SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
Walshire Assurance Company
(Name of Issuer)
Common Stock
(Title of Class of Securities)
933132102
(CUSIP Number)
Geoffrey Etherington III, Esq.
Edwards & Angell, LLP
750 Lexington Avenue
New York, NY 10022
(212) 308-4411
(Name, address and telephone number of person authorized
to receive notices and communications)
August 11, 1998
(Date of Event which requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b) (3) or (4), check the following box: ______
<PAGE>
1. Names of Reporting Persons I.R.S. Identification Nos. of Above Person
Kingsway Financial Services Inc.
2. Check the Appropriate Box if a Member of a Group
(a) X
(b) _____
3. SEC Use Only
4. Source of Funds
OO
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e)
6. Citizenship or Place of Organization
Ontario, Canada
Number of Shares 7. Sole Voting Power: 0
Beneficially Owned by
Each Reporting Person 8. Shared Voting Power: 1,139,753
With
9. Sole Dispositive Power: 0
10. Shared Dispositive Power: 1,139,753
11. Aggregate Amount Beneficially Owned by Each Reporting Person
1,139,753
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares
13. Percent of Class Represented by Amount in Row (11)
25.7% as calculated in accordance with Rule 13d-3(d)(1).
14. Type of Reporting Person
HC; CO
<PAGE>
1. Names of Reporting Persons I.R.S. Identification Nos. of Above Person
Kingsway America Inc.
2. Check the Appropriate Box if a Member of a Group
(a) X
(b) _____
3. SEC Use Only
4. Source of Funds
OO
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e)
6. Citizenship or Place of Organization
Delaware
Number of Shares 7. Sole Voting Power: 0
Beneficially Owned by
Each Reporting Person 8. Shared Voting Power: 1,139,753
With
9. Sole Dispositive Power: 0
10. Shared Dispositive Power: 1,139,753
11. Aggregate Amount Beneficially Owned by Each Reporting Person
1,139,753
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares X
13. Percent of Class Represented by Amount in Row (11)
25.7% as calculated in accordance with Rule 13d-3(d)(1).
14. Type of Reporting Person
CO
<PAGE>
1. Names of Reporting Persons I.R.S. Identification Nos. of Above Person
W Acquisition Corporation
2. Check the Appropriate Box if a Member of a Group
(a) X
(b) _____
3. SEC Use Only
4. Source of Funds
OO
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e)
6. Citizenship or Place of Organization
Pennsylvania
Number of Shares 7. Sole Voting Power: 0
Beneficially Owned by
Each Reporting Person 8. Shared Voting Power: 1,139,753
With
9. Sole Dispositive Power: 0
10. Shared Dispositive Power: 1,139,753
11. Aggregate Amount Beneficially Owned by Each Reporting Person
1,139,753
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares
13. Percent of Class Represented by Amount in Row (11)
25.7% as calculated in accordance with Rule 13d-3(d)(1).
14. Type of Reporting Person
CO
<PAGE>
ITEM 1. SECURITY AND ISSUER.
This Statement on Schedule 13D relates to the Common Stock, $.01 par value per
share (the "Common Stock"), of Walshire Assurance Company, a Pennsylvania
corporation (the "Company").
The principal executive offices of the Company are located at 3350 Whiteford
Road, P.O. Box 3849, York, Pennsylvania 17402-0138.
ITEM 2. IDENTITY AND BACKGROUND.
This Statement is being filed by Kingsway Financial Services Inc.
("Kingsway"), Kingsway America Inc. ("Kingsway America") and W Acquisition Corp.
("Acquisition Sub", collectively with Kingsway and Kingsway America, the "Filing
Persons"). The names and citizenship of the directors and executive officers of
the Filing Persons are set forth on Exhibit A attached hereto, which Exhibit is
incorporated herein by reference. The Filing Persons are members of a group as
that term is used in Rule 13d-(1)(k)./1/
/1/ Neither the present filing nor anything contained herein shall be construed
as an admission that any Filing Person constitutes a "person" for any purpose
other than Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"). The possible members of the group on whose behalf this statement is not
filed (the "Other Persons") are: (i) Peter D. Bennett, 533 Ridge Avenue, State
College, PA 16803; (ii) John J. Buchan, Jr., 2005 Bates Drive, Johnstown, PA
15901; (iii) Interstate Insurance Management, Inc., 2307 Menoher Boulevard,
Johnstown, PA 15901; (iv) Charles W. Hash Jr., 1400 E. Market Street, York, PA
17403; (v) Memorial Surgical Associates Retirement Fund, c/o Charles W. Hash,
Jr., 1400 E. Market Street, York, PA 17403; (vi) Gary J. Orndorff, 2980
Chesapeake Road, York, PA 17402; (vii) L. Edward Sausman, Jr., Sausman Insurance
Agency, Inc., Old Route 22 West, Thompsontown, PA 17094; (viii) Beverly Sausman,
c/o L. Edward Sausman, Jr., Sausman Insurance Agency, Inc., Old Route 22 West,
Thompsontown, PA 17094; (x) Lee E. Sausman, Sr., 12 Evergreen Street, P.O. Box
297, Thompsontown, PA 17094; (xi) Kenneth R. Taylor, 1157 Youngsford Road,
Gladwyne, PA 19035; (xii) Taylor & Ochroch, Inc., 123 Ivy Lane, King of Prussia,
PA 19406; (xiii) William R. Tierney, Jr., Insurance Markets, Inc., 261 East
Grove, Clarks Summit, PA 18411; (xv) Cheryl Tierney, c/o William R. Tierney,
Jr., Insurance Markets, Inc., 261 East Grove, Clarks Summit, PA 18411;
(xvi)Trustee Under Irrevocable Agreement with Emily Tierney, William R. Tierney,
Jr., Peter Tierney, Joseph Tierney of William R. Tierney - Family Trust, c/o
William R. Tierney, Jr., Insurance Markets, Inc., 261 East Grove, Clarks Summit,
PA 18411; and (xvii) Trustee Under Irrevocable Agreement with Emily Tierney,
William R. Tierney, Jr., Peter Tierney, Joseph Tierney of William R. Tierney,
c/o William R. Tierney, Jr., Insurance Markets, Inc., 261 East Grove, Clarks
Summit, PA 18411. Note that counsel to the Company has indicated that the Other
Persons disclaim membership in the group.
The principal business address of Kingsway and Acquisition Sub, as well as
each of the directors and executive officers of Kingsway and Acquistion Sub, is
5310 Explorer Drive, Suite 200, Mississauga, Ontario, Canada L4W 5H8 and the
principal business address of Kingsway America and each of its directors and
executive oficers is 1515 Woodfield Road, Suite 820, Schaumburg, Illinois 60173.
Kingsway is a publicly-traded Canadian property and casualty insurance holding
company which operates through wholly-owned subsidiaries in both Canada and the
United States. Kingsway's primary business is non-standard automobile insurance.
Kingsway also operates in standard automobile, commercial automobile, property,
motorcycle and other specialty insurance markets. Kingsway owns 100% of the
issued and outstanding capital stock of Kingsway America, a Delaware corporation
and intermediate holding company formed for the purpose of acting as a holding
company for Kingsway's United States subsidiaries. Acquisition Sub is a
wholly-owned subsidiary of Kingsway America and was formed solely for the
purpose of effecting the merger described in Item 3 to the Schedule 13D.
During the last five years, none of the Filing Persons or directors or
executive officers of the Filing Persons (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) has
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws, or finding
any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Kingsway, Kingsway America and Acquisition Sub entered into an Agreement and
Plan of Merger, dated as of August 11, 1998, among the Company, Kingsway,
Kingsway America and Acquisition Sub, (the "Merger Agreement") to acquire 100%
of the issued and outstanding stock of the Company. A copy of the Merger
Agreement is attached as Exhibit 7.1 hereto. Pursuant to the Merger Agreement,
Acquisition Sub will merge into the Company, with the Company as the surviving
corporation (the "Merger"). On the closing date (a) each outstanding share of
Common Stock of the Company will be converted into the right to receive $8.25 in
cash, without interest, (b) each outstanding share of the Company's 6.5%
Convertible Preferred Stock will be converted into a right to receive $50.00 in
cash, plus accrued and unpaid dividends, without interest (an amount equal to
the redemption price of such Preferred Stock), and (c) the Company will become a
wholly owned subsidiary of Kingsway America.
Simultaneously with the execution of the Merger Agreement certain directors and
officers of the Company and certain other shareholders of the Company (each, a
"Stockholder" and, collectively the "Stockholders"), the Company, Kingsway,
Kingsway America, and Acquisition Sub executed and delivered a Voting Agreement
dated August 11, 1998 (the "Voting Agreement"). A copy of the Voting Agreement
is attached hereto as Exhibit 7.2. The Stockholders entered into the Voting
Agreement as a material inducement and condition to Kingsway, Kingsway America
and Acquisition Sub entering into the Merger Agreement. The Filing Persons
acquired beneficial ownership of the Common Stock of the Company pursuant to the
Voting Agreement whereby each Stockholder agreed, among other things, to: (a)
vote all shares of Common Stock owned by such Stockholder in favor of the
Merger; (b) not enter into any contract, option or other undertaking to sell,
transfer, assign or otherwise dispose of any shares of company stock or its
equivalents; and (c) grant Kingsway America and its officers William G. Star and
Shaun Jackson, in their respective capacities as officers of Kingsway America,
such stockholder's proxy and attorney-in-fact for and in the name, place and
stead of such Stockholder, to vote such Stockholder's Company stock or
equivalents in favor of the Merger and against any acquisition proposal or other
proposal which would be reasonably likely to prevent the Merger. As a result of
the Voting Agreement, Kingsway, Kingsway America and Acquisition Sub are assured
that 1,139,753 shares of Common Stock of the Company, representing 25.7% of the
issued and outstanding voting securities of the Company, will vote in favor of
the Merger as set forth in the Merger Agreement.
As noted above the Filing Persons have paid no consideration for the beneficial
interest in the Company's voting securities acquired pursuant to the Voting
Agreement. As of October 30, 1998, no consideration has been paid by the Filing
Persons in consideration of the proposed Merger.
ITEM 4. PURPOSE OF THE TRANSACTION
The purpose of the Voting Agreement is to assure Kingsway, Kingsway America and
Acquisition Sub that 1,139,753 shares of Common Stock, representing 25.7% of
such Common Stock of the Company, will be voted in favor of the Merger as set
forth in the Merger Agreement described in Item 3 of this Schedule 13D. The
Merger Agreement provides that all of the issued and outstanding equity
securities of the Company will be converted into the right to receive cash and
the Company will become a wholly-owned subsidiary of Kingsway America, as
described in Item 4(a) of the General Instructions to Schedule 13D. The Merger
is an extraordinary transaction, as described in Item 4(b) of the General
Instructions to Schedule 13D. At the effective time of the Merger, the directors
of W Acquisition will become the directors of the corporation surviving the
Merger, and the officers of the Company will become officers of such surviving
corporation, which will represent a change in the present board of directors and
management of the Company, as described in Item 4(d) of the General Instructions
to Schedule 13D. After giving effect to the Merger, Kingsway and Kingsway
America will indirectly control 100% of the Common Stock of the Company, the
Company will become a privately held wholly-owned subsidiary of Kingsway
America, which will result in a material change in the present capitalization
and dividend policy of the Company, as described in Item 4(e) of the General
Instructions to Schedule 13D, and will cause the securities of the Company to be
delisted from the NASDAQ national market system (see Item 4(h) of the General
Instructions to Schedule 13D). On or after the effective date of the Merger the
Company will file Form 15 with the Securities and Exchange Commission (the
"Commission") notifying the Commission of termination of the registration of the
Company's registered securities under Section 12(g)(4) of the Exchange Act (see
Item 4(i) of the General Instructions to Schedule 13D).
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Through the Voting Agreement, each of Kingsway, Kingsway America and
Acquisition Sub beneficially owns 1,139,753 shares of Common Stock. Based on the
Merger Agreement, 4,443,188 shares of Common Stock were issued and outstanding
as of August 11, 1998. Based on the foregoing, each of Kingsway, Kingsway
America and Acquisition Sub beneficially owns 25.7% of the Common Stock, as
calculated in accordance with Rule 13d-3(d)(1)./1/
/1/ Kingsway, Kingsway America and Acquisition Sub share such beneficial
ownership with members of the group on whose behalf this statement is not filed
as stated in Item 2 of Schedule 13D.
None of the Filing Persons beneficially owns any shares of Common Stock as of
October 30, 1998 other than as set forth herein.
(b) Each of Kingsway, Kingsway America and Acquisition Sub has shared power to
vote or direct the vote of 1,139,753 shares of Common Stock, and shared power to
dispose or direct the disposition of 1,139,753 shares of Common Stock. Kingsway,
Kingsway America and Acquisition Sub's power to vote or direct the vote of
1,139,753 shares of Common Stock, and power to dispose or direct the disposition
of 1,139,753 shares of Common Stock of the Company was granted to the Filing
Persons pursuant to the Voting Agreement and may be deemed to be shared with the
following persons:
Peter D. Bennett, 533 Ridge Avenue, State College, PA 16803;
John J. Buchan, Jr., 2005 Bates Drive, Johnstown, PA 15901;
Interstate Insurance Management, Inc., 2307 Menoher Boulevard, Johnstown,
PA 15901;
Charles W. Hash Jr., 1400 E. Market Street, York, PA 17403;
Memorial Surgical Associates Retirement Fund, c/o Charles W. Hash, Jr.,
1400 E. Market Street, York, PA 17403;
Gary J. Orndorff, 2980 Chesapeake Road, York, PA 17402;
L. Edward Sausman, Jr., Sausman Insurance Agency, Inc., Old Route 22 West,
Thompsontown, PA 17094
Beverly Sausman, c/o L. Edward Sausman, Jr., Sausman Insurance Agency,
Inc., Old Route 22 West, Thompsontown, PA 17094
Lee E. Sausman, Sr., 12 Evergreen Street, P.O. Box 297, Thompsontown, PA
17094
Kenneth R. Taylor, 1157 Youngsford Road, Gladwyne, PA 19035;
Taylor & Ochroch, Inc., 123 Ivy Lane, King of Prussia, PA 19406;
William R. Tierney, Jr., Insurance Markets, Inc., 261 East Grove, Clarks
Summit, PA 18411;
Cheryl Tierney, c/o William R. Tierney, Jr., Insurance Markets, Inc., 261
East Grove, Clarks Summit, PA 18411;
Trustee Under Irrevocable Agreement with Emily Tierney, William R. Tierney,
Jr., Peter Tierney, Joseph Tierney of William R. Tierney - Family Trust,
c/o William R. Tierney, Jr., Insurance Markets, Inc., 261 East Grove,
Clarks Summit, PA 18411;
Trustee Under Irrevocable Agreement with Emily Tierney, William R. Tierney,
Jr., Peter Tierney, Joseph Tierney of William R. Tierney, c/o William R.
Tierney, Jr., Insurance Markets, Inc., 261 East Grove, Clarks Summit, PA
18411.
The Company's counsel has notified the Filing Persons that each of the Other
Persons listed above disclaims membership in a group with the Filing Persons
established pursuant to the Voting Agreement.
(c) Except as set forth in Item 3 with respect to the Merger Agreement and the
Voting Agreement there has not been any transaction in the Common Stock effected
during the past sixty days or since the most recent filing of Schedule 13D, by
Kingsway, Kingsway America or Acquisition Sub.
(d) No other person is known by any Filing Person to have the right to receive
or the power to direct the receipt of dividends from, or the proceeds from the
sale of, any shares of Common Stock beneficially owned by any Filing Person.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER
As noted in Item 3, simultaneously with the execution of the Merger Agreement,
the Stockholders executed and delivered the Voting Agreement. The Stockholders
entered into the Voting Agreement as a material inducement and condition to
Kingsway, Kingsway America and Acquisition Sub entering into the Merger
Agreement. The Filing Persons acquired beneficial ownership of the Common Stock
of the Company pursuant to the Voting Agreement whereby each Stockholder agreed,
among other things, to: (a) vote all shares of Common Stock owned by such
Stockholder in favor of the Merger; (b) not enter into any contract, option or
other undertaking to sell, transfer, assign or otherwise dispose of any shares
of company stock or its equivalents; and (c) grant Kingsway America and its
officers William G. Star and Shaun Jackson, in their respective capacities as
officers of Kingsway America, such Stockholder's proxy and attorney-in-fact for
and in the name, place and stead of such Stockholder, to vote such Stockholder's
company stock or equivalents in favor of the Merger and against any acquisition
proposal or other proposal which would be reasonably likely to prevent the
Merger. As a result of the Voting Agreement, Kingsway, Kingsway America and
Acquisition Sub are assured that 1,139,753 shares of Common Stock of the
Company, representing 25.7% of the issued and outstanding voting securities of
the Company, will vote in favor of the Merger as set forth in the Merger
Agreement.
Except as described herein, none of the Filing Persons is a party to any
contract, arrangement, understanding or relationship with respect to any
securities of the Company.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 7.1 Agreement and Plan of Merger dated August 11, 1998 among the
Company, Kingsway, Kingsway America and the Acquisition Sub.
Exhibit 7.2 Voting Agreement dated August 11, 1998 among certain Stockholders
of the Company, Kingsway, Kingsway America, and Acquisition Sub.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: October 30, 1998 KINGSWAY FINANCIAL SERVICES INC.
/s/William G. Star
-------------------------------------------
William G. Star
President and Chief Executive Officer
Date: October 30, 1998 KINGSWAY AMERICA INC.
/s/William G. Star
-------------------------------------------
William G. Star
Chairman
Date: October 30, 1998 W ACQUISITION CORPORATION
/s/William G. Star
------------------------------------------
William G. Star
Authorized Representative
<PAGE>
EXHIBIT A
KINGSWAY FINANCIAL SERVICES INC.
DIRECTORS:
Name: Citizenship
1. John Llowellyn Beamish Canada
2. Thomas Anthony DiGiacomo Canada
3. Bernard Lloyd Gluckstein Canada
4. Howard Leon Laxton Canada
5. William G. Star Canada
6. Murray Alan Thompson Canada
7. James Roger Zuhlke USA
EXECUTIVE OFFICERS:
Name: Citizenship Office:
1. William G. Star Canada President and CEO
2. William Shaun Jackson Canada Vice President and CFO
KINGSWAY AMERICA, INC.
DIRECTORS:
Name: Citizenship
1. William G. Star Canada
2. James Roger Zuhlke Canada
3. William Shaun Jackson Canada
EXECUTIVE OFFICERS:
Name: Citizenship Office:
1. James Roger Zuhlke USA President and CEO
2. John Proctor USA Vice President and CFO
W ACQUISITION CORP.
DIRECTORS:
Name: Citizenship
1. William Shaun Jackson Canada
2. William G. Star Canada
3. James Roger Zuhlke USA
EXECUTIVE OFFICERS:
Name: Citizenship Office:
1. William G. Star Canada President
Exhibit 7.1
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 11, 1998
BY AND AMONG
KINGSWAY FINANCIAL SERVICES INC.,
KINGSWAY AMERICA INC.,
W ACQUISITION CORPORATION
AND
WALSHIRE ASSURANCE COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1: DEFINITIONS 1
1.1 Definitions....................................................... 1
ARTICLE 2: THE MERGER 7
2.1 The Merger........................................................ 7
2.2 Effective Time of the Merger...................................... 7
2.3 Terms of the Merger............................................... 7
2.4 Effect of the Merger.............................................. 8
2.5 Conversion or Cancellation of Shares in the Merger................ 8
2.6 Payment for Shares in the Merger.................................. 8
2.7 Status of Options................................................. 9
2.8 Dissenting Shares.................................................10
2.9 Closing of the Company's Transfer Books...........................10
2.10 No Further Ownership Rights in the Company Common Stock...........11
2.11 No Liability......................................................11
2.12 Investment of Exchange Fund.......................................11
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF THE COMPANY 11
3.1 Corporate Existence and Power.....................................11
3.2 Corporate Authorization...........................................12
3.3 Governmental Authorization........................................12
3.4 Non-Contravention.................................................12
3.5 Capitalization....................................................12
3.6 All Assets Necessary..............................................13
3.7 Subsidiaries......................................................13
3.8 Financial Statements; SEC Reports.................................14
3.9 Absence of Certain Changes........................................15
3.10 Material Liabilities; Investments.................................16
3.11 Material Contracts................................................17
3.12 Non-Claims Litigation.............................................18
3.13 Compliance with Laws..............................................19
3.14 Properties........................................................19
3.15 Licenses and Permits; Policies; Regulatory Matters................19
3.16 Tax Matters.......................................................20
3.17 Employee Group Benefit Plans......................................21
3.18 Environmental Compliance..........................................21
3.19 Intellectual Property; Software...................................22
3.20 Labor Matters.....................................................23
3.21 Loans and Advances................................................23
3.22 Proxy Statement...................................................23
3.23 No Other Broker...................................................24
3.24 Pennsylvania Takeover Laws........................................24
3.25 Related Party Transactions........................................24
3.26 Fairness Opinion...................................................24
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF BUYER 24
4.1 Corporate Existence and Power.....................................24
4.2 Corporate Authorization...........................................25
4.3 Governmental Authorization........................................25
4.4 Non-Contravention.................................................25
4.5 Financing.........................................................25
4.6 No Actions; Suits or Proceedings..................................25
4.7 No Other Broker...................................................26
4.8 Merger Subsidiary.................................................26
4.9 Reports and Financial Statements..................................26
4.10 Proxy Statement...................................................26
ARTICLE 5: COVENANTS OF THE COMPANY 26
5.1 Conduct...........................................................26
5.2 Access to Information.............................................28
5.3 Notices of Certain Events.........................................29
5.4 No Solicitation...................................................29
5.5 Meeting of the Company Shareholders...............................30
5.6 Supplements or Amendments.........................................30
ARTICLE 6: COVENANTS OF BUYER 30
6.1 Confidentiality...................................................30
6.2 Indemnification and Insurance.....................................30
6.3 Supplements or Amendments.........................................32
ARTICLE 7: COVENANTS OF BUYER AND THE COMPANY................................32
7.1 Commercially Reasonable Efforts...................................32
7.2 Public Announcements..............................................33
7.3 Consents..........................................................33
7.4 Proxy Statement...................................................33
7.5 Updating Schedules................................................33
ARTICLE 8: EMPLOYEES AND EMPLOYEE BENEFITS 34
8.1 Employees.........................................................34
8.2 401(k) Plans......................................................34
8.3 Group Health Plans................................................34
8.4 Severance Arrangements............................................34
8.5 Other Benefit Plans...............................................35
ARTICLE 9: CONDITIONS TO CLOSING 35
9.1 Conditions to Obligations of Buyer and the Company................35
9.2 Conditions to Obligation of Buyer.................................36
9.3 Conditions to Obligation of the Company...........................36
ARTICLE 10: SURVIVAL.........................................................37
10.1 Survival..........................................................37
ARTICLE 11: TERMINATION 37
11.1 Grounds for Termination...........................................37
11.2 Effect of Termination.............................................38
ARTICLE 12: MISCELLANEOUS 38
12.1 Notices...........................................................38
12.2 Amendments and Waivers............................................39
12.3 Expenses..........................................................40
12.4 Successors and Assigns............................................40
12.5 Governing Law.....................................................40
12.6 Jurisdiction......................................................40
12.7 Counterparts......................................................40
12.8 No Third Party Beneficiaries......................................41
12.9 Entire Agreement..................................................41
12.10 Construction......................................................41
12.11 Currency..........................................................41
SCHEDULES
Schedule 1.1(a) The Company's Options
Schedule 1.1(b) Contingent and Severance Compensation Agreements
Schedule 1.1(c) Knowledge of the Company
Schedule 1.1(d) Knowledge of Buyer
Schedule 3.3 Governmental Authorization
Schedule 3.4 Non-Contravention
Schedule 3.6 All Assets Necessary
Schedule 3.7 Subsidiaries Schedule
3.9 Absence of Certain Changes
Schedule 3.9(viii) Company's Investment Policies
Schedule 3.10(a) Material Liabilities
Schedule 3.10(b) Investment Assets of the Company
Schedule 3.11 Material Contracts
Schedule 3.12 Non-Claims Litigation, Investigations and Proceedings
Schedule 3.13 Compliance with Laws
Schedule 3.15 License and Permits; Policies; Regulatory Matters
Schedule 3.16 Tax Matters
Schedule 3.17 Employee Group Benefit Plans
Schedule 3.19(a) Intellectual Property
Schedule 3.19(b) Software
Schedule 3.21 Loans and Advances
Schedule 4.3 Governmental Authorization
Schedule 4.4 Non-Contravention
Schedule 5.1 Conduct of the Company
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of August 11,
1998, by and among Walshire Assurance Company, a Pennsylvania corporation (the
"Company"), Kingsway America Inc., a Delaware corporation ("Buyer"), Kingsway
Financial Services Inc., an Ontario corporation ("Buyer Parent") and W
Acquisition Corporation, a Pennsylvania corporation ("Buyer Sub").
RECITALS
WHEREAS, the respective boards of directors of the Company, Buyer, Buyer Parent
and Buyer Sub have approved the taxable cash merger of Buyer Sub with and into
the Company (the "Merger") upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual agreements contained herein and
subject to the satisfaction of the terms and conditions set forth herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1: DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the following
meanings:
"Acquisition Proposal" shall have the meaning specified in Section 5.4.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such
Person; provided that none of the Subsidiaries of the Company shall be
considered an Affiliate of the Company.
"Agreement" means this Agreement and Plan of Merger, including the
schedules hereto.
"Annual Statements" shall have the meaning specified in Section 3.8.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company, as filed with the Secretary of the
Commonwealth of Pennsylvania.
"Articles of Merger" shall have the meaning specified in Section 2.2.
"Balance Sheet Date" means June 30, 1998.
"Benefit Arrangement" means any employment, severance or similar contract,
arrangement or policy, or any plan or arrangement (whether or not written)
to provide benefits as compensation for services rendered, including but
not limited to severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
death benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses,
executive compensation arrangements (including but not limited to stock
options, stock appreciation rights, restricted stock rights and performance
unit awards and other forms of incentive compensation) or post-retirement
insurance, compensation or benefits that (i) is not an Employee Plan, (ii)
is entered into or maintained, as the case may be, by the Company or any of
its ERISA Affiliates and (iii) covers any present or former employee,
director, agent or independent contractor of Company or any of its
Subsidiaries.
"Benefit Plan" means any Employee Plan or Benefit Arrangement.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which commercial banks in Philadelphia, Pennsylvania are required or
permitted to be closed.
"Buyer Financial Statements" shall have the meaning specified in Section
4.9.
"Buyer Parent Securities Reports" means all reports, forms, schedules,
registration statements and other documents together with all amendments
and supplements thereto which Buyer Parent has been required to file with
the appropriate Canadian securities regulatory authorities since January 1,
1998.
"Canadian GAAP" means, at any time, accounting principles generally
accepted in Canada including those set out in the Handbook of the Canadian
Institute of Chartered Accountants, at the relevant time applied on a
consistent basis.
"Certificates" means one or more certificates that immediately prior to the
Effective Time represented outstanding Shares.
"Claims Provision" shall have the meaning specified in Section 3.19.
"Closing" shall have the meaning specified in Section 2.2.
"Closing Date" shall have the meaning specified in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time, after giving effect to the
exercise or cancellation of each Company Option pursuant to Section 2.7.
"Common Stock Consideration" shall have the meaning specified in Section
2.5(b).
"Company Common Stock" means the Common Stock, par value $0.01, of the
Company.
"Company Investment Assets" means any investment assets (whether or not
required by U.S. GAAP or SAP to be reflected on a balance sheet)
beneficially owned (within the meaning of Rule 13d-3 under the Exchange
Act) by the Company or any Subsidiary of the Company including but not
limited to bonds, notes, debentures, mortgage loans, collateral loans and
all other instruments of indebtedness, stocks, partnership or joint venture
interests and all other equity interests, certificates issued by or
interests in trusts, derivatives and all other assets acquired for
investment purposes.
"Company Options" means the options identified on Schedule 1.1(a).
"Company Preferred Stock" means the 6 1/2% cumulative convertible Preferred
Stock, par value $0.01, of the Company.
"Company Shareholders' Approval" shall have the meaning specified in
Section 5.5.
"Company Shareholders' Meeting" shall have the meaning specified in Section
5.5.
"Company Securities" shall have the meaning specified in Section 3.5.
"Confidentiality Agreement" means that certain Confidentiality Agreement
dated October 2, 1997, between the Company and Buyer Parent.
"Constituent Corporations" means each of the Company and Buyer Sub.
"Contingent Severance Compensation Agreement" means the Contingent
Severance Compensation Agreement, dated as of August 14, 1997, between the
Company and the employees identified on Schedule 1.1(b).
"Dissenting Shares" shall have the meaning specified in Section 2.8.
"D&O Insurance" shall have the meaning specified in Section 6.2.
"Effective Time" shall have the meaning specified in Section 2.2.
"Employee Plan" means any "employee benefit plan," as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Company or any of its
ERISA Affiliates and (iii) covers any employee or former employee of the
Company or any of its Subsidiaries.
"Environmental Laws" means any and all federal, state or local statutes,
laws, regulations, ordinances, rules or codes now in effect relating to the
environment, to the effect of the environment on human health or safety or
to the use, generation, manufacturing, treatment, disposal, storage,
discharge or release of any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum and its derivatives and
by-products, or any substance having any constituent elements displaying
any of the foregoing characteristics, into the environment, including but
not limited to ambient air, surface water, groundwater or land, or the
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation or rule issued thereunder.
"ERISA Affiliate" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code or Section 4001 of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Agent" means a bank or trust company selected by Buyer, and
reasonably satisfactory to the Company, to effectuate the payment for
Shares in the Merger.
"Exchange Fund" shall have the meaning specified in Section 2.6.
"Governmental Body" means any federal, state, municipal, political
subdivision or other governmental legislature, court, tribunal, arbitrator,
authority, official, department, commission, board, bureau, agency or
instrumentality, whether domestic or foreign.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Intellectual Property" shall mean: trademarks, service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction
to register, the foregoing, including any extension, modification or
renewal of any such registration or application; 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;
registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights; provided, that "Intellectual
Property" shall not include Software.
"Knowledge of the Company" means the actual knowledge of the individuals
named on Schedule 1.1(c).
"Knowledge of Buyer" means the actual knowledge of the individuals named on
Schedule 1.1(d).
"Law" means any statute, law, rule, regulation or ordinance of any
Governmental Body.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property
or asset which it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such property or asset.
"Material Adverse Effect" means, with respect to any Person or Persons, a
material adverse effect on the financial condition, results of operations,
business, assets or liabilities of such Person or Persons and its or their
Subsidiaries, taken as whole.
"Merger" shall have the meaning specified in the Recitals.
"Merger Consideration" means the Common Stock Consideration in the case of
Common Shares and the Preferred Stock Consideration in the case of Shares
of the Company's Preferred Stock.
"Option" means any subscriptions, options, warrants, rights (including
"phantom" stock rights), preemptive rights or other contracts, commitments,
understandings or arrangements, including any right of conversion or
exchange under any outstanding security, instrument or agreement to issue
or sell any shares of capital stock of a corporation, or any securities
exchangeable for or exercisable into any such shares.
"Order" means any judgment, decree, order, writ, permit or license of any
Governmental Body.
"PBCL" means the Pennsylvania Business Corporation Law of 1988, as amended.
"Permits" shall have the meaning specified in Section 3.15.
"Permitted Investments" means short-term U.S. government obligations or
interest-bearing money market accounts that invest solely in such
obligations.
"Person" means an individual, corporation, partnership, association, trust,
limited liability company or other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"Preferred Shares" means shares of the Company's Preferred Stock issued and
outstanding immediately prior to the Effective Time.
"Preferred Stock Consideration" shall have the meaning specified in Section
2.5(c).
"Pre-June 30 Tax Period" means any Tax period ending on or before June 30,
1998 and the portion of the calendar year 1998 ending on and including June
30, 1998.
"Proxy Statement" shall have the meaning specified in Section 7.4.
"Regulators" shall have the meaning specified in Section 3.8.
"Returns" means all Tax returns, statements, reports, forms or other
documentation required to be filed with any Taxing Authority.
"SAP" means the accounting procedures and practices prescribed or permitted
from time to time by the National Association of Insurance Commissioners
and adopted, permitted or promulgated by the respective states of
incorporation of the Company and its Subsidiaries and employed in a
consistent manner throughout the periods involved.
"SEC" means the United States Securities and Exchange Commission.
"SEC Reports" means all forms, reports and documents filed by the Company
with the SEC since January 1, 1998 and prior to the date hereof.
"Shares" means Common Shares and Preferred Shares.
"Significant Agreements" shall have the meaning specified in Section 3.11.
"Software" shall mean all computer and telecommunication software including
source and object code and documentation and any other media (including but
not limited to manuals, journals and reference books).
"Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to
elect 50% or more of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such
Person.
"Subsidiary Securities" shall have the meaning specified in Section 3.7.
"Surviving Corporation Common Stock" shall have the meaning specified in
Section 2.5.
"Tax" means all taxes, charges, fees, levies or other assessments,
including but not limited to any net income tax or franchise tax based on
net income, any alternative or add-on minimum taxes, any gross income,
gross receipts, premium, sales, use, ad valorem, value added, transfer,
profits, license, social security, Medicare, payroll, employment, excise,
severance, stamp, occupation, property, environmental or windfall profit
tax, custom, duty or other tax, governmental fee or other like assessment,
together with any interest, penalty, addition to tax or additional amount
imposed by any Taxing Authority.
"Taxing Authority" means any governmental authority (domestic or foreign)
responsible for the imposition of any Tax.
"Transferred Employees" shall have the meaning specified in Section 9.1.
"Unaudited June 30 Balance Sheet" shall have the meaning specified in
Section 3.8.
"U.S. GAAP" means generally accepted accounting principles under United
States accounting rules and regulations.
ARTICLE 2: THE MERGER
2.1 THE MERGER. Subject to the terms and conditions hereof, at the
Effective Time and in accordance with the provisions of this Agreement and
the applicable provisions of the PBCL, Buyer Sub shall be merged with and
into the Company, and the Company shall continue as the surviving
corporation (the "Surviving Corporation"). Thereupon the separate corporate
existence of Buyer Sub shall cease, and the Surviving Corporation shall
continue in existence under the laws of the Commonwealth of Pennsylvania.
2.2 EFFECTIVE TIME OF THE MERGER. On or prior to the Closing Date, the
Merger shall be consummated by filing with the Secretary of State of the
Commonwealth of Pennsylvania, as provided in Section 1927 of the PBCL, the
articles of merger, in such form as is required by and executed in
accordance with Section 1926 of the PBCL and satisfactory to the parties
hereto (the "Articles of Merger"), on behalf of the Constituent
Corporations. The Merger shall become effective at the time of filing or at
such later time as shall be specified in the Articles of Merger (the
"Effective Time"). Prior to such filing, a closing (the "Closing") shall be
held at the offices of Blank Rome Comisky & McCauley LLP, One Logan Square,
Philadelphia, PA 19103, or such other place as the parties may agree, on a
date set by Buyer (the "Closing Date"), which date shall be within ten
Business Days following the later of (i) the date of the Company
Shareholders' Approval and (ii) the date upon which all conditions set
forth in Article 10 hereof have been satisfied or waived.
2.3 TERMS OF THE MERGER.
(a) The articles of incorporation of the Company in effect at the
Effective Time shall be the articles of incorporation of the Surviving
Corporation until duly amended in accordance with the terms thereof
and of the PBCL.
(b) The bylaws of Buyer Sub in effect at the Effective Time shall be
the bylaws of the Surviving Corporation until duly amended in
accordance with the terms thereof, of the articles of incorporation of
the Surviving Corporation and of the PBCL.
(c) The directors of Buyer Sub at the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's articles of incorporation
and bylaws.
(d) The officers of the Company at the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's articles of incorporation
and bylaws.
2.4 EFFECT OF THE MERGER. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the PBCL.
2.5 CONVERSION OR CANCELLATION OF SHARES IN THE MERGER. Subject to the
provisions of this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, the
shares of the Constituent Corporations shall be converted or canceled, as
the case may be, in the following manner:
(a) Each share of common stock, par value $.01 per share, of Buyer Sub
issued and outstanding immediately prior to the Effective Time shall
remain outstanding and be converted into one share of common stock,
par value $.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock").
(b) Each Common Share, other than (i) Common Shares owned by Buyer,
Buyer Parent, Buyer Sub or any other direct or indirect wholly-owned
subsidiary of Buyer or by the Company or any direct or indirect
wholly-owned subsidiary of the Company, and (ii) Dissenting Shares,
shall be converted into the right to receive, without interest
thereon, from Buyer eight dollars and twenty-five cents ($8.25) in
cash (the "Common Stock Consideration").
(c) Each Preferred Share, other than (i) Preferred Shares owned by
Buyer, Buyer Parent, Buyer Sub or any other direct or indirect
wholly-owned subsidiary of Buyer or by the Company or any direct or
indirect wholly- owned subsidiary of the Company, and (ii) Dissenting
Shares, shall be converted into the right to receive without interest
thereon, from the Buyer fifty dollars and no cents ($50.00) in cash
plus an amount equal to all accrued and unpaid dividends on such
Preferred Shares through the Effective Time (the "Preferred Stock
Consideration").
(d) Each Common Share and Preferred Share owned by Buyer, Buyer
Parent, Buyer Sub or any other direct or indirect wholly-owned
subsidiary of Buyer or by the Company or any direct or indirect
wholly-owned subsidiary of the Company, shall cease to exist and shall
be cancelled and retired without payment of any consideration
therefor.
2.6 PAYMENT FOR SHARES IN THE MERGER. The manner of making payment for and
conversion of Shares in the Merger shall be as follows:
(a) At the Effective Time, Buyer shall deposit, or shall cause to be
deposited (the "Exchange Fund"), with or for the account of the
Exchange Agent, for the benefit of those Persons who immediately prior
to the Effective Time were the holders of Shares, cash in immediately
available same-day funds payable as Merger Consideration. The Exchange
Agent shall, pursuant to irrevocable instructions, effect the payments
of cash provided for in Section 2.5 out of the Exchange Fund.
(b) Promptly after the Effective Time, the Exchange Agent shall mail
to each holder of record of a Certificate (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to such Certificate shall pass, only upon
proper delivery of such Certificate to the Exchange Agent) and (ii)
instructions for use in surrendering such Certificate for payment
therefor. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a letter of transmittal duly executed
and any other required documents, the holder of such Certificate shall
be entitled to receive for each of the Shares represented by such
Certificate the Merger Consideration pursuant to this Article 2, and
the Certificate so surrendered shall forthwith be canceled. The
payment of the Merger Consideration shall be made by corporate check
mailed within three Business Days after the surrender of such
Certificate and the submission of such letter of transmittal;
provided, that any shareholder holding in excess of 10% of the Shares
(determined on the basis that all Preferred Shares had been converted
into Common Shares) shall be entitled to receive such payment by wire
transfer of immediately available funds not later than one Business
Day after such surrender and submission. Until so surrendered, each
Certificate shall represent solely the right to receive the cash with
respect to each of the Shares represented thereby. If any cash is to
be paid to any Person other than the Person to which the Certificate
surrendered is registered, it shall be a condition of such payment
that such Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the Person requesting
such payment shall pay to the Exchange Agent any transfer or other
taxes required by reason of the payment 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.
(c) Any portion of the Exchange Fund which remains undistributed to
former shareholders of the Company for 365 days after the Effective
Time shall be delivered to Buyer, upon demand of Buyer, and any former
shareholders of the Company shall thereafter look only to Buyer for
payment of their claim for the Merger Consideration.
2.7 STATUS OF OPTIONS. Prior to the Closing Date, the Company shall cause
the Company Options to be amended in the following respects: (i) each
Company Option, whether or not such Company Option is then exercisable,
shall become fully vested and exercisable as of the close of business on
the Business Day immediately preceding the Closing Date, (ii) each Company
Option shall terminate as of the Effective Time unless exercised prior to
the Effective Time, and (iii) each holder of a Company Option shall be
deemed as of the Business Day immediately prior to the Closing Date to have
irrevocably exercised in full such Company Option as of such Business Day
by means of a "cashless" exercise pursuant to which the Company, when
issuing shares of Company Common Stock on exercise, will withhold from such
issuance shares of Common Stock with an aggregate value (when valued at
$8.25 per share) equal to the sum of (i) the aggregate exercise price
payable upon such exercise, in lieu of the payment by the holder of such
exercise price in cash, and (ii) any applicable tax withholding. The
amendment of the Company Options provided for in this Section 2.7 shall be
conditional upon the consummation of the Merger such that, in the event the
Merger is not consummated and this Agreement is terminated, the Company
Options shall in all respects revert to the terms in effect prior to the
Business Day immediately prior to the Closing Date and all deemed exercises
pursuant to this Section 2.7 shall be null and void. Other than payment of
the Merger Consideration with respect to Shares issued upon the deemed
exercise of the Company Options, no payment, assumption or conversion shall
occur in the Merger with respect to the Company Options. All Shares issued
upon exercise of Company Options pursuant to this Section 2.7 shall be
deemed issued and outstanding at the Effective Time for purposes of the
Merger.
2.8 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
except as provided in the following sentence, Shares which are held by
shareholders who shall have timely and properly filed a written notice
of intention to demand payment of the fair value of such Shares and
who shall otherwise comply with the provisions of Subchapter D of
Chapter 15 of the PBCL with respect to such Shares (collectively, the
"Dissenting Shares") shall not be converted into or represent the
right to receive the Merger Consideration. Such shareholders shall be
entitled to receive payment of the fair value of such Shares held by
them in accordance with the provisions of Subchapter D of Chapter 15
of the PBCL, except that all Dissenting Shares held by shareholders
who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to demand payment of fair value of such
Shares under such Subchapter D of Chapter 15 of the PBCL shall
thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the
Merger Consideration, without any interest thereon, upon surrender, in
the manner provided in Section 2.6 hereof, of the Certificates that
formerly evidenced such Shares.
(b) The Company shall give Buyer (i) prompt notice of any demands for
payment of fair value received by the Company, withdrawals of such
demands, and any other instruments served pursuant to PBCL and
received by the Company, and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for the payment
of fair value under the PBCL. The Company shall not, except with the
prior written consent of Buyer, make any payment with respect to any
demands for payment of fair value or offer to settle any such demands.
2.9 CLOSING OF THE COMPANY'S TRANSFER BOOKS. The stock transfer books of
the Company shall be closed at the close of business on the Business Day
immediately preceding the date of the Effective Time. In the event of a
transfer of ownership of the Company's Common Stock or the Company's
Preferred Stock which is not registered in the transfer records of the
Company, the Merger Consideration to be distributed pursuant to this
Agreement may be delivered to a transferee, if a Certificate is presented
to the Exchange Agent, accompanied by all documents required to evidence
and effect such transfer and by payment of any applicable stock transfer
taxes. Buyer and the Exchange Agent shall be entitled to rely upon the
stock transfer books of the Company to establish the identity of those
persons entitled to receive the Merger Consideration specified in this
Agreement for their Shares, which books shall be conclusive with respect to
the ownership of such Shares. In the event of a dispute with respect to the
ownership of any Shares, the Surviving Corporation and the Exchange Agent
shall be entitled to deposit any Merger Consideration represented thereby
in escrow with an independent party and thereafter be relieved with respect
to any claims to such Merger Consideration.
2.10 NO FURTHER OWNERSHIP RIGHTS IN THE COMPANY COMMON STOCK. All Merger
Consideration issued upon surrender of a Certificate in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of the Company Common Stock
represented thereby, and there shall be no further registration of
transfers on the stock transfer books of the Company of shares of the
Company's Common Stock or the Company's Preferred Stock outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article 2.
2.11 NO LIABILITY. None of Buyer, Buyer Parent, the Surviving Corporation
or the Exchange Agent shall be liable to any Person in respect of any cash
from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificates
shall not have been surrendered prior to seven years after the Effective
Time, any such cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable Law or Order,
become the property of Buyer, free and clear of all claims or interest of
any person previously entitled thereto.
2.12 INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Buyer, on a daily basis in
Permitted Investments. Any interest and other income resulting from such
investments shall be paid to Buyer upon termination of the Exchange Fund
pursuant to Section 2.6(c).
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer as of the date hereof that:
3.1 CORPORATE EXISTENCE AND POWER. The Company (i) has been duly
incorporated and is validly existing as a corporation under the laws of the
Commonwealth of Pennsylvania, (ii) has all corporate powers required to
carry on its business as now conducted, and (iii) is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not, individually or
in the aggregate, have a Material Adverse Effect on the Company. The
Company has delivered or made available to Buyer true and complete copies
of the respective articles of incorporation and bylaws of the Company and
its Subsidiaries as in effect on the date hereof. Neither the Company nor
any of its Subsidiaries is in violation of any of the provisions of its
articles of incorporation or bylaws.
3.2 CORPORATE AUTHORIZATION. Subject to the receipt of the approvals
referred to in Section 3.3 and the Company Shareholders' Approval, the
execution, delivery and performance by the Company of this Agreement are
within the Company's corporate powers and have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement
constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to
(i) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (ii) general principles of equity
(regardless of whether considered in a proceeding at law or in equity). The
Company Shareholders' Approval shall be satisfied by the affirmative vote
of a majority of the votes cast by the holders of the Company's Common
Stock at the Company Shareholders' Meeting. No other vote of the Company's
shareholders shall be required to satisfy the Company Shareholders'
Approval.
3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
the Company of this Agreement require no consent, approval or action of,
filing with or notice to any Governmental Body other than (i) compliance
with any applicable requirements of the HSR Act, (ii) approvals or filings
under the insurance laws of the jurisdictions set forth on Schedule 3.3,
(iii) filings and notices not required to be made or given until after the
Closing Date, (iv) the filing of the Proxy Statement with the SEC under the
Exchange Act and such Proxy Statement becoming definitive, (v) filings, at
any time, of Returns, and (vi) any such action or filing as to which the
failure to take or make such action or filing would not, individually or in
the aggregate, materially impair the ability of the Company and its
Subsidiaries, taken as a whole, to conduct their businesses.
3.4 NON-CONTRAVENTION. Except as set forth in Schedule 3.4, the execution,
delivery and performance by the Company of this Agreement do not and will
not (i) violate the articles of incorporation or bylaws of the Company or
any of its Subsidiaries, (ii) assuming compliance with the matters referred
to in Section 3.3, violate any applicable Law or Order, (iii) to the
Knowledge of the Company, require any consent or other action by any Person
under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries or to a loss of any benefit to which the
Company or any of its Subsidiaries is entitled under, any material
agreement or other material instrument binding upon the Company or any of
its Subsidiaries or any material Permit held by the Company or any of its
Subsidiaries or (iv) to the Knowledge of the Company, result in the
creation or imposition of any material Lien on any asset of the Company or
any of its Subsidiaries.
3.5 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 12,000,000
shares, consisting of 10,000,000 shares of Company Common Stock and
2,000,000 shares of Company Preferred Stock. As of the date hereof,
(i) there are outstanding 4,443,188 shares of Company Common Stock,
(ii) 128,100 shares of the Company Preferred Stock outstanding, and
(iii) 248,985 shares of Company Common Stock held in treasury.
(b) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable. Except as set forth in Section 3.5(a) and except for
the Company Options, there are no outstanding (i) shares of capital
stock or voting securities of the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock
or voting securities of the Company or (iii) options or other rights
to acquire from the Company, or other obligations of the Company to
issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the
Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Company Securities"). There are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities.
3.6 ALL ASSETS NECESSARY. Except as set forth in Schedule 3.6, the Company
and its Subsidiaries own, lease or license all material property and assets
necessary to carry on their businesses and operations as presently
conducted, and all such assets and properties (other than as Buyer and the
Company may mutually agree) will be conveyed to Buyer at the Closing and
will as of the Closing permit Buyer to conduct such businesses and
operations in the same manner as such businesses and operations have been
conducted prior to the Closing.
3.7 SUBSIDIARIES.
(a) Except as set forth in Schedule 3.7, each Subsidiary of the
Company has been duly incorporated or organized and is validly
existing as a corporation, partnership or association in good standing
under the laws of its jurisdiction of incorporation or organization
and has all corporate powers required to carry on its business as now
conducted. Each Subsidiary of the Company is duly qualified to do
business as a foreign corporation or organization and is in good
standing in each jurisdiction where such qualification is necessary,
or is duly licensed to do business as an insurer and is in good
standing in each jurisdiction where such licensing is necessary, as
the case may be, except for those jurisdictions where failure to be so
qualified or licensed, as the case may be, would not, individually or
in the aggregate, have a Material Adverse Effect on the Company. All
Subsidiaries of the Company and their respective jurisdictions of
incorporation or organization are identified on Schedule 3.7.
(b) All outstanding shares of capital stock of each Subsidiary of the
Company have been duly authorized and validly issued and are fully
paid and non-assessable. As of the Closing Date, except as set forth
in Schedule 3.7, all of the outstanding capital stock of, and other
voting securities or ownership interests in, each Subsidiary of the
Company will be owned by the Company, directly or indirectly, free and
clear of any Lien. Except as set forth in Schedule 3.7, there are no
outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock or other
voting securities or ownership interests in any Subsidiary of the
Company or (ii) options or other rights to acquire from the Company or
any of its Subsidiaries, or other obligations of the Company or any of
its Subsidiaries to issue, any capital stock or other voting
securities or ownership interests in, or any securities convertible
into or exchangeable for any capital stock or other voting securities
or ownership interests in, any Subsidiary of the Company (the items in
clauses (i) and (ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any
outstanding Subsidiary Securities.
3.8 FINANCIAL STATEMENTS; SEC REPORTS.
(a) The audited consolidated balance sheet of the Company and its
Subsidiaries as of December 31, 1997 and December 31, 1996 and the
related consolidated statements of income and cash flows for each of
the years ended December 31, 1997 and December 31, 1996 and the
unaudited consolidated balance sheet of the Company and its
Subsidiaries as of June 30, 1998 (the "Unaudited June 30 Balance
Sheet") and the related consolidated statement of income for the six
months ended June 30, 1998, respectively, previously delivered to
Buyer, present fairly, in all material respects, the consolidated
financial position of the Company and its Subsidiaries as of the dates
thereof and the consolidated results of operations of the Company and
its Subsidiaries for the periods then ended in conformity with U.S.
GAAP consistently applied (subject to normal year- end adjustments and
the absence of footnote disclosure in the case of the unaudited
interim financial statements) (it being understood that there is no
assurance that the liabilities for unpaid claims and claim expenses,
whether reported or incurred but not reported, of the Company and its
Subsidiaries will not develop subsequent to June 30, 1998 in a manner
different from that reflected in such financial statements).
(b) The audited balance sheets of the Company and its Subsidiaries as
of December 31, 1997 and the related statements of operations and
statements of cash flows for the year then ended included in their
respective annual statements for the fiscal year ended December 31,
1997 (the "Annual Statements") filed with the insurance regulatory
authorities in their respective jurisdictions of domicile
(collectively, the "Regulators") and the unaudited balance sheets of
the Company and its Subsidiaries as of June 30, 1998 and the related
statements of operations and statements of cash flows for the six
months ended June 30, 1998 included in their respective quarterly
statements filed with Regulators, copies of which have been delivered
to Buyer, fairly present in all material respects their respective
statutory financial conditions as of such date and the results of
their respective operations for the year then ended in conformity with
SAP (it being understood that there is no assurance that the
liabilities for unpaid claims and claim expenses, whether reported or
incurred but not reported, of the Company and its Subsidiaries will
not develop subsequent to June 30, 1998 in a manner different from
that reflected in such financial statements).
(c) As of the date of the latest filing of an SEC Report, the SEC
Reports taken as a whole did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading (it
being understood that for purposes of this subparagraph (c) "material"
is to be assessed in the context of the Company and all of its
Subsidiaries taken as a whole).
3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3.9, during
the period from the Balance Sheet Date to the date hereof, the business of
the Company and its Subsidiaries has been conducted in the ordinary course
consistent with past practices (including, but not limited to, with regard
to underwriting, pricing, actuarial and investment policies generally) and
there has not been:
(i) any event, occurrence, development or state of circumstances or
facts which has had or would reasonably be expected to have a Material
Adverse Effect on the Company, other than those (A) affecting the
property and casualty insurance industry as a whole in the United
States or any state in which the Company or any of its Subsidiaries
conducts business, (B) resulting from changes in general economic
conditions in the United States or any state in which the Company or
any of its Subsidiaries conducts business (including but not limited
to changes in interest rates), (C) those caused by the announcement or
pendency of the Merger or (D) those caused by the breach by Buyer of
any obligation or covenant in this Agreement;
(ii) other than the declaration or payment of the Company's regular
quarterly dividends on the Company Preferred Stock in an amount equal
to $.8125 per share, any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital
stock of the Company, or any repurchase, redemption or other
acquisition by the Company or any Subsidiary of the Company of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any Subsidiary of the Company;
(iii) any incurrence, assumption or guarantee by the Company or any
Subsidiary of the Company of any material indebtedness for borrowed
money other than in the ordinary course of business and in amounts and
on terms consistent with past practices not to exceed $250,000 in the
aggregate;
(iv) any material transaction or commitment made, or any material
contract or agreement entered into, by the Company or any Subsidiary
of the Company (including the acquisition or disposition of any
assets) or any relinquishment by the Company or any Subsidiary of the
Company of any material contract or other material right, other than
transactions and commitments in the ordinary course of business
consistent with past practices not to exceed $100,000 in the
aggregate;
(v) any change in any method of accounting or accounting practice or
policy (including but not limited to any reserving method, practice or
policy) by the Company or any Subsidiary of the Company, except for
any such change (A) as a result of a concurrent change in U.S. GAAP or
SAP or (B) that is not material to the Company and its Subsidiaries,
taken as a whole;
(vi) to the extent payable directly or indirectly by the Company or
any Subsidiary of the Company other than the Contingent Severance
Compensation Agreements, any (A) employment, deferred compensation,
severance, retirement or other similar agreement entered into with any
director, officer or employee of the Company (or any amendment to any
such existing agreement), (B) grant of any severance or termination
pay to any director or officer of the Company, (C) grant of any
severance or termination pay to any employee of the Company other than
in the ordinary course of business, (D) change in compensation or
other benefits payable to any director or officer of the Company, (E)
change in compensation or other benefits payable to any employee of
the Company, other than changes not in excess of $150,000 in the
aggregate, in base compensation, bonuses and benefits in accordance
with plans or arrangements in effect as of the Balance Sheet Date, in
the ordinary course of business consistent with past practice, (F)
loans or advances to any directors, officers or employees, except for
ordinary travel and business expenses in the ordinary course of
business consistent with past practice, or (G) stock option grants to
any director, officer or employee of the Company; or
(vii) (A) any entering into of any facultative reinsurance contract,
other than in the ordinary course of business consistent with past
practice, (B) any commutation of any facultative reinsurance contract,
or (C) any entering into or any commutation of any reinsurance treaty,
purchased by any Subsidiary of the Company;
(viii) any investment made in the Company Investment Assets other than
in accordance with the investment policies of the Company or any
Subsidiary of the Company set forth in Schedule 3.9(viii); or
(ix) any agreement or commitment (contingent or otherwise) by the
Company or any Subsidiary of the Company to do any of the foregoing.
3.10 MATERIAL LIABILITIES; INVESTMENTS.
(a) To the Knowledge of the Company, there are no liabilities of the
Company or any Subsidiary of the Company of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(i) liabilities provided for in the Unaudited June 30 Balance Sheet;
(ii) liabilities disclosed on Schedule 3.10(a);
(iii) liabilities incurred since the Balance Sheet Date in the
ordinary course of business consistent with past practice; and
(iv) other undisclosed liabilities that are not individually or in the
aggregate material to the Company and its Subsidiaries, taken as a
whole not to exceed $100,000.
(b) Schedule 3.10(b) describes in reasonable detail all the Company
Investment Assets as of the Balance Sheet Date.
3.11 MATERIAL CONTRACTS.
(a) Except as disclosed in Schedule 3.11, as of the date hereof,
neither the Company nor any of its Subsidiaries is a party to or bound
by:
(i) any lease of real property where any of the Company or its
Subsidiaries are tenants;
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets, including any license for
Software, that provides for either (A) annual payments by the Company
or any Subsidiary of the Company of $100,000 or more or (B) aggregate
required payments by the Company or any Subsidiary of the Company of
$250,000 or more;
(iii) any limited partnership, joint venture or other unincorporated
business organization or similar arrangement or agreement in which the
Company or any Subsidiary of the Company serves as a general partner
or otherwise has unlimited liability;
(iv) any agreement relating to the acquisition or disposition of any
business (whether by merger, sale of stock, sale of assets or
otherwise);
(v) any agreement relating to indebtedness for borrowed money or any
guarantee or similar agreement or arrangement relating thereto, other
than (A) any guarantees issued in the ordinary course of the surety
business of the Company and its Subsidiaries consistent with past
practice and (B) any such agreement with, or relating to, an aggregate
outstanding principal amount or guaranteed obligation not exceeding
$250,000;
(vi) any license, franchise or similar agreement material to the
Company and its Subsidiaries, taken as a whole;
(vii) any agency, dealer, sales representative, marketing or other
similar agreement material to the Company and its Subsidiaries, taken
as a whole;
(viii) any agreement that restricts or prohibits the Company or any
Subsidiary of the Company from competing with any Person in any line
of business or from competing in, engaging in or entering into any
line of business in any area and which would so restrict or prohibit
the Company or any Subsidiary of the Company after the Closing Date;
(ix) any reinsurance treaty or any facultative reinsurance contract
(in each case applicable to insurance in force);
(x) any material agreement containing "change in control" or similar
provisions relating to change in control of the Company or any of its
Subsidiaries;
(xi) any "stop loss" agreements;
(xii) any agreements (other than insurance policies or other similar
agreements issued by any Subsidiary of the Company in the ordinary
course of its business) material to the Company and its Subsidiaries
taken as a whole pursuant to which the Company or any Subsidiary of
the Company is obligated to indemnify any other Person; or
(xiii) any agreement with the Company or any of its Affiliates.
(b) The Company has heretofore furnished or made available to Buyer
complete and correct copies of the contracts, agreements and
instruments listed on Schedule 3.11, each as amended or modified to
the date hereof, including any waivers with respect thereto (the
"Significant Agreements"). Except as specifically disclosed on
Schedule 3.11, and except to the extent not material to the Company
and its Subsidiaries taken as a whole: (i) each of the Significant
Agreements is in full force and effect and enforceable in accordance
with its terms, subject to (A) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and the rights of creditors of insurance companies generally
and (B) general principles of equity (regardless of whether considered
in a proceeding at law or in equity); (ii) neither the Company nor any
of its Subsidiaries has received any notice (written or oral) of
cancellation or termination of any of the Significant Agreements;
(iii) no Significant Agreement is the subject of or, to the Knowledge
of the Company, has been threatened to be made the subject of, any
arbitration, suit or other legal proceeding; and (iv) there exists no
material event of default or occurrence, condition or act on the part
of the Company or any Subsidiary of the Company which constitutes or
would constitute (with notice or lapse of time or both) a material
breach of or material default under any of the Significant Agreements.
3.12 NON-CLAIMS LITIGATION. Except as set forth on Schedule 3.12 and except
for any action, suit, investigation or proceeding that involves a claim
under any insurance, reinsurance or indemnity policy, fidelity bond, surety
bond or similar contract or undertaking issued or entered into by the
Company or any Subsidiary of the Company, there is no action, suit,
investigation or proceeding pending against or, to the Knowledge of the
Company, threatened against, the Company or any Subsidiary of the Company
or any of their respective properties before any Governmental Body in which
the actual damages alleged or sought exceeds $100,000. As of the date
hereof and as of no other date, there is no action, suit, investigation or
proceeding pending against or, to the Knowledge of the Company, threatened
against the Company or any Subsidiary of the Company or any of their
respective properties before any Governmental Body which challenges or
seeks to prevent the transactions contemplated hereby. Except as disclosed
in Schedule 3.12, neither the Company nor any Subsidiary of the Company nor
any of their respective properties is subject to any material Order which
would prevent or delay the consummation of the transactions contemplated
hereby.
3.13 COMPLIANCE WITH LAWS. Except as set forth in Schedule 3.13, the
Company and its Subsidiaries are and have at all times since January 1,
1998 been in compliance in all material respects with all applicable
material Laws.
3.14 PROPERTIES. The Company and its Subsidiaries have good title to, or in
the case of leased property have valid leasehold interests in, all of their
respective properties and assets (whether real or personal, tangible or
intangible) except for imperfections in title or invalidities in leasehold
interests that do not, individually or in the aggregate, materially detract
from the value reflected on the Unaudited June 30 Balance Sheet. None of
such properties or assets is subject to any Liens, except:
(i) Liens reflected on the Unaudited June 30 Balance Sheet;
(ii) Liens arising in the ordinary course of business consistent with
past practice since the date of the Unaudited June 30 Balance Sheet
not to exceed $100,000 in the aggregate;
(iii) purchase money security interests, conditional sale contracts,
capitalized leases and other title retention or deferred purchase
devices not to exceed $200,000 in the aggregate;
(iv) deposits or pledges made in connection with workers' compensation
or unemployment insurance;
(v) Liens to secure claims for labor, material or supplies to the
extent payment therefor shall not at the time be required to be made;
(vi) Liens for taxes not yet due or being contested in good faith (and
for which adequate accruals or reserves have been established on the
Unaudited June 30 Balance Sheet); and
(vii) Liens which do not, individually or in the aggregate, have a
Material Adverse Effect on the Company or the value reflected on the
Unaudited June 30 Balance Sheet or materially interfere with any
present or intended use of any material properties or assets.
3.15 LICENSES AND PERMITS; POLICIES; REGULATORY MATTERS. Except as set
forth on Schedule 3.15, the Company and its Subsidiaries hold all material
licenses, franchises, permits or other similar authorizations (the
"Permits") necessary for the ownership and conduct of the respective
businesses of the Company and its Subsidiaries in each of the jurisdictions
in which the Company and its Subsidiaries conduct their respective
businesses in the manner now conducted, and such Permits are in full force
and effect and are not subject to any restrictions or limitations, other
than those generally applicable to holders of such Permits, except where
any failure to hold any Permit or any failure of any Permit to be in full
force and effect or any such restrictions or limitations would not,
individually or in the aggregate, materially impair the ability of the
Company and its Subsidiaries, taken as a whole, to conduct their
businesses. No material violations exist in respect of any material Permit
of the Company and its Subsidiaries, and no proceeding or investigation is
pending or, to the Knowledge of the Company, threatened that would be
reasonably likely to result in the suspension, revocation or material
limitation or restriction of any material Permit. All insurance policies
issued by any Subsidiary of the Company, as now in force, are, to the
extent required under applicable law, in a form acceptable to applicable
regulatory authorities to the Knowledge of the Company or have been filed
with and not objected to by such authorities within the period provided for
such objection. The Company and each Subsidiary of the Company has filed
all material reports, statements, documents, registrations, filings or
submissions required to be filed by the Company or any Subsidiary of the
Company, respectively, with any applicable federal, state or local
regulatory authorities, including but not limited to state insurance
regulatory authorities. All such reports, statements, documents,
registrations, filings and submissions complied in all material respects
with applicable law in effect when filed and, except as set forth on
Schedule 3.15, no material deficiencies have been asserted by any such
regulatory authority with respect to such reports, statements, documents,
registrations, filings or submissions that have not been satisfied. Except
as set forth on Schedule 3.15, all premium rates, rating plans and policy
forms established or used by any Subsidiary of the Company that are
required to be filed with or approved by insurance regulatory authorities
have been so filed or approved, the premiums charged conform in all
material respects to the premiums so filed or approved and comply in all
material respects with the insurance laws applicable thereto.
3.16 TAX MATTERS.
(a) Except as set forth on Schedule 3.16, all material Returns
required to be filed by or with respect to the Company or any of its
Subsidiaries on or before the Closing Date have been filed or will be
timely filed on or before the Closing Date in accordance with all
applicable laws;
(b) The Company and its Subsidiaries have timely paid all Taxes shown
to be due on such Returns, and the Company and its Subsidiaries have
withheld from payments to their respective employees all amounts
required by law to be withheld and have paid all such amounts required
by law to be paid;
(c) The Company and its Subsidiaries have made adequate provision on
the Unaudited June 30 Balance Sheet for all Taxes payable by the
Company and its Subsidiaries for any Pre-June 30 Tax Period for which
no Return has yet been filed or for which Returns have been filed but
payment of the Tax shown to be due thereon was not yet paid and the
Company and its Subsidiaries have made adequate provision on the
Company's audited consolidated balance sheet as of December 31, 1997
for all Taxes payable by the Company and its Subsidiaries for the Tax
Period ending on or before December 31, 1997 for which no Return had
been filed as of December 31, 1997 or for which Returns have been
filed but payment of the Tax shown to be due thereon was not yet paid;
(d) Except as set forth on Schedule 3.16, there is no action, suit,
proceeding, investigation, assessment, adjustment, audit or claim now
pending or, to the Knowledge of the Company, proposed against the
Company or its Subsidiaries in respect of any Tax;
(e) Except as set forth on Schedule 3.16, there are no outstanding
waivers or other agreements extending any statutory periods of
limitation for the assessment of Taxes of the Company and its
Subsidiaries; and
(f) Except as set forth on Schedule 3.16, neither the Company nor its
Subsidiaries is a party to or bound by any tax sharing or similar
agreement.
3.17 EMPLOYEE GROUP BENEFIT PLANS. Except as described on Schedule 3.27,
neither the Company nor any of its subsidiaries maintains or operates any
Employee Plan nor has any such Plan been maintained or operated during the
past three years. Neither Company nor any of its subsidiaries maintains or
contributes to any Guaranteed Pension Plan or Multiemployer Plan. With
respect to each Employee Plan listed on Schedule 3.27, to the extent
applicable;
(a) Each such Employee Plan has been maintained and operated in all
material respects in compliance with its terms and with all applicable
provisions of ERISA, the Code and all applicable regulations, rulings
and other authority issued thereunder;
(b) All contributions required by law to have been made under each
such Employee Plan (without regard to any waivers granted under
Section 412 of the Code) to any fund or trust established thereunder
or in connection therewith have been made by the due date thereof;
(c) Each such Employee Plan intended to qualify under Section 401(a)
of the Code is the subject of a favorable unrevoked determination
letter issued by the Internal Revenue Service as to its qualified
status under the Code, which determination letter may still be relied
upon as to such tax qualified status, and no circumstances have
occurred that would adversely affect qualified status of any such
Employee Plan;
(d) No Benefit Plan is subject to Title IV of ERISA;
(e) None of such Employee Plans that are "employee welfare benefit
plans" as defined in Section 3(1) of ERISA provides for continuing
benefits or coverage for any participant or beneficiary of a
participant after such participant's termination of employment, except
as required by applicable law, including section 4980B of the Code or
Section 601 of ERISA; and
(f) Neither the Company nor any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 4001 of ERISA has, or at any time has had, any obligation
to contribute to any "multiemployer plan" as defined in Section 3(37)
of ERISA.
3.18 ENVIRONMENTAL COMPLIANCE.
(a) Except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, (i) neither the Company nor
any of its Subsidiaries has generated, used, transported, treated,
stored, released or disposed of any "Hazardous Substance" (as
hereinafter defined) in violation of any "Environmental Laws" (as
hereinafter defined); (ii) neither the Company nor any of its
Subsidiaries has received written notice that there has been any
generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance resulting from the conduct of the
Company or any of its Subsidiaries or the use of any property or
facility by the Company or any of its Subsidiaries which has created
any liability on the part of the Company or any of its Subsidiaries
under the Environmental Laws or which would require reporting or
notification by the Company or any of its Subsidiaries to any
governmental entity; (iii) no asbestos which is or has become friable
or polychlorinated biphenyl or underground storage tank is contained
in or located at any facility owned, leased or used by the Company or
any of its Subsidiaries; and (iv) any Hazardous Substance handled or
dealt with in any way by the Company or any of its Subsidiaries in
connection with the business of the Company or any of its
Subsidiaries, whether before or during ownership of the Company or any
of its Subsidiaries, has been and is being handled or dealt with in
all material respects in material compliance with the Environmental
Laws in effect at the time such activities were being conducted.
(b) For purposes of this Agreement, the term "Hazardous Substance"
shall mean (but shall not be limited to) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable
Environmental Laws as "hazardous substances", "hazardous materials",
"hazardous wastes" or "toxic substances", or any other formulation
intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
radioactivity, carcinogenicity, reproductive toxicity or "EP
toxicity," and petroleum and drilling fluids, produced waters and
other wastes associated with the exploration, development, or
production or crude oil, natural gas or geothermal energy, asbestos,
polychlorinated biphenyls and urea formaldehyde.
(c) For purposes of this Agreement, the term "Environmental Laws"
shall mean the Comprehensive Environmental Response, Compensation and
Liability Act 1980, as amended, the Resources Conversation and
Recovery Act of 1976, as amended, and any applicable statutes,
regulations, rules, orders in council, ordinances, codes, licenses,
permits, orders, approvals, plans, authorizations, concessions, and
similar items of all governmental authorities and all applicable
judicial, administrative and regulatory decrees, judgments and orders,
any of which relate to the protection of human health or the
environment from the effects of Hazardous Substances, including, but
not limited to, those pertaining to reporting, licensing, permitting,
investigating and remediating emissions, discharges, releases or
threatened release of Hazardous Substances into the air, surface
water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Substances.
3.19 INTELLECTUAL PROPERTY; SOFTWARE.
(a) Except as set forth in Schedule 3.19(a), (i) the Company and its
Subsidiaries own or otherwise have rights to use (in each case, free
and clear of any material Liens) all Intellectual Property used in
their respective businesses as currently conducted, (ii) the use of
any Intellectual Property by the Company and its Subsidiaries does not
infringe on or otherwise violate the rights of any Person, and (iii)
to the Knowledge of the Company, no person is challenging, infringing
on or otherwise violating any right of the Company or any Subsidiary
of the Company with respect to any Intellectual Property owned by
and/or licensed to the Company and its Subsidiaries.
(b) Except as set forth in Schedule 3.19(b), (i) the Company and its
Subsidiaries own or have valid and enforceable licenses or other
rights to use (in each case, free and clear of any material Liens) all
Software used in the conduct of their respective businesses as
currently conducted, (ii) the use of the Software by the Company and
its Subsidiaries does not infringe on or otherwise violate the rights
of any Person, and (iii) to the Knowledge of the Company, no Person is
challenging, infringing on or otherwise violating any right of the
Company or any Subsidiary of the Company with respect to any Software
owned and/or used by the Company and its Subsidiaries.
(c) The Company has completed plans to ensure "Year 2000" compliance
and has started conversions of its applications which are expected to
be completed by December 31, 1998.
3.20 LABOR MATTERS. Neither the Company nor any Subsidiary of the Company
is a party to any collective bargaining or other labor union contract, and
no collective bargaining agreement is being negotiated by the Company or
any Subsidiary of the Company. To the Knowledge of the Company, there are
no material activities or proceedings of any labor union to organize any
employees of the Company or any Subsidiary of the Company. There is no
material labor dispute, strike or work stoppage against the Company or any
Subsidiary of the Company pending or, to the Knowledge of the Company,
threatened which may interfere with the respective business activities of
the Company or any of its Subsidiaries.
3.21 LOANS AND ADVANCES. Except as set forth in Schedule 3.21, other than
in the ordinary course of its portfolio investment activities, neither the
Company nor any of its Subsidiaries has any contractual commitment to make
any loan, advance or capital contribution to, or investment in, any other
Person in excess of $25,000.
3.22 PROXY STATEMENT.
(a) Neither the Proxy Statement as amended or supplemented from time
to time nor any other document to be filed by the Company with the SEC
or any self-regulatory organization in connection with the Merger
will, on the date of its filing, at the time it is mailed to
shareholders, at the time of the Company Shareholders' Meeting or at
the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading insofar as the
information therein relates to the Company and its Subsidiaries.
(b) Neither the information supplied or to be supplied by or on behalf
of the Company for inclusion, nor the information incorporated by
reference from documents filed by the Company with the SEC, in any
document to be filed by Buyer in connection with the Merger will, on
the date of its filing or effectiveness, 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.
3.23 NO OTHER BROKER. Other than BT Alex. Brown Incorporated, no broker,
finder or similar intermediary has acted for or on behalf of the Company in
connection with this Agreement or the transactions contemplated hereby, and
no other broker, finder, agent or similar intermediary is entitled to any
brokers', finders' or similar fee or other commission in connection
therewith based on any agreement, arrangement or understanding with the
Company or any action taken by the Company.
3.24 PENNSYLVANIA TAKEOVER LAWS. The Company has taken all actions
necessary to (i) exempt the Company from the application of the provisions
of Subchapters E, G, H, I and J of Chapter 25 of the PBCL, and (ii) to
exempt (A) the execution, delivery and performance of this Agreement, (B)
the Merger and (C) the transactions contemplated hereby from the
restrictions contained in the provisions of Subchapter F of Chapter 25 of
the PBCL.
3.25 RELATED PARTY TRANSACTIONS. Other than as disclosed in the Company's
SEC Reports, there are no agreements or transactions between the Company
and any of the directors or officers of the Company which are required to
be disclosed pursuant to Item 404 of Regulation S-K of the SEC.
3.26 FAIRNESS OPINION. The Company's Board of Directors has received an
opinion from BT Alex. Brown Incorporated dated as of the date hereof to the
effect that as of the date hereof the Common Stock Consideration is fair to
the holders of the Company Common Stock from a financial point of view.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, Buyer Parent and Buyer Sub jointly and severally represent and
warrant to the Company as of the date hereof that:
4.1 CORPORATE EXISTENCE AND POWER. Buyer and Buyer Parent have been duly
incorporated and are validly existing as corporations in good standing
under the laws of Illinois and Ontario, respectively, and each has all
corporate powers and all material governmental licenses, authorizations,
Permits, consents and approvals required to carry on its business as now
conducted. Buyer Sub has been duly incorporated and is validly existing as
a corporation under the laws of Pennsylvania. Buyer and Buyer Sub have
delivered or made available to the Company true and complete copies of
their respective articles of incorporation and bylaws as in effect on the
date hereof.
4.2 CORPORATE AUTHORIZATION. Subject to the receipt of the approvals
referred to in Section 4.3, the execution, delivery and performance by each
of Buyer, Buyer Parent and Buyer Sub of this Agreement are within the
corporate powers of Buyer, Buyer Parent and Buyer Sub and have been duly
authorized by all necessary corporate action on the part of Buyer, Buyer
Parent and Buyer Sub. This Agreement constitutes a valid and legally
binding agreement of Buyer, Buyer Parent and Buyer Sub, enforceable against
Buyer, Buyer Parent or Buyer Sub in accordance with its terms, subject to
(i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether considered in a proceeding at law or in equity).
4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
Buyer, Buyer Parent and Buyer Sub of this Agreement require no consent,
approval or action of, filing with or notice to any Governmental Body other
than (i) compliance with any applicable requirements of the HSR Act, (ii)
approvals or filings under the insurance laws of the jurisdictions set
forth in Schedule 4.3, (iii) filings and notices not required to be made or
given until after the Closing Date and (iv) filings, at any time, of
Returns.
4.4 NON-CONTRAVENTION. Except as set forth in Schedule 4.4, the execution,
delivery and performance by Buyer, Buyer Parent and Buyer Sub of this
Agreement do not and will not (i) violate the articles of incorporation or
bylaws of Buyer, Buyer Parent or Buyer Sub, (ii) assuming compliance with
the matters referred to in Section 4.3, violate any applicable Law or
Order, (iii) to the Knowledge of Buyer, require any consent or other action
by any Person under, constitute a default under, or give rise to any right
of termination, cancellation or acceleration of any right or obligation of
Buyer, Buyer Parent or Buyer Sub or to a loss of any benefit to which
Buyer, Buyer Parent or Buyer Sub is entitled under, any material agreement
or other instrument binding upon Buyer, Buyer Parent or Buyer Sub or any
material license, franchise, permit or other similar authorization held by
Buyer, Buyer Parent or Buyer Sub, and that would affect the validity or
legality of this Agreement or the transactions contemplated hereby, or (iv)
to the Knowledge of Buyer, result in the creation or imposition of any
material Lien on any asset of Buyer, Buyer Parent or Buyer Sub.
4.5 FINANCING. Buyer and Buyer Parent have, or will have prior to the
Closing, sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to make payment of the Merger
Consideration and any other amounts to be paid by it hereunder.
4.6 NO ACTIONS; SUITS OR PROCEEDINGS. There is no action, suit or
proceeding pending against or, to the Knowledge of Buyer, threatened
against Buyer, Buyer Parent or Buyer Sub before any Governmental Body which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which challenges or seeks to prevent the
consummation of the transactions contemplated hereby.
4.7 NO OTHER BROKER. Other than Berenson Minella & Company, no broker,
finder or similar intermediary has acted for or on behalf of Buyer, Buyer
Parent or Buyer Sub in connection with this Agreement or the transactions
contemplated hereby, and no other broker, finder, agent or similar
intermediary is entitled to any brokers', finders' or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer, Buyer Parent or Buyer Sub or any action taken by
Buyer, Buyer Parent or Buyer Sub.
4.8 MERGER SUBSIDIARY. Buyer Sub has engaged and until the Effective Time
will engage in no business and has, and at the Effective Time will have, no
liabilities, in each case, other than by reason of this Agreement.
4.9 REPORTS AND FINANCIAL STATEMENTS. Buyer Parent has filed with the
appropriate Canadian securities regulatory authorities all Buyer Parent
Securities Reports and has made available to the Company true and complete
copies of all Buyer Parent Securities Reports. As of the latest filing of a
Buyer Parent Securities Report, the Buyer Parent Securities Reports taken
as a whole did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The December 31, 1997 audited consolidated financial
statements and the June 30, 1998 unaudited interim consolidated financial
statements (including, in each case, the notes, if any, thereto) included
in the Buyer Parent Securities Reports (the "Buyer Financial Statements")
fairly present the consolidated financial position of Buyer Parent and its
consolidated subsidiaries as of the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended, in each case, in accordance with Canadian GAAP
consistently applied (subject, in the case of the unaudited interim
financial statements, to normal, year-end adjustments and the absence of
footnote disclosure).
4.10 PROXY STATEMENT. None of the information supplied or to be supplied by
or on behalf of Buyer or Buyer Parent for inclusion in the Proxy Statement
or any other document to be filed by the Company with the SEC or any self-
regulatory organization in connection with the Merger will, on the date of
its filing or effectiveness, at the time it is mailed to shareholders, at
the time of the Company Shareholders' Meeting or at the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
ARTICLE 5: COVENANTS OF THE COMPANY
The Company agrees that:
5.1 CONDUCT. Except as otherwise expressly provided in this Agreement or as
set forth in Schedule 5.1, during the period from the date hereof to the
Closing, the Company will, and will cause its Subsidiaries to: (i) conduct
their respective operations according to their ordinary course of business
consistent with past practice (including, but not limited to, with regard
to underwriting, pricing, actuarial and investment policies generally);
(ii) use commercially reasonable efforts to preserve intact their
respective business organizations; (iii) use commercially reasonable
efforts to generally keep available the services of their respective
officers and employees; and (iv) use commercially reasonable efforts to
generally maintain existing relationships with agents, reinsurers,
suppliers, contractors, customers and others having business relationships
with them. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement or as set forth in Schedule
5.1, the Company will not, and will cause each Subsidiary of the Company
not to, without the prior written consent of Buyer (which such consent
shall not be unreasonably withheld or delayed):
(i) amend its articles of incorporation or bylaws;
(ii) except as contemplated by this Agreement or pursuant to the
options or awards granted under the Company's 1987 Stock Option Plan,
1990 Non- Employee Director Stock Option Plan, 1997 Equity Incentive
Plan or Employee Stock Purchase Plan, 401(k) Plan, or upon conversion
of the Company Preferred Stock, authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class
or any other securities or equity equivalents (including but not
limited to stock appreciation rights), or amend any of the terms of
any such securities or agreements outstanding as of the date hereof;
(iii) (A) split, combine or reclassify any shares of its capital
stock, (B) other than the declaration or payment of the Company's
regular quarterly dividends on the Company Preferred Stock in an
amount equal to $.8125 per share, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, or (C) other
than pursuant to the Company's Employee Stock Purchase Plan, redeem,
repurchase or otherwise acquire any of its securities;
(iv) (A) incur any indebtedness for borrowed money (except for
short-term indebtedness incurred in the ordinary course of business
consistent with past practice) or issue any debt securities or, except
in the ordinary course of business consistent with past practice,
assume, guarantee or endorse the obligations of any other Person; (B)
make any loans, advances or capital contributions to, or investments
in, any other Person, in excess of $50,000 in the aggregate (other
than (a) to wholly owned Subsidiaries of the Company, (b) investments
in the ordinary course of business consistent with past practice; (C)
pledge or otherwise encumber shares of its capital stock; (D) enter
into or invest in any derivative financial instruments except in the
ordinary course of business consistent with current investment and
risk management policies; or (E) except in the ordinary course of
business consistent with past practice, mortgage or pledge any of its
assets, tangible or intangible, or create or suffer to exist any Lien
thereupon;
(v) to the extent payable directly or indirectly by the Company or any
Subsidiary of the Company, (A) enter into, adopt or (except as may be
required by Law or the terms of any such arrangement) terminate any
bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee of the Company, (B) amend
any such arrangement as it relates to such directors, officers or
employees or (C) (except for changes in base compensation and bonuses,
and changes in benefits in accordance with plans or arrangements in
effect as of the date hereof, in the ordinary course of business
consistent with past practice) change in any manner the compensation
or other benefits payable to any director, officer or employee of the
Company;
(vi) acquire, sell, lease or dispose of any assets outside the
ordinary course of business or any assets which in the aggregate are
material to the Company and its Subsidiaries, taken as a whole, or
enter into any contract, agreement, commitment or transaction with
respect thereto outside the ordinary course of business consistent
with past practice;
(vii) change any of the accounting principles, practices, methods or
policies (including but not limited to any reserving methods,
practices or policies) used by it, except as may be required as a
result of a change in law, SEC guidelines, U.S. GAAP or SAP;
(viii) change the method of determining the U.S. GAAP reserves for any
guaranty fund assessment, second injury fund assessment, special
insurance assessment or similar assessment or tax;
(ix) (A) acquire (by merger, consolidation or acquisition of stock or
assets, but excluding foreclosure) any corporation, partnership or
other business organization or division thereof; (B) authorize any new
capital expenditures which, in the aggregate, are in excess of
$500,000; or (C) enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(x) (A) enter into any facultative reinsurance contract, other than in
the ordinary course of business consistent with past practice; (B)
commute any facultative reinsurance contract; or (C) without giving
Buyer at least ten Business Days' prior written notice thereof, enter
into or commute any reinsurance treaty, purchased by any Subsidiary of
the Company;
(xi) make any investment in the Company Investment Assets other than
in accordance with the Company's current investment policies;
(xii) materially amend its current investment policies; or
(xiii) take, or agree in writing or otherwise to take, any of the
actions described above in this Section 5.1.
5.2 ACCESS TO INFORMATION. From the date hereof until the Closing Date,
subject to the terms of the Confidentiality Agreement, any applicable
contractual restrictions and applicable legal privileges, and to the extent
applicable law would not thereby be violated, the Company will (i) give,
and will cause its Subsidiaries to give, to Buyer and its counsel,
financial advisors, auditors and other authorized representatives
reasonable access, upon reasonable prior notice and during normal business
hours, to the offices, properties, books and records of the Company and
each of its Subsidiaries, (ii) furnish, and will cause its Subsidiaries to
furnish, to Buyer and its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information relating to the Company or any of its Subsidiaries as such
Persons may reasonably request and (iii) instruct the employees, counsel
and financial advisors of the Company or any of its Subsidiaries to
cooperate with Buyer in its investigation of the Company or any of its
Subsidiaries; provided that this Section 5.2 shall not obligate the Company
to provide or make available to Buyer any employee medical records;
provided, further, that to the extent contractual restrictions limit the
Company's ability to take any of the actions set forth in this Section 5.2,
the Company shall use commercially reasonable efforts to obtain any
necessary contractual consent or accommodate any reasonable request by
Buyer with respect to such action by alternative means; and provided,
further, that to the extent applicable legal privileges or applicable laws
limit the Company's ability to take any of the actions set forth in this
Section 5.2, the Company shall use commercially reasonable efforts to
accommodate any reasonable request by Buyer with respect to such action by
alternative means.
5.3 NOTICES OF CERTAIN EVENTS. The Company shall promptly notify Buyer of
any actions, suits, claims, investigations or proceedings commenced or, to
the Knowledge of the Company, threatened against, relating to or involving
or otherwise affecting the Company or any Subsidiary of the Company that,
if pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 3.12 or that relate to the consummation
of the transactions contemplated by this Agreement.
5.4 NO SOLICITATION. The Company will immediately cease any existing
discussions or negotiations with any third parties conducted prior to the
date hereof with respect to any Acquisition Proposal (as defined below).
The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent or any of its Subsidiaries, (i)
solicit or knowingly encourage any proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of a
substantial percentage of shares of capital stock or similar transactions
involving the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement (any of the foregoing proposals
or offers being referred to in this Agreement as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or
provide any nonpublic information to any Person relating to, any
Acquisition Proposal or (iii) agree to, approve or recommend any
Acquisition Proposal. Notwithstanding anything to the contrary in this
Section 5.4 or elsewhere in this Agreement, prior to the Effective Time,
the Company may, to the extent the board of directors of the Company
determines that the proper exercise of its fiduciary duties require it to
do so, (i) engage in negotiations or discussions concerning, and provide
nonpublic information to a Person who makes or who indicates a desire to
make, an Acquisition Proposal, and (ii) agree to, approve and recommend an
Acquisition Proposal.
5.5 MEETING OF THE COMPANY SHAREHOLDERS. The Company agrees that (i) the
Company will take all action necessary in accordance with applicable law
and its Articles of Incorporation and bylaws to convene a meeting of its
shareholders (the "Company Shareholders' Meeting") as promptly as
practicable to consider and vote upon the approval of the Merger and the
other transactions contemplated hereby (the "Company Shareholders'
Approval"), (ii) the board of directors of Company shall recommend and
declare advisable such approval, and (iii) the Company shall take all
lawful action to solicit, and use all reasonable efforts to obtain, such
approval. Notwithstanding anything to the contrary in this Section 5.5 or
elsewhere in this Agreement, the board of directors of the Company may
withdraw, modify in a manner adverse to Buyer or refrain from making the
recommendation and/or declaration specified in clause (ii) of the
immediately preceding sentence to the extent the board determines that the
proper exercise of its fiduciary duties require it to do so; if the board
does so withdraw, modify or refrain from making such recommendation and/or
declaration, the Company may refrain from convening the Company
Shareholders' Meeting and soliciting or obtaining the Company Shareholders'
Approval.
5.6 SUPPLEMENTS OR AMENDMENTS. If, at any time prior to the Company
Shareholders' Meeting, any event with respect to the Company or any of its
Subsidiaries or any of their respective officers and directors should occur
which is required to be described in an amendment of, or a supplement to,
the Proxy Statement, the Company shall notify Buyer thereof prior to filing
if possible by reference to this Section 5.6 and such event shall be so
described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to shareholders of the
Company. Such amendment or supplement shall comply with all provisions of
applicable Law. If, at any time prior to the Effective Time, the Company or
any of its Subsidiaries or any of their respective officers or directors
becomes aware of any fact or condition that would cause any material
statement in the Proxy Statement to have been untrue or would cause the
Proxy Statement to omit to state a material fact required to have been
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, the
Company shall promptly notify Buyer in writing of such fact or condition.
ARTICLE 6: COVENANTS OF BUYER
Buyer and Buyer Parent each agree that:
6.1 CONFIDENTIALITY. All information provided to Buyer, Buyer Parent or any
of the Persons referred to in Section 5.2 will be treated as if provided
under the Confidentiality Agreement.
6.2 INDEMNIFICATION AND INSURANCE.
(a) All rights to indemnification, advancement of expenses and
exculpation from liability for acts or omissions occurring at or prior
to the Effective Time now existing in favor of the current or former
directors, officers or employees of the Company or its Subsidiaries,
as provided in their respective articles of incorporation or bylaws or
in indemnification agreements to which any of them is a party and
which have been made available to Buyer prior to the date hereof,
shall survive the Effective Time, and shall continue in full force and
effect in accordance with their respective terms for a period of not
less than six (6) years after the Effective Time. The articles of
incorporation and bylaws of the Surviving Corporation shall contain
provisions with respect to indemnification, advancement of expenses
and exculpation that are at least as favorable to the persons entitled
to indemnification, advancement of expenses and exculpation thereunder
as those contained in the articles of incorporation and bylaws of the
Company as in effect on the date hereof. The provisions of the
articles of incorporation and bylaws of the Surviving Corporation, and
of the articles of incorporation and bylaws of the Company's
Subsidiaries on the date hereof, relating to indemnification,
advancement of expenses and exculpation shall not be amended, repealed
or otherwise modified for a period of six (6) years after the
Effective Time in any manner that would adversely affect the rights
thereunder of persons who at any time at or prior to the Effective
Time were entitled to indemnification, advancement of expenses or
exculpation under any such articles of incorporation or bylaws in
respect of acts or omissions occurring at or prior to the Effective
Time (including, without limitation, the Merger and the other
transactions contemplated by this Agreement), unless such modification
is required by law. From and after the Effective Time, Buyer and Buyer
Parent each shall, without any further action, be liable for all
obligations of the Company and its Subsidiaries and the Surviving
Corporation and its Subsidiaries with respect to such indemnification,
advancement of expenses and exculpation from liability as are provided
for in this Section 6.2.
(b) Buyer and Buyer Parent each shall cause to be maintained, for a
period of not less than six (6) years after the Effective Time, all of
the Company's and its Subsidiaries' current directors' and officers'
insurance and indemnification policies to the extent that such
policies provide coverage for events occurring prior to the Effective
Time (collectively, the "D&O Insurance") for all current or former
directors, officers or employees of the Company or its Subsidiaries;
provided, however, that Buyer and Buyer Parent may, in lieu of
maintaining such existing D&O Insurance as provided above, and shall,
if the existing D&O Insurance expires or is terminated or canceled
during such six (6) year period, cause comparable coverage to be
provided under any policy maintained for the benefit of the directors,
officers and employees of Buyer, Buyer Parent or any of their
Subsidiaries; and provided, further, that (i) the issuer thereof shall
have a claims-paying rating at least equal to the issuer of the
existing D&O Insurance; and (ii) the terms thereof shall be no less
advantageous to the directors, officers and employees of the Company
and its Subsidiaries than the existing D&O Insurance; and provided,
further, that Buyer Parent shall not be required to pay a per annum
premium for such D&O Insurance in excess of 200% of the per annum
premium that the Company currently pays for its existing D&O Insurance
(it being understood that, if the premium required to be paid by Buyer
Parent for such D&O Insurance would exceed such 200% amount, then the
coverage of such D&O Insurance shall be reduced to the maximum
coverage that can be obtained for a per annum premium in such 200%
amount).
(c) This Section 6.2 is intended for the benefit of, and shall be
enforceable by, any Person entitled to indemnification, advancement of
expenses or exculpation from the Company, the Surviving Corporation,
Buyer and/or Buyer Parent hereunder, and their heirs and personal
representatives, and shall be binding on the Surviving Corporation,
Buyer and Buyer Parent, and their respective successors and assigns.
6.3 SUPPLEMENTS OR AMENDMENTS. If, at any time prior to the Company
Shareholders' Meeting, any event with respect to Buyer, Buyer Parent or any
of their Subsidiaries or any of their respective officers and directors
should occur which is required to be described in an amendment of, or a
supplement to, the Proxy Statement, Buyer and Buyer Parent shall notify the
Company thereof by reference to this Section 6.3 and such event shall be so
described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to shareholders of the
Company. Such amendment or supplement shall comply with all provisions of
applicable law. If, at any time prior to the Effective Time, Buyer, Buyer
Parent or any of their Subsidiaries or any of their respective officers or
directors becomes aware of any fact or condition that would cause any
material statement in the Proxy Statement to have been untrue or would
cause the Proxy Statement to omit to state a material fact required to have
been stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading,
Buyer and Buyer Parent shall promptly notify the Company in writing of such
fact or condition.
ARTICLE 7: COVENANTS OF BUYER AND THE COMPANY
Buyer and the Company agree that:
7.1 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and conditions of
this Agreement, Buyer, Buyer Parent and the Company will use their
commercially reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things reasonably necessary or
desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. Buyer, Buyer Parent and the
Company will promptly, and in any event within 30 days of the date hereof,
prepare and file all applications, notices, consents and other documents
necessary or advisable to obtain the regulatory approvals specified in
Schedule 4.3 and Schedule 3.3, respectively, promptly file all supplements
or amendments thereto and use reasonable efforts to obtain the regulatory
approvals specified in Schedule 4.3 and Schedule 3.3 as promptly as
practicable. Buyer, Buyer Parent and the Company will provide each other
and their counsel the opportunity to review in advance and comment on all
such filings. Buyer, Buyer Parent and the Company will keep each other
informed of the status of matters relating to obtaining the regulatory
approvals specified in Schedule 4.3 and Schedule 3.3. The Company, Buyer
and Buyer Parent agree to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions
as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement. In addition
to and not in limitation of the foregoing, each of the parties will (i)
promptly take all actions necessary to make the filings required of Buyer,
Buyer Parent and the Company or their respective Affiliates or Subsidiaries
under the HSR Act, (ii) comply at the earliest practicable date with any
request for additional information received by such party or its Affiliates
or Subsidiaries from the Federal Trade Commission (the "FTC") or the
Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act, (iii) cooperate with the other party in connection
with such party's filings under the HSR Act and in connection with
resolving any investigation or other inquiry concerning the Merger or the
other matters contemplated by this Agreement commenced by either the FTC or
the Antitrust Division or state attorneys general and (iv) request early
termination of the waiting period under the HSR Act.
7.2 PUBLIC ANNOUNCEMENTS. The parties agree to consult with each other
before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with
any national securities exchange, will not issue any such press release or
make any such public statement prior to such consultation.
7.3 CONSENTS. Between the date hereof and the Closing Date, (i) the
Company, Buyer and Buyer Parent shall use their respective commercially
reasonable efforts to obtain at the earliest practicable date, and prior to
the Closing Date, all consents and agreements of third parties necessary
for the performance by the Company, Buyer and Buyer Parent of their
respective obligations under this Agreement or any agreement referred to
herein or contemplated hereby or to the consummation of the transactions
contemplated hereby or thereby, and (ii) the Company shall deliver to Buyer
on or prior to Closing, to the extent reasonably available or obtainable,
certified copies of Permits for the Company's insurance company
subsidiaries from all jurisdictions in which such insurance company
subsidiaries are licensed, and certified copies of the articles of
incorporation for the Company and its subsidiaries from their respective
jurisdictions of organization. No consideration, whether such consideration
shall consist of the payment of money or shall take any other form, for any
such consent or agreement necessary to the consummation of the transactions
contemplated hereby shall be given or promised by either the Company,
Buyer, Buyer Parent or any of their respective Subsidiaries without the
prior written approval of the other party.
7.4 PROXY STATEMENT. The Company, Buyer and Buyer Parent will, as promptly
as practicable, cooperate to prepare and file with the SEC a proxy
statement in connection with the Merger and the vote of the Company's
shareholders with respect to the transactions contemplated by this
Agreement (such proxy statement, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the
Company's shareholders, is herein called the "Proxy Statement"). The
Company, Buyer and Buyer Parent will use all commercially reasonable
efforts to have or cause the Proxy Statement to become definitive as
promptly as practicable following the clearance of the Proxy Statement by
the SEC. The Company, Buyer and Buyer Parent also will take any other
related action required to be taken under federal or state securities laws,
and the Company will use all reasonable efforts to cause the Proxy
Statement to be mailed to shareholders of the Company at the earliest
practicable date.
7.5 UPDATING SCHEDULES. In connection with the Closing, the Company, Buyer
and Buyer Parent will promptly supplement or amend the various Schedules to
this Agreement to reflect any matter which, if existing, occurring or known
on the date of this Agreement, would have been required to be set forth or
described in such Schedules or which is necessary to correct any
information in such Schedules which was or has been rendered inaccurate
thereby. No such supplement or amendment to the Schedules shall have any
effect for the purpose of determining satisfaction of the conditions set
forth in Article 9 hereof, or the compliance by any party hereto with its
covenants and agreements set forth herein.
ARTICLE 8: EMPLOYEES AND EMPLOYEE BENEFITS
8.1 EMPLOYEES. With respect to each employee who, as of the Closing Date,
is employed by the Company or any Subsidiary of the Company (including any
such employee absent as of such date from active service for any reason,
including but not limited to disability or leave of absence but excluding
any terminated employee receiving severance) ("Transferred Employees"),
subject to any employment contract between the Company and any such
employee, Buyer shall cause each Transferred Employee's employer to
continue to employ such Transferred Employee in a position that is
substantially similar to that held with the Company or such Subsidiary as
of the Closing Date, at a salary (and with commissions, where applicable)
substantially equivalent to that provided as of such date; provided,
however, that nothing herein is intended to, or shall, require such
employer to employ any such employee (other than any such employee who is a
party to an employment contract) on any other basis than as an
employee-at-will.
8.2 401(k) PLANS. Effective as of the Closing Date, Buyer and Buyer Parent
each shall either (i) cause the Company to continue to maintain the
Company's 401(k) Plan, (ii) create and maintain new Benefits Plans that are
at least as favorable in the aggregate to Transferred Employees as the
Company's 401(k) Plan, or (iii) allow Transferred Employees to participate
in comparable existing Benefit Plans of Buyer and/or Buyer Parent that are
at least as favorable in the aggregate to Transferred Employees as the
Company's 401(k) Plan, in each case until at least December 31, 1999.
8.3 GROUP HEALTH PLANS. Effective as of the Closing Date, Buyer and Buyer
Parent each shall maintain, cause an ERISA Affiliate of Buyer and/or Buyer
Parent to maintain, or cause the Company to continue to maintain, for the
benefit of all Transferred Employees and their dependents, any group health
plan maintained by the Company and any of the Company's Subsidiaries or a
group health plan that either (i) provides coverage under the same terms
and conditions (within the meaning of proposed Treasury regulation section
1.162- 26, Q&A 18) as were applicable to the Transferred Employees
immediately before the Closing Date or (ii) satisfies the requirements of
Code section 4980B(f)(2)(B)(iv), until at least December 31, 1999.
8.4 SEVERANCE ARRANGEMENTS. Until December 31, 1999, Buyer and Buyer Parent
each shall take all steps necessary to ensure that all employees of the
Company who are terminated after the Closing Date receive severance
compensation at least as favorable as the severance compensation currently
payable to such employees under the Company's current policies. Without
limiting the foregoing, Buyer and Buyer Parent shall cause the Company to
be responsible and continue to have all liability for all salary and
benefit continuation, severance payments and/or obligations relating to any
Transferred Employee that may be payable as a result of any termination of
employment of any such Transferred Employee or the transactions
contemplated by this Agreement, and for all notices, payments, fines or
assessments due to any government authority pursuant to any applicable
foreign, federal, state or local law, common law, statute, rule or
regulation with respect to the employment, discharge or layoff of
employees, including but not limited to the Worker Adjustment and
Retraining Notification Act and any rules or regulations that have been
issued in connection with any of the foregoing. Buyer and Buyer's Parent
shall cause the Company to comply with the terms of the Contingent
Severance Compensation Agreement.
8.5 OTHER BENEFIT PLANS. Except as otherwise provided in this Article 8,
Buyer and Buyer Parent each shall, effective as of the Closing Date, cause
the Company to continue to maintain any and all Benefit Plans maintained by
the Company or any of its Subsidiaries covering Transferred Employees until
at least December 31, 1999 and to continue to be responsible for any
liability to provide benefits under such Benefit Plans that exist on the
Closing Date. Buyer and Buyer Parent each will cause the Company to permit
any elections made under the Company's 401(k) Plan to continue in effect to
the remainder of the plan year that includes the Closing Date. Until at
least December 31, 1999, neither Buyer nor Buyer Parent shall cause the
Company to make any change to the Company's accounting or reserving
practices or take any other action that would adversely affect the
computation of amounts payable to Transferred Employees under any incentive
compensation or bonus plan of the Company without making such equitable
adjustments to the performance measures under the affected plans as may be
appropriate to ensure that the Transferred Employees receive substantially
the same bonuses or other benefit payments under the affected plans as they
would have received in the absence of such change or other action for any
performance cycle for which the targets or goals have been established as
of the date hereof.
ARTICLE 9: CONDITIONS TO CLOSING
9.1 CONDITIONS TO OBLIGATIONS OF BUYER AND THE COMPANY. The respective
obligations of Buyer, Buyer Parent and the Company to consummate the
Closing are subject to the satisfaction of the following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been
terminated.
(b) All other regulatory consents, approvals or clearances necessary
for the consummation of the Closing shall have been obtained, and no
provision of any applicable law or regulation shall prohibit the
consummation of the Closing.
(c) There shall not be in effect any temporary restraining order,
preliminary injunction or permanent injunction or other Order issued
by any court of competent jurisdiction preventing the consummation of
the transactions contemplated hereby; provided that the party invoking
this condition shall have used its reasonable best efforts to have
such order or injunction vacated.
(d) The Company shall have obtained the Company Shareholders' Approval
from the requisite holders of Shares in accordance with applicable law
and the Articles of Incorporation and bylaws of the Company.
9.2 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer and Buyer
Parent to consummate the Closing is subject to the satisfaction of the
following further conditions any of which may be waived by Buyer or Buyer
Parent:
(a) (i) The Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it on or
prior to the Closing Date; (ii) the representations and warranties of
the Company contained in this Agreement shall be true at and as of the
Closing Date, as if made at and as of such date (without giving effect
to any materiality qualifications or exceptions contained therein),
except for those representations and warranties made as of a specified
date, which shall be true and correct as of the date specified
(without giving effect to any materiality qualifications or
materiality exceptions contained therein); provided, that this
condition (ii) shall be deemed satisfied if any inaccuracies in any of
such representations and warranties at and as of the applicable date
(without giving effect to any materiality qualifications or
materiality exceptions contained therein), (A) would not, individually
or in the aggregate, have or reasonably be expected to have a Material
Adverse Effect on the Company, or (B) do not result in the
consolidated common shareholders' equity of the Company and its
Subsidiaries (determined in accordance with U.S. GAAP) being less than
$28,508,000 as of the Closing Date, in each case without giving any
effect to any inaccuracies in any such representations or warranties
that are the result of any event, occurrence, development or state of
circumstances or facts affecting the property and casualty insurance
industry as a whole in the United States or any state in which the
Company or any of its Subsidiaries conducts business, or affecting the
stock or bond markets or securities industry as a whole in the United
States or any change in general economic conditions in the United
States or any state in which the Company or any of its Subsidiaries
conducts business (including but not limited to a change in interest
rates); and (iii) Buyer or Buyer Parent shall have received a
certificate signed by the chief executive officer and the chief
financial officer of the Company to the effect that the foregoing
conditions have been satisfied.
(b) Buyer or Buyer Parent shall have received (i) a certificate, dated
as of the Effective Time, from the secretary or assistant secretary of
the Company certifying as to the accuracy and completeness of the
attached Articles of Incorporation and bylaws of the Company, and
resolutions, consents and authorizations of the Company with respect
to the execution and delivery of this Agreement and the transactions
contemplated hereby, and (ii) a legal opinion of Company counsel
covering the opinions set forth in Exhibit 9.2(b).
9.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company
to consummate the Closing is subject to the satisfaction of the following
further conditions any of which may be waived by the Company:
(a) (i) Buyer and Buyer Parent each shall have performed in all
material respects all of its obligations hereunder required to be
performed by it at or prior to the Closing Date, (ii) the
representations and warranties of Buyer contained in this Agreement
shall be true at and as of the Closing Date, as if made at and as of
such date (without giving effect to any materiality qualifications and
materiality exceptions contained therein), except for those
representations and warranties made as of a specified date, which
shall be true and correct as of the date specified (without giving
effect to any materiality qualifications or materiality exceptions
contained therein); provided, that this condition (ii) shall be deemed
satisfied if any inaccuracies in any such representations and
warranties at and as of the applicable date (without giving effect to
any materiality qualifications or materiality exceptions contained
therein) would not, individually or in the aggregate, have or
reasonably be expected to materially adversely affect the ability of
the Merger to be completed; and (iii) the Company shall have received
a certificate signed by the chief executive officer and the chief
financial officer of Buyer and Buyer Parent to the effect that the
foregoing conditions have been satisfied.
(b) The Company shall have received a certificate, dated as of the
Effective Time, from the secretary or assistant secretary of Buyer,
Buyer Parent and Buyer Sub, respectively, certifying as to the
accuracy and completeness of the attached articles of incorporation
and bylaws of Buyer, Buyer Parent and Buyer Sub, and resolutions,
consents and authorizations of Buyer, Buyer Parent and Buyer Sub with
respect to the execution and delivery of this Agreement and the
transactions contemplated hereby.
ARTICLE 10: SURVIVAL
10.1 SURVIVAL. The covenants, agreements, representations and warranties of
the parties hereto contained in this Agreement shall not survive the
Closing; provided that the covenants and agreements that, by their terms,
are to have effect or be performed after the Closing Date shall survive in
accordance with their terms.
ARTICLE 11: TERMINATION
11.1 GROUNDS FOR TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Closing:
(i) by mutual written agreement of the Company and Buyer;
(ii) by either the Company or Buyer upon written notice to the other
party if the Merger shall not have been consummated on or before
December 31, 1998; provided that the right to terminate this Agreement
under this clause (ii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of or has resulted in the failure of the Merger to occur on or
before such date;
(iii) by either the Company or Buyer if a court of competent
jurisdiction in the United States or any other Governmental Body in
the United States shall have issued an Order or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger
and such Order or other action shall have become final and
nonappealable;
(iv) by either the Company or Buyer at any time prior to the Company
Shareholders' Approval, if the board of directors of the Company
agrees to, accepts or recommends an Acquisition Proposal to the
Shareholders of the Company;
(v) by Buyer, if the board of directors of the Company shall have
withdrawn, modified in any manner adverse to Buyer or refrained from
recommending and/or declaring advisable the Company Shareholders'
Approval; or
(vi) by either the Company or Buyer if the Company Shareholders'
Approval is not obtained.
11.2 EFFECT OF TERMINATION. If this Agreement is terminated as permitted by
Section 11.1, termination shall be without liability of any party (or any
shareholder, director, officer, employee, agent, consultant or
representative of such party) to any other party to this Agreement, except
for payment of costs and expenses in accordance with Section 12.3 and
except that no such termination shall relieve Buyer and Buyer Parent of its
obligations under Section 6.1; and provided that if such termination shall
result from the willful failure of any party to fulfill a condition to the
performance of the obligations of any other party or to perform a covenant
of this Agreement or from a willful breach by any party to this Agreement,
such party shall be fully liable for any and all damage, loss, liability
and expense (including but not limited to reasonable expenses of
investigation and reasonable attorneys' fees and expenses in connection
with any action, suit or proceeding) incurred or suffered by the other
party as a result of such failure or breach. The provisions of this Section
11.2, Section 12.3 and Section 12.5 shall survive any termination hereof
pursuant to Section 11.1.
ARTICLE 12: MISCELLANEOUS
12.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
when delivered by hand, or when sent by facsimile transmission (with
receipt confirmed by an electronically generated written confirmation),
addressed as follows (or to such other address as a party may designate by
notice to the others):
if to Buyer, Buyer Parent or Buyer Sub, to:
Kingsway Financial Services Inc.
310 Explorer Drive Suite 200 Mississauga,
Ontario L4W 5H8 Attention: Shaun Jackson
with a copy to:
Cassels Brock & Blackwell
Scotia Plaza, Suite 2100
40 King Street
West Toronto, Canada
M5H 3C2 Attention: J. Brian Reeve, Esquire
if to the Company, to:
Walshire Assurance Company
3350 Whiteford Road
York, PA 17402
Attention: Kenneth R. Taylor
with copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Attention: Arthur H. Miller, Esquire
12.2 AMENDMENTS AND WAIVERS.
(a) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is explicit and in writing and is
signed, in the case of an amendment, by each party to this Agreement,
or in the case of a waiver, by the party against whom the waiver is to
be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. Other than as provided herein, the rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
12.3 EXPENSES. Except as otherwise expressly provided herein, the fee for
filing an application pursuant to the HSR Act shall be paid by Buyer or
Buyer Parent, and all other costs and expenses incurred in connection with
this Agreement, including all brokers', finders', investment advisory or
similar fees, shall be paid by the party incurring or responsible for
incurring such cost or expense. Notwithstanding the immediately preceding
sentence, (i) in the event that the Company or Buyer terminates this
Agreement pursuant to Section 11.1(iv) above, the Company shall within five
(5) business days of such termination pay to Buyer the sum of one million
seven hundred fifty thousand dollars ($1,750,000) in immediately available
funds as directed by Buyer and shall reimburse Buyer for its reasonable
out-of-pocket costs and expenses incurred between June 18, 1998 and the
date of termination in connection with this Agreement and the transactions
contemplated hereby and (ii) in the event that the Company or Buyer
terminates this Agreement pursuant to Section 11.1(vi) above, the Company
shall reimburse Buyer for its reasonable out-of-pocket costs and expenses
incurred between June 18, 1998 and the date of termination in connection
with this Agreement and the transactions contemplated hereby; provided,
however, that no amounts shall be payable by the Company to Buyer pursuant
to this sentence if Buyer or Buyer Parent shall have been in material
breach of this Agreement at the time this Agreement is terminated.
12.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of each other party hereto.
12.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard
to any laws that might otherwise govern under applicable principles of
conflicts of laws.
12.6 JURISDICTION. Except as otherwise expressly provided in this
Agreement, any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby shall be brought only in
the United States District Court for the Eastern District of Pennsylvania
or any Pennsylvania state court sitting in Philadelphia, and each of the
parties hereby consents to the exclusive jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court has been
brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within
or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as
provided in this Section 12.6 shall be deemed effective service of process
on such party.
12.7 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Each counterpart may consist of a number
of copies each signed by less than all, but together signed by all, the
parties hereto.
12.8 NO THIRD PARTY BENEFICIARIES. No provision of this Agreement is
intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder, except for the indemnification and insurance
provisions contained in Section 6.2, which provisions may be enforced by
the parties to be indemnified or insured thereunder.
12.9 ENTIRE AGREEMENT. Except for the Confidentiality Agreement, this
Agreement constitutes the entire agreement among the parties with respect
to the subject matter of this Agreement and supersedes all prior agreements
and understandings, both oral and written, among the parties with respect
to such subject matter. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by any party hereto.
12.10 CONSTRUCTION. Whenever the context may require, any pronoun used in
this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and
shall not affect the interpretation and construction hereof. Unless
otherwise specified, (i) the terms "hereof," "herein" and similar terms
refer to this Agreement as a whole and (ii) references herein to Articles
or Sections refer to articles or sections of this Agreement. This Agreement
is the result of arms-length negotiations between the parties hereto and
has been prepared jointly by the parties. In applying and interpreting the
provisions of this Agreement, there shall be no presumption that the
Agreement was prepared by any one party or that the Agreement shall be
construed in favor of or against any one party.
12.11 CURRENCY. All dollar amounts stated in this Agreement are stated in
United States currency, and all payments required under this Agreement
shall be paid in United States currency.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date first above
written.
WALSHIRE ASSURANCE COMPANY
By: /s/ Kenneth R. Taylor
-------------------------------------------
Kenneth R. Taylor
Title: President
KINGSWAY AMERICA INC.
By: /s/ William J. Starr
-------------------------------------------
William J. Starr
Title: Chairman
KINGSWAY FINANCIAL SERVICES INC.
By: /s/ W. Shaun Jackson
-------------------------------------------
W. Shaun Jackson
Title: Executive Vice President & CFO
W ACQUISITION CORPORATION
By: /s/ William G. Starr
-------------------------------------------
William G. Starr
Title: President
Exhibit 7.2
ANNEX B
VOTING AGREEMENT
This Voting Agreement (this "Agreement") is entered into as of August 11, 1998
among some or all of the individuals and other parties listed on Schedule A
hereto (each, a "Stockholder" and, collectively the "Stockholders"), KINGSWAY
FINANCIAL SERVICES INC. ("Kingsway Financial"), KINGSWAY AMERICA, INC. (the
"Buyer") and W ACQUISITION CORPORATION (the "Buyer Sub"), as acknowledged by
WALSHIRE ASSURANCE COMPANY, a Pennsylvania corporation (the "Company").
Simultaneously with the execution and delivery of this Agreement, the Company,
Kingsway Financial, the Buyer and the Buyer Sub have executed and delivered an
Agreement and Plan of Merger dated as of the date of this Agreement (as in
effect from time to time, the "Merger Agreement"). The Stockholders are entering
into this Agreement as a material inducement and condition to Kingsway
Financial, Buyer and Buyer Sub entering into the Merger Agreement. Each term is
used and not otherwise defined in this Agreement has the meaning which the
Merger Agreement assigns to that term.
The parties to this Agreement hereby agree as follows:
1. LIMITATIONS ON TRANSFER AND OTHER ACTIONS. During the period (the
"Agreement Period") beginning on the date of this Agreement and ending on
the earlier of (i) the Effective Time, and (ii) the termination of the
Merger Agreement in accordance with Article XI thereof, each Stockholder
hereby agrees that he or it will not, and will not enter into any contract,
option or other undertaking to, sell, transfer, assign or otherwise dispose
of any shares of capital stock or other securities of the Company or any
options or other securities which are directly or indirectly convertible
into or exercisable or exchangeable for capital stock or other securities
of the Company (collectively, "Company Stock or Equivalents"), or any
interest therein, or grant any right or proxy to vote or grant consent in
lieu of a vote with respect to any Company Stock or Equivalent, now owned
or hereafter acquired by the Stockholder, other than pursuant to the terms
of the Merger or of Section 6 hereof, unless the Person to which such
Company Stock or Equivalents, or interest therein, is or may be sold,
transferred, assigned, otherwise disposed of, or to which such right or
proxy is or may be granted, executes a counterpart of this Agreement and
agrees to be bound by the terms and conditions hereof as a Stockholder.
2. AGREEMENT TO VOTE. During the Agreement Period, unless otherwise
directed in writing by the Buyer:
(a) Each Stockholder hereby agrees to vote (or cause to be voted) all
Company Stock or Equivalents which the Stockholder is entitled to vote to
approve and adopt the Merger, the Merger Agreement and all other matters
contemplated by the Merger Agreement or this Agreement, in connection with
any meeting or meetings of, or solicitations of consents from, the
securityholders of the Company, and at any adjournment thereof, at which or
in connection with which the Merger, the Merger Agreement or any such
related matter is submitted for the consideration and vote of
securityholders of the Company.
(b) Each Stockholder hereby agrees to vote (or cause to be voted) all
Company Stock or Equivalents which the Stockholder is entitled to vote
against (i) any Acquisition Proposal or (ii) any amendment of the Company's
certificate of incorporation or by-laws or other proposal or transaction
involving the Company, which amendment or other proposal or transaction
would be reasonably likely to impede, frustrate, prevent or nullify the
Merger, the Merger Agreement or any of the other transactions contemplated
by the Merger Agreement or change in any manner the voting rights of Common
Stock. Each Stockholder further agrees not to enter into any agreement
inconsistent with the foregoing.
3. OTHER AGREEMENTS.
(a) Each Stockholder shall not (and shall cause each affiliate, employee,
officer, director, shareholder or agent of such Stockholder or trustee or
other person acting on (or purporting to act on) his, her or its behalf,
not to) solicit, discuss or negotiate with any other person (other than
Buyer and its officers, directors, affiliates and representatives) any
Acquisition Proposal, or provide any information to any other person
concerning the Company or any Company Subsidiary (other as may be required
by applicable legal requirements). No Stockholder nor any affiliate,
employee, officer, director, shareholder or agent , trustee or other person
acting on his, her or its behalf has entered into any agreement,
arrangement or understanding with respect to any Acquisition Proposal, and
each Stockholder shall (and shall cause each affiliate, employee, officer,
director, shareholder or agent of such Stockholder or trustee or other
person acting on (or purporting to act on) his, her or its behalf, to) (a)
cease and cause to be terminated any and all discussions regarding any
Acquisition Proposal and (b) notify Buyer if any Acquisition Proposal, or
any inquiry or contact with any person with respect thereto, is made and
disclose to Buyer the substance thereof.
(b) Until after the Merger is consummated or the Merger Agreement is
terminated, each Stockholder shall use his or its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement.
(c) Notwithstanding anything to the contrary in this Section 3 or elsewhere
in this Agreement, during the Agreement Period, each Stockholder may, to
the extent such Stockholder shall determine that the proper exercise of his
fiduciary duties, if any, to the Company as a director or officer of the
Company require him to do so, (i) engage in negotiations or discussions
concerning, and provide nonpublic information to a Person who makes or who
indicates a desire to make, an Acquisition Proposal, and (ii) agree to,
approve or recommend, and enter into an agreement, arrangement or
understanding with respect to, an Acquisition Proposal.
4. QUANTITY OF STOCK HELD.
(a) Each Stockholder represents and warrants to Buyer and Buyer Sub that it
is the record and beneficial owner of, or is trustee of a trust that is the
record holder of, and whose beneficiaries are the beneficial owners of, and
has good and marketable title to, the number of shares of Company Stock or
Equivalents set forth opposite his or its name on Schedule A attached
hereto, free and clear of any claims, liens, encumbrances and security
interests whatsoever. No Stockholder owns, on record or beneficially, any
shares of capital stock of the Company other than the Company Stock or
Equivalents set forth opposite his or its name on Schedule A attached
hereto.
5. OTHER REPRESENTATIONS AND WARRANTIES. Each Stockholder, severally and
not jointly, represents and warrants in respect of itself to the Buyer and
the Buyer Sub that:
(a) Each Stockholder has the necessary power and authority to enter into
this Agreement and to perform their respective obligations under this
Agreement. The execution and delivery of this Agreement by each Stockholder
who is not an individual and the performance of their respective
obligations under this Agreement have been duly and validly authorized by
all necessary action and no other proceedings on the part of any such
Stockholder are necessary to authorize such execution, delivery or
performance.
(b) The execution and delivery of this Agreement by each Stockholder does
not, and the performance by the Stockholders of their respective
obligations under this Agreement will not, (i) conflict with or violate the
certificate or articles of incorporation, bylaws, partnership agreement,
trust instrument or other organizational document (if any) of any such
person, (ii) conflict with or violate any legal requirement applicable to
any such person or by which any of its properties or assets (including any
Company Stock or Equivalents held by it) is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of any Encumbrance on any Company Stock or
Equivalents held by it pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which the such person is a party or by which such person
or any of its properties or assets (including any Company Stock or
Equivalents held by it) is bound or affected.
(c) The execution and delivery of this Agreement by the Stockholders does
not, and the performance of this Agreement by the Stockholders will not,
require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Body, except for any filing which may
be required by the rules promulgated pursuant to the Exchange Act.
6. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY.
(a) Each Stockholder hereby irrevocably grants to, and appoints, Buyer and
William G. Star and Shaun Jackson, in their respective capacities as
officers of Buyer, and any individual who shall hereafter succeed to any
such office of Buyer, and each of them individually, his or its proxy and
attorney-in-fact (with full power of substitution), for and in the name,
place and stead of the Stockholder, to vote his or its Company Stock or
Equivalents or grant a consent of approval in respect of such Company Stock
or Equivalents (i) to approve and adopt the Merger, the Merger Agreement
and all other matters contemplated by the Merger Agreement or this
Agreement, (ii) against any Acquisition Proposal and (iii) against any
amendment of the Company's Articles of Incorporation or By-Laws, or other
proposal or transaction (including any consent solicitation to remove or
elect any directors of the Company) involving the Company which amendment
or other proposal or transaction would be reasonably likely to impede,
frustrate, prevent or nullify, or result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the
Company under or with respect to the Merger, the Merger Agreement or any of
the other transactions contemplated by the Merger Agreement.
(b) Each Stockholder represents that any proxies heretofore given in
respect of Company Stock or Equivalents are not irrevocable, and that any
such proxies are hereby revoked.
(c) Each Stockholder hereby affirms that the irrevocable proxy set forth in
this Section 6 is given in connection with and as a condition to the
execution of the Merger Agreement by the Buyer and the Buyer Sub, and that
such irrevocable proxy is given to secure the performance of the duties of
the Stockholder under this Agreement. Each Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. Such irrevocable proxy is executed and
intended to be irrevocable in accordance with the provisions of Section
1759 of the Pennsylvania Statutes.
(d) The proxy granted hereby shall terminate upon the earlier of the
Effective Time or the termination of the Merger Agreement in accordance
with Article XI thereof.
7. ACCEPTANCE BY THE STOCKHOLDERS. Each Stockholder, by its execution of
this Agreement, accepts delivery of this Agreement, and agrees to make note
of same in its corporate books and records, if any, and to take such steps
as are necessary and in compliance with applicable law to give effect to
the intent and purpose of this Agreement.
8. FURTHER ASSURANCES. Each Stockholder will, at the Buyer's expense, from
time to time, execute and deliver, or cause to be executed and delivered,
such additional or further consents, documents and other instruments as the
Buyer may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement.
9. CERTAIN EVENTS. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such person's Company Stock or
Equivalents and shall be binding upon any person to which legal or
beneficial ownership of such person's Company Stock or Equivalents shall
pass, whether by operation of law or otherwise, including without
limitation such person's heirs, guardians, administrators or successors. In
the event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the Company or
the acquisition of additional Company Stock or Equivalents by any
Stockholder the number of Company Stock or Equivalents listed in Schedule A
beside the name of such Stockholder shall be adjusted appropriately and
this Agreement and the obligations hereunder shall attach to such
additional Company Stock or Equivalents.
10. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and,
except as otherwise provided in this Agreement, shall be deemed to have
been duly given if so given) if delivered in person, or sent by overnight
courier service or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:
If to the Company or any Stockholder at the address set forth next to such
Stockholder's name on Schedule A attached hereto.
with a copy (which shall not constitute notice) to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Attention: Arthur H. Miller, Esquire
If to Buyer or Buyer Sub:
Kingsway Financial Services Inc.
5310 Explorer Drive, Suite 200
Mississauga, Ontario L4W 5HB
Attention: William G. Star
with a copy to:
Cassels, Brock & Blackwell
40 King Street, Suite 2100
Toronto, Canada MH5 3C2
Attention: J. Brian Reeve, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of
which together shall constitute one and the same document.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania,
without giving effect to the principles of conflicts of laws thereof.
13. SPECIFIC PERFORMANCE. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall (without the posting of bond or other
security), be entitled to obtain from any court of competent jurisdiction
specific performance of the terms hereof, in addition to any other remedy
at law or equity.
14. BINDING EFFECT. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by the successors and assigns of the parties
hereto. Nothing expressed or referred to in this Agreement is intended or
shall be construed to give any person other than the parties to this
Agreement, or their respective successors or assigns, any legal or
equitable right, remedy or claim under or in respect of this Agreement or
any provision contained herein.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
16. SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
17. ASSIGNMENT. Neither this agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written
consent of the other party; provided, however, that without obtaining such
consent the Buyer or the Buyer Sub may assign all of its rights hereunder
to any person to whom the Buyer Sub would be permitted to assign its rights
under the Merger Agreement. No such assignment shall relieve any party
hereto of its obligations hereunder if such transferee does not perform
such obligations.
18. MISCELLANEOUS. 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. References to Sections, subsections and
clauses referred to Sections, subsections and clauses of this Agreement
unless otherwise stated.
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement as of
the date first set forth above.
KINGSWAY FINANCIAL SERVICES INC.
By: /s/ William G. Starr
-------------------------------
Name: William G. Starr
Title: President & CEO
KINGSWAY AMERICA, INC.
By: /s/ William G. Starr
------------------------------
Name: William G. Starr
Title: President & CEO
STOCKHOLDERS:
/s/ Peter D. Bennett
---------------------------------
(Peter D. Bennett)
/s/ John J. Buchan, Jr.
---------------------------------
(John J. Buchan, Jr.)
INTERSTATE INSURANCE
MANAGEMENT, INC.
/s/ John J. Buchan, Jr.
----------------------------------
Name: John J. Buchan, Jr.
Title: President
/s/ Charles W. Hash, Jr.
----------------------------------
(Charles W. Hash, Jr.)
MEMORIAL SURGICAL ASSOCIATES
RETIREMENT
By:/s/ Charles W. Hash, Jr.
-------------------------------
Charles W. Hash, Jr.
Title: President
/s/ Gary J. Orndorff
----------------------------------
(Gary J. Orndorff)
/s/ Beverly Sausman
----------------------------------
(Beverly Sausman)
/s/ L. Edward Sausman, Jr.
----------------------------------
(L. Edward Sausman, Jr.)
/s/ Lee E. Sausman, Sr.
----------------------------------
(Lee E. Sausman, Sr.)
/s/ Kenneth R. Taylor
----------------------------------
(Kenneth R. Taylor)
TAYLOR & OCHROCH, INC.
By: /s/ Kenneth R. Taylor
----------------------------------
Name: Kenneth R. Taylor
Title: President
/s/ William R. Tierney, Jr.
----------------------------------
(William R. Tierney, Jr.)
By: /s/ Cheryl Tierney
----------------------------------
(Cheryl Tierney)
TRUSTEE UNDER IRREVOCABLE
AGREEMENT WITH EMILY TIERNEY,
WILLIAM R. TIERNEY, JR.,
PETER TIERNEY, JOSEPH TIERNEY OF
WILLIAM R. TIERNEY-- FAMILY TRUST
By: /s/ William R. Tierney, Jr.
------------------------------
Name: William R. Tierney, Jr.,
Title: Trustee
TRUSTEE UNDER IRREVOCABLE
AGREEMENT WITH EMILY TIERNEY,
WILLIAM R. TIERNEY, JR.,
PETER TIERNEY, JOSEPH TIERNEY OF
WILLIAM R. TIERNEY
By: /s/ William R. Tierney, Jr.
------------------------------
Name: William R. Tierney, Jr.,
Title: Trustee
Acknowledged as of the date first above written
WALSHIRE ASSURANCE COMPANY
By /s/ Kenneth R. Taylor
- -------------------------------------------
Name: Kenneth R. Taylor
Title: President
<PAGE>
SCHEDULE A
NO. OF NO. OF COMMON
STOCKHOLDER NAME AND ADDRESS COMMON SHARES SHARE EQUIVALENTS
Peter D. Bennett 110 12,200
533 Ridge Avenue
State College, PA 16803
John J. Buchan, Jr. 1,536 32,883
2005 Bates Drive
Johnstown, PA 15901
Interstate Insurance
Management, Inc. 53,345 --
2307 Menoher Boulevard
Johnstown, PA 15901
Charles W. Hash, Jr. 54,394 32,883
1400 E. Market Street
York, PA 17403
Memorial Surgical
Associates Retirement Fund 19,514 --
c/o Charles W. Hash, Jr.
1400 E. Market Street
York, PA 17403
Charles W. Hash, Sr. 406,443 --
101 Lookout Court
South View Villas
York, PA 17402
Mary Hash 70,620 --
101 Lookout Court
South View Villas
York, PA 17402
Gary J. Orndorff 7,979 40,113
2980 Chesapeake Road
York, PA 17402
L. Edward Sausman, Jr. 217,762 10,798
Sausman Insurance Agency, Inc.
Old Route 22 West
Thompsontown, PA 17094
Beverly Sausman 10,660 --
c/o L. Edward Sausman, Jr.
Sausman Insurance Agency, Inc.
Old Route 22 West
Thompsontown, PA 17094
Lee E. Sausman, Sr. 186,000 --
12 Evergreen Street
P.O. Box 297
Thompsontown, PA 17094
8
Kenneth R. Taylor 442,246 210,059
1157 Youngsford Road
Gladwyne, PA 19035
Taylor & Ochroch, Inc. 18,319 --
123 Ivy Lane
King of Prussia, PA 19406
William R. Tierney, Jr. 8,424 24,805
Insurance Markets, Inc.
261 East Grove
Clarks Summit, PA 18411
Cheryl Tierney 20,349 --
c/o William R. Tierney, Jr.
Insurance Markets, Inc.
261 East Grove
Clarks Summit, PA 18411
Trustee Under Irrevocable Agreement With 51,637 --
Emily Tierney, William R. Tierney, Jr.,
Peter Tierney, Joseph Tierney of
William R. Tierney --Family Trust
c/o Wiliam R. Tierney, Jr.
Insurance Markets, Inc.
261 East Grove
Clarks Summit, PA 18411
Trustee Under Irrevocable Agreement With 47,478 --
Emily Tierney, William R. Tierney, Jr.,
Peter Tierney, Joseph Tierney of
William R. Tierney
c/o William R. Tierney, Jr.
Insurance Markets, Inc.
261 East Grove
Clarks Summit, PA 18411
9
