UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )*
HCC Insurance Holdings, Inc.
----------------------------
(Name of Issuer)
Common Stock, $1.00 par value per share
(Title of Class of Securities)
404 132 102
-----------
(CUSIP Number)
Stephen J. Lockwood
401 Edgewater Place, Suite 400
Wakefield, MA 01880
(617) 245-4559
--------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
May 24, 1996
------------
(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 [ ].
Check the following box if a fee is being paid with the statement [X]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
CUSIP No. 404 132 102 Page 2 of 7 pages
- ------- ------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Stephen J. Lockwood
- ------- ------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- ------- ------------------------------------------------------------------------
3 SEC USE ONLY
- ------- ------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- ------- ------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- ------- ------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 4,054,690
----- ------------------------------------------------
----- ------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
----- ------------------------------------------------
----- ------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 4,054,690
----- ------------------------------------------------
----- ------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
0
- ------- ------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,054,690
- ------- ------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- ------- ------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.7%
- ------- ------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
IN
- --------------------------------------------------------------------------------
CUSIP No. 404 132 102 Page 3 of 7 pages
ITEM 1. SECURITY AND ISSUER.
Common stock, $1.00 par value per share
HCC Insurance Holdings, Inc.
13403 Northwest Freeway
Houston, Texas 77040-6094
ITEM 2. IDENTITY AND BACKGROUND.
(A) NAME.
Stephen J. Lockwood
(B) BUSINESS ADDRESS.
LDG Management Company Incorporated
401 Edgewater Place, Suite 400
Wakefield, Massachusetts 01880
(C) PRESENT PRINCIPAL OCCUPATION.
President, HCC Insurance Holdings, Inc.
President, and Chairman of the Board,
LDG Management Company Incorporated
(D) CONVICTION(S) IN ANY CRIMINAL PROCEEDING.
Not applicable
(E) PARTY TO CIVIL PROCEEDING(S) PERTAINING TO STATE OR
FEDERAL SECURITIES LAWS.
Not applicable
(F) CITIZENSHIP.
United States of America
CUSIP No. 404 132 102 Page 4 of 7 pages
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
A total of 3,941,565 shares of the aggregate of 4,054,690 shares of
the Common Stock (the "Common Stock") of HCC Insurance Holdings, Inc. ("HCCH")
owned by Mr. Lockwood were acquired as consideration for the merger (the
"Merger") of Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of HCCH ("Merger Sub") with and into LDG Management Company
Incorporated, a Massachusetts corporation ("LDG"). As a result of the Merger,
Merger Sub disappeared as a separate corporate entity with the business of LDG
to continue as part of HCCH in the form of a wholly-owned subsidiary of HCCH.
Prior to the Merger, Mr. Lockwood owned 56,764.848 shares of the common stock of
LDG, or 63.1%. Additionally, prior to the Merger, Mr. Lockwood owned 110,625
shares of HCCH Common Stock (excluding 2,500 shares subject to currently
exercisable options) and served as a member of the HCCH Board of Directors. Mr.
Lockwood abstained from the HCCH's Board of Directors' consideration of and vote
on the Plan of Reorganization (as subsequently defined) and the Merger.
ITEM 4. PURPOSE OF THE TRANSACTION.
The shares of Common Stock acquired by Mr. Lockwood pursuant to the
Merger were acquired solely as consideration for the Merger and as an investment
by Mr. Lockwood in HCCH. Under the Plan of Reorganization, upon the consummation
of the Merger, Mr. Lockwood was elected to the office of the President of HCCH
and continues to serve as a member of the Board of Directors of HCCH.
ITEM 5. INTEREST IN THE SECURITIES OF THE ISSUER.
(A) AGGREGATE NUMBER AND PERCENTAGE OF SECURITIES BENEFICIALLY
OWNED:
4,054,690 or 11.7%
(B) NUMBER OF SHARES AS TO WHICH REPORTING PERSON HAS:
SOLE POWER TO VOTE OR DIRECT THE VOTE:
4,054,690
SHARED POWER TO VOTE OR DIRECT THE VOTE:
Not applicable
SOLE POWER TO DISPOSE OR DIRECT THE DISPOSITION OF:
4,054,690
CUSIP No. 404 132 102 Page 5 of 7 pages
SHARED POWER TO DISPOSE OR DIRECT THE DISPOSITION OF:
Not applicable
(C) TRANSACTIONS EFFECTED DURING THE PAST 60 DAYS.
On May 24, 1996 the Merger was consummated and Mr. Lockwood
received 3,941,565 shares of HCCH Common Stock as
consideration in such Merger.
(D) OTHER PERSON WITH RIGHT TO RECEIVE OR DIRECT THE RECEIPT OF
DIVIDENDS FROM OR THE PROCEEDS OF THE SALE OF THE SECURITIES.
Not applicable
(E) DATE UPON WHICH THE REPORTING PERSON CEASED TO BE THE
BENEFICIAL OWNER OF MORE THAN 5% OF THE SECURITIES.
Not applicable
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER.
As of February 22, 1996, HCCH, LDG, certain affiliated companies of
LDG, Mr. Lockwood, Mr. Walter L. Suydam and Merger Sub entered into an Agreement
and Plan of Reorganization (the "Plan of Reorganization"). Pursuant to the Plan
of Reorganization, Merger Sub merged with and into LDG with LDG as the surviving
corporation. Upon consummation of the Merger, Mr. Lockwood received 69.4367
shares of HCCH Common Stock for each share of his 56,764.848 shares of LDG
common stock, or an aggregate of 3,941,565 shares of HCCH Common Stock. Under
the Plan of Reorganization, upon consummation of the Merger, Mr. Lockwood was
elected to the office of President of HCCH and retained his seat on the HCCH
Board of Directors.
In addition, as of May 24, 1996 Mr. Lockwood entered into an Affiliates
Agreement pursuant to which he has agreed not to dispose of his shares of HCCH
Common Stock received in the Merger until HCCH publicly releases its first
report of quarterly financial statements that include the combined financial
statements of LDG and HCCH for a period of at least 30 days of combined
operations. Pursuant to such agreement, Mr. Lockwood has (i) also agreed that he
has no present plan or intention to sell or otherwise dispose of more than 50%
of the shares of HCCH Common Stock that he receives in the Merger; (ii)
acknowledged the resale restrictions imposed by Rule 145 promulgated under the
Securities Act on shares received by him in the Merger; and (iii) made certain
representations required by HCCH pertaining to the "continuity of interest"
requirements for a tax-free reorganization.
CUSIP No. 404 132 102 Page 6 of 7 pages
ITEM 7. EXHIBITS.
(A) AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF FEBRUARY 22,
1996 BY AND AMONG HCC INSURANCE HOLDINGS, INC., MERGER SUB,
INC., LDG MANAGEMENT COMPANY INCORPORATED, SRRF MANAGEMENT
INCORPORATED, MEDICAL REINSURANCE UNDERWRITERS INCORPORATED,
LDG WORLDWIDE LIMITED, AND LDG INSURANCE AGENCY INCORPORATED,
STEPHEN J. LOCKWOOD AND WALTER L. SUYDAM.
(B) AFFILIATES AGREEMENT DATED AS OF MAY 24, 1996 BY AND BETWEEN
STEPHEN J. LOCKWOOD AND HCC INSURANCE HOLDINGS, INC.
[Signature appears on the following page.]
CUSIP No. 404 132 102 Page 7 of 7 pages
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.
May 31, 1996
----------------------------------
(Date)
/s/ Stephen J. Lockwood
----------------------------------
(Signature)
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
FEBRUARY 22, 1996
BY AND AMONG
HCC INSURANCE HOLDINGS, INC.,
MERGER SUB, INC.,
AND
LDG MANAGEMENT COMPANY INCORPORATED
SRRF MANAGEMENT INCORPORATED,
MEDICAL REINSURANCE UNDERWRITERS INCORPORATED,
LDG WORLDWIDE LIMITED,
LDG INSURANCE AGENCY INCORPORATED,
AND
STEPHEN J. LOCKWOOD AND
WALTER L. SUYDAM
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I THE MERGER 2
Section 1.1 The Merger 2
Section 1.2 Conversion of Shares 2
Section 1.3 Exchange of Certificates 3
Section 1.4 Registration on Form S-4 4
Section 1.5 Dissenting Shares 4
ARTICLE II THE SURVIVING CORPORATION 5
Section 2.1 Articles of Organization 5
Section 2.2 Bylaws 5
Section 2.3 Directors and Officers 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF LDG 5
Section 3.1 Corporate Existence and Power 6
Section 3.2 Authorization 6
Section 3.3 Governmental Authorization 7
Section 3.4 Non-Contravention 7
Section 3.5 Capitalization 8
Section 3.6 Subsidiaries and Joint Ventures 9
Section 3.7 LDG Financial Statements 10
Section 3.8 Disclosure Documents 10
Section 3.9 Absence of Certain Changes 10
Section 3.10 No Undisclosed Liabilities 12
Section 3.11 Litigation 12
Section 3.12 Taxes 13
Section 3.13 Employee Benefit Plans, ERISA 13
Section 3.14 Material Agreements 15
Section 3.15 Properties 16
Section 3.16 Environmental Matters 16
Section 3.17 Labor Matters 17
Section 3.18 Compliance with Laws 17
Section 3.19 Trademarks, Tradenames, Etc. 17
Section 3.20 Sale of LDG 17
Section 3.21 Broker's Fees 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HCCH 18
Section 4.1 Corporate Existence and Power 18
Section 4.2 Corporate Authorization 18
Section 4.3 Governmental Authorization 19
Section 4.4 Non-Contravention 19
Section 4.5 Capitalization of HCCH 20
Section 4.6 Organization of Merger Sub 21
Section 4.7 Subsidiaries 21
Section 4.8 SEC Filings 21
Section 4.9 Financial Statements 22
Section 4.10 Disclosure Documents 22
Section 4.11 Absence of Certain Changes 23
Section 4.12 No Undisclosed Liabilities 23
Section 4.13 Litigation 23
Section 4.14 Taxes 24
Section 4.15 Employee Benefit Plans; ERISA 24
Section 4.16 Material Agreements 26
Section 4.17 Properties 26
Section 4.18 Environmental Matters 27
Section 4.19 Labor Matters 27
Section 4.20 Compliance with Laws 27
Section 4.21 Trademarks, Tradenames, Etc. 27
Section 4.22 Opinion of Financial Advisor. 27
Section 4.23 Broker's Fees 27
ARTICLE V COVENANTS OF LDG, ETC. 28
Section 5.1 Conduct of LDG 28
Section 5.2 Shareholder Approval 30
Section 5.3 Access to Financial and Operation Information 30
Section 5.4 Other Offers 30
Section 5.5 Maintenance of Business 31
Section 5.6 Compliance with Obligations 31
Section 5.7 Notices of Certain Events 31
Section 5.8 LDG Affiliates Agreement 32
Section 5.9 Necessary Consents 32
Section 5.10 Regulatory Approval 32
Section 5.11 Satisfaction of Conditions Precedent 32
Section 5.12 Blue Sky Laws 32
ARTICLE VI COVENANTS OF HCCH AND MERGER SUB 33
Section 6.1 Conduct of HCCH 33
Section 6.2 Shareholders' Meeting, Proxy Material, Registration Statement 33
Section 6.3 Access to Financial and Operation Information 34
Section 6.4 Maintenance of Business 34
Section 6.5 Compliance with Obligations 35
Section 6.6 Notices of Certain Events 35
Section 6.7 Obligations of Merger Sub 35
Section 6.8 Notice to Affiliates 35
Section 6.9 Employee Matters. 35
Section 6.10 Maintenance of Insurance 36
Section 6.11 Maintain Provisions 36
ARTICLE VII COVENANTS OF HCCH AND LDG 37
Section 7.1 Advice of Changes 37
Section 7.2 Regulatory Approvals 38
Section 7.3 Actions Contrary to Stated Intent 38
Section 7.4 Certain Filings 38
Section 7.5 Communications 38
Section 7.6 Satisfaction of Conditions Precedent 38
Section 7.7 Tax Cooperation 39
ARTICLE VIII CONDITIONS TO THE MERGER 39
Section 8.1 Conditions to Obligations of HCCH and Merger Sub 39
Section 8.2 Conditions to Obligations of LDG 41
Section 8.3 Conditions to Obligations of Each Party 42
Section 8.4 Effect of Failure to Meet Conditions to Merger 43
ARTICLE IX TERMINATION OF AGREEMENT 43
Section 9.1 Termination 43
Section 9.2 Effect of Termination 45
ARTICLE X CLOSING MATTERS 45
Section 10.1 The Closing 45
Section 10.2 Conversion of Certificates 45
ARTICLE XI SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS 46
Section 11.1 Survival of Representations 46
Section 11.2 LDG et al. Agreement to Indemnify 47
Section 11.3 HCCH Agreement to Indemnify 48
Section 11.4 Exclusive Remedy 48
Section 11.5 Procedure for Indemnification; Third Party Claims 49
Section 11.6 Appointment of Representative 49
ARTICLE XII MISCELLANEOUS 50
Section 12.1 Further Assurances. 50
Section 12.2 Fees and Expenses 51
Section 12.3 Notices 51
Section 12.4 Governing Law 52
Section 12.5 Binding upon Successors and Assigns, Assignment 52
Section 12.6 Severability 52
Section 12.7 Entire Agreement 52
Section 12.8 Amendment and Waivers 52
Section 12.9 No Waiver 53
Section 12.10 Construction of Agreement 53
Section 12.11 Counterparts 53
Section 12.12 Subsequent Amendments 53
</TABLE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of the 22nd day of February, 1996 by and among HCC Insurance Holdings,
Inc., a Delaware corporation ("HCCH"), Merger Sub, Inc., a Massachusetts
corporation and a wholly owned subsidiary of HCCH ("Merger Sub"), LDG Management
Company Incorporated ("LDG"), a Massachusetts corporation, SRRF Management
Incorporated ("SRRF"), a Massachusetts corporation, Medical Reinsurance
Underwriters Incorporated ("MRUI"), a Massachusetts corporation, LDG Worldwide
Limited ("Worldwide"), a Delaware corporation, and LDG Insurance Agency
Incorporated, a Massachusetts corporation ("LIAI"), (SRRF, MRUI, Worldwide and
LIAI being sometime collectively referred to herein as the "Affiliated
Companies"), Stephen J. Lockwood ("Lockwood") and Walter L. Suydam ("Suydam"),
(Lockwood, Suydam and any person becoming a shareholder of LDG subsequent to the
date hereof and on or prior to the Effective Date who executes a counterpart
signature page in the form attached hereto) being collectively referred to
herein as the "LDG Shareholders"). As of the Effective Date, wherever used
herein and in the LDG Disclosure Schedule (as hereinafter defined), the term
"Affiliated Companies" shall mean "Subsidiaries."
RECITALS:
A. The Boards of Directors of each of HCCH, Merger Sub and LDG have
determined to engage in the transaction contemplated hereby, pursuant to which
(i) prior to the Effective Date (as hereinafter defined), each of the Affiliated
Companies shall become wholly owned subsidiaries of LDG (sometimes herein
collectively called the "Subsidiaries") by means of the contributions to the
capital of LDG by Lockwood and Suydam of all the shares of Common Stock of the
Affiliated Companies held by them, (ii) Merger Sub will merge with and into LDG
(the "Merger"), (iii) the capital stock of Merger Sub shall be converted into
shares of common stock of LDG (the "LDG Common Stock"); and (iv) each share of
LDG Common Stock outstanding immediately prior to the Effective Time shall be
converted into shares of common stock, par value $1.00 per share, of HCCH (the
"HCCH Common Stock") in the manner herein described, all upon the terms and
subject to the conditions set forth herein.
B. The Boards of Directors of LDG and the Affiliated Companies have
approved, and the Board of Directors of LDG has resolved, subject to the terms
of this Agreement, to recommend that shareholders of LDG approve the Merger,
this Agreement and the Articles of Merger (as defined herein).
C. The Board of Directors of HCCH has approved the Merger, this
Agreement and the Articles of Merger, and has resolved to recommend that
shareholders of HCCH approve the issuance of HCCH's Common Stock in connection
with the Merger. HCCH, as the sole shareholder of Merger Sub, has approved the
Merger, this Agreement and the Articles of Merger.
D. The parties intend for the transactions contemplated by this
Agreement to qualify as a plan of reorganization in accordance with the
provisions of Section 368(a) of the Internal
1
Revenue Code of 1986, as amended (the "Code"), and to be accounted for as a
"pooling of interests" for accounting purposes.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto do hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER.
(a) Subject to the terms and conditions of this Agreement, Merger Sub
will be merged into LDG in accordance with the laws of the Commonwealth of
Massachusetts ("Massachusetts Law"), whereupon the separate existence of Merger
Sub shall cease, and LDG shall be the surviving corporation (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, LDG and Merger Sub
shall file articles of merger, in substantially the form attached hereto as
Exhibit 1.1(b) (the "Articles of Merger"), in the Office of the Secretary of the
Commonwealth of Massachusetts, and make all such other filings or recordings
required by Massachusetts Law in connection with the Merger. The Merger shall
become effective at such time as the Articles of Merger are duly filed with the
Office of the Secretary of the Commonwealth of Massachusetts, in accordance with
the relevant provisions of Massachusetts Law (the "Effective Time"). The date on
which the Effective Time shall occur is referred to herein as the "Effective
Date."
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of LDG and Merger Sub, all as
provided under Massachusetts Law.
SECTION 1.2 CONVERSION OF SHARES.
(a) At the Effective Time:
(i) each share of common stock, par value $1.00 per share, of
Merger Sub outstanding immediately prior to the Effective Time shall
automatically and without any action on the part of the holder thereof,
be converted into one share of common stock of the Surviving
Corporation.
(ii) each share of LDG Common Stock outstanding immediately
prior to the Effective Time shall automatically and without any action
on the part of the holder
2
thereof cease to be outstanding and be converted into the right to
receive that number of shares of HCCH Common Stock as is equal to the
"Exchange Ratio," which shall be determined in the manner provided
below.
(b) For purposes of this Agreement, the "Exchange Ratio" shall be
calculated as follows:
(i) if the Average HCCH Trading Price (as defined below) is at
least $36.00 per share, the Exchange Ratio shall equal the quotient of
2,500,000 divided by 90,010 (the sum of all of the outstanding shares
of LDG Common Stock held by shareholders of LDG) or 27.775 shares of
HCCH Common Stock at the Effective Time. Such quotient shall be
multiplied by the shares of LDG Common Stock held by each holder of LDG
Common Stock. No fractional shares shall be issued and each holder of
LDG Common Stock shall be entitled to the nearest whole share of HCCH
Common Stock rounded upwards or downwards provided, however, that in
the aggregate only 2,500,000 shares of HCCH Common Stock shall be
issued pursuant to this clause (i); or
(ii) except as set forth in the proviso below, if the Average
HCCH Trading Price is less than $36.00, the shareholders of LDG shall
be entitled to receive that number of shares of HCCH Common Stock equal
to the quotient of $90,000,000 divided by the Average HCCH Trading
Price, and, after determining the aggregate number of shares of HCCH
Common Stock to be issued hereunder, the number of shares to be issued
to each holder of LDG Common Stock shall be determined as set forth in
clause (i) above.
Provided, if the Average HCCH Trading Price is less than $33.00, LDG or HCCH
shall have the right to terminate this Agreement in the manner provided in
subsection (c) below. As used herein, the term "Average HCCH Trading Price"
shall mean the arithmetic mean of each of the closing sale prices per share of
HCCH Common Stock on the New York Stock Exchange (the "NYSE") for each of the
five (5) trading days ending on the fourth trading day immediately preceding the
scheduled date of the HCCH shareholder meeting contemplated herein (such fourth
trading date being referred to herein as the "Determination Date").
(c) In the event that either party shall elect to terminate this
Agreement in the circumstances contemplated by subsection (b) above, then the
party so electing shall give notice of termination of the other party prior to
12:00 midnight (Houston time) on or before the second trading date following the
Determination Date. Such termination shall become effective automatically,
without the action of either party, at 12:00 midnight (Houston time) on the
trading day immediately preceding the date of the HCCH shareholder meeting
contemplated herein.
SECTION 1.3 EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Date, HCCH shall appoint KeyCorp
Shareholder Services, Inc. to act as exchange agent (the "Exchange Agent") in
the Merger.
3
(b) At the Effective Time, HCCH shall exchange the shares of HCCH
Common Stock issuable pursuant to Section 1.2 in exchange for all outstanding
shares of LDG Common Stock (other than for shares of LDG Common Stock held by
any LDG Shareholder who has elected to accept appraisal rights as contemplated
by Section 1.5).
(c) If prior to the Merger, HCCH recapitalizes either through a
split-up of its outstanding shares into a greater number, or through a
combination of its outstanding shares into a lesser number, or reorganizes,
reclassifies or otherwise changes into outstanding shares into the same or a
different number of shares of other classes (other than through a split-up or a
combination of shares provided for in the previous clause), or declares a
dividend on its outstanding shares payable in shares or securities convertible
into shares, the number of shares of HCCH Common Stock into which the shares of
LDG Common Stock are to be converted, will be adjusted appropriately.
SECTION 1.4 REGISTRATION ON FORM S-4. The HCCH Common Stock to be
issued in the Merger shall be registered under the Securities Act of 1933, as
amended (the "Securities Act"), on a Form S-4 Registration Statement to be filed
by HCCH (as the same may be amended or supplemented from time to time, the
"Registration Statement"). As promptly as practicable after the date of this
Agreement, HCCH shall prepare and file with the United States Securities and
Exchange Commission (the "SEC") a prospectus/proxy statement (the
"Prospectus/Proxy Statement") and any other documents required by the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with the
Merger and the Registration Statement and any other documents required by the
Securities Act in connection with the Merger. HCCH shall use all reasonable
efforts to have the Registration Statement declared effective under the
Securities Act.
SECTION 1.5 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
the shares of any holder of LDG Common Stock who has demanded and perfected
appraisal rights for such shares in accordance with Massachusetts Law and who,
as of the Effective Time, has not effectively withdrawn or lost such appraisal
rights ("Dissenting Shares"), shall not be converted into or represent a right
to receive HCCH Common Stock pursuant to Section 1.2, but the holder thereof
shall only be entitled to such rights as are granted by Massachusetts Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of LDG Common Stock who demands appraisal of such shares under
Massachusetts Law shall effectively withdraw the right to appraisal, then, as of
the later of the Effective Time and the occurrence of such event, such LDG
Shareholder's shares of LDG Common Stock shall automatically be converted into
and represent only the right to receive HCCH Common Stock, without interest
thereon, upon surrender of the certificate representing such shares.
(c) LDG shall give HCCH (i) prompt notice of any written demands for
appraisal of any shares of LDG Common Stock, withdrawals of such demands, and
any other instruments
4
served pursuant to Massachusetts Law and received by LDG which relate to any
such demand for appraisal and (ii) the opportunity to participate in all
negotiations and proceedings which take place prior to the Effective Time with
respect to demands for appraisal under Massachusetts Law.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 ARTICLES OF ORGANIZATION. At the Effective Time, the
Articles of Organization of LDG as in effect immediately prior to the Effective
Time, shall be the Articles of Organization of the Surviving Corporation. Prior
to the Effective Date, HCCH shall, subject to Section 6.11, propose those
amendments to the Articles of Organization as it deems appropriate, which
amendments shall be incorporated into the Articles of Merger and Plan of Merger
associated therewith.
SECTION 2.2 BYLAWS. At the Effective Time, the Bylaws of LDG as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation. Prior to the Effective Date, HCCH shall, subject to
Section 6.11, propose those amendments to such Bylaws as it deems appropriate,
which amendments shall be incorporated into the Articles of Merger and Plan of
Merger associated therewith.
SECTION 2.3 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, the directors and the initial officers of Merger Sub at the
Effective Time shall become directors and the officers of the Surviving
Corporation. In addition, HCCH shall take all necessary action to cause (i)
Lockwood to be appointed to the Board of Directors and President of each of the
Surviving Corporation and HCCH, and appointed Chairman of the Board and Chief
Executive Officer of the Surviving Corporation and (ii) Suydam to be appointed
Executive Vice President and Director of the Surviving Corporation and Senior
Vice President of HCCH, with, for any position not held prior thereto, all such
appointments and designations to become effective as of the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LDG
Except as contemplated by this Agreement, and except as disclosed in a
document referring specifically to this Agreement (the "LDG Disclosure
Schedule") which has been delivered to HCCH prior to the date hereof and except
as otherwise provided in the Registration Statement, each of LDG, the Affiliated
Companies, and each of the LDG Shareholders (severally and not jointly),
represents and warrants to HCCH as set forth below (it being agreed that the
disclosure on the LDG Disclosure Schedule of the existence of any document or
fact or
5
circumstance or situation relating to any representations, warranties, covenants
or agreements in any section of this Agreement shall be automatically deemed to
be disclosure of such document or fact or circumstance or situation for purposes
of all other representations, warranties, covenants and agreements in this
Agreement and it being further agreed that as of the Effective Date, references
to Affiliated Companies shall be deemed to mean Subsidiaries of LDG):
SECTION 3.1 CORPORATE EXISTENCE AND POWER. LDG and each of the
Affiliated Companies is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation, and have all
corporate powers and all material governmental licenses, authorizations,
consents and approvals (collectively, "Governmental Authorizations") required to
carry on its business as now conducted, except such Governmental Authorizations
the failure of which to have obtained would not have a Material Adverse Effect,
as hereinafter defined, on LDG or such Affiliated Company. LDG and each of the
Affiliated Companies is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect on LDG or such Affiliated Company. For purposes of this
Agreement, a "Material Adverse Effect," with respect to any person or entity
(including without limitation LDG and HCCH), means a material adverse effect on
the financial condition, business, properties, assets, liabilities (including
contingent liabilities), or results of operations of such person or entity and
its affiliated companies and subsidiaries and/or parent corporation and/or
corporations under the same stock ownership, taken as a whole; and "Material
Adverse Change" means a change or a development that has a Material Adverse
Effect. LDG has delivered to HCCH true and complete copies of LDG's and each of
the Affiliated Companies' Certificate of Incorporation or Articles of
Organization, as the case may be, and Bylaws as currently in effect.
SECTION 3.2 AUTHORIZATION.
(a) The execution, delivery and performance by LDG and each of the
Affiliated Companies of this Agreement and, in the case of LDG, the Articles of
Merger, and the consummation by LDG and each of the Affiliated Companies of the
transactions contemplated hereby and thereby including the execution of the
Confidentiality Agreement (as hereinafter defined), are within LDG's and each of
the Affiliated Companies' corporate powers and have been duly authorized by all
necessary corporate action, excluding approval by LDG's shareholders in
connection with the consummation of the Merger. This Agreement, the Articles of
Merger, and the Confidentiality Agreement constitute, or upon execution will
constitute, valid and binding agreements of LDG and each of the Affiliated
Companies party thereto, enforceable against such agreeing party in accordance
with their respective terms, except as such enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity.
(b) Each of the LDG Shareholders, severally, represents and warrants
that he has full right, power and authority to enter into this Agreement, the
Affiliates Agreement to be entered into by him, and each other agreement to be
entered into by him in connection with the
6
transactions contemplated hereby and that this Agreement, the Affiliates
Agreement, and such other agreements contemplated hereby constitute, or upon
execution will constitute, valid and binding agreements of such LDG Shareholder,
enforceable against him in accordance with their respective terms, except as
such enforcement may be limited by bankruptcy, insolvency or other similar laws
effecting the enforcement of creditors' rights generally or by general
principles of equity.
SECTION 3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by LDG and each of the Affiliated Companies of this Agreement, the
execution, delivery and performance by LDG of the Articles of Merger and the
Confidentiality Agreement and the consummation of the Merger by LDG require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than:
(a) the filing of Articles of Merger in accordance with
Massachusetts Law;
(b) compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act");
(c) compliance with any applicable requirements of the Securities
Act and the rules and regulations promulgated thereunder;
(d) compliance with any applicable foreign or state securities or
"blue sky" laws;
(e) compliance with any requirements of any Federal, state, foreign or
other insurance or reinsurance or intermediaries or managing general agent laws,
including licensing or other related laws;
(f) compliance with applicable foreign or state qualifying to do
business or registration laws in Georgia, Kansas, Maine, Massachusetts,
Minnesota, New York, Pennsylvania, the United Kingdom, and Colombia, South
America; and
(g) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not reasonably be
expected to have a Material Adverse Effect on LDG, the Affiliated Companies or
the Surviving Corporation, or (ii) would not materially adversely affect the
ability of LDG, each Affiliated Company, HCCH or Merger Sub to consummate the
transactions contemplated hereby and operate their businesses as heretofore
operated.
SECTION 3.4 NON-CONTRAVENTION. The execution, delivery and performance
by LDG and each of the Affiliated Companies of this Agreement, the execution,
delivery and performance by LDG of the Articles of Merger and the consummation
by LDG and each of the Affiliated Companies of the transactions contemplated
hereby and thereby do not and will not:
(a) contravene or conflict with each such company's charter or bylaws;
7
(b) assuming compliance with the matters referred to in Section 3.3 and
assuming the requisite approval of the LDG Shareholders of the Merger,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to LDG or any of the Affiliated Companies;
(c) conflict with or result in a breach or violation of, or constitute
a default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate, any
material agreement, contract or other instrument binding upon LDG or any of the
Affiliated Companies or any material license, franchise, permit or other similar
authorization held by LDG or any of the Affiliated Companies; or
(d) result in the creation or imposition of any Lien (as
hereinafter defined) on any material asset of LDG or any of the Affiliated
Companies,
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on LDG or any of the Affiliated Companies.
For purposes of this Agreement, the term "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
SECTION 3.5 CAPITALIZATION. As of December 31, 1995 (and after giving
effect to a 16-for-1 stock split by LDG in February, 1996), the authorized,
issued and outstanding capital stock of LDG and each Affiliated Company was as
follows:
LDG Management Company Incorporated:
$1.00 par value, 160,000 shares (200,000 as of the date hereof)
Common Stock authorized;
90,000 shares issued and outstanding
and 64,000 shares held in treasury
SRRF Management Incorporated:
$0.01 par value, 200,000 shares Common Stock authorized;
12,500 shares issued and outstanding
Medical Reinsurance Underwriters Incorporated:
$0.01 par value, 200,000 shares Common Stock authorized;
12,500 shares issued and outstanding
LDG Worldwide Limited
No par value, 200,000 shares Common Stock authorized
12,500 shares issued and outstanding
8
LDG Insurance Agency Incorporated
$0.01 par value, 1,000 shares Common Stock authorized
1,000 shares issued and outstanding
All outstanding shares set forth above have been duly authorized and validly
issued and are fully paid and nonassessable and free from any preemptive rights.
Except as set forth in and as otherwise contemplated by this Agreement, for each
of LDG and each Affiliated Company there are outstanding (i) no shares of
capital stock or other voting securities, (ii) no securities of LDG convertible
into or exchangeable for shares of capital stock or voting securities of LDG,
(iii) no options or other rights to acquire from LDG, and no obligation of LDG
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or other voting securities of LDG, (iv) no
obligations to repurchase, redeem or otherwise acquire any outstanding
securities of LDG and (v) no contractual rights of any person or entity to
include any such securities in any registration statement proposed to be filed
by HCCH under the Securities Act.
SECTION 3.6 SUBSIDIARIES AND JOINT VENTURES.
(a) For purposes of this Agreement, (i) "Subsidiary" means, with
respect to any entity, any corporation of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are directly or
indirectly owned by such entity, and (ii) "Joint Venture" means, with respect to
any entity, any corporation or organization (other than such entity and any
Subsidiary thereof) of which such entity or any Subsidiary thereof is, directly
or indirectly, the beneficial owner of 25% or more of any class of equity
securities or equivalent profit participation interest.
(b) As of the date hereof, neither LDG nor any of the Affiliated
Companies has any Subsidiaries or Joint Ventures which are material to the
business of LDG or any of the Affiliated Companies. As of the Closing Date, as
defined herein, the only Subsidiaries of LDG shall be the Affiliated Companies
and their respective jurisdictions of incorporation or organization and LDG's
ownership interest therein are identified in Exhibit 3.6(b). Other than LDG's
investments in its Subsidiaries as of the Effective Time, neither LDG nor any of
the Affiliated Companies own, directly or indirectly, any outstanding capital
stock or equity interest in any corporation, partnership, Joint Venture or other
entity.
(c) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary that is or may be owned by LDG or any Affiliated
Company on the Effective Date, and all of the outstanding stock of LDG and each
of the Affiliated Companies owned by the LDG Shareholders directly or
indirectly, is or will be owned by LDG, or the LDG Shareholders, as the case may
be, directly or indirectly, free and clear of any material Lien and free of any
other material limitation or restriction on its rights as owner thereof
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests), other than those imposed by
applicable law or this Agreement or the LDG Affiliates Agreement
9
(defined below). Each LDG Shareholder represents and warrants only as to his or
her individual ownership of LDG Common Stock for purposes of this Section.
SECTION 3.7 LDG FINANCIAL STATEMENTS. LDG has delivered to HCCH LDG's
unaudited combined balance sheet as of September 30, 1995 (the "Balance Sheet
Date"), LDG's unaudited combined income statements for the nine month period
ended September 30, 1995, LDG's audited combined balance sheet as of December
31, 1994 and 1993, and LDG's audited combined income statement for the fiscal
years ended, December 31, 1994, 1993, and 1992 (collectively, the "LDG Financial
Statements"). The LDG Financial Statements present fairly in all material
respects, substantially in conformity with generally accepted accounting
principles consistently applied (except as indicated in the notes thereto), the
combined financial position of LDG and its combined affiliated companies noted
therein as of the dates thereof and their combined results of operations and
cash flows for the periods therein indicated (subject to normal year-end
adjustments in the case of any interim financial statements and the absence of
certain footnotes in the case of unaudited financial statements). LDG and the
Affiliated Companies taken as a whole have no material debt, liability or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, that is not reflected, reserved against or
disclosed in the LDG Financial Statements, except for (i) those that are not
required to be reported in accordance with the aforesaid accounting principles
or (ii) normal or recurring liabilities incurred since September 30, 1995 in the
ordinary course of business or (iii) as disclosed in the LDG Disclosure
Schedule.
SECTION 3.8 DISCLOSURE DOCUMENTS. None of the written information
supplied or to be supplied by LDG or any Affiliated Company, or the LDG
Shareholders for inclusion in and that is actually included in (i) the
Prospectus/Proxy Statement, and (ii) the Registration Statement, will, in the
case of the Prospectus/Proxy Statement, at the time of mailing of the
Prospectus/Proxy Statement to shareholders of HCCH and at the time of the
meeting of such shareholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omits or will 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 or will, in the case of the Registration Statement, at the time the
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading. No representation or
warranty is made by LDG, any Affiliated Company, or any LDG Shareholder with
respect to information supplied by HCCH or Merger Sub for inclusion therein.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, LDG
and each of the Affiliated Companies have in all material respects conducted
their business in the ordinary course and there has not been:
(a) any Material Adverse Change with respect thereto or any event,
occurrence or development of a state of circumstances or facts known to LDG,
which as of the date hereof
10
could reasonably be expected to have a Material Adverse Effect on LDG or any of
the Affiliated Companies;
(b) any declaration, setting aside or payment or any dividend or other
distribution in respect of any shares of capital stock of LDG or any of the
Affiliated Companies other than the declaration, setting aside or payment of
dividends in accordance with its existing dividend policy or practice, which
policy or practice is not materially inconsistent with LDG's or the Affiliated
Companies' past policy or practice and the declaration, setting aside or payment
of distributions or dividends to "S" Corporation shareholders;
(c) any repurchase, redemption or other acquisition by LDG or any of
the Affiliated Companies of any outstanding shares of capital stock or other
securities of or other ownership interests in, LDG or any of the Affiliated
Companies;
(d) any amendment of any term of any outstanding securities of LDG or
any of the Affiliated Companies;
(e) any damage, destruction or other property or casualty loss (whether
or not covered by insurance) affecting the business, assets, liabilities,
earnings or prospects of LDG or any of the Affiliated Companies which,
individually or in the aggregate, has had, or would reasonably be expected to
have, a Material Adverse Effect on LDG or any of the Affiliated Companies;
(f) any increase in indebtedness for borrowed money or capitalized
lease obligations of LDG or any of the Affiliated Companies, except in the
ordinary course of business;
(g) any sale, assignment, transfer or other disposition of any tangible
or intangible asset material to the business of LDG or any of the Affiliated
Companies, except in the ordinary course of business and for a fair and adequate
consideration;
(h) any amendment, termination or waiver by LDG or any of the
Affiliated Companies of any right of substantial value under any agreement,
contract or other written commitment to which it is a party or by which it is
bound;
(i) any material reduction in the amounts of coverage provided by
existing casualty and liability insurance policies with respect to the business
or properties of LDG or any of the Affiliated Companies;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of LDG or any of the Affiliated Companies, (ii) entering
into of any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of LDG or any of the Affiliated Companies, (iii) any increase in benefits
payable under any existing severance or termination pay policies or employment
agreements, or (iv) any increase in compensation, bonus or other benefits
payable to directors, officers or employees of LDG or any of the Affiliated
Companies, in each case other
11
than in the ordinary course of business consistent with past practice or not
material in amount to LDG and the Affiliated Companies taken as a whole;
(k) any new, or amendment to, or alteration of, any existing bonus,
incentive, compensation, severance, stock option, stock appreciation right,
pension, matching gift, profit-sharing, employee stock ownership, retirement,
pension group insurance, death benefit, or other fringe benefit plan,
arrangement or trust agreement adopted or implemented by LDG or any of the
Affiliated Companies which would result in a material increase in cost;
(l) any capital expenditures, capital additions or capital improvements
incurred or undertaken by LDG or any of the Affiliated Companies, except in the
ordinary course of business; or
(m) the entering into of any agreement by LDG or any of the Affiliated
Companies or any person on behalf of LDG or any of the Affiliated Companies to
take any of the foregoing actions.
SECTION 3.10 NO UNDISCLOSED LIABILITIES. There are no liabilities of
LDG or any of the Affiliated Companies of any kind whatsoever that are,
individually or in the aggregate, material to LDG and the Affiliated Companies,
taken as a whole, other than:
(a) liabilities disclosed or provided for in the LDG audited combined
financial statements as of and for the fiscal year ended December 31, 1995
(including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since December 31, 1995; and
(c) liabilities under this Agreement or indicated in the LDG Disclosure
Schedule.
SECTION 3.11 LITIGATION. Other than actions, suits, proceedings, claims
or investigation occurring in the ordinary course of business involving
respective amounts in controversy of less than $25,000 each, there is no action,
suit, proceeding, claim or investigation pending or, to the knowledge of LDG,
any of the Affiliated Companies, Lockwood or Suydam, overtly threatened, against
LDG or any of the Affiliated Companies or any of their assets or against or
involving any of its officers, directors or employees in connection with the
business or affairs of LDG or any of the Affiliated Companies, including,
without limitation, any such claims for indemnification arising under any
agreement to which LDG or any of the Affiliated Companies is a party, which
could, individually or in the aggregate, have a Material Adverse Effect on LDG
or any of the Affiliated Companies. LDG is not subject, or in default with
respect, to any writ, order, judgment, injunction or decree which could,
individually or in the aggregate, have a Material Adverse Effect on LDG or any
of the Affiliated Companies.
12
SECTION 3.12 TAXES.
(a) LDG (i) has filed when due (taking into account extensions) with
the appropriate Federal, state, local, foreign and other governmental agencies,
all material tax returns, estimates and reports required to be filed by it, (ii)
either paid when due and payable or established adequate reserves or otherwise
accrued on the LDG Financial Statements all material federal, state, local or
foreign taxes, levies, imposts, duties, licenses and registration fees and
charges of any nature whatsoever, and unemployment and social security taxes and
income tax withholding, including interest and penalties thereon ("Taxes") and
there are no tax deficiencies claimed in writing by any Taxing authority and
received by LDG that, in the aggregate, would result in any tax liability in
excess of the amount of the reserves or accruals and (iii) has or will establish
in accordance with its normal accounting practices and procedures accruals and
reserves that, in the aggregate, are adequate for the payment of all Taxes not
yet due and payable and attributable to any period preceding the Effective Time.
The LDG Disclosure Schedule sets forth those tax returns of LDG and each of the
Affiliated Companies (or any predecessor entities) for all periods that
currently are the subject of audit by any federal, state, local or foreign
taxing authority.
(b) There are no material taxes, interest, penalties, assessments or
deficiencies claimed in writing by any Taxing authority and received by LDG or
any of the Affiliated Companies to be due in respect of any tax returns filed by
LDG or any of the Affiliated Companies (or any predecessor corporations).
Neither LDG, nor any of the Affiliated Companies nor any predecessor
corporation, has executed or filed with the IRS or any other Taxing authority
any agreement or other document extending, or having the effect of extending,
the period of assessment or collection of any Taxes.
(c) LDG and each Affiliated Company is not a party to or bound by (or
will prior to the Effective Date become a party to or bound by) any Tax
indemnity, Tax sharing or Tax allocation agreement or other similar arrangement.
Neither LDG nor any of the Affiliated Companies has been a member of an
affiliated group other than one of which LDG was the common parent, or filed or
been included in a combined, consolidated or unitary Tax return other than one
filed by LDG.
(d) Each of LDG and each of the Affiliated Companies has maintained a
valid subchapter S election pursuant to the Code, and there is no corporate
income tax due from LDG or any of the Affiliated Companies.
SECTION 3.13 EMPLOYEE BENEFIT PLANS, ERISA.
(a) To the knowledge of LDG, each Affiliated Company, Lockwood or
Suydam, neither LDG nor any of the Affiliated Companies is a party to any oral
or written (i) employment, severance, collective bargaining or consulting
agreement not terminable on 60 days' or less notice, (ii) agreement with any
executive officer or other key employee of LDG or any of the Affiliated
Companies (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving LDG or any of
the
13
Affiliated Companies of the nature of any of the transactions contemplated by
this Agreement, (B) providing any term of employment or compensation guarantee
extending for a period longer than one year, or (C) providing severance benefits
or other benefits after the termination of employment of such executive officer
or key employee regardless of the reason for such termination of employment, or
(iii) agreement or plan, including, without limitation, any stock option plan,
stock appreciation right plan, restricted stock plan or stock purchase plan, the
benefits of which would be increased, or the vesting of benefits of which will
be accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement.
(b) Neither LDG, any Affiliated Company nor any corporation or other
entity which under Section 4001(b) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), is under common control with LDG or any
Affiliated Company (an "LDG ERISA Affiliate") maintains or within the past five
years has maintained, contributed to, or been obligated to contribute to, any
"Employee Pension Benefit Plan" ("Pension Plan") or any "Employee Welfare
Benefit Plan" ("Welfare Plan") as such terms are defined in Sections 3(2) and
3(1) respectively of ERISA, which is subject to ERISA. Each Pension Plan and
Welfare Plan disclosed in the LDG Disclosure Schedule (which Plans have been
heretofore delivered to HCCH) and maintained by LDG has been maintained in all
material respects in compliance with their terms and all provisions of ERISA and
the Code (including rules and regulations thereunder) applicable thereto.
(c) To the knowledge of LDG, or any Affiliated Company, no Pension Plan
or Welfare Plan is currently subject to an audit or other investigation by the
IRS, the Department of Labor, the Pension Benefit Guaranty Corporation or any
other governmental agency or office nor are any such Plans subject to any
lawsuits or legal proceedings of any kind or to any material pending disputed
claims by employees or beneficiaries covered under any such Plan or by any other
parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to LDG, or any Affiliated
Company, or any LDG ERISA Affiliate has occurred with respect to any Pension
Plan or Welfare Plan. Each of LDG, each Affiliated Company, Lockwood or Suydam
has no knowledge of any breach of fiduciary responsibility under Part 4 of Title
I of ERISA which has resulted in liability of LDG, any Affiliated Company, and
LDG ERISA Affiliate, any trustee, administrator or fiduciary of any Pension Plan
or Welfare Plan.
(e) Neither LDG, any Affiliated Company, nor any LDG ERISA Affiliate,
since January 1, 1986, has maintained or contributed to, or been obligated or
required to contribute to, a "Multiemployer Plan," as such term is defined in
Section 4001(a)(3) of ERISA. Neither LDG, any Affiliated Company, nor any LDG
ERISA Affiliate has either withdrawn, partially or completely, or instituted
steps to withdraw, partially or completely, from any Multiemployer Plan nor has
any event occurred which would enable a Multiemployer Plan to give notice of and
14
demand payment of any withdrawal liability with respect to LDG, any Affiliated
Company, or any LDG ERISA Affiliate.
(f) No representation or warranty is given under Article III as to the
application of Section 4999 of the Code or Sections 162(a)(1) or 280G of the
Code.
(g) With respect to LDG, each Affiliated Company and each LDG ERISA
Affiliate, the LDG Disclosure Schedule correctly identifies each material
agreement, policy, plan or other arrangement, whether written or oral, express
or implied, fixed or contingent, to which LDG is a party or by which LDG or any
property or asset of LDG is bound, which is or relates to a pension, option,
bonus, deferred compensation, retirement, stock purchase, profit-sharing,
severance pay, health, welfare, incentive, vacation, sick leave, medical
disability, hospitalization, life or other insurance or fringe benefit plan,
policy or arrangement.
(h) Neither LDG, any Affiliated Company, nor any LDG ERISA Affiliate
maintains or has maintained or contributed to any Pension Plan that is or was
subject to Section 302 of Title IV of ERISA or Section 412 of the Code. LDG and
each Affiliated Company has made available to HCCH, for each Pension Plan which
is intended to be "qualified" within the meaning of Section 401(a) of the Code,
a copy of the most recent determination letter issued by the IRS to the effect
that each such Plan is so qualified and that each trust created thereunder is
tax exempt under Section 501 of the Code, and LDG and each Affiliated Company is
unaware of any fact or circumstances that would jeopardize the qualified status
of each such Pension Plan or the tax exempt status of each trust created
thereunder.
SECTION 3.14 MATERIAL AGREEMENTS.
(a) The LDG Disclosure Schedule (other than LDG Property Leases, as
hereinafter defined), includes a complete and accurate list of all contracts,
agreements, leases and instruments to which LDG or any of the Affiliated
Companies is a party or by which it or its properties or assets are bound which
individually involve net payments or receipts in excess of $25,000 per annum,
inclusive of contracts entered into with customers and suppliers in the ordinary
course of business, or that pertain to employment or severance benefits for any
officer, director or employee of LDG or any of the Affiliated Companies, whether
written or oral, but exclusive of contracts, agreements, leases and instruments
terminable without penalty upon 60 days' or less prior written notice to the
other party or parties thereto (the "Material LDG Agreements").
(b) Neither LDG nor any Affiliated Company nor, to the knowledge of LDG
nor any Affiliated Company, any other party is in default under any Material LDG
Agreement and no event has occurred which (after notice or lapse of time or
both) would become a breach or default under, or would permit modification,
cancellation, acceleration or termination of any Material LDG Agreement or
result in the creation of any security interest upon, or any person obtaining
any right to acquire, any properties, assets or rights of LDG or any Affiliated
Company, which, in any such case, has had or would reasonably be expected to
have a Material Adverse Effect.
15
(c) To the knowledge of LDG and each Affiliated Company, each such
Material LDG Agreement is in full force and effect and is valid and legally
binding and there are no material unresolved disputes involving or with respect
to any Material LDG Agreement. No party to a Material LDG Agreement has advised
LDG that it intends either to terminate a Material LDG Agreement or to refuse to
renew a Material LDG Agreement upon the expiration of the term thereof.
(d) LDG and each Affiliated Company is not in violation of, or in
default with respect to, any term of its Articles of Organization or Certificate
of Incorporation, as the case may be, or Bylaws.
SECTION 3.15 PROPERTIES. To the knowledge of LDG and each of the
Affiliated Companies, LDG or the Affiliated Company owns no real estate, and all
leases of real property to which LDG or any of the Affiliated Companies is a
party or by which it is bound ("LDG Property Leases") are in full force and
effect. To the knowledge of LDG, there exists no default under such LDG Property
Leases, nor any event which with notice or lapse of time or both would
constitute a default thereunder, which default would have a Material Adverse
Effect on LDG. All of the properties and assets which are owned by LDG and each
of the Affiliated Companies are owned by each of them, respectively, free and
clear of any Lien, except for Liens which do not have a Material Adverse Effect
on LDG. LDG and each of the Affiliated Companies have good and indefeasible
title with respect to such owned properties and assets subject to no Liens,
other than those permitted under this Section 3.15, to all of the properties and
assets necessary for the conduct of their business other than to the extent that
the failure to have such title would not have a Material Adverse Effect.
SECTION 3.16 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all Federal, state,
local and foreign statutes, laws (including case law), regulations,
ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses,
agreements and governmental restrictions relating to human health, the
environment or to emissions, discharges or releases of pollutants,
contaminants, Hazardous Substances, as hereinafter defined, or wastes
into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants, Hazardous Substances or wastes
or the clean-up or other remediation thereof.
"Environmental Liabilities" shall mean all liabilities,
whether vested or unvested, contingent or fixed, actual or potential,
which (i) arise under or relate to Environmental Laws and (ii) relate
to actions occurring or conditions existing on or prior to the
Effective Time.
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"Hazardous Substances" shall mean any toxic, radioactive,
caustic or otherwise hazardous substance, including petroleum, its
derivatives, by-products and other hydrocarbons, or any substance
having any constituent elements displaying any of the foregoing
characteristics.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.
(b) To the knowledge of LDG or any of the Affiliated Companies, no
notice, notification, demand, request for information, citation, summons,
complaint or order has been received, no complaint has been filed, no penalty
has been assessed and no investigation or review is pending, or to any such
party's knowledge, has been threatened by any governmental entity or other party
with respect to any (i) alleged violation of any Environmental Law, (ii) alleged
failure to have any environmental permit, certificate, license, approval,
registration or authorization required in connection with the conduct of its
business or (iii) Regulated Activity.
(c) To their knowledge, neither LDG nor any of the Affiliated Companies
has any material Environmental Liabilities and there has been no release of
Hazardous Substances into the environment by LDG or any of the Affiliated
Companies or with respect to any of their respective properties which has had,
or would reasonably be expected to have, a Material Adverse Effect.
SECTION 3.17 LABOR MATTERS. Neither LDG nor any of the Affiliated
Companies is a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by LDG or any such Affiliated Companies,
nor do they know of any activities or proceedings of any labor union to organize
any such employees.
SECTION 3.18 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, neither LDG nor any of the Affiliated
Companies is in violation of, or has violated, any applicable provisions of any
laws, statutes, ordinances or regulations or any term of any judgment, decree,
injunction or order binding against it.
SECTION 3.19 TRADEMARKS, TRADENAMES, ETC. LDG and the Affiliated
Companies own or possess, or possesses a valid right or license to use, all
intellectual property, patents, trademarks, tradenames, servicemarks, copyrights
and licenses, and all rights with respect to the foregoing, necessary for the
conduct of their business as now conducted, without any known conflict with the
rights of others.
SECTION 3.20 SALE OF LDG. Except as contemplated by this Agreement,
there are currently no discussions to which LDG or any of the Affiliated
Companies is a party relating to (a) the sale of any material portion of their
assets or (b) any merger, consolidation, liquidation, dissolution or similar
transaction involving LDG or any of the Affiliated Companies whereby
17
LDG or any of the Affiliated Companies will issue any securities, or for which
LDG or any of the Affiliated Companies is required to obtain the approval of its
shareholders.
SECTION 3.21 BROKER'S FEES. Neither LDG nor any Affiliated Company,
Lockwood or Suydam nor anyone acting on any of their behalves have any liability
to any broker, finder, investment banker or agent, or has agreed to pay any
brokerage fees, finder's fees or commissions, or to reimburse any expenses of
any broker, finder, investment banker or agent in connection with the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HCCH
Except as disclosed in a document referring specifically to this
Agreement (the "HCCH Disclosure Schedule") which has been delivered to LDG prior
to the date hereof and except as otherwise provided in the Registration
Statement, each of HCCH and Merger Sub represents and warrants to LDG, the
Affiliated Companies and each of the LDG Shareholders as set forth below (it
being agreed that the disclosure on the HCCH Disclosure Schedule of the
existence of any document or fact or circumstance or situation relating to any
representations, warranties, covenants or agreements in any section of this
Agreement shall be automatically deemed to be disclosure of such document or
fact or circumstance or situation for purposes of all other representations,
warranties, covenants and agreements in this Agreement):
SECTION 4.1 CORPORATE EXISTENCE AND POWER. HCCH and each of its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation. Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts. Each of HCCH and each of its
Subsidiaries has all corporate powers and all material Governmental
Authorizations required to carry on its business as now conducted, except such
Governmental Authorizations the failure of which to have obtained would not have
a Material Adverse Effect on HCCH. HCCH and each of its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not have a Material Adverse Effect on HCCH.
HCCH has delivered to LDG true and complete copies of HCCH's Certificate of
Incorporation and Bylaws and Merger Sub's Articles of Organization and Bylaws,
each as currently in effect.
SECTION 4.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by HCCH and Merger Sub of this Agreement, the Articles of Merger and
the Confidentiality Agreement and the consummation by HCCH and Merger Sub of the
transactions contemplated hereby and thereby are within the corporate powers of
HCCH and Merger Sub and have been duly authorized by all necessary corporate
action, except for the approval by HCCH's shareholders in connection with the
issuance of shares of HCCH Common Stock in the Merger.
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This Agreement, the Articles of Merger and the Confidentiality Agreement
constitute, or upon execution will constitute, valid and binding agreements of
HCCH and Merger Sub, respectively, enforceable in each case against each in
accordance with their respective terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
SECTION 4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by HCCH and Merger Sub of this Agreement, the Articles of Merger and
the Confidentiality Agreement and the consummation of the Merger by HCCH and
Merger Sub, require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than:
(a) the filing of the Articles of Merger in accordance with
Massachusetts Law after approval by the HCCH shareholders of the transaction
contemplated herein;
(b) compliance with any applicable requirements of the HSR Act;
(c) compliance with any applicable requirements of the Exchange Act and
the rules and regulations promulgated thereunder;
(d) the filing of a Registration Statement on Form S-4 as contemplated
in Section 1.4 and related compliance with any applicable requirements of the
Securities Act and the rules and regulations promulgated thereunder;
(e) compliance with any applicable foreign or state securities or "blue
sky" laws and the rules and regulations of the NYSE;
(f) compliance with any applicable requirements of the Texas, Oklahoma
or other insurance regulatory agency having authority over HCCH; and
(g) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not reasonably be
expected to have a Material Adverse Effect on HCCH or (ii) would not materially
adversely affect the ability of LDG, any Affiliated Company, HCCH or Merger Sub
to consummate the transactions contemplated hereby and operate their businesses
as heretofore operated.
SECTION 4.4 NON-CONTRAVENTION. The execution, delivery and performance
by HCCH and Merger Sub of this Agreement and the Articles of Merger and the
consummation by HCCH and Merger Sub of the transactions contemplated hereby and
thereby do not and will not:
(a) contravene or conflict with the Articles of Organization or
Certificate of Incorporation, as the case may be, or Bylaws of HCCH or Merger
Sub;
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(b) assuming compliance with the matters referred to in Section 4.3,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to HCCH or Merger Sub or any Subsidiary of HCCH;
(c) conflict with or result in a breach or violation of, or constitute
a default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate, any
material agreement, contract or other instrument binding upon HCCH or Merger Sub
or any other Subsidiary of HCCH or any material license, franchise, permit or
other similar authorization held by HCCH or Merger Sub or any other Subsidiary
of HCCH; or
(d) result in the creation or imposition of any Lien on any material
asset of HCCH or Merger Sub or any other Subsidiary of HCCH,
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on HCCH.
SECTION 4.5 CAPITALIZATION OF HCCH.
(a) The authorized capital stock of HCCH consists of 50,000,000 shares
of HCCH Common Stock. As of December 31, 1995, there were issued and
outstanding:
(i) 11,343,990 shares of HCCH Common Stock; and
(ii) employee and director stock options and other equity
rights to purchase an aggregate of 805,725 shares of HCCH Common Stock.
All outstanding shares of HCCH Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and free from any preemptive
rights. Except as set forth in this Section and as otherwise contemplated by
this Agreement and except as disclosed in public filings made by HCCH with the
SEC prior to the Closing Date, and except for changes since December 31, 1995
resulting from the exercise of employee and director stock options, there are
outstanding (i) no shares of capital stock or other voting securities of HCCH,
(ii) no securities of HCCH convertible into or exchangeable for shares of
capital stock or voting securities of HCCH and (iii) no options or other rights
to acquire from HCCH, and no obligation of HCCH to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or other voting securities of HCCH (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "HCCH Securities"). There are no
outstanding obligations of HCCH or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any HCCH Securities.
20
(b) All shares of HCCH Common Stock issued in the Merger shall, upon
issuance, be fully paid, validly issued and nonassessable. HCCH has reserved
sufficient shares of HCCH Common Stock for issuance pursuant to the Merger.
SECTION 4.6 ORGANIZATION OF MERGER SUB. The authorized capital stock of
Merger Sub consists of 3,000 shares of common stock, par value $1.00 per share,
all of which are issued and outstanding. All the issued and outstanding capital
stock of Merger Sub is owned by HCCH. Merger Sub has not conducted any business
prior to the date hereof and has no assets, liabilities or obligations of any
nature other than those incident to its formation and pursuant to this
Agreement.
SECTION 4.7 SUBSIDIARIES.
(a) Each Subsidiary of HCCH is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all material Governmental
Authorizations required to carry on its business as now conducted, except such
Governmental Authorizations the failure to have obtained would not have a
Material Adverse Effect on HCCH, and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by, or the nature of its activities,
make such qualification necessary, except for those jurisdictions where failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on HCCH. All Subsidiaries and Joint Ventures material to the
business of HCCH ("Material HCCH Subsidiaries") and their respective
jurisdictions of incorporation or organization and HCCH's ownership interest
therein are identified in the HCCH Disclosure Schedule. Other than its
investments in its Subsidiaries and Joint Ventures, and shares of stock in
publicly held companies aggregating less than 10% of such public company's
outstanding stock, HCCH does not own, directly or indirectly, any outstanding
capital stock or equity interest in any corporation, partnership, Joint Venture
or other entity.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Material HCCH Subsidiary that is owned by HCCH, is owned by
HCCH, directly or indirectly, free and clear of any material Lien and free of
any other material limitation or restriction on its rights as owner thereof
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests), other than those imposed by
applicable law. There are no existing options, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
or equity interests (collectively, "HCCH Subsidiary Securities") of any HCCH
Subsidiary.
SECTION 4.8 SEC FILINGS.
(a) HCCH has since October 28, 1992 filed all forms, proxy statements,
schedules, reports and other documents required to be filed by it with the SEC
pursuant to the Exchange Act.
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(b) HCCH has delivered, and will promptly deliver in the case of any of
the following filed with the SEC on or after the date hereof and prior to the
Effective Date, to LDG:
(i) its annual reports on Form 10-K for its fiscal years ended
December 31, 1994 and 1993;
(ii) its quarterly report on Form 10-Q for its fiscal quarters
ending March 31, June 30 and September 30, 1995;
(iii) any current reports on Form 8-K since January 1, 1994
and its proxy or information statements relating to meetings of, or
actions taken without a meeting by, the shareholders of HCCH held since
October 28, 1992; and
(iv) all of its other reports, statements, schedules and
registration statements filed with the SEC since December 31, 1994.
None of HCCH's Subsidiaries is required to file any forms, reports or
other documents with the SEC.
(c) As of its filing date, no such report or statement filed pursuant
to the Exchange Act contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) No registration statement referred to in this Section 4.8 as
amended or supplemented, if applicable, filed pursuant to the Securities Act, as
of the date such statement or amendment became effective, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.9 FINANCIAL STATEMENTS. The audited consolidated financial
statements of HCCH included in its annual reports on Form 10-K and the unaudited
financial statements of HCCH included in its quarterly reports on Form 10-Q
referred to in Section 4.8 present fairly, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of HCCH and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any interim financial statements). For
purposes of this Agreement, "HCCH Balance Sheet" means the consolidated balance
sheet of HCCH as of September 30, 1995, and the notes thereto, contained in
HCCH's quarterly report on Form 10-Q filed for its fiscal quarter then ended,
and "HCCH Balance Sheet Date" means September 30, 1995.
SECTION 4.10 DISCLOSURE DOCUMENTS. None of the written information
supplied or to be supplied by HCCH or Merger Sub for inclusion in and that is
actually included in the Prospectus/Proxy Statement and the Registration
Statement, will, in the case of the Prospectus/Proxy Statement, at the time of
mailing of the Prospectus/Proxy Statement to shareholders
22
of HCCH and at the time of the meeting of such shareholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omits or will 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 or will, in the case of the
Registration Statement, at the time the Registration Statement becomes effective
under the Securities Act and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The Registration
Statement and Prospectus/Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Act and Exchange Act,
respectively, and the rules and regulations thereunder, except that no
representation or warranty is made by HCCH with respect to information supplied
by LDG, any of the Affiliated Companies, or the LDG Shareholders for inclusion
therein.
SECTION 4.11 ABSENCE OF CERTAIN CHANGES. Since the HCCH Balance Sheet
Date, HCCH and each of its Subsidiaries have in all material respects conducted
their business in the ordinary course and there has not been:
(a) any Material Adverse Change with respect to HCCH or any event,
occurrence or development of a state of circumstances or facts known to HCCH,
which as of the date hereof could reasonably be expected to have a Material
Adverse Effect on HCCH;
(b) any amendment of any material term of any outstanding HCCH
Securities; or
(c) the entering into of any agreement by HCCH or any person on behalf
of HCCH to take any of the foregoing actions.
SECTION 4.12 NO UNDISCLOSED LIABILITIES. There are no liabilities of
HCCH or any of its Subsidiaries of any kind whatsoever that are, individually or
in the aggregate, material to HCCH and its Subsidiaries, taken as a whole, other
than:
(a) liabilities disclosed or provided for in the HCCH Balance Sheet
(including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the HCCH Balance Sheet Date; and
(c) liabilities under this Agreement or as indicated in the HCCH
Disclosure Schedule.
SECTION 4.13 LITIGATION. Other than actions, suits, proceedings, claims
or investigations occurring in the ordinary course of business involving
respective amounts in controversy of less than $100,000 each, there is no
action, suit, proceeding, claim or investigation pending or, to the knowledge of
HCCH, overtly threatened, against HCCH or any of its Subsidiaries or any of
their assets or against or involving any of its officers, directors or employees
in connection with the
23
business or affairs of HCCH, including, without limitation, any such claims for
indemnification arising under any agreement to which HCCH or any of its
Subsidiaries is a party, which could, individually or in the aggregate, have a
Material Adverse Effect on HCCH. HCCH is not subject to or in default with
respect to any writ, order, judgment, injunction or decree which could,
individually or in the aggregate, have a Material Adverse Effect on HCCH.
SECTION 4.14 TAXES.
(a) HCCH and each of its Subsidiaries (i) has filed when due (taking
into account extensions) with the appropriate Federal, state, local, foreign and
other governmental agencies, all material tax returns, estimates and reports
required to be filed by it, (ii) either paid when due and payable or established
adequate reserves or otherwise accrued on the HCCH Balance Sheet all material
Taxes, and there are no tax deficiencies claimed in writing by any Taxing
authority and received by HCCH or any of the Material HCCH Subsidiaries that, in
the aggregate, would result in any tax liability in excess of the amount of the
reserves or accruals, and (iii) has or will establish in accordance with its
normal accounting practices and procedures accruals and reserves that, in the
aggregate, are adequate for the payment of all Taxes not yet due and payable and
attributable to any period preceding the Effective Time. The HCCH Disclosure
Schedule sets forth those tax returns of HCCH (or any predecessor entities) for
all periods that currently are the subject of audit by any federal, state, local
or foreign taxing authority.
(b) There are no material taxes, interest, penalties, assessments or
deficiencies claimed in writing by any taxing authority and received by HCCH or
any of its Subsidiaries to be due in respect of any tax returns filed by HCCH
(or any predecessor corporations) or any of its Subsidiaries. Neither HCCH nor
any predecessor corporation, nor any of their respective Subsidiaries, has
executed or filed with the IRS or any other Taxing authority any agreement or
other document extending, or having the effect of extending, the period of
assessment or collection of any Taxes.
(c) Neither HCCH nor any Subsidiary of HCCH is a party to or bound by
(or will prior to the Effective Date become a party to or bound by) any Tax
indemnity, Tax sharing or Tax allocation agreement or other similar arrangement
which includes a party other than HCCH and its Subsidiaries. Neither HCCH nor
any of its Subsidiaries has been a member of an affiliated group other than one
of which HCCH was the common parent, or filed or been included in a combined,
consolidated or unitary Tax return other than one filed by HCCH (or a return for
a group consisting solely of its Subsidiaries and predecessors).
SECTION 4.15 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Neither HCCH nor any corporation or other entity which under
Section 4001(b) of ERISA is under common control with HCCH (a "HCCH ERISA
Affiliate") maintains or within the past five years has maintained, contributed
to, or been obligated to contribute to, any Pension Plan or any Welfare Plan
which is subject to ERISA. Each Pension Plan and Welfare Plan disclosed in the
HCCH Disclosure Schedule (which Plans have been heretofore delivered to
24
HCCH) and maintained by HCCH has been maintained in all material respects in
compliance with their terms and all provisions of ERISA and the Code (including
rules and regulations thereunder) applicable thereto.
(b) Neither HCCH nor any HCCH ERISA Affiliate maintains or has
maintained or contributed to any Pension Plan that is or was subject to Section
302 or Title IV of ERISA or Section 412 of the Code. HCCH has made available to
LDG, for each Pension Plan which is intended to be "qualified" within the
meaning of Section 401(a) of the Code, a copy of the most recent determination
letter issued by the IRS to the effect that each such Plan is so qualified and
that each trust created thereunder is tax exempt under Section 501 of the Code,
and HCCH is unaware of any fact or circumstances that would jeopardize the
qualified status of each such Pension Plan or the tax exempt status of each
trust created thereunder.
(c) To the knowledge of HCCH, no Pension Plan or Welfare Plan is
currently subject to an audit or other investigation by the IRS, the Department
of Labor, the Pension Benefit Guaranty Corporation or any other governmental
agency or office nor are any such Plans subject to any lawsuits or legal
proceedings of any kind or to any material pending disputed claims by employees
or beneficiaries covered under any such Plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to HCCH or any HCCH ERISA
Affiliate has occurred with respect to any Pension Plan or Welfare Plan. HCCH
has no knowledge of any breach of fiduciary responsibility under Part 4 of Title
I of ERISA which has resulted in liability of HCCH, any HCCH ERISA Affiliate,
any trustee, administrator or fiduciary of any Pension Plan or Welfare Plan.
(e) Neither HCCH nor any HCCH ERISA Affiliate, since January 1, 1986,
has maintained or contributed to, or been obligated or required to contribute
to, a "Multiemployer Plan," as such term is defined in Section 4001(a)(3) of
ERISA. Neither HCCH nor any HCCH ERISA Affiliate has either withdrawn, partially
or completely, or instituted steps to withdraw, partially or completely, from
any Multiemployer Plan nor has any event occurred which would enable a
Multiemployer Plan to give notice of and demand payment of any withdrawal
liability with respect to HCCH or any HCCH ERISA Affiliate.
(f) With respect to HCCH and each HCCH ERISA Affiliate, the HCCH
Disclosure Schedule correctly identifies each material agreement, policy, plan
or other arrangement, whether written or oral, express or implied, fixed or
contingent, to which HCCH is a party or by which HCCH or any property or asset
of HCCH is bound, which is or relates to a pension, option, bonus, deferred
compensation, retirement, stock purchase, profit-sharing, severance pay, health,
welfare, incentive, vacation, sick leave, medical disability, hospitalization,
life or other insurance or fringe benefit plan, policy or arrangement.
25
SECTION 4.16 MATERIAL AGREEMENTS.
(a) The HCCH Disclosure Schedule, together with the public filings made
by HCCH with the SEC (other than HCCH Property Leases, as hereinafter defined),
includes a complete and accurate list of all contracts, agreements, leases and
instruments to which HCCH or any of its Subsidiaries is a party or by which it
or its properties or assets are bound which individually involve net payments or
receipts in excess of $1,000,000 per annum, inclusive of contracts entered into
with customers and suppliers in the ordinary course of business, or that pertain
to employment or severance benefits for any officer, director or employee of
HCCH, whether written or oral, but exclusive of contracts, agreements, leases
and instruments terminable without penalty by HCCH upon 60 days' or less prior
written notice to the other party or parties thereto (the "Material HCCH
Agreements").
(b) Neither HCCH nor any Subsidiary of HCCH, nor, to the knowledge of
HCCH, any other party is in default under any Material HCCH Agreement and no
event has occurred which (after notice or lapse of time or both) would become a
breach or default under, or would permit modification, cancellation,
acceleration or termination of any Material HCCH Agreement or result in the
creation of any security interest upon, or any person obtaining any right to
acquire, any properties, assets or rights of HCCH which, in any such case, has
had or would reasonably be expected to have a Material Adverse Effect on HCCH.
(c) To the knowledge of HCCH, each such Material HCCH Agreement is in
full force and effect and is valid and legally binding and there are no material
unresolved disputes involving or with respect to any Material HCCH Agreement. No
party to a Material HCCH Agreement has advised HCCH or any of its Subsidiaries
that it intends either to terminate a Material HCCH Agreement or to refuse to
renew a Material HCCH Agreement upon the expiration of the term thereof.
(d) Each of HCCH, Merger Sub, and each Material HCCH Subsidiary is not
in violation of, or in default with respect to, any term of its Certificate of
Incorporation or Bylaws.
SECTION 4.17 PROPERTIES. To the knowledge of HCCH, all leases of real
property to which HCCH or any of its Subsidiaries is a party or by which it is
bound ("HCCH Property Leases") which are material to the business of HCCH and
its Subsidiaries taken as a whole are in full force and effect. To the knowledge
of HCCH, there exists no default under such HCCH Property Leases, nor any event
which with notice or lapse of time or both would constitute a default thereunder
by HCCH or any of its Subsidiaries, which default would have a Material Adverse
Effect on HCCH. All of the properties and assets which are owned by HCCH and
each of its Subsidiaries are owned by each of them, respectively, free and clear
of any Lien, except for Liens which do not have a Material Adverse Effect on
HCCH. HCCH and its Subsidiaries have good and indefeasible title with respect to
such owned properties and assets subject to no Liens, other than those permitted
under this Section 4.17, to all of the properties and assets necessary for the
conduct of their business other than to the extent that the failure to have such
title would not have a Material Adverse Effect on HCCH.
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SECTION 4.18 ENVIRONMENTAL MATTERS.
(a) To the knowledge of HCCH, no notice, notification, demand, request
for information, citation, summons, complaint or order has been received, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending, or to HCCH's knowledge, has been threatened by any
governmental entity or other party with respect to any (i) alleged violation by
HCCH or any of its Subsidiaries of any Environmental Law, (ii) alleged failure
by HCCH or any such Subsidiary to have any environmental permit, certificate,
license, approval, registration or authorization required in connection with the
conduct of its business or (iii) Regulated Activity.
(b) To the knowledge of HCCH, neither HCCH nor any of its Subsidiaries
has any material Environmental Liabilities and there has been no release of
Hazardous Substances into the environment by HCCH or any such Subsidiary or with
respect to any of their respective properties which has had, or would be
reasonably expected to have, a Material Adverse Effect on HCCH.
SECTION 4.19 LABOR MATTERS. Neither HCCH nor any of its Subsidiaries is
a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by HCCH or any such Subsidiary, nor do the
executive officers of HCCH know of any activities or proceedings of any labor
union to organize any such employees.
SECTION 4.20 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on HCCH, neither HCCH nor any of its
Subsidiaries is in violation of, or has violated, any applicable provisions of
any laws, statutes, ordinances or regulations or any term of any judgment,
decree, injunction or order binding against it.
SECTION 4.21 TRADEMARKS, TRADENAMES, ETC. HCCH owns or possesses, or
possesses a valid right or license to use, all intellectual property, patents,
trademarks, tradenames, servicemarks, copyrights and licenses, and all rights
with respect to the foregoing, necessary for the conduct of its business as now
conducted, without any known conflict with the rights of others.
SECTION 4.22 OPINION OF FINANCIAL ADVISOR. HCCH will retain at its sole
expense William Blair & Company, L.L.C. to provide an opinion as to whether, as
of the date the Prospectus/Proxy Statement is mailed and as of the Effective
Date, the Exchange Ratio is fair, from a financial point of view, to the
shareholders of HCCH.
SECTION 4.23 BROKER'S FEES. Except as set forth in Section 4.22,
neither HCCH nor Merger Sub, nor anyone acting on any of their behalves have any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Merger.
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ARTICLE V
COVENANTS OF LDG, ETC.
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Sections
1.2(b), 9.1 or 12.12 hereof, LDG and each of its Affiliated Companies agrees
that, except as otherwise permitted with the consent of HCCH, which consent
shall not be unreasonably withheld:
SECTION 5.1 CONDUCT OF LDG. LDG and each of the Affiliated Companies
shall in all material respects conduct their business in the ordinary course.
Without limiting the generality of the foregoing, from the date hereof until the
Effective Time, except as contemplated by this Agreement or previously disclosed
to HCCH in writing:
(a) Except for the possible merger of the Affiliated Companies and LDG,
LDG and each of the Affiliated Companies will not adopt or propose any change in
its Articles of Organization or Certificate of Incorporation or Bylaws;
(b) LDG and each of the Affiliated Companies will not enter into or
amend any employment agreements (oral or written) or increase the compensation
payable or to become payable by it to any of its officers, directors, or
consultants over the amount payable as of December 31, 1995, or increase the
compensation payable to any other employees (other than (i) increases in the
ordinary course of business which are not in the aggregate material to LDG, or
(ii) pursuant to plans disclosed in LDG Disclosure Schedule), or adopt or amend
any employee benefit plan or arrangement (oral or written); or
(c) LDG and each of the Affiliated Companies will not issue any
Securities;
(d) LDG and each of the Affiliated Companies will keep in full force
and effect any existing directors' and officers' liability insurance and will
not modify or reduce the coverage thereunder;
(e) Other than the payment of dividends in accordance with its existing
dividend policy or practice, which policy or practice is consistent with past
policy or practice and the declaration, setting aside, or payment of "S"
Corporation dividends or distributions to shareholders, LDG and each of the
Affiliated Companies will not pay any dividend or make any other distribution to
holders of its capital stock nor redeem or otherwise acquire any Securities;
(f) LDG and each of the Affiliated Companies will not, directly or
indirectly, dispose of or acquire any material properties or assets except in
the ordinary course of business;
28
(g) LDG and each of the Affiliated Companies will not incur any
additional indebtedness for borrowed money except pursuant to existing
arrangements which have been disclosed to HCCH prior to the date hereof;
(h) LDG and each of the Affiliated Companies will not amend or change
the period of exercisability or accelerate the exercisability of any outstanding
options or warrants to acquire shares of capital stock, or accelerate, amend or
change the vesting period of any outstanding restricted stock;
(i) Except as may be permitted by this Agreement, including without
limitation, Section 9.1, LDG and each of the Affiliated Companies will not
knowingly enter into any transaction that they know would require the
Prospectus/Proxy Statement to be delayed or recirculated under circumstances
which would be known to them to reasonably be expected to delay the occurrence
of the Effective Date beyond the date specified in Section 9.1(b);
(j) LDG and each of the Affiliated Companies will not, agree or commit
to do any of the foregoing; and
(k) LDG will not (i) change accounting methods except as necessitated
by changes which LDG is required in order to prepare its federal, state and
local tax returns; (ii) amend or terminate any contract, agreement or license to
which it is a party (except pursuant to arrangements previously disclosed in
writing to HCCH or disclosed in the LDG Disclosure Schedule) except those
amended or terminated in the ordinary course of business, consistent with past
practices, or involving changes which are not materially adverse in amount or
effect to LDG and the Affiliated Companies taken as a whole; (iii) lend any
amount to any person or entity, other than advances for travel and expenses
which are incurred in the ordinary course of business consistent with past
practices, and which are not material in amount to LDG and the Affiliated
Companies, taken as a whole, which travel and expenses shall be documented by
receipts for the claimed amounts; (iv) enter into any guarantee or suretyship
for any obligation except for the endorsements of checks and other negotiable
instruments in ordinary course of business, consistent with past practice; (v)
waive or release any material right or claim except in the ordinary course of
business, consistent with past practice; (vi) issue or sell any shares of its
capital stock of any class or any other of its securities, or issue or create
any warrants, obligations, subscriptions, options, convertible securities, stock
appreciation rights or other commitments to issue shares of capital stock, or
take any action other than this transaction to accelerate the vesting of any
outstanding option or other security (except pursuant to existing arrangements
disclosed in writing to HCCH before the date of this agreement); (vii) except
for the Merger and the possible merger of the Affiliated Companies with LDG,
merge, consolidate or reorganize with or acquire any entity; (viii) agree to any
audit assessment by any tax authority or file any federal or state income or
franchise tax return unless copies of such returns have been delivered to HCCH
for its review prior to such agreement or filing; and (ix) terminate the
employment of any key executive employee.
29
SECTION 5.2 SHAREHOLDER APPROVAL. At the earliest practicable date, LDG
and each Affiliated Company will duly call and hold a special shareholder
meeting, or duly take action by the written consent of its shareholders, whereby
this Agreement, the Merger and related matters will be submitted for the
consideration and approval of its shareholders (the "LDG Shareholder Vote")
which approval will be recommended by LDG's board of directors subject to
Section 5.4. The LDG Shareholder Vote will be effectuated in compliance with
applicable law.
SECTION 5.3 ACCESS TO FINANCIAL AND OPERATION INFORMATION. LDG and each
Affiliated Company will give HCCH, its counsel, financial advisors, auditors and
other authorized representatives reasonable access during normal business hours
to their offices, properties, books and records, will furnish to HCCH, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data as such persons may reasonably request and will
instruct its employees, counsel and financial advisors to cooperate with HCCH in
its investigation of the business of LDG and each Affiliated Company and in the
planning for the combination of the businesses of LDG and each Affiliated
Company and HCCH following the consummation of the Merger; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given hereunder; however, HCCH will promptly notify LDG in writing of
any breaches by LDG, the Affiliated Companies, and the LDG Shareholders of the
representations and warranties in Article III that HCCH learns of. In addition,
following public announcement of this Agreement or the transactions contemplated
hereby, LDG will cooperate in arranging joint meetings among representatives of
LDG and each Affiliated Company and HCCH and persons with whom they maintain
business relationships. All requests for information made pursuant to this
Section shall be directed to Lockwood or such person as may be designated by him
in writing. All information obtained pursuant to this Section 5.3 shall be
governed by the Confidentiality Agreement dated as of January 8, 1996 among
HCCH, LDG and the Affiliated Companies (the "Confidentiality Agreement").
SECTION 5.4 OTHER OFFERS.
(a) LDG and each of the Affiliated Companies, Lockwood and Suydam will
not, and will use their best efforts to cause their respective officers,
directors, employees or other agents not to, directly or indirectly, (i) take
any action to solicit, initiate or discuss any Acquisition Proposal (as
hereinafter defined), or (ii) subject to the fiduciary duties of the Board of
Directors under applicable law as advised by counsel to engage in negotiations
with, or disclose any nonpublic information relating to LDG or any of the
Affiliated Companies or afford access to the properties, books or records of LDG
or any of the Affiliated Companies to, any person or entity that may be
considering making, or has made, an Acquisition Proposal. To the extent that LDG
or the Affiliated Companies or any of their respective officers, directors,
employees or other agents, or Lockwood or Suydam are currently involved in any
discussions with respect to any Acquisition Proposal or contemplated or proposed
Acquisition Proposal, LDG and the Affiliated Companies shall terminate, and
shall use their best efforts to cause their respective officers, directors,
employees or other agents to terminate, such discussions immediately. The term
"Acquisition Proposal" as used herein means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving LDG
or the Affiliated Companies
30
or the acquisition of any equity interest in, or a substantial portion of the
assets of, LDG or any of the Affiliated Companies other than the transactions
contemplated by this Agreement.
(b) Subject to their fiduciary duties, the Boards of Directors of LDG
and each of the Affiliated Companies shall not (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to HCCH, the approval or
recommendation by such Board of Directors of this Agreement, the Merger, the LDG
Ancillary Documents or the other transactions contemplated hereby, (ii) approve
or recommend, or propose to approve or recommend, any Acquisition Proposal
(other than an Acquisition Proposal made by HCCH or an affiliate of HCCH) or
(iii) approve or authorize the entering into any agreement with respect to any
Acquisition Proposal.
SECTION 5.5 MAINTENANCE OF BUSINESS. LDG and each of the Affiliated
Companies will use its reasonable best efforts to carry on its business, keep
available the services of its officers and employees and preserve its
relationships with those of its customers, agents, suppliers, licensors and
others having business relationships with it that are material to its business
in substantially the same manner as it has prior to the date hereof. If LDG or
any Affiliated Company becomes aware of a material deterioration or facts which
are likely to result in a material deterioration in the relationship with any
material customers, supplier, licensor or others having business relationships
with it, it will promptly bring such information to the attention of the HCCH in
writing.
SECTION 5.6 COMPLIANCE WITH OBLIGATIONS. LDG and each of the Affiliated
Companies shall each use its reasonable best efforts to comply in all material
respects with (i) all applicable federal, state, local and foreign laws, rules
and regulations, (ii) all material agreements and obligations, including its
respective charter and bylaws, by which it, its properties or its assets may be
bound, and (iii) all decrees, orders, writs, injunctions, judgments, statutes,
rules and regulations applicable to LDG and each of the Affiliated Companies and
their respective properties or assets; except to the extent that the failure to
comply with the matters in clauses (i), (ii) and (iii) would not have a Material
Adverse Effect on LDG.
SECTION 5.7 NOTICES OF CERTAIN EVENTS. LDG and each of the Affiliated
Companies shall, upon obtaining knowledge of any of the following, promptly
notify HCCH of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger,
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger, and
(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against LDG or any of its Affiliated
Companies which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant hereto or which relate to the
consummation of the Merger.
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SECTION 5.8 LDG AFFILIATES AGREEMENT. To facilitate the treatment of
the Merger for accounting purposes as a "pooling of interests," LDG, each
Affiliated Company, Lockwood and Suydam shall use its best efforts to deliver to
HCCH simultaneously with the execution of this Agreement, a written agreement
from each of its "affiliates" (as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act) (the "LDG Affiliates Agreement") in form and
substance reasonably satisfactory to HCCH and LDG. As a condition to any
transfer of any LDG Common Stock to any other LDG Shareholder, Lockwood and
Suydam shall each use his best efforts to cause any such transferees to agree in
writing that such transferee will make no disposition (a) of LDG Common Stock or
of HCCH Common Stock in the thirty-day period prior to the Effective Time or (b)
of HCCH Common Stock after the Effective Time until HCCH shall have publicly
released its first report of quarterly financial statements that include the
combined financial statements of HCCH and LDG for a period of at least 30 days
of combined operation.
SECTION 5.9 NECESSARY CONSENTS. LDG and each of the Affiliated
Companies, shall use reasonable best efforts to obtain such written consent and
take such other actions as may be necessary or appropriate for LDG and each of
the Affiliated Companies, to facilitate and allow the consummation of the
transactions provided for herein and to facilitate and allow HCCH to carry on
acquired business after the Closing Date (as defined in Section 10.1 hereof).
SECTION 5.10 REGULATORY APPROVAL. LDG and each of the Affiliated
Companies, and, where required pursuant to the HSR Act or the rules or
regulations of any regulatory agency, Lockwood and Suydam, will execute and
file, or join in the execution and filing, with any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign which may be
reasonably required, or which HCCH may reasonably request, in connection with
the consummation of the transaction provided for in this Agreement. LDG, each of
the Affiliated Companies, Lockwood and Suydam, will use reasonable best efforts
to obtain or assist HCCH in obtaining all such authorizations, approvals and
consents.
SECTION 5.11 SATISFACTION OF CONDITIONS PRECEDENT. LDG and each
Affiliated Company shall use all reasonable efforts and LDG will use all
reasonable efforts to cause the transactions provided for in this Agreement to
be consummated, and, without limiting the generality of the foregoing to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its parts in order to effect the transactions provided for herein.
SECTION 5.12 BLUE SKY LAWS. LDG and each Affiliated Company shall use
all reasonable efforts to assist HCCH to the extent necessary to comply with the
securities and blue sky laws of all jurisdictions applicable in connection with
the Merger.
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ARTICLE VI
COVENANTS OF HCCH AND MERGER SUB
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) the termination of this Agreement pursuant to Sections
1.2(b), 9.1 or 12.12 hereof, HCCH and Merger Sub agree that, except as otherwise
permitted with the consent of LDG, which consent shall not be unreasonably
withheld:
SECTION 6.1 CONDUCT OF HCCH. HCCH and its Subsidiaries shall in all
material respects conduct their business in the ordinary course. Without
limiting the generality of the foregoing, from the date hereof until the
Effective Time, except as contemplated hereby or previously disclosed by HCCH to
LDG in writing:
(a) HCCH will not adopt or propose any change in its Certificate of
Incorporation or Bylaws;
(b) HCCH will not take any action that would result in a failure to
maintain the trading of HCCH Common Stock on the NYSE;
(c) Except pursuant to the exercise of options described in Section ,
and except for the granting of stock options pursuant to HCCH's stock option
plans, HCCH will not issue any HCCH Common Stock;
(d) Except as may be permitted by Sections 6.2 and 9.1, HCCH will not
knowingly enter into any transaction that would require the Prospectus/Proxy
Statement to be delayed or recirculated under circumstances which would in the
reasonable judgment of LDG delay the occurrence of the Effective Date; and
(e) HCCH will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
SECTION 6.2 SHAREHOLDERS' MEETING, PROXY MATERIAL, REGISTRATION
STATEMENT.
(a) HCCH shall promptly prepare and file with the SEC under the
Securities Act, the Registration Statement and the Prospectus/Proxy Statement,
and shall use all reasonable efforts to cause the Registration Statement to be
declared effective as promptly as practicable. HCCH shall take any action
required to be taken under foreign or state securities or "blue sky" laws in
connection with the issuance of HCCH Common Stock in the Merger.
(b) HCCH shall cause a meeting of its shareholders to be duly called
and held as soon as reasonably practicable following the effectiveness of the
Registration Statement for the purpose of voting on the approval of the issuance
of HCCH Common Stock in connection with the Merger. The Board of Directors of
HCCH shall, subject to their fiduciary duties, recommend
33
approval and adoption of such matters by HCCH's shareholders. In connection with
such meeting, HCCH:
(i) will, together with Merger Sub, LDG and each of the
Affiliated Companies, promptly prepare and file the Registration
Statement with the SEC, will use all reasonable efforts to have the
Registration Statement cleared by the SEC and will thereafter mail to
its shareholders as promptly as practicable the Prospectus/Proxy
Statement and all other proxy materials for such meeting;
(ii) will use all reasonable efforts to obtain the necessary
approvals by its shareholders of this Agreement and the transactions
contemplated hereby; and
(iii) will otherwise comply with all legal applicable to such
meeting.
(c) HCCH shall cause the shares of HCCH Common Stock to be issued in
the Merger to be approved for listing on the NYSE on or before the Effective
Time.
SECTION 6.3 ACCESS TO FINANCIAL AND OPERATION INFORMATION. HCCH will
give LDG, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the offices,
properties, books and records of HCCH and its Subsidiaries, will furnish to LDG,
its counsel, financial advisors, auditors and other authorized representatives
such financial and operating data such as persons may reasonably request and
will instruct HCCH's employees, counsel and financial advisors to cooperate with
LDG in its investigation of the business of HCCH and its Subsidiaries and in the
planning for the combination of the businesses of LDG and HCCH following the
consummation of the Merger and will furnish promptly to LDG copies of all
reports, schedules, registration statements, correspondence and other documents
filed with or delivered to the SEC, provided that no investigation pursuant to
this Section shall affect any representation or warranty given by HCCH to LDG
hereunder. In addition, if requested by LDG following the public announcement of
this Agreement, HCCH will cooperate in arranging joint meetings among
representatives of HCCH and LDG and persons with whom HCCH maintains business
relationships. All requests for information made pursuant to this Section shall
be directed to the Chief Financial Officer of HCCH or such person as may be
designated by him in writing. All information obtained pursuant to this Section
shall be governed by the Confidentiality Agreement.
SECTION 6.4 MAINTENANCE OF BUSINESS. HCCH will use its reasonable best
efforts to carry on its business, keep available the services of its officers
and employees and preserve its relationships with those of its customers,
suppliers, licensors and others having business relationships with it that are
material to its business in substantially the same manner as it has prior to the
date hereof. If HCCH becomes aware of a material deterioration or facts which
are likely to result in a material deterioration in the relationship with any
material customer, supplier, licensor or others having business relationships
with it, it will promptly bring such information to the attention of LDG in
writing.
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SECTION 6.5 COMPLIANCE WITH OBLIGATIONS. HCCH and its Subsidiaries
shall each use its reasonable best efforts to comply in all material respects
with (i) all applicable federal, state, local and foreign laws, rules and
regulations, (ii) all material agreements and obligations, including its
respective charter and bylaws, by which it, its properties or its assets may be
bound, and (iii) all decrees, orders, writs, injunctions, judgments, statutes,
rules and regulations applicable to HCCH and its Subsidiaries and their
respective properties or assets; except to the extent that the failure to comply
with matters in clauses (i), (ii) and (iii) would not have a Material Adverse
Effect on HCCH.
SECTION 6.6 NOTICES OF CERTAIN EVENTS. HCCH shall, upon obtaining
knowledge of any of the following, promptly notify LDG of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger; and
(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against HCCH or any of its Subsidiaries
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 4.13 or which relate to the consummation
of the Merger.
SECTION 6.7 OBLIGATIONS OF MERGER SUB. HCCH will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement. Merger Sub will not issue any shares of its capital stock, any
securities convertible into or exchangeable for its capital stock, or any
option, warrant or other right to acquire its capital stock to any person or
entity other than HCCH or a wholly owned Subsidiary of HCCH. Merger Sub shall
not incur any indebtedness or liabilities of any kind except pursuant to this
Agreement.
SECTION 6.8 NOTICE TO AFFILIATES. HCCH shall, at least 30 days prior to
the Effective Date, cause to be delivered to each person HCCH believes to be an
"affiliate," as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act, of HCCH a notice informing such persons of restrictions on
transfer resulting from the Merger being accounted for as a pooling of interests
in accordance with generally accepted principles and all published rules,
regulations and policies of the SEC.
SECTION 6.9 EMPLOYEE MATTERS. HCCH agrees that all employees of LDG or
any Affiliated Company who remain employed after the Effective Time shall,
immediately following the Effective Time, be entitled to receive the same
benefits to which other employees of HCCH are entitled to receive and shall be
entitled to participate in HCCH's employee benefit plans provided they satisfy a
plan's eligibility requirements. In addition, employees of LDG or any Affiliated
Company who shall remain employees of HCCH after the Effective Time (i) shall be
35
credited (for purposes of both participation and vesting) with their periods of
service with LDG prior to the Effective Time, and (ii) shall be entitled to
receive vacation leave accrued with LDG prior to the Effective Time.
SECTION 6.10 MAINTENANCE OF INSURANCE. HCCH hereby covenants that it
shall maintain the same nature and levels of insurance coverage as LDG and the
Affiliated Companies had for their own benefit and/or for the benefit of their
directors, officers and employees on the date hereof with respect to any and all
potential liabilities for as long as the LDG Shareholders may have any
indemnification obligations under this Agreement.
SECTION 6.11 MAINTAIN PROVISIONS.
(a) From and after the Effective Time, the Surviving Corporation and
HCCH will fulfill and honor in all respects the obligations of LDG and each of
its Subsidiaries pursuant to charter and bylaw provisions providing for
indemnification for and exculpation of directors, officers and employees of LDG
and the Affiliated Companies, as such provisions are existing and in force
immediately prior to the Effective Time.
(b) If possible to obtain at a reasonable cost, and until the Final
Date set forth herein, HCCH shall maintain, or cause the Surviving Corporation
to maintain, in effect a policy or policies of errors and omissions liability
insurance identical to such policies of LDG and the Affiliated Companies in
force immediately prior to the Effective Time, covering all acts, omissions and
errors occurring prior to the Effective Time of and for all employees of LDG and
the Affiliated Companies, unless mutually agreed in writing by HCCH, LDG,
Lockwood and Suydam.
(c) The provisions of this Section 6.11 are intended to be for the
benefit of, and shall be enforceable by, each director, officer and employee of
LDG and the Affiliated Companies and his or her heirs and representatives, and
after the Effective Time may not be amended, altered or repealed as to any party
without the written consent of HCCH, LDG, Lockwood and Suydam.
(d) In the event that the effective date of the termination of LDG's
status as an S Corporation for Federal income tax purposes is not made
retroactive to January 1, 1996, LDG shall be permitted to make a distribution to
its shareholders to offset the tax liabilities of such shareholders with respect
to LDG's earnings during the period in 1996 in which LDG will have been an S
Corporation.
(e) If LDG's and/or any Affiliated Company's basis on which taxes are
computed are adjusted by any local, state or Federal taxing authority and such
adjustment results in additional tax liabilities to LDG Shareholders
("Taxpayers") while LDG or any of its Affiliated Companies were a Subchapter S
Corporation, HCCH agrees to reimburse those Taxpayers if the following
conditions exist:
36
(i) the adjustments must pertain to tax years 1995 and
prior, and either or both of the following conditions
must exist:
(1) such adjustments are of a nature that arise
from changes in tax accounting methods that
are required to be adopted by LDG and/or any
of its Affiliated Companies, and/or
(2) such adjustments are of a nature that shifts
an item of deduction from tax year 1995 or
prior to tax year 1996 or thereafter, or
shifts an item of income from 1996 and
thereafter to 1995 and prior.
(f) If any local, state or Federal taxing authority adjusts the basis
on which taxes are computed on HCCH's income that results in additional tax
liabilities to HCCH, the Taxpayers agree to reimburse HCCH if the following
conditions exist:
(i) the adjustments must pertain to LDG's and/or any
Affiliated Company's taxable income and for tax years
1996 and subsequent, and either or both of the
following conditions must exist:
(1) such adjustments are of a nature that arise
from changes in tax accounting methods that
are required to be adopted by HCCH, and/or
(2) such adjustments are of a nature that shifts
an item of income from tax year 1995 or
prior to tax year 1996 or thereafter, or
shifts an item of deduction from 1996 and
thereafter to 1995 and prior.
ARTICLE VII
COVENANTS OF HCCH AND LDG
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 9.1
hereof, each of LDG and HCCH agree that:
SECTION 7.1 ADVICE OF CHANGES. It will promptly advise the other in
writing (i) of any event known to any of its executive officers occurring
subsequent to the date of this Agreement that in its reasonable judgment renders
any representation or warranty of such party contained in this Agreement, if
made on or as of the date of such event or the Effective Date, untrue,
inaccurate or misleading in any material respect and (ii) of any Material
Adverse Change in the business condition of the party.
37
SECTION 7.2 REGULATORY APPROVALS. It shall execute and file, or join in
the execution and filing of, any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, Federal, state, local or foreign, which may be requested, in
connection with the consummation of the Merger. Each party shall use its
reasonable best efforts to obtain all such authorizations, approvals and
consents.
SECTION 7.3 ACTIONS CONTRARY TO STATED INTENT. It shall not, from or
after the date hereof and either before or after the Effective Time, take any
action that would prevent the Merger from qualifying as a reorganization under
Section 368(a) of the Code.
SECTION 7.4 CERTAIN FILINGS. LDG, each Affiliated Company and HCCH
shall cooperate with one another:
(a) in connection with the preparation, filing and causing to become
effective or clearance, as applicable of the Prospectus/Proxy Statement and the
Registration Statement and in connection with the registration or qualification
of, or ascertaining the availability of or obtaining appropriate exemptions from
registration or qualification with respect to, the HCCH Common Stock issued in
connection with the Merger covered by the Registration Statement under
applicable state securities or "blue sky" laws;
(b) in connection with the preparation of any filing required by the
HSR Act;
(c) in determining whether any action by or in respect of, or filing
with, any governmental body, agency or official, or authority is required, or
any actions. consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement; and
(d) in seeking any such actions, consents. approvals or waivers or
making any such filings, furnishing information required in connection therewith
or with the Prospectus/Proxy Statement or the Registration Statement and seeking
timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.5 COMMUNICATIONS. Neither LDG nor HCCH will furnish any
communication outside of their respective companies if the subject matter
thereof relates to the transactions contemplated by this Agreement and is not in
the ordinary course of business, without the prior approval of the other of them
as to the content thereof, which approval shall not be unreasonably withheld;
provided that the foregoing shall not be deemed to prohibit any disclosure
required by any applicable law or rule of the NYSE.
SECTION 7.6 SATISFACTION OF CONDITIONS PRECEDENT. HCCH, LDG, and each
Affiliated Company, will each use its reasonable best efforts to satisfy or
cause to be satisfied all the conditions precedent that are applicable to each
of them, and to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the
38
foregoing, to obtain all material consents and authorizations of third parties
and to make filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
SECTION 7.7 TAX COOPERATION. HCCH and LDG shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any transfer or gains, sales, use, transfer, value
added, stock transfer and stamp taxes, any transfer, recording, registration and
other fees, and any similar taxes or fees which become payable in connection
with the transactions contemplated by this Agreement that are required or
permitted to be filed on or before the Effective Time.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1 CONDITIONS TO OBLIGATIONS OF HCCH AND MERGER SUB. The
obligations of HCCH and Merger Sub hereunder are subject to the fulfillment or
satisfaction, on and as of the Effective Date, of each of the following
conditions (any one or more of which may be waived by HCCH, but only in a
writing signed by HCCH):
(a) The representations and warranties of LDG, each of the Affiliated
Companies, and each LDG Shareholder contained in Article III shall be true and
accurate in all material respects on and as of the Effective Date with the same
force and effect as if they had been made on the Effective Date (except to the
extent a representation or warranty speaks specifically as of an earlier date
and except for changes contemplated by this Agreement) and LDG and each of the
Affiliated Companies, and each LDG Shareholder shall have provided HCCH with a
certificate executed by the President and the Chief Financial Officer of the
corporation or individually as the case may be, dated as of the Effective Date,
to such effect. For the purposes of determining the accuracy of the
representations and warranties of LDG, its Subsidiaries and any LDG Shareholder,
any change or effect in the business of LDG that results in substantial part as
a consequence of the public announcement or pendency of the intended acquisition
of LDG by HCCH shall not be deemed a Material Adverse Change or Material Adverse
Effect or other breach of representation or warranty with respect to LDG and the
Affiliated Companies.
(b) LDG and each of the Affiliated Companies, and each LDG Shareholder
shall have performed and complied in all material respects with all of the
covenants contained herein on or before the Effective Date, and HCCH shall
receive a certificate to such effect signed by the President and Chief Financial
Officer of the corporation or individually as the case may be.
(c) Except as set forth in the LDG Disclosure Schedule, there shall
have been no Material Adverse Change in LDG or any of the Affiliated Companies
since December 31, 1995.
39
(d) HCCH shall have received from (i) each person or entity who may be
deemed pursuant to Section 5.8 to be an affiliate of LDG, a duly executed
Affiliates Agreement, and (ii) each other LDG Shareholder the written agreement
contemplated to be entered into by such person pursuant to Section 5.8 and such
agreements shall remain in full force and effect.
(e) All written consents, assignments, waivers or authorizations, other
than Governmental Authorizations, that are required as a result of the Merger
for the continuation in full force and effect of any material contracts or
leases of LDG and each Affiliated Company shall have been obtained.
(f) HCCH shall have received a written opinion from its counsel to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code. In preparing such opinion, counsel may rely on (and to
the extent reasonably required, the parties and their shareholders shall make)
reasonable representations related thereto.
(g) HCCH shall have received the opinion of Testa, Hurwitz & Thibeault,
corporate counsel to LDG, and the opinion of insurance regulatory counsel to
LDG, each in form and substance satisfactory to HCCH.
(h) William Blair & Company, L.L.C. shall not have withdrawn its
opinion that the Merger is fair to the shareholders of HCCH from a financial
point of view.
(i) Lockwood and Suydam shall have entered into a non-competition
agreement in form and substance reasonably satisfactory to HCCH and LDG.
(j) All underwriting agreements of LDG in force on the date hereof
shall be in force on the Effective Date, except for such agreements which have
been replaced with agreements of similar like and kind.
(k) Lockwood and Suydam shall be alive and not, in any way, Disabled.
For purposes of this Agreement, Lockwood or Suydam shall be deemed to be
"Disabled" if he is unable to engage in any substantial portion of his regular
duties for LDG by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months.
(l) LDG and each of the Affiliated Companies shall have received the
unqualified opinion of Coopers & Lybrand L.L.P. on their combined audited
financial statements for the year ending December 31, 1995.
(m) LDG, on a pro-forma combined basis with the Affiliated Companies,
giving effect to this transaction shall have earned no less than $6.1 million
after taxes for the year ended December 31, 1995. Pro-forma earnings after taxes
shall be calculated for the purposes hereof using the methods set forth in
Exhibit 8.1(m).
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(n) LDG, on a combined basis, will have at least $5.5 million of
shareholders' equity at December 31, 1995.
(o) LDG shall have received a report from Tonneson & Company C.P.A.'s
P.C. as to whether LDG qualifies as an entity that may be party to a business
combination for which the pooling of interest method of accounting would be
available.
(p) LDG and the Affiliated Companies will deliver to HCCH their audited
combined balance sheet as of December 31, 1995 and their audited combined income
statement for the twelve month period ended December 31, 1995.
SECTION 8.2 CONDITIONS TO OBLIGATIONS OF LDG. LDG's and each of the
Affiliated Companies, and each of the Principal LDG Holder's obligations
hereunder are subject to the fulfillment or satisfaction, on and as of the
Effective Date, of each of the following conditions (any one or more of which
may be waived, but only in a writing signed by such party):
(a) The representations and warranties of HCCH set forth herein shall
be true and accurate in all material respects on and as of the Effective Date
with the same force and effect as if they had been made on the Effective Date
(except to the extent a representation or warranty speaks specifically as of an
earlier date and except for changes contemplated by this Agreement) and HCCH
shall have provided LDG with a certificate executed by the President and the
Chief Financial Officer of HCCH, dated as of the Effective Date, to such effect.
For the purposes of determining the accuracy of the representations and
warranties of HCCH, any change or effect in the business of HCCH that results in
substantial part as a consequence of the public announcement or pendency of the
intended acquisition of LDG by HCCH shall not be deemed a Material Adverse
Change or Material Adverse Effect or other breach of representation or warranty
with respect to HCCH.
(b) HCCH shall have performed and complied with all of its covenants
contained herein in all material respects on or before the Effective Date, and
LDG shall receive a certificate to such effect signed by HCCH's President and
Chief Financial Officer.
(c) Except as set forth in the HCCH Disclosure Schedule, there shall
have been no Material Adverse Change in HCCH since the HCCH Balance Sheet Date.
(d) LDG and the LDG Shareholders shall have received a written opinion
in form and substance satisfactory to LDG's shareholders from Winstead Sechrest
& Minick P.C. to the effect that the Merger will be treated for Federal income
tax purposes as a tax-free reorganization within the meaning of Section 368 of
the Code. In preparing such opinion, counsel may rely on (and to the extent
reasonably required, the parties and LDG's shareholders shall make) reasonable
representations as to facts related thereto.
(e) The LDG Shareholders shall have received from Winstead Sechrest &
Minick P.C., counsel to HCCH, an opinion in form and substance satisfactory to
LDG's shareholders.
41
(f) Lockwood shall have been appointed President of HCCH and a Director
of HCCH. Suydam shall have been appointed Senior Vice President of HCCH.
(g) The shares of HCCH Common Stock to be issued in the Merger shall
have been approved for listing on the NYSE.
(h) From the date hereof through and including the Effective Date, HCCH
shall have and maintain an "A" (Excellent) or better rating as established by
A.M. Best Company.
SECTION 8.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of the parties hereunder are subject to the fulfillment, on and as
of the Effective Date, of each of the following conditions (any one or more of
which may be waived by such parties, but only in a writing signed by such
parties):
(a) HCCH's shareholders shall have duly approved the issuance of HCCH
Common Stock in connection with the Merger, and HCCH's and LDG's and each
Affiliated Company's shareholders shall have duly approved this Agreement, the
Articles of Merger and the Merger, all in accordance with applicable laws and
regulatory requirements.
(b) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order, and the Prospectus/Proxy Statement shall on the Effective
Date not be subject to any proceedings commenced or threatened by the SEC.
(c) HCCH, LDG and the LDG Shareholders shall have received a written
report addressed to each of them from Coopers & Lybrand L.L.P. in form
reasonably satisfactory to HCCH, LDG and the LDG Shareholders (and generally in
accordance with Statement of Auditing Standards No. 50), on the appropriate
application of generally accepted accounting principles to the business
combination to be effected by the Merger.
(d) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, promulgated or enforced (and not
repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the Merger (each
party agreeing to use its reasonable best efforts to have any such order, decree
or injunction lifted).
(e) There shall have been obtained any and all Governmental
Authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the Merger
will be in compliance with applicable laws, the failure to comply with which
would have a Material Adverse Effect on HCCH, LDG, any Affiliated Company or the
Surviving Corporations, or would be reasonably likely to subject any of HCCH,
Merger Sub, LDG, any Affiliated Company or any of their respective directors or
officers to substantial penalties or criminal liability.
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(f) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
SECTION 8.4 EFFECT OF FAILURE TO MEET CONDITIONS TO MERGER.
(a) If there is a failure to meet the conditions set forth in Sections
8.1(c), 8.1(e), 8.1(f), 8.1(g), 8.1(h), 8.1(j), 8.1(k), 8.1(k), 8.1(l), 8.1(m),
8.1(n), or 8.1(o) known to HCCH prior to the Effective Date, the sole and
exclusive remedy of HCCH shall be to terminate this Agreement and not consummate
the Merger with no liability to it or to LDG or its Affiliated Companies or any
of the LDG Shareholders (even if such failure to meet any such condition
involves a breach of any representation, warranty, agreement or covenant) or, in
the alternative, HCCH shall be deemed to waive such failure and shall consummate
the Merger with no liability to LDG, any of its Affiliated Companies or any of
the LDG Shareholders with respect to or as a result of such failure (even if
such failure to meet any such condition involves a breach of any representation,
warranty, agreement or covenant).
(b) If there is a failure to meet the conditions set forth in Sections
8.2(c), 8.2(d) or 8.2(e) known to LDG prior to the Effective Date, the sole and
exclusive remedy of LDG shall be to terminate this Agreement and not consummate
the Merger with no liability to it, its Affiliated Companies or any of the LDG
Shareholders or to HCCH (even if such failure to meet any such condition
involves a breach of any representation, warranty, agreement or covenant) or, in
the alternative, LDG shall be deemed to waive such failure and shall consummate
the Merger with no liability to HCCH with respect to or as a result of such
failure (even if such failure to meet any such condition involves a breach of
any representation, warranty, agreement or covenant).
(c) If there is a failure to meet the conditions set forth in Section
8.3, the sole and exclusive remedy of HCCH or LDG shall be to terminate this
Agreement and not consummate the Merger with no liability to any party hereunder
(even if such failure to meet any such condition involves a breach of any
representation, warranty, agreement or covenant) or, in the alternative, the
parties to this Agreement may waive such failure and consummate the Merger with
no liability to any party hereunder with respect to or as a result of such
failure (even if such failure to meet any such condition involves a breach of
any representation, warranty, agreement or covenant).
ARTICLE IX
TERMINATION OF AGREEMENT
SECTION 9.1 TERMINATION. In addition to those termination rights
provided for in Sections 1.2(b) hereof, this Agreement may be terminated at any
time prior to the Effective Time (with respect to Section 9.1(b) through 9.1(h),
by written notice by the terminating party to the other parties) whether before
or after the approval by the shareholders of LDG or HCCH:
43
(a) by mutual consent of the Boards of Directors of HCCH, Merger Sub,
and LDG;
(b) by HCCH or LDG, if the Effective Date shall not have occurred on or
before June 30, 1996; provided that the right to terminate this Agreement
pursuant to this clause (b) shall not be available to any party whose wilful
failure to fulfill any obligation under this Agreement has been the significant
cause of, or resulted in, the failure of the Effective Date to occur on or
before such date, except that this proviso shall not apply in the event any of
the closing conditions enumerated in Section 8.4(a), 8.4(b), or 8.4(c) has not
been met (even if the failure of any such condition to be met involves a breach
of any representation, warranty, agreement or covenant);
(c) by HCCH or LDG, if, at the meeting of HCCH shareholders (including
any adjournment or postponement thereof) called pursuant to Section 6.2(b) of
this Agreement, the requisite vote of shareholders of HCCH shall not have been
obtained;
(d) by HCCH, if it is not in material breach of its obligations under
this Agreement and if the Board of Directors of LDG or any of the Affiliated
Companies shall have withdrawn or adversely modified its recommendation of the
Merger;
(e) by HCCH, if it is not in material breach of its obligations under
this Agreement, and if (i) there has been a breach by LDG, any of the Affiliated
Companies, or any of the LDG Shareholders or any of its representations and
warranties hereunder such that Section 8.1(a) will not be satisfied or (ii)
there has been a material breach on the part of LDG, any of the Affiliated
Companies, or any of the LDG Shareholders of any of its or his covenants or
agreements contained in this Agreement such that Section 8.1(b) will not be
satisfied, and, in both case (i) and case (ii), such breach has not been
promptly cured after notice to LDG;
(f) by LDG, if it is not in material breach of its obligation under
this Agreement, and if (i) there has been a breach by HCCH or Merger Sub of any
of their respective representations and warranties hereunder such that Section
8.2(a) will not be satisfied or (ii) there has been a material breach on the
part of HCCH or Merger Sub of any of their respective covenants or agreements
contained in this Agreement such that Section 8.2(b) will not be satisfied, and,
in both case (i) and case (ii), such breach has not been promptly cured after
notice to HCCH and Merger Sub;
(g) by HCCH if either Lockwood or Suydam shall have become Disabled or
died; or
(h) By either party, if a permanent injunction or other order of any
federal or state court which would make illegal or otherwise restrain or
prohibit the consummation of the Merger will have been issued and will have
become final and non-appealable. Notwithstanding the foregoing, if a temporary,
preliminary or permanent injunction or other order by any federal or state court
which would prohibit or otherwise restrain consummation of the Merger will have
been issued and will remain in effect on the Closing Date, and such injunction
will not have become final and non-appealable, either party, by giving the other
written notice thereof on or
44
prior to such date, may extend the time for consummation of the Merger up to and
including the earlier of the date such injunction will become final and non
appealable or sixty days after the proposed Closing Date so long as such party
will, at its own expense use its best efforts to have such injunction dissolved.
SECTION 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either HCCH or LDG as provided in Section 1.2(b), 9.1 or 12.12
hereof, this Agreement shall forthwith become void and there shall be no
liability on the part of HCCH, Merger Sub, LDG, any Affiliated Company, any of
the LDG Shareholders or their respective officers or directors. In the event of
any other termination of this Agreement, there shall be no liability of any
party, except for the liability of any party then in willful breach of its
obligations under this Agreement and except for any breach of a party's
obligations under the Confidentiality Agreement (except that no party shall have
any liability in the event of any failure to meet any of the closing conditions
enumerated in Section 8.4(a), 8.4(b), or 8.4(c) (even if such failure involves a
breach of any representation, warranty, agreement or covenant)).
ARTICLE X
CLOSING MATTERS
SECTION 10.1 THE CLOSING. Subject to termination of this Agreement as
provided in Article IX above, the closing of the transactions provided for
herein (the "Closing") will take place at the offices of Winstead Sechrest &
Minick P.C., 910 Travis Street, Suite 1700, Houston, Texas 77002 at 10:00 a.m.,
Houston Time on the date of the HCCH Shareholders Meeting, or, if all conditions
to Closing have not been satisfied or waived by such date, such other place,
time and date as LDG and HCCH may mutually select (the "Closing Date"). Prior to
or concurrently with the Closing, the Agreement of Merger and such officers'
certificates or other documents as may be required to effectuate the Merger will
be filed in the office of the Secretary of the Commonwealth of Massachusetts.
Accordingly, the Merger will become effective at the Effective Time.
SECTION 10.2 CONVERSION OF CERTIFICATES.
(a) As of the Effective Time, all shares of LDG or any Affiliated
Company Common Stock that are outstanding immediately prior thereto will, by
virtue of the Merger and without further action, cease to exist, and all such
shares will be converted into the right to receive from HCCH the number of
shares of HCCH Common Stock determined as set forth in Section 1.2 hereof.
(b) At and after the Effective Time, each certificate representing
outstanding shares of LDG Common Stock will represent the number of shares of
HCCH Common Stock into which such shares of LDG Common Stock have been
converted, and such shares of HCCH Common Stock will be deemed registered in the
name of the holder of such certificate. As soon as
45
practicable after the Effective Time, the holder of shares of LDG Common Stock
will surrender the certificates for such shares (the "LDG Certificates") to HCCH
for cancellation. Promptly following the Effective Time and receipt of the LDG
Certificates, HCCH will cause its transfer agent to issue to such surrendering
holder certificates for the number of shares of HCCH Common Stock to which such
holder is entitled pursuant to the terms hereof.
(c) All shares of HCCH Common Stock delivered upon the surrender of LDG
Certificates in accordance with the terms hereof will be delivered to the
registered holder. After the Effective Time, there will be no further
registration of transfers of the shares of LDG Common Stock on the stock
transfer books of LDG. If, after the Effective Time, LDG Certificates are
presented for transfer or for any other reason, they will be canceled and
exchanged and certificates therefor will be delivered as provided in this
Section 10.2.
(d) Until LDG Certificates representing LDG Common Stock outstanding
prior to the Merger are surrendered pursuant to this Section 10.2, such
certificates will be deemed, for all purposes, to evidence ownership of the
number of shares of HCCH Common Stock into which the shares of LDG Common Stock
will have been converted.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND
REMEDIES, CONTINUING COVENANTS
SECTION 11.1 SURVIVAL OF REPRESENTATIONS. Unless any representation,
warranty, covenant or agreement is required to terminate at an earlier time in
order to maintain the appropriate pooling of interests accounting treatment, all
representations, warranties, covenants and agreements contained in this
Agreement will remain operative and in full force and effect for a period of one
year after the Closing (the last date of such applicable period of not more than
one year being herein called the "Final Date"), regardless of any investigation
made by or on behalf of the parties to this Agreement, upon which Final Date
such representations, warranties, covenants and agreements shall expire and be
of no further force and effect except that the covenants set forth in Section
6.11 and the Confidentiality Agreement shall survive termination of this
Agreement in accordance with the terms of such Section 6.11 and the
Confidentiality Agreement. Any litigation or other action of any kind (except by
the LDG Shareholders to the extent permitted by Section 6.11) arising out of, or
attributable to, a breach of any representation, warranty, covenant or agreement
contained in this Agreement must be commenced prior to the Final Date. Except as
provided in the preceding sentence with respect to Section 6.11, if not so
commenced prior to the Final Date, any claim for indemnification brought under
this Article XI will thereafter conclusively be deemed to be waived regardless
of when such claim is or should have been discovered. Any such claim for
indemnification brought under this Article XI, brought before the Final Date,
shall survive until a final resolution of such claim is effected. As set forth
herein, no investigation by any party hereto into the business, operations and
conditions of the other parties shall diminish in any way the effect of any
representation or warranty made by any
46
such party in this Agreement or shall relieve any party of any of its
obligations under this Agreement.
SECTION 11.2 LDG ET AL. AGREEMENT TO INDEMNIFY. Subject to the
limitations set forth in this Article XI, each LDG Shareholder, severally and
Pro Rata (as hereinafter defined), will indemnify and hold harmless HCCH and its
respective officers, directors, agents and employees, and each person, if any,
who controls or may control HCCH within the meaning of the Securities Act
(hereinafter in this Section 11.2 referred to individually as an "Indemnified
Person" and collectively as "Indemnified Persons") from and against any and all
claims, demands, actions, causes of action, losses, costs, damages, liabilities
and expenses including, without limitation, reasonable legal fees, net of any
recoveries under insurance policies, recoveries from third parties and tax
savings known to HCCH at the time of making of claim hereunder (hereafter in
this Section 11.2 referred to as "HCCH Damages"), arising out of any
misrepresentation or breach of or default under any of the representations,
warranties, covenants or agreements given or made in this Agreement or any
certificate or exhibit delivered by or on behalf of LDG, any of the Affiliated
Companies, or any of the LDG Shareholders pursuant hereto. HCCH, Merger Sub and
such other Indemnified Persons shall take reasonable steps to obtain such
recoveries under insurance policies, recoveries from third parties and tax
savings. HCCH shall assign to the Representative any choses in action that HCCH
may have against third parties (other than choses in action against the LDG
Shareholders solely by reason of their status as LDG Shareholders) with respect
to specific claims as to which HCCH, Merger Sub or such other Indemnified
Parties have received indemnification hereunder. "Pro Rata" for purposes of
Sections 11.2 and 11.6 with respect to each LDG Shareholder shall mean the
proportion that such LDG Shareholder's holdings of LDG Common Stock as of
immediately prior to the Effective Time bears to the total shares of LDG Common
Stock held by all LDG Shareholders as of immediately prior to the Effective
Time. The indemnification provided for in this Section 11.2 will not apply
unless and until the aggregate HCCH Damages for which one or more Indemnified
Persons seeks indemnification exceeds $750,000 in the aggregate (the "LDG
Basket"), in which event the indemnification provided for will include all HCCH
Damages (a franchise deductible) up to the Maximum LDG Shareholder Liability (as
hereinafter defined). In seeking indemnification for HCCH Damages under this
Section 11.2 following the Closing, the Indemnified Persons' remedy will be
limited to receiving up to that number of shares of HCCH Common Stock determined
by dividing (a) the amount of the HCCH Damages by (b) the closing sale price of
HCCH's Common Stock on the New York Stock Exchange on the Effective Date (the
"Closing Date Price"). Provided, however, that irrespective as to the number of
claims asserted by Indemnified Persons hereunder and the amount of the HCCH
Damages for which indemnification is sought, any such LDG Shareholder, in the
aggregate, shall under no circumstances be required to make indemnification
payments hereunder beyond the Closing Date Price multiplied by the number of
shares of HCCH Common Stock received by such LDG Shareholder at the time of the
Merger (the "Maximum LDG Shareholder Liability"). Notwithstanding anything to
the contrary set forth herein, in the event that at the time of the resolution
of any such indemnification claim, such LDG Shareholder does not hold the number
of shares of HCCH Common Stock (including any shares otherwise acquired at any
time before or after the Effective Time or at any time after any claim is made
for indemnification) necessary to settle any indemnification claim, then such
LDG Shareholder shall
47
pay in cash or other immediately available funds the cash equivalent of the
remainder of his in-stock indemnification obligations under this Section 11.2 up
to his Maximum LDG Shareholder Liability. In lieu of HCCH Common Stock, any LDG
Shareholder shall have the option to pay in cash or other immediately available
funds the cash equivalent of all or any part of his in-stock Maximum LDG
Shareholder Liability.
SECTION 11.3 HCCH AGREEMENT TO INDEMNIFY. Subject to the limitations
set forth in this Article XI, HCCH will indemnify and hold harmless LDG, each
Affiliated Company, and the LDG Shareholders and their officers, shareholders,
directors, administrators, successors and assigns (hereinafter in this Section
11.3 referred to individually as an "Indemnified Person" and collectively as
"Indemnified Persons") from and against any and all claims, demands, actions,
causes of action, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable legal fees, net of any recoveries under insurance
policies, recoveries from third parties and tax savings known to Indemnified
Persons at the time of making of claim hereunder (hereafter in this Section 11.3
referred to as "LDG Damages"), arising out of any misrepresentation or breach of
or default under any of the representations, warranties, covenants and
agreements given or made by HCCH or Merger Sub in this Agreement or any
certificate or exhibit delivered by or on behalf of HCCH or Merger Sub pursuant
hereto. The indemnification provided for in this Section 11.3 will not apply
unless and until the aggregate LDG Damages for which one or more Indemnified
Persons seeks indemnification exceeds $750,000 in the aggregate (the "HCCH
Basket"), in which event the indemnification provided for will include all LDG
Damages (a franchise deductible) up to the Maximum HCCH Liability (as
hereinafter defined). In seeking indemnification for LDG Damages under this
Section 11.3 following the Closing, the Indemnified Persons' remedy will be
limited to receiving up to that number of shares of HCCH Common Stock determined
by dividing (a) the amount of the LDG Damages by (b) the Closing Date Price.
Provided, however, that irrespective of the number of claims asserted by
Indemnified Persons hereunder and the amount of the LDG Damages for which
indemnification is sought, HCCH, in the aggregate, shall under no circumstances
be obligated to make an indemnification payment hereunder beyond that number of
shares of HCCH Common Stock equal to the total number of shares of HCCH Common
Stock provided to the LDG Shareholders on the Effective Date (the "Maximum HCCH
Liability").
SECTION 11.4 EXCLUSIVE REMEDY. Notwithstanding anything in this Article
XI or elsewhere in this Agreement to the contrary, the termination provision of
Section 1.2(b), Article IX and Section 12.12 and the indemnification provisions
of this Article XI shall be the sole and exclusive remedy available to any party
or any other Indemnified Person for any breach of any of HCCH's, Merger Sub's,
LDG's, any Affiliated Company's and any LDG Shareholder's representations,
warranties, covenants or other agreements or provisions contained in this
Agreement or in any exhibit to this Agreement or certificate or disclosure
schedule delivered pursuant to this Agreement or otherwise in connection with
this Agreement and the transactions contemplated hereby, or any causes of action
related to any of the foregoing.
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SECTION 11.5 PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section 11.2
or 11.3 of notice of a claim against it for indemnification brought under this
Article XI (a "Claim"), the indemnified party will, if a claim is to be made
against an indemnifying party under such Section, give prompt written notice to
the indemnifying party of the Claim, but the failure to promptly notify the
indemnifying party will not relieve the indemnifying party of any liability that
it may have to any indemnified party, except to the extent that the indemnifying
party demonstrates that the defense of such action is prejudiced by the
indemnifying party's failure to give such prompt notice. Such notice shall
contain a description in reasonable detail of facts upon which such Claim is
based and, to the extent known, the amount thereof.
(b) If any Claim referred to in Section 11.5(a) is made by a third
party against an indemnified party and it gives written notice to the
indemnifying party of the Claim, the indemnifying party will be entitled to
participate in the defense of the Claim and, to the extent that it wishes to
assume the defense of the Claim and, after written notice from the indemnifying
party to the indemnified party of its election to assume the defense of the
Claim, the indemnifying party shall assume such defense and will not be liable
to the indemnified party under such Section for any fees of other counsel or any
other expenses with respect to the defense of the Claim in each case
subsequently incurred by the indemnified party in connection with the defense of
the Claim.
SECTION 11.6 APPOINTMENT OF REPRESENTATIVE. Subject to the
successorship provisions of this Section 11.6, Stephen J. Lockwood (the
"Representative") is hereby irrevocably appointed as the attorney-in-fact and
representative of the interests of the holders of LDG Common Stock for all
purposes of this Agreement, and notice is hereby given thereof to HCCH and
Merger Sub, and, without independent verification, HCCH and Merger Sub may rely
upon Representative's undertakings in such capacity. The Representative shall
have full and irrevocable authority on behalf of the holders of LDG Common
Stock, and shall promptly and completely exercise such authority in a timely
fashion to:
(a) participate in, represent and bind the LDG Shareholders in all
respects with respect to any arbitration or legal proceeding relating to this
Agreement, including without limitation, all matters relating to any
indemnification under this Section 11.6, taking any action under Section 11.5
including, without limitation, the defense and settlement of any matter, and the
calculation thereof for every purpose thereunder, consent to jurisdiction, enter
into any settlement, and consent to entry of judgment, each with respect to any
or all of the holders of LDG Common Stock;
(b) receive, accept and give notices and other communications relating
to this Agreement;
(c) take any action that the Representative deems necessary or
desirable in order to fully effectuate the transactions contemplated by this
Agreement;
49
(d) execute and deliver any instrument or document that the
Representative deems necessary or desirable in the exercise of his authority
under this Section 11.6; and
(e) waive the fulfillment of any condition or conditions to the
Closing.
Those LDG Shareholders (including without limitation Lockwood and any
of his assigns who are members of his immediate family) who, as of the Effective
Date, hold a majority of the LDG Common Stock may, at any time and by written
action delivered to HCCH, remove the Representative or any successor thereto,
but such removal shall be effective only upon the replacement of such
Representative or successor by a new Representative designated, by written
notice delivered to HCCH, by the holders of a majority of LDG Common Stock,
including Lockwood's LDG Common Stock, provided, however, that any such notice
shall be effective upon actual receipt by HCCH. Any such written notice shall be
delivered to HCCH in accordance with the notice provisions set forth in Section
12.3 hereof. If any Representative shall have died, become incapacitated or
unable to serve, those holders of LDG Common Stock who, as of the date hereof,
hold a majority thereof, shall promptly designate by written notice delivered to
HCCH, a replacement Representative. Any costs and expenses incurred by the
Representative in connection with actions taken pursuant to or permitted by this
Section 11.6 will be borne by the LDG Shareholders and paid or reimbursed to the
Representative Pro Rata.
The foregoing authorization is granted and conferred in consideration
for the various agreements and covenants of HCCH and Merger Sub contained
herein. In consideration of the foregoing, and subject to the successorship
provisions of this Section 11.6, this authorization granted to the
Representative shall be irrevocable and shall not be terminated by any act of
any of the holders of LDG Common Stock or by operation of law, whether by death
or incompetence of any holder of LDG Common Stock or by the occurrence of any
other event except the termination of this Agreement pursuant to Section 1.2(b),
9.1 or 12.12 hereof. If after the execution hereof any such holder of LDG Common
Stock shall die or become incompetent, the Representative is nevertheless
authorized and directed to exercise the authority granted in this Section 11.6
as if such death or incompetence had not occurred and regardless of notice
thereof. The Representative shall have no liability to any LDG Shareholder for
any act or omission or obligation hereunder, provided that such action or
omission is taken by the Representative in good faith and without willful
misconduct.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 FURTHER ASSURANCES. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
50
SECTION 12.2 FEES AND EXPENSES. Each party shall bear its own fees and
expenses, including counsel fees and fees of brokers and investment bankers
contracted by such party, in connection with the transaction contemplated
hereby, except that LDG shall also bear the legal fees and expenses of counsel
for the LDG Shareholders approved by LDG.
SECTION 12.3 NOTICES. Whenever any party hereto desires or is required
to give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States registered or certified mail,
postage prepaid, or sent by prepaid overnight courier or confirmed telecopier,
addressed as follows:
HCCH and Merger Sub:
HCC Insurance Holdings, Inc.
13403 Northwest Freeway
Houston, Texas 77040-6094
Telecopy: (713) 462-2401
Attention: Stephen L. Way
With copy to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 1700
Houston, Texas 77002
Telecopy: (713) 951-3800
Attention: Arthur S. Berner, Esq.
LDG, each Affiliated Company and all LDG Shareholders:
Stephen J. Lockwood Walter L. Suydam
401 Edgewater Place 401 Edgewater Place
Suite 400 Suite 400
Wakefield, Massachusetts 01880 Wakefield, Massachusetts 01880
Telecopy: (617) 245-6683 Telecopy: (617) 245-6683
With copies to:
Testa, Hurwitz & Thibeault Dane & Howe
High Street Tower 45 School Street
125 High Street Boston, Massachusetts 02108
Boston, Massachusetts 02110 Telecopy: (617) 523-3362
Telecopy: (617) 248-7100 Attention: Stephen W. Howe, Esq.
Attention: Stephen A. Hurwitz, Esq.
51
Such communications shall be effective when they are received by the
addressee thereof. Any party may change its address for such communications by
giving notice thereof to other parties in conformity with this Section. In the
event Lockwood is no longer the Representative, such successor Representative's
address shall be the address for the LDG Shareholders.
SECTION 12.4 GOVERNING LAW. The internal laws of the State of Delaware
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto. Any dispute arising hereunder
shall lie exclusively in the state courts of the State of Delaware.
SECTION 12.5 BINDING UPON SUCCESSORS AND ASSIGNS, ASSIGNMENT. This
Agreement and the provisions hereof shall be binding upon each of the parties,
their permitted successors and assigns. This Agreement may not be assigned by
any party without the prior consent of the other, provided, however, that HCCH
shall be permitted at any time prior to the Effective Time to cause the
assignment of Merger Sub's rights and obligations under this Agreement to
another wholly owned Subsidiary of HCCH (without in any way relieving HCCH of
its obligations under this Agreement with respect to Merger Sub or the Merger).
SECTION 12.6 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated.
SECTION 12.7 ENTIRE AGREEMENT. This Agreement, together with the
Confidentiality Agreement, and the other agreements and instruments referenced
herein constitute the entire understanding and agreement of the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between parties with respect hereto.
SECTION 12.8 AMENDMENT AND WAIVERS. Any amendment or waiver affecting
the LDG Shareholders shall be valid if consented to in writing by LDG
Shareholders holding a majority of the shares of LDG Common Stock (i) if given
or made prior to the Effective Time, such majority as determined as of the date
of such amendment or waiver, and (ii) if given or made at or after the Effective
Time, such majority as determined immediately prior to the Effective Time. Any
term or provision of this Agreement may be amended, and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a writing signed by
those persons as provided in this Section 12.8. The waiver by a party of any
breach hereof or default in the performance hereof shall not be deemed to
constitute a waiver of any other default or any succeeding breach or default,
unless such waiver so expressly states. At any time before or after approval of
this Agreement and the Merger by the shareholders of HCCH and prior to the
Effective Time, this Agreement may be amended or supplemented by LDG or HCCH
with respect to any of the terms contained in this Agreement, except that
following approval by the shareholders of HCCH there
52
shall be no amendment or change to the provisions hereof respect to the Exchange
Ratio without further approval by the shareholders of HCCH, and no other
amendment shall be made which by law requires further approval by such
shareholders without such further approval.
SECTION 12.9 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 12.10 CONSTRUCTION OF AGREEMENT. A reference to an Article,
Section or an Exhibit shall mean an Article of, a Section in, or Exhibit to,
this Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation."
SECTION 12.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears thereon and all of which together shall constitute one
and the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all the parties reflected hereon as signatories.
SECTION 12.12 SUBSEQUENT AMENDMENTS. (a) LDG shall have the right,
promptly upon learning of any fact, circumstance, situation or development prior
to the Effective Date that causes any of the representations and warranties set
forth in Article III to become false, or upon determining that any fact,
circumstance, situation or development set forth in the representations or
warranties in Article III is incorrect, to deliver to HCCH and Merger Sub prior
to the Effective Date written amendments to the LDG Disclosure Schedule
disclosing the same or any corrections. Upon the receipt of any one or more of
such amendments, HCCH and Merger Sub may, at their respective sole option and
discretion and at any time prior to the Effective Time, (i) without liability,
withdraw from the transactions contemplated under this Agreement if any fact,
circumstance, situation or development set forth in such amendment shall
constitute a Material Adverse Effect on LDG, whereupon this Agreement shall
automatically terminate without liability of any party, or (ii) complete the
Closing, with the aforesaid LDG Disclosure Schedule that is so amended,
whereupon this Agreement shall automatically be deemed to be (x) properly
amended thereby and therefore (y) not breached by any such fact, circumstance,
situation or development or correction disclosed thereby, regardless of whether
or not any such fact, circumstance, situation or development constitutes a
Material Adverse Effect on LDG.
(b) HCCH shall have the right, promptly upon learning of any fact,
circumstance, situation or development prior to the Effective Date that causes
any of the representations and warranties set forth in Article IV to become
false, or upon determining that any fact, circumstance, situation or development
set forth in the representations or warranties in Article IV is incorrect, to
deliver to LDG prior to the Effective Date written amendments to the HCCH
Disclosure Schedule disclosing the same or any corrections. Upon the receipt of
any one or more
53
of such amendments, LDG and the Affiliated Companies and the LDG Shareholders
may, at their respective sole option and discretion and at any time prior to the
Effective Time, (i) without liability, withdraw from the transactions
contemplated under this Agreement if any fact, circumstance, situation or
development set forth in such amendment shall constitute a Material Adverse
Effect on HCCH, whereupon this Agreement shall automatically terminate without
liability of any party, or (ii) complete the Closing, with the aforesaid HCCH
Disclosure Schedule that is so amended, whereupon this Agreement shall
automatically be deemed to be (x) properly amended thereby and therefore (y) not
breached by any such fact, circumstance, situation or development or correction
disclosed thereby, regardless of whether or not any such fact, circumstance,
situation or development constitutes a Material Adverse Effect on HCCH.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
[The Remainder of This Page Intentionally Left Blank]
54
"HCC INSURANCE HOLDINGS, INC."
By: /s/ Stephen L. Way
------------------------------
Name: Stephen L. Way
Title: President
By: /s/ L. E. Tuffly
------------------------------
Name: L. Edward Tuffly
Title: Treasurer
"MERGER SUB, INC."
By: /s/ Stephen L. Way
------------------------------
Name: Stephen L. Way
Title: President
By: /s/ Frank J. Bramanti
------------------------------
Name: Frank J. Bramanti
Title: Executive Vice President and Treasurer
Signature Page of Agreement and Plan of Reorganization
"LDG MANAGEMENT COMPANY
INCORPORATED"
By: /s/ Stephen J. Lockwood
-----------------------------
Name: Stephen J. Lockwood
Title: President
By: /s/ Carolyn A. Kirwin
-----------------------------
Name: Carolyn A. Kirwin
Title: Treasurer
"SRRF MANAGEMENT INCORPORATED"
By: /s/ Stephen J. Lockwood
-----------------------------
Name: Stephen J. Lockwood
Title: Chairman of the Board
By: /s Carolyn A. Kirwin
-----------------------------
Name: Carolyn A. Kirwin
Title: Treasurer
"MEDICAL REINSURANCE UNDERWRITERS,
INCORPORATED"
By: /s/ Stephen J. Lockwood
-----------------------------
Name: Stephen J. Lockwood
Title: Chairman of the Board
By: /s/ Carolyn A. Kirwin
-----------------------------
Name: Carolyn A. Kirwin
Title: Treasurer
Signature Page of Agreement and Plan of Reorganization
"LDG WORLDWIDE LIMITED"
By: /s/ Stephen J. Lockwood
-----------------------------
Name: Stephen J. Lockwood
Title: Chairman of the Board
By: /s/ Carolyn A. Kirwin
-----------------------------
Name: Carolyn A. Kirwin
Title: Treasurer
"LDG INSURANCE AGENCY INCORPORATED"
By: /s/ Stephen J. Lockwood
-----------------------------
Name: Stephen J. Lockwood
Title: Chairman of the Board
By: /s/ Walter L. Suydam
-----------------------------
Name: Walter L. Suydam
Title: Treasurer
Signature Page of Agreement and Plan of Reorganization
"LDG SHAREHOLDERS"
By: /s/ Stephen J. Lockwood
-----------------------------
Name: Stephen J. Lockwood
By: /s/ Walter L. Suydam
-----------------------------
Name: Walter L. Suydam
Signature Page of Agreement and Plan of Reorganization
LDG SHAREHOLDER COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned, having become a shareholder of LDG
Management Company Incorporated ("LDG"), hereby executes this counterpart
signature page and by such execution becomes a party in the capacity of an "LDG
Shareholder" to that certain Agreement and Plan of Reorganization dated as of
February 22, 1996 by and among HCC Insurance Holdings, Inc., Merger Sub, Inc.,
LDG, SRRF Management Incorporated, Medical Reinsurance Underwriters, Inc., LDG
Worldwide Limited, LDG Insurance Agency Incorporated, Stephen J. Lockwood and
Walter L. Suydam (the "Plan of Reorganization") and hereby agrees to be bound by
the terms and provisions of such Plan of Reorganization as of the date thereof.
"LDG SHAREHOLDER"
By:__________________________
Name:________________________
Date:________________________
Signature Page of Agreement and Plan of Reorganization
EXHIBIT 8.1(M)
NET EARNINGS BEFORE PROVISION FOR INCOME TAXES FOR THE YEAR ENDED 12/31/95
Additions:
Salaries, Wages and Bonuses
Stephen J. Lockwood
Walter L. Suydam
Operating, Profit Commission and Production Bonuses
SRRF Profit Commission Bonuses
SRRF Operating Bonuses
P.A.D. Profit Commission Bonuses
P.A.D. Operating Bonuses
Donald Reilly Production Bonus
New York Office Production Bonuses
Employee Moving Compensation Bonuses
Directors' Fees
Profit Sharing Retirement Plan Contribution
Subtractions:
Pro Forma Salaries, Wages and Bonuses
Stephen J. Lockwood (Provisional Amount 1,000,000)
Walter L. Suydam (Provisional Amount 600,000)
Pro Forma Profit Sharing Retirement Plan Contribution
Pro Forma Operating, Profit Commission and Production Bonuses
SRRF
PAD
Donald Reilly
New York Office
PRO FORMA NET EARNINGS BEFORE PROVISION FOR INCOME TAXES
Provision for Income Taxes
States, Using a Provisional Rate of 13%
Federal, Using a Provisional Rate of 34%
NET EARNINGS
AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (the "Agreement") is entered into as of this
24th day of May, 1996 by and between HCCH INSURANCE HOLDINGS, INC., a Delaware
corporation ("HCCH"), and the undersigned shareholder ("Shareholder") of LDG
MANAGEMENT COMPANY INCORPORATED ("LDG").
This Agreement is entered into in connection with that certain
Agreement and Plan of Reorganization dated as of February 22, 1996 (the
"Reorganization Agreement") among HCCH, LDG, Stephen J. Lockwood ("SJL"), Walter
L. Suydam ("WLS") and others. The Reorganization Agreement provides for the
merger (the "Merger") of a newly formed subsidiary of HCCH with and into LDG in
a transaction in which issued and outstanding shares of common stock of LDG
$1.00 par value (the "LDG Stock") will be converted into shares of common stock,
$1.00 par value per share, of HCCH (the "HCCH Stock") on the terms and
conditions set forth in the Reorganization Agreement. Capitalized terms used
herein and not defined herein shall have their defined meanings as set forth in
the Reorganization Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants set forth herein, the parties agree as
follows:
1. TAX AND ACCOUNTING TREATMENT. Shareholder understands and
agrees that it is intended that the Merger will be treated as a "reorganization"
for federal income tax purposes and as a "pooling of interests" in accordance
with generally accepted accounting principles and the applicable General Rules
and Regulations published by the Securities and Exchange Commission (the "SEC").
Shareholder further understands and agrees that, as of the date hereof,
Shareholder may be deemed to be an "Affiliate" of LDG (i) for application of the
pooling of interests requirements and (ii) within the meaning of Rule 145 ("Rule
145") promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), although nothing contained herein should be construed as an admission of
either such fact.
2. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS.
Shareholder has been informed that the treatment of the Merger as a "pooling of
interests" for financial accounting purposes is dependent, in part, upon the
accuracy of Shareholder's representations and warranties set forth herein and
Shareholder's compliance with Shareholder's covenants set forth herein, and that
a reorganization for federal income tax purposes requires that a sufficient
number of former shareholders of LDG maintain a meaningful continuing equity
ownership interest in HCCH after the Merger. Shareholder understands that the
representations, warranties and covenants set forth herein will be relied upon
by HCCH, LDG, SJL, WLS, their respective counsel and accounting firms and other
shareholders of LDG.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER.
Shareholder represents, warrants and covenants as follows:
(a) Shareholder has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Shareholder's obligations hereunder.
(b) Appendix A attached hereto sets forth all shares of LDG
Stock owned by Shareholder, including all LDG Stock as to which
Shareholder has sole or shared voting or investment power and all
rights and options to acquire LDG Stock.
(c) Except as set forth on Schedule A, Shareholder will not
sell, transfer, exchange, pledge, or otherwise dispose of, or make any
offer or agreement relating to any of the foregoing with respect to,
any shares of HCCH Stock that Shareholder may acquire in connection
with the Merger or acquire upon exercise of any option or right to
acquire HCCH Stock, which option or right is acquired in connection
with the Merger, or any securities that may be paid as a dividend or
otherwise distributed thereon or with respect thereto or issued or
delivered in exchange or substitution therefor (all such shares and
other securities of HCCH being herein sometimes collectively referred
to as "Restricted Securities"), or any option, right or other interest
with respect to any Restricted Securities, unless (i) such transaction
is permitted pursuant to Rule 145 under the Securities Act (as
described in Section 5 below), (ii) counsel representing Shareholder
shall have advised HCCH in a written opinion letter satisfactory to
HCCH and HCCH's legal counsel, and upon which HCCH and its legal
counsel may rely, that no registration under the Securities Act would
be required in connection with the proposed sale, transfer or other
disposition, (iii) a registration statement under the Securities Act
covering the HCCH Stock proposed to be sold, transferred or otherwise
disposed of, describing the manner and terms of the proposed sale,
transfer or other disposition, and containing a current prospectus,
shall have been filed with the SEC and made effective under the
Securities Act, or (iv) an authorized representative of the SEC shall
have rendered written advice to Shareholder (sought by Shareholder or
counsel to Shareholder, with a copy thereof and all other related
communications delivered to HCCH) to the effect that the SEC would take
no action, or that the staff of the SEC would not recommend that the
SEC take action, with respect to the proposed disposition if
consummated.
(d) Notwithstanding any other provision of this Agreement to
the contrary, except as set forth on Schedule A, Shareholder will not
sell, transfer, exchange, pledge or otherwise dispose of, or in any
other way reduce Shareholder's risk of ownership or investment in, or
make any offer or agreement relating to any of the foregoing with
respect to any LDG Stock or any rights, options or warrants to purchase
LDG Stock, or any Restricted Securities or other securities of HCCH (i)
during the 30-day period immediately preceding the Effective Time of
the Merger and (ii) until such time after the Effective Time of the
Merger as HCCH has publicly released a report including the combined
financial results of HCCH and LDG for a period of at least 30 days of
combined operations of HCCH and LDG within the meaning of Accounting
Series Release No. 130, as amended, of the SEC. HCCH agrees to publish
such financial results expeditiously in a manner consistent with its
prior practices; provided that nothing
2
contained herein shall obligate HCCH to publish its financial results
other than on a quarterly basis.
(e) Except as set forth in Schedule A, Shareholder has and as
of the Effective Time of the Merger will have, no present plan or
intention (a "Plan") to sell, transfer, exchange, pledge (other than in
a preexisting bona fide margin account) or otherwise dispose of,
including a distribution by a partnership to its partners, or a
corporation to its stockholders, or any other transaction which results
in a reduction in the risk of ownership (any of the foregoing, a
"Sale") of more than fifty percent (50%) of the shares of HCCH Stock
that Shareholder may acquire in connection with the Merger, or any
securities that may be paid as a dividend or otherwise distributed
thereon or with respect thereto or issued or delivered in exchange or
substitution therefor. For purposes of the preceding sentence, shares
of LDG Stock (or the portion thereof) with respect to which a Sale (A)
in a Related Transaction (as defined below) or (B) will occur prior to
the Merger, shall be considered to be shares of LDG Stock that are
exchanged for HCCH Stock in the Merger and then disposed of pursuant to
a Plan. Shareholder is not aware of, or participating in, any Plan on
the part of LDG shareholders to engage in Sales of the shares of HCCH
Stock to be issued in the Merger such that the aggregate fair market
value, as of the Effective Time of the Merger, of the shares subject to
such Sales would exceed fifty percent (50%) of the aggregate fair
market value of all shares of outstanding LDG Stock immediately prior
to the Merger. For purposes of the preceding sentence, shares of LDG
Stock with respect to which a pre-Merger Sale occurs in a Related
Transaction, shall be considered to be shares of LDG Stock that are
exchanged for HCCH Stock in the Merger and then disposed of pursuant to
a Plan. A Sale of HCCH Stock shall be considered to have occurred
pursuant to a Plan if, among other things, such Sale occurs in a
Related Transaction. For purposes of this Section 3 (e), a "Related
Transaction" shall mean a transaction that is in contemplation of, or
related or pursuant to, the Merger or the Reorganization Agreement. If
any of Shareholder's representations in this Section 3 (e) ceases to be
true at any time prior to the Effective Time of the Merger, Shareholder
shall deliver to each of LDG and HCCH, prior to the Effective Time of
the Merger, a written statement to that effect, signed by Shareholder.
4. RULE 144 AND 145. From and after the Effective Time of the
Merger and for so long as is necessary in order to permit Shareholder to sell
the HCCH Stock held by and pursuant to Rule 145, if applicable, and, to the
extent applicable, Rule 144 under the Securities Act ("Rule 144"), HCCH will use
its reasonable best efforts to file on a timely basis all reports required to be
filed by it pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended, referred to in paragraph (c)(1) of Rule 144, in order
to permit Shareholder to sell the HCCH Stock held by it pursuant to the terms
and conditions of Rule 145 and the applicable provisions of Rule 144.
Shareholder understands that, except as may be set forth in the Reorganization
Agreement, HCCH is under no obligation to register the sale, transfer or other
3
disposition of any Restricted Securities by or on behalf of Shareholder or to
take any other action necessary in order to make compliance with an exemption
from registration available.
5. LIMITED RESALES. Shareholder understands that, under current
law, in addition to the restrictions imposed under Section 3 of this Agreement,
the provisions of Rule 145 may limit Shareholder's public resales of Restricted
Securities, in the manner set forth in subsections (a), (b) and (c) below, until
such time as Shareholder may have beneficially owned, within the meaning of Rule
144(d), the Restricted Securities for certain periods which, in certain
circumstances, which may or may not be applicable to Shareholder, may be for a
period of at least two years (or in some cases three years) (or shorter periods
when and if permitted under applicable law as in effect in the future) after the
date of the Merger, and thereafter if and for so long as Shareholder remains a
HCCH affiliate:
(a) Unless and until the restriction "cut-off" provisions of
Rule 145 (d) (2) or Rule 145 (d) (3) set forth below become available,
public resales of Restricted Securities may currently only be made by
Shareholder in compliance with the requirements of Rule 145(d)(1). Rule
145(d)(1) currently permits such resales only (i) while HCCH meets the
public information requirements of Rule 144(c), (ii) in brokers'
transactions or in transactions directly with a market maker and (iii)
where the aggregate number of Restricted Securities sold at any time
together with all sales of HCCH Stock sold for Shareholder's account
during the preceding three month period does not exceed the greater of
(x) 1% of the HCCH Common Stock then outstanding or (y) the average
weekly volume of trading in HCCH Stock on all national securities
exchanges and/or reported through the automated quotation system of a
registered securities association during the four calendar weeks
preceding the date of receipt of the order to execute the sale.
(b) Shareholder may currently make unrestricted resales of
Restricted Securities pursuant to Rule 145 (d) (2) if (i) Shareholder
has beneficially owned (within the meaning of Rule 144 (d)) the
Restricted Securities for at least two years (or shorter periods when
and if permitted under applicable law as in effect in the future) after
the Effective Time of the Merger, (ii) Shareholder is not an affiliate
as defined in Rule 144(a) of HCCH and (iii) HCCH meets the public
information requirements of Rule 144(c).
(c) Shareholder may make unrestricted resales of Restricted
Securities pursuant to Rule 145 (d) (3) if Shareholder has beneficially
owned (within the meaning of Rule 144 (d)) the Restricted Securities
for at least three years (or shorter periods when and if permitted
under applicable law as in effect in the future) and is not, and has
not been for at least three months, an affiliate of HCCH.
(d) HCCH acknowledges that the provisions of Section 3 (c) of
this Agreement will be satisfied as to any sale by the Shareholder of
the Restricted Securities pursuant to Rule 145 (d) by delivery to HCCH
of a broker's letter and a letter from the Shareholder with respect to
that sale stating that each of the above-described requirements of Rule
145 (d) (1) has been met or is inapplicable by virtue of Rule 145 (d)
(2) or
4
Rule 145(d)(3); provided, that HCCH has no reasonable basis to
believe such sales were not made in compliance with such provisions of
Rule 145(d).
6. NOTICES. All notices, requests, demands or other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given upon
receipt, if delivered by hand, by telecopy or telegram, or three days after
deposit in the United States mail, postage prepaid, addressed to a party as
follows:
If to HCCH:
HCC Insurance Holdings, Inc.
13403 Northwest Freeway
Houston, Texas 77040
Attn: Frank J. Bramanti
With a copy to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 1700
Houston, Texas 77002
Attn: Arthur S. Berner, Esq.
If to Shareholder:
At the address set forth beneath the Shareholder's signature
below or to such other address as any party may designate for
itself by notice given as provided in this Agreement.
With a copy to:
Testa, Hurwitz & Thibeault, L.L.P.
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attention: Stephen Hurwitz, Esq.
7. TERMINATION. This Agreement shall be terminated and shall
be of no further force and effect upon the termination of the Reorganization
Agreement.
8. BINDING AGREEMENT. This Agreement will inure to the benefit of
and be binding upon and enforceable against the parties and their successors and
assigns, including
5
administrators, executors, representatives, heirs, legatees and devisees of
Shareholder and any pledgee holding Restricted Securities as collateral (except
to the extent otherwise permitted by applicable law).
9. WAIVER. No waiver by any party hereto of any condition or of
any breach of any provision of this Agreement shall be effective unless in
writing and signed by each party hereto.
10. GOVERNING LAW. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Delaware (irrespective of its choice of law provisions).
11. ATTORNEYS' FEES. In the event of any legal action or proceeding
to enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.
12. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
13. THIRD PARTY RELIANCE. Counsel to and accountants for the
parties shall be entitled to rely upon the representations, warranties and
covenants contained in this Agreement.
14. COUNTERPARTS. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HCC INSURANCE HOLDINGS, INC.
By: /s/ Frank J. Bramanti
----------------------
Name: Frank J. Bramanti
Title: Executive Vice President, Secretary
and Chief Financial Officer
[SIGNATURE PAGE TO AFFILIATES AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SHAREHOLDER:
By: /s/ Stephen J. Lockwood
------------------------
Name: Stephen J. Lockwood
Address: 29 Bradlee Road
Marblehead, MA 01945
[SIGNATURE PAGE TO AFFILIATES AGREEMENT]
APPENDIX A
LDG SECURITIES
NAME NUMBER OF SHARES
---- ----------------
Stephen J. Lockwood 56,764.848
SCHEDULE A
