) to such officers, employees, agents, properties,
books, records and contracts, and shall furnish Parent and MergerCo such
financial, operating and other data and information as Parent and MergerCo may
reasonably request. Parent and MergerCo shall hold in confidence all such
information on the terms and subject to the conditions contained in that certain
agreement between the Company and Parent dated October 6, 2000 (the
"Confidentiality Agreement"). MergerCo hereby agrees to be bound by the terms
and conditions of the Confidentiality Agreement with the same force and effect
as if it had executed the Confidentiality Agreement as Parent, and the Company
is an intended third party beneficiary of the obligations of MergerCo arising
thereunder. At the Effective Time, the Confidentiality Agreement shall
terminate.
7.8 Public Announcements. The Company and MergerCo shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to this Agreement or any of the Transactions and shall not issue
any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law if it has (i) used its reasonable best efforts to consult with the other
party and to obtain such party's consent but has been unable to do so in a
timely manner and (ii) faxed a copy of such press release or public statement to
such other party at a reasonable time prior to issuing such release or making
such statement. In this regard, the parties agree that the initial press release
to be issued with respect to the Merger will be in a form agreed to by the
parties hereto prior to the execution of this Agreement.
7.9 Notification of Certain Matters. Each party shall give prompt written
notice to the other of the receipt of any notice or other communication from any
Governmental Entity in connection with the Transactions.
7.10 Post-Merger Operations. Following the Effective Time:
(a) Parent shall establish and maintain for three years following the
Effective Time an Advisory Board, which shall be principally concerned with
transition and operational integration issues arising as a result of the
Merger, which shall meet upon the call of the chairman of Parent, and which
shall consist of Douglas W. Huemme, Martha D. Lamkin, G. Benjamin Lance,
Jr., Joseph D. Barnette, Jr., Thomas H. Sams, James D. Price, Sarah W.
Rowland, David M. Kirr, and John T. Hackett, each of whom shall serve for
three years after the Effective Time and be paid by Parent a fee of $5,000
per year, and Norma J. Oman and Ramon L. Humke, each of whom shall serve
for three years after the Effective Time;
(b) Parent agrees that the 11 (eleven) Termination Benefits Agreements
currently in force between the Company or the Company Subsidiaries and
certain executives of the Company or the Company Subsidiaries (each, a
"Termination Benefit Agreement") shall continue in full force and effect,
except that, with respect to any Termination Benefit Agreement, the
termination benefit provided therein shall be paid to the executive who is
a party to such Termination Benefit Agreement if such executive's
employment with the employer named in such Termination Benefit Agreement is
terminated (i) for any reason (other than retirement, disability, or death)
during the two-year period beginning on the Effective Time and continuing
through and including the second anniversary thereof, or (ii) for Good
Reason (as defined below) during the one-year period beginning on the day
after the second anniversary of the Effective Time and continuing through
and including the third anniversary of the Effective Time.
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<PAGE>
(c) The Meridian name shall continue to be used by the Surviving
Corporation and the Company Subsidiaries with respect to operations within
the State of Indiana in a manner which is consistent with the manner in
which such name has been used by the Company and the Company Subsidiaries
with respect to operations within the State of Indiana prior to the date
hereof, and, with respect to operations outside the State of Indiana (and
particularly in states in which both the Company and the Company
Subsidiaries on one hand, and Parent and its Affiliates on the other hand,
have a solid presence), the Parties will consider use of the Meridian name
on a case-by-case basis taking into account commercially reasonable
factors;
(d) The Company office building in Indianapolis will become a regional
office for Parent and its Affiliates, handling not only the existing books
of business of the Company Subsidiaries but also the business of Parent and
its Affiliates in Indiana and Illinois after consummation of the
transactions contemplated by the Mutual Company Agreement, and the Parties
will jointly develop a business plan with respect to operations in states
in which both the Company and the Company Subsidiaries on one hand, and
Parent and its Affiliates on the other hand, have a solid presence;
(e) Parent shall not terminate, nor shall Parent permit or cause any
of its Affiliates to terminate, as a result of the Merger or the
Transactions, the employment of any person who, as of the Effective Time,
is an employee of the Company or any Company Subsidiary (a "Current Company
Employee");
(f) Current Company Employees shall be offered employee benefits as
follows: (i) to the extent that, in the ordinary course of business
consistent with past practices, the Company and the Company Subsidiaries,
as of the Effective Time, are providing Current Company Employees with an
employee benefits package (the "Current Company Benefits Package") which,
in the reasonable discretion of Parent, is broader than, or otherwise
provides benefits which are better than, the employee benefits package
offered by Parent and its Affiliates to their similarly situated employees,
such broader or better employee benefits package will continue to be made
available to Current Company Employees through December 31, 2002, and (ii)
thereafter, Current Company Employees shall be offered an employee benefits
package which is, in the aggregate, substantially equivalent to the Current
Company Benefits Package; and
(g) Over a commercially reasonable period of time, to the extent
commercially reasonable, investments, data processing, and similar "back
office" activities of the Company and the Company Subsidiaries will be
consolidated with the similar activities and operations of Parent and its
Affiliates in Parent's Columbus, Ohio office; provided that:
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<PAGE>
(i) if any such consolidation would result in (A) with the
consent of a Current Company Employee, such Current Company Employee's
transfer from the Surviving Corporation's Indianapolis, Indiana office
to Parent's Columbus, Ohio office, and such Current Company Employee
does not consent to such transfer, or (B) the elimination of such
Current Company Employee's job in the Surviving Corporation's
Indianapolis, Indiana office, then Parent shall have the right to
require such Current Company Employee to accept a different job in the
Surviving Corporation's Indianapolis, Indiana office; and
(ii) if such different job would have a lower base annual
compensation than the Current Company Employee's base annual
compensation immediately prior to the job change, then (A) for a
period of two years from the date such Current Company Employee begins
such different job, such Current Company Employee's base annual
compensation shall be at least as much as the base annual compensation
of the job held by such Current Company Employee immediately prior to
beginning such different job, and (B) after such two-year period, such
Current Company Employee's base annual compensation shall be at the
top of the range for the classification of Surviving Corporation jobs
within which such different job falls.
(h) Parent shall maintain a comparable level of involvement in the
Indianapolis community as has been maintained by the Company and its
Subsidiaries prior to the Effective Time, including without limitation
providing comparable financial and volunteer support.
7.11 Meridian Citizens Mutual Insurance Company. The Company shall take, or
cause to be taken, all actions necessary to cause the directors of Meridian
Citizens Mutual Insurance Company, a Minnesota mutual insurance company and an
affiliate of the Company ("Meridian Minnesota"), immediately prior to the
Effective Time to be replaced, as of the Effective Time, with those persons
designated by State Auto.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver, where permissible, at or prior to the Closing Date,
of each of the following conditions:
(a) Shareholder Approval. This Agreement and the Transactions,
including the Merger, shall have been approved and adopted by the
affirmative vote of the shareholders of the Company to the extent required
by the IBCL and the Articles of Incorporation.
(b) Hart-Scott-Rodino Act. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(c) Other Regulatory Approvals. Any consent, authorization, order or
approval of (or filing or registration with) any Governmental Entity
required to be made or obtained by the Company or any of the Company
Subsidiaries or MergerCo, as the case may be, or their respective
affiliates, in connection with the execution, delivery and performance of
the Agreement shall have been obtained or made, except where the failure to
have obtained or made any such consent, authorization, order, approval,
filing or registration would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect or a
MergerCo Material Adverse Effect, as the case may be, or would not,
individually or in the aggregate, materially impair or significantly delay
the ability of the Company and MergerCo to consummate the Merger.
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(d) Other Consents. All consents and approvals by third parties (other
than Governmental Entities) (i) that are identified as conditions to
closing in Section 8.1(d) of the Company Disclosure Schedule, and (ii) that
are required in order to prevent a breach of, a default under, or a
termination, change in the terms or conditions or modification of, any
instrument, contract, lease, license or other agreement, where such breach,
default, termination or change would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, will have
been obtained on terms and conditions reasonably satisfactory to MergerCo.
(e) No Injunctions, Orders or Restraints; Illegality. No preliminary
or permanent injunction or other order, decree or ruling issued by a court
of competent jurisdiction or by a Governmental Entity (an "Injunction"),
nor any statute, rule, regulation or executive order promulgated or enacted
by any Governmental Entity, shall be in effect which would (i) make the
consummation of the Merger illegal, or (ii) otherwise prevent or prohibit
the consummation of any of the Transactions, including the Merger;
provided, however, that prior to invoking this condition, each party shall
use its reasonable best efforts to have any such Injunction vacated.
(f) Merger of Mutuals. All of the conditions precedent to the merger
of Meridian Mutual and Parent shall have been satisfied or waived and
Meridian Mutual and Parent shall be prepared to consummate such merger. The
Parties intend that the merger of Meridian Mutual and Parent shall be
consummated immediately prior to the Effective Time.
8.2 Conditions to Obligations of MergerCo and Parent. The obligations of
MergerCo and Parent to effect the Merger are further subject to the following
conditions:
(a) Representations and Warranties. Those representations and
warranties of the Company set forth in this Agreement which are qualified
by materiality or a Company Material Adverse Effect or words of similar
effect shall be true and correct as of the Closing Date as though made on
and as of the Closing Date (except as contemplated by this Agreement and
except to the extent such representations and warranties expressly relate
to a specific date, in which case such representations and warranties shall
be true and correct as of such date), and those representations and
warranties of the Company set forth in this Agreement which are not so
qualified shall be true and correct in all material respects as of the
Closing Date as though made on and as of the Closing Date (except as
contemplated by this Agreement and except to the extent such
representations and warranties expressly relate to a specific date, in
which case such representations and warranties shall be true and correct in
all material respects as of such date).
(b) Performance and Obligations of the Company. The Company shall have
performed all obligations required to be performed by it under this
Agreement, including without limitation the covenants contained in Articles
6 and 7 hereof, in all material respects.
(c) Material Adverse Change. There shall not have occurred any change
or changes concerning the Company and the Company Subsidiaries taken as a
whole which would, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect.
(d) Opinions. Parent and MergerCo shall have received a legal opinion
from Ice Miller and a tax opinion from Ernst & Young LLP, each in a form
reasonably acceptable to Parent and containing terms and conditions which
are customary for transactions of the type contemplated by this Agreement.
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Notwithstanding any language to the contrary in this Agreement, none of the
initiation, threat or existence of any legal action of any kind with respect to
this Agreement or the Transactions, including the Merger, including without
limitation any action initiated, threatened, or maintained by any shareholder of
the Company, whether alleging claims under any Securities Laws or state
securities laws, contract or tort claims, claims for breach of fiduciary duty,
or otherwise, will constitute a failure of the conditions set forth in Section
8.1, Section 8.2, or Section 8.3 of this Agreement unless that action has
resulted in the granting of an Injunction that prevents the consummation of the
Merger or otherwise prevents or prohibits the consummation of any of the
Transactions, and such Injunction has not been dissolved or vacated.
8.3 Conditions to Obligations of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. Those representations and
warranties of MergerCo and Parent set forth in this Agreement which are
qualified by materiality or a MergerCo Material Adverse Effect or a Parent
Material Adverse Effect, as the case may be, or words of similar effect
shall be true and correct as of the Closing Date as though made on and as
of the Closing Date (except as contemplated by this Agreement and except to
the extent such representations and warranties expressly relate to a
specific date, in which case such representations shall be true and correct
as of such date), and those representations and warranties of MergerCo and
Parent set forth in this Agreement which are not so qualified shall be true
and correct in all material respects as of the Closing Date as though made
on the Closing Date (except as contemplated by this Agreement and except to
the extent such representations and warranties expressly relate to a
specific date, in which case such representations and warranties shall be
true and correct in all material respects as of such date).
(b) Performance of Obligations of MergerCo and Parent. MergerCo and
Parent shall have performed all obligations required to be performed by
them under this Agreement, including without limitation the covenants
contained in Articles 6 and 7 hereof, in all material respects.
(c) Material Adverse Change. There shall not have occurred any change
or changes concerning MergerCo and Parent taken as a whole which would,
individually or in the aggregate, reasonably be expected to have a MergerCo
Material Adverse Effect or a Parent Material Adverse Effect, as the case
may be.
(d) Opinions. The Company shall have received a legal opinion from
Baker & Hostetler LLP in a form reasonably acceptable to the Company and
containing terms and conditions which are customary for transactions of the
type contemplated by this Agreement.
8.4 Frustration of Closing Conditions. Neither the Company, on one hand,
nor Parent and MergerCo, on the other, may rely on the failure of any condition
set forth in Section 8.1, 8.2 or 8.3, as the case may be, to be satisfied if
such failure was caused by such Party's failure to use commercially reasonable
efforts to consummate the Merger and the other transactions contemplated by this
Agreement.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after shareholder approval thereof:
(a) by the mutual written consent of MergerCo and the Company;
(b) by either of the Company or MergerCo:
(i) if the shareholders of the Company shall have voted on
this Agreement and the Merger and the votes shall not have been
sufficient to satisfy the condition set forth in Section 8.1(a);
or
(ii) if any Governmental Entity shall have issued an
Injunction or taken any other action (which Injunction or other
action the parties shall use their best efforts to lift), which
permanently restrains, enjoins or otherwise prohibits the Merger,
and such Injunction shall have become final and non-appealable;
or
(iii) if, without any material breach by the terminating
party of its obligations under this Agreement, the Merger shall
not have occurred on or before July 1, 2001; or
(iv) if the Mutual Company Agreement shall have been
terminated for any reason; provided that:
(A) if the Mutual Company Agreement was terminated by
Meridian Mutual as a result of a breach by Parent of the
Mutual Company Agreement, only the Company, and not either
Parent or MergerCo, shall have the right to terminate this
Agreement under this Section 9.1(b)(iv), and if such breach
of the Mutual Company Agreement by Parent was willful, such
breach shall constitute a willful breach of this Agreement
by Parent; and
(B) if the Mutual Company Agreement was terminated by
Parent as a result of a breach by Meridian Mutual of the
Mutual Company Agreement, only Parent and MergerCo, and not
the Company, shall have the right to terminate this
Agreement under this Section 9.1(b)(iv), and if such breach
of the Mutual Company Agreement by Meridian Mutual was
willful, such breach shall constitute a willful breach of
this Agreement by the Company;
(c) by the Company:
(i) in connection with entering into a definitive
agreement to effect a Superior Acquisition Proposal in
accordance with Section 7.5 hereof; provided, however, that
prior to terminating this Agreement pursuant to this Section
9.1(c)(i), (A) the Company shall have paid the Break-Up Fee
and MergerCo Expenses (as those terms are hereinafter
defined) as set forth in Section 9.2(b), and (B) the Company
shall have provided MergerCo with five days' prior written
notice of the Company's decision so to terminate. Such
notice shall indicate in reasonable detail the terms and
conditions of such Superior Acquisition Proposal, including
without limitation the amount and form of the proposed
consideration and whether such Superior Acquisition Proposal
is subject to any material conditions; or
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(ii) if MergerCo or Parent shall have breached in any
material respect any of their respective representations,
warranties, covenants or other agreements contained in this
Agreement, including without limitation 1.1 hereof (except
where such representations, warranties, covenants or other
agreements are qualified by materiality or MergerCo Material
Adverse Effect or Parent Material Adverse Effect, in which
case MergerCo's or Parent's breach, as the case may be,
shall not be qualified as to materiality), which breach
cannot be or has not been cured within 15 days after the
giving of written notice to MergerCo or Parent; or
(d) by MergerCo:
(i) if the Company shall have breached in any material
respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, including
without limitation 1.1 hereof (except where such
representations, warranties, covenants or other agreements
are qualified by materiality or Company Material Adverse
Effect, in which case the Company's breach shall not be
qualified as to materiality), which breach cannot be or has
not been cured within 15 days after the giving of written
notice to the Company; or
(ii) if (A) the Company enters into a definitive
agreement to effect a Superior Acquisition Proposal, or (B)
the Company Board withdraws or modifies in a manner adverse
to MergerCo its approval or recommendation of this Agreement
or the Merger to the shareholders of the Company.
9.2 Effect of Termination.
(a) Subject to the provisions of this Section 9.2, in the event of the
termination of this Agreement pursuant to Section 9.1, this Agreement shall
forthwith become null and void and have no effect, without any liability on
the part of any party or its affiliates, trustees, directors, officers or
shareholders and all rights and obligations of any party shall cease except
for the agreements contained in Section 7.4 and Article IX.
(b) If the Company terminates this Agreement pursuant to Section
9.1(c)(i) or MergerCo terminates this Agreement pursuant to Section
9.1(d)(ii), then the Company shall pay to MergerCo an amount in cash equal
to the Break-Up Fee. For purposes of this Agreement, the "Break-Up Fee"
shall be an amount equal to $25,000,000.
(c) If MergerCo terminates this Agreement pursuant to Section
9.1(d)(i), and the breach by the Company was willful, then the Company
shall pay to MergerCo an amount in cash equal to $10,000,000 (the "MergerCo
Liquidated Damages").
(d) If MergerCo terminates this Agreement pursuant to Section
9.1(d)(i), but the breach by the Company was not willful, then the Company
shall pay to MergerCo an amount in cash equal to the MergerCo Expenses. For
purposes of this Agreement, "MergerCo Expenses" shall mean an amount equal
to Parent's and MergerCo's out-of-pocket costs and expenses incurred in
connection with this Agreement and the Transactions, including without
limitation reasonable fees and disbursements of its outside legal counsel,
accountants and other consultants retained by or on behalf of Parent and
MergerCo together with the other out-of-pocket costs incurred by Parent or
MergerCo in connection with analyzing and structuring the Transactions,
negotiating the terms and conditions of this Agreement and any other
agreements or other documents relating to the Transactions, arranging
financing (including without limitation commitment fees), and conducting
due diligence and other activities related to this Agreement and the
Transactions.
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(e) If the Company terminates this Agreement pursuant to Section
9.1(c)(ii), and the breach by MergerCo or Parent was willful, then Parent
shall pay to the Company an amount in cash equal to $25,000,000 (the
"Company Liquidated Damages").
(f) If the Company terminates this Agreement pursuant to Section
9.1(c)(ii), but the breach by MergerCo or Parent was not willful, then
Parent shall pay to the Company an amount in cash equal to the Company
Expenses. For purposes of this Agreement, the "Company Expenses" shall mean
an amount equal to the Company's out-of-pocket costs and expenses incurred
in connection with this Agreement and the Transactions, including without
limitation fees and disbursements of its outside legal counsel, accountants
and other consultants retained by or on behalf of the Company together with
the other out-of-pocket costs incurred by the Company in connection with
analyzing and structuring the Transactions, negotiating the terms and
conditions of this Agreement and any other agreements or other documents
relating to the Transactions, arranging financing (including without
limitation commitment fees), and conducting due diligence and other
activities related to this Agreement and the Transactions.
(g) If (i) either MergerCo or the Company terminates this Agreement
pursuant to Section 9.1(b)(iv), and (ii) the Mutual Company Agreement was
terminated by Meridian Mutual pursuant to Section 8.1(g)(ii) thereof, and
(iii) the fairness opinion delivered pursuant to Section 6.13 of the Mutual
Company Agreement provided that the exchange of membership interests
pursuant to the Merger (as defined in the Mutual Company Agreement) was
fair from a financial point of view to the policyholders of Meridian
Mutual, taken as a group, as of that time, then the Company shall pay to
MergerCo an amount in cash equal to the MergerCo Liquidated Damages. In
addition, if within 12 months following any such termination of this
Agreement as described in the first sentence of this Section 9.2(g), the
Company or any Company Subsidiary accepts a written offer for or otherwise
enters into an Acquisition Proposal (other than with Parent or any
Affiliate of Parent), then, upon consummation of such Acquisition Proposal,
the Company shall pay to MergerCo an additional amount in cash equal to the
Break-Up Fee minus the MergerCo Liquidated Damages previously paid pursuant
to this subsection.
(h) If (i) either MergerCo or the Company terminates this Agreement
pursuant to Section 9.1(b)(iv), and (ii) the Mutual Company Agreement was
terminated by Parent pursuant to Section 8.1(h)(ii) thereof, then Parent
shall pay to the Company an amount in cash equal to the Company Liquidated
Damages.
(i) Except as provided in Section 9.1(c)(i) hereof, any payment
required by this Section 9.2 shall be due and payable within five business
days after the date of termination by wire transfer of immediately
available funds to an account designated by the payee. In the event that
either the Company fails to pay the Break-Up Fee (if payable), the MergerCo
Liquidated Damages (if payable), or the MergerCo Expenses (if payable) when
due or Parent fails to pay the Company Liquidated Damages (if payable) or
the Company Expenses (if payable) when due, the terms "Break-Up Fee" or
"MergerCo Liquidated Damages" or "Company Liquidated Damages" or "MergerCo
Expenses" or "Company Expenses," as applicable, shall be deemed to include
(i) interest on such unpaid amount commencing on the date such amount
becomes due, at a rate per annum equal to the rate of interest publicly
announced by Bank One, N.A. from time to time, in Chicago, Illinois, as
such bank's Prime Rate, and (ii) any and all costs and expenses (including
without limitation, attorneys' fees and disbursements) incurred by MergerCo
or the Company, as applicable, in enforcing its rights under this Section
9.2(i). The payments made by the Company to MergerCo, or by Parent to the
Company, as set forth in Section 9.2 shall represent the sole and exclusive
remedy at law or in equity to which MergerCo or the Company, as applicable,
and their respective officers, directors, representatives and affiliates
shall be entitled in the event this Agreement is terminated. Such payments
shall be made without duplication, and, accordingly, neither MergerCo nor
the Company shall be entitled to payments under Section 9.2 in more than
one instance.
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ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or sent if delivered personally or sent by telecopier
or by prepaid overnight carrier to the parties at the following addresses (or at
such other addresses as shall be specified by the parties by like notice):
(a) if to Parent or MergerCo:
State Auto Insurance Companies
518 East Broad Street
Columbus, Ohio 43215
Attention: John R. Lowther, Esq.
Facsimile: (614) 719-0173
with a copy to:
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Charles H. Hire, Esq.
Facsimile: (614) 462-2616
(b) if to the Company:
Meridian Insurance Group, Inc.
2955 North Meridian Street
Indianapolis, Indiana 43206
Attention: President
Facsimile: (317) 931-7119
with a copy to:
Ice Miller
One American Square
Box 82001
Indianapolis, Indiana 46282-0002
Attention: Stephen J. Hackman, Esq.
Facsimile: (317) 236-2219
And a copy to:
Henderson Daily Withrow & DeVoe
One Indiana Square, Suite 2600
Indianapolis, Indiana 46204
Attention: O. Wayne Davis, Esq.
Facsimile: (317) 639-0191
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10.2 Interpretation. When a reference is made in this Agreement to a
subsidiary or subsidiaries of MergerCo or the Company, the word "Subsidiary"
means any corporation more than 50% of whose outstanding voting securities, or
any partnership, joint venture or other entity more than 50% of whose total
equity interest, is directly or indirectly owned by MergerCo or the Company, as
the case may be; provided that Meridian Minnesota shall be deemed to be a
Company Subsidiary for purposes of this Agreement. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.3 Non-Survival of Representations, Warranties, Covenants and Agreements.
Except for Sections 7.4, 7.6, 7.7 (except as provided therein), 7.10, 9.2, 10.7
and this Section 10.3, none of the representations, warranties, covenants and
agreements contained in this Agreement or in any instrument delivered pursuant
to this Agreement shall survive the Effective Time, and thereafter there shall
be no liability on the part of either MergerCo, Parent, or the Company or any of
their respective officers, directors or shareholders in respect thereof. Except
as expressly set forth in this Agreement, there are no representations or
warranties of any party, express or implied.
10.4 Miscellaneous. This Agreement (a) constitutes, together with the
Confidentiality Agreement, the Company Disclosure Schedule, and the Exhibits
hereto, the entire agreement and supersedes all of the prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, (b) subject to Section 10.5, shall be
binding upon and inure to the benefits of the parties and their respective
successors and assigns and is not intended to confer upon any other person
(except as set forth below) any rights or remedies hereunder, and (c) may be
executed in two or more counterparts which together shall constitute a single
agreement. Section 7.6 is intended to be for the benefit of those persons
described therein, and the covenants contained therein may be enforced by such
persons. The parties agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any Agreed Court (as hereinafter defined), this being in addition to
any other remedy to which they are entitled at law or in equity. Any
requirements for the securing or posting of any bond with respect to such remedy
are hereby waived by each of the parties.
10.5 Assignment. Except as expressly permitted by the terms hereof, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties without the prior written consent of the other
parties.
10.6 Severability. If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
10.7 Choice of Law/Consent to Jurisdiction. All disputes, claims or
controversies arising out of or relating to this Agreement or the negotiation,
validity or performance of this Agreement or the Transactions shall be governed
by and construed in accordance with the laws of the State of Ohio without regard
to its rules of conflict of laws. Each of the parties hereby irrevocably and
unconditionally consents to submit to the sole and exclusive jurisdiction of the
courts of the States of Ohio or Indiana and of the United States located in the
States of Ohio or Indiana (the "Agreed Courts") for any litigation arising out
of or relating to this Agreement, or the negotiation, validity or performance of
this Agreement, or the Transactions (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying of
venue of any such litigation in the Agreed Courts and agrees not to plead or
claim in any Agreed Court that such litigation brought therein has been brought
in any inconvenient forum. Each of the parties hereto agrees, (a) to the extent
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such party is not otherwise subject to service of process in the States of Ohio
or Indiana, to appoint and maintain an agent in the State of Ohio or Indiana, as
applicable, as such party's agent for acceptance of legal process, and (b) that
service of process may also be made on such party by prepaid certified mail with
a proof of mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant to (a) or (b)
above shall have the same legal force and effect as if served upon such party
personally within the State of Ohio or Indiana, as applicable. For purposes of
implementing the parties' agreement to appoint and maintain an agent for service
of process in the State of Ohio, Parent and MergerCo hereby appoint John R.
Lowther, Esq., at the address set forth in 10(a), above, for Parent, as their
agent, and the Company hereby appoints CT Corporation System, 1300 East 9th
Street, Cleveland, Ohio 44114, as its agent. For purposes of implementing the
parties' agreement to appoint and maintain an agent for service of process in
the State of Indiana, Parent and MergerCo hereby appoint CT Corporation System,
36 South Pennsylvania Street, Suite 700, Indianapolis, Indiana 46204, as their
agent, and the Company hereby appoints Stephen J. Hackman, Esq., at the address
set forth in 10(a), above, for Ice Miller, as its agent.
10.8 No Agreement Until Executed. Irrespective of negotiations among the
parties or the exchanging of drafts of this Agreement, this Agreement shall not
constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (a) the Board of
Directors of the Company has approved, for purposes of Section 23- 1-40-1 of the
IBCL and any applicable provision of the Articles of Incorporation, the terms of
this Agreement, and (b) this Agreement is executed by the parties.
10.9 Extension; Waiver. At any time prior to the Effective Time, the
parties, by action taken or authorized by their respective Boards of Directors,
or committees thereof, as the case may be, may, to the extent legally allowed:
(a) extend the time for the performance of any of the obligations or other acts
of the other parties; (b) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document delivered
pursuant; and (c) waive compliance by the other parties with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.
10.10 Amendment. This Agreement may be amended by the parties by an
instrument in writing signed on behalf of each of the parties at any time before
the Effective Time; provided, however, that after this Agreement is approved by
the Company's shareholders, no such amendment or modification shall reduce the
amount or change the form of consideration to be delivered to the shareholders
of the Company.
10.11 Additional Definitions. When used in this Agreement, the following
words or phrases have the following meanings:
(a) "Annual Statements" shall mean, with respect to any Person, the
annual statements of such Person filed with or submitted to the insurance
regulatory body in the jurisdiction in which such Person is domiciled on
forms prescribed or permitted by such regulatory body.
(b) "Assets" shall mean, as to a Person, all rights, titles,
franchises and interests in and to every species of property, real,
personal and mixed, and choses in action thereunto belonging, including,
but not limited to, Environmental Permits (as defined below), Investment
Assets, Intellectual Property (as defined below), Licenses, privileges and
all other assets whatsoever, tangible or intangible, of such Person.
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(c) "Computer Software" shall mean any and all computer software
consisting of sets of statements or instructions to be used, directly or
indirectly, in a computer, including, but not limited to, the following:
(i) all source code, object code and natural language code therefor and all
component modules thereof, (ii) all versions thereof, (iii) all screen
displays and designs thereof and (iv) all user, technical, training and
other documentation relating to any of the foregoing.
(d) "Environmental Claim" shall mean any investigation, notice of
violation, demand, allegation, action, suit, injunction, judgment, order,
consent decree, penalty, fine, lien, proceeding, or claim (whether
administrative, judicial or private in nature) arising: (i) pursuant to, or
in connection with, an actual or alleged violation of any Environmental Law
(as defined below); (ii) in connection with any Hazardous Substances (as
defined below) or actual or alleged activity associated with any Hazardous
Substances; (iii) from any abatement, removal, remedial, corrective or
other response action in connection with any Hazardous Substances,
Environmental Law or other order or directive of any federal, state or
local governmental authority; or (iv) from any actual or alleged damage,
injury, threat or harm to health, safety, natural resources or the
environment. Environmental Claim shall not include claims for coverage by
an insured.
(e) "Environmental Law" shall mean any applicable local, state or
federal statute, rule, regulation, order, code, directive or ordinance and
any binding judicial or administrative interpretation thereof or
requirements thereunder pertaining to: (i) the regulation and protection of
human health and safety and the outdoor environment; (ii) the protection or
use of surface water and ground water; (iii) the management, manufacture,
possession, presence, use, generation, transportation, treatment, storage,
disposal, release, threatened release, abatement, removal, remediation or
handling of, or exposure to, any Hazardous Substances; or (iv) pollution
(including any release into air, land, surface water and ground water); and
includes without limitation the following federal statutes (and their
implementing regulations and the analogous state statutes and regulations):
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act;
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, as amended by the Hazardous and Solid Waste
Amendments of 1984; and the Federal Water Pollution Control Act of 1972, as
amended by the Clean Water Act of 1977.
(f) "Environmental Permits" shall mean any permit, license, variance,
certificate, consent, letter, clearance, closure, exemption, authorization,
decision or action or approval required to be obtained from any federal,
state or local governmental authority with jurisdiction over and pursuant
to any Environmental Law.
(g) "Good Reason" shall mean, with respect to an Executive and the
Termination Benefit Agreement to which such Executive is a party, the
occurrence of any one or more of the following:
(i) The assignment to the Executive of duties which are
materially and adversely different from or inconsistent with the
duties, responsibilities, and status of the Executive's position at
any time during the 12-month period prior to the Effective Time, or
which result in a significant change in the Executive's authority and
responsibility as a senior executive of the employer or any of its
Affiliates under such Termination Benefit Agreement (collectively, the
"Employer");
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(ii) A reduction by the Employer in the Executive's annual base
salary in place as of the day immediately prior to the Effective Time,
or the failure to grant salary increases and bonus payments on a basis
comparable to those granted to other executives of the Employer, or a
reduction of the Executive's most recent highest incentive bonus
potential under the Executive's incentive bonus arrangement, if any,
in place as of the day immediately prior to the Effective Time, or any
successor to such arrangement;
(iii) The failure by the Employer to continue in effect the
Employer's supplemental retirement income plan as described in the
Company's proxy statement relating to its 2000 annual meeting of
shareholders and, in form substantially equivalent to the employee
benefit plans, fringe benefits and perquisites, and other employee
benefits described in the employee handbooks and manuals delivered to
Parent in connection with the execution and delivery of this
Agreement, any employee benefit plan (including any medical,
hospitalization, life insurance or disability benefit plan in which
the Executive participates), or any material fringe benefit or
perquisite enjoyed by the Executive immediately prior to the Effective
Time, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Employer to continue the Executive's
participation therein, or any action by the Employer which would
directly or indirectly materially reduce participation therein or
reward opportunities thereunder, or the failure by the Employer to
provide the Executive with the number of paid vacation days to which
the Executive is entitled on the basis of years of service with the
Employer in accordance with the Employer's normal vacation policy in
effect immediately prior to the Effective Time; and
(iv) A demand by the Employer that the Executive relocate to a
location in excess of 35 miles from the location where the Executive
is currently based, or in the event of any such relocation with the
Executive's express written consent, the failure of the Employer to
pay (or reimburse the Executive for) all reasonable moving expenses
incurred by the Executive relating to a change of principal residence
in connection with such relocation and to indemnify the Executive
against any loss in the sale of the Executive's principal residence in
connection with any such change of residence, all to the effect that
the Executive shall incur no loss on an after tax basis.
The existence of Good Reason shall not be affected by the Executive's
incapacity due to physical or mental illness. The Executive's continued
employment shall not constitute a waiver of the Executive's rights with
respect to any circumstance constituting Good Reason under this Agreement.
The Executive's determination of Good Reason shall be conclusive and
binding upon Parent and the Employer provided such determination has been
made in good faith.
(h) "Hazardous Substance" shall mean chemicals, products, compounds,
by-products, pollutants, contaminants, hazardous wastes or toxic or
hazardous substances regulated under any Environmental Law, including, but
not limited to, asbestos or asbestos-containing materials, polychlorinated
biphenyls, pesticides and oils, petroleum and petroleum products.
(i) "Insurance Contract" shall mean any contract of insurance,
including, but not limited to, reinsurance contracts.
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(j) "Insurance License" shall mean any License granted by a
Governmental Entity to transact an insurance or reinsurance business.
(k) "Intellectual Property" shall mean: trademarks, service marks,
brand names, certification marks, trade dress, assumed names, trade names
and other indications of origin, good will associated with the foregoing
and registrations of the foregoing and any extension, modification or
renewal of any such registrations or applications; inventions, discoveries
and ideas, whether patentable or not in any jurisdiction; patents,
applications for patents (including but not limited to divisions,
continuations, continuations in part and renewal applications), and any
renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any Person; writings
and other works, whether copyrightable or not in any jurisdiction, and any
renewals or extensions thereof; and any similar intellectual property or
proprietary rights; provided, that Intellectual Property shall include
Computer Software.
(l) "Investment Assets" shall mean bonds, notes, debentures, mortgage
loans, collateral loans and all other instruments of indebtedness, stocks,
partnership or joint venture interests and all other equity interests
(including, but not limited to, equity interests in Subsidiaries or other
Affiliates), real estate and leasehold and other interests therein,
certificates issued by or interests in trusts, cash on hand and on deposit,
personal property and interests therein and all other assets acquired for
investment purposes.
(m) "Liability" shall mean a liability, obligation, claim or cause of
action (of any kind or nature whatsoever, whether absolute, accrued,
contingent or other, and whether known or unknown), including, but not
limited to, any liability, obligation, claim or cause of action arising
pursuant to or as a result of an Insurance Contract or pursuant to any
Environmental Claim.
(n) "License" shall mean a license, certificate of authority,
franchise, permit or other authorization to transact an activity or
business, whether granted by a Governmental Entity or by any other Person.
(o) "NAIC" shall mean the National Association of Insurance
Commissioners.
(p) "Permitted Liens" shall mean (i) those Liens set forth in the
Company Disclosure Schedule, or otherwise approved in writing by Parent,
(ii) any Lien that is set forth in the public records or in title reports
or title insurance binders that have been made available to Parent relating
to any interest in the real property set forth in the Company Disclosure
Schedule, (iii) Liens for water and sewer charges and current Taxes not yet
due and payable or being contested in good faith, (iv) Liens arising from
securities lending activities undertaken in the ordinary course of business
of a Person, (v) mortgages or security interests shown in any of the SAP
Statements or any of the Company SEC Reports as securing specified
liabilities or obligations, (vi) mortgages or security interests incurred
in connection with the purchase of property or assets in the ordinary
course of business after the date of any of the SAP Statements or any of
the Company SEC Reports (such mortgages and security interests being
limited to the property or assets so acquired), (vii) minor imperfections
of title, if any, none of which is substantial in amount or materially
detracts from the value or impairs the use of the property subject thereto,
(viii) zoning laws and other land use restrictions that do not materially
impair the present or anticipated use of the property subject thereto, (ix)
other Liens (including, but not limited to, mechanic's, courier's,
worker's, repairer's, materialman's, warehouseman's and other similar
Liens) arising or incurred in the ordinary course of business as would not,
individually or in the aggregate, materially adversely affect the value of,
or materially adversely interfere with the use of, the property subject
thereto, and (x) Liens arising or resulting from any action taken by Parent
or any of its Subsidiaries (but not including the execution, delivery or
performance of this Agreement or the Merger).
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(q) "Person" shall mean an individual, corporation, partnership,
association, joint stock company, limited liability company, Governmental
Entity, trust, joint venture, labor union, estate, unincorporated
organization or other entity.
(r) "Pooling Agreement" shall mean that certain Reinsurance Pooling
Agreement Amended and Restated as of July 1, 1998, between and among the
Company, the Company Subsidiaries, and their Affiliates regarding
inter-company reinsurance.
(s) "Proceeding" shall mean any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted,
or heard by or before, or otherwise involving, any Governmental Entity,
other than any of the foregoing which relate to claims made pursuant to any
Insurance Contract.
(t) "Quarterly Statements" shall mean, with respect to any Person, the
quarterly statements of such Person filed with or submitted to the
insurance regulatory body in the jurisdiction in which such Person is
domiciled on forms prescribed or permitted by such regulatory body.
(u) "SAP" shall mean statutory accounting practices prescribed by the
NAIC and prescribed or permitted by the applicable insurance regulatory
body applied on a consistent basis.
(v) "SAP Statements" shall mean Annual Statements and Quarterly
Statements.
(w) "SEC" shall mean the United States Securities and Exchange
Commission or any successor entity.
(x) "Tax Ruling" shall mean a written ruling of a taxing authority
relating to Taxes.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
STATE AUTOMOBILE MUTUAL
INSURANCE COMPANY
By /s/ Robert L. Bailey
---------------------------------------------
(Name) (Title)
Robert L. Bailey, Chairman
MIGI ACQUISITION CORP.
By /s/ Robert L. Bailey
---------------------------------------------
(Name) (Title)
Robert L. Bailey, President
MERIDIAN INSURANCE GROUP, INC.
By /s/ Norma J. Oman
---------------------------------------------
(Name) (Title)
Norma J. Oman, President and
Chief Executive Officer
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