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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): August 7, 1997
TITAN HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas
(State or Other Jurisdiction of Incorporation)
0-22000
(Commission File Number)
74-2289827
(I.R.S. Employer Identification No.)
2700 N.E. Loop 410, Suite 500, San Antonio, Texas 78217
(Address of Principal Executive Offices) (Zip Code)
(210) 527-2700
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
On August 8, 1997, Titan Holdings, Inc. (the "Company") issued a
press release announcing that it had entered into a definitive agreement
and plan of merger (the "Merger Agreement") with USF&G Corporation,
pursuant to which the Company would be merged into United States Fidelity
and Guaranty Company, a wholly owned subsidiary of USF&G Corporation. Mark
E. Watson, Jr., the Company's Chairman, President and Chief Executive
Officer, in his capacity as a shareholder of the Company
executed a voting and support agreement (the "Voting and Support
Agreement") in which he agreed to vote all shares owned or controlled by
him in favor of the merger. The Merger Agreement, the Voting and Support
Agreement and a copy of the press release are attached hereto as
Exhibits 2.1, 2.2 and 99.1, respectively.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits.
Exhibit No. Document Description
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2.1 Agreement and Plan of Merger, dated as of August 7, 1997, by
and among the Company, USF&G Corporation and United States
Fidelity and Guaranty Company.
2.2 Voting and Support Agreement, dated August 7, 1997, between
Mark E. Watson, Jr. and USF&G Corporation
99.1 Press Release dated August 8, 1997 issued
by the Company.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
TITAN HOLDINGS, INC.
Dated: August 14, 1997 By: /s/ Mark E. Watson, III
-----------------------------
Mark E. Watson, III
Executive Vice President,
General Counsel and Secretary
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INDEX TO EXHIBITS
Number Description
2.1 Agreement and Plan of Merger, dated as of August 7,
1997, by and among Titan Holdings, Inc.,
USF&G Corporation and United States Fidelity and
Guaranty Company.
2.2 Voting and Support Agreement, dated August 7, 1997,
between Mark E. Watson, Jr. and USF&G Corporation.
99.1 Press Release dated August 8, 1997 issued by the
Company.
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Exhibit 2.1
AGREEMENT AND
PLAN OF MERGER
among
USF&G CORPORATION,
UNITED STATES FIDELITY AND GUARANTY COMPANY,
and
TITAN HOLDINGS, INC.
dated as of August 7, 1997
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|| TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
1.1 The Merger..................................................2
1.2 Closing.....................................................2
1.3 Effective Time..............................................2
1.4 Effects of the Merger.......................................2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; MERGER CONSIDERATION;
EXCHANGE OF CERTIFICATES; WARRANTS AND OPTIONS
2.1 Effect on Capital Stock.....................................3
2.2 Company Common Stock Elections..............................5
2.3 Proration...................................................7
2.4 Tax Adjustment..............................................9
2.5 Dividends, Fractional Shares, Etc...........................9
2.6 Warrants...................................................11
2.7 Stock Options..............................................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company..............12
3.2 Representations and Warranties of Parent and USF&G.........44
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company...................................49
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Proxy Statement; Shareholder
Meeting; Comfort Letters...................................56
5.2 Contract and Regulatory Approvals..........................57
5.3 HSR Filings................................................58
5.4 Access to Information; Confidentiality.....................58
5.5 Fees and Expenses..........................................59
5.6 Indemnification............................................60
5.7 Reasonable Best Efforts....................................61
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5.8 Public Announcements.......................................62
5.9 Environmental Studies......................................62
5.10 Affiliates.................................................62
5.11 Support Agreement..........................................62
5.12 Cooperation................................................62
5.13 NYSE Listing...............................................63
5.14 Benefit Plans and Employee Arrangements....................63
5.15 Tax-Free Reorganization....................................63
5.16 Tri-West...................................................63
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the
Merger.....................................................63
6.2 Conditions to Obligations of Parent and USF&G..............64
6.3 Conditions to Obligation of the Company....................65
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination................................................66
7.2 Effect of Termination......................................68
7.3 Amendment..................................................68
7.4 Extension; Waiver..........................................68
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements..69
8.2 Notices....................................................69
8.3 Interpretation.............................................70
8.4 Counterparts...............................................70
8.5 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership...............................................70
8.6 Governing Law..............................................70
8.7 Assignment.................................................70
||
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 7, 1997 (the
"Agreement"), is made and entered into by and among USF&G Corporation, a
Maryland corporation ("Parent"), United States Fidelity and Guaranty
Company, a Maryland corporation and a wholly owned subsidiary of Parent
("USF&G"), and Titan Holdings, Inc., a Texas corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company, Parent
and USF&G have determined that the merger of the Company with and into
USF&G (the "Merger"), upon the terms and subject to the conditions set
forth in this Agreement, would be fair to and in the best interests of
their respective shareholders, and such Boards of Directors have approved
the Merger, pursuant to which each share of common stock, par value $0.01
per share, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (as defined in Section
1.3) (other than (a) shares of Company Common Stock owned, directly or
indirectly, by the Company, any Subsidiary (as defined in Section 3.1(c))
of the Company, Parent or USF&G or any Subsidiary of USF&G or Parent and
(b) Dissenting Shares (as defined in Section 2.1(e))) will be converted
into, subject to the terms hereof, the right to receive the Merger
Consideration (as defined in Section 2.1(c));
WHEREAS, the Merger requires, for the approval thereof, the
affirmative vote of two-thirds of each of (a) the outstanding shares of the
Company Common Stock (the "Company Shareholder Approval") and (b) the
outstanding shares of USF&G's common stock, par value $2.50 per share (the
"USF&G Common Stock");
WHEREAS, Parent and USF&G are unwilling to enter into this
Agreement unless, contemporaneously with the execution and delivery of this
Agreement, Mark E. Watson, Jr., in his capacity as a shareholder of the
Company, enters into a voting and support agreement with Parent and USF&G,
the form of which is attached hereto as Exhibit A (the "Support
Agreement");
WHEREAS, Parent, USF&G and the Company desire to make certain
representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute a "plan of reorganization" for purposes of the Code.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Texas Business
Corporation Act ("TBCA") and the Maryland General Corporation Law ("MGCL"),
the Company shall be merged with and into USF&G at the Effective Time. At
the Effective Time, the separate corporate existence of the Company shall
cease and USF&G shall continue as the surviving corporation (USF&G and the
Company are sometimes hereinafter referred to as "Constituent Corporations"
and, as the context requires, USF&G is sometimes hereinafter referred to as
the "Surviving Corporation"). The name of the Surviving Corporation shall
be United States Fidelity and Guaranty Company.
1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.1, and subject to the satisfaction or waiver of the conditions
set forth in Article VI, the closing of the Merger (the "Closing") shall
take place at 10:00 a.m., Chicago, Illinois time, on the second business
day after satisfaction and/or waiver of all of the conditions set forth in
Article VI (the "Closing Date"), at the offices of Mayer, Brown & Platt,
190 South LaSalle Street, Chicago, Illinois 60603, unless another date,
time or place is agreed to in writing by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing
articles of merger (the "Articles of Merger") with the Secretary of State
of the State of Texas, as provided in the TBCA, and the Maryland State
Department of Assessments and Taxation, as provided in the MGCL, as soon as
practicable on or after the Closing Date. The Merger shall become effective
upon the acceptance for record of such filings or at such time thereafter
as is provided in the Articles of Merger (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects as
set forth in the applicable provisions of the TBCA and MGCL.
(a) The Articles of Incorporation of USF&G shall be the
Articles of Incorporation of the Surviving Corporation until duly amended
in accordance with the terms thereof and the MGCL.
(b) The Bylaws of USF&G (the "USF&G Bylaws") shall be the
Bylaws of the Surviving Corporation until thereafter amended as provided by
applicable law, the Surviving Corporation's Articles of Incorporation or
the Bylaws.
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(c) The directors of USF&G immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and Bylaws.
(d) The officers of USF&G at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; MERGER CONSIDERATION;
EXCHANGE OF CERTIFICATES; WARRANTS AND OPTIONS
2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any further action on the part of the holder of any
shares of Company Common Stock or the holder of any shares of USF&G Common
Stock:
(a) Capital Stock of USF&G. Each share of USF&G Common
Stock issued and outstanding immediately prior to the Effective Time shall
be converted into and become one fully paid and nonassessable share of
common stock, par value $2.50 per share of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Company Common
Stock owned by USF&G or Parent. Each share of Company Common Stock that is
owned by the Company, any Subsidiary of the Company, Parent or USF&G or any
Subsidiary of Parent or USF&G shall automatically be canceled and retired
and shall cease to exist, and no stock of Parent or other consideration
shall be delivered or deliverable in exchange therefor.
(c) Merger Consideration. Subject to Sections 2.1(b) and
(e) and Section 2.3, at the Effective Time each issued and outstanding
share of Company Common Stock shall be converted into, at the election of
the holder thereof, one of the following (as adjusted pursuant to this
Article II), (the "Merger Consideration"):
(i) for each such share of Company Common Stock (other than
shares as to which a Stock Election or Cash Election
(each as defined below) has been made), the right to
receive (x) 0.46516 (the "Standard Exchange Ratio") of
a share of the Common Stock, $2.50 par value per share
(including the associated Parent Rights (as defined
below), "Parent Common Stock"), of Parent (the
"Standard Stock Consideration") and (y) an amount in
cash, without interest, equal to $11.60 (the "Standard
Cash Consideration" and, together with the Standard
Stock Consideration, the "Standard Consideration");
provided, however, that
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(1) in the event the Average Stock Price is
greater or less than $24.94 but not
greater than $28.68 or less than
$21.20, the allocation of the
consideration between stock and cash
will be adjusted to maintain a 50%
stock, 50% cash relationship by
adjusting the Standard Cash
Consideration to an amount equal to
0.50 times the product of (a) $23.20
times (b) 1 plus the product of (i)
0.50 times (ii) a fraction the
numerator of which is the Average Stock
Price minus $24.94 and the denominator
of which is $24.94 and adjusting the
Standard Exchange Ratio to an amount
equal to the quotient obtained by
dividing the Standard Cash
Consideration as so adjusted by the
Average Stock Price; and
(2) in the event the Average Stock Price is
greater than $28.68, the Standard Cash
Consideration shall be an amount equal
to $12.47 and the Standard Exchange
Ratio shall be equal to the quotient
obtained by dividing $12.47 by the
Average Stock Price; and
(3) in the event the Average Stock Price is
less than $21.20, the Standard Cash
Consideration shall be an amount equal
to $10.73 and the Standard Exchange
Ratio shall be equal to the quotient
obtained by dividing $10.73 by the
Average Stock Price.
(ii) for each such share of Company Common Stock with
respect to which an election to receive solely
Parent Common Stock has been effectively made
and not revoked or lost pursuant to Sections
2.2(c), (d) or (e), the right to receive 2.0
times the Standard Exchange Ratio as determined
by (c)(i) above (the "Stock Exchange Ratio") of
a share of Parent Common Stock (the "Stock
Consideration"); or
(iii) for each such share of Company Common Stock with
respect to which an election to receive solely cash
has been effectively made and not revoked or lost
pursuant to Section 2.2(c), (d) or (e), the right
to receive in cash, without interest, in an amount
equal to 2.0 times the Standard Cash Consideration
as determined pursuant to (i) above (the "Cash
Consideration"); provided, however, that (1) in the
event the Average Stock Price is less than $21.20,
the Cash Consideration shall be equal to $21.46 and
(2) in the event the Average Stock Price is more
than $28.68, the Cash Consideration shall
be equal to $24.94.
"Average Stock Price" means the average of the Closing Market
Prices (as hereinafter defined) for the ten consecutive trading days ending
on the third trading day prior to the Effective Time; provided, however,
that the Average Stock Price used for purposes of the
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calculations in this Article II shall not in any event be less than $17.46.
The "Closing Market Prices" for any trading day means the closing sales
price of Parent Common Stock as reported in the New York Stock Exchange
Composite Tape for that day.
(d) Cancellation and Retirement of Company Common Stock.
As a result of the Merger and without any action on the part of the holder
thereof, at the Effective Time and except as provided in Sections 2.1(b)
and (e), all shares of Company Common Stock shall cease to be outstanding
and shall be canceled and retired and shall cease to exist, and each holder
of such shares of Company Common Stock shall thereafter cease to have any
rights with respect to such shares of Company Common Stock, except the
right to receive, without interest, the Merger Consideration and cash for
fractional shares of Parent Common Stock in accordance with Section 2.5(c)
upon the surrender of a certificate representing such shares of Company
Common Stock (a "Company Certificate").
(e) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, holders of Company Common Stock that have, as of
the Effective Time, complied with all procedures necessary to assert
appraisal rights in accordance with the TBCA, if applicable, shall have
such rights, if any, as they may have pursuant to Section 5.12 of the TBCA
and such Company Common Stock shall not be converted or be exchangeable as
provided in this Section 2.1, but such holders shall be entitled to receive
such payment as may be determined to be due to such holders pursuant to the
TBCA; provided, however, that if such holder shall have failed to perfect
or shall have effectively withdrawn or lost his right to appraisal and
payment under the TBCA, such holder's Company Common Stock shall thereupon
be deemed to have been converted and to have become exchangeable, as of the
Effective Time, into the Standard Consideration. The Company Common Stock
described in this Section 2.1(e) held by holders who exercise and perfect
appraisal rights are referred to herein as "Dissenting Shares." The Company
shall give Parent prompt notice of any demands for appraisal of shares
received by the Company (and shall also give Parent prompt notice of any
withdrawals of such demands for appraisal rights) and Parent shall have the
opportunity and right to participate in and direct all negotiations with
respect to such demands. The Company shall not, except with the prior
written consent of Parent, make any payment with respect to, settle or
otherwise negotiate or offer to settle any such demand for appraisal
rights. Parent agrees that it shall make all payments with respect to
appraisal rights and that the funds therefor shall not come, directly or
indirectly, from the Company.
2.2 Company Common Stock Elections
(a) Elections. Each person who, at the Effective Time, is
a record holder of shares of Company Common Stock (other than holders of
shares of Company Common Stock to be canceled as set forth in Section
2.1(b) or of Dissenting Shares) shall have the right to submit an Election
Form (as defined in Section 2.2(c)) specifying that such person desires to
have all of the shares of Company Common Stock owned by such person
converted into the right to receive either (i) the Standard Consideration
(a "Standard Election") (ii) the Stock Consideration (a "Stock Election"),
or (iii) the Cash Consideration (a "Cash Election").
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(b) Deposit of Exchange Fund. Promptly after the
Allocation Determination (as defined in Section 2.2(d)), Parent shall
deposit (or cause to be deposited) with a bank or trust company to be
designated by Parent and reasonably acceptable to the Company (the
"Exchange Agent"), for the benefit of the holders of shares of Company
Common Stock, for exchange in accordance with this Article II, (i) cash in
an amount sufficient to pay the aggregate cash portion of the Merger
Consideration in accordance with this Article II and (ii) certificates
representing shares of Parent Common Stock ("Parent Certificates") for
exchange in accordance with this Article II (the cash and certificates
deposited pursuant to clauses (i) and (ii) being hereinafter referred to as
the "Exchange Fund").
(c) Method of Election; Deemed Standard Election. As soon
as reasonably practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of Company Common Stock immediately
prior to the Effective Time (excluding any shares of Company Common Stock
which (i) are canceled pursuant to Section 2.1(b), or (ii) are Dissenting
Shares) (A) a letter of transmittal (the "Company Letter of Transmittal")
(which shall specify that delivery shall be effected, and risk of loss and
title to the Company Certificates shall pass, only upon delivery of such
Company Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Parent shall specify), (B) instructions for
use in effecting the surrender of the Company Certificates in exchange for
the Merger Consideration with respect to the shares of Company Common Stock
formerly represented thereby, and (C) an election form (the "Election
Form") providing for such holders to make the Standard Election, the Cash
Election or the Stock Election. As of the Election Deadline (as defined in
Section 2.2(d)) all holders of Company Common Stock immediately prior to
the Effective Time (excluding any shares of Company Common Stock that (i)
are canceled pursuant to Section 2.1(b) or (ii) are Dissenting Shares) that
shall not have properly submitted to the Exchange Agent, or that shall have
properly revoked, an effective and properly completed Election Form shall
be deemed to have made a Standard Election (each a "Deemed Standard
Election").
(d) Election Deadline. Any Cash Election, Standard
Election, or Stock Election shall have been validly made only if the
Exchange Agent shall have received by 5:00 p.m. New York City time on a
date (the "Election Deadline") to be mutually agreed upon by Parent and the
Company (which date shall not be later than the twentieth business day
after the Effective Time), an Election Form properly completed and executed
(with the signature or signatures thereof guaranteed to the extent required
by the Election Form) by such holder accompanied by such holder's Company
Certificates, or by an appropriate guarantee of delivery of such Company
Certificates from a member of any registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company in the United States as set forth in such Election
Form. Any holder of Company Common Stock that has made an election by
submitting an Election Form to the Exchange Agent may at any time prior to
the Election Deadline change such holder's election by submitting a revised
Election Form, properly completed and signed that is received by the
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Exchange Agent prior to the Election Deadline. Any holder of Company Common
Stock may at any time prior to the Election Deadline revoke such holder's
election and withdraw such holder's Company Certificate deposited with the
Exchange Agent by written notice to the Exchange Agent received by the
close of business on the day prior to the Election Deadline. As soon as
practicable after the Election Deadline (but in no event later than ten
business days after the Election Deadline), the Exchange Agent shall
determine the allocation of the cash portion and stock portion of the
Merger Consideration and shall notify Parent of its determined allocation
(the "Allocation Determination").
(e) No Further Ownership Rights in Company. From and
after the Effective Time, each holder of a certificate that immediately
prior to the Effective Time represented outstanding shares of Company
Common Stock, shall, upon surrender of such certificate for cancellation to
the Exchange Agent, together with the Company Letter of Transmittal, duly
executed, and such other documents as Parent or the Exchange Agent shall
reasonably request, be entitled to receive promptly after the Election
Deadline in exchange therefor (A) a check in the amount equal to the cash,
if any, which such holder has the right to receive pursuant to the
provisions of this Article II (including any cash in lieu of fractional
shares of Parent Common Stock), and (B) a Parent Certificate representing
that number of shares of Parent Common Stock, if any, which such holder has
the right to receive pursuant to this Article II (in each case less the
amount of any required withholding taxes), and the Company Certificate so
surrendered shall forthwith be canceled. Until surrendered as contemplated
by this Section 2.2(e), each Company Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive the
Merger Consideration with respect to the shares of Company Common Stock
formerly represented thereby. If any certificate for shares of Parent
Common Stock to be issued in the Merger is to be issued in a name other
than that in which the certificate for shares of Company Common Stock
surrendered in exchange therefor is registered, it shall be a condition of
such issuance that the person requesting such issuance shall pay any
transfer or other tax required by reason of the issuance of certificates
for such shares of Parent Common Stock in a name other than that of the
registered holder of the certificate surrendered, or shall establish to the
satisfaction of Parent or its agent that such tax has been paid or is not
applicable.
(f) Rules Governing Elections. Parent shall have the
right to make rules, not inconsistent with the terms of this Agreement,
governing the validity of the Election Forms, the manner and extent to
which Standard Elections, Cash Elections or Stock Elections are to be taken
into account in making the determinations prescribed by Section 2.3, the
issuance and delivery of certificates for Parent Common Stock into which
shares of Company Common Stock are converted in the Merger, and the payment
of cash for shares of Company Common Stock converted into the right to
receive cash in the Merger.
2.3 Proration.
(a) As is more fully set forth below, the maximum number
of shares of Parent Common Stock issuable to holders of Company Common
Stock (the "Maximum
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Number of Parent Shares") shall not exceed the product of (x) the Standard
Exchange Ratio and (y) the number of Outstanding Company Shares (as defined
below).
(b) As is more fully set forth below, the aggregate
amount of cash to be paid to holders of Outstanding Company Shares (as
defined below) (the "Maximum Cash Amount") shall not exceed the product of
(x) the Standard Cash Consideration and (y) the number of Outstanding
Company Shares. "Outstanding Company Shares" shall mean those shares of
Company Common Stock outstanding immediately prior to the Effective Time.
(c) In the event that the aggregate number of shares of
Parent Common Stock issuable pursuant to the Stock Elections received by
the Exchange Agent exceeds an amount equal to the Maximum Number of Parent
Shares minus the number of shares of Parent Common Stock issuable pursuant
to Standard Elections and Deemed Standard Elections, including any
fractional shares of Parent Common Stock for which a cash adjustment shall
be paid pursuant to Section 2.5(c) (such difference, the "Remaining Parent
Shares"), each holder making a Stock Election shall receive, for each share
of Company Common Stock held by such holder, (x) a number of shares of
Parent Common Stock equal to the quotient obtained by dividing (i) the
Remaining Parent Shares by (ii) the aggregate number of shares of Company
Common Stock held by holders making Stock Elections (the "Stock Election
Company Shares"), plus (y) cash in an amount equal to the quotient obtained
by dividing (iii) the Remaining Stock Election Cash Amount (as defined
below) by (iv) the Stock Election Company Shares. The "Remaining Stock
Election Cash Amount" shall be equal to the Maximum Cash Amount minus the
sum of (i) the aggregate amount of cash payable pursuant to, or with
respect to, Standard Elections, Deemed Standard Elections, Cash Elections,
Dissenting Shares and fractional shares and (ii) the aggregate amount of
consideration transferred by Parent in acquiring the Parent Shares (as
defined below). "Parent Shares" means any and all shares of Company Common
Stock that are (i) owned by Parent or USF&G and (ii) canceled and retired
at the Effective Time pursuant to Section 2.1(b). For purposes of this
paragraph and the following paragraph, the aggregate amount of cash payable
with respect to Dissenting Shares shall be deemed to be the product of (x)
the number of Dissenting Shares times (y) the sum of (i) the Standard Cash
Consideration and (ii) the product of the Standard Exchange Ratio times the
Average Stock Price.
(d) In the event that the aggregate amount of cash
payable pursuant to Cash Elections received by the Exchange Agent exceeds
the Maximum Cash Amount minus the sum of (i) the aggregate amount of cash
payable pursuant to Standard Elections and Deemed Standard Elections, (ii)
the aggregate amount of cash payable with respect to the Dissenting Shares
and fractional shares and (iii) the aggregate amount of consideration
transferred by Parent in acquiring the Parent Shares (such difference, the
"Remaining Cash"), each holder making a Cash Election shall receive, for
each share of Company Common Stock held by such holder, (x) cash in an
amount equal to the quotient obtained by dividing the (i) Remaining Cash by
(ii) the aggregate number of shares of Company Common Stock held by holders
making Cash Elections (the "Cash Election Company Shares"), plus (y) a
number of shares of Parent Common Stock equal to the quotient obtained by
dividing (iii) the Remaining
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Cash Election Parent Shares (as defined below) by (iv) the Cash Election
Company Shares. The "Remaining Cash Election Parent Shares" shall be the
Maximum Number of Parent Shares minus the number of shares of Parent Common
Stock issuable pursuant to Standard Elections, Deemed Standard Elections
and Stock Elections (including any fractional shares of Parent Common Stock
for which a cash adjustment shall be paid pursuant to Section 2.5(c) in
respect of such Standard Elections, Deemed Standard Elections and Stock
Elections).
2.4 Tax Adjustment.
In the event that the Closing Stock Price (as defined below) is
less than the Average Stock Price such that the allocation of the
consideration between stock and cash based on the Closing Stock Price is
not 50% stock and 50% cash, appropriate adjustment will be made, as
determined by Parent and the Company upon advice of counsel, to the extent
if any, as may be required to cause the Merger Consideration allocation
between cash and stock to satisfy the continuity of interest requirements
for purposes of causing the transaction to qualify as a tax-free
reorganization, provided that the total value of the Merger Consideration
to be delivered by Parent, based upon the Average Stock Price, shall not
increase. For purposes of this Section 2.4, the "Closing Stock Price" shall
mean the mean between the highest and lowest quoted selling prices of the
Parent Common Stock as reported on the New York Stock Exchange Composite
Tape on the day of the Effective Time of the Merger. In the event that an
adjustment is made under this Section 2.4, any adjustments necessary or
appropriate to reflect such adjustment shall be made to the other
provisions of this Article II.
2.5 Dividends, Fractional Shares, Etc.
(a) Dividends on Parent Common Stock. Notwithstanding any
other provisions of this Agreement, no dividends or other distributions
declared after the Effective Time on Parent Common Stock shall be paid with
respect to any shares of Company Common Stock represented by a Company
Certificate, until such Company Certificate is surrendered for exchange as
provided herein. Subject to the effect of applicable laws, following
surrender of any such Company Certificate, there shall be paid to the
holder of Parent Certificates issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Parent Common Stock and not
paid, less the amount of any withholding taxes that may be required
thereon, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of any
withholding taxes that may be required thereon.
(b) No Transfers; Closing of Stock Transfer Book. At or
after the Effective Time, there shall be no transfer on the stock transfer
books of the Company of the shares of Company Common Stock that were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates representing any such shares are presented to
the
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Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration, if any, deliverable in respect thereof pursuant to this
Agreement.
(c) No Fractional Shares. No fractional shares of Parent
Common Stock shall be issued pursuant to the Merger. In lieu of the
issuance of any fractional share of Parent Common Stock pursuant to the
Merger, cash adjustments shall be paid to holders in respect of any
fractional share of Parent Common Stock that would otherwise be issuable,
and the amount of such cash adjustment shall be equal to the product of
such fractional amount and the Average Stock Price.
(d) Termination of Exchange Fund. Any portion of the
Exchange Fund (including the proceeds of any investments thereof and any
shares of Parent Common Stock) that remains unclaimed by the former
stockholders of the Company two years after the Effective Time shall be
delivered to Parent. Any former stockholder of the Company who has not
theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation and Parent for payment of the applicable Merger
Consideration, cash in lieu of fractional shares and unpaid dividends and
distributions on Parent Common Stock deliverable in respect of each share
of Company Common Stock such stockholder holds as determined pursuant to
this Agreement, in each case without any interest thereon.
(e) None of Parent, the Company, USF&G, the Surviving
Corporation, the Exchange Agent or any other person shall be liable to any
former holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable or unclaimed
property, escheat or similar laws.
(f) In the event that any Company Certificate shall have
been lost, stolen or destroyed upon the making of an affidavit of that fact
by the person claiming such Company Certificate to be lost, stolen or
destroyed and, if required by Parent, the posting by such person of a bond
in such reasonable amount as Parent may direct as indemnity against any
claim that may be made against it with respect to such Company Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Company Certificate the applicable Merger Consideration, cash in
lieu of fractional shares, and unpaid dividends and distributions on shares
of Parent Common Stock, as provided in this Section 2.5, deliverable in
respect thereof pursuant to this Agreement.
(g) In the event of any change in Parent Common Stock
between the date of this Agreement and the Effective Time by reason of any
stock split, stock dividend, subdivision, reclassification, combination,
exchange of Parent Common Stock or the like, the Merger Consideration and
other terms set forth in this Agreement shall be appropriately adjusted.
(h) The pricing terms set forth herein are based on the
information disclosed in Section 3.1(b) hereof. If the number of such
shares and share equivalents
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outstanding is greater than the foregoing, the Merger Consideration shall be
appropriately adjusted.
2.6 Warrants. The Company shall use its reasonable best efforts to
cause holders of all then outstanding warrants to purchase Company Common
Stock (each a "Company Warrant") whether or not then exercisable in whole
or in part, to agree to surrender and receive, in exchange for cancellation
and in settlement thereof a number of shares of Parent Common Stock for
each share of Company Common Stock subject to such Company Warrant (subject
to any applicable withholding tax) equal to the quotient of (i) the product
of (1) the number of shares of Company Common Stock which the holder would
be entitled to receive if such Company Warrant were exercised in full
immediately prior to the Effective Time multiplied by (2) the difference
between (x) the Cash Consideration and (y) the exercise price of such share
of Company Common Stock under the Company Warrant, to the extent such
amount is a positive number divided by (ii) the Average Closing Price (such
amount being hereinafter referred to as the "Warrant Consideration");
provided, however, that with respect to any person subject to Section 16(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
any such amount shall be paid as soon as practicable after the first date
payment can be made without liability to such person under Section 16(b) of
the Exchange Act. Upon receipt of the Warrant Consideration, the Company
Warrant shall be canceled. The surrender of a Company Warrant to the
Company in exchange for the Warrant Consideration shall be deemed a release
of any and all rights the holder had or may have had in respect of such
Company Warrant. With respect to the Company Warrants that are not
surrendered prior to the Effective Time, after the Effective Time, the
Surviving Corporation shall comply with all applicable terms of such
unsurrendered Company Warrants.
2.7 Stock Options. Each stock option issued and outstanding under
the 1993 Stock Option Plan, as amended, of the Company (the "Stock Option
Plan") is referred to herein as an "Employee/Director Stock Option" and all
such options are referred to herein, collectively, as the
"Employee/Director Stock Options." Each stock option issued and outstanding
under the 1993 Directors' Stock Option Plan (the "Directors' Stock Option
Plan") is referred to herein as a "Director's Option" and all such options
are referred to herein, collectively, as the "Directors' Options." The
Employee/Director Stock Options and the Directors' Options are referred to
herein, collectively, as the "Company Options" and, individually, as a
"Company Option." At the Effective Time, each Company Option shall become
immediately fully vested and shall be converted into an option to purchase
shares of Parent Common Stock, as provided below. Following the Effective
Time, each such Company Option shall be exercisable upon the same terms and
conditions as then are applicable to such Company Option, except that (i)
each such Company Option shall be exercisable for that number of shares of
Parent Common Stock equal to the product of (x) the number of shares of
Company Common Stock for which such Company Option was exercisable
immediately prior to the Effective Date and (y) the Stock Exchange Ratio
and (ii) the exercise price of such option shall be equal to the quotient
obtained by dividing the exercise price per share of such Company Option by
the Stock Exchange Ratio. From and after the date of this Agreement, no
additional options to purchase shares of Company Common Stock shall be
granted under the Company Stock Option Plan, Directors' Stock Option
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Plan or otherwise. Except as otherwise agreed to by the parties, no person
shall have any right under any stock option plan (or any option granted
thereunder) or other plan, program or arrangement of the Company with
respect to, including any right to acquire, equity securities of the
Company following the Effective Time. At or as soon as practicable after
the Effective Time, Parent shall issue to each holder of a Company Option
that is canceled an agreement that accurately reflects the terms of the
Parent Option substituted therefore as contemplated by this Section 2.7.
Parent shall (i) take all corporate actions necessary to reserve for
issuance such number of shares of Parent Common Stock as will be necessary
to satisfy exercises in full of all Parent Options after the Effective
Time, (ii) use its reasonable best efforts to ensure that an effective
Registration Statement on Form S-8 is on file with the Securities and
Exchange Commission (the "SEC") with respect to such Parent Common Stock,
and (iii) use its reasonable best efforts to have such shares admitted to
trading upon exercises of Parent Options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as
disclosed in (i) the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, (ii) the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997, or (iii) the disclosure
memorandum (the "Disclosure Memorandum") delivered at or prior to the date
of this Agreement (it being understood that each section of the Disclosure
Memorandum shall list all items applicable to such section, although the
inadvertent omission of an item from one section shall not be a breach of
this Agreement if such item and an explanation of the nature of such item
is clearly disclosed in another section of the Disclosure Memorandum) the
Company represents and warrants to Parent and USF&G as follows:
(a) Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its business as now being conducted and is duly qualified or
licensed to do business as a foreign corporation and in good standing to
conduct business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification or license necessary, other than such jurisdictions
where the failure so to qualify or become so licensed would not
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect. The Company has
heretofore made available to Parent complete and correct copies of its
Amended and Restated Articles of Incorporation, as currently in effect as
of the date of this Agreement (the "Company Articles of Incorporation"),
and the Bylaws. As used in this Agreement, a "Material Adverse Effect"
shall mean, with respect to any specified party to this Agreement, any
event, change, condition, fact or effect which has or could reasonably be
expected to have a material adverse effect on (i) the business, results of
operations, or financial condition of such party and its Subsidiaries taken
as a whole or (ii) the ability of such party to consummate the transactions
contemplated by this Agreement.
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<PAGE>
(b) Capital Structure. As of the date of this Agreement,
the authorized capital stock of the Company consists of 45,000,000 shares,
divided into the following: (i) 5,000,000 shares of preferred stock, par
value $0.01 per share (the "Company Preferred Stock"); and (ii) 40,000,000
shares of Company Common Stock. At the close of business on August 1, 1997:
(i) 10,101,915 shares of Company Common Stock were issued and outstanding,
27,825 of which are restricted shares; (ii) 815,902 shares of Company
Common Stock were reserved for issuance in connection with the Stock Option
Plan; (iii) 122,457 shares of Company Common Stock were reserved for
issuance in connection with the Directors' Stock Option Plan; (iv) 491,222
shares of Company Common Stock were reserved for issuance upon exercise of
outstanding Company Warrants; (v) no shares of Company Common Stock were
held in treasury; (vi) no shares of Company Preferred Stock were issued and
outstanding or held by the Company or any Subsidiary of the Company; and
(vii) no bonds, debentures, notes or other instruments or evidence of
indebtedness having the right to vote (or convertible into, or exercisable
or exchangeable for securities having the right to vote) on any matters on
which the Company shareholders may vote ("Company Voting Debt") were issued
or outstanding. All outstanding shares of Company Common Stock are validly
issued, fully paid and nonassessable and are not subject to preemptive or
other similar rights. Except as set forth in Section 3.1(b) of the
Disclosure Memorandum, there are outstanding: (i) no securities of the
Company convertible into or exchangeable or exercisable for shares of
capital stock, Company Voting Debt or other voting securities of the
Company; and (ii) no stock awards, options, warrants, calls, rights
(including stock purchase or preemptive rights), commitments or agreements
to which the Company is a party or by which it is bound, in any case
obligating the Company to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional shares of its capital stock, any Company Voting Debt
or other voting securities or securities convertible into or exchangeable
or exercisable for voting securities of the Company, or obligating the
Company to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. Except as set forth in Section 3.1(b) of
the Disclosure Memorandum, since December 31, 1996, the Company has not (i)
granted any options, warrants or rights to purchase shares of Company
Common Stock or (ii) amended or repriced, as applicable, any Company
Option, any Company Warrant, the Stock Option Plan or the Directors' Stock
Option Plan. Section 3.1(b) of the Disclosure Memorandum sets forth the
following information with respect to each Company Option and Company
Warrant outstanding on the date of this Agreement: (A) the name of the
optionee or warrantholder, (B) the number of shares of Company Common Stock
subject to such Company Option or Company Warrant, and (C) the exercise
price of such Company Option or Company Warrant. None of the Company
Options are "incentive stock options" (within the meaning of Section 422 of
the Code). There are not as of the date of this Agreement and there will
not be on the date of the Shareholders' Meeting any shareholder agreements,
voting trusts or other agreements or understandings to which the Company is
a party or by which it is bound relating to the voting of any shares of the
capital stock of the Company which will limit in any way the solicitation
of proxies by or on behalf of the Company from, or the casting of votes by,
the shareholders of the Company with respect to the Merger. True and
correct copies of all agreements relating to the Company
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<PAGE>
Warrants and the Company Options and the issuance of any restricted stock
have previously been provided or made available to Parent.
(c) Subsidiaries; Investments. Section 3.1(c) of the
Disclosure Memorandum sets forth the name of each Subsidiary of the
Company, the jurisdiction of its incorporation or organization and whether
it is an insurance company. Each Subsidiary is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization and has the power and authority and all
necessary government approvals to own, lease and operate its properties and
to carry on its business as now being conducted. Each Subsidiary of the
Company is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it
or the nature of the business conducted by it makes such qualification or
licensing necessary. The Company has heretofore made available to USF&G
complete and correct copies of the articles of incorporation (or other
organizational documents) and bylaws of each of its Subsidiaries. Section
3.1(c) of the Disclosure Memorandum sets forth, as to each Subsidiary of
the Company, its authorized capital stock and the number of issued and
outstanding shares of capital stock (or similar information with respect to
any Subsidiary not organized as a corporate entity). All outstanding shares
of the capital stock of the Subsidiaries of the Company are validly issued,
fully paid and nonassessable and are not subject to preemptive or other
similar rights; neither the Company nor any Subsidiary of the Company has
any call obligations or similar liabilities with respect to partnerships or
other Subsidiaries not organized as corporate entities. Except as set forth
in Section 3.1(c) of the Disclosure Memorandum, the Company is, directly or
indirectly, the record and beneficial owner of all of the outstanding
shares of capital stock (or other interests, with respect to Subsidiaries
not organized as corporate entities) of each of its Subsidiaries free and
clear of all Liens and other restrictions with respect to the
transferability or assignability thereof (other than restrictions on
transfer imposed by federal or state securities laws) and no capital stock
(or other interests, with respect to Subsidiaries not organized as
corporate entities) of any of its Subsidiaries is or may become required to
be issued by reason of any options, warrants, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable or exercisable for, shares of
capital stock (or other interests, with respect to Subsidiaries not
organized as corporate entities) of any of its Subsidiaries and there are
no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may be bound to issue, redeem,
purchase or sell shares of Subsidiary capital stock (or other interests,
with respect to Subsidiaries not organized as corporate entities) or
securities convertible into or exchangeable or exercisable for any such
shares or interests. Except for the ownership interests set forth in
Section 3.1(c) of the Disclosure Memorandum, neither the Company nor any of
its Subsidiaries owns, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, business association,
joint venture or other entity, except for portfolio investments made in the
ordinary course of business. As used in this Agreement, the word
"Subsidiary," with respect to any party to this Agreement, means any
corporation, partnership, joint venture or other organization, whether
incorporated or unincorporated, of which: (i) such party or any other
Subsidiary of such party is a general partner; (ii) voting power to elect a
majority of the
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<PAGE>
Board of Directors or others performing similar functions with respect to
such corporation, partnership, joint venture or other organization is held
by such party or by any one or more of its Subsidiaries, or by such party
and any one or more of its Subsidiaries; or (iii) at least 10% of the
equity, other securities or other interests is, directly or indirectly,
owned or controlled by such party or by any one or more of its Subsidiaries
or by such party and any one or more of its Subsidiaries.
(d) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite
corporate power and authority to
enter into this Agreement and,
subject to the Company Shareholder
Approval, to consummate the
transactions contemplated hereby.
The execution and delivery of this
Agreement and the consummation of
the transactions contemplated hereby
have been duly authorized by all
necessary corporate action on the
part of the Company, subject, in the
case of the Merger, to the Company
Shareholder Approval. This Agreement
has been duly executed and delivered
by the Company and, subject, in the
case of the Merger, to the Company
Shareholder Approval, and assuming
that this Agreement constitutes the
valid and binding agreement of
Parent and USF&G, constitutes a
valid and binding obligation of the
Company enforceable in accordance
with its terms and conditions except
that the enforcement hereof may be
limited by (A) applicable
bankruptcy, insolvency,
reorganization, moratorium,
fraudulent conveyance or other
similar laws now or hereafter in
effect relating to creditors' rights
generally and (B) general principles
of equity (regardless of whether
enforceability is considered in a
proceeding at law or in equity) and
(C) any ruling or action of any
Governmental Entity as set forth in
Section 3.1(d)(iii).
(ii) The execution and delivery of this
Agreement and the consummation of
the transactions contemplated hereby
by the Company will not conflict
with, or result in any violation of,
or default (with or without notice
or lapse of time, or both) under, or
give rise to a right of termination,
cancellation or acceleration
(including pursuant to any put
right) of any obligation or the loss
of a material benefit under, or the
creation of a Lien on assets or
property, or right of first refusal
with respect to any asset or
property or change any other rights,
benefits, liabilities or obligations
(any such conflict, violation,
default, right of termination,
cancellation or acceleration, loss,
creation or right of first refusal,
or change, a "Violation"), pursuant
to, (A) any
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provision of the Articles of
Incorporation or Bylaws of the Company
or the comparable documents of any of
its Subsidiaries or (B) except as to
which requisite waivers or consents
have been obtained and specifically
identified in Section 3.1(d) of the
Disclosure Memorandum and assuming the
consents, approvals, authorizations or
permits and filings or notifications
referred to in paragraph (iii) of this
Section 3.1(d) are duly and timely
obtained or made and, in the case of
the Merger, the Company Shareholder
Approval has been obtained, any loan or
credit agreement, note, mortgage, deed
of trust, indenture, lease, Company
License (as defined in Section 3.1(g)),
Company Benefit Plan (as defined in
Section 3.1(n)), Company Material
Contract (as defined in Section
3.1(r)), or any other agreement,
obligation, instrument, concession or
license or any judgment, order, decree,
statute, law, ordinance, rule or
regulation applicable to the Company,
any of its Subsidiaries or any of their
respective properties or assets except
for such Violations which would not
individually or in the aggregate
adversely affect the Company and its
Subsidiaries taken as a whole in any
material respect.
(iii) No consent, approval, order or
authorization of, or registration,
declaration or filing with, notice
to, or permit from any court,
administrative agency or commission
or other governmental authority or
instrumentality, domestic or foreign
(a "Governmental Entity"), is
required by or with respect to the
Company or any of its Subsidiaries
in connection with the execution and
delivery of this Agreement by the
Company or the consummation by the
Company of the transactions
contemplated hereby, except for: (A)
any actions and approval that may be
required under the insurance laws
and regulations of the jurisdictions
in which the Subsidiaries of the
Company that are insurance companies
are domiciled or licensed, each of
which is listed in Section
3.1(d)(iii)(A) of the Disclosure
Memorandum; (B) the filing of a
pre-merger notification and report
form by the Company under the
Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended
(the "HSR Act"), and the expiration
or termination of the applicable
waiting period thereunder; (C) the
filing with the SEC of (x) a proxy
statement in definitive form
relating to the approval by the
holders of Company Common Stock of
the Merger (such proxy statement as
amended or supplemented from time to
time being hereinafter referred to
as the "Proxy Statement"), (y) the
registration statement on Form S- 4
to be filed with the SEC by Parent
pursuant to which Shares of
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Parent Common Stock issuable in the
Merger will be registered with the SEC
(the "Form S-4"), and (z) such reports
under and such other compliance with
the Exchange Act and the rules and
regulations thereunder as may be
required in connection with this
Agreement and the transactions
contemplated hereby; (D) the filing of
the Articles of Merger with the
Secretary of State of the State of
Texas and the Maryland State Department
of Assessments and Taxation; (E) such
filings and approvals as may be
required by any applicable state
securities, "blue sky" or takeover
laws; (F) the Company Shareholder
Approval; and (G) where the failure to
obtain consent, approval, order, or
authorization of, or registration,
declaration or filing with, notice to,
or permit from a Government Entity
would not adversely effect the Company
and its Subsidiaries taken as a whole
in any material respect.
(e) Government Filings. The Company has made available to
USF&G a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by the Company with the SEC
since December 31, 1994 and prior to the date of this Agreement (the "Filed
Company SEC Documents"), which are all the documents (other than
preliminary material) that the Company was required to file with the SEC
since such date. As of their respective dates, the Filed Company SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Filed Company SEC Documents, and
none of the Filed Company SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Filed Company SEC
Documents comply as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present
in accordance with applicable requirements of GAAP the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates therein and the consolidated results of their operations and cash
flows for the periods presented therein (subject, in the case of unaudited
interim financial statements, to normal recurring adjustments none of which
are material). Section 3.1(e) of the Disclosure Memorandum lists with
respect to the Company Common Stock for the period since December 31, 1996
and prior to the date of this Agreement each: (i) Schedule 13D filed with
the SEC and (ii) application for change in control filed under the
insurance holding company laws of any state or other jurisdiction. No
Subsidiary of the Company has been or is required to or has filed any
documents with the SEC. Section 3.1(e) of the Disclosure Memorandum
includes the Company's reported results for the six-month
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period ended June 30, 1997 and such reported results fairly present in
summary fashion and in accordance with applicable requirements of GAAP the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates therein and the consolidated results of their
operations for the periods presented therein (subject to normal recurring
adjustments none of which are material).
(f) Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with
the SEC, and at any time it is amended or supplemented or at the time it
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 under which they are made, not misleading, and (ii) the Proxy
Statement will, on the date it is first mailed to the holders of the
Company Common Stock or at the time of the Shareholders' Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation is made
by the Company with respect to statements made or incorporated by reference
therein based on information supplied in writing by Parent or USF&G
specifically for inclusion therein. If, at any time prior to the
Shareholders' Meeting, any event with respect to the Company, or with
respect to other information supplied by the Company for inclusion in the
Proxy Statement, shall occur which is required to be described in an
amendment of, or a supplement to, any of such documents, such event shall
be so described, and such amendment or supplement shall be promptly filed
with the SEC and, as required by law, disseminated to the shareholders of
the Company.
(g) Compliance with Applicable Laws.
(i) Except as disclosed in Section 3.1(g)(i) of the
Disclosure Memorandum, the business of the Company
and each of its Subsidiaries is being, in all
material respects, conducted in compliance with all
applicable laws, including, without limitation,
all insurance laws, ordinances, rules and
regulations, decrees and orders of any Governmental
Entity, and all notices, reports, documents and
other information required to be filed
thereunder within the last three years were
properly filed and were in
compliance in all respects with such laws.
(ii) (A) Insurance Licenses. Section 3.1(g)(ii)(A) of
the Disclosure Memorandum contains a true and
complete list of all jurisdictions in which each
of the Subsidiaries of the Company is licensed
to transact insurance business. Except as
disclosed in Section 3.1(g)(ii)(B) of the
Disclosure Memorandum, each of the Subsidiaries
of the Company has all the licenses necessary to
conduct the lines of insurance business
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which such Subsidiary is currently conducting in
each of the states set forth in Section
3.1(g)(ii)(A) of the Disclosure Memorandum,
which are all of the states in which the Company
is currently conducting business or in the
process of commencing conducting business. The
Subsidiaries of the Company own or validly hold
the insurance licenses referred to in Section
3.1(g)(ii)(A) of the Disclosure Memorandum, all
of which licenses are valid and in full force
and effect. Except as set forth in Section
3.1(g)(ii)(A) of the Disclosure Memorandum,
there is no proceeding or investigation pending
or, to the knowledge (as defined below) of the
Company, threatened which would reasonably be
expected to lead to the revocation, amendment,
failure to renew, limitation, suspension or
restriction of any such license to transact
insurance business. As used in this Agreement,
"knowledge" means the actual knowledge, after
reasonable inquiry, of, in the case of the
Company, the management of the Company, and, in
the case of Parent, the management of Parent.
(B) Other Licenses. The Company and each of its
Subsidiaries owns or validly holds all licenses,
franchises, permits, approvals, authorizations,
exemptions, classifications, registrations,
rights and similar documents (other than
licenses to transact insurance business) which
are necessary for it to own, lease or operate
its properties and assets and to conduct its
business as now conducted, except for such
licenses the failure to hold which would not
individually or in the aggregate adversely
affect the Company and its Subsidiaries taken as
a whole in any material respect. The business of
the Company and each of its Subsidiaries has
been and is being conducted in compliance in all
material respects with all such licenses. All
such licenses are in full force and effect, and
there is no proceeding or investigation pending
or, to the knowledge of the Company, threatened
which would reasonably be expected to lead to
the revocation, amendment, failure to renew,
limitation, suspension or restriction of any
such license.
(C) The licenses referred to in subparagraphs
(A) and (B) are collectively referred to herein
as the "Company Licenses."
(iii) Each Subsidiary of the Company that is an insurance
company has filed all annual and quarterly
statements, together with all exhibits and
schedules thereto, required to be filed with or
submitted to the appropriate regulatory authorities
of the jurisdiction in which it is
domiciled and to any other jurisdiction where
required on forms prescribed or permitted by such
authority. Each Annual Statement filed
by any Subsidiary of the Company that is an
insurance company with the insurance regulator in
its state of domicile for the three years ended
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December 31, 1996 (each a "Company Annual
Statement"), together with all exhibits and
schedules thereto, financial statements relating
thereto and any actuarial opinion, affirmation
or certification filed in connection therewith
and each Quarterly Statement so filed for the
quarterly periods ended after January 1, 1997
(each a "Company Quarterly Statement") were
prepared in conformity with the statutory
accounting practices prescribed or permitted by
the insurance regulatory authorities of the
applicable state of domicile applied on a
consistent basis ("SAP"), present fairly, in all
material respects, to the extent required by and
in conformity with SAP, the statutory financial
condition of such Subsidiary at their respective
dates and the results of operations, changes in
capital and surplus and cash flow of such
Subsidiary for each of the periods then ended,
and were correct when filed and there were no
omissions therefrom when filed. No deficiencies
or violations have been asserted in writing (or,
to the knowledge of the Company, orally) by any
insurance regulator with respect to the
foregoing financial statements which have not
been cured or otherwise resolved to the
satisfaction of such insurance regulator and
which have not been disclosed in writing to
USF&G prior to the date of this Agreement. Set
forth in Section 3.1(g)(iii) of the Disclosure
Memorandum is a list of permitted practices
under SAP which are utilized in any of the
Company's Annual or Quarterly Statements.
(iv) All statutory reserves as established or
reflected in the Company Annual Statements and
Company Quarterly Statements were determined in
accordance with SAP and generally accepted
actuarial assumptions and met the requirements
of the insurance laws of each applicable
jurisdiction as of the respective dates of such
statements. The statutory reserves set forth in
the Company Annual Statement and Company
Quarterly Statements meet in all material
respects the requirements of the insurance laws
of the jurisdictions in which such Subsidiaries
do business and reflect a reasonable provision
for unpaid policy losses and loss adjustment
expenses as of such date. The reserves of the
Subsidiaries of the Company including, but not
limited to, the reserves for incurred losses,
incurred loss adjustment expenses, incurred but
not reported losses and loss adjustment
expenses for incurred but not reported losses
(the "Loss Reserves") as set forth in the
audited consolidated financial statements and
unaudited interim financial statements of such
Subsidiaries included in the Filed Company SEC
Documents were determined in good faith by the
Company and such Subsidiaries in accordance
with generally accepted accounting principles
and were believed by the Company and such
Subsidiaries to be reasonable when made. The
Loss Reserves established or reflected in the
Company Annual Statements and the Company
Quarterly Statements
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<PAGE>
were determined in accordance with generally
accepted actuarial standards consistently
applied and are in compliance in all material
respects with the insurance laws, rules and
regulations of their respective states of
domicile as well as those of any other
applicable jurisdictions. The Company has
delivered or made available to Parent true and
complete copies of all actuarial reports and
actuarial certificates in the possession or
control of the Company, any of the Subsidiaries
or any other affiliates of the Company relating
to the adequacy of the Loss Reserves (or any
portion thereof) of the Company or any of its
Subsidiaries for any period ended on or after
December 31, 1996.
(v) Except as set forth in Section 3.1(g)(v) of the
Disclosure Memorandum, from January 1, 1997
through the date of this Agreement, none of the
Company's Subsidiaries have paid any dividend or
made any other distribution in respect of its
capital stock.
(h) Insurance Issued. Except (i) as set forth in Section
3.1(h) of the Disclosure Memorandum and (ii) where noncompliance would not
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect, with respect to all
insurance issued:
(i) All insurance policies issued, reinsured or
underwritten by the Subsidiaries of the Company
are, to the extent required by applicable law,
and in all material respects on forms approved
by the insurance regulatory authority of the
jurisdiction where issued or delivered or have
been filed with and not objected to by such
authority within the period prescribed for such
objection, and utilize premium rates which if
required to be filed with or approved by
insurance regulatory authorities have been so
filed or approved and the premiums charged
conform thereto.
(ii) All insurance policy benefits payable by any
Subsidiary of the Company and, to the knowledge
of the Company, by any other person that is a
party to or bound by any reinsurance,
coinsurance or other similar agreement with any
Subsidiary of the Company, have in all material
respects been paid or are in the course of
settlement in accordance with the terms and
within the limits of the insurance policies and
other contracts under which they arose, except
for such benefits for which there is a
reasonable basis to contest payment and which
are being or have been contested by appropriate
proceedings and in accordance with applicable
law.
(iii) The Company has not received any information
which would reasonably cause it to believe that
the financial condition of any other party to
any
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<PAGE>
reinsurance, coinsurance or other similar
agreement with any of its Subsidiaries is so
impaired as to result in a default thereunder.
(iv) All advertising, promotional, sales and
solicitation materials and product illustrations
used by any Subsidiaries of the Company or any
agent of any of its Subsidiaries have complied
and are in compliance, in all material respects,
with all applicable laws.
(v) To the knowledge of the Company, each insurance
agent, at the time such agent wrote, sold or
produced business for any Subsidiary of the
Company since January 1, 1993 was duly licensed
as an insurance agent (for the type of business
written, sold or produced by such insurance
agent) in the particular jurisdiction in which
such agent wrote, sold or produced such
business and was properly appointed by such
Subsidiary. All written contracts and
agreements between any such agent, on the one
hand, and the Company or any of its
Subsidiaries, on the other hand, are in
material compliance with all applicable laws
and regulations. To the knowledge of the
Company and its Subsidiaries, no such agent is
the subject of, or party to, any disciplinary
action or proceeding under applicable law. As
of the date hereof, to the Company's knowledge,
the Company has not been advised that any
insurance agent intends to terminate or
materially change its relationship with the
Company or its Subsidiaries as a result of the
Merger or the contemplated operations of the
Company and its Subsidiaries after the Merger
is consummated.
(vi) Except as set forth in Section 3.1(h)(vi) of the
Disclosure Memorandum, neither the Company nor
any of its Subsidiaries is a party to any
fronting agreement or places or sells
reinsurance whether for its own account or for
any reinsurance company.
(vii) There are (A) to the knowledge of the Company or
its Subsidiaries, no claims asserted, (B) no
actions, suits, investigations or proceedings
by or before any court or other Governmental
Entity, and (C) no investigations by or on
behalf of any of the Company or its
Subsidiaries ((A), (B) and (C) being
collectively referred to as "Actions") pending
or, to the knowledge of the Company or
its Subsidiaries, threatened, against or
involving any of the Company or its
Subsidiaries, or any of their agents that
include allegations that any of the Company or
its Subsidiaries or any of the agents of the
Company or its Subsidiaries were in violation
of or failed to comply with any law, statute,
ordinance, rule, regulation, code, writ,
judgement, injunction decree, determination or
award applicable to the Company or its
Subsidiaries in the respective jurisdictions in
which their products have been sold, and,
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<PAGE>
to the knowledge of the Company or the
Subsidiary, no facts exist which would
reasonably be expected to result in the filing
or commencement of any such Action.
(i) Rating Agencies. Except as disclosed in Section
3.1(i) of the Disclosure Memorandum, since December 31, 1996, no rating
agency has imposed conditions (financial or otherwise) on retaining any
currently held rating assigned to any Subsidiary of the Company that is an
insurance company or indicated to the Company that it is considering the
downgrade of any rating assigned to any Subsidiary of the Company that is
an insurance company. As of the date of this Agreement, each Subsidiary of
the Company that is an insurance company has the A.M. Best rating set forth
in Section 3.1(i) of the Disclosure Memorandum. Notwithstanding anything to
the contrary, the imposition of conditions (financial or otherwise) on
retaining any currently held rating assigned to any Subsidiary of the
Company that is an insurance company or downgrade of any rating assigned to
any subsidiary of the Company that is an insurance company primarily as a
result of the transactions contemplated by this Agreement shall not be a
breach of this representation and warranty.
(j) Absence of Certain Changes or Events. Since December
31, 1996, there has not been, occurred, or arisen any change, event
(including without limitation any damage, destruction, or loss whether or
not covered by insurance), condition, or state of facts of any character
with respect to the business or financial condition of the Company or any
of its Subsidiaries, except (i) as disclosed in Section 3.1(j) of the
Disclosure Memorandum or in the Filed Company SEC Documents, (ii) the
imposition of conditions (financial or otherwise) on retaining any
currently held rating assigned to any Subsidiary of the Company that is an
insurance company or downgrade of any rating assigned to any Subsidiary of
the Company that is an insurance company primarily as a result of the
transactions contemplated by this Agreement, and (iii) for events in the
ordinary course of business consistent with past practice that would not,
individually or in the aggregate, result in a Material Adverse Effect on
the Company. Except as disclosed in Section 3.1(j) of the Disclosure
Memorandum or in the Filed Company SEC Documents, since December 31, 1996,
the Company and each of its Subsidiaries has operated only in the ordinary
course of business consistent with past practice and (without limiting the
generality of the foregoing) there has not been, occurred, or arisen:
(i) any declaration, setting aside, or payment of
any dividend or other distribution in respect of
the capital stock of the Company (other than as
expressly permitted by this Agreement) or any
direct or (other than any retirement of Options
or Warrants contemplated pursuant to this
Agreement) indirect redemption, purchase, or
other acquisition by the Company of any such
stock or of any interest in or right to acquire
any such stock;
(ii) any split, combination or reclassification of
any of its outstanding capital stock or any
issuance or the authorization of any issuance of
any
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<PAGE>
other securities in respect of, in lieu of or
in substitution for shares of
the Company's or any of its Subsidiary's
outstanding capital stock;
(iii) (A) any granting by the Company or any of its
Subsidiaries to any director, officer or other
employee of the Company or any of its
Subsidiaries of any increase in compensation
(including perquisites), except, with respect
to employees other than Key Employees (as
defined below), grants in the ordinary course
of business consistent with prior practice, (B)
any granting by the Company or any of its
Subsidiaries to any such director, officer or
other employee of any increase in severance or
termination pay, or (C) any entry into,
modification, amendment, waiver or consent by
the Company or any of its Subsidiaries with
respect to any employment, severance, change of
control, termination or similar agreement,
arrangement or plan (oral or otherwise) with
any officer, director or other employee;
(iv) any change in the method of accounting or policy
used by the Company or any of its Subsidiaries
other than as disclosed in the financial
statements included in the Filed Company SEC
Documents or in the Company Annual Statement or
the Company Quarterly Statement most recently
filed and publicly available prior to the date
hereof or which
were required by GAAP or SAP;
(v) made any material amendment to the insurance
policies in force of any Subsidiary of the
Company or made any change in the methodology
used in the determination of the reserve
liabilities of the Subsidiaries of the Company
or any reserves contained in the financial
statements included in the Filed Company SEC
Documents or in the Company Annual Statement or
the Company Quarterly Statements;
(vi) any termination, amendment or entrance into as
ceding or assuming insurer any reinsurance,
coinsurance or other similar agreement or any
trust agreement or security agreement relating
thereto, other than (A) facultative reinsurance
contracts related to the Company's public
entity business only that have been entered
into in the ordinary course of business
consistent with past practice, and (B) renewals
for periods of one year or less on
substantially the same terms, in the ordinary
course of business;
(vii) any introduction of any insurance policy or any
changes made in its customary marketing,
pricing, underwriting, investing or actuarial
practices and policies, except in the ordinary
course of business consistent with past
practice;
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<PAGE>
(viii) any Lien created or assumed on any of the assets
or properties of the Company or any of its
Subsidiaries;
(ix) any liability involving the borrowing of money
by the Company or any of its Subsidiaries or the
incurrence by the Company or any of its
Subsidiaries of any deferred purchase price
obligation (other than trade credit incurred in
the ordinary course of business and consistent
with past practice);
(x) any cancellation of any liability owed to the
Company or any of its Subsidiaries by any other
person or entity other than immaterial amounts
owed by a person or entity who is not a Related
Party (as defined in Section 3.1(s));
(xi) any write-off or write-down of, or any
determination to write-off or write-down, the
assets or properties (other than any statutory
write-down of investment assets which is not
related to a permanent impairment of value) of
the Company of any of its Subsidiaries or any
portion thereof;
(xii) any expenditure or commitment for additions to
property, plant, equipment, or other tangible or
intangible capital assets or properties of the
Company or any of its Subsidiaries which exceeds
$75,000 individually or in the aggregate;
(xiii) any material change in any marketing
relationship between the Company or any of its
Subsidiaries and any person or entity through
which the Company sells insurance Contracts; or
(xiv) any Contract to take any of the actions prohibited
in this Section 3.1(j).
(k) Absence of Undisclosed Liabilities. Except as
reflected in Section 3.1(k) of the Disclosure Memorandum, as of December
31, 1996, neither the Company nor any of its Subsidiaries had any
liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due (and there was no basis for any such liability), which were not
shown or provided for in the audited financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
and which should have been so shown or provided for under generally
accepted accounting principles. Since December 31, 1996, neither the
Company nor any of its Subsidiaries has incurred any liabilities, absolute,
accrued, contingent or otherwise, whether due or to become due (and there
is no basis for such liabilities) except: (i) liabilities arising in the
ordinary course of business consistent with past practice, which would not
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect; (ii) as specifically
and individually reflected in Section 3.1(k) of the Disclosure Memorandum
or Filed Company SEC Documents, or (iii) other liabilities which,
individually or in the aggregate, together with those
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<PAGE>
liabilities referenced in subparagraphs (i) and (ii), would not adversely
affect the Company and its Subsidiaries taken as a whole in any material
respect. Except for regular periodic assessments in the ordinary course of
business, no claim or assessment is pending or, to the knowledge of the
Company, threatened, against the Company or any of its Subsidiaries by any
state insurance guaranty association in connection with such association's
fund relating to insolvent insurers.
(l) Litigation. Except as set forth in Section 3.1(1) of
the Disclosure Memorandum and except for claims arising under insurance
policies in (i) an amount no greater than the limits set forth in such
policies and/or (ii) not involving punitive, extra- contractual or
extraordinary damages, (A) there is no suit, action, investigation,
arbitration or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries, at
law or in equity, before any person and (B) there is no writ judgment,
decree, injunction, rule or similar order of any Governmental Entity or
arbitrator outstanding against the Company or any of its Subsidiaries.
(m) Taxes. Except as set forth in Section 3.1(m) of the
Disclosure Memorandum:
(i) The Company and its Subsidiaries have (x) duly
and timely filed (or there have been filed on
their behalf) with the appropriate taxing
authorities all Tax Returns required to be filed
by them, and all such Tax Returns are true,
correct and complete in all material respects
and (y) timely paid or there have been paid on
their behalf all Taxes due or claimed to be due
from them by any taxing authority.
(ii) The Company and its Subsidiaries have complied
in all material respects with all applicable
laws, rules and regulations relating to the
payment and withholding of Taxes and have,
within the time and manner prescribed by law,
withheld and paid over to the proper
governmental authorities all amounts required to
be withheld and paid over under all applicable
laws.
(iii) There are no liens for Taxes upon the assets or
properties of the Company or any of its
Subsidiaries except for statutory liens for
current Taxes not yet due.
(iv) Neither the Company nor any of its Subsidiaries
has requested any extension of time within which
to file any Tax Return in respect of any taxable
year which has not since been filed.
(v) Based upon the Company's knowledge, no federal,
state, local or foreign audits or other
administrative proceedings or court proceedings
("Audits") exist with regard to any Taxes or Tax
Returns of the
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<PAGE>
Company or any of its Subsidiaries and there has
not been received any written notice that such
an Audit is pending or threatened with respect
to any Taxes due from or with respect to the
Company or any of its Subsidiaries or any Tax
Return filed by or with respect to the Company
or any of its Subsidiaries.
(vi) Neither the Company nor any of its Subsidiaries
has requested or received a ruling from any
taxing authority or signed a closing or other
agreement with any taxing authority which would
affect any taxable period after the Closing
Date.
(vii) The federal and state income Tax Returns of the
Company and its Subsidiaries have been examined
by the appropriate taxing authorities (or the
applicable statute of limitations for the
assessment of Taxes for such periods have
expired) for all periods through December 31,
1992 and a list of all Audits commenced or
completed with respect to the Company and its
Subsidiaries for all taxable periods not yet
closed by the statute of limitations is set
forth in Section 3.1(m) of the Disclosure
Memorandum.
(viii) All material Tax deficiencies which have been
claimed, proposed or asserted in writing against
the Company or any of its Subsidiaries have been
fully paid or finally settled, and no issue has
been raised in writing in any examination which,
by application of similar principles, could be
expected to result in the proposal or assertion
of a material Tax deficiency for any other year
not so examined.
(ix) Neither the Company nor any of its Subsidiaries
is required to include in income any adjustment
pursuant to Section 481(a) of the Code, for any
period after the Closing Date, by reason of any
voluntary or involuntary change in accounting
method (nor has any taxing authority proposed in
writing any such adjustment or change of
accounting method).
(x) Neither the Company nor any of its Subsidiaries
is a party to, is bound by, nor has any
obligation under, any Tax sharing agreement, Tax
indemnification agreement or similar contract or
arrangement.
(xi) No power of attorney has been granted by or with
respect to the Company or any of its
Subsidiaries with respect to any matter relating
to Taxes, which is currently effective.
(xii) Neither the Company nor any of its Subsidiaries
has filed a consent pursuant to Section 341(f)
of the Code (or any predecessor provision) or
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<PAGE>
agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f)
asset (as such term is defined in Section
341(f)(4) of the Code) owned by the Company or
any of its Subsidiaries.
(xiii) Since the date of the December 31, 1996
consolidated financial statements of the
Company, neither the Company nor any of its
Subsidiaries has incurred any liability for
Taxes other than in the ordinary course of
business.
(xiv) Neither the Company nor any of its Subsidiaries
has or could have any liability for Taxes of any
person other than itself or the Company or any
of its Subsidiaries under Treasury Regulation
Section 1.1502-6 (or any similar provision of
state, local or foreign law).
(xv) Neither the Company nor any of its Subsidiaries
has any intercompany items or corresponding
items that have not been taken into account
under Treasury Regulation Section 1.1502-13 (or
any similar provision under state, local or
foreign law).
(xvi) Neither the Company nor any of its Subsidiaries
has made any tax election that would result in
deferring any income or gain from a tax period
ending on or before the Closing Date to a tax
period ending after the Closing Date without a
corresponding receipt of cash and/or property or
would result in accelerating any loss or
deduction from a tax period ending after the
Closing Date to a tax period ending on or before
the Closing Date.
(xvii) Neither the Company nor any of its Subsidiaries
is a party to any contract, agreement or other
arrangement(s) which could result in the payment
of amounts that could be nondeductible by reason
of Section 280G or 162(m) of the Code.
For purposes of this Agreement, (i) "Taxes" (including, with correlative
meaning, the term "Tax") shall mean all taxes, charges, fees, levies,
penalties or other assessments imposed by any federal, state, local or
foreign taxing authority, including, but not limited to, income, gross
receipts, excise, property, sales, transfer, franchise, payroll,
withholding, social security and other taxes, and shall include any
interest, penalties or additions attributable thereto and (ii) "Tax Return"
shall mean any return, report, information return or other document
(including any related or supporting information) required to be prepared
with respect to Taxes.
(n) Pension And Benefit Plans; ERISA.
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<PAGE>
(i) Section 3.1(n)(i) of the Disclosure Memorandum
sets forth a complete and correct list of:
(A) all "employee benefit plans," as defined in
Sections 3(3) and 4(b)(4) of ERISA, under which
Company or any of its Subsidiaries maintains or
has any obligation or liability, contingent or
otherwise ("Company Benefit Plans"); and
(B) all employment or consulting agreements and
all bonus or other incentive compensation,
deferred compensation, salary continuation,
severance, perquisites or other special or
fringe benefit agreements (including mortgage
financings and tuition reimbursements), policies
or arrangements which the Company or any of its
Subsidiaries maintains or has any obligation or
liability (contingent or otherwise) in each
case, written or oral, with respect to any
current or former officer, director or employee
of the Company or any of its Subsidiaries and
which individually (or in the aggregate with
respect to a single individual) has a cost to
the Company or any of its Subsidiaries in excess
of $10,000 per year (the "Company Employee
Arrangements").
(ii) With respect to each Company Benefit Plan and
Company Employee Arrangement, a complete and
correct copy of each of the following documents
(if applicable) has been provided or made
available to Parent: (A) the most recent plan
and related trust documents, and all amendments
thereto; (B) the most recent summary plan
description, and all related summaries of
material modifications thereto; (C) the most
recent Form 5500 (including schedules and
attachments); (D) the most recent IRS
determination letter or request therefor; (E)
the most recent actuarial reports (including
for purposes of Financial Accounting Standards
Board report no. 87, 106 and 112), if any; and
(F) to the extent not provided pursuant to (A)
and (B) above, all documents that set forth the
terms of the Company Employee Arrangements.
(iii) Except as set forth in Section 3.1(n)(iii) of
the Disclosure Memorandum, the Company Benefit
Plans and their related trusts intended to
qualify under Sections 401(a) and 501(a) of the
Code, respectively, have received favorable
determination letters from the Internal Revenue
Service and the Company is not aware of any
event or circumstance that could reasonably be
expected to result in the failure of such
Company Benefit Plans or their related trusts to
be so qualified.
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<PAGE>
(iv) Except as set forth in Section 3.1(n)(iv) of the
Disclosure Memorandum, all contributions or
other payments required to have been made by the
Company or any of its Subsidiaries to or under
any Company Benefit Plan or Company Employee
Arrangement by applicable law or the terms of
such Company Benefit Plan or Company Employee
Arrangement (or any agreement relating thereto)
have been timely and properly made.
(v) Except as set forth in Section 3.1(n)(v) of the
Disclosure Memorandum, the Company Benefit Plans
and Company Employee Arrangements have been
maintained and administered in all respects in
accordance with their terms and applicable laws.
(vi) Except as disclosed in Section 3.1(n)(vi) of the
Disclosure Memorandum, there are no pending or,
to the knowledge of the Company, threatened
actions, claims or proceedings against or
relating to any Company Benefit Plan or Company
Employee Arrangement other than routine benefit
claims by persons entitled to benefits
thereunder.
(vii) Except as set forth in Section 3.1(n)(vii) of the
Disclosure Memorandum, neither the Company nor
any of its Subsidiaries maintains or has an
obligation to contribute to retiree life or
retiree health plans which provide for
continuing benefits or coverage for current or
former officers, directors or employees of the
Company or any of its Subsidiaries except (A)
as may be required under Part 6 of Title I of
ERISA and at the sole expense of the
participant or the participant's beneficiary or
(B) a medical expense reimbursement account
plan pursuant to Section 125 of the Code.
(viii) Except as disclosed in Section 3.1(n)(viii) of
the Disclosure Memorandum, none of the assets of
any Company Benefit Plan is stock of the Company
or any of its affiliates, or property leased to
or jointly owned by the Company or any of its
affiliates.
(ix) Except as disclosed in Section 3.1(n)(ix) of the
Disclosure Memorandum and as otherwise provided
in Sections 2.6 and 2.7, neither the execution
and delivery of this Agreement nor the
consummation of the transactions contemplated
hereby will (A) result in any payment becoming
due to any employee (current, former or
retired) of Company, (B) increase any benefits
under any Company Benefit Plan or Company
Employee Arrangement, or (C) result in the
acceleration of the time of payment of, vesting
of or other rights with respect to any such
benefits.
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<PAGE>
(x) Neither the Company nor any of its Subsidiaries
has any obligation (or prior obligation) to make
contributions to any benefit plan described in
Sections 3(37), 4063 or 4064 of ERISA.
(xi) Neither the Company nor any of its Subsidiaries
is acting on behalf of an employee benefit plan
subject to ERISA, or acting on behalf of or
using (A) assets which are or which are deemed
under ERISA to be assets of an employee benefit
plan subject to ERISA, (B) assets of a foreign,
church or governmental employee benefit plan, or
(C) assets of individual retirement accounts.
(xii) No prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code has occurred
with respect to a Company Benefit Plan.
(xiii) Each Company Benefit Plan (including, without
limitation, a Company Benefit Plan covering
retirees or the beneficiaries of such retirees)
may be terminated or amended by the plan sponsor
at any time without the consent of any person
covered thereunder, and may be terminated
without liability for benefits accruing after
the date of such termination.
(xiv) The Company has no knowledge of any oral or
written statement made by or on behalf of the
Company or a Subsidiary regarding a Company
Benefit Plan or Company Employee Arrangement
that was not in accordance with the Company
Benefit Plan or Company Employee Arrangement.
(xv) There are no trusts or other arrangements under
any Company Benefit Plan which are intended to
qualify as a voluntary employees' beneficiary
association under Section 501(c)(9) of the Code.
(o) Labor Matters.
(i) Except as set forth in Section 3.1(o) of the
Disclosure Memorandum, (A) neither the Company
nor any of its Subsidiaries is a party to any
labor or collective bargaining agreement and no
employees of the Company or any of its
Subsidiaries are represented by any labor
organization; (B) within the preceding three
years, there have been no representation or
certification proceedings, or petitions seeking
a representation proceeding, pending or, to the
knowledge of the Company, threatened in writing
to be brought or filed with the National Labor
Relations Board or any other labor relations
tribunal or authority; and (C) within the
preceding three years, to the knowledge of the
Company, there have been no organizing
activities involving the
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Company or any of its Subsidiaries with respect
to any group of employees of the Company or any
of its Subsidiaries.
(ii) There are no strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material
grievances or other material labor disputes
pending or threatened in writing against or
involving the Company or any of its
Subsidiaries. There are no unfair labor practice
charges, grievances or complaints pending or, to
the knowledge of the Company, threatened in
writing by or on behalf of any employee or group
of employees of the Company or any of its
Subsidiaries.
(iii) Except as set forth in Section 3.1(o) of the
Disclosure Memorandum, there are no complaints,
charges or claims against the Company or any of
its Subsidiaries pending or, to the knowledge of
the Company, threatened to be brought or filed
with any governmental authority, arbitrator or
court based on, arising out of, in connection
with, or otherwise relating to the employment or
termination of employment of any individual by
the Company or any of its Subsidiaries.
(iv) The Company and each of its Subsidiaries is in
compliance with all laws, regulations and
orders relating to the employment of labor,
including all such laws, regulations and orders
relating to wages, hours, Worker Adjustment
Retraining and Notification Act of 1988, as
amended ("WARN Act"), collective bargaining,
discrimination, civil rights, safety
and health, workers' compensation and the
collection and payment of withholding and/or
social security taxes and any similar tax,
except where non compliance would not
individually or in the aggregate adversely
affect the Company and its Subsidiaries taken
as a whole in any material respect.
(v) Since December 31, 1993, there has been no "mass
layoff" or "plant closing" (as deemed by the
WARN Act) with respect to the Company or any of
its Subsidiaries.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Law" means any applicable law
regulating or prohibiting Releases of Hazardous
Materials into any part of the natural
environment, or pertaining to the protection of
natural resources, the environment, and public
and employee health and safety from Hazardous
Materials including, without limitation, the
Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA")
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(42 U.S.C. ss. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801
et seq.), the Resource Conservation and Recovery
Act (42 U.S.C. ss. 6901 et seq.), the Clean
Water Act (33 U.S.C. ss. 1251 et seq.), the
Clean Air Act (33 U.S.C. ss. 7401 et seq.), the
Toxic Substances Control Act (15 U.S.C. ss.
7401 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss.
136 et seq.), and the Occupational Safety and
Health Act (29 U.S.C. ss. 651 et seq.) ("OSHA")
(to the extent OSHA regulates occupational
exposure to Hazardous Materials) and the
regulations promulgated pursuant thereto, and
any such applicable state or local statutes,
and the regulations promulgated pursuant
thereto, as such laws have been and may be
amended or supplemented through the Closing
Date;
(B) "Hazardous Material" means any substance,
material or waste which is regulated as
hazardous or toxic by any public or governmental
authority in the jurisdictions in which the
applicable party or its Subsidiaries conducts
business, or the United States, including,
without limitation, any material or substance
which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted
hazardous waste," "contaminant," "toxic waste"
or "toxic substance" under any provision of
Environmental Law and shall also include,
without limitation, petroleum, petroleum
products, asbestos, polychlorinated biphenyls
and radioactive materials;
(C) "Release" means any release, spill,
effluence, emission, leaking, pumping,
injection, deposit, disposal, discharge,
dispersal, leaching, or migration of Hazardous
Material into the environment; and
(D) "Remedial Action" means all actions,
including, without limitation, those involving
any capital expenditures, required by a
governmental entity or required under any
Environmental Law, or voluntarily undertaken to
(w) clean up, remove, treat, or in any other way
mitigate the adverse effects of any Hazardous
Materials Released in the environment; (x)
prevent the Release or threat of Release, or
minimize the further Release of any Hazardous
Material so it does not endanger or threaten to
endanger the public health or welfare or the
environment; (y) perform preremedial studies and
investigations or post remedial monitoring and
care pertaining or relating to a Release or
threat of Release; or (z) bring the applicable
party into compliance with any Environmental
Law.
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(ii) Except as set forth in Section 3.1(p) of the
Disclosure Memorandum:
(A) The operations of the Company and each of
its Subsidiaries have been and, as of the
Closing Date, will be, in compliance with all
Environmental Laws, except for such
noncompliance which would not individually or in
the aggregate adversely affect the Company and
its Subsidiaries taken as a whole in any
material respect;
(B) The Company and each of its Subsidiaries
have obtained and will, as of the Closing Date,
maintain all permits required under applicable
Environmental Laws for the continued operations
of their respective businesses, except where the
failure to so obtain or maintain would not
individually or in the aggregate adversely
affect the Company and its Subsidiaries taken as
a whole in any material respect;
(C) Neither the Company nor any of its
Subsidiaries is subject to any outstanding
orders from, or agreements with, any
Governmental Entity or other person respecting
(x) Environmental Laws, (y) Remedial Action or
(z) any Release or threatened Release of a
Hazardous Material;
(D) Neither the Company nor any of its
Subsidiaries has received any written
communication alleging, with respect to any such
party, the violation of or potential liability
under any Environmental Law;
(E) Neither the Company nor any of its
Subsidiaries has contingent liability in
connection with the Release of any Hazardous
Material into the environment (whether on-site
or off-site);
(F) Neither the operations of the Company nor
any of its Subsidiaries involve the generation,
transportation, treatment, storage or disposal
of hazardous waste as defined and regulated
under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any state
equivalent;
(G) There is not now, nor, to the knowledge of
the Company, has there been in the past, on or
in any property of the Company or any of its
Subsidiaries any of the following: (w) any
underground storage tanks; (x) surface
impoundments; (y) any polychlorinated biphenyls;
or (z) any asbestos-containing materials;
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(H) No judicial or administrative proceedings or
governmental investigations are pending or, to
the knowledge of the Company, threatened against
the Company or any of its Subsidiaries alleging
the violation of or seeking to impose liability
pursuant to any Environmental Law;
(I) The Company has made available to Parent
copies of all environmental investigations,
studies, audits, tests, reviews and other
analyses, including soil and/or groundwater
analyses, conducted by or on behalf of, or that
are in the possession, custody or control of the
Company or any of its Subsidiaries, in relation
to any site or facility owned, operated, leased
or used, at any time, by the Company or any of
its Subsidiaries or any of their respective
predecessors;
(J) Neither the Company nor any of its
Subsidiaries has caused or suffered to occur any
Release at, under, above or within any real
property, owned, operated, used or leased by the
Company or any of its Subsidiaries;
(K) No environmental approvals, clearances or
consents are required under applicable law from
any governmental entity or authority in order to
consummate the transactions contemplated herein;
and
(L) Neither the Company nor any of its
Subsidiaries has any fixed or contingent
liability in connection with environmental
conditions at or associated with any vessel or
facility in which the Company or any of its
Subsidiaries owns or previously owned or holds
or previously held a mortgage or other security
interest, and neither the Company nor any of its
Subsidiaries has participated in the management
of any such vessel or facility.
(iii) This Section 3.1(p) sets forth the sole
representations and warranties of the Company
with respect to Environmental Laws.
(q) Property and Assets.
(i) Section 3.1(q)(i) of the Disclosure Memorandum
sets forth all of the real property owned in fee
by the Company and its Subsidiaries. The Company
or its Subsidiaries have good and marketable
title to each parcel of real property owned by
them free and clear of all Liens, except (A)
those reflected or reserved against in the
consolidated balance sheet of the Company dated
as of December 31, 1996, (B) taxes and general
and special assessments not in default and
payable without
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penalty and interest for which reasonable
reserves have been established, (C) mechanics
and similar statutory liens arising or incurred
in the ordinary course of business for amounts
that are not delinquent, (D) any zoning,
building, and land use regulation imposed by any
Governmental Entity, and (E) any covenant,
restriction, or easement expressly set forth in
the title documents governing such real property
filed with the appropriate Governmental Entity.
There are no (A) zoning, building or land use
regulations imposed by any Governmental Entities
or (B) any covenant, restriction or easement
filed and expressly set forth in the title
documents governing such real property which in
any case materially interfere with the current
and intended use of such property or materially
impair the value of such property as reflected
on the books of the Company.
(ii) Each lease, sublease or other agreement
(collectively, the "Real Property Leases")
under which the Company or any of its
Subsidiaries uses or occupies or has the right
to use or occupy, now or in the future, any
real property is valid, binding and in full
force and effect, all rent and other sums and
charges payable by the Company or any of its
Subsidiaries as a tenant thereunder are
current, and no termination event or condition
or uncured default of a material nature on the
part of the Company or any of its Subsidiaries
or, to the Company's knowledge, the landlord,
exists under any Real Property Lease. The
Company and its Subsidiaries have a good and
valid leasehold interest in each parcel of real
property leased by them free and clear of all
Liens, except those reflected or reserved
against in the consolidated balance sheet of
the Company dated as of December 31, 1996.
(iii) Section 3.1(q)(iii) of the Disclosure Memorandum
contains a list of all purchases or
acquisitions, sales or dispositions of all
investment assets of the Company and its
Subsidiaries since December 31, 1996 and prior
to the date of this Agreement. The Company and
its Subsidiaries have good and marketable title
to such investment assets owned by them free and
clear of all Liens.
(iv) Except as set forth in Section 3.1(q)(iv) of the
Disclosure Memorandum, the Company and its
Subsidiaries own good and indefeasible title
to, or have a valid leasehold interest in or a
valid right under contract to use, all tangible
personal property that is used in the conduct
of their business, free and clear of any Liens,
except for any mechanics or similar statutory
liens arising in the ordinary course of
business. All such tangible personal property
is in good operating condition and repair
(normal wear and tear) and is suitable for its
current uses.
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(v) Except as set forth in Section 3.1(q)(v) of the
Disclosure Memorandum, the Company and its
Subsidiaries own or have a right to use each
trademark, trade name, patent, service mark,
brand mark, brand name, database, copyright and
other intellectual property owned or used in
connection with the operation of the business of
the Company and its Subsidiaries, including any
registrations thereof, and each license or other
contract relating thereto (collectively, the
"Company Intangible Property"), free and clear of
any and all Liens. Section 3.1(q)(v) of the
Disclosure Memorandum sets forth a complete list
of the Company Intangible Property. The use of
the Company Intangible Property by the Company
and its Subsidiaries does not conflict with,
infringe upon, violate or interfere with or
constitute an appropriation of any right, title,
interest or goodwill, including, without
limitation, any intellectual property right,
trademark, trade name, patent, service mark,
brand mark, brand name, database or copyright of
any other person. Except as set forth in Section
3.1(q)(v) of the Disclosure Memorandum, the
Company and its Subsidiaries own or have valid
and enforceable licenses or other rights to use,
free and clear of any and all Liens, all software
used in connection with the operation of the
business of the Company and its Subsidiaries, the
use of such software by the Company and its
Subsidiaries does not infringe on or otherwise
violate the rights of any person, and, to the
knowledge of the Company, no person is
challenging, infringing on or otherwise violating
the right of the Company or any Subsidiary with
respect to any such software used by the Company
and its Subsidiaries.
(vi) The Company and its Subsidiaries own or have the
rights to use all assets required for the
conduct of the business of the Company and its
Subsidiaries as it is now conducted.
(r) Material Contracts. Section 3.1(r) of the Disclosure
Memorandum contains a true and complete list of each of the following
Contracts in effect as of the date of this Agreement (true and complete
copies of which have been made available to Parent) to which the Company or
any of its Subsidiaries is a party or by which any of their respective
assets or properties is or may be bound (each of which is a "Company
Material Contract"):
(i) all employment, agency (other than insurance
agency), consultation, or representation
Contracts or other Contracts of any type
(including without limitation loans or advances)
with any present officer, director, Key Employee
(as defined below), agent (other than an
insurance agent), consultant, or other similar
representative of the Company or any of its
Subsidiaries (or former officer, director, Key
Employee, agent (other than an insurance agent),
consultant or similar representative of
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the Company or any of its Subsidiaries if there
exists any present or future liability with respect
to such Contract);
(ii) a specimen form insurance agent Contract (the
"Producer Agreements") and any insurance agent
Contract having terms different in any material
respect than the terms contained in the specimen
form agent Contract;
(iii) all Contracts with any person or entity
containing any provision or covenant (A)
limiting the ability of the Company to (x) sell
any products or services, (y) engage in any line
of business, or (z) compete with or obtain
products or services from any person or entity
or (B) limiting the ability of any person or
entity to compete with or to provide products or
services to the Company;
(iv) all Contracts relating to the borrowing of money
by the Company, relating to the deferred
purchase price for property or services, or
relating to the direct or indirect guarantee by
the Company or any of its Subsidiaries of any
liability;
(v) all Contracts (other than Contracts of insurance
or reinsurance entered into in the ordinary
course of business) pursuant to which the
Company or any of its Subsidiaries has agreed to
indemnify or hold harmless any person or entity
(other than indemnifications or hold harmless
covenants in the ordinary course of business and
consistent with past practice);
(vi) all leases or subleases of real property used in
the business, operations, or affairs of the
Company or any of its Subsidiaries;
(vii) all Contracts or arrangements (including without
limitation those relating to allocations of
expenses, personnel, services, or facilities)
between the Company and any of its Subsidiaries
or among the Subsidiaries of the Company;
(viii) all leases of automobiles used in the business,
operations, or affairs of the Company or any of
its Subsidiaries;
(ix) all reinsurance (whether as assuming or ceding
insurer or otherwise), coinsurance or other
similar Contracts;
(x) all other Contracts (other than insurance
Contracts issued, reinsured, or underwritten by
the Company) that involve the payment or
potential payment, pursuant to the terms of such
Contracts, by or to the Company of more than
$75,000 or that are otherwise material to the
business or condition of the Company; and
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(xi) any commitments or other obligations to enter into
any of the foregoing.
Each Contract disclosed or required to be disclosed in Section 3.1(r) of
the Disclosure Memorandum is in full force and effect and constitutes a
legal, valid and binding obligation of the Company or any of its
Subsidiaries to the extent any such entity is a party thereto and, to the
knowledge of Company, each other party thereto. Neither the Company nor any
of its Subsidiaries has received from any other party to such Contract any
written notice of termination or intention to terminate or not to honor the
terms of such Contract, or to the knowledge of the Company, any oral notice
of termination or intention to terminate or not to honor the terms of such
Contract. Except as set forth in Section 3.1(r) of the Disclosure
Memorandum, neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any other party to such Contract is in violation
or breach of or default under any such Contract (or with or without notice
or lapse of time or both, would be in violation or breach of or default
under any such Contract), which violations, breach or default would
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect. As used in this
Agreement, the word "Contract" shall mean any agreement, arrangement,
undertaking, lease, sublease, license, sublicense, promissory note,
evidence of indebtedness or other binding contract, in each case, whether
or not reduced to writing. As used in this Agreement "Key Employee" shall
mean employees of the Company or Parent, as the case may be, having a
salary of $90,000 or more per year.
(s) Related Party Transactions. Except as set forth in
Section 3.1(s) of the Disclosure Memorandum, no director, officer, Key
Employee, "affiliate" or "associate" (as such terms are defined in Rule
12b-2 under the Exchange Act) of the Company (each a "Related Party") (i)
has borrowed any monies from or has outstanding any indebtedness,
liabilities or other similar obligations to the Company or any of its
Subsidiaries; (ii) owns any direct or indirect interest of any kind in, or
is a director, officer, employee, partner, affiliate or associate of, or
consultant or lender to, or borrower from, or has the right to participate
in the management, operations or profits of, any person or entity which is
(A) a competitor, supplier, customer, distributor, lessor, tenant, creditor
or debtor of the Company or any of its Subsidiaries, (B) engaged in a
business related to the business of the Company or any of its Subsidiaries,
or (C) participating in any transaction to which the Company or any of its
Subsidiaries is a party; or (iii) is otherwise a party to any contract,
arrangement or understanding with the Company or any of its Subsidiaries.
(t) Prepayment of Credit Facilities. The Loan Agreement,
dated July 30, 1996, among the Company, Dresdner Bank AG, New York Branch,
as Agent, and the lenders party thereto and the Loan Agreement, dated July
30, 1996 and amended as of February 14, 1997, among Westchester Premium
Acceptance Corporation, Dresdner Bank AG, New York Branch, as Agent, and
the lenders party thereto (collectively referred to herein as the "Company
Credit Facilities") are prepayable without the payment of any premium or
penalties.
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(u) Liens. Except as set forth in Section 3.1(u) of the
Disclosure Memorandum, neither the Company nor any of its Subsidiaries has
granted, created, or suffered to exist with respect to any of its assets,
any mortgage, pledge, charge, hypothecation, collateral assignment, lien
(statutory or otherwise), encumbrance or security agreement of any kind or
nature whatsoever (collectively, the "Liens").
(v) Operations Insurance. Section 3.1(v) of the
Disclosure Memorandum contains a true and complete list and description of
all liability, property, workers compensation, directors and officers
liability, and other similar insurance policies or agreements that insure
the business, operations, or affairs of the Company and its Subsidiaries or
affect or relate to the ownership, use, or operations of any of the assets
or properties of the Company and its Subsidiaries. Excluding insurance
policies that have expired and been replaced in the ordinary course of
business, no insurance policy has been canceled within the last year except
as disclosed in Section 3.1(v) of the Disclosure Memorandum, and, to the
knowledge of the Company or its Subsidiaries, no threat has been made to
cancel any insurance policy of any of the Company or its Subsidiaries
during such period. Except as disclosed in Section 3.1(v) of the Disclosure
Memorandum, all such insurance will remain in full force and effect with
respect to periods before the Closing without the payment of additional
premiums. No event has occurred, including, without limitation, the failure
by any of the Company or its Subsidiaries to give any notice or information
or any of the Company or its Subsidiaries giving any inaccurate or
erroneous notice or information, which limits or impairs the rights of such
Company or Subsidiary under any such insurance policies.
(w) Opinion of Financial Advisor. The Company has
received the opinion of Furman Selz LLC (the "Financial Advisor") dated
August 7, 1997 (the "FS Opinion"), to the effect that, as of the date
thereof, the Merger Consideration to be received by the holders of Company
Common Stock in the Merger is fair from a financial point of view to such
holders. A signed, true and complete copy of the FS Opinion has been
delivered to Parent, and the FS Opinion has not been withdrawn or modified.
True and complete copies of all agreements and understandings between the
Company or any of its affiliates and the Financial Advisor relating to the
transactions contemplated by this Agreement are attached hereto as Section
3.1(w) of the Disclosure Memorandum.
(x) Board Recommendation. The Board of Directors of the
Company, at a meeting duly called and held, has by the unanimous vote of
those directors present (who constituted all of the directors then in
office) (i) determined that this Agreement and the transactions
contemplated hereby are fair to and in the best interests of the
shareholders of the Company and has approved the same, (ii) resolved to
recommend, subject to the board's fiduciary duties, that the holders of the
shares of Company Common Stock approve this Agreement and the transactions
contemplated herein, and (iii) resolved to call a special meeting of the
shareholders of the Company to approve the Merger.
(y) Vote Required. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock is the only
vote of the holders of any class or
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series of the Company's capital stock necessary (under applicable law or
otherwise) to approve the Merger and the transactions contemplated hereby.
(z) Brokers. The Company represents, as to itself and its
affiliates, that no agent, broker, investment broker, financial advisor or
other firm or person is or will be entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement, except for E. B. Lyon, III
and/or Stonegate Securities Inc. (in either case, pursuant to the letter
agreement with the Company dated May 13, 1997) and the Financial Advisor,
whose fees and expenses shall be paid by the Company in accordance with the
Company's agreements with such individual and/or firm(s) (copies of which
have been delivered by the Company to USF&G prior to the date of this
Agreement).
(aa) Bank Accounts. Section 3.1(aa) of the Disclosure
Memorandum contains (i) a true and complete list of the names and locations
of all banks, trust companies, securities brokers, and other financial
institutions at which the Company and each of its Subsidiaries has an
account or safe deposit box or maintains a banking, custodial, trading,
trust, or other similar relationship, (ii) a true and complete list and
description of each such account, box, and relationship, and (iii) a list
of all signatories for each such account and box.
(bb) Premium Balances Receivable. The premium balances
receivable of the Company and its Subsidiaries as reflected in the
Company's financial statements for the quarter ended March 31, 1997, to the
extent uncollected on the date hereof, and the premium balances receivable
reflected on the books of the Company and its Subsidiaries as of the date
hereof, are valid and existing and represent monies due, and the Company
and its Subsidiaries have made reserves reasonably considered adequate for
receivables not collectible in the ordinary course of business, and
(subject to the aforesaid reserves) are subject to no refunds or other
adjustments and to no defenses, rights of setoff, assignments,
restrictions, encumbrances or conditions enforceable by third parties or
affecting any material amount thereof.
(cc) Investment Portfolio and Other Assets. The Company
and its Subsidiaries own an investment portfolio acquired in the ordinary
course of business, and a true and complete list of the securities and
other investments in such investment portfolio, as of June 23, 1997 with
respect to mortgage loans and May 30, 1997 with respect to debt and equity
securities and other investments, with true and correct information
included thereon as to the cost of each such investment and the market
value thereof as of such date, is listed in Section 3.1(cc) of the
Disclosure Memorandum. Except as otherwise set forth in Section 3.1(cc) of
the Disclosure Memorandum, (i) none of the investments included in such
investment portfolio is in default in the payment of principal or interest
or dividends or impaired to any extent, (ii) all investments included in
such investment portfolio comply (x) with all insurance laws and
regulations of each of the states to which the Company and its Subsidiaries
is subject relating thereto and (y) with all federal and state securities
laws, and (iii) such investments constitute all of the investments or
holdings (including loans to
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agencies) of the Company and its Subsidiaries other than any disclosed in
Sections 3.1(c), 3.1(q)(i) or 3.1(q)(iii) of the Disclosure Memorandum
(dd) Questionable Payments. To the knowledge of the
Company, neither the Company nor any of its Subsidiaries nor any director,
officer, agent, employee or other person associated with or acting on
behalf of the Company or any Subsidiary has used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, or made any direct or indirect unlawful
payments to government officials or employees or agents from corporate
funds, or established or maintained any unlawful or unrecorded funds.
(ee) Reinsurance Agreements. Section 3.1(ee) of the
Disclosure Memorandum is a true and complete list of all reinsurance
treaties and contracts applicable to the Company (whether as ceding insurer
or assuming reinsurer) or the Subsidiaries (individually, a "Reinsurance
Agreement" and collectively, the "Reinsurance Agreements"), copies of which
have been delivered or made available to Parent. Each of the Reinsurance
Agreements is valid and binding in all material respects in accordance with
its terms and is in full force and effect. None of the Reinsurance
Agreements will terminate because of a change in control of the Company or
any of the Subsidiaries. No other party to any Reinsurance Agreement has
given notice to the Company or any of its Subsidiaries that intends to
terminate or cancel any such Reinsurance Agreement as a result of the
Merger or the contemplated operations of the Company or its Subsidiaries
after the Merger is consummated, which termination or change would have a
Material Adverse Effect on the Company. Any Subsidiary of the Company that
has ceded reinsurance pursuant to any such Reinsurance Agreement is
entitled to take full credit in its financial statements for all amounts
recoverable (net of any reserve for collectibility under such Reinsurance
Agreement) with such credit accounted for (i) pursuant to SAP, as a
reduction of such Company's loss reserves, and (ii) pursuant to GAAP, as a
reinsurance recoverable asset.
(ff) Quick-Sure Auto Agency, Inc. Quick-Sure Auto
Agency, Inc. ("Quick- Sure") is a Texas corporation owned 99% by Mark
E. Watson, Jr. ("Watson") and 1% by Dennis Walsh ("Walsh"). There are
outstanding (i) no shares of capital stock of Quick-Sure other than those
shares held by Watson and Walsh; (ii) no securities of Quick-Sure
convertible into or exchangeable for shares of capital stock of Quick-Sure
or any other voting securities of Quick Sure; and (iii) no stock awards,
options, warrants, calls, rights (including stock purchase or preemptive
rights) commitments or agreements to which Quick-Sure is bound, in any case
obligating Quick-Sure to issue, deliver, sell, purchase, redeem or acquire
or cause to be issued, delivered, sold, purchased, redeemed or acquired,
additional shares of its capital stock, any other voting securities or
securities convertible into or exchangeable or exercisable for voting
securities of Quick-Sure, or obligating Quick-Sure to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
Quick-Sure has appointed under a Local Recording Agent Agreement (the "LRA
Agreement") with Titan Insurance Services, Inc. ("TIS"), a subsidiary of
Whitehall Insurance Agency of Texas, Inc. (a wholly owned subsidiary of the
Company), to write insurance on behalf of TIS, and a true
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and correct copy of the LRA Agreement, including any amendments thereto,
has been provided to the Parent. The LRA Agreement is terminable by TIS at
any time in its sole discretion without any further liability or obligation
to Quick-Sure. Except as set forth in Section 3.1(hh) of the Disclosure
Memorandum, Quick-Sure does not engage in any business other than the
writing of insurance policies on behalf of TIS and is not obligated by any
material agreement or other obligation. TIS has an exclusive right to any
renewals of policies written by Quick-Sure, and nothing in any producer
agreement or other agreement to which Quick-Sure, the Company or any of the
Company's Subsidiaries is a party provides to the contrary. The insurance
written by Quick-Sure is placed with Home State County Mutual Insurance
("Home State") pursuant to a Managing General Agent Agreement between Home
State and TIS (the "MGA Agreement"), and a true and correct copy of the MGA
Agreement, including any amendments thereto, has been provided to the
Parent. All operations of Quick- Sure have been conducted in accordance
with the terms of the LRA Agreement and the MGA Agreement. All arrangements
between Home State, Quick-Sure, and the Company and/or any of its
Subsidiaries are in compliance with all applicable laws and have received
all necessary consents, approvals and authorizations from any required
regulatory authorities or third parties.
(gg) Tri-West of New Mexico, LLC, a New Mexico limited
liability company, Tri-West of Indianapolis, LLC, an Indiana limited
liability company, and Tri-West of Florida, LLC, a Florida limited
liability company (collectively, the "Tri-West Agencies") are each owned
one-third by each of E.B. Lyon, III, Michael J. Claypool and Michael J.
Bodayle. There are outstanding (i) no membership or other equity or voting
interests of Tri- West Holdings, LLC ("Tri-West") or any Tri-West Agency,
other than as set forth above; (ii) no securities of Tri-West Holdings or
any Tri-West Agency convertible into or exchangeable for membership or
other equity or voting interests; and (iii) no stock awards, options,
warrants, calls, rights (including stock purchase or preemptive rights),
commitments or agreements to which Tri-West Holdings or any Tri-West Agency
is bound, in any case obligating Tri-West Holdings or any Tri-West Agency
to issue, deliver, sell, purchase, redeem or acquire or cause to be issued,
delivered, sold, purchased, redeemed or acquired additional membership or
other equity or voting interests or securities convertible into or
exchangeable or exercisable for membership, equity or other voting
interests of Tri-West Holdings or any Tri-West Agency, or obligating
Tri-West Holdings or any Tri-West Agency to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. Each of the
Tri- West Agencies has entered into a producer agreement with Titan
Indemnity Company ("Indemnity") in the form set forth in Section 3.1(gg) of
the Disclosure Memorandum. Tri- West of New Mexico, LLC has entered into a
Direct Response Center Agreement dated November 30, 1996 (together with the
producer agreements referenced in the immediately preceding sentence, the
"Tri-West Agreements"). To the knowledge of the Company, none of the
Tri-West Agencies engage in any business other than the writing of
insurance policies on behalf of Indemnity and none of the Tri-West Agencies
is obligated by any material agreement or other obligation other than
employment agreements entered into in connection with the acquisition of
such Tri-West agency. Each of the Tri-West Agencies has an exclusive right
to any renewals of policies written by such Tri-West Agency, and, to the
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knowledge of the Company, nothing in any producer agreement nor other
agreement to which Tri-West Holdings or any Tri-West Agency is a party
provides to the contrary. To the knowledge of the Company, all operations
of the Tri-West Agencies have been conducted in accordance with the terms
of the Tri-West Agreements. All arrangements between Tri-West Holdings or
any Tri-West Agency, on the one hand, and the Company and/or any of its
Subsidiaries, on the other hand, are in compliance with all applicable laws
and have received all necessary consents, approvals and authorizations from
any required regulatory authorities or third parties.
3.2 Representations and Warranties of Parent and USF&G. Except as
disclosed in (i) Parent's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, (ii) Parent's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1997 (collectively such Form 10-K and
Form 10-Q, the "Parent SEC Reports"), or (iii) the Disclosure Memorandum
delivered at or prior to the date of this Agreement (it being understood
that each section of the Disclosure Memorandum shall list all items
applicable to such section, although the inadvertent omission of an item
from one section shall not be a breach of this Agreement if such item and
an explanation of the nature of such item is clearly disclosed in another
section of the Disclosure Memorandum), Parent and USF&G represent and
warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and
USF&G is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated,
has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted and is
duly qualified or licensed to do business as a foreign corporation and in
good standing to conduct business in each jurisdiction in which the
business it is conducting, or the operation, ownership or leasing of its
properties, makes such qualification or license necessary, other than such
jurisdictions where the failure so to qualify or become so licensed would
not, individually or in the aggregate, adversely affect Parent and its
Subsidiaries taken as a whole in any material respect. Parent has
heretofore made available to the Company complete and correct copies of its
Articles of Incorporation, as currently in effect as of the date of this
Agreement (the "Parent Articles of Incorporation"), and its Bylaws, as
currently in effect as of the date of this Agreement (the "Parent Bylaws").
(b) Capital Structure. As of June 30, 1997, the
authorized capital stock of Parent consists of 240,000,000 shares of Parent
Common Stock and 12,000,000 shares of Preferred Stock, $50.00 par value. As
of the close of business on June 30, 1997, there were 110,691,498 shares of
Parent Common Stock validly issued and outstanding (all of which are fully
paid and nonassessable). As of such date, except for (i) options to
purchase or other obligations to issue 11,531,342 shares of Parent Common
Stock, (ii) $175,653,000 principal amount at maturity of Zero Coupon
Convertible Subordinated Notes due March 3, 2009 issued by Parent, and
(iii) the Preferred Share Purchase Rights issued pursuant to the Amended
and Restated Rights Agreement dated March 11, 1997, between Parent and The
Bank of New York ("Parent Rights"), there are no options, warrants, calls
or other rights,
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agreements or commitments presently outstanding obligating Parent to issue,
deliver or sell shares of its capital stock, or obligating Parent to grant,
extend or enter into any such option, warrant, call or other such right,
agreement or commitment. Parent has not issued any securities in violation
of any preemptive or similar rights.
(c) As of June 30, 1997, the authorized capital stock of
USF&G consists of 40,000,000 shares of USF&G Common Stock, 28,231,715
shares of which are validly issued and outstanding, fully paid and
nonassessable, and 4,000,000 shares of Preference Stock, par value $50.00
per share, none of which are issued and outstanding. USF&G has not issued
any securities in violation of any preemptive or similar rights, and there
are no options, warrants, calls, rights or other securities, agreements or
commitments of any character obligating USF&G to issue capital stock.
(d) Authority; No Violations; Consents and Approvals.
(i) Parent and USF&G have all requisite corporate power
and authority to enter into this Agreement and to
consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and
the consummation of the transactions contemplated
hereby have been duly authorized by all necessary
corporate action on the part of Parent and USF&G.
This Agreement has been duly executed and
delivered by Parent and USF&G and assuming that
this Agreement constitutes the valid and binding
agreement of the Company, constitutes a valid and
binding obligation of Parent and USF&G
enforceable in accordance with its terms and
conditions except that the enforcement hereof may
be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now
or hereafter in effect relating to creditors'
rights generally and (B) general principles of
equity (regardless of whether enforceability is
considered in a proceeding at law or in equity)
and (c) any ruling or action of any Governmental
Entity as set forth in Section 3.2(d)(iii).
(ii) The execution and delivery of this Agreement and
the consummation of the transactions contemplated
hereby by Parent and USF&G will not result in a
violation pursuant to (A) any provision of the
Parent Articles of Incorporation or Parent Bylaws
or the comparable documents of any of its
Subsidiaries or (B) except as to which requisite
waivers or consents have been obtained as
specifically identified in Section 3.2(d) of the
Disclosure Memorandum and assuming the consents,
approvals, authorizations or permits and filings
or notifications referred to in paragraph (iii)
of this Section 3.2(d) are duly and timely
obtained or made, any loan or credit agreement,
note, mortgage, deed of trust, indenture, lease,
or any other agreement, obligation, instrument,
concession or license or any judgment, order,
decree, statute, law,
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ordinance, rule or regulation applicable to
Parent, USF&G or any of their respective
properties or assets, except for such Violations
which would not, individually or in the
aggregate, adversely affect Parent and its
Subsidiaries taken as a whole in any material
respect.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice
to, or permit from a Governmental Entity is
required by or with respect to Parent or USF&G or
any of their respective Subsidiaries in
connection with the execution and delivery of
this Agreement by Parent or USF&G or the
consummation by Parent or USF&G of the
transactions contemplated hereby, except for: (A)
any actions, consents, approvals, filings and/or
notices that may be required under the insurance
laws and regulations of the jurisdictions in
which the Subsidiaries of Parent that are
insurance companies are domiciled or licensed,
each of which is listed in Section 3.2(d)(iii) of
the Disclosure Memorandum; (B) the filing of a
pre-merger notification and report form by Parent
under the HSR Act, and the expiration or
termination of the applicable waiting period
thereunder; (C) the filing with the SEC of (x)
the Proxy Statement, (y) the Form S-4, and (z)
such reports under and such other compliance with
the Exchange Act and the rules and regulations
thereunder as may be required in connection with
this Agreement and the transactions contemplated
hereby; (D) the filing of the Articles of Merger
with the Secretary of State of the State of Texas
and the Maryland State Department of Assessments
and Taxation; and (E) such filings and approvals
as may be required by any applicable state
securities, "blue sky" or takeover laws.
(e) Government Filings. Parent has made available to the
Company a true and complete copy of each report, schedule and definitive
proxy statement filed by Parent with the SEC pursuant to the Exchange Act
and the Rules and Regulations promulgated thereunder since December 31,
1994 and prior to the date of this Agreement other than reports on Form
11-K relating to employee benefit plans, which are all the documents (other
than preliminary material) that Parent was required to file with the SEC
under the Exchange Act since such date. As of their respective dates, the
Parent SEC Reports complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to such Parent SEC Reports, and none of the Parent
SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Parent
included in the Parent SEC Reports comply as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as
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permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present in
accordance with applicable requirements of GAAP the consolidated financial
position of Parent and its consolidated subsidiaries as of the dates
therein and the consolidated results of their operations and cash flows for
the periods presented therein (subject, in the case of unaudited interim
financial statements, to normal recurring adjustments none of which are
material). Section 3.2(e) of the Disclosure Memorandum lists with respect
to the Parent Common Stock for the period since December 31, 1996 and prior
to the date of this Agreement each: (i) Schedule 13D filed with the SEC and
(ii) application for change in control filed under the insurance holding
company laws of any state or other jurisdiction.
(f) Information Supplied. None of the information
supplied or to be supplied by Parent (including information concerning
USF&G) for inclusion or incorporation by reference in (i) the Form S-4
will, at the time the Form S-4 is filed with the SEC, and at any time it is
amended or supplemented or at the time it 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 under which they are
made, not misleading, and (ii) the Proxy Statement will, on the date it is
first mailed to the holders of Company Common Stock or at the time of the
Shareholders' Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Form S-4 will, as of its
effective date, and the prospectus contained therein will, as of its date,
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder, except
that no representation is made by Parent with respect to statements made or
incorporated by reference therein based on information supplied in writing
by the Company specifically for inclusion therein. If, at any time prior to
the Shareholders' Meeting, any event with respect to Parent, or with
respect to other information supplied by Parent for inclusion in the Proxy
Statement, shall occur which is required to be described in an amendment
of, or a supplement to, any of such documents, such event shall be so
described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the shareholders of
Parent.
(g) Compliance with Applicable Laws.
(i) Except as disclosed in Section 3.2(g)(i) of the
Disclosure Memorandum, the business of Parent and
each of its Subsidiaries is being conducted in
compliance in all material respects with all
applicable laws, including, without limitation,
all insurance laws, ordinances, rules and
regulations, decrees and orders of any
Governmental Entity, and all notices, reports,
documents and other information required to be
filed thereunder within the last three years were
properly filed and were in compliance in all
respects with such laws.
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(ii) Other Licenses. Parent and each of its Subsidiaries
owns or validly holds all licenses, franchises,
permits, approvals, authorizations, exemptions,
classifications, registrations, rights and
similar documents which are necessary for it to
own, lease or operate its properties and assets
and to conduct its business as now conducted,
except for such licenses the failure to hold
which would not individually or in the aggregate
adversely affect Parent and its Subsidiaries
taken as a whole in any material respect. The
business of Parent and each of its Subsidiaries
has been and is being conducted in compliance in
all material respects with all such licenses. All
such licenses are in full force and effect, and
there is no proceeding or investigation pending
or, to the knowledge of Parent, threatened which
would reasonably be expected to lead to the
revocation, amendment, failure to renew,
limitation, suspension or restriction of any such
license.
(h) Absence of Undisclosed Liabilities. Since December
31, 1996, neither Parent nor any of its Subsidiaries has incurred any
liabilities, except: (i) liabilities arising in the ordinary course of
business consistent with past practice, which individually or in the
aggregate would not adversely affect Parent and its Subsidiaries taken as a
whole in any material respect; (ii) as specifically and individually
reflected in Section 3.2(h) of the Disclosure Memorandum or Parent SEC
Reports; or (iii) other liabilities, which, individually or in the
aggregate, together with those liabilities referenced in subparagraphs (i)
and (ii), would not adversely affect Parent and its Subsidiaries taken as a
whole in any material respect.
(i) Litigation. Except as set forth on Section 3.2(i) of
the Disclosure Memorandum and except for claims arising in the ordinary
course of business, (A) there is no suit, action, investigation,
arbitration or proceeding pending or, to the knowledge of Parent,
threatened against or affecting Parent or any of its Subsidiaries, at law
or in equity, before any person and (B) there is no writ judgment, decree,
injunction, rule or similar order of any Governmental Entity or arbitrator
outstanding against Parent or any of its Subsidiaries, which, individually
or in the aggregate, would adversely affect Parent and its Subsidiaries
taken as a whole in any material respect.
(j) Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Reports, since March 31, 1997, there has not
been (i) any transaction, commitment, dispute or other event or condition
of any character (whether or not in the ordinary course of business) which
would, individually or in the aggregate, have a Material Adverse Effect on
Parent; or (ii) any damage, destruction or loss, whether or not covered by
insurance, which, insofar as reasonably can be foreseen, in the future
would, individually or in the aggregate, have a Material Adverse Effect on
Parent.
(k) Board Recommendation. The Board of Directors of
Parent and USF&G, at a meeting duly called and held or by unanimous written
consent, has by the
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requisite vote of directors determined that this Agreement and the
transactions contemplated hereby are fair to and in the best interests of
the shareholders of Parent and USF&G, as the case may be and has approved
the same, and in the case of USF&G resolved to recommend that Parent
approve this Agreement and the transactions contemplated herein.
(l) Vote Required. The affirmative vote of Parent, as the
sole stockholder of USF&G, is sufficient, and no further vote or consent of
any class or series of capital stock of Parent or USF&G is necessary under
applicable law or otherwise, to approve the Merger and the other
transactions contemplated hereby on the part of Parent or USF&G.
(m) Brokers. Parent and USF&G represent, as to themselves
and their affiliates, that no agent, broker, investment broker, financial
advisor or other firm or person is or will be entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement, except for
Merrill Lynch & Co., Merrill Lynch Pierce Fenner & Smith Incorporated,
whose fees and expenses shall be paid by Parent.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company. During the period from the date of
this Agreement and continuing until the earlier of (i) the Effective Time
and (ii) the termination of this Agreement pursuant to Article VII, the
Company agrees (and has caused its Subsidiaries to agree) that (except to
the extent that Parent shall consent in writing, which consent shall not be
unreasonably withheld or delayed):
(a) Ordinary Course. The Company will (and will cause
each of its Subsidiaries to) conduct its business only in the ordinary
course and consistent with past practice. Without limiting the generality
of the foregoing and except as expressly provided herein or in Section
4.1(a) of the Disclosure Memorandum:
(i) The Company will use (and will cause each of its
Subsidiaries to use) reasonable best efforts to
(A) maintain in full force and effect all Company
Material Contracts, except those which expire in
accordance with their terms, (B) maintain all
Company Licenses, qualifications, and
authorizations of the Company to do business in
each jurisdiction in which it is so licensed,
qualified, or authorized, and (C) maintain each
rating classification assigned to the
Subsidiaries of the Company that are insurance
companies by all rating agencies as of the date
of this Agreement, except in the case of (A) and
(B) above where the Company's Board of Directors
determines in good faith that the maintenance of
any such Company Material Contract or Company
License, qualification or authorization is no
longer necessary or advisable for the conduct of
the Company as presently conducted or as
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proposed to be conducted after the Effective
Time, if appropriate after consultation with
USF&G pursuant to Section 5.12.
(ii) The Company will (and will cause each of its
Subsidiaries to) in all material respects (A)
maintain all its assets and properties in good
working order and condition (ordinary wear and
tear excepted), and (B) continue all current
marketing and selling activities relating to its
business, operations and affairs, except where
the Company's Board of Directors determines in
good faith that such assets, properties or
marketing or selling activities are no longer
necessary or advisable for the conduct of the
Company as presently conducted or as proposed to
be conducted after the Effective Time, if
appropriate after consultation with USF&G
pursuant to Section 5.12.
(iii) The Company will (and will cause each of its
Subsidiaries to) maintain its books and records
in the usual manner and consistent with past
practice and will not permit a material change in
any underwriting, investment, actuarial,
financial reporting, tax, or accounting practice
or policy or in any assumption underlying such a
practice or policy, or in any method of
calculating any bad debt, contingency, insurance,
or other reserve for financial reporting purposes
or for other accounting purposes (including any
practice, policy, assumption, or method relating
to or affecting the determination of its
insurance in force, premium or investment income,
reserves or other similar amounts, or operating
ratios with respect to expenses, losses or
lapses).
(iv) The Company will (and will cause each of its
Subsidiaries to) (A) prepare properly and to file
duly and validly all Tax Returns required to be
filed prior to the Closing Date with the
appropriate taxing authority, (B) pay duly and
fully all Taxes which are due with respect to the
periods covered by such Tax Returns or otherwise
levied or assessed upon such entity or any of its
assets or properties, and to withhold or collect
and pay to the proper taxing authorities all
Taxes that such entity is required to so withhold
or collect and pay, unless such taxes are being
contested in good faith and, if appropriate,
reasonable reserves therefore have been
established and reflected in the books and
records of such entity and in accordance with SAP
and (C) provide Parent with copies of all federal
income tax returns and all material state income
tax returns as soon as practicable after the
preparation, but prior to the filing, thereof.
The Company will not make (and will prohibit its
Subsidiaries from making) any tax election or
settle or compromise any income tax liability
that may reasonably be expected to be material to
the Company and its Subsidiaries taken as a whole.
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(v) The Company will (and will cause each of its
Subsidiaries to) cause all statutory reserves and
other similar amounts with respect to losses,
benefits, claims, and expenses in respect of the
Subsidiary's insurance business to be (A)
determined in accordance with SAP and generally
accepted actuarial assumptions, (B) determined in
accordance with the benefits specified in the
related insurance or reinsurance Contracts in all
material respects, (C) calculated, established
and reflected on a basis consistent in all
material respects with those reserves and other
similar amounts and reserving methods followed at
December 31, 1996, (D) determined in conformity
with the requirements of the insurance laws of
each applicable jurisdiction in all material
respects and (E) adequate, in all material
respects, based upon then current information and
assumptions to cover the total amount of all
matured and reasonably anticipated unmatured
benefits, dividends, losses, claims, expenses,
and other liabilities of the Subsidiary under all
insurance or reinsurance Contracts which the
Subsidiary has or will have any liability. The
Company will (and will cause each of its
Subsidiaries to) continue to own assets and
properties that qualify as legal reserve assets
under all applicable insurance laws in an amount
at least equal to all required reserves and other
similar amounts.
(vi) The Company will (and will cause each of its
Subsidiaries to) use reasonable best efforts to
maintain in full force and effect substantially
the same levels of coverage as the insurance
afforded under the insurance coverage described
in Section 3.1(v) of the Disclosure Memorandum.
(vii) The Company will (and will cause each of its
Subsidiaries to) refrain from entering into any
new treaty of reinsurance, coinsurance, or other
similar Contract, whether as reinsurer or
reinsured.
(viii) The Company will (and will cause each of its
Subsidiaries to) continue to comply in all
material respects with all laws applicable to
its business, operations or affairs.
(ix) The Company shall not incur (and shall prohibit
each of its Subsidiaries from incurring) any
capital expenditure in excess of $75,000,
individually or in the aggregate.
(x) Subject to Sections 2.6 and 2.7, the Company
shall not (and shall cause each of its
Subsidiaries to not): (A) grant any increases in
the compensation of any of its directors,
officers or Key Employees; (B) pay or agree to
pay any pension, retirement allowance or other
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employee benefit not required to be paid prior
to the Effective Time by any of the existing
Company Benefit Plans or Company Employee
Arrangements as in effect on the date hereof to
any such director, officer or employee, whether
past or present; (C) enter into any new, or
amend, modify or grant any consent or waiver
with respect to any existing, employment,
retention or severance or termination agreement
with any director, officer or employee; or (D)
become obligated under any new Benefit Plan or
Employee Arrangement, which was not in existence
on the date hereof, or amend any such plan or
arrangement in existence on the date hereof if
such amendment would have the effect of
enhancing any benefits thereunder.
(xi) Other than with respect to drawdowns in the
ordinary course of business with respect to the
Company Credit Facilities, the Company shall not
(and shall cause each of its Subsidiaries to not)
assume or incur (which shall not be deemed to
include entering into credit agreements, lines of
credit or similar arrangements until borrowings
are made under such arrangements) any
indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any
debt securities of the Company or any of its
Subsidiaries or guarantee any debt securities of
others or enter into any lease (whether such
lease is an operating or capital lease) or create
any Liens on the property of the Company or any
of its Subsidiaries in connection with any
indebtedness thereof, or enter into any "keep
well" or other agreement or arrangement to
maintain the financial condition of another
person.
(xii) The Company shall not (and shall cause each of its
Subsidiaries to not) pay, discharge, settle or
satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course
of business consistent with past practice or in
accordance with their terms of liabilities
reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the
notes thereto) of the Company dated included in
the Filed Company SEC Documents, or incurred
since the date of such financial statements in
the ordinary course of business consistent with
past practice. Except in the ordinary course of
business consistent with past practice, the
Company shall not effect (and shall prohibit each
of its Subsidiaries from effecting) any
settlements of any legal proceedings without the
prior written consent (such consent not to be
unreasonably withheld) of Parent.
The Company shall, from the date of this Agreement through the
Effective Time or earlier termination of this Agreement pursuant to Article
VII, cause its management and that
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of its Subsidiaries to consult on a regular basis and in good faith with
the employees and representatives of Parent concerning the management of
the Company's and its Subsidiaries' businesses.
(b) Dividends; Changes in Stock. Neither the Company nor
any of its Subsidiaries shall (i) declare or pay any dividends on or make
other distributions in respect of any of its capital stock (other than,
with respect to the Company, regular cash dividends on Company Common Stock
not in excess of $0.08 per share of Company Common Stock which shall be
paid on a quarterly basis, with identical record and payment dates as the
quarterly dividends paid by Parent on Parent Common Stock), (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, (iii) issue any shares of
capital stock (except pursuant to and in accordance with the terms of
currently outstanding Company Options and Company Warrants), or (iv)
repurchase or otherwise acquire any shares of its capital stock, except as
required by the terms of any employee benefit plan as in effect on the date
of this Agreement.
(c) Issuance of Securities. Neither the Company nor any
of its Subsidiaries shall (i) grant any options, warrants or rights, to
purchase shares of its capital stock, (ii) amend the terms of or reprice
any Company Warrant or Company Option or amend the terms of the Stock
Option Plan or the Directors' Stock Option Plan, or (iii) issue, deliver or
sell, or pledge or otherwise encumber any shares of its capital stock, or
authorize or propose to issue, deliver or sell, any shares of its capital
stock, any Company Voting Debt or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, Company Voting
Debt or convertible securities, or agree to do any of the foregoing, other
than: (A) issue shares of Company Common Stock upon the exercise of Options
that are outstanding on the date of this Agreement or (B) issue shares of
Company Common Stock upon the exercise of Warrants that are outstanding on
the date of this Agreement.
(d) No Solicitation. Prior to the Effective Time, the
Company agrees (a) that neither it nor any of its affiliates or
Subsidiaries shall, and it shall not authorize or permit its officers,
directors, employees, representatives, investment bankers, attorneys,
accountants or other agents to, initiate, solicit or encourage (including
by way of furnishing information), directly or indirectly, any inquiries or
the making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a
merger, consolidation or other business combination including the Company
or any of its Subsidiaries or any acquisition or similar transaction
(including, without limitation, a tender or exchange offer) involving the
purchase of (i) all or any significant portion of the assets of the Company
and its Subsidiaries taken as a whole, (ii) 15% or more of the outstanding
shares of Company Common Stock or (iii) 15% or more of the outstanding
shares of the capital stock of any Subsidiary of the Company (any such
proposal or offer being hereinafter referred to as an "Acquisition
Proposal"), or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any
person or group relating to an Acquisition Proposal (excluding the
transactions contemplated by this Agreement), or
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otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal; (b) that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties with respect to any of the foregoing, and it will take the
necessary steps to inform such parties of its obligations under this
Section 4.1(d) and will require each such party who has signed a
confidentiality agreement to honor the restrictions therein with respect to
open market purchases of Company Common Stock and to return or destroy all
confidential information of the Company previously provided by it; and (c)
that it will notify Parent immediately (orally followed by written
confirmation) if any such inquiries, proposals or offers are received by,
any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it or any of such
persons. Notwithstanding the above, (A) the Company may provide non-public
information to any person or group if (i) such person or group has
expressed a written interest in (which, unless such person previously has
been provided confidential information, need not constitute a proposal for)
making an Acquisition Proposal providing greater aggregate value to the
Company and/or the Company's shareholders than the transactions
contemplated by this Agreement; (ii) the Company reasonably believes such
person or group has the financial ability to consummate an Acquisition
Proposal; (iii) such person or group executes a confidentiality letter no
less favorable to the Company than the Parent Confidentiality Letter (as
defined below); (iv) the Board of Directors of the Company, based upon the
advice of outside counsel, determines in good faith that it is necessary,
in order to comply with the Board's fiduciary duties under applicable law,
to provide such requested information; and (v) the Company provides notice
to Parent of the identity of the person or group to whom the non-public
information is being given at or before the time such information is given
and the Company delivers to Parent a copy of all such information
concurrently with its delivery to the requesting party and (B) the Company
may (I) enter into discussions or negotiate with any person or group that
makes a wholly unsolicited bona fide Acquisition Proposal providing greater
aggregate value to the Company and/or the Company's shareholders than the
transactions contemplated by this Agreement, if, and only to the extent
that, (1) the Board of Directors of the Company, based upon the advice of
outside counsel, determines in good faith that such action is required for
the Board of Directors to comply with its fiduciary duties to stockholders
imposed by law, (2) prior to entering into discussions or negotiations with
such person or group, the Company provides written notice (the "Acquisition
Proposal Notice") to Parent to the effect that it is entering into
discussions or negotiations with such person or group, and (3) the Company
keeps Parent informed of the status and all material information including
the identity of such person or group with respect to any such discussions
or negotiations to the extent such disclosure would not constitute a
violation of any applicable law or any confidentiality agreement with such
person or group; and (II) to the extent required, comply with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
(e) No Acquisitions; No Subsidiaries. Except as permitted
by Section 4.1(d), neither the Company nor any Subsidiary of the Company
shall merge or consolidate with, or acquire any equity interest in, any
corporation, partnership, association or other business organization, or
enter into an agreement with respect thereto. Neither the Company
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nor any Subsidiary of the Company shall (i) acquire or agree to acquire any
assets of any corporation, partnership, association or other business
organization or division thereof, except for the purchase of inventory and
supplies in the ordinary course of business or (ii) create any Subsidiary.
(f) No Dispositions. Other than dispositions set forth in
Section 4.1(f) of the Disclosure Memorandum and dispositions in the
ordinary course of business consistent with past practice which are not
material, individually or in the aggregate, to such party, and neither the
Company nor any Subsidiary of the Company shall sell, lease, encumber or
otherwise dispose of, or agree to sell, lease (whether such lease is an
operating or capital lease), reinsure, mortgage or otherwise encumber or
subject to any lien, encumber or otherwise dispose of, any of its
properties.
(g) No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Agreement, neither the Company nor any of its
Subsidiaries shall authorize, recommend, propose or announce an intention
to adopt a plan of complete or partial liquidation or dissolution of such
entity.
(h) Investments. Neither the Company nor any Subsidiary
of the Company shall make any investment other than (A) money market
instruments, A-1/P-1 commercial paper, treasury bills or other cash
equivalents, (B) investment grade publicly traded debt securities or (C)
exchange traded or Nasdaq National Market System traded equity-related
securities which in the aggregate, when combined with any other
equity-related securities holdings (which shall include preferred stock),
do not exceed nine percent (9%) of the total investments (excluding cash)
of the Company and its Subsidiaries, taken as a whole, in each case which
are made in accordance with the Company's Investment Policy Guidelines
(effective January 1, 1995) (the "Investment Guidelines") and otherwise in
accordance with past practice. Neither the Company nor any Subsidiary of
the Company shall make any portfolio investments except in the ordinary
course of business.
(i) Other Actions. Except as contemplated or permitted by
this Agreement, neither Parent nor the Company shall authorize, take or
agree or commit to (and shall cause each of its respective Subsidiaries to
take or commit or agree to) take any action that is reasonably likely to
result in any of the representations or warranties hereunder being untrue
in any material respect or in any of the covenants hereunder or any of the
conditions to the Merger not being satisfied in all material respects.
(j) Quick-Sure. The Company will take commercially
reasonable actions necessary to cause all of the outstanding capital stock
of Quick-Sure to be transferred to USF&G or its designee for a nominal
price per share and to take whatever other actions are reasonably necessary
to ensure that upon Closing, the material benefits of Quick-Sure's
relationships with Home State, the Company and the Company's Subsidiaries
inure to the benefit of USF&G or its designee. Without limiting the
generality of the foregoing, the
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Company agrees to use commercially reasonable efforts to cause Quick-Sure
to assign any leases to which Quick-Sure is a party to USF&G or its
designee if so requested by the Parent.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Proxy Statement; Shareholder
Meeting; Comfort Letters.
(a) Promptly following the date of this Agreement, the
Company shall prepare the Proxy Statement, and Parent shall prepare and
file with the SEC the Form S-4, in which the Proxy Statement will be
included. Parent will cooperate with the Company in connection with the
preparation of the Proxy Statement including, but not limited to,
furnishing to the Company any and all information regarding Parent as may
be required to be disclosed therein. Parent shall use reasonable best
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. The Company will use reasonable
best efforts to cause the Proxy Statement to be mailed to the Company's
shareholders as promptly as practicable after the Form S-4 is declared
effective under the Securities Act. Parent shall also take any action
required to be taken under any applicable state securities laws in
connection with the issuance of Parent Common Stock following the Merger.
The information provided and to be provided by Parent and the Company,
respectively, for use in the Form S-4 shall, at the time the Form S-4
becomes effective and on the date of the Shareholders' Meeting referred to
below, be true and correct in all material respects and shall not omit to
state any material fact required to be stated therein or necessary in order
to make such information not misleading, and the Company and Parent each
agree to correct any information provided by it for use in the Form S-4
which shall have become false or misleading.
(b) Parent will as promptly as practicable notify the
Company of (i) the effectiveness of the Form S-4, (ii) the receipt of any
comments from the SEC, and (iii) any request by the SEC for any amendment
to the Form S-4 for additional information. All filings with the SEC,
including the Form S-4 and any amendment thereto, and all mailings to the
Company's shareholders in connection with the Merger, including the Proxy
Statement, shall be subject to the prior review, comment and approval of
Parent or the Company, as the case may be (such approval not to be
unreasonably withheld or delayed).
(c) The Company will, as promptly as practicable
following the date of this Agreement and in consultation with Parent, duly
call and give notice of, and, provided that this Agreement has not been
terminated, convene and hold the Shareholders' Meeting for the purpose of
approving this Agreement and the transactions contemplated by this
Agreement to the extent required by the TBCA. Except as provided below, the
Company will, through its Board of Directors, recommend to its shareholders
approval of the foregoing matters, as set forth in Section 3.1(x);
provided, however, that the Board of Directors of the Company may
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fail to make or may withdraw or modify such recommendation, but only to the
extent that the Board of Directors of the Company shall have concluded in
good faith after receiving the advice of outside counsel that such action
is required to prevent the Board of Directors of the Company from breaching
its fiduciary duties to the Company or the shareholders of the Company
under applicable law. Any such recommendation, together with a copy of the
opinion referred to in Section 3.1(w), shall be included in the Proxy
Statement. The Company will use reasonable best efforts to hold such
meeting as soon as practicable after the date hereof.
(d) Parent shall use reasonable best efforts to cause to
be delivered to the Company a letter of Ernst & Young LLP, Parent's
independent public accountants, dated a date within two business days
before the date on which the Form S-4 shall become effective and a letter
of Ernst & Young LLP dated a date within two business days before the date
of the Shareholders' Meeting, addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
(e) The Company shall use reasonable best efforts to
cause to be delivered to Parent a letter of KPMG Peat Marwick LLP, the
Company's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and a
letter of KPMG Peat Marwick LLP dated a date within two business days
before the Shareholders' Meeting, addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
5.2 Contract and Regulatory Approvals. USF&G, Parent and the
Company will use (and will cause each of its Subsidiaries to use)
reasonable best efforts to obtain as promptly as practicable (a) all
approvals and consents required of any person or entity under all Contracts
to which the Company or any of its Subsidiaries is a party to consummate
the transactions contemplated hereby, and (b) all approvals,
authorizations, and clearances of Governmental Entities required of the
Company and each of its Subsidiaries to consummate the transactions
contemplated hereby. The Company will, and will cause each of its
Subsidiaries to, (i) provide such other information and communications to
such Governmental Entities as USF&G, Parent or such authorities may
reasonably request, and (ii) cooperate with USF&G or Parent in obtaining,
as promptly as practicable, all approvals, authorizations, and clearances
of governmental or regulatory authorities and other persons or entities
required of USF&G or Parent to consummate the transactions contemplated
hereby. Each of USF&G and the Parent will (i) provide such information and
communications to such Governmental Entities as the Company or such
authorities may reasonably request, and (ii) cooperate with the Company in
obtaining, as promptly as practicable, all approvals, authorizations, and
clearances of governmental or regulatory authorities and other persons or
entities required of the Company to consummate the transactions
contemplated hereby. Parent and USF&G shall
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use their reasonable best efforts to take or cause to be taken all actions
necessary, proper or advisable to obtain any consent, waiver, approval or
authorization relating to any federal, state or local statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and
other laws that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization, lessening of
competition or restraint of trade and includes the HSR Act that is required
for consummation of the transactions contemplated by this Agreement;
provided, however, that the foregoing shall not obligate Parent or USF&G to
agree to take any action which would have a material adverse effect on the
expected benefits to Parent of the transactions contemplated hereby.
5.3 HSR Filings. The Company will (a) take all actions necessary
to make the filings required of it or its affiliates under the HSR Act with
respect to the transactions contemplated by this Agreement, (b) comply with
any request for additional information received by the Company or its
affiliates from the Federal Trade Commission or Antitrust Division of the
Department of Justice pursuant to the HSR Act, (c) cooperate with Parent in
connection with Parent's filings under the HSR Act, and (d) request early
termination of the applicable waiting period.
5.4 Access to Information; Confidentiality.
(a) Upon reasonable notice, the Company shall (and shall
cause each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of Parent or USF&G, access,
during normal business hours during the period prior to the Effective Time,
to all its properties, books, contracts, commitments, employees, auditors,
agents, representatives and records and, during such period, the Company
shall (and shall cause each of its Subsidiaries to) furnish promptly to
Parent, (i) each SAP Annual Statement and SAP Quarterly Statement filed by
the Company's Subsidiaries during such period pursuant to the requirements
of any applicable law; (ii) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to SEC requirements; (iii) all correspondence or written
communication with A.M. Best and Company or any of its Subsidiaries,
Standard & Poor's Corporation, Moody's Investor Services, Inc., and with
any Governmental Entity or insurance regulatory authorities which relates
to the transactions contemplated hereby or which is otherwise material to
the financial condition or operation of the Company and its Subsidiaries
taken as a whole; and (iv) all other information concerning its business,
properties and personnel as the other party may reasonably request.
(b) Upon reasonable notice, Parent shall (and shall cause
each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of the Company, access,
during normal business hours during the period prior to the Effective Time,
to the books, records, officers and employees of Parent and its
Subsidiaries reasonably necessary to perform a "due diligence" review with
respect to (i) material matters, conditions or events arising after the
date hereof or (ii) matters, conditions or events which the Company has a
reasonable basis for believing make any of the
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representations or warranties of Parent contained herein not true in any
material respect and, during such period, Parent shall (and shall cause
each of its Subsidiaries to) furnish promptly to the Company, (a) each SAP
Annual Statement and SAP Quarterly Statement filed by such party's
Subsidiaries during such period pursuant to the requirements of any
applicable law; (b) a copy of each report filed by Parent with the SEC
during such period pursuant to SEC requirements; and (c) all correspondence
or written communication with A.M. Best and Company or any of its
Subsidiaries, Standard & Poor's Corporation, Moody's Investor Services,
Inc., and with any Governmental Entity or insurance regulatory authorities
which primarily relates to the transactions contemplated hereby.
(c) The Confidentiality Agreement dated June 26, 1997
(the "Parent Confidentiality Agreement"), between Parent and the Company
and the confidentiality agreement dated July 30, 1997 (the "Company
Confidentiality Agreement"), between the Company and Parent shall apply
with respect to information furnished thereunder or hereunder and any other
activities contemplated thereby.
5.5 Fees and Expenses.
(a) Except as otherwise provided in this Section 5.5 and
except with respect to claims for damages incurred as a result of the
breach of this Agreement (it being understood that such claims by Parent,
USF&G or their affiliates shall be precluded under Section 5.5(d) by the
payment of the amount set forth in Section 5.5(b) when Section 5.5(b) is
applicable), all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
(b) The Company agrees to pay Parent a fee in immediately
available funds equal to $7,500,000 if (i) this Agreement is terminated
pursuant to Section 7.1(d) hereof and any person or group of persons shall,
within 90 days after the date of such termination, consummate an
Acquisition Proposal or enter into an agreement with respect to an
Acquisition Proposal or (ii) this Agreement is terminated pursuant to
Section 7.1(e) hereof. Such fee shall be paid within one business day of
any termination of this Agreement pursuant to Section 7.1(e) hereof or
within one business day of the consummation of an Acquisition Proposal or
the entry into of any agreement with respect to an Acquisition Proposal, in
either case during the 90-day period after any termination of this
Agreement pursuant to Section 7.1(d) hereof.
(c) Any amounts due under this Section 5.5 that are not
paid when due shall bear interest at the rate of 9% per annum from the date
due through and including the date paid.
(d) Upon the payment of any fee pursuant to Section
5.5(b) above (regardless of whether a transaction pursuant to an
Acquisition Proposal is consummated), such fee shall be the exclusive
remedy of Parent, USF&G and their affiliates relating to this Agreement or
the transactions contemplated thereunder, and upon payment of any such fee,
Parent, USF&G and their affiliates shall have no rights, in tort, contract
or otherwise, arising
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under or relating to this Agreement or the transactions contemplated
thereunder, except for rights under the second sentence of Section 5.4
hereof.
(e) The fee set forth in Section 5.5(b) shall be payable
solely under the circumstances set forth in Section 5.5(b) and shall not be
payable under any other circumstances.
5.6 Indemnification.
(a) The Company shall, and from and after the Effective
Time the Surviving Corporation shall, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof or
who becomes prior to the Effective Time, an officer or director of the
Company (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of
or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director or
officer of the Company whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time ("Indemnified Liabilities"),
including all Indemnified Liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the full extent a
corporation is permitted under applicable law to indemnify its own
directors or officers as the case may be (and the Company and the Surviving
Corporation, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by law). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the
Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and the Company (or them and the Surviving Corporation
after the Effective Time) and the Company (or after the Effective Time, the
Surviving Corporation) shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; and (ii) the Company (or after the Effective Time, the Surviving
Corporation) will use reasonable best efforts to assist in the defense of
any such matter, provided that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its prior
written consent which consent shall not unreasonably be withheld. Any
Indemnified Party wishing to claim indemnification under this Section 5.6,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Company (or after the Effective Time, the Surviving
Corporation) (but the failure so to notify shall not relieve a party from
any liability which it may have under this Section 5.6 except to the extent
such failure prejudices such party). The Indemnified Parties as a group may
retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties. The Company and Parent agree that the
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foregoing rights to indemnification, including provisions relating to
advances of expenses incurred in defense of any action or suit, existing in
favor of the Indemnified Parties with respect to matters occurring through
the Effective Time, shall survive the Merger and shall continue in full
force and effect for a period of not less than six years from the Effective
Time; provided, however, that all rights to indemnification in respect of
any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities.
Furthermore, the provisions with respect to indemnification set forth in
the articles of incorporation or bylaws of the Surviving Corporation shall
not be amended for a period of six years following the Effective Time if
such amendment would materially and adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors
or officers of the Company in respect of actions or omissions occurring at
or prior to the Effective Time.
(b) For a period of six years after the Effective Time,
the Surviving Corporation shall cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained
by the Company (provided that Parent may substitute therefor (i) policies
of at least the same coverage and amounts containing terms and conditions
which are no less advantageous in any material respect to the Indemnified
Parties and (ii) coverage under Parent's directors' and officers' liability
insurance coverage if such substitution is approved by those persons, in
their sole discretion, who at the Effective Time constitute or constituted
a majority of the Company's Board of Directors) with respect to matters
arising before the Effective Time, provided that the Surviving Corporation
shall not be required to pay an annual premium for such insurance in excess
of 200% of the last annual premium paid by the Company prior to the date
hereof, but in such case shall purchase as much coverage as possible for
such amount. The last annual premium paid by the Company was $130,000.
(c) The provisions of this Section 5.6 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party,
his heirs and his personal representatives and shall be binding on all
successors and assigns of the Company and the Surviving Corporation.
(d) In the event that the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in
each case, to the extent necessary to effectuate the purpose of this
Section 5.6, proper provision shall be made so that the successors and
assigns of the Surviving Corporation shall succeed to the obligations set
forth in this Section 5.6 and none of the actions described in clauses (i)
or (ii) shall be taken until such provision is made.
5.7 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, except as otherwise expressly contemplated hereby, each
of the parties hereto agrees to use all reasonable best efforts to take, or
cause to be taken, all action and to do, or
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cause to be done as promptly as practicable, all things necessary, proper
or advisable, under applicable laws and regulations or otherwise, to
consummate and make effective the Merger and the other transactions
contemplated by this Agreement, subject, as applicable, to the Company
Shareholder Approval.
5.8 Public Announcements. The parties hereto will consult with
each other regarding any press release or public announcement pertaining to
the Merger and shall not issue any such press release or make any such
public announcement prior to such consultation, except as may be required
by applicable law, court process or obligations pursuant to any listing
agreement with any national securities exchange, in which case the party
proposing to issue such press release or make such public announcement
shall use reasonable efforts to consult in good faith with the other party
before issuing any such press release or making any such public
announcement. The parties hereto shall also consult with each other before
engaging in any communications with A.M. Best and Company with respect to
this Agreement or the transactions contemplated hereby.
5.9 Environmental Studies. Within thirty (30) days of this
Agreement, the Company shall deliver to Parent a report of a Phase I
Environmental Site Assessment, which shall be conducted in accordance with
and presented in the form prescribed by the most recent edition of the ASTM
Standard for Phase I environmental site assessments and a report of an
environmental compliance audit conducted in substantial accordance with the
ASTM Standard for environmental compliance audits, on the real property
located at NBC Plaza, 2700 NE Loop 410, San Antonio, TX, and the Village at
NBC Plaza, 8200 Perrin Beitel Rd., San Antonio, TX (including the
undeveloped real property owned by the Company in the vicinity thereof)
("Environmental Reports"), prepared by an environmental consultant,
engineer or environmental consulting or engineering firm reasonably
satisfactory to Parent. The cost of preparing the reports contemplated by
this Section 509 shall be borne by the Company.
5.10 Affiliates. Prior to the Closing Date, the Company shall
deliver to Parent a letter identifying all persons who are, at the time
this Agreement is submitted for approval to the shareholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall cause each such person to deliver to
Parent on or prior to the Closing Date a written agreement substantially in
the form attached as Exhibit B hereto.
5.11 Support Agreement. The Support Agreement shall be executed
contemporaneously with this Agreement.
5.12 Cooperation. From the date hereof until the Effective Time,
the parties agree to work together to coordinate all aspects of transition
planning and the integration of the Public Entity and Nonstandard
Businesses of Parent and its Subsidiaries with the businesses of the
Company and its Subsidiaries from and after the Effective Time. In this
regard, the parties agree, among other things, (i) to create a dedicated
transition team, including consultation between the parties to identify the
appropriate officers and employees of each of
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the Company and Parent who will be members of such team, to plan and
prepare for the integration of the business and other matters following the
Merger and preparing for the execution of any such plans, (ii) to jointly
develop any employee, agent, policyholder or other communications relating
to such plans and the Merger, (iii) to discuss and consult with respect to
investment management activities, (iv) to jointly consider information
processing systems updates and technology integration issues and to plan
and prepare for an agreed-upon resolution of such issues following the
Merger and (v) to take such actions as are necessary or appropriate to
promote and implement the integration plan, subject to applicable law.
5.13 NYSE Listing. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued in the Merger to be approved for
listing on the New York Stock Exchange (the "NYSE"), subject to official
notice of issuance, prior to the Effective Time
5.14 Benefit Plans and Employee Arrangements. For employees who
are employees of the Company as of the Effective Time and who continue to
be employed by the Company, Parent shall cause the Surviving Corporation to
provide employee benefits which are substantially comparable in the
aggregate to the benefits provided under the Company Benefit Plans until
the first anniversary of the Effective Time.
5.15 Tax-Free Reorganization. Parent and the Company shall each
use its best efforts to cause the Merger to be treated as a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
Parent shall own all of the issued and outstanding shares of USF&G
immediately prior to the Merger. Parent shall not, nor shall Parent permit
any of its affiliates to, take any action which would cause the Merger to
fail to qualify as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code.
5.16 Tri-West. The Company will use its reasonable best efforts to
cause each of E.B. Lyon, III, Michael J. Claypool and Michael J. Bodayle to
enter into an agreement with the Company granting the Company the right to
purchase, on terms reasonably acceptable to Parent, the outstanding
membership, equity and voting interests of Tri-West of New Mexico, LLC,
Tri-West of Indianapolis, LLC, Tri-West of Florida, LLC, and any other
agency owned by any of them which has entered into a producer agreement
with any Subsidiary of the Company.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
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(a) Company Shareholder Approval. The Merger shall have
been approved and adopted by the affirmative vote or written consent of the
holders of two-thirds of the outstanding shares of Company Common Stock
entitled to vote thereon.
(b) Governmental and Regulatory Consents. All actions,
consents, approvals, filings and notices listed in Sections 3.1(d)(ii)(A)
and 3.2(d)(iii)(A) of the Disclosure Memorandum shall have been taken, made
or obtained; provided, however, that such consents or approvals shall be in
full force and effect at the Effective Time and shall not obligate Parent
or USF&G to agree to take any action which would have a material adverse
effect on the expected benefits to Parent of the transactions contemplated
hereby.
(c) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired, and no restrictive order or other
requirements shall have been placed on the Company, Parent or the Surviving
Corporation in connection therewith.
(d) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall
use reasonable best efforts to have any such decree, ruling, injunction or
order vacated.
(e) Form S-4. The Form S-4 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 any material "blue sky" and other
state securities laws applicable to the registration and qualification of
the Parent Common Stock following the Merger shall have been complied with.
(f) NYSE Listing. The shares of Parent Common Stock which
shall be issued to the stockholders of the Company upon consummation of the
Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
6.2 Conditions to Obligations of Parent and USF&G. The obligations
of Parent and USF&G to effect the Merger are further subject to the
satisfaction or waiver following conditions:
(a) Representations and Warranties. The representations
and warranties of the Company set forth in this Agreement shall be true and
correct (without regard to any materiality qualifiers contained therein) in
each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a particular date) as of the
Closing as though made on and as of the Closing, except where the failure
of one or more representations or warranties to be true and correct,
individually or in the aggregate, would not result in a Material Adverse
Effect on the Company. Parent shall have received a
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certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to the effect set forth in
this paragraph.
(b) Performance of Obligations of the Company. The
Company shall have performed and complied with, in all material respects,
all agreements and covenants required to be performed and complied with by
the Company under this Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. There shall not have
occurred or arisen after March 31, 1997 and prior to the Effective Time any
change, event (including without limitation any damage, destruction or
loss, whether or not covered by insurance), condition (financial or
otherwise), or state of facts with respect to the Company or any of its
Subsidiaries which would constitute a Material Adverse Effect on the
Company.
(d) No Litigation. There shall not be pending or, to the
Company's or Parent's knowledge threatened, any action, suit,
investigation, or other proceeding by any Governmental Entity to restrain,
enjoin, or otherwise prevent consummation of any of the transactions
contemplated by this Agreement.
(e) Affiliate Letters. A duly executed copy of each of
the agreements referred to in Section 5.10 shall have been received by
Parent.
(f) Option Agreements and Warrants. The Company shall
have (i) taken all actions required to enable the consummation of the
transactions contemplated by Section 2.6 and (ii) received agreements in
the form of Exhibit C attached hereto from holders of Company Warrants
representing the right to purchase 75% of the shares of Company Common
Stock underlying all outstanding Company Warrants as of the date of this
Agreement, whether or not then exercisable in whole or in part.
(g) Tax Opinion. Parent shall have received an opinion of
Piper & Marbury L.L.P. (or another nationally recognized law firm) 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(a)(1)(A) and 368
(a)(2)(D) of the Code.
(h) Authorization. The Company shall have delivered to
Parent evidence reasonably satisfactory to Parent that all requisite action
on the part of the Company necessary for the due authorization of this
Agreement and the performance and consummation of the transactions
contemplated hereby has been taken.
6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations
and warranties of Parent and USF&G set forth in this Agreement shall be true
and correct (without regard to
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any materiality qualifiers contained therein), in each case as of the date
of this Agreement and (except to the extent such representations and
warranties speak as of a particular date) as of the Closing Date as though
made on and as of the Closing Date, except where the failure of one or more
representations or warranties to be true and correct, individually or in
the aggregate, would not result in a Material Adverse Effect on Parent. The
Company shall have received certificates signed on behalf of Parent by the
chief executive officer and chief financial officer of Parent to the effect
set forth in this paragraph.
(b) Performance of Obligations of USF&G. Parent and USF&G
shall have performed and complied with, in all material respects, all
agreements and covenants required to be performed and complied with by
Parent and USF&G under this Agreement at or prior to the Closing Date.
(c) Federal Tax Opinion. The Company shall have received
an opinion of Mayer, Brown & Platt (or another nationally recognized law
firm) 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(a)(1)(A) and 368(a)(2)(D) of the Code.
(d) No Material Adverse Change. Except as publicly
disclosed in a document filed by Parent under the Exchange Act, there shall
not have been any change in the business, results of operation or financial
condition of the Parent and its Subsidiaries taken as a whole at any time
between March 31, 1997 and the Effective Time which would have a Material
Adverse Effect on the Parent.
(e) Authorization. Parent shall have delivered to the
Company evidence reasonably satisfactory to the Company that all requisite
action on the part of Parent necessary for the due authorization of this
Agreement and the performance and consummation of the transactions
contemplated hereby has been taken.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger by
the shareholders of the Company or Parent:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent if any permanent
injunction or other order of a court or other competent authority
preventing the consummation of the Merger shall have become final and
non-appealable;
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(c) by either the Company or Parent, if the Merger shall
not have been consummated on or before December 31, 1997; provided that if
the conditions set forth in Article VI have not been satisfied as of such
date, this Agreement may not be terminated until February 28, 1998 if it
can reasonably be anticipated that such conditions can be satisfied by
February 28, 1998 (such December 31, 1997 or February 28, 1998, the
"Termination Date"); and provided further that the right to terminate this
Agreement under this Section 7.1(c) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date;
(d) by either Parent or the Company if at the duly held
meeting of the shareholders of the Company (including any adjournment
thereof) held for the purpose of voting on the Merger, this Agreement and
the consummation of the transactions contemplated hereby, the holders of at
least two-thirds of the outstanding shares of Company Common Stock shall
not have approved the Merger, this Agreement and the consummation of the
transactions contemplated hereby;
(e) by Parent or the Company, in the event that a Trigger
Event has occurred prior to the consummation of the Merger (for purposes of
this Section 7.1(e), "Trigger Event" shall mean: (i) the Board of Directors
of the Company shall have failed to give or shall have withdrawn or
adversely modified in any material respect, or taken a public position
materially inconsistent with, its approval or recommendation of the Merger
or this Agreement; or (ii) an Acquisition Proposal shall have been
recommended or accepted by the Company or the Company shall have entered
into an agreement with respect to an Acquisition Proposal with any person
or entity other than Parent or an affiliate thereof);
(f) by Parent, upon a breach of any representation or
warranty of the Company, or in the event the Company fails to comply in any
respect with any of its covenants and agreements, or if any representation
or warranty of the Company shall be or become untrue, in each case, where
such breach, failure to so comply or untruth (either individually or in the
aggregate with all other such breaches, failures to comply or untruths)
would cause one or more of the conditions set forth in Sections 6.1(a),
6.1(b), 6.2(a) or 6.2(b) to be incapable of being satisfied as of a date
within ten days after the occurrence thereof, provided that a willful
breach by the Company shall be deemed to cause such conditions to be
incapable of being satisfied by such date;
(g) by the Company, upon a breach of any representation
or warranty of Parent or USF&G, or in the event Parent or USF&G fails to
comply in any respect with any of its covenants or agreements, or if any
representation or warranty of Parent or USF&G shall be or become untrue, in
each case, where such breach, failure to so comply or untruth (either
individually or in the aggregate with all other such breaches, failures to
comply or untruths) would cause one or more of the conditions set forth in
Sections 6.1(a), 6.1(b), 6.3(a) or 6.3(b) to be incapable of being
satisfied as of a date within ten days after the occurrence thereof,
provided that a willful breach by Parent or USF&G shall be deemed to cause
such conditions to be incapable of being satisfied by such date; or
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(h) by either Parent or the Company within two days of
the determination of the Average Stock Price if the Average Stock Price
shall be greater than $32.42 or less than $17.46.
7.2 Effect of Termination. If this Agreement is validly terminated
by either the Company or Parent pursuant to Section 7.1, this Agreement
will forthwith become null and void and there will be no liability or
obligation on the part of either the Company or Parent (or any of their
respective Subsidiaries or affiliates), except (i) that the provisions of
Section 5.4(c), Section 5.5 and this Section 7.2 will continue to apply
following any such termination, (ii) such termination shall not in any case
affect the obligations of the Company under the Parent Confidentiality
Agreement and the Company Confidentiality Agreement and (iii) that nothing
contained herein shall relieve any party hereto from liability for willful
breach of its representations, warranties, covenants or agreements
contained in this Agreement. The effectiveness of any termination under
this Agreement shall be subject to the payments required to be made
pursuant to Section 5.5 being so made, if applicable.
7.3 Amendment. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of Parent,
USF&G and the Company at any time prior to the Effective Date of the Merger
with respect to any of the terms contained herein; provided, however, that,
after this Agreement is approved by the Company's shareholders, no such
amendment or modification shall (a) reduce the amount or change the form of
consideration to be delivered to the holders of shares of Company Common
Stock, (b) change the date by which the Merger is required to be effected,
or (c) change the amounts payable in respect of the Options or Warrants.
7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed: (a) extend the
time for the performance of any of the obligations or other acts of the
other parties hereto; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto;
and (c) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed
on behalf of such party. The failure of any party hereto to assert any of
its rights hereunder shall not constitute a waiver of such rights.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements.
None of the representations, warranties and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time; provided, however, that Article II, Sections 5.6 and 5.14,
the Parent Confidentiality Agreement and the Company Confidentiality
Agreement (with respect to directors, officers, advisors and
representatives of Parent and the Company) shall survive the Effective
Time.
8.2 Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed
or telecopied or sent by certified or registered mail, postage prepaid, and
shall be deemed to be given, dated and received upon receipt. Any such
notice or communication shall be provided to the following address or
telecopy number, or to such other address or addresses as such person may
subsequently designate by notice given hereunder:
(a) if to USF&G or Parent, to:
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209-3653
Attn: Andrew A. Stern, Mail Stop LA-0300
Telecopy: (410) 205-6802
with a copy to:
Piper & Marbury L.L.P.
35 South Charles Street
Baltimore, Maryland 21201
Attn: R.W. Smith, Jr.
Telecopy: (410) 576-5052
(b) if to the Company, to:
Titan Holdings, Inc.
2700 N.E. Loop 410, Suite 500
San Antonio, Texas 78217
Attn: Mark E. Watson, III
Telecopy: (210) 527-2936
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<PAGE>
with a copy to:
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, Illinois 60603
Attn: Edward S. Best
Telecopy: (312) 701-7711
8.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the word "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words
"without limitation". The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested
by the party to whom such information is to be made available.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed
by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement together with the Parent Confidentiality
Agreement and the Company Confidentiality Agreement (and any other
documents and instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings including
that certain Letter Agreement, dated July 15, 1997 between Parent and the
Company, both written and oral, among the parties with respect to the
subject matter hereof and, except as provided in Article II, Sections 5.6
and 5.14, is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder. Anything to the contrary
notwithstanding, paragraph 6 of the Parent Confidentiality Agreement and
paragraph 6 of the Company Confidentiality Agreement shall terminate after
the date of this Agreement.
8.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas, without giving effect to
the principles of conflicts of law thereof.
8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, such consent not to be unreasonably withheld
and any such assignment that is not consented to shall be null and void;
provided, however, that Parent may assign this Agreement to an affiliate
without the
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consent of the Company. Any such assignment shall not affect Parent's or
USF&G's liability hereunder, including its obligations to deliver the
Merger Consideration. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the
parties and their respective successors and assigns.
[The remainder of this page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
USF&G:
-----
UNITED STATES FIDELITY AND GUARANTY
COMPANY
By:
Name:
Title:
Parent:
------
USF&G CORPORATION
By:
Name:
Title:
Company:
-------
TITAN HOLDINGS, INC.
By:
Name:
Title:
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EXHIBIT A TO
MERGER AGREEMENT
[FORM OF VOTING AND SUPPORT AGREEMENT]
Agreement dated as of August 7, 1997 between the shareholder
identified on Exhibit A hereto (the "Shareholder") and USF&G Corporation, a
Maryland corporation ("Parent"). Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Merger
Agreement (as defined below).
In consideration of the execution by Parent of the Agreement and
Plan of Merger dated as of August 7, 1997 (the "Merger Agreement") among
Parent, United States Fidelity and Guaranty Company, a Maryland
corporation, and Titan Holdings, Inc., a Texas corporation ("Company"), and
other good and valuable consideration, receipt of which is hereby
acknowledged, the Shareholder and Parent hereby agree as follows:
1. Representations, Warranties and Agreements of Shareholder.
The Shareholder hereby represents and warrants to, and agrees with, Parent
as follows:
(a) Title. As of the date hereof, the Shareholder is the
beneficial and registered owner of 2,579,295 shares (the "Shares") of
common stock, $.01 par value per share ("Common Stock"), of Company. As of
the date hereof, except as set forth on Exhibit A hereto, the Shareholder
does not (i) beneficially own any shares of any class or series of capital
stock of Company (other than the Shares) or any securities convertible into
or exercisable for shares of any class or series of Company's capital stock
or (ii) have any options or other rights to acquire any shares of any class
or series of capital stock of Company or any securities convertible into or
exercisable for shares of any class of Company's capital stock. Except as
set forth in Exhibit B hereto, the Shareholder owns the Shares free and
clear of any lien, mortgage, pledge, charge, security interest or any other
encumbrance of any kind. The Shareholder covenants and agrees to comply
with the pledge agreements and other loan documents relating to the pledges
of certain of the Shares identified on Exhibit B and to otherwise take any
action necessary to insure that the Shareholder can carry out the terms of
this Agreement. Each pledgee of the Shares has consented to this Agreement
and to the Shareholder's fulfillment of the terms thereof.
(b) Right to Vote and to Transfer Shares. The Shareholder
has full legal power, authority and right to vote all of the Shares in
favor of approval and adoption of the Merger Agreement without the consent
or approval of, or any other action on the part of, any other person or
entity. Without limiting the generality of the foregoing, except for this
Agreement, Shareholder has not entered into any voting agreement or any
other agreement with any person or entity with respect to any of the
Shares, granted any person or entity any proxy (revocable or irrevocable)
or power of attorney with respect to any of the Shares, deposited any of
the Shares in a voting trust or entered into any arrangement or agreement
with any person or entity limiting or affecting the Shareholder's ability
to enter into this
Exhibit A, Page 1
<PAGE>
Agreement or legal power, authority or right to vote the Shares in favor of
the approval and adoption of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement, and Shareholder will not
take any such action after the date of this Agreement and prior to the
Company shareholders meeting to vote on approval and adoption of the Merger
Agreement, including any adjournment or postponement thereof (the "Company
Shareholders Meeting"). This Agreement has been duly executed and delivered
by the Shareholder and constitutes a valid and binding agreement of the
Shareholder.
2. Representations and Warranties of Parent. Parent hereby
represents and warrants to the Shareholder that this Agreement (i) has been
duly authorized by all necessary corporate action, (iii) has been duly
executed and delivered by Parent and (iii) is a valid and binding agreement
of Parent.
3. Restriction on Transfer. The Shareholder agrees that (other
than pursuant to the Merger Agreement) it will not, and will not agree to,
sell, assign, dispose of, encumber, mortgage, hypothecate or otherwise
transfer or encumber (collectively, "Transfer") any of the Shares to any
person or entity; provided, however, that the Shareholder may enter into
pledge agreements pledging any of the Shares as collateral security under
loan agreements, provided that (i) the lender under each such loan
agreement consents to this Agreement and fulfillment of the terms thereof
and (ii) the Shareholder covenants and agrees to comply with each pledge
agreement and other loan documents relating to pledges of Shares thereunder
and to otherwise take all action necessary to insure that the Shareholder
can carry out the terms of this Agreement.
4. Agreement to Vote of Shareholder. The Shareholder, in his
individual capacity as a shareholder of the Company only, hereby
irrevocably and unconditionally agrees to vote or to cause to be voted all
of the Shares at the Company Shareholders' Meeting and at any other annual
or special meeting of shareholders of Company where such matters arise (a)
in favor of the approval and adoption of the Merger Agreement and (b)
against (i) approval of any proposal made in opposition to or in
competition with the Merger or any of the other transactions contemplated
by the Merger Agreement, (ii) any merger, consolidation, sale of assets,
business combination, share exchange, reorganization or recapitalization of
Company or any of its subsidiaries, with or involving any party other than
Parent or one of its subsidiaries, (iii) any liquidation, dissolution or
winding up of Company, (iv) any extraordinary dividend by Company, (v) any
change in the capital structure of Company (other than pursuant to the
Merger Agreement) and (vi) any other action that may reasonably be expected
to impede, interfere with, delay, postpone or attempt to discourage the
Merger or the other transactions contemplated by the Merger Agreement or
this Agreement or result in a breach of any of the covenants,
representations, warranties or other obligations or agreements of Company
under the Merger Agreement which would materially and adversely affect
Company or its ability to consummate the transactions contemplated by the
Merger Agreement. The Stockholder further agrees not to take or commit or
agree to take any action inconsistent with the foregoing.
Exhibit A, Page 2
<PAGE>
5. Action in Shareholder Capacity Only. The Shareholder signs
solely in the Shareholder's capacity as a record and beneficial owner of
the Shares, and nothing herein shall prohibit, prevent or preclude the
Shareholder from fulfilling his fiduciary duties as a director of Company,
including without limitation, voting or consenting as a director in favor
of an Acquisition Proposal (as defined in the Merger Agreement) or
negotiating with respect to an Acquisition Proposal in his capacity as an
officer or director of the Company.
6. No Shopping. The Shareholder, in his individual capacity as a
shareholder of the Company only, agrees not to, directly or indirectly, (i)
solicit, initiate or encourage (or authorize any person to solicit,
initiate or encourage) any inquiry, proposal or offer from any person to
acquire the business, property or capital stock of Company or any direct or
indirect subsidiary thereof, or any acquisition of a substantial equity
interest in, or a substantial amount of the assets of, Company or any
direct or indirect subsidiary thereof, whether by merger, purchase of
assets, tender offer or other transaction or (ii) participate in any
discussion or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or
participate in, facilitate or encourage any effort or attempt by any other
person to do or seek any of the foregoing; provided that, notwithstanding
the foregoing, the Shareholder shall not be prohibited from taking any such
actions as are required, based upon advice of counsel, to comply with his
fiduciary duties as an officer and director of the Company to the extent
such actions are permitted under the Merger Agreement.
7. Invalid Provisions. If any provision of this Agreement shall be
invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such invalidity or unenforceability only,
without it affecting the remaining provisions of this Agreement.
8. Executed in Counterparts. This Agreement may be executed in
counterparts each of which shall be an original with the same effect as if
the signatures hereto and thereto were upon the same instrument.
9. Specific Performance. The parties hereto agree that if for any
reason the Shareholder fails to perform any of his agreements or
obligations under this Agreement irreparable harm or injury to Parent would
be caused for which money damages would not be an adequate remedy.
Accordingly, the Shareholder agrees that, in seeking to enforce this
Agreement against the Shareholder, Parent shall be entitled to specific
performance and injunctive and other equitable relief in addition and
without prejudice to any other rights or remedies, whether at law or in
equity, that Parent may have against the Shareholder for any failure to
perform any of its agreements or obligations under this Agreement.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without giving
effect to the principles of conflicts of laws thereof
Exhibit A, Page 3
<PAGE>
11. Amendments; Termination.
(a) This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
(b) The provisions of this Agreement shall terminate upon
the earliest to occur of (i) the consummation of the Merger, (ii) the date
which is 12 months after the date hereof, (iii) the termination of the
Merger Agreement pursuant to Section 7.1(a) or (g) thereof, or (iv) the
termination of the Merger Agreement pursuant to Section 7.1 (b) or (c)
thereof if, but only if, the Merger Agreement is terminated pursuant to
such subsection (b) or (c) solely for reasons that are not directly or
indirectly related to the commencement of, or any person's or entity's
direct or indirect indication of interest in making, an Acquisition
Proposal with respect to the Company.
(c) For purposes of this Agreement, the term "Merger
Agreement" includes the Merger Agreement, as the same may be modified or
amended from time to time.
12. Additional Shares. If, after the date hereof the Shareholder
acquires beneficial ownership of any shares of the capital stock of Company
(any such shares, "Additional Shares"), including, without limitation, upon
exercise of any option, warrant or right to acquire shares of capital stock
or through any stock dividend or stock split, the provisions of this
Agreement (other than those set forth in Section 1 (a)) applicable to the
Shares shall be applicable to such Additional Shares as if such Additional
Shares had been Shares as of the date hereof. The provisions of the
immediately preceding sentence shall be effective with respect to
Additional Shares without action by any person or entity immediately upon
the acquisition by the Shareholder of beneficial ownership of such
Additional Shares.
13. Action by Written Consent. If, in lieu of the Company
Shareholders Meeting, shareholder action in respect of the Merger Agreement
or any of the transactions contemplated by the Merger Agreement is taken by
written consent, the provisions of this Agreement imposing obligations in
respect of or in connection with the Company Shareholders Meeting shall
apply mutatis mutandis to such action by written consent.
14. Shareholder Certificate. Shareholder agrees to execute and
deliver a certificate containing such representations as are reasonably
necessary and customary for tax counsel to Parent on the one hand, and
Company on the other hand, to render an opinion to the effect that the
Merger will constitute a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986 and that no gain or loss will be
recognized by the shareholders of Company to the extent they receive Parent
Common Stock solely in exchange for shares of Company Common Stock, such
certificate to be in the form attached hereto as Exhibit C.
15. Successors and Assigns. The provisions of this Agreement
shall be binding
Exhibit A, Page 4
<PAGE>
upon and inure to the benefit of the parties hereto and their respective
legal successors and permitted assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of Parent (in the case of the Shareholder or
any of its permitted assigns) or the Shareholder (in the case of Parent or
any of its permitted assigns).
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by facsimile, or by registered or certified mail
(postage prepaid, return receipt requested) to such party at its address
set forth on the signature page hereto.
[The remainder of this page intentionally left blank.]
Exhibit A, Page 5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
Mark E. Watson, Jr.
Address:__________________________________
MEW FAMILY LIMITED PARTNERSHIP
By:_______________________________________
Mark E. Watson, Jr., General Partner
By:_______________________________________
Kathleen Watson, General Partner
Address:__________________________________
THE MARK AND KATHLEEN WATSON
CHARITABLE FOUNDATION
By:________________________________
Mark E. Watson, Jr., Trustee
By:________________________________
Kathleen E. Watson, Trustee
By:_________________________________
E.B. Lyon, III, Trustee
Address:____________________________
USF&G CORPORATION
By:__________________________________
Address:_____________________________
Exhibit A, Page 6
<PAGE>
EXHIBIT A TO VOTING
AND SUPPORT AGREEMENT
Mark E. Watson, Jr., including 2,223,096 shares owned in his individual
capacity, 256,199 shares owned through MEW Family Limited Partnership, a
limited partnership in which he is a general partner together with his
wife, Kathleen Watson, and 100,000 shares owned through The Mark and
Kathleen Watson Charitable Foundation, of which he is a trustee together
with Kathleen Watson and E.B. Lyons, III.
Exhibit A, Page 7
<PAGE>
EXHIBIT B TO VOTING
AND SUPPORT AGREEMENT
[Encumbrances on Shares]
Exhibit A, Page 8
<PAGE>
EXHIBIT C TO VOTING
AND SUPPORT AGREEMENT
[Form of Tax Opinion Certificate]
This Certificate is being issued to Piper & Marbury L.L.P. in
connection with its rendering of opinions regarding certain federal income
tax consequences of a merger pursuant to the Plan and Agreement to Merge,
dated as of August 8, 1997 (the "Merger Agreement"), by and among USF&G
Corporation, a Maryland corporation ("USF&G"), United States Fidelity and
Guaranty Company, a Maryland corporation and wholly owned subsidiary of
USF&G ("Subsidiary"), and Titan Holdings, Inc. a Texas corporation
("Company"), providing, among other things, for the merger of Company with
and into Subsidiary (the "Merger"). As used herein, "USF&G Common Stock"
shall mean any one or more shares of the USF&G's $2.50 per share par value
common stock and "Company Common Stock" shall mean any one or more shares
of Company's $0.01 per share par value common stock.
After consulting with their counsel regarding the meaning of and
factual support for the following representations, the undersigned hereby
certify and represent to Piper & Marbury L.L.P. to the best of their
knowledge and belief that the following facts are now true and will
continue to be true through and as of the effective time of the Merger:
There is no plan or intention by the undersigned, acting either
individually or in concert with one another or with other persons, directly
or indirectly, to sell, exchange, transfer, transfer by gift or otherwise
dispose (including by transactions which would have the ultimate effect of
a disposition including, but not limited to, puts, short-sales and equity
swap type of arrangements) (collectively, dispose) of a number of shares of
USF&G Common Stock received in the Merger that would reduce the former
Company Common Stockholders' ownership of USF&G stock to a number of shares
having, in the aggregate, a value, as of the date of the Merger, of less
than 50 percent of the fair market value of Company Common Stock
outstanding as of the same date. For purposes of the preceding sentence,
all shares of Company Common Stock exchanged for cash paid in lieu of
fractional shares of USF&G Common Stock will be considered outstanding
stock of Company as of the date of the Merger. Moreover, shares of Company
Common Stock and shares of USF&G Common Stock held by Company stockholders
and otherwise sold, redeemed, or disposed of prior or subsequent to the
Merger are taken into account for purpose of the first sentence of this
paragraph.
Each of the undersigned recognizes that the opinions of Piper &
Marbury L.L.P. will be (i) based on the representations set forth herein
and on the statements contained in the Merger Agreement and documents
related thereto, and (ii) subject to certain limitations and qualifications
including that they may not be relied upon if any such representations are
not accurate in all material respects.
Exhibit A, Page 9
<PAGE>
Each of the undersigned recognizes that the opinions of Piper &
Marbury L.L.P. will not address any tax consequences of the Merger or any
action taken in connection therewith except as expressly set forth in such
opinions.
In witness whereof, the undersigned have executed this Certificate
this __ day of ________, 1997.
-----------------------------
Mark E. Watson, Jr.
-----------------------------
Mark E. Watson, III
-----------------------------
Thomas E. Mangold
Exhibit A, Page 10
<PAGE>
EXHIBIT B TO
MERGER AGREEMENT
[FORM OF AFFILIATE LETTER]
________, 1997
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be
deemed to be an "affiliate" of Titan Holdings, Inc., a Texas corporation
("Titan"), as the term "affiliate" is (i) defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"),
and/or (ii) used in and for purposes of Accounting Series, Releases 130 and
135, as amended, of the Commission. I have been further advised that
pursuant to the terms of the Agreement and Plan of Merger dated as of
August ___, 1997 (the "Agreement"), between Titan, USF&G Corporation
("USF&G") and United States Fidelity and Guaranty Company, a Maryland
corporation (the "Subsidiary"), Titan will be merged with and into the
Subsidiary (the "Merger") and I will receive shares of Common Stock, par
value $2.50 per share, of USF&G (the "USF&G Common Stock") in exchange for
shares of Common Stock, par value $0.01 per share, of Titan owned by me.
I represent, warrant and covenant to USF&G that in the event I
receive any USF&G Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
USF&G Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
USF&G Common Stock to the extent I believe necessary, with my counsel or
counsel for Titan.
C. I have been advised that the issuance of USF&G Common Stock to
me pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, since at the time the Merger was submitted for a vote of the
stockholders of Titan, I may be deemed to have been an affiliate of Titan
and the distribution by me of the USF&G Common Stock has not been
registered under the Act, and that I may not sell, transfer or otherwise
dispose of
Exhibit B, Page 1
<PAGE>
the USF&G Common Stock issued to me in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such
sale, transfer or other disposition is made in conformity with Rule 145
promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to USF&G, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
D. I understand that USF&G is under no obligation to register the
sale, transfer or other disposition of the USF&G Common Stock by me or on
my behalf under the Act or, to take any other action necessary in order to
make compliance with an exemption from such registration available.
E. I also understand that, in the event USF&G or USF&G's transfer
agent determines that I beneficially own one percent (1%) or more of the
USF&G Common Stock outstanding, stop transfer instructions will be given to
USF&G's transfer agents with respect to the USF&G Common Stock and that
there will be placed on the certificates for the USF&G Common Stock issued
to me, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN
COMPLIANCE WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A
REGISTRATION STATEMENT UNDER SAID ACT OF AN EXEMPTION FROM SUCH
REGISTRATION."
F. I also understand that, in the event USF&G or USF&G's transfer
agent determines that I beneficially own one percent (1%) or more of the
USF&G Common Stock outstanding, unless the transfer by me of my USF&G
Common Stock has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, USF&G reserves the right to put
the following legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM
A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT IN
Exhibit B, Page 2
<PAGE>
ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933."
It is understood and agreed that the legend set forth in
paragraphs E and F above shall be removed by delivery of substitute
certificates without such legend if such legend is not required for
purposes of the Act or this Agreement. It is understood and agreed that
such legends and the stop orders referred to above will be removed if (i)
one year shall have elapsed from the date the undersigned acquired the
USF&G Common Stock received in the Merger and the provisions of Rule
145(d)(2) are then available to the undersigned, (ii) two years shall have
elapsed from the date the undersigned acquired the USF&G Common Stock
received in the Merger and the provisions of Rule 145(d)(3) are then
applicable to the undersigned, or (iii) USF&G has received either an
opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to USF&G, or a "no action" letter obtained by the undersigned
from the staff of the Commission, to the effect that the restrictions
imposed by Rule 145 under the Act no longer apply to the undersigned.
Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of Titan as described in the first
paragraph of this letter or as a waiver of any rights I may have to object
to any claim that I am such an affiliate on or after the date of this
letter.
Very truly yours,
_____________________________________
[Name]
Accepted this ____ day of ______, 199___.
USF&G CORPORATION
By:___________________________________
Name:
Title:
Exhibit B, Page 3
<PAGE>
EXHIBIT C TO
MERGER AGREEMENT
[FORM OF WARRANT CANCELLATION AGREEMENT]
THIS AGREEMENT, dated as of ____________ __, 1997, by and between
Titan Holdings, Inc., a Texas corporation (the "Company"), USF&G
Corporation, a Maryland corporation ("Parent") and ____________________
(the "Holder").
WHEREAS, the Holder is the record owner of _______ warrants (the
"Warrants") outstanding under the ________________ Warrant Agreement (the
"Warrant Agreement"); and
WHEREAS, the Company, Parent and the Holder have agreed that it is
now desirable that the Warrants be cancelled and that the Parent shall pay
the Holder the Warrant Consideration, as such term is defined in the
Agreement and Plan of Merger, dated as of August 7, 1997, by and among
Parent, United States Fidelity and Guaranty Company and the Company (the
"Merger Agreement"), in consideration for such cancellation;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, IT IS HEREBY AGREED by the parties hereto as
follows:
1. The Company, Parent and the Holder hereby agree that the
Warrants will be cancelled immediately prior to the Effective Time (as such
term is defined in the Merger Agreement) and that the Holder will have no
further rights under the Warrant Agreement with respect to the Warrants;
provided, however, that such cancellations will be of no force and effect
if the Merger does not occur.
2. In consideration for the cancellation of the Warrants, Parent
shall pay to the Holder the Warrant Consideration, which amount shall be
paid to the Holder no later than ten days after the Effective Time.
3. The Holder hereby agrees to forever relinquish its rights to
the Warrants and any rights that it may have with respect to the Warrants
under the Warrant Agreement.
4. If the Merger does not occur, this Agreement shall be of no
force and effect.
Exhibit C, Page 1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
USF&G CORPORATION [HOLDER]
By:_________________________ By:______________________
Title: Title:
TITAN HOLDINGS, INC.
By:________________________
Title:
Exhibit C, Page 2
<PAGE>
Exhibit 2.2
VOTING AND SUPPORT AGREEMENT
Agreement dated as of August 7, 1997 between the shareholder
identified on Exhibit A hereto (the "Shareholder") and USF&G Corporation, a
Maryland corporation ("Parent"). Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Merger
Agreement (as defined below).
In consideration of the execution by Parent of the Agreement and
Plan of Merger dated as of August 7, 1997 (the "Merger Agreement") among
Parent, United States Fidelity and Guaranty Company, a Maryland
corporation, and Titan Holdings, Inc., a Texas corporation ("Company"), and
other good and valuable consideration, receipt of which is hereby
acknowledged, the Shareholder and Parent hereby agree as follows:
1. Representations, Warranties and Agreements of Shareholder.
The Shareholder hereby represents and warrants to, and agrees with, Parent
as follows:
(a) Title. As of the date hereof, the Shareholder is the
beneficial and registered owner of 2,579,295 shares (the "Shares") of
common stock, $.01 par value per share ("Common Stock"), of Company. As of
the date hereof, except as set forth on Exhibit A hereto, the Shareholder
does not (i) beneficially own any shares of any class or series of capital
stock of Company (other than the Shares) or any securities convertible into
or exercisable for shares of any class or series of Company's capital stock
or (ii) have any options or other rights to acquire any shares of any class
or series of capital stock of Company or any securities convertible into or
exercisable for shares of any class of Company's capital stock. Except as
set forth in Exhibit B hereto, the Shareholder owns the Shares free and
clear of any lien, mortgage, pledge, charge, security interest or any other
encumbrance of any kind. The Shareholder covenants and agrees to comply
with the pledge agreements and other loan documents relating to the pledges
of certain of the Shares identified on Exhibit B and to otherwise take any
action necessary to insure that the Shareholder can carry out the terms of
this Agreement. Each pledgee of the Shares has consented to this Agreement
and to the Shareholder's fulfillment of the terms thereof.
(b) Right to Vote and to Transfer Shares. The Shareholder
has full legal power, authority and right to vote all of the Shares in
favor of approval and adoption of the Merger Agreement without the consent
or approval of, or any other action on the part of, any other person or
entity. Without limiting the generality of the foregoing, except for this
Agreement, Shareholder has not entered into any voting agreement or any
other agreement with any person or entity with respect to any of the
Shares, granted any person or entity any proxy (revocable or irrevocable)
or power of attorney with respect to any of the Shares, deposited any of
the Shares in a voting trust or entered into any arrangement or agreement
with any person or entity limiting or affecting the Shareholder's ability
to enter into this Agreement or legal power, authority or right to vote the
Shares in favor of the approval and adoption of the Merger Agreement or any
of the transactions contemplated by the Merger Agreement, and Shareholder
will not take any such action after the date of this Agreement
1
<PAGE>
and prior to the Company shareholders meeting to vote on approval and
adoption of the Merger Agreement, including any adjournment or postponement
thereof (the "Company Shareholders Meeting"). This Agreement has been duly
executed and delivered by the Shareholder and constitutes a valid and
binding agreement of the Shareholder.
2. Representations and Warranties of Parent. Parent hereby
represents and warrants to the Shareholder that this Agreement (i) has been
duly authorized by all necessary corporate action, (iii) has been duly
executed and delivered by Parent and (iii) is a valid and binding agreement
of Parent.
3. Restriction on Transfer. The Shareholder agrees that (other
than pursuant to the Merger Agreement) it will not, and will not agree to,
sell, assign, dispose of, encumber, mortgage, hypothecate or otherwise
transfer or encumber (collectively, "Transfer") any of the Shares to any
person or entity; provided, however, that the Shareholder may enter into
pledge agreements pledging any of the Shares as collateral security under
loan agreements, provided that (i) the lender under each such loan
agreement consents to this Agreement and fulfillment of the terms thereof
and (ii) the Shareholder covenants and agrees to comply with each pledge
agreement and other loan documents relating to pledges of Shares thereunder
and to otherwise take all action necessary to insure that the Shareholder
can carry out the terms of this Agreement.
4. Agreement to Vote of Shareholder. The Shareholder, in his
individual capacity as a shareholder of the Company only, hereby
irrevocably and unconditionally agrees to vote or to cause to be voted all
of the Shares at the Company Shareholders' Meeting and at any other annual
or special meeting of shareholders of Company where such matters arise (a)
in favor of the approval and adoption of the Merger Agreement and (b)
against (i) approval of any proposal made in opposition to or in
competition with the Merger or any of the other transactions contemplated
by the Merger Agreement, (ii) any merger, consolidation, sale of assets,
business combination, share exchange, reorganization or recapitalization of
Company or any of its subsidiaries, with or involving any party other than
Parent or one of its subsidiaries, (iii) any liquidation, dissolution or
winding up of Company, (iv) any extraordinary dividend by Company, (v) any
change in the capital structure of Company (other than pursuant to the
Merger Agreement) and (vi) any other action that may reasonably be expected
to impede, interfere with, delay, postpone or attempt to discourage the
Merger or the other transactions contemplated by the Merger Agreement or
this Agreement or result in a breach of any of the covenants,
representations, warranties or other obligations or agreements of Company
under the Merger Agreement which would materially and adversely affect
Company or its ability to consummate the transactions contemplated by the
Merger Agreement. The Stockholder further agrees not to take or commit or
agree to take any action inconsistent with the foregoing.
5. Action in Shareholder Capacity Only. The Shareholder signs
solely in the Shareholder's capacity as a record and beneficial owner of
the Shares, and nothing herein shall prohibit, prevent or preclude the
Shareholder from fulfilling his fiduciary duties as a
2
<PAGE>
director of Company, including without limitation, voting or consenting as
a director in favor of an Acquisition Proposal (as defined in the Merger
Agreement) or negotiating with respect to an Acquisition Proposal in his
capacity as an officer or director of the Company.
6. No Shopping. The Shareholder, in his individual capacity as a
shareholder of the Company only, agrees not to, directly or indirectly, (i)
solicit, initiate or encourage (or authorize any person to solicit,
initiate or encourage) any inquiry, proposal or offer from any person to
acquire the business, property or capital stock of Company or any direct or
indirect subsidiary thereof, or any acquisition of a substantial equity
interest in, or a substantial amount of the assets of, Company or any
direct or indirect subsidiary thereof, whether by merger, purchase of
assets, tender offer or other transaction or (ii) participate in any
discussion or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or
participate in, facilitate or encourage any effort or attempt by any other
person to do or seek any of the foregoing; provided that, notwithstanding
the foregoing, the Shareholder shall not be prohibited from taking any such
actions as are required, based upon advice of counsel, to comply with his
fiduciary duties as an officer and director of the Company to the extent
such actions are permitted under the Merger Agreement.
7. Invalid Provisions. If any provision of this Agreement shall be
invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such invalidity or unenforceability only,
without it affecting the remaining provisions of this Agreement.
8. Executed in Counterparts. This Agreement may be executed in
counterparts each of which shall be an original with the same effect as if
the signatures hereto and thereto were upon the same instrument.
9. Specific Performance. The parties hereto agree that if for any
reason the Shareholder fails to perform any of his agreements or
obligations under this Agreement irreparable harm or injury to Parent would
be caused for which money damages would not be an adequate remedy.
Accordingly, the Shareholder agrees that, in seeking to enforce this
Agreement against the Shareholder, Parent shall be entitled to specific
performance and injunctive and other equitable relief in addition and
without prejudice to any other rights or remedies, whether at law or in
equity, that Parent may have against the Shareholder for any failure to
perform any of its agreements or obligations under this Agreement.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without giving
effect to the principles of conflicts of laws thereof
3
<PAGE>
11. Amendments; Termination.
(a) This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
(b) The provisions of this Agreement shall terminate upon
the earliest to occur of (i) the consummation of the Merger, (ii) the date
which is 12 months after the date hereof, (iii) the termination of the
Merger Agreement pursuant to Section 7.1(a) or (g) thereof, or (iv) the
termination of the Merger Agreement pursuant to Section 7.1 (b) or (c)
thereof if, but only if, the Merger Agreement is terminated pursuant to
such subsection (b) or (c) solely for reasons that are not directly or
indirectly related to the commencement of, or any person's or entity's
direct or indirect indication of interest in making, an Acquisition
Proposal with respect to the Company.
(c) For purposes of this Agreement, the term "Merger
Agreement" includes the Merger Agreement, as the same may be modified or
amended from time to time.
12. Additional Shares. If, after the date hereof the Shareholder
acquires beneficial ownership of any shares of the capital stock of Company
(any such shares, "Additional Shares"), including, without limitation, upon
exercise of any option, warrant or right to acquire shares of capital stock
or through any stock dividend or stock split, the provisions of this
Agreement (other than those set forth in Section 1 (a)) applicable to the
Shares shall be applicable to such Additional Shares as if such Additional
Shares had been Shares as of the date hereof. The provisions of the
immediately preceding sentence shall be effective with respect to
Additional Shares without action by any person or entity immediately upon
the acquisition by the Shareholder of beneficial ownership of such
Additional Shares.
13. Action by Written Consent. If, in lieu of the Company
Shareholders Meeting, shareholder action in respect of the Merger Agreement
or any of the transactions contemplated by the Merger Agreement is taken by
written consent, the provisions of this Agreement imposing obligations in
respect of or in connection with the Company Shareholders Meeting shall
apply mutatis mutandis to such action by written consent.
14. Shareholder Certificate. Shareholder agrees to execute and
deliver a certificate containing such representations as are reasonably
necessary and customary for tax counsel to Parent on the one hand, and
Company on the other hand, to render an opinion to the effect that the
Merger will constitute a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986 and that no gain or loss will be
recognized by the shareholders of Company to the extent they receive Parent
Common Stock solely in exchange for shares of Company Common Stock, such
certificate to be in the form attached hereto as Exhibit C.
4
<PAGE>
15. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective legal successors and permitted assigns; provided that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of Parent (in the case of the
Shareholder or any of its permitted assigns) or the Shareholder (in the
case of Parent or any of its permitted assigns).
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by facsimile, or by registered or certified mail
(postage prepaid, return receipt requested) to such party at its address
set forth on the signature page hereto.
[The remainder of this page intentionally left blank.]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
Mark E. Watson, Jr.
Address:_______________________________
MEW FAMILY LIMITED PARTNERSHIP
By:____________________________________
Mark E. Watson, Jr., General Partner
By:____________________________________
Kathleen Watson, General Partner
Address:_______________________________
THE MARK AND KATHLEEN WATSON
CHARITABLE FOUNDATION
By:________________________________
Mark E. Watson, Jr., Trustee
By:________________________________
Kathleen E. Watson, Trustee
By:_________________________________
E.B. Lyon, III, Trustee
Address:____________________________
USF&G CORPORATION
By:________________________________
Address:___________________________
6
<PAGE>
EXHIBIT A TO VOTING
AND SUPPORT AGREEMENT
Mark E. Watson, Jr., including 2,223,096 shares owned in his individual
capacity, 256,199 shares owned through MEW Family Limited Partnership, a
limited partnership in which he is a general partner together with his
wife, Kathleen Watson, and 100,000 shares owned through The Mark and
Kathleen Watson Charitable Foundation, of which he is a trustee together
with Kathleen Watson and E.B. Lyons, III.
7
<PAGE>
EXHIBIT B TO VOTING
AND SUPPORT AGREEMENT
[Encumbrances on Shares]
8
<PAGE>
EXHIBIT C TO VOTING
AND SUPPORT AGREEMENT
[Form of Tax Opinion Certificate]
This Certificate is being issued to Piper & Marbury L.L.P. in
connection with its rendering of opinions regarding certain federal income
tax consequences of a merger pursuant to the Plan and Agreement to Merge,
dated as of August 8, 1997 (the "Merger Agreement"), by and among USF&G
Corporation, a Maryland corporation ("USF&G"), United States Fidelity and
Guaranty Company, a Maryland corporation and wholly owned subsidiary of
USF&G ("Subsidiary"), and Titan Holdings, Inc. a Texas corporation
("Company"), providing, among other things, for the merger of Company with
and into Subsidiary (the "Merger"). As used herein, "USF&G Common Stock"
shall mean any one or more shares of the USF&G's $2.50 per share par value
common stock and "Company Common Stock" shall mean any one or more shares
of Company's $0.01 per share par value common stock.
After consulting with their counsel regarding the meaning of and
factual support for the following representations, the undersigned hereby
certify and represent to Piper & Marbury L.L.P. to the best of their
knowledge and belief that the following facts are now true and will
continue to be true through and as of the effective time of the Merger:
There is no plan or intention by the undersigned, acting either
individually or in concert with one another or with other persons, directly
or indirectly, to sell, exchange, transfer, transfer by gift or otherwise
dispose (including by transactions which would have the ultimate effect of
a disposition including, but not limited to, puts, short-sales and equity
swap type of arrangements) (collectively, dispose) of a number of shares of
USF&G Common Stock received in the Merger that would reduce the former
Company Common Stockholders' ownership of USF&G stock to a number of shares
having, in the aggregate, a value, as of the date of the Merger, of less
than 50 percent of the fair market value of Company Common Stock
outstanding as of the same date. For purposes of the preceding sentence,
all shares of Company Common Stock exchanged for cash paid in lieu of
fractional shares of USF&G Common Stock will be considered outstanding
stock of Company as of the date of the Merger. Moreover, shares of Company
Common Stock and shares of USF&G Common Stock held by Company stockholders
and otherwise sold, redeemed, or disposed of prior or subsequent to the
Merger are taken into account for purpose of the first sentence of this
paragraph.<0-255>
Each of the undersigned recognizes that the opinions of Piper &
Marbury L.L.P. will be (i) based on the representations set forth herein
and on the statements contained in the Merger Agreement and documents
related thereto, and (ii) subject to certain limitations and qualifications
including that they may not be relied upon if any such representations are
not accurate in all material respects.
9
<PAGE>
Each of the undersigned recognizes that the opinions of Piper &
Marbury L.L.P. will not address any tax consequences of the Merger or any
action taken in connection therewith except as expressly set forth in such
opinions.
In witness whereof, the undersigned have executed this Certificate
this __ day of ________, 1997.
-----------------------------
Mark E. Watson, Jr.
-----------------------------
Mark E. Watson, III
-----------------------------
Thomas E. Mangold
10
<PAGE>
Exhibit 99.1
TITAN HOLDINGS, INC. SIGNS DEFINITIVE AGREEMENT
TO MERGE WITH USF&G CORPORATION
August 8, 1997--TITAN HOLDINGS, INC. (NYSE Symbol: TH) today announced that
it has signed a definitive agreement to merge with USF&G Corporation (NYSE
Symbol: FG), a holding company for property/casualty and life insurance
operations with assets of $ 14.8 billion. Shareholders of TITAN will
receive $ 23.20 per share of TITAN common stock, payable at the election of
such holders, in cash, USF&G shares or a combination of cash and USF&G
shares, based on the closing price of USF&G shares as of July 29, 1997, the
day USF&G made its original offer to TITAN. This consideration is subject
to adjustment pursuant to a collar arrangement and proration to ensure a
50/50 cash/stock ratio to allow tax deferred treatment on the stock portion
of the consideration. At the $ 23.20 valuation, the aggregate transaction
value is $ 234 million plus assumption of $ 50 million in debt, for a total
of $ 284 million.
Mark E. Watson, Jr., Chairman, Chief Executive Officer and
President of TITAN Holdings, Inc., stated, "This transaction represents the
next important step in the evolution of TITAN. We have achieved remarkable
growth since our initial public offering in 1993, creating substantial
shareholder value and market strength in each of our core businesses.
Together with USF&G's non-standard auto and public entity operations, we
look forward to bringing additional resource strength to our selected
markets. I am particularly proud that this acquisition reflects both the
shareholder value created by the hard work of all of our employees and the
continued growth opportunity ahead of us."
TITAN Holdings, Inc., which operates two specialty
property/casualty insurance companies and a premium finance business for
small commercial accounts, wrote $ 199 million of premiums for the 12 month
period ended June 30, 1997. The Company also reported total assets of $ 405
million at June 30, 1997.
Norman P. Blake, Jr., USF&G Chairman, Chief Executive Officer and
President, commented, "The combination of USF&G's and TITAN's non-standard
auto and public entities insurance operations will enhance the
competitiveness of both operations. It significantly increases geographic
diversification and allows for expansion into new areas of both specialty
markets. We expect this transaction to double the proportion of those
specialty businesses in our property/casualty portfolio."
USF&G Corporation's principal operating subsidiary is United
States Fidelity and Guaranty Company, one of the nation's largest
property/casualty insurers, founded in 1896. It is headquartered in
Baltimore, Maryland. The corporation is composed of the following portfolio
of strategic businesses: the Commercial Insurance Group, the Family and
Business Insurance Group, Specialty Businesses and F&G Life.
TITAN Holdings, Inc. operates specialty property and casualty
insurance companies and related services companies. Through TITAN Auto,
the Company provides private
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passenger non-standard automobile insurance for individuals. Through TITAN
Public Entity, the Company provides property and casualty insurance for
small to medium-sized cities, towns, counties and other public entities
nationwide. Through Westchester Premium Acceptance Corporation, the Company
provides commercial property and casualty premium financing.
CONTACT: Mark E. Watson, Jr.
Chairman, Chief Executive Officer & President
(210) 527-2700
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