AGREEMENT AND PLAN OF MERGER
among
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
MIGI ACQUISITION CORP.,
and
MERIDIAN INSURANCE GROUP, INC.
October 25, 2000
TABLE OF CONTENTS Page
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
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
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
INDEX OF DEFINED TERMS
Term Section
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)
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 5.12(e)(ii)
Plan)
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)
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
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.
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.
(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.
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.
(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.
(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").
(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.
(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.
(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.
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
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 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.
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.
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;
(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:
(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;
(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.
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;
(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.
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;
(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, 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;
(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;
(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.
(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.
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, 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.
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.
(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.
(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:
(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.
(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.
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.
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
(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.
(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.
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
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 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 ________________________________ 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.
(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");
(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.
(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).
(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.
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
