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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): February 6, 1999
Executive Risk Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-12800 06-1388171
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
82 Hopmeadow Street, Simsbury, Connecticut 06070
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 408-2000
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Item 5. Other Events.
Executive Risk Inc. (the "Company") has entered into an Agreement and
Plan of Merger, dated as of February 6, 1999 (the "Merger Agreement"), with The
Chubb Corporation ("Parent") and Excalibur Acquisition, Inc., a wholly owned
subsidiary of Parent ("Sub"). The Merger Agreement provides for the merger of
Sub with and into the Company, with the Company as the surviving corporation. In
the merger, each outstanding share of common stock of the Company will be
converted into the right to receive 1.235 shares of common stock of Parent. In
connection with the execution of the Merger Agreement, Parent and the Company
entered into a Stock Option Agreement, dated as of February 6, 1999 (the "Stock
Option Agreement"), under which the Company has granted Parent an option,
exercisable under certain circumstances, to purchase 19.9% of the Company common
shares outstanding immediately prior to exercise at a price of $71.70 per share.
On February 8, 1999, Parent and the Company issued a joint press
release announcing the execution of the Merger Agreement. The foregoing
descriptions of the Merger Agreement, Stock Option Agreement and press release
are qualified in their entirety by reference to the full texts of such
documents, which are filed as exhibits hereto and incorporated herein by
reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
99.1 Joint press release, dated February 8, 1999, issued by Parent
and the Company.
99.2 Merger Agreement.
99.3 Stock Option Agreement.
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.
EXECUTIVE RISK INC.
By: /s/ Robert V. Deutsch
-----------------------------
Robert V. Deutsch
Executive Vice President,
Treasurer and Chief Financial
Officer
Date: February 9, 1999
3
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INDEX TO EXHIBITS
99.1 Joint press release, dated February 8, 1999, issued by Parent and
the Company
99.2 Merger Agreement
99.3 Stock Option Agreement
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EXHIBIT 99.1
Chubb to Acquire Executive Risk for Stock Valued at $71.71 Per Share
WARREN, N.J., Feb. 8 -- The Chubb Corporation (NYSE: CB) and Executive
Risk Inc. (NYSE: ER) jointly announced today that they have entered into a
definitive merger agreement under which Chubb will acquire Executive Risk.
The agreement, which has been approved by the boards of directors of
both companies, provides that Executive Risk shareholders will receive 1.235
shares of Chubb common stock for each outstanding common share of Executive
Risk. Based on the closing prices of both companies' shares on Friday, February
5, 1999, Executive Risk shareholders would receive the equivalent of $71.71 per
share. This represents a premium of 63% over Friday's closing price, 44% over
Executive Risk's average trading price for the last month, and 38% over
Executive Risk's three-month average trading price. The total value of the
transaction would be approximately $850 million.
"Our partnership with Executive Risk will enable Chubb to solidify
leading market positions in numerous, profitable executive protection lines and
move to top positions in others," said Dean R. O'Hare, Chairman and CEO of
Chubb. "By further strengthening our position in specialty lines that offer
attractive opportunities for profitable growth, we achieve one of our key
strategic acquisition criteria. Moreover, both companies share a commitment to
underwriting profitability and a belief that the best way to make good on this
commitment is through further expansion in specialty markets."
"This transaction achieves several goals for Executive Risk," said
Stephen J. Sills, Executive Risk's President and CEO. "It delivers substantial
immediate value to our shareholders. It further strengthens our directors and
officers and our errors and omissions businesses by combining them with those of
Chubb, long a leader in these markets. We believe our shareholders can benefit
further from the merged company's continued growth, and our employees will have
new opportunities for reward and career growth in the combined organization.
Chubb is the right strategic merger partner for us, and we are delighted to be
joining forces with them."
Chubb said that following completion of the merger, it plans to
establish a new operation, Chubb-Executive Risk, based in Simsbury, Connecticut,
which will manage the combined company's book of executive protection business.
This business had combined gross premiums of approximately $1.7 billion in 1998.
This new entity will be managed by Mr. Sills, chairman and CEO, and Gary J.
Tully, president and COO. Mr. Tully is currently the head of Chubb's executive
protection practice.
"Combining Chubb's top-rated balance sheet and 115-office global
network with Executive Risk's fast, innovative product development capability
will enable us to better leverage both of our strengths in the marketplace,"
said Chubb's Mr. O'Hare. "In addition, our relationships with 5000 retail
independent agents and brokers worldwide and Executive Risk's relationships with
more than 2200 wholesale agents, specialty brokers and program administrators
offer both companies access to whole new distribution channels."
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"While the combination will result in expense savings, the driving
force here is the opportunity to accelerate premium growth in attractive
specialty markets," said Mr. Sills of Executive Risk. "These are markets where
we expect to achieve the kind of attractive underwriting profit margins that
both companies have consistently achieved."
Chubb expects the transaction to result in modest earnings dilution in
1999 of less than 2%. In the year 2000, Chubb expects the transaction to be
slightly accretive. Mr. O'Hare said, "The combination of cost savings and the
opportunities for significantly enhanced premium growth will minimize the
dilutive impact. Moreover, the financial strength of Chubb will allow the
company to cede a smaller portion of Executive Risk's business in the future."
The merger agreement contains customary termination provisions
including an option for Chubb to acquire 19.9% of Executive Risk's shares. The
directors of Executive Risk have all agreed to vote their shares in favor of the
merger.
Completion of the acquisition is subject to approval by Executive Risk
shareholders and various regulatory authorities. Closing is expected in the
second quarter of 1999.
Chubb was advised by Goldman, Sachs & Co. and Davis Polk & Wardwell.
Donaldson, Lufkin & Jenrette Securities Corporation and Dewey Ballantine LLP
advised Executive Risk.
Chubb is a leading global specialty insurer. It is known for its
strength in executive protection and financial institution coverages,
particularly D&O, E&O, fiduciary and fidelity. Chubb is also active in other
commercial lines and has a large and profitable personal lines business. Based
in Warren, New Jersey, Chubb has approximately 9,500 employees worldwide. Its
1998 gross written premiums were $6 billion.
Executive Risk is a fast-growing specialty insurance company focused on
the directors and officers, professional liability, errors and omissions and
ancillary markets. The company offers a wide range of innovative D&O and E&O
coverages. Gross written premiums in 1998 were in excess of $500 million, an
increase of 20% over the prior year. Based in Simsbury, Connecticut, Executive
Risk has almost 600 employees.
Forward Looking Information
Certain statements in this communication may be considered to be
"forward looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995 such as statements that include words or phrases
"will result", "are expected to", "will continue", "is anticipated", "estimate",
or similar expressions. Such statements are subject to certain risks and
uncertainties. The factors which could cause actual results to differ materially
from those suggested by any such statements include but are not limited to those
discussed or identified from time to time in the Corporations' public filings
with the Securities & Exchange Commission and specifically to: risks or
uncertainties associated with the Corporations' expectations with respect to
completion of the Executive Risk merger or with respect to market positions,
premiums, earnings per share and profitability resulting from the Executive Risk
transaction; and, more generally, to: general economic conditions including
changes in interest rates and the performance of the financial
2
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markets, changes in domestic and foreign laws, regulations and taxes, changes in
competition and pricing environments, regional or general changes in asset
valuations, the occurrence of significant natural disasters, the development of
major Year 2000 liabilities, the inability to reinsure certain risks
economically, the adequacy of loss reserves, as well as general market
conditions, competition, pricing and restructurings.
3
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EXHIBIT 99.2
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
dated as of
February 6, 1999
among
EXECUTIVE RISK INC.
THE CHUBB CORPORATION
and
EXCALIBUR ACQUISITION, INC.
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TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.....................................................2
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger......................................................6
SECTION 2.02. Organizational Documents........................................7
SECTION 2.03. Directors and Officers..........................................7
ARTICLE 3
CONVERSION OF SECURITIES AND RELATED MATTERS
SECTION 3.01. Conversion of Capital Stock.....................................8
SECTION 3.02. Fractional Shares; Adjustments..................................8
SECTION 3.03. Exchange of Certificates........................................9
SECTION 3.04. Company Stock Options..........................................11
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Corporate Existence and Power..................................12
SECTION 4.02. Corporate Authorization........................................13
SECTION 4.03. Governmental Authorization.....................................13
SECTION 4.04. Non-Contravention..............................................13
SECTION 4.05. Capitalization.................................................14
SECTION 4.06. Subsidiaries...................................................15
SECTION 4.07. The Company SEC Documents......................................16
SECTION 4.08. Financial Statements; No Material Undisclosed Liabilities......16
SECTION 4.09. Information to Be Supplied.....................................17
SECTION 4.10. Absence of Certain Changes.....................................18
SECTION 4.11. Litigation.....................................................18
SECTION 4.12. Taxes..........................................................18
SECTION 4.13. Employees and Employee Benefits................................19
SECTION 4.14. Compliance with Insurance Laws; Licenses and Permits...........21
SECTION 4.15. Insurance Matters..............................................23
SECTION 4.16. Liabilities and Reserves.......................................24
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PAGE
SECTION 4.17. Title to Properties............................................25
SECTION 4.18. Intellectual Property..........................................25
SECTION 4.19. Environmental Matters..........................................25
SECTION 4.20. Finders' Fees; Opinions of Financial Advisor...................26
SECTION 4.21. Required Vote; Board Approval..................................26
SECTION 4.22. State Takeover Statutes; Rights Agreement......................26
SECTION 4.23. Tax Treatment..................................................27
SECTION 4.24. Year 2000 Compliance...........................................27
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 5.01. Corporate Existence and Power..................................28
SECTION 5.02. Corporate Authorization........................................28
SECTION 5.03. Governmental Authorization.....................................28
SECTION 5.04. Non-Contravention..............................................29
SECTION 5.05. Capitalization of Parent and MergerSub.........................29
SECTION 5.06. Parent SEC Documents...........................................30
SECTION 5.07. Financial Statements; No Material Undisclosed Liabilities......31
SECTION 5.08. Information to Be Supplied.....................................32
SECTION 5.09. Absence of Certain Changes.....................................32
SECTION 5.10. Litigation.....................................................32
SECTION 5.11. Compliance with Laws; Licenses and Permits.....................33
SECTION 5.12. Finders' Fees..................................................33
SECTION 5.13. Liabilities and Reserves.......................................33
SECTION 5.14. Year 2000 Compliance...........................................34
SECTION 5.15. Tax Treatment..................................................34
ARTICLE 6
COVENANTS OF THE COMPANY
SECTION 6.01. The Company Interim Operations.................................35
SECTION 6.02. Stockholder Meeting............................................38
SECTION 6.03. Acquisition Proposals; Board Recommendation....................38
SECTION 6.04. Transfer Taxes.................................................40
SECTION 6.05. Retention Program..............................................40
SECTION 6.06. Certain Agreements.............................................40
ii
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PAGE
ARTICLE 7
COVENANTS OF PARENT
SECTION 7.01. Parent Interim Operations......................................41
SECTION 7.02. Director and Officer Liability.................................42
SECTION 7.03. Employee Benefits..............................................43
SECTION 7.04. Stock Exchange Listing.........................................44
SECTION 7.05. Conduct of MergerSub...........................................44
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
SECTION 8.01. Reasonable Best Efforts........................................44
SECTION 8.02. Certain Filings; Cooperation in Receipt of Consents............44
SECTION 8.03. Public Announcements...........................................45
SECTION 8.04. Access to Information; Notification of Certain Matters.........46
SECTION 8.05. Further Assurances.............................................47
SECTION 8.06. Tax and Accounting Treatment...................................47
SECTION 8.07. Affiliate Letters..............................................47
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party....................47
SECTION 9.02. Conditions to the Obligations of The Company...................48
SECTION 9.03. Conditions to the Obligations of Parent and MergerSub..........49
ARTICLE 10
TERMINATION
SECTION 10.01. Termination...................................................50
SECTION 10.02. Effect of Termination.........................................51
SECTION 10.03. Fees and Expenses.............................................52
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices.......................................................53
SECTION 11.02. Survival of Representations, Warranties and Covenants
after the Effective Time....................................54
SECTION 11.03. Amendments; No Waivers........................................55
iii
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PAGE
SECTION 11.04. Successors and Assigns........................................55
SECTION 11.05. Governing Law.................................................55
SECTION 11.06. Counterparts; Effectiveness; Third Party Beneficiaries........55
SECTION 11.07. Jurisdiction..................................................56
SECTION 11.08. Waiver of Jury Trial..........................................56
SECTION 11.09. Enforcement...................................................56
SECTION 11.10. Entire Agreement..............................................56
EXHIBITS
Exhibit A -- Rule 145 Affiliate's Letter
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
Schedule 6.01(i)
Schedule 7.03(c)
iv
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 6, 1999 among
Executive Risk Inc., a Delaware corporation (the "COMPANY"), The Chubb
Corporation, a New Jersey corporation ("PARENT"), and Excalibur Acquisition,
Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Parent
("MERGERSUB").
RECITALS
WHEREAS, the Boards of Directors of the Company and Parent each have
determined that a business combination between the Company and Parent is
advisable and in the best interests of their respective companies and
stockholders and presents an opportunity for their respective companies to
achieve long-term strategic and financial benefits, and accordingly have agreed
to effect the merger provided for herein upon the terms and subject to the
conditions set forth herein;
WHEREAS, the parties hereto intend that the merger provided for herein
shall qualify for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as
amended (together with the rules and regulations promulgated thereunder, the
"CODE") (a "368 REORGANIZATION");
WHEREAS, concurrently with entering into this Agreement, the Company
has granted Parent an option to acquire up to 19.9% of newly issued Company
Common Shares (as defined below) on the terms and subject to the conditions set
forth in the Stock Option Agreement between the Company and Parent dated as of
the date hereof (the "STOCK OPTION AGREEMENT"); and
WHEREAS, by resolutions duly adopted, the respective Boards of
Directors of the Company, Parent and MergerSub have approved and adopted this
Agreement, the Stock Option Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound, the parties hereto agree as follows:
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ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) As used herein, the following terms have
the following meanings:
"ACQUISITION PROPOSAL" means any offer or proposal for, or indication
of interest in, a merger, consolidation, share exchange, business combination,
reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving, or any purchase of 30% or more of (i) any class of equity
securities of the Company or Executive Risk Indemnity Inc. or (ii) the
consolidated assets of the Company and its Subsidiaries or Executive Risk
Indemnity Inc., other than the transactions contemplated by this Agreement and
the Stock Option Agreement.
"AFFILIATE" means, with respect to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, such Person. For purposes of this definition, the term "CONTROL"
(including the correlative terms "CONTROLLING", "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"BUSINESS DAY" means any day other than a Saturday, Sunday or one on
which banks are authorized by law to close in New York, New York.
"COMPANY BALANCE SHEET" means the Company's consolidated balance sheet
included in the Company 10-K relating to its fiscal year ended on December 31,
1997.
"COMPANY COMMON SHARE" means one share of common stock of the Company,
$.01 par value per share.
"COMPANY SEC DOCUMENTS" means (i) the annual reports on Form 10-K of
the Company (the "COMPANY 10-Ks") for the fiscal years ended December 31, 1996
and December 31, 1997, (ii) the quarterly reports on Form 10-Q of the Company
(the "COMPANY 10-Qs") for the fiscal quarters ended September 30, June 30 and
March 31 of fiscal year 1998, (iii) the Company's proxy or information
statements relating to meetings of, or actions taken without a meeting by, the
Company stockholders held since December 31, 1996, and (iv) all other reports,
filings, registration statements and other documents filed by the Company with
the SEC since December 31, 1996.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GOVERNMENTAL ENTITY" means any federal, state or local governmental
authority, any transgovernmental authority or any court, administrative or
regulatory agency or commission or other governmental authority or agency,
domestic or foreign.
"KNOWLEDGE" (and all correlative terms) as to any party means to the
knowledge of the executive officers of such party identified in Section 1.01(a)
of that party's Disclosure Schedule.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
provided, however, that the term "LIEN" shall not include (i) liens for water
and sewer charges and current taxes not yet due and payable or being contested
in good faith and (ii) mechanics', carriers', workers', repairers',
materialmen's, warehousemen's and other similar liens arising or incurred in the
ordinary course of business.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition, business or results of operations of a Person and its
Subsidiaries, taken as a whole, other than effects caused by (i) changes in
general economic or securities markets conditions, (ii) changes that affect the
insurance industry in general or (iii) the public announcement of the
transactions contemplated by this Agreement. "PARENT MATERIAL ADVERSE EFFECT"
means a Material Adverse Effect in respect of Parent and "COMPANY MATERIAL
ADVERSE EFFECT" means a Material Adverse Effect in respect of the Company.
"NYSE" means The New York Stock Exchange.
"PARENT BALANCE SHEET" means Parent's consolidated balance sheet
included in the Parent 10-K relating to its fiscal year ended on December 31,
1997.
"PARENT COMMON SHARE" means one share of common stock of Parent, par
value $1.00 per share.
"PARENT INSURANCE SUBSIDIARIES" means the Subsidiaries which conduct
Parent's insurance operations.
"PARENT SEC DOCUMENTS" means (i) Parent's annual reports on Form 10-K
for its fiscal years ended December 31, 1996 and December 31, 1997 (the
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"PARENT 10-Ks"), (ii) Parent's quarterly reports on Form 10-Q (the "PARENT
10-Qs") for its fiscal quarters ended September 30, June 30 and March 31, of
fiscal year 1998, (iii) Parent's proxy or information statements relating to
meetings of, or actions taken without a meeting by, Parent's stockholders held
since December 31, 1996, and (iv) all other reports, filings, registration
statements and other documents filed by it with the SEC since December 31, 1996.
"PERSON" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including any Governmental Entity.
"PROXY STATEMENT/PROSPECTUS" means the proxy statement/ prospectus
including the Registration Statement and the proxy statement for the Company
Stockholder Meeting, together with any amendments or supplements thereto.
"REGISTRATION STATEMENT" means the Registration Statement on Form S-4
registering under the Securities Act the Parent Common Shares issuable in
connection with the Merger.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are directly or indirectly owned by such Person.
"PARENT SUBSIDIARY" means a Subsidiary of Parent and "COMPANY SUBSIDIARY" means
a Subsidiary of the Company.
"SUPERIOR PROPOSAL" means a bona fide, written Acquisition Proposal for
all of the outstanding Company Common Shares that is on terms that a majority of
the Company's Board of Directors determines in good faith (after consultation
with an investment bank of nationally recognized reputation and the Company's
outside counsel) would result in a transaction, if consummated, that is more
favorable to the Company's stockholders, from a financial point of view (taking
into account, among other things, all legal, financial, regulatory and other
aspects of the proposal including any break-up fees, expense reimbursement
provisions, conditions to consummation and the identity of the offeror) than the
transactions contemplated hereby (after giving effect to any revised proposal
made by or on behalf of Parent prior to the end of the three-Business-Day-period
referred to in Section 6.03(d)).
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(b) Each of the following terms is defined in the Section set forth
opposite such term:
Terms Section
----- -------
Certificate of Merger 2.01(b)
Certificates 3.03(a)
Closing 2.01(d)
Code Recitals
Company Preamble
Company Actuarial Analyses 4.15(c)
Company Employee Plans 4.13(a)
Company Insurance Contracts 4.15(a)
Company Insurance Subsidiaries 4.06(b)
Company Intellectual Property 4.18
Company Material Adverse Effect 1.01(a)
Company Option 3.04(a)
Company Recommendation 6.02
Company Returns 4.12
Company SAP Statements 4.08(b)
Company Securities 4.05(b)
Company Stockholder Approval 4.21(a)
Company Stockholder Meeting 6.02
Company Subsidiary 1.01(a)
Company Systems 4.24
Company 10-Ks 1.01(a)
Company 10-Qs 1.01(a)
Confidentiality Agreement 8.04(a)
DGCL 2.01(a)
Effective Time 2.01(b)
Employees 7.03(a)
End Date 10.01(b)(i)
Environmental Laws 4.19(b)
ERISA 4.13(a)
ERISA Affiliate 4.13(a)
Exchange Agent 3.03(a)
Exchange Fund 3.03(a)
GAAP 4.08(a)
HSR Act 4.03(b)
Indemnified Parties 7.02(b)
Insurance Laws 4.14(a)
Insurance Subsidiaries 4.06(b)
Laws 4.14(b)
Merger 2.01(a)
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Terms Section
----- -------
MergerSub Common Share 3.01(a)
Merger Consideration 3.01(b)
MergerSub Preamble
Multiemployer Plan 4.13(b)
Owned Property 4.17
Parent Preamble
Parent Cumulative Preferred 5.05(a)
Parent Material Adverse Effect 1.01(a)
Parent Option 3.04(a)
Parent SAP Statements 5.07(b)
Parent Securities 5.05(b)
Parent Serial Preferred 5.05(a)
Parent Subsidiary 1.01(a)
Parent Systems 5.14
Parent 10-Ks 1.01(a)
Parent 10-Qs 1.01(a)
Retirement Plan 4.13(b)
Rights 3.01(b)
Rights Agreement 3.01(b)
Stock Option Agreement Preamble
Surviving Corporation 2.01(a)
Termination Fee 10.03(e)
Third Party Acquisition Event 10.03(f)
368 Reorganization Recitals
Transfer Taxes 6.04
Year 2000 Compliant 4.24
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger. (a) At the Effective Time, MergerSub shall be
merged (the "MERGER") with and into the Company in accordance with the terms and
conditions of this Agreement and of the General Corporation Law of the State of
Delaware (the "DGCL"), at which time the separate existence of MergerSub shall
cease and the Company shall be the surviving corporation (the "SURVIVING
CORPORATION").
(b) Not later than the second Business Day after satisfaction or, to
the extent permitted hereby, waiver of the conditions set forth in Article 9
(other than conditions that by their nature are to be satisfied at the Closing,
but subject to
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those conditions), the Company and MergerSub will file a certificate of merger
(the "CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware and make all other filings or recordings required by the DGCL in
connection with the Merger. The Merger shall become effective upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
in accordance with the DGCL or at such later time which the parties hereto shall
have agreed upon and designated in such Certificate of Merger as the effective
time of the Merger (the "EFFECTIVE TIME").
(c) From and after the Effective Time, the Merger shall have the
effects set forth in the DGCL.
(d) The closing of the Merger (the "CLOSING") shall be held at the
offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY (or such
other place as agreed by the parties) at 10:00 a.m. New York City time on a date
to be specified by the parties, which shall be no later than the second Business
Day after satisfaction or, to the extent permitted hereby, waiver of the
conditions set forth in Article 9 (other than conditions that by their nature
are to be satisfied at the Closing, but subject to those conditions), unless the
parties hereto agree to another date or time.
SECTION 2.02. Organizational Documents. The Certificate of Merger shall
provide that at the Effective Time (i) the Company's certificate of
incorporation in effect immediately prior to the Effective Time shall be the
Surviving Corporation's certificate of incorporation and (ii) MergerSub's bylaws
in effect immediately prior to the Effective Time shall be the Surviving
Corporation's bylaws, in each case until amended in accordance with applicable
law.
SECTION 2.03. Directors and Officers. From and after the Effective Time
(until successors are duly elected or appointed and qualified), (i) MergerSub's
directors at the Effective Time shall be the Surviving Corporation's directors
and (ii) the Company's officers immediately prior to the Effective Time shall be
the Surviving Corporation's officers.
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ARTICLE 3
CONVERSION OF SECURITIES AND RELATED MATTERS
SECTION 3.01. Conversion of Capital Stock. At the Effective Time, by
virtue of the Merger:
(a) Each share of common stock of MergerSub (each, a "MERGERSUB COMMON
SHARE") outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock of the Surviving Corporation.
(b) Except as otherwise provided in Section 3.01(c) or Section
3.02(a), each Company Common Share outstanding immediately prior to the
Effective Time, together with the rights ("RIGHTS") attached thereto and issued
pursuant to the Amended and Restated Rights Agreement dated as of November 12,
1998, between the Company and Chasemellon Shareholder Services, L.L.C., as
Rights Agent (the "RIGHTS AGREEMENT"), shall be converted into the right to
receive 1.235 Parent Common Shares. This Agreement shall refer to the Parent
Common Shares required to be issued pursuant to this Section 3.01(b), together
with any cash payments required to be made in lieu of fractional Parent Common
Shares, collectively as the "MERGER CONSIDERATION."
(c) Each Company Common Share held by the Company as treasury stock or
owned by Parent or any Parent Subsidiary immediately prior to the Effective Time
shall be canceled, and no payment shall be made in respect thereof.
SECTION 3.02. Fractional Shares; Adjustments. (a) No fractional Parent
Common Shares shall be issued in the Merger. All fractional Parent Common Shares
that a holder of any Company Common Shares would otherwise be entitled to
receive as a result of the Merger shall be aggregated. If a fractional Parent
Common Share results from such aggregation, the holder shall be entitled to
receive, in lieu thereof, a cash amount, without interest, determined by
multiplying the closing sale price of a Parent Common Share on the New York
Stock Exchange on the trading day immediately preceding the Effective Time by
the fraction of a Parent Common Share to which such holder would otherwise have
been entitled. As promptly as practicable after the determination of the amount
of cash, if any, to be paid to holders of fractional share interests, the
Exchange Agent (as hereinafter defined) shall so notify Parent, and Parent shall
deposit such amount with the Exchange Agent and shall cause the Exchange Agent
to forward payments to such holders of fractional share interests, subject to
and in accordance with the terms of Section 3.03.
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(b) If at any time during the period between the date of this
Agreement and the Effective Time, any change in the outstanding shares of
capital stock of Parent or securities convertible or exchangeable into capital
stock of Parent shall occur, including by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any dividend or distribution thereon (other than regular quarterly
cash dividends) or a record date with respect to any of the foregoing shall
occur during such period, the number of Parent Common Shares constituting part
of the Merger Consideration shall be appropriately adjusted to provide to the
holders of the Parent Common Shares and the Company Common Shares the same
economic effect as contemplated by this Agreement prior to the consummation of
such event.
SECTION 3.03. Exchange of Certificates.
(a) Exchange Agent. Promptly after the date hereof, Parent shall
appoint First Chicago Trust Company of New York as an agent (the "EXCHANGE
AGENT") for the benefit of holders of Company Common Shares for the purpose of
exchanging, pursuant to this Article 3, certificates ("CERTIFICATES") that
immediately prior to the Effective Time represented outstanding Company Common
Shares which were converted into the right to receive the Merger Consideration.
Parent will make available to the Exchange Agent, as needed, the Merger
Consideration, together with any dividends or distributions with respect
thereto, if any, to be paid in respect of Company Common Shares pursuant to this
Article 3 (the "EXCHANGE FUND"), and except as contemplated by Section 3.03(f)
or Section 3.03(g) hereof, the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall send, or will cause the Exchange Agent to send, to
each holder of record of a Certificate or Certificates a letter of transmittal
and instructions (which shall be in customary form and specify that delivery
shall be effected, and risk of loss and title shall pass, only upon delivery of
the Certificates to the Exchange Agent), for use in the exchange contemplated by
this Section 3.03. Upon surrender of a Certificate to the Exchange Agent,
together with a duly executed letter of transmittal, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration and unpaid dividends and distributions thereon, if any, as
provided in this Article 3 in respect of the Company Common Shares represented
by such Certificate (after giving effect to any required withholding tax). Until
surrendered as contemplated by this Section 3.03 each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration and unpaid dividends and distributions thereon,
if any, as provided in this Article 3. If any portion of the Merger
Consideration is to be paid to a Person other than the Person in whose
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name the Certificate is registered, it shall be a condition to such payment that
the Certificate so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such payment shall pay
to the Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such Certificate or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable. If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by 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 Certificate, the Exchange Agent will deliver, in exchange for such lost,
stolen or destroyed Certificate, the proper amount of the Merger Consideration,
together with any unpaid dividends and distributions on any such Parent Common
Shares, as contemplated by this Article 3.
(c) Distributions with Respect to Unexchanged Shares. Whenever a
dividend or other distribution is declared by Parent in respect of the Parent
Common Shares, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
Parent Common Shares issuable pursuant to this Agreement. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Shares constituting part of the Merger Consideration shall be paid to the
holder of any unsurrendered Certificate, and no cash payment in lieu of
fractional shares shall be paid to any such holder, until such Certificate is
surrendered as provided in this Section 3.03. Following such surrender, there
shall be paid, without interest, to the Person in whose name the Parent Common
Shares have been registered (i) at the time of such surrender, the amount of
dividends or other distributions with a record date at or after the Effective
Time previously paid or payable on the date of such surrender with respect to
such whole Parent Common Shares, less the amount of any withholding taxes that
may be required thereon, and (ii) at the appropriate payment date subsequent to
surrender, the amount of dividends or other distributions with a record date at
or after the Effective Time but prior to surrender and a payment date subsequent
to surrender payable with respect to such whole Parent Common Shares, less the
amount of any withholding taxes which may be required thereon.
(d) No Further Ownership Rights in The Company Common Shares. All
Parent Common Shares issued upon surrender of Certificates in accordance with
the terms hereof (including any cash paid pursuant to this Article 3) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
Company Common Shares represented thereby, and, as of the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further
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registration of transfers on the Company's stock transfer books of Company
Common Shares outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section 3.03.
(e) Return of Merger Consideration. Upon demand by Parent, the
Exchange Agent shall deliver to Parent any portion of the Merger Consideration
made available to the Exchange Agent pursuant to this Section 3.03 that remains
undistributed to holders of Company Common Shares one year after the Effective
Time. Holders of Certificates who have not complied with this Section 3.03 prior
to such demand shall thereafter look only to Parent for payment of any claim to
the Merger Consideration and dividends or distributions, if any, in respect
thereof.
(f) No Liability. None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any Person in respect of any Company Common
Shares (or dividends or distributions with respect thereto) for any amounts paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law. Any amounts remaining unclaimed by any holder of Company Common
Shares immediately prior to such time when such amounts would otherwise escheat
to or become the property of any Governmental Entity, shall, to the extent
permitted by applicable laws, become the property of Parent, free and clear of
all claims or interest of any Person previously entitled thereto.
(g) Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the Merger Consideration (and any
dividends or distributions thereon) otherwise payable hereunder to any Person
such amounts as it is required to deduct and withhold with respect to the making
of such payment under any provision of federal, state, local or foreign income
tax law. To the extent that the Surviving Corporation or Parent so withholds
those amounts, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of Company Common Shares in respect
of which such deduction and withholding was made by the Surviving Corporation or
Parent, as the case may be.
SECTION 3.04. Company Stock Options. (a) At the Effective Time, each
option to purchase Company Common Shares (each, a "COMPANY OPTION") outstanding
under any stock option or compensation plan or arrangement of the Company,
whether or not vested or exercisable, shall be deemed to constitute an option
(each a "PARENT OPTION") to acquire, on the same terms and conditions as were
applicable under such Company Option, the same number of Parent Common Shares as
the holder of such Company Option would have been entitled to receive pursuant
to Section 3.01(b) of this Agreement had such holder exercised such Company
Option in full immediately prior to the Effective Time
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(rounded up to the nearest whole number), at a price per share (rounded down to
the nearest whole cent) equal to (x) the aggregate exercise price for Company
Common Shares otherwise purchasable pursuant to such Company Option divided by
(y) the number of full Parent Common Shares deemed purchasable pursuant to such
Company Option in accordance with the foregoing.
(b) Prior to the Effective Time, the Company and Parent shall take all
actions (including, if appropriate, amending the terms of the Company's stock
option or compensation plans or arrangements) that are necessary to give effect
to the transactions contemplated by Section 3.04(a).
(c) At or prior to the Effective Time, Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of Parent Common
Shares for delivery upon exercise of the Parent Options. At or prior to the
Effective Time, Parent shall file a registration statement on Form S-8 (or any
successor form), with respect to the Parent Common Shares subject to such Parent
Options, and shall use its reasonable best efforts to maintain the effectiveness
of such registration statement(s), maintain the current status of the
prospectus(es) contained therein and comply with all applicable state securities
or "blue sky" laws for so long as such Parent Options remain outstanding.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in (i) the Company Disclosure Schedule attached
hereto or (ii) the Company SEC Documents filed prior to the date hereof, the
Company represents and warrants to Parent that:
SECTION 4.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate powers required to carry on
its business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect. The Company has heretofore made available to
Parent true and complete copies of the Company's certificate of incorporation
and bylaws as currently in effect.
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SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement and
the consummation by the Company of the transactions contemplated hereby and
thereby are within the Company's corporate powers and, except for the Company
Stockholder Approval (as defined herein), have been duly authorized by all
necessary corporate action. Assuming that each of this Agreement and the Stock
Option Agreement constitutes the valid and binding obligation of Parent and
MergerSub, as applicable, each of this Agreement and the Stock Option Agreement
constitutes a valid and binding agreement of the Company, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws, now or hereafter in effect, relating to or
affecting creditors' rights and remedies and to general principles of equity.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement and
the consummation by the Company of the transactions contemplated hereby and
thereby require no action by or in respect of, or filing with, any Governmental
Entity other than (a) the filing of a certificate of merger in accordance with
the DGCL; (b) compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"); (c)
compliance with, and the filing (if necessary) of a notification with the
European Commission under, Council Regulation (EEC) No. 4064/89 and any other
foreign filings or approvals; (d) compliance with any applicable requirements of
the Securities Act and the Exchange Act; (e) such as may be required under any
applicable state securities or blue sky laws; (f) filings with and approval of
the Commissioners of Insurance of the jurisdictions listed on Section 4.03 (f)
of the Company Disclosure Schedule; (g) such as may be required under the
Connecticut Hazardous Waste Establishment Transfer Act and the rules and
regulations promulgated thereunder; and (h) such other consents, approvals,
actions, orders, authorizations, registrations, declarations and filings which,
if not obtained or made, would not, individually or in the aggregate, (x) be
reasonably likely to have a Company Material Adverse Effect, or (y) prevent or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement or the Stock Option Agreement.
SECTION 4.04. Non-Contravention. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement and
the consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (a) contravene or conflict with the Company's
certificate of incorporation or bylaws, (b) assuming compliance with the matters
referred to in Section 4.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company or any Company Subsidiary,
(c)
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constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Company or any Company
Subsidiary or to a loss of any benefit or status to which the Company or any
Company Subsidiary is entitled under any provision of any agreement, contract or
other instrument binding upon the Company or any Company Subsidiary or any
license, franchise, permit or other similar authorization held by the Company or
any Company Subsidiary, or (d) result in the creation or imposition of any Lien
on any asset of the Company or any Company Subsidiary other than, in the case of
each of (b), (c) and (d), any such items that would not, individually or in the
aggregate (x) be reasonably likely to have a Company Material Adverse Effect or
(y) prevent or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
SECTION 4.05. Capitalization. (a) The authorized capital stock of the
Company consists of 50,000,000 Company Common Shares and 4,000,000 shares of
preferred stock, par value $0.01 per share. As of February 1, 1999, there were
outstanding (x) 11,117,526 Company Common Shares, (y) no shares of Company
preferred stock and (z) stock options to purchase an aggregate of 1,868,553
Company Common Shares (of which options to purchase an aggregate of 874,412
Company Common Shares were exercisable and of which 1,268,469 options have
associated restoration or reload option rights). All outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable.
(b) As of the date hereof, except (i) as set forth in this Section
4.05, (ii) the Rights, (iii) for changes since February 1, 1999 resulting from
the exercise of stock options, the grant of stock options pursuant to
Restoration Stock Option Agreements between the Company and directors and
employees of the Company and its Subsidiaries in effect on the date hereof or
the conversion of stock units and dividend equivalents thereon outstanding on
such date, and (iv) for the rights of employees of the Company and its
Subsidiaries pursuant to the Company's Performance Share Plan (pursuant to which
up to a maximum of 114,300 Company Common Shares may be issued) and Stock
Incentive Plan, as in effect on the date hereof there are no outstanding (x)
shares of capital stock or other voting securities of the Company, (y)
securities of the Company convertible into or exchangeable for shares of capital
stock or voting securities of the Company, and (z) options or other rights to
acquire from the Company, and no obligation of the Company to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company (the items in clauses (x), (y)
and (z) being referred to collectively as the "COMPANY SECURITIES"). There are
no outstanding obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any Company Securities.
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SECTION 4.06. Subsidiaries. (a) Each Subsidiary of the Company is a
corporation duly incorporated or an entity duly organized, and is validly
existing and in good standing, under the laws of its jurisdiction of
incorporation or organization, has all powers and authority and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, in each case with such exceptions as,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect. The Company Disclosure Schedule sets forth a
list of all Subsidiaries of the Company and their respective jurisdictions of
incorporation or organization and identifies the Company's (direct or indirect)
percentage equity ownership interest therein.
(b) The Company conducts its insurance operations through the
Subsidiaries listed in Section 4.06(b) of the Company Disclosure Schedule
(collectively, the "COMPANY INSURANCE SUBSIDIARIES"). Each of the Company
Insurance Subsidiaries is, where required, (i) duly licensed or authorized as an
insurance company or reinsurer in its jurisdiction of incorporation, (ii) duly
licensed or authorized as an insurance company and, where applicable, a
reinsurer, or is an eligible excess or surplus lines insurer, in each other
jurisdiction where it is required to be so licensed, authorized or eligible, and
(iii) duly authorized or eligible in its jurisdiction of incorporation and each
other applicable jurisdiction to write each line of business reported as being
written in the Company SAP Statements (as hereinafter defined), except where the
failure to be so licensed, authorized or eligible, individually or in the
aggregate, would not be reasonably likely to have a Company Material Adverse
Effect. The Company has made all required filings under applicable insurance
holding company statutes except where the failure to file, individually or in
the aggregate, would not be reasonably likely to have a Company Material Adverse
Effect.
(c) All of the outstanding shares of capital stock of, or other
ownership interest in, each Subsidiary of the Company has been validly issued
and is fully paid and nonassessable. All of the outstanding capital stock of, or
other ownership interest, which is owned, directly or indirectly, by the Company
in, each of its Subsidiaries is owned free and clear of any Lien and free of any
other limitation or restriction (including any limitation or restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests) with such exceptions as, individually or in the aggregate,
would not be reasonably likely to have a Company Material Adverse Effect. There
are no outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities
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or ownership interests in any of its Subsidiaries, (ii) options, warrants or
other rights to acquire from the Company or any of its Subsidiaries, and no
other obligation of the Company or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock, voting
securities or ownership interests in, any of its Subsidiaries or (iii)
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any outstanding securities of any of its Subsidiaries or any
capital stock of, or other ownership interests in, any of its Subsidiaries.
SECTION 4.07. The Company SEC Documents. (a) The Company has made
available to Parent the Company SEC Documents and any other communication
received from or sent to the SEC. The Company has filed all reports, filings,
registration statements and other documents required to be filed by it with the
SEC since December 31, 1996. No Company Subsidiary is required to file any form,
report, registration statement or prospectus or other document with the SEC.
(b) As of its filing date, each Company SEC Document complied as to
form in all material respects with the applicable requirements of the Securities
Act and/or the Exchange Act, as the case may be.
(c) No Company SEC Document filed pursuant to the Exchange Act
contained, as of its filing date or mailing date, as applicable, any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Company SEC Document, as amended
or supplemented, if applicable, filed pursuant to the Securities Act contained,
as of the date such document or amendment became effective, any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
SECTION 4.08. Financial Statements; No Material Undisclosed
Liabilities. (a) The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company included in the Company
10-Ks and the Company 10-Qs fairly present in all material respects, in
conformity with generally accepted accounting principles applied on a consistent
basis ("GAAP") (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and their consolidated results of operations and cash
flows for the periods then ended (subject to normal year-end adjustments in the
case of any unaudited interim financial statements).
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(b) The Company has delivered or made available to Parent true and
complete copies of the annual and quarterly statements of each of the Company
Insurance Subsidiaries as filed with the applicable insurance regulatory
authorities for the years ended December 31, 1995, 1996 and 1997 and the
quarterly periods ended March 31, 1998, June 30, 1998 and September 30, 1998,
including all exhibits, interrogatories, notes, schedules and any actuarial
opinions, affirmations or certifications or other supporting documents filed in
connection therewith (collectively, the "COMPANY SAP STATEMENTS"). The Company
SAP Statements fairly present in all material respects, in conformity with
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority applied on a consistent basis, the statutory
financial position of such Company Insurance Subsidiaries as at the respective
dates thereof and the results of operations of such Subsidiaries for the
respective periods then ended. The Company SAP Statements complied in all
material respects with all applicable laws, rules and regulations when filed,
and no material deficiency has been asserted with respect to any Company SAP
Statements by the applicable insurance regulatory body or any other governmental
agency or body. The annual statutory balance sheets and income statements
included in the Company SAP Statements have been audited by Ernst & Young LLP,
and the Company has delivered or made available to Parent true and complete
copies of all audit opinions related thereto. The Company has delivered or made
available to Parent true and complete copies of all examination reports of
insurance departments and any insurance regulatory agencies since January 1,
1995 relating to the Company Insurance Subsidiaries.
(c) There are no liabilities of the Company or any Company Subsidiary
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, in each case, that are required by GAAP to be set
forth on a consolidated balance sheet of the Company, other than:
(i) liabilities or obligations disclosed or provided for in
the Company Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations under this Agreement and the
Stock Option Agreement or incurred in connection with the transactions
contemplated hereby and thereby; and
(iii) other liabilities or obligations, which, individually or
in the aggregate, would not be reasonably likely to have a Company
Material Adverse Effect.
SECTION 4.09. Information to Be Supplied. (a) The information to be
supplied in writing by the Company expressly for inclusion or incorporation by
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reference in the Proxy Statement/Prospectus will (i) in the case of the
Registration Statement, at the time it becomes effective, not 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 not
misleading and (ii) in the case of the remainder of the Proxy
Statement/Prospectus, at the time of the mailing thereof and at the time of the
Company Stockholder Meeting, not 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/Prospectus will comply (with
respect to information relating to the Company) as to form in all material
respects with the provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any statements made or incorporated by reference in
the Proxy Statement/Prospectus based on information supplied in writing by
Parent or MergerSub expressly for use therein.
SECTION 4.10. Absence of Certain Changes. Since December 31, 1997,
except as otherwise expressly contemplated by this Agreement, the Company and
the Company Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been (a) any action, event,
occurrence, development, change in method of doing business, or state of
circumstances or facts that, individually or in the aggregate, has had or would
be reasonably likely to have a Company Material Adverse Effect; or (b) any
change by the Company in accounting principles or methods (other than as
required by GAAP).
SECTION 4.11. Litigation. There is no action, suit, investigation,
arbitration or proceeding (or to the knowledge of the Company any basis
therefor) pending against, or to the knowledge of the Company threatened
against, the Company or any Company Subsidiary or any of their respective assets
or properties before any arbitrator or Governmental Entity that, individually or
in the aggregate, would be reasonably likely to have a Company Material Adverse
Effect.
SECTION 4.12. Taxes. (a) All material tax returns, statements, reports
and forms (collectively, the "COMPANY RETURNS") required to be filed with any
taxing authority by, or with respect to, the Company and the Company
Subsidiaries were filed on a timely basis and were true, complete and correct
except to the extent that the failure to file or be true, complete and correct
would not, individually or in the aggregate, have a Company Material Adverse
Effect; (b) the Company and the Company Subsidiaries have timely paid all
material taxes (which for purposes
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of Section 4.12 shall include interest, penalties and additions to tax with
respect thereto) shown as due and payable on the Company Returns (other than
taxes which are being contested in good faith and for which adequate reserves
are reflected on the Company Balance Sheet) except to the extent that the
failure to pay would not, individually or in the aggregate, have a Company
Material Adverse Effect; (c) the Company and the Company Subsidiaries have made
provision for all material taxes payable by them for which no Company Return has
yet been filed except for inadequately reserved taxes that would not,
individually or in the aggregate, have a Company Material Adverse Effect; (d) no
taxing authority has asserted or initiated (or threatened to assert or initiate)
in writing any action, suit, proceeding or claim against the Company or any of
the Company Subsidiaries that, individually or in the aggregate, would have a
Company Material Adverse Effect; (e) there is no application pending for
approval of a change in accounting methods; (f) neither the Company nor any of
the Company Subsidiaries has been a member of an affiliated, consolidated,
combined or unitary group other than one of which the Company was the common
parent; and (g) neither the Company nor any of the Company Subsidiaries is
obligated by any contract, agreement or other arrangement to indemnify any other
person with respect to taxes or to compensate any third party for any tax
payment or tax liability under a tax sharing or similar agreement.
SECTION 4.13. Employees and Employee Benefits. (a) Section 4.13(a) of
the Company Disclosure Schedule contains a correct and complete list identifying
each material "employee benefit plan", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), each employment,
severance or similar contract, plan, arrangement or policy and each other plan
or arrangement (written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
supplemental unemployment benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance benefits) which is maintained, administered or contributed to by the
Company or any Company Subsidiary and covers any employee or former employee of
the Company or any Company Subsidiary. Copies of such plans (and, if applicable,
related trust agreements) and all amendments thereto and written summary
descriptions thereof have been furnished, or will be made available upon
request, to Parent together with the most recent annual report (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan. Such plans are referred to collectively herein as the "COMPANY
EMPLOYEE PLANS".
(b) Neither the Company nor any current ERISA Affiliate maintains,
contributes to or is required to contribute to, or has in the past maintained,
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contributed to or been required to contribute to any plan subject to Title IV of
ERISA or Section 412 of the Code, including, without limitation, any
"multiemployer plan" (as defined in Section 3(37) of ERISA). To the knowledge of
the Company, no event has occurred or is reasonably likely to occur that would
cause the Company or any ERISA Affiliate to incur liability or be subject to any
lien under Title IV of ERISA or Section 412 of the Code with respect to any plan
currently or previously maintained or contributed to by any former ERISA
Affiliate. For purposes of this Agreement the term "ERISA AFFILIATE" shall mean
any entity which, together with the Company, would be treated as a single
employer under Section 414 of the Code.
(c) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter from the Internal Revenue Service stating that it is so
qualified and, to the knowledge of the Company, nothing has occurred since the
date of such letter that would cause it to be revoked, whether prospectively or
retroactively. The Company has furnished, or will make available upon request,
to Parent copies of the most recent Internal Revenue Service determination
letters with respect to each such Company Employee Plan. Each Company Employee
Plan has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Company Employee Plan except as would not be reasonably likely to have a Company
Material Adverse Effect. To the knowledge of the Company, nothing has been done
or omitted to be done and no transaction or holding of any asset under or in
connection with any Company Employee Plan has occurred that will make the
Company or any Company Subsidiary, or any officer or director of the Company or
any Company Subsidiary, subject to any liability under Title I of ERISA or
liable for any tax pursuant to Section 4975 of the Code (assuming the taxable
period of any such transaction expired as of the date hereof) that would be
reasonably likely to have a Company Material Adverse Effect.
(d) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company Employee
Plan, trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any current or former employee, executive or director of the Company or any
Company Subsidiary. To the knowledge of the Company, there is no contract,
agreement, plan or arrangement covering any employee or former employee of the
Company that, individually or collectively, would be reasonably likely to give
rise to the
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payment of any amount that would result in a material loss of tax deductions
pursuant to the terms of Section 162(m) of the Code.
(e) Neither the Company nor any Company Subsidiary maintains or
contributes to any Company Employee Plan which provides, or has any liability to
provide, life insurance, medical or other welfare benefits to any employee(s)
upon their retirement or termination of employment, except as required by
Section 601 of ERISA and Section 4980B of the Code.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) relating to any Company Employee Plan
which would increase materially the expense of maintaining such Company Employee
Plans in the aggregate above the level of the expense incurred in respect
thereof for the fiscal year ended December 31, 1998.
(g) Neither the Company nor any Company Subsidiary is presently or has
been in the past a party to, or bound by, any collective bargaining agreement or
union contract with respect to employees. There are no pending or, to the
knowledge of the Company, threatened representation questions respecting any
employees of the Company or any Company Subsidiary.
(h) The Company and each Company Subsidiary is in compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment, wages,
hours and withholding except as would not be reasonably likely to have a Company
Material Adverse Affect.
SECTION 4.14. Compliance with Insurance Laws; Licenses and Permits. (a)
The business and operations of the Company and the Company Insurance
Subsidiaries have been conducted in compliance with all applicable statutes and
regulations regulating the business of insurance and all applicable orders and
directives of insurance regulatory authorities and market conduct
recommendations resulting from market conduct examinations of insurance
regulatory authorities (collectively, "INSURANCE LAWS"), except where the
failure to so conduct business and operations would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect or
prevent or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement or the Stock Option Agreement or
cause the loss of eligibility to do business where such loss would, individually
or in the aggregate, have a Company Material Adverse Effect. Each Company
Insurance Subsidiary and to the knowledge of the Company each program
administrator listed on Section 4.14(a) of the Company Disclosure Schedule has
marketed, sold and issued insurance products in compliance, in all material
respects, with
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Insurance Laws applicable to the business of such Company Insurance Subsidiary
and in the respective jurisdictions in which such products have been sold. There
is no pending or, to the knowledge of the Company, threatened charge by any
insurance regulatory authority that any of the Company Insurance Subsidiaries
has violated, nor any pending or, to the knowledge of the Company, threatened
investigation by any insurance regulatory authority with respect to possible
violations of, any applicable Insurance Laws where such violations would,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect. None of the Company Insurance Subsidiaries is subject
to any order or decree of any insurance regulatory authority relating
specifically to such Company Insurance Subsidiary (as opposed to insurance
companies generally) which would, individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect. The Company
Insurance Subsidiaries have filed all reports required to be filed with any
insurance regulatory authority on or before the date hereof as to which the
failure to file such reports would individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect.
(b) In addition to Insurance Laws the business of each of the Company
and the Company Insurance Subsidiaries have not been, and are not being,
conducted in violation of any federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any Governmental Entity
(collectively with Insurance Laws, "LAWS"), except for violation or possible
violations that, individually or in the aggregate, are not reasonably likely to
have a Company Material Adverse Effect or prevent or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Stock Option Agreement. No investigation or review by any
Governmental Entity with respect to the Company is pending or to the knowledge
of the Company, threatened, nor has any Governmental Entity to the knowledge of
the Company indicated, formally or informally, an intention to conduct the same,
except for those the outcome of which are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect or prevent or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement or the Stock Option Agreement. The Company and
the Company Insurance Subsidiaries each has all permits, licenses, trademarks,
patents, trade names, copyrights, service marks, franchises, variances,
exemptions, orders and other governmental authorizations, consents and approvals
necessary to conduct its business as presently conducted except those the
absence of which are not, individually or in the aggregate, reasonably likely to
have a Company Material Adverse Effect or prevent or materially impair the
ability of the Company to consummate the Merger and the other transactions
contemplated by this Agreement or the Stock Option Agreement. Section 4.14(b) of
the
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Company Disclosure Schedule sets forth (i) every insurance license of the
Company or its Subsidiaries, and (ii) every jurisdiction where the Company and
its Subsidiaries are eligible to engage in surplus lines business.
SECTION 4.15. Insurance Matters. (a) Except as otherwise would not,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect, to the extent required under applicable law, all
policies, binders, slips, certificates and other agreements of insurance in
effect as of the date hereof (including all applications, supplements,
endorsements, riders and ancillary agreements in connection therewith) that are
issued by the Company Insurance Subsidiaries (the "COMPANY INSURANCE CONTRACTS")
and any and all marketing materials, are on forms approved by applicable
insurance regulatory authorities or which have been filed and not objected to by
such authorities within the period provided for objection. Such forms comply in
all material respects with the insurance statutes, regulations and rules
applicable thereto.
(b) To the knowledge of the Company, all reinsurance and coinsurance
treaties or agreements, including retrocessional agreements, to which the
Company or any Company Insurance Subsidiary is a party or under which the
Company or any Company Insurance Subsidiary has any existing rights, obligations
or liabilities are in full force and effect except for such treaties or
agreements the failure of which to be in full force and effect as would not,
individually or in the aggregate, be reasonably likely to result in a cost to
the Company or any of its Subsidiaries of an amount in excess of $500,000.
Neither the Company nor any Company Insurance Subsidiary, nor, to the knowledge
of the Company, any other party to a reinsurance or coinsurance treaty or
agreement to which the Company or any Company Insurance Subsidiary is a party,
is in default in any material respect as to any provision thereof, and no such
agreement contains any provision providing that the other party thereto may
terminate such agreement by reason of the transactions contemplated by this
Agreement except for such treaties or agreements the default under or
termination of which as would not, individually or in the aggregate, be
reasonably likely to result in a cost to the Company or any of its Subsidiaries
of an amount in excess of $500,000. The Company has not received any notice to
the effect that the financial condition of any other party to any such agreement
is impaired with the result that a default thereunder may reasonably be
anticipated, whether or not such default may be cured by the operation of any
offset clause in such agreement.
(c) Prior to the date hereof, the Company has delivered or made
available to Parent a true and complete copy of any actuarial reports prepared
by actuaries, independent or otherwise, with respect to the Company or any
Company Insurance Subsidiary since December 31, 1995, and all attachments,
addenda, supplements and modifications thereto (the "COMPANY ACTUARIAL
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ANALYSES"). To the knowledge of the Company (x) the information and data
furnished by the Company or any Company Insurance Subsidiary to its independent
actuaries in connection with the preparation of the Company Actuarial Analyses
were accurate in all material respects and (y) each Company Actuarial Analysis
was based upon an accurate inventory of policies in force for the Company and
the Company Insurance Subsidiaries, as the case may be, at the relevant time of
preparation, was prepared in all material respects using appropriate modeling
procedures accurately applied and in conformity with published actuarial
standards of practice consistently applied, and the projections contained
therein were properly prepared in accordance with the assumptions stated
therein.
(d) As of the date hereof, the persons specified in Section 1.01(a) of
the Company Disclosure Schedule have no reason to believe that any rating
presently held by the Company Insurance Subsidiaries will be modified,
qualified, lowered or placed under surveillance for a possible downgrade for any
reason other than as a result of the transactions contemplated hereby.
SECTION 4.16. Liabilities and Reserves. (a) The reserves carried on the
Company SAP Statements of each Company Insurance Subsidiary for the year ended
December 31, 1997 and the nine month period ended September 30, 1998 for
unearned premiums, losses, loss adjustment expenses, claims and similar purposes
(including claims litigation) are in compliance in all material respects with
the requirements for reserves established by the insurance departments of the
jurisdiction of domicile of such Company Insurance Subsidiary, were determined
in all material respects in accordance with published actuarial standards of
practice and principles consistently applied, and are fairly stated in all
material respects in accordance with accepted actuarial and statutory accounting
principles. Such reserves were adequate in the aggregate to cover the total
amount of all reasonably anticipated liabilities of the Company and each Company
Insurance Subsidiary under all outstanding insurance, reinsurance and other
applicable agreements as of the respective dates of such Company SAP Statements.
The admitted assets of the Company and each Company Insurance Subsidiary as
determined under applicable Laws are in an amount at least equal to the minimum
amounts required by applicable Laws.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of the Company, no claim or assessment
is pending or threatened against any Company Insurance Subsidiary by (i) any
state insurance guaranty associations in connection with such association's fund
relating to insolvent insurers or (ii) any assigned risk plan or other
involuntary market plan which if determined adversely would, individually or in
the
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aggregate, be reasonably likely to result in a cost to the Company or any of its
Subsidiary of an amount in excess of $500,000.
SECTION 4.17. Title to Properties. The Company has good and marketable
title to its headquarters located at 82 Hopmeadow Street in Simsbury,
Connecticut ("OWNED PROPERTY") and such property is free and clear of all Liens
except for such Liens, defects in title, easements, restrictive covenants and
similar encumbrances or impediments that, in the aggregate, do not materially
interfere with the ability of the Company and its Subsidiaries to conduct their
business, taken as a whole, as currently conducted.
SECTION 4.18. Intellectual Property. With such exceptions as,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect, the Company and the Company Subsidiaries own or
have a valid license to use each trademark, service mark, trade name, mask work,
invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right (collectively, the
"COMPANY INTELLECTUAL PROPERTY") necessary to carry on the business of the
Company and the Company Subsidiaries, taken as a whole, as currently conducted.
Neither the Company nor any Company Subsidiary has received any written notice
of infringement of or challenge to, and, to the Company's knowledge, there are
no claims pending with respect to the rights of others to the use of, any
Company Intellectual Property. Section 4.18 to the Company Disclosure Schedule
identifies each trademark, service mark and trade name registered with the U.S.
Trademark and Patent Office which the Company and its Subsidiaries own.
SECTION 4.19. Environmental Matters. (a) With such exceptions as,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect, (i) no written notice, notification, demand,
request for information, citations, summons, complaint or order has been
received by, and no investigation, action, claim, suit, proceeding or review is
pending or threatened by any Person against, the Company or any Company
Subsidiary, with respect to any applicable Environmental Law, (ii) the Company
and the Company Subsidiaries are and have been in compliance with all applicable
Environmental Laws and (iii) there are no liabilities of the Company or any
Company Subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, arising under or relating to
any Environmental Law, and there are no fact, conditions, situations or set of
circumstances that could reasonably be expected to result in or be the basis for
any such liability.
(b) For purposes of this Section 4.19 the term "ENVIRONMENTAL LAWS"
means any federal, state, local and foreign statutes, laws (including, without
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limitation, common law), judicial decisions, regulations, ordinances, rules,
judgments, orders, codes, injunctions, permits or governmental agreements
relating to human health and safety, the environment or to pollutants,
contaminants, wastes, or chemicals.
SECTION 4.20. Finders' Fees; Opinions of Financial Advisor. (a) Except
for Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Smith Barney
Inc., there is no investment banker, broker, finder or other intermediary which
has been retained by, or is authorized to act on behalf of, the Company or any
Company Subsidiary who might be entitled to any fee or commission from Parent or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement or the Stock Option Agreement.
(b) The Company has received the opinions of Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Smith Barney Inc., dated as of the
date hereof, to the effect that, as of such date, the Merger Consideration is
fair to the holders of Company Common Shares from a financial point of view.
SECTION 4.21. Required Vote; Board Approval. (a) The only vote of the
holders of any class or series of capital stock of the Company required by law,
rule or regulation to approve this Agreement, the Merger and/or any of the other
transactions contemplated hereby is the affirmative vote (the "COMPANY
STOCKHOLDER APPROVAL") of the holders of a majority of the outstanding Company
Common Shares in favor of the adoption and approval of this Agreement and the
Merger.
(b) The Company's Board of Directors has unanimously (a) determined
that this Agreement and the Stock Option Agreement and the transactions
contemplated hereby and thereby, including the Merger, are in the best interests
of the Company and its stockholders, (b) approved this Agreement and the Stock
Option Agreement and the transactions contemplated hereby and thereby and (c)
resolved to recommend to such stockholders that they vote in favor of adopting
and approving this Agreement and the Merger in accordance with the terms hereof.
SECTION 4.22. State Takeover Statutes; Rights Agreement. (a) The
Company has taken all actions required to be taken by it in order to exempt this
Agreement and the Stock Option Agreement and the transactions contemplated
hereby and thereby from the provisions of Section 203 of the DGCL, and
accordingly, neither such Section nor to the knowledge of the Company any other
anti-takeover statute or regulation applies to the Merger or any of such
transactions. To the knowledge of the Company no other "control share
acquisition", "fair price" or other anti-takeover laws or regulations enacted
under
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state or federal laws in the United States apply to this Agreement and the Stock
Option Agreement or any of the transactions contemplated hereby and thereby.
(b) The Company has taken all action necessary, so long as this
Agreement or the Stock Option Agreement is in effect, to (i) render the Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement and (ii) ensure that (A) neither
Parent, MergerSub nor any of their Affiliates will become an Acquiring Person
(as defined in the Rights Agreement) as a result of the transactions
contemplated hereby and thereby and (B) neither a Distribution Date nor an
Acquisition Date (each as defined in the Rights Agreement) shall occur by reason
of the approval or execution of this Agreement or the Stock Option Agreement,
the announcement or consummation of the Merger or the announcement or
consummation of any of the other transactions contemplated by this Agreement and
the Stock Option Agreement.
SECTION 4.23. Tax Treatment. Neither the Company nor any of its
Affiliates has taken or agreed to take any action or, to the knowledge of the
Company is aware of any fact or circumstance that would prevent the Merger from
qualifying as a 368 Reorganization.
SECTION 4.24. Year 2000 Compliance. The Company has (i) completed a
review and assessment of all areas within the business and operations of the
Company and the Subsidiaries (including those areas affected by suppliers and
vendors) that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer software and systems used by the Company or any of the
Subsidiaries (or their respective suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, which plan and
timeline have been made available to Parent and (iii) to date, implemented such
plan in all material respects in accordance with such timetable. The Company
reasonably believes that all computer software and systems (including those of
suppliers and vendors) that are used in the business or operations of the
Company or the Subsidiaries as presently conducted (the "COMPANY SYSTEMS") will
on a timely basis be able to perform properly date-sensitive functions for all
dates before and from and after January 1, 2000 ("YEAR 2000 COMPLIANT") except
for such failures to perform which would not, individually or in the aggregate,
be reasonably likely to have a Company Material Adverse Effect.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in (i) the Parent Disclosure Schedule attached
hereto or (ii) the Parent SEC Documents filed prior to the date hereof, Parent
represents and warrants to the Company that:
SECTION 5.01. Corporate Existence and Power. Each of Parent and
MergerSub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers required to carry on its business as now conducted. Parent is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect. Parent has
heretofore made available to the Company true and complete copies of Parent's
restated certificate of incorporation and bylaws as currently in effect.
MergerSub was formed solely for the purpose of effecting the Merger and, since
the date of its incorporation, MergerSub has not engaged in any activities and
has not incurred any liabilities or obligations other than in connection with
its formation and in connection with or as contemplated by this Agreement.
SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by Parent and MergerSub (as applicable) of this Agreement and the
Stock Option Agreement and the consummation by Parent and MergerSub (as
applicable) of the transactions contemplated hereby and thereby are within the
corporate powers of Parent and MergerSub (as applicable) and have been duly
authorized by all necessary corporate action. Assuming that each of this
Agreement and the Stock Option Agreement constitutes the valid and binding
obligation of the Company, each of this Agreement and the Stock Option Agreement
constitutes a valid and binding agreement of each of Parent and MergerSub (as
applicable), enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws, now or hereafter in
effect, relating to or affecting creditors' rights and remedies and to general
principles of equity.
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by Parent and MergerSub of this Agreement, the execution delivery
and performance by Parent of the Stock Option Agreement and the consummation by
Parent and MergerSub of the transactions contemplated hereby and thereby (as
applicable) require no action by or in respect of, or filing with, any
Governmental
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Entity other than (a) those set forth in clauses (a) through (g) of Section 4.03
and (b) such other consents, approvals, actions, orders, authorizations,
registrations, declarations and filings which, if not obtained or made, would
not, individually or in the aggregate, (i) be reasonably likely to have a Parent
Material Adverse Effect, or (ii) prevent or materially impair the ability of
Parent and MergerSub to consummate the transactions contemplated by this
Agreement or the Stock Option Agreement.
SECTION 5.04. Non-Contravention. The execution, delivery and
performance by Parent and MergerSub of this Agreement, the execution delivery
and performance by Parent of the Stock Option Agreement and the consummation by
Parent and MergerSub of the transactions contemplated hereby and thereby (as
applicable) do not and will not (a) contravene or conflict with the restated
certificate of incorporation or bylaws of Parent or the certificate of
incorporation or bylaws of MergerSub, (b) assuming compliance with the matters
referred to in Section 5.03, contravene or conflict with any provision of law,
regulation, judgment, injunction, order or decree binding upon or applicable to
Parent or any Parent Subsidiary, (c) constitute a default under or give rise to
a right of termination, cancellation or acceleration of any right or obligation
of Parent or any Parent Subsidiary or to a loss of any benefit or status to
which Parent or any Parent Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon Parent or any Parent
Subsidiary or any license, franchise, permit or other similar authorization held
by Parent or any Parent Subsidiary, or (d) result in the creation or imposition
of any Lien on any asset of Parent or any Parent Subsidiary other than, in the
case of each of (b), (c) and (d), any such items that would not, individually or
in the aggregate, (x) be reasonably likely to have a Parent Material Adverse
Effect or (y) prevent or materially impair the ability of Parent or MergerSub to
consummate the transactions contemplated by this Agreement or the Stock Option
Agreement.
SECTION 5.05. Capitalization of Parent and MergerSub. (a) The
authorized capital stock of Parent consists of 600,000,000 Parent Common Shares,
and 4,000,000 shares of preferred stock, $1.00 par value per share (of which
500,000 have been designated Series A Cumulative Participating Preferred Stock).
There were outstanding (i) as of January 31, 1999, 162,008,492 Parent Common
Shares and no shares of the preferred stock, (ii) as of December 31, 1998, stock
options to purchase an aggregate of 9,669,816 Parent Common Shares (of which
options to purchase an aggregate of 6,573,577 Parent Common Shares were vested
and exercisable) and (iii) as of December 31, 1998, employee performance
incentive awards relating to an aggregate of 556,517 Parent Common Shares. All
outstanding shares of capital stock of Parent have been duly authorized and
validly issued and are fully paid and nonassessable.
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(b) As of the date hereof, except as set forth in this Section 5.05
and except for changes since December 31, 1998 resulting from the grant of stock
options and other awards under the Parent's Long-Term Stock Incentive Plan
(1996) in the ordinary course of business consistent with past practice and the
exercise of stock options outstanding on such date and the payment of
performance incentive awards outstanding on such date, there are no outstanding
(i) shares of capital stock or other voting securities of Parent, (ii)
securities of Parent convertible into or exchangeable for shares of capital
stock or voting securities of Parent, and (iii) options or other rights to
acquire from Parent, and no obligation of Parent to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent (the items in clauses (i), (ii) and (iii)
being referred to collectively as the "PARENT SECURITIES"). There are no
outstanding obligations of Parent or any Parent Subsidiary to repurchase, redeem
or otherwise acquire any Parent Securities.
(c) The Parent Common Shares to be issued as part of the Merger
Consideration have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued,
fully paid and nonassessable and free of any preemptive or other similar right.
(d) The authorized capital stock of MergerSub consists solely of 100
MergerSub Common Shares, of which, as of the date hereof, 100 were issued and
outstanding. All outstanding MergerSub Common Shares have been duly authorized
and validly issued and are fully paid and nonassessable, free of any preemptive
or other similar right.
SECTION 5.06. Parent SEC Documents. (a) Parent has made available to
the Company the Parent SEC Documents. Parent has filed all reports, filings,
registration statements and other documents required to be filed by it with the
SEC since December 31, 1996.
(b) As of its filing date, each Parent SEC Document complied as to
form in all material respects with the applicable requirements of the Securities
Act and/or the Exchange Act, as the case may be.
(c) No Parent SEC Document filed pursuant to the Exchange Act
contained, as of its filing date or mailing date, as applicable, any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Parent SEC Document, as amended
or supplemented, if applicable, filed pursuant to the Securities Act as of the
date such document or amendment became effective contained any untrue statement
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of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
SECTION 5.07. Financial Statements; No Material Undisclosed
Liabilities. (a) The audited consolidated financial statements and unaudited
consolidated interim financial statements of Parent included in the Parent 10-Ks
and the Parent 10-Qs fairly present in all material respects, in conformity with
GAAP (except as may be indicated in the notes thereto), the consolidated
financial position of Parent and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements).
(b) Parent has delivered or made available to the Company true and
complete copies of the annual and quarterly statements of each of the United
States Parent Insurance Subsidiaries as filed with the applicable insurance
regulatory authorities for the years ended December 31, 1995, 1996 and 1997 and
the quarterly periods ended March 31, 1998, June 30, 1998 and September 30,
1998, including all exhibits, interrogatories, notes, schedules and any
actuarial opinions, affirmations or certifications or other supporting documents
filed in connection therewith (collectively, the "PARENT SAP STATEMENTS"). The
Parent SAP Statements fairly present in all material respects, in conformity
with statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority applied on a consistent basis, the statutory
financial position of such Parent Insurance Subsidiaries as at the respective
dates thereof and the results of operations of such Subsidiaries for the
respective periods then ended. The Parent SAP Statements complied in all
material respects with all applicable laws, rules and regulations when filed,
and no material deficiency has been asserted with respect to any Parent SAP
Statements by the applicable insurance regulatory body or any other governmental
agency or body. The annual statutory balance sheets and income statements
included in the Parent SAP Statements have been audited by Ernst & Young LLP,
and Parent has delivered or made available to the Company true and complete
copies of all audit opinions related thereto.
(c) There are no liabilities of Parent or any Parent Subsidiary of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise that are required by GAAP to be set forth on a consolidated balance
sheet of Parent, other than:
(i) liabilities or obligations disclosed or provided for in
the Parent Balance Sheet (including the notes thereto);
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(ii) liabilities or obligations under this Agreement and the
Stock Option Agreement or incurred in connection with the transactions
contemplated hereby and thereby; and
(iii) other liabilities or obligations, which, individually or
in the aggregate, would not be reasonably likely to have a Parent
Material Adverse Effect.
SECTION 5.08. Information to Be Supplied. (a) The information to be
supplied in writing by Parent expressly for inclusion or incorporation by
reference in the Proxy Statement/Prospectus will (i) in the case of the
Registration Statement, at the time it becomes effective, not 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 not
misleading and (ii) in the case of the remainder of the Proxy
Statement/Prospectus, at the time of the mailing thereof and at the time of the
Company Stockholder Meeting, not 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/Prospectus will comply (with
respect to information relating to Parent) as to form in all material respects
with the provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any statements made or incorporated by reference in the
Proxy Statement/Prospectus with respect to information supplied in writing by
the Company expressly for use therein.
SECTION 5.09. Absence of Certain Changes. Since December 31, 1997,
except as otherwise expressly contemplated by this Agreement, Parent and the
Parent Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been any action, event,
occurrence, development, change in method of doing business or state of
circumstances or facts that, individually or in the aggregate, has had or would
be reasonably likely to have a Parent Material Adverse Effect.
SECTION 5.10. Litigation. There is no action, suit, investigation,
arbitration or proceeding (or to the knowledge of Parent any basis therefor)
pending against, or to the knowledge of Parent threatened against, Parent or any
Parent Subsidiary or any of their respective assets or properties before any
arbitrator or Governmental Entity that, individually or in the aggregate, would
be reasonably likely to have a Parent Material Adverse Effect.
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SECTION 5.11. Compliance with Laws; Licenses and Permits. (a) Neither
Parent nor any Parent Subsidiary is in violation of, or has violated, any
applicable provisions of any laws, statutes, ordinances, regulations, judgments,
injunctions, orders or consent decrees, except for any such violations which,
individually or in the aggregate, would not be reasonably likely to have, a
Parent Material Adverse Effect. None of the Parent Insurance Subsidiaries is
subject to any order or decree of any insurance regulatory authority
specifically relating to such Parent Insurance Subsidiary (as opposed to
insurance companies generally) which would, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect.
(b) Each of Parent and the Parent Subsidiaries has all permits,
licenses, approvals, authorizations of and registrations with and under all
federal, state, local and foreign laws, and from all Governmental Entities
required by Parent and the Parent Subsidiaries to carry on their respective
businesses as currently conducted, except where the failure to have any such
permits, licenses, approvals, authorizations or registrations, individually or
in the aggregate, would not be reasonably likely to have a Parent Material
Adverse Effect. No investigation or review by any Governmental Entity with
respect to Parent is pending or to the knowledge of the Parent, threatened, nor
has any Governmental Entity to the knowledge of Parent indicated, formally or
informally, an intention to conduct the same, except for those the outcome of
which are not, individually or in the aggregate, reasonably likely to have a
Parent Material Adverse Effect or prevent or materially impair the ability of
Parent to consummate the transactions contemplated by this Agreement or the
Stock Option Agreement.
SECTION 5.12. Finders' Fees. Except for Goldman, Sachs & Co., whose
fees will be paid by Parent, there is no investment banker, broker, finder or
other intermediary who might be entitled to any fee or commission from Parent or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement or the Stock Option Agreement.
SECTION 5.13. Liabilities and Reserves. (a) The reserves carried on the
Parent SAP Statements of each Parent Insurance Subsidiary for the year ended
December 31, 1997 and the nine month period ended September 30, 1998 for
unearned premiums, losses, loss adjustment expenses, claims and similar purposes
(including claims litigation) are in compliance in all material respects with
the requirements for reserves established by the insurance departments of the
jurisdiction of domicile of such Parent Insurance Subsidiary, were determined in
all material respects in accordance with published actuarial standards of
practice and principles consistently applied, and are fairly stated in all
material respects in accordance with accepted actuarial and statutory accounting
principles. Such reserves were adequate in the aggregate to cover the total
amount of all reasonably
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anticipated liabilities of the Parent and each Parent Insurance Subsidiary under
all outstanding insurance, reinsurance and other applicable agreements as of the
respective dates of such Parent SAP Statements. The admitted assets of Parent
and each Parent Insurance Subsidiary as determined under applicable Laws are in
an amount at least equal to the minimum amounts required by applicable Laws.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of Parent, no claim or assessment is
pending or threatened against any Parent Insurance Subsidiary by (i) any state
insurance guaranty associations in connection with such association's fund
relating to insolvent insurers or (ii) any assigned risk plan or other
involuntary market plan which if determined adversely would, individually or in
the aggregate, be reasonably likely to result in a cost to Parent or any
Subsidiary of an amount in excess of $5,000,000.
SECTION 5.14. Year 2000 Compliance. Parent has (i) completed a review
and assessment of all areas within the business and operations of Parent and the
Subsidiaries (including those areas affected by suppliers and vendors) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer software and systems used by Parent or any of the Subsidiaries (or
their respective suppliers and vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, which plan and timeline have been made
available to the Company and (iii) to date, implemented such plan in all
material respects in accordance with such timetable. Parent reasonably believes
that all computer software and systems (including those of vendors and
suppliers) that are used in the business or operations of Parent or the
Subsidiaries as presently conducted (the "PARENT SYSTEMS") will on a timely
basis be able to perform properly date-sensitive functions for all dates before
and from and after January 1, 2000 ("YEAR 2000 COMPLIANT") except for such
failures to perform which would not, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect.
SECTION 5.15. Tax Treatment. Neither Parent nor any of its Affiliates
has taken or agreed to take any action or to the knowledge of Parent is aware of
any fact or circumstance that would prevent the Merger from qualifying as a 368
Reorganization.
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ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.01. The Company Interim Operations. Except as set forth in
the Company Disclosure Schedule or as otherwise expressly contemplated hereby,
without the prior consent of Parent (which consent shall not be unreasonably
withheld or delayed), from the date hereof until the Effective Time, the Company
shall, and shall cause each of the Company Subsidiaries to, conduct their
business in all material respects in the ordinary course consistent with past
practice and shall use commercially reasonable efforts to (i) preserve intact
its present business organization, (ii) maintain in effect all material foreign,
federal, state and local licenses, approvals and authorizations, including,
without limitation, all material licenses and permits that are required for the
Company or any Company Subsidiary to carry on its business and (iii) preserve
existing relationships with its material customers, lenders, suppliers and
others having material business relationships with it. Without limiting the
generality of the foregoing, except as set forth in the Company Disclosure
Schedule or as otherwise expressly contemplated by this Agreement, from the date
hereof until the Effective Time, without the prior consent of Parent (which
consent shall not be unreasonably withheld or delayed), the Company shall not,
nor shall it permit any Company Subsidiary to:
(a) amend the Company's certificate of incorporation or by-laws;
(b) split, combine or reclassify any shares of capital stock of the
Company or any less-than-wholly-owned Company Subsidiary or declare, set aside
or pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, or redeem, repurchase
or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of
its securities or any securities of any Company Subsidiary, except for regular
quarterly cash dividends (having customary record and payment dates, not in
excess of $.02 per Company Common Share);
(c) (i) issue, deliver or sell, or authorize the issuance, delivery or
sale of, any shares of its capital stock of any class or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such capital stock or any such convertible securities, other than
(A) the issuance of Company Common Shares upon the exercise of stock options or
pursuant to the Company's Performance Share Plan and Stock Incentive Plan in
accordance with their present terms and (B) the granting of options to acquire
Company Common Shares in the
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ordinary course of business consistent with past practice; (ii) amend in any
material respect any material term of any outstanding security of the Company or
any Company Subsidiary or (iii) consent, including consent by the applicable
committee, to any transfer of a Company Stock Option;
(d) other than in connection with transactions permitted by Section
6.01(e), incur any capital expenditures or any obligations or liabilities in
respect thereof, except for those (i) contemplated by the capital expenditure
budgets for the Company and Company Subsidiaries made available to Parent, (ii)
incurred in the ordinary course of business of the Company and the Company
Subsidiaries or (iii) not otherwise described in clauses (i) and/or (ii) which,
do not exceed $5 million individually or $10 million in the aggregate;
(e) except for acquisitions in the ordinary course of the investment
activities of the Company and its Subsidiaries consistent with past practice,
acquire (whether pursuant to merger, stock or asset purchase or otherwise) in
one transaction or series of related transactions (i) any assets (including any
equity interests) having a fair market value in excess of $10 million, or (ii)
all or substantially all of the equity interests of any Person or any business
or division of any Person having a fair market value in excess of $5 million;
(f) sell, lease, encumber or otherwise dispose of any assets, other
than (i) sales in the ordinary course of business consistent with past practice,
(ii) equipment and property no longer used in the operation of the Company's
business and (iii) assets related to discontinued operations of the Company or
any Company Subsidiary;
(g) incur 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 Company Subsidiary or
guarantee any debt securities of others or request any advances in respect of,
or make any drawdowns on, any existing indebtedness which advance or drawdown
exceeds $5 million, individually, or $25 million in the aggregate;
(h) (i) enter into any agreement or arrangement that would, after the
Effective Time, limit or restrict Parent, any Parent Subsidiary or any of their
respective Affiliates other than the Company and its Subsidiaries, from engaging
or competing in any line of business or in any location, or (ii) amend, modify
or terminate any material contract, agreement or arrangement of the Company or
any Company Subsidiary or otherwise waive, release or assign any material
rights, claims or benefits of the Company or any Company Subsidiary thereunder,
other than (x) amendment of stock option agreements, in effect on the date
hereof, with employees, officers and directors of the Company and its
Subsidiaries to provide
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that unvested stock options shall vest upon a change in control of the Company
and (y) causing all accrued benefits under the Company's Benefit Equalization
Plan to be fully funded through an irrevocable "Rabbi" trust or similar funding
vehicle to be established by the Company and (z) entering into agreements with
certain employees of the Company to fully indemnify them for the effects of any
excise tax that may be imposed under Section 4999 of the Code (or any successor
provision) provided that the total aggregate amount paid under such agreements
shall not exceed $2 million;
(i) (i) except in the ordinary course of business consistent with past
practice as required by law or an existing agreement, increase the amount of
compensation of any director or executive officer or make any increase in or
commitment to increase any employee benefits, (ii) except as required by law or
an agreement existing on the date hereof or as contemplated by Schedule 6.01(i)
hereto grant any material severance or termination pay to any director, officer
or employee of the Company or any Company Subsidiary, (iii) adopt any additional
employee benefit plan or, except in the ordinary course of business, make any
material contribution to any existing such plan or (iv) except as may be
required by law or pursuant to any agreement existing on the date hereof, amend
in any material respect any Company Employee Plan, other than (x) amendment of
stock option agreements, in effect on the date hereof, with employees, officers
and directors of the Company and its Subsidiaries to provide that unvested stock
options shall vest upon a change in control of the Company and (y) causing all
accrued benefits under the Company's Benefit Equalization Plan to be fully
funded through an irrevocable "Rabbi" trust or similar funding vehicle to be
established by the Company and (z) entering into agreements with certain
employees of the Company to fully indemnify them for the effects of any excise
tax that may be imposed under Section 4999 of the Code (or any successor
provision) provided that the total aggregate amount paid under such agreements
shall not exceed $2 million;
(j) change the Company's (x) methods of accounting in effect at
September 30, 1998, except as required by changes in GAAP or by Regulation S-X
of the Exchange Act, as concurred in by its independent public accountants or
(y) fiscal year;
(k) other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or compromise of
any tax liability that in either case is material to the business of the Company
and the Company Subsidiaries, taken as a whole;
(l) pay, discharge, settle or satisfy (x) any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
for an amount
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in excess of $500,000 (other than insurance and reinsurance claims arising in
the ordinary course of business consistent with past practice) other than
ordinary course repayment of indebtedness or payment of contractual obligations
when due;
(m) enter into any (x) new quota share, excess or other reinsurance
transaction with a term expiring after December 31, 1999 or (y) any renewal or
extension of an existing treaty or other program for a term that exceeds one
year (unless such treaty or program shall be terminable immediately after such
one-year term by the Company or the Company Subsidiary, as applicable);
(n) take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(o) agree, resolve or commit to do any of the foregoing.
Notwithstanding anything to the contrary in this Agreement, the Company
shall use its commercially reasonable efforts to complete the plan referred to
in Section 4.24 on a timely basis.
SECTION 6.02. Stockholder Meeting. The Company shall cause a meeting of
its stockholders (the "COMPANY STOCKHOLDER MEETING") to be duly called and held
as soon as reasonably practicable for the purpose of obtaining the Company
Stockholder Approval. Unless otherwise required by its fiduciary duties (as
determined in good faith by a majority of its members after receipt of advice of
its outside legal counsel), (i) the Company's Board of Directors shall recommend
approval and adoption by its stockholders of this Agreement (the "COMPANY
RECOMMENDATION"), (ii) neither the Company's Board of Directors nor any
committee thereof shall amend, modify, withdraw, condition or qualify the
Company Recommendation in a manner materially adverse to Parent or take any
action or make any statement materially inconsistent with the Company
Recommendation and (iii) the Company shall use its reasonable best efforts to
solicit the Company Stockholder Approval.
SECTION 6.03. Acquisition Proposals; Board Recommendation. (a) The
Company agrees that it shall not, nor shall it permit any Company Subsidiary to,
nor shall it authorize or knowingly permit any officer, director, employee,
investment banker, attorney, accountant, agent or other advisor or
representative of the Company or any Company Subsidiary, directly or indirectly,
to (i) take any action to solicit, initiate or facilitate or encourage the
submission of any Acquisition Proposal, (ii) engage in any negotiations
regarding, or furnish to any Person any non-public information with respect to,
or take any other action knowingly to facilitate any inquiries or the making of
any proposal that
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constitutes, or may be reasonably expected to lead to, any Acquisition Proposal,
(iii) grant any waiver or release under any standstill or similar agreement with
respect to any class of the Company's equity securities or (iv) enter into any
agreement with respect to any Acquisition Proposal, other than in the manner
contemplated by Section 6.03(d); provided, however, that the Company may take
any actions described in the foregoing clauses (i), (ii), (iii), or (iv) in
respect of any Person who makes a bona fide Acquisition Proposal, but only if
(x) the Board of Directors of the Company determines in good faith (after
receipt of advice of its outside legal counsel) that it is required to take such
actions in order to comply with its fiduciary duties under applicable law and
(y) prior to furnishing any non-public information to such Person, such Person
shall have entered into a confidentiality agreement with the Company on terms no
less favorable to the Company than the Confidentiality Agreement between the
Company and Parent dated as of January 5, 1999. The Company shall cease and
cause to be terminated immediately all existing discussions or negotiations, if
any, with any Persons conducted heretofore with respect to, or that could be
reasonably expected to lead to, any Acquisition Proposal.
(b) Unless the Company's Board of Directors has previously withdrawn,
or is concurrently therewith withdrawing, the Company Recommendation in
accordance with Section 6.03(d), neither the Company's Board of Directors nor
any committee thereof shall recommend any Acquisition Proposal to the Company
stockholders. Notwithstanding the foregoing, nothing contained in this Section
6.03(b) or elsewhere in this Agreement shall prevent the Company's Board of
Directors from complying with Rule 14e-2 under the 1934 Act with respect to any
Acquisition Proposal or making any disclosure required by applicable law.
(c) Promptly (but in no event later than 24 hours) after receipt by
the Company or any Company Subsidiary (or any of their respective directors,
officers, agents or advisors) of any Acquisition Proposal, any contacts
concerning, or any request for non-public information or for access to the
properties, books or records of the Company or any Company Subsidiary or any
request for a waiver or release under any standstill or similar agreement, by
any Person that has made an Acquisition Proposal or indicates that it is
considering making an Acquisition Proposal, the Company shall notify Parent that
a Person may be considering making an Acquisition Proposal, which notice shall
state the identity of such Person and the material terms and conditions of such
proposal. The Company shall keep Parent reasonably apprised of any material
developments with respect to such proposal.
(d) Pursuant to the terms of Section 10.01, the Company may terminate
this Agreement if (x) the Company's Board of Directors shall have authorized the
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Company, subject to the terms and conditions of this Agreement, to enter into a
binding agreement concerning a transaction that constitutes a Superior Proposal,
(y) the Company notifies Parent that it intends to enter into such agreement,
specifying the material terms and conditions of such agreement, and (z) the
Company pays Parent the fee contemplated by Section 10.03(b) provided, however,
that the Company may not so terminate this Agreement if, within three Business
Days of receiving such notice Parent makes an offer such that the Board of
Directors of the Company determines that such Superior Proposal is no longer a
Superior Proposal (it being understood that the Company shall not enter into
such binding agreement during such three Business Day period).
SECTION 6.04. Transfer Taxes. All state, local, foreign or provincial
sales, use, real property transfer, stock transfer or similar taxes (including
any interest or penalties with respect thereto) attributable to the Merger
(collectively, the "TRANSFER TAXES") shall be timely paid by the Company.
SECTION 6.05. Retention Program. At the request of Parent, the Company
shall, and shall cause each Company Subsidiary to, cooperate in good faith with
Parent to assist in the implementation of an employee retention benefit program
designed by Parent, in it sole discretion; provided, however, that all benefits
and payments under such retention benefit program shall be contingent upon the
consummation of the transactions contemplated herein and the Surviving
Corporation shall be solely liable for all obligations and liabilities under any
such retention benefit program.
SECTION 6.06. Certain Agreements. The Company shall, and shall cause
its Subsidiaries to, provide reasonable advance notice to such officer or
employee as may from time to time be designated by Parent of its intention to
enter into any agreement or arrangement that limits or restricts the Company,
any Company Subsidiary or any of their respective Affiliates, or that would,
following the Effective Time, limit or restrict the Company or any Company
Subsidiary, from engaging or competing in any line of business or in any
location, and shall, in each case, consult with such designee and in good faith
consider any proposals (including as to the advisability of entering into any
such contract) or requests for changes as Parent may reasonably suggest.
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ARTICLE 7
COVENANTS OF PARENT
Parent agrees that:
SECTION 7.01. Parent Interim Operations. Except as set forth in the
Parent Disclosure Schedule or as otherwise expressly contemplated hereby,
without the prior consent of the Company (which consent shall not be
unreasonably withheld or delayed), from the date hereof until the Effective
Time, Parent shall, and shall cause each of the Parent Subsidiaries to, conduct
their business in all material respects in the ordinary course consistent with
past practice and shall use commercially reasonable efforts to (i) preserve
intact its present business organization, (ii) maintain in effect all material
foreign, federal, state and local licenses, approvals and authorizations,
including, without limitation, all material licenses and permits that are
required for Parent or any Parent Subsidiary to carry on its business and (iii)
preserve existing relationships with its material customers, lenders, suppliers
and others having material business relationships with it. Without limiting the
generality of the foregoing, except as otherwise expressly contemplated by this
Agreement and the Stock Option Agreement, from the date hereof until the
Effective Time, without the prior consent of the Company (which consent shall
not be unreasonably withheld or delayed), Parent shall not, not shall it permit
any Parent Subsidiary to:
(a) make any amendment to Parent's restated certificate of
incorporation that changes any material term or provision of the Parent Common
Shares;
(b) make any material changes to MergerSub's certificate of
incorporation;
(c) take any action that would or would be reasonably likely to
prevent or materially impair the ability of Parent to consummate the
transactions contemplated by this Agreement or the Stock Option Agreement,
including actions that would be reasonably likely to prevent or materially
impair the ability of Parent, the Company or any of their Subsidiaries to obtain
any consent, registration, approval, permit or authorization required to be
obtained from any Governmental Entity prior to the Effective Time in connection
with the execution and delivery of this Agreement or the Stock Option Agreement
and the consummation of the Merger and the other transactions contemplated by
this Agreement and the Stock Option Agreement;
(d) authorize or pay any extraordinary dividend on, or other
extraordinary distribution with respect to, Parent's capital stock or engage in
any
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recapitalization, restructuring or reorganization with respect to Parent's
capital stock which materially and adversely affects the rights of the holders
of Parent Common Shares;
(e) other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or compromise of
any tax liability except for such settlements or compromises as individually or
in the aggregate would not be reasonably likely to have a Parent Material
Adverse Effect;
(f) take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(g) agree, resolve or otherwise commit to do any of the foregoing.
SECTION 7.02. Director and Officer Liability. (a) Parent and the
Surviving Corporation agree that the indemnification obligations set forth in
the Company's certificate of incorporation, as amended, and the Company's
bylaws, in each case as of the date of this Agreement, shall survive the Merger
and shall not be amended, repealed or otherwise modified for a period of six
years after the Effective Time in any manner that would adversely affect the
rights thereunder of the individuals who on or prior to the Effective Time were
directors, officers, employees or agents of the Company or the Company
Subsidiaries.
(b) The Company shall indemnify and hold harmless, and, after the
Effective Time, Parent shall, and shall cause the Surviving Corporation to,
indemnify and hold harmless, in each case to the fullest extent permitted under
applicable law, each present and former director or officer of the Company and
each Company Subsidiary and each such person who served at the request of the
Company or any Company Subsidiary as a director or officer, (collectively, the
"INDEMNIFIED PARTIES") against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), whether
civil, administrative or investigative, arising out of or pertaining to any
action or omission in their capacity as an officer or director, in each case
occurring before the Effective Time (including the transactions contemplated by
this Agreement) and the Stock Option Agreement). Subject to an Indemnified
Party's obligation to refund any advances in accordance with the DGCL, Parent
shall advance all expenses reasonably incurred by such Indemnified Party.
(c) Immediately prior to the Closing, the Company shall purchase, from
an insurer chosen by the Company, a single payment, run-off policy of directors'
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and officers' liability insurance covering current and former officers and
directors of the Company and its Subsidiaries on terms and conditions as
favorable as may be available (but no more favorable to the Indemnified Parties
than the policy in effect as of the date hereof) for a premium not to exceed
$250,000 in the aggregate, such policy to become effective at the Closing and
remain in effect for a period of six years after the Closing.
(d) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties and his or her
heirs and legal representatives, and shall be in addition to any other rights
any Indemnified person may have.
SECTION 7.03. Employee Benefits. (a) Following the Effective Time and
until December 31, 1999 Parent shall, or shall cause Surviving Corporation and
its Subsidiaries to, continue to maintain each Company Employee Plan in
existence on the date hereof (other than any stock option or other
equity-related plans maintained by the Company) in accordance with their
existing terms and during the period of January 1, 2000 through December 31,
2000, Parent shall, or shall cause the Surviving Corporation and its
Subsidiaries to, maintain benefit plans which are in the aggregate at least as
favorable to the employees of the Surviving Corporation and its Subsidiaries
(the "EMPLOYEES") as the benefit plans in effect as of the date hereof,
excluding for these purposes any stock option or other equity-related plans
maintained by the Company.
(b) Parent shall, or shall cause the Surviving Corporation and its
Subsidiaries to, (i) waive all limitations as to preexisting conditions and
waiting periods with respect to participation and coverage requirements
applicable to the Employees under any welfare plan in which such Employees may
be eligible to participate after the Effective Date (except to the extent that
such conditions or waiting periods would apply under the then existing plans of
the Company and the Company Subsidiaries absent any change in such welfare plan
coverage), (ii) provide each Employee with credit for all service with the
Company and the Company Subsidiaries for purposes of participation eligibility
and vesting (but not for purposes of benefit calculation, early retirement
factors or benefit accruals, other than benefits previously accrued under a
Company Employee Plan) under each employee benefit plan covering such Employees
after the Effective Time.
(c) Parent shall at the regular meeting of the Organization and
Compensation Committee of the Board of Directors of Parent to be held in March
of 1999, recommend to such committee to grant to certain employees of the
Company, as of the Effective Time, options on not more than 200,000 Parent
Common Shares under Parent's Long-Term Stock Incentive Plan based on the
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recommendations by the Company and in accordance with the terms described on
Schedule 7.03(c).
SECTION 7.04. Stock Exchange Listing. Parent shall use its reasonable
best efforts to cause the Parent Common Shares to be issued in connection with
the Merger or upon exercise of Parent Options to be listed on the NYSE, subject
to official notice of issuance.
SECTION 7.05. Conduct of MergerSub. Parent will take all action
necessary to cause MergerSub (a) to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement and (b) not to engage in any activities or incur any liabilities or
obligations other than in connection with or as contemplated by this Agreement.
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 8.01. Reasonable Best Efforts. Subject to the terms and
conditions hereof, each party will use reasonable best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as promptly as practicable.
SECTION 8.02. Certain Filings; Cooperation in Receipt of Consents. (a)
As promptly as practicable after the date hereof, Parent and the Company shall
prepare and Parent shall file with the SEC the Registration Statement, in which
the Proxy Statement/Prospectus will be included. Each of the Company and Parent
shall use all reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Merger. The Company shall mail the Proxy Statement/Prospectus to
its stockholders as promptly as practicable after the Registration Statement is
declared effective under the Securities Act and, if necessary, after the Proxy
Statement/Prospectus shall have been so mailed, promptly circulate amended,
supplemental or supplemented proxy material, and, if required in connection
therewith, resolicit proxies. Parent shall also take any action required to be
taken under any applicable state securities or blue sky laws in connection with
the issuance of Parent Common Shares in the Merger.
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(b) No amendment or supplement to the Proxy Statement/Prospectus will
be made by the Company or Parent without the approval of the other party, which
will not be unreasonably withheld or delayed. Each party will advise the other
party, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the qualification
of the Parent Common Shares issuable in connection with the Merger for offering
or sale in any jurisdiction, or any request by the SEC for amendment of the
Proxy Statement/Prospectus or comments thereon and responses thereto or requests
by the SEC for additional information. If at any time prior to the Effective
Time the Company or Parent discovers any information relating to either party,
or any of their respective Affiliates, officers or directors, that should be set
forth in an amendment or supplement to the Proxy Statement/Prospectus, so that
such document would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party that
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law or regulation,
disseminated to the stockholders of the Company and Parent.
(c) The Company and Parent shall cooperate with one another in (i)
determining whether any other action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated hereby, (ii)
seeking any such other actions, consents, approvals or waivers or making any
such filings, furnishing information required in connection therewith and
seeking promptly to obtain any such actions, consents, approvals or waivers and
(iii) setting a mutually acceptable date for the Company Stockholder Meeting.
Each party shall permit the other party to review any communication given by it
to, and consult with each other in advance of any meeting or conference with,
any Governmental Entity or, in connection with any proceeding by a private
party, with any other Person, and to the extent permitted by the applicable
Governmental Entity or other Person, give the other party the opportunity to
attend and participate in such meetings and conferences, in each case in
connection with the transactions contemplated hereby.
SECTION 8.03. Public Announcements. The parties shall consult with each
other before issuing any press release or making any public statement with
respect to this Agreement and the Stock Option Agreement and the transactions
contemplated hereby and thereby and, except as may be required by applicable law
or any listing agreement with any national securities exchange, will not issue
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any such press release or make any such public statement prior to such
consultation.
SECTION 8.04. Access to Information; Notification of Certain Matters.
(a) From the date hereof until the Effective Time and subject to applicable law,
the Company and Parent shall (i) give to the other party, its counsel, financial
advisors, auditors and other authorized representatives reasonable access to the
offices, properties, books and records of such party, (ii) furnish or make
available to the other party, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and (iii) instruct its
employees, counsel, financial advisors, auditors and other authorized
representatives to cooperate with the reasonable requests of the other party in
its investigation. Any investigation pursuant to this Section shall be conducted
in such manner as not to interfere unreasonably with the conduct of the business
of the other party. All such information shall be governed by the terms of the
Confidentiality Agreement between Parent and the Company dated January 5, 1999
(the "CONFIDENTIALITY AGREEMENT") (provided, however, that Parent shall be
permitted to use such information for all purposes of consummating this
Agreement and transition planning). No information or knowledge obtained in any
investigation pursuant to this Section 8.04(a) shall affect or be deemed to
modify any representation or warranty made by any party hereunder.
(b) Each party hereto shall give notice to each other party hereto, as
promptly as practicable after the event giving rise to the requirement of such
notice, of:
(i) any communication received by such party from, or given by
such party to, any Governmental Entity in connection with any of the
transactions contemplated hereby; and
(ii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting such party or any of its Subsidiaries
that, if pending on the date of this Agreement, would have been
required to have been disclosed, or that relate to the consummation of
the transactions contemplated by this Agreement
provided, however, that the delivery of any notice pursuant to this Section
8.04(b) shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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SECTION 8.05. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or MergerSub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or MergerSub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger.
SECTION 8.06. Tax and Accounting Treatment. (a) Prior to and following
the Effective Time, each party shall use its reasonable best efforts to cause
the Merger to qualify as a 368 Reorganization, and will not take any action
reasonably likely to cause the Merger not so to qualify.
(b) Each party shall use its reasonable best efforts to obtain the
opinions referred to in Sections 9.02(b) and 9.03(c).
SECTION 8.07. Affiliate Letters. Within 30 days following the date
hereof, the Company shall cause to be delivered to Parent a letter identifying,
to the Company's knowledge, all Persons who may be deemed to be "affiliates" of
the Company for purposes of Rule 145(c) under the Securities Act. The Company
shall use commercially reasonable efforts to cause each such Person who is so
identified to deliver to Parent on or prior to the Effective Time a letter
agreement substantially in the form of Exhibit A-1 to this Agreement.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The
obligations of the Company, Parent and MergerSub to consummate the Merger
are subject to the satisfaction of the following conditions:
(a) the Company Stockholder Approval shall have been obtained;
(b) the Parent Common Shares to be issued in the Merger shall have
been authorized for listing on the NYSE, subject to official notice of issuance;
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(c) (i) the Proxy Statement/Prospectus shall have become effective in
accordance with the provisions of the Securities Act, no stop order suspending
the effectiveness of the Proxy Statement/Prospectus shall have been issued by
the SEC and no proceedings for that purpose shall have been initiated by the SEC
and not concluded or withdrawn and (ii) all state securities or blue sky
authorizations necessary to carry out the transactions contemplated hereby shall
have been obtained and be in effect;
(d) (i) any applicable waiting period under the HSR Act relating to
the Merger shall have expired or been earlier terminated and (ii) if required by
applicable law, the parties shall have received a decision from the European
Commission under Regulation 4064/89 that the proposed Merger and any matters
arising therefrom fall within either Article 6.1(a) or Article 6.1(b) of such
Regulation and that, in any event, the Merger will not be referred to any
competent authority or dealt with by the European Commission pursuant to Article
9.3 of such Regulation;
(e) all notices, reports and other filings required to be made prior
to the Effective Time by the Company or Parent or any of their respective
Subsidiaries with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries from, any Commissioner
of Insurance, or any other governmental authority of any jurisdiction, in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been made or obtained (as the case may be) other than any
such consents, approvals or permits, the absence of which would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect; and
(f) no Governmental Entity of competent authority or jurisdiction
shall have issued any order, injunction or decree, or taken any other action,
that is in effect and restrains, enjoins or otherwise prohibits the consummation
of the Merger.
SECTION 9.02. Conditions to the Obligations of The Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) Parent and MergerSub each shall have performed in all material
respects all of its obligations hereunder required to be performed by it at or
prior to the time of the filing of the Certificate of Merger, (ii) (A) the
representations and warranties of Parent contained in this Agreement that are
qualified by reference to a Parent Material Adverse Effect shall be true and
correct when made
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and at and as of the time of filing the Certificate of Merger, as if made at and
as of such time (except to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case it shall be true and
correct as of such date) and (B) all other representations and warranties of
Parent shall have been true and correct when made and at and as of the time of
the filing of the Certificate of Merger as if made at and as of such time
(except to the extent any such representation or warranty expressly speaks as of
an earlier date, in which case it shall be true and correct as of such date),
except for such inaccuracies as are not reasonably likely, individually or in
the aggregate, to have a Parent Material Adverse Effect, and (iii) the Company
shall have received a certificate signed by the Chief Executive Officer or Chief
Financial Officer of Parent to the foregoing effect;
(b) The Company shall have received an opinion of Dewey Ballantine LLP
in form and substance reasonably satisfactory to the Company, on the basis of
certain facts, representations and assumptions set forth in such opinion, dated
as of the date of the filing of the Certificate of Merger, to the effect that
the Merger will be treated for federal income tax purposes as a 368
Reorganization. In rendering such opinion, such counsel shall be entitled to
rely upon customary representations of officers of the Company and Parent in
form and substance reasonably satisfactory to such counsel and other reasonable
assumptions set forth therein; and
(c) The parties shall have obtained or made all consents, approvals,
actions, orders, authorizations, registrations, declarations, announcements and
filings contemplated by Sections 4.03 and 5.03 which if not obtained or made (i)
would render consummation of the Merger illegal or (ii) (assuming the Effective
Time had occurred) would be reasonably likely to have a Parent Material Adverse
Effect.
SECTION 9.03. Conditions to the Obligations of Parent and MergerSub.
The obligations of Parent and MergerSub to consummate the Merger are subject to
the satisfaction of the following further conditions:
(a) (i) The Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) (A) the representations and warranties of the Company
contained in this Agreement that are qualified by reference to a Company
Material Adverse Effect shall be true and correct when made and at and as of the
time of the filing of the Certificate of Merger, as if made at and as of such
time (except to the extent any such representation or warranty speaks as of an
earlier date, in which case it shall be true and correct as of such date) and
(B) all other representations and warranties of the Company shall have been true
and correct when made and at and
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as of the time of filing of the Certificate of Merger, as if made as of such
time (except to the extent any such representation or warranty expressly speaks
as of an earlier date, in which case it shall be true and correct as of such
date), except for such inaccuracies as are not reasonably likely, individually
or in the aggregate, to have a Company Material Adverse Effect, and (iii) Parent
shall have received a certificate signed by the Chief Executive Officer,
President or Chief Financial Officer of the Company to the foregoing effect;
(b) The parties shall have obtained or made all consents, approvals,
actions, orders, authorizations, registrations, declarations, announcements and
filings contemplated by Sections 4.03 and 5.03 which if not obtained or made (i)
would render consummation of the Merger illegal or (ii) (assuming the Effective
Time had occurred) would be reasonably likely to have a Parent Material Adverse
Effect or a Company Material Adverse Effect; and
(c) Parent shall have received an opinion of Davis Polk & Wardwell in
form and substance reasonably satisfactory to Parent, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated as of
the date of the filing of the Certificate of Merger, to the effect that the
Merger will be treated for federal income tax purposes as a 368 Reorganization.
In rendering such opinion, such counsel shall be entitled to rely upon customary
representations of officers of the Company and Parent in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions set
forth therein.
ARTICLE 10
TERMINATION
SECTION 10.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time by written notice by the terminating party to
the other party (except if such termination is pursuant to Section 10.01(a)),
whether before or after the Company Stockholder Approval shall have been
obtained:
(a) by mutual written agreement of Parent and the Company;
(b) by either Parent or the Company, if
(i) the Merger shall not have been consummated by December 31,
1999 (the "END DATE"); provided, however, that the right to terminate
this Agreement under this Section 10.01(b)(i) shall not be available to
any party whose breach of any provision of this Agreement
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has resulted in the failure of the Merger to occur on or before the End
Date;
(ii) there shall be any law or regulation that makes
consummation of the Merger illegal or otherwise prohibited or any
judgment, injunction, order or decree of any Governmental Entity having
competent jurisdiction enjoining the Company, Parent or MergerSub from
consummating the Merger is entered and such judgment, injunction,
judgment or order shall have become final and nonappealable and, prior
to such termination, the parties shall have used their respective
reasonable best efforts to resist, resolve or lift, as applicable, such
law, regulation, judgment, injunction, order or decree;
(iii) at the Company Stockholder Meeting (including any
adjournment or postponement thereof), the Company Stockholder Approval
shall not have been obtained;
(c) by the Company, (i) if a breach of any representation, warranty,
covenant or agreement on the part of Parent or MergerSub set forth in this
Agreement shall have occurred which would cause the condition set forth in
Section 9.02(a) not to be satisfied, and such condition shall be incapable of
being satisfied by the End Date; or (ii) as contemplated by Section 6.03(d); or
(d) by Parent, (i) if the Company's Board of Directors shall have (A)
amended, modified, withdrawn, conditioned or qualified the Company
Recommendation in a manner materially adverse to Parent and/or (B) recommended
any Acquisition Proposal to the Company's stockholders; (ii) if there shall have
occurred a willful and material breach of Sections 6.02 or 6.03 by the Company,
any Company Subsidiary or any of their respective officers, directors,
employees, advisors or other agents; or (iii) if a breach of or failure to
perform any representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement shall have occurred which would cause the
condition set forth in Section 9.03(a) not to be satisfied, and such condition
is incapable of being satisfied by the End Date.
SECTION 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01 (including any such termination by way of Section
6.03(d)), there shall be no liability or obligation on the part of Parent, the
Company, MergerSub, or any of their respective officers, directors,
stockholders, agents or Affiliates, except as set forth in Section 10.03;
provided that the provisions of Sections 10.02, 10.03, 11.01, 11.03, 11.04,
11.05, 11.06, 11.07, 11.08, 11.09 and 11.10 of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
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SECTION 10.03. Fees and Expenses. (a) Except as set forth in this
Section 10.03, all fees and expenses incurred in connection herewith and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated. Nothing herein shall relieve
any party hereto of any liability or damages resulting from any breach of this
Agreement; provided, however, that the Company shall have no further liability
or obligation pursuant to this Agreement if it shall have paid the Termination
Fee (as hereinafter defined).
(b) If this Agreement is terminated pursuant to Section 10.01(c)(ii),
or Section 10.01(d)(i), the Company shall (i) pay to Parent a Termination Fee
and (ii) reimburse Parent for its actual, documented out-of-pocket expenses
incurred to third parties in connection with the transactions contemplated
hereby not to exceed $4 million.
(c) If this Agreement is terminated by either party pursuant to
Section 10.01(b)(iii),
(x) the Company shall reimburse Parent for its actual,
documented out-of-pocket expenses incurred to third parties in
connection with the transactions contemplated hereby not to exceed $4
million, and
(y) if (A) at the time of termination, an Acquisition Proposal
shall have been made and be pending and (B) within 12 months after such
termination, a Third Party Acquisition Event occurs, the Company shall
pay to Parent the Termination Fee within one Business Day of the
earlier to occur of the date on which it enters into any agreement
constituting, or consummates such Third Party Acquisition Event.
(d) If this Agreement is terminated by Parent pursuant to Section
10.01(d)(ii),
(x) the Company shall reimburse Parent for its
actual, documented out-of-pocket expenses incurred to third
parties in connection with the transactions contemplated
hereby not to exceed $5 million, and
(y) if within 12 months after such termination, a
Third Party Acquisition Event occurs, the Company shall pay to
Parent the Termination Fee within one Business Day of the
earlier of the date on which it enters into any agreement
constituting, or consummates, such Third Party Acquisition
Event.
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(e) "TERMINATION FEE" means, in the case of a termination fee payable
pursuant to (i) Section 10.03(b) or 10.03(c) hereof, $30 million, or (ii)
Section 10.03(d), $40 million.
(f) A "THIRD PARTY ACQUISITION EVENT" means (i) the consummation of an
Acquisition Proposal involving the purchase of a majority of either the equity
securities of the Company or of the consolidated assets of the Company and the
Company Subsidiaries, taken as a whole, or any such transaction that, if it had
been proposed prior to the termination of this Agreement would have constituted
an Acquisition Proposal or (ii) the entering into by the Company or any of the
Company Subsidiaries of a definitive agreement with respect to any such
transaction.
(g) Any payment of the Termination Fee (and reimbursement of expenses)
pursuant to this Section 10.03 shall be made within one Business Day after
termination of this Agreement (or as otherwise expressly set forth in this
Agreement). If one party fails to pay to (or reimburse) the other promptly any
fee or expense due hereunder (including the Termination Fee), the defaulting
party shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee and/or expense at the publicly announced prime rate of Citibank, N.A.
from the date such fee was required to be paid to the date it is paid.
(h) Notwithstanding anything herein to the contrary, no party shall be
required to pay a Termination Fee to the other party if the other party is in
material breach of this Agreement.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices. Except as otherwise expressly set forth in
Section 6.03(c), all notices, requests and other communications to any party
hereunder shall be in writing (including facsimile or similar writing) and shall
be given,
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if to Parent or MergerSub, to:
The Chubb Corporation
15 Mountain View Road
P.O. Box 1615
Warren, New Jersey 07061-1615
Attention: General Counsel
Facsimile: (908) 903-3607
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Dennis S. Hersch
Facsimile: (212) 450-4800
if to the Company, to:
Executive Risk Inc.
82 Hopmeadow Street
P.O. Box 2002
Simsbury, CT 06070-7683
Attention: General Counsel
Facsimile: (860) 408-2464
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: James A. FitzPatrick, Jr.
Facsimile: (212) 259-6333
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication shall be effective (a) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate facsimile confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 11.02. Survival of Representations, Warranties and Covenants
after the Effective Time. The representations and warranties contained herein
and
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in any certificate or other writing delivered pursuant hereto shall not survive
the Effective Time or the termination of this Agreement. The covenants contained
in Articles 2 and 3 and Sections 6.04, 7.02, 7.03, 11.02, 11.04, 11.05, 11.06,
11.07, 11.08, 11.09, 11.10 shall survive the Effective Time.
SECTION 11.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company, Parent and MergerSub or in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after the Company
Stockholder Approval, no such amendment or waiver shall, without the further
approval of such stockholders, be made that would require such approval under
any applicable law, rule or regulation.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that Parent or MergerSub
may transfer or assign to any wholly owned Parent Subsidiary the right to enter
into the transactions contemplated by this Agreement, provided that no such
assignment shall be permitted if it would delay or impede the Merger or any of
the other transactions contemplated by this Agreement, and any such transfer or
assignment will not relieve Parent or MergerSub of its obligations hereunder.
Any purported assignment in violation hereof shall be null and void.
SECTION 11.05. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Delaware
without reference to its principles of conflicts of laws.
SECTION 11.06. Counterparts; Effectiveness; Third Party Beneficiaries.
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become effective when each
party hereto shall have received counterparts hereof signed by all of the other
parties hereto. Except as set forth in Section 7.02, no provision of this
Agreement
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is intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder.
SECTION 11.07. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of the
parties hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.01 shall be deemed
effective service of process on such party.
SECTION 11.08. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 11.09. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 11.10. Entire Agreement. This Agreement (together with the
exhibits and schedules hereto), the Stock Option Agreement and the
Confidentiality Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
EXECUTIVE RISK INC.
By: /s/ Stephen J. Sills
-----------------------------------------------
Name: Stephen J. Sills
Title: President and Chief Executive Officer
THE CHUBB CORPORATION
By: /s/ Dean R. O'Hare
-----------------------------------------------
Name: Dean R. O'Hare
Title: Chairman and Chief Executive Officer
EXCALIBUR ACQUISITION, INC.
By: /s/ Glenn A. Montgomery
-----------------------------------------------
Name: Glenn A. Montgomery
Title: Vice President
57
<PAGE> 1
Exhibit 99.3
CONFORMED COPY
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") dated as of February 6,
1999 between The Chubb Corporation, a New Jersey corporation ("BUYER" or
"HOLDER"), and Executive Risk Inc., a Delaware corporation (the
"COMPANY").
RECITALS
WHEREAS, both Buyer's and the Company's Board of Directors have approved
an Agreement and Plan of Merger dated as of the date hereof (as the same may be
amended from time to time, the "MERGER AGREEMENT") providing for the merger of a
wholly owned Subsidiary of Buyer with and into the Company; and
WHEREAS, as a condition to Buyer's entering into the Merger Agreement,
Buyer has required that the Company agree, and the Company has agreed, to grant
to Buyer the option set forth herein to purchase authorized but unissued Company
Common Shares.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall have
the same meanings as in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth herein,
the Company hereby grants to Buyer an unconditional, irrevocable option (the
"OPTION") to purchase up to that number of shares which equals 19.9% of the
issued and outstanding Company Common Shares (the "OPTION SHARES") immediately
prior to the first exercise of this Option at a price per share (the "OPTION
PRICE") equal to $71.70, payable in cash as provided in Section 4 hereof. The
number of Option Shares and the Option Price are subject to adjustment as set
forth herein.
3. Exercise and Termination of Option. (a) The Holder may exercise the
Option, in whole or in part, and from time to time, after the occurrence of a
Trigger Event and prior to the day (the "Termination Date") which is 45 days
after the Trigger Event. "TRIGGER EVENT" shall mean an event which obligates the
<PAGE> 2
Company to pay the Termination Fee pursuant to Section 10.03(b) of the Merger
Agreement.
(b) If the Holder is entitled to and wishes to exercise the Option, it
shall deliver to the Company a written notice (the date of receipt of which is
referred to as the "NOTICE DATE") specifying (i) the total number of shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than five business days nor later than 20 calendar days from the Notice
Date for the closing of such purchase (the "CLOSING DATE"); provided that if the
closing of a purchase and sale pursuant to the Option (the "CLOSING") cannot be
consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and, provided further that, without
limiting the foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Holder and, if
applicable, the Company shall promptly file the required notice or application
for approval and shall expeditiously process the same (and the Company shall
cooperate with Holder in the filing of any such notice or application and the
obtaining of any such approval), and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which, as the case
may be, (i) any required notification period has expired or been terminated or
(ii) such approval has been obtained, and in either event, any requisite waiting
period has passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
(c) If (i) the Holder receives official notice that an approval of any
regulatory authority required for the purchase of the Option Shares would not be
issued or granted or (ii) a Closing Date shall not have occurred within twelve
months after the related Notice Date due to the failure to obtain any such
required approval, the Holder shall be entitled to exercise its right as set
forth in Section 8 hereof or, to the extent legally permitted, to exercise the
Option in connection with the resale of Company Common Shares or other
securities pursuant to a registration statement as provided in Section 9 hereof.
(d) It shall be a condition to the exercise of this Option that (i) no
preliminary or permanent injunction or other order, decree or ruling against the
sale or delivery of the Option Shares issued by any federal or state court of
competent jurisdiction in the United States is in effect at such time, (ii) any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR ACT") shall have expired or been terminated at or prior to
such time, and (iii) any approval required to be obtained prior to the delivery
of the Option Shares under the laws of any jurisdiction shall have been obtained
and shall be in full force and effect.
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<PAGE> 3
4. Payment and Delivery of Certificates. (a) At the Closing referred to in
Section 3 hereof, the Holder shall pay to the Company on the Closing Date the
aggregate Purchase Price for the Company Common Shares purchased pursuant to the
exercise of the Option in immediately available funds by wire transfer to a bank
account designated not later than one business day prior to such Closing Date by
the Company; provided that failure or refusal of the Company to designate such a
bank account shall not preclude the Holder from exercising the Option.
(b) At such Closing, simultaneously with the delivery of cash as provided
in Section 4(a), the Company shall deliver to the Holder a certificate or
certificates representing the number of Company Common Shares purchased by the
Holder, registered in the name of the Holder or a nominee designated in writing
by the Holder (which shall be a wholly owned subsidiary), which shares shall be
fully paid and non-assessable and free and clear of all Liens, claims, charges
and encumbrances of any kind whatsoever. Any certificates so issued shall bear a
legend reflecting any resale restrictions applicable to the shares represented
thereby.
(c) At the time any Company Common Shares are issued pursuant to any
exercise of the Option, if the Company shall have issued any share purchase
rights or similar securities to holders of Company Common Shares prior thereto,
then each Company Common Share issued pursuant to an exercise of the Option
shall also represent rights with terms substantially the same as and at least as
favorable to the Holder as those issued to other holders of Company Common
Shares.
(d) When the Holder provides the written notice of exercise of the Option
provided for in Section 3(b) and the tender of the applicable purchase price in
immediately available funds, the Holder shall be deemed to be the holder of
record of the Company Common Shares issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such Company Common Shares shall not then be actually
delivered to the Holder.
5. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Buyer as follows:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby (i) are within the Company's corporate powers,
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(ii) have been duly authorized by all necessary corporate action, (iii) require
no action by or in respect of, or filing with, any Governmental Entity, except
for compliance with any applicable requirements of the HSR Act and pursuant to
any applicable insurance laws, (iv) do not contravene, or conflict with the
certificate of incorporation or by-laws of the Company, (v) assuming compliance
with clause (iii) above, contravene or conflict with or constitute a violation
of any provision of any law, regulation or judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries and (vi) will not require
any consent, approval or notice under and will not conflict with, or result in
the breach or termination of any provision of or constitute a default (with or
without the giving of notice or the lapse of time or both) under, or allow the
acceleration of the performance of, any material obligation of the Company or
any of its Subsidiaries under, or result in the creation of a lien, charge or
encumbrance upon, any of the properties, assets or business of the Company or
any of its Subsidiaries under any indenture, mortgage, deed of trust, lease,
licensing agreement, contract, instrument or other agreement to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their respective assets or properties is subject or
bound other than, in the case of each of (iii), (iv), (v) or (vi), any such
items that would not, individually or in the aggregate, be reasonably likely to
have a Company Material Adverse Effect or prevent or materially impair the
ability of the Company to consummate the transactions contemplated by this
transaction. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding agreement of the Company subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws, now or
hereafter in effect, relating to or affecting creditors' rights and remedies and
to general principles of equity.
(b) Except for any filings required to be made under the HSR Act and any
approvals of any Commissioners of Insurance, the Company has taken all necessary
corporate and other action to authorize and reserve and to permit it to issue,
and at all times from the date hereof until such time as the obligation to
deliver Option Shares upon the exercise of the Option terminates, will have
reserved for issuance, upon any exercise of the Option, the number of Company
Common Shares subject to the Option (less the number of Company Common Shares
previously issued upon any partial exercise of the Option or as to which the
Option may no longer be exercised). All of the Company Common Shares to be
issued pursuant to the Option are duly authorized and, upon issuance and
delivery thereof pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, and free and clear of all claims, liens,
charges, encumbrances and security interests, and not subject to any preemptive
rights.
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6. Representations and Warranties of the Purchaser. The Buyer hereby
represents and warrants to the Company as follows:
(a) The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey. The execution, delivery
and performance by the Buyer of this Agreement are within the Buyer's corporate
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental body, agency or
official, except for any filings required to be made under the HSR Act and any
applicable insurance laws, and do not contravene, or constitute a default under,
any provision of applicable law or regulation or of the certificate of
incorporation or by-laws of the Buyer or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Buyer. This Agreement has
been duly executed and delivered by the Buyer and constitutes a valid and
binding agreement of the Buyer subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect,
relating to or affecting creditors' rights and remedies and to general
principles of equity.
(b) The Buyer is acquiring the Option and will acquire the Option Shares
for investment purposes only and not with a view to any resale or distribution
thereof, and will not sell any Option Shares purchased pursuant to the Option
except in compliance with the Securities Act.
7. Adjustment upon Changes in Capitalization. (a) In the event of any
change in Company Common Shares by reason of stock dividends, stock splits,
split-ups, spin-offs, recapitalizations, recombinations, extraordinary dividends
or the like, the type and number of Option Shares, and the Option Price, as the
case may be, shall be adjusted appropriately in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such
adjustment and the full satisfaction of the Company's obligations hereunder.
(b) Without limiting the parties' relative rights and obligations under
the Merger Agreement, if the Company enters into an agreement with respect to an
Acquisition Proposal involving the exchange of Company Common Shares for shares
or other securities of the Company or another person, then the agreement
governing such transaction shall make proper provision so that the Option shall,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or other
securities or property that Holder would have received in respect of Company
Common Shares if the Option had been exercised immediately prior to
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the consummation of such Acquisition Proposal, or the record date therefor, as
applicable; provided that nothing in this Section 7(b) shall be deemed to affect
the ability of the Holder to exercise the Option pursuant to the terms hereof.
8. Repurchase. (a) At any time when the Option is exercisable pursuant to
Section 3(a) hereof, at the request of the Holder, the Company (or any successor
entity thereof) shall repurchase the Option (or any portion thereof) from the
Holder together with any Company Common Shares purchased by the Holder pursuant
thereto which the Holder then beneficially owns and has requested that the
Company repurchase, at a price per share equal to the higher of (x) the highest
price per share at which a tender or exchange offer has been made for Company
Common Shares following the date hereof or (y) the highest closing price per
share of Company Common Shares as reported by the NYSE Composite Tape for any
day following the date on which an Acquisition Proposal shall have been made,
less in the case of each Option Share, the Option Price.
(b) In the event Holder exercises its rights under this Section 8, the
Company shall, within 10 business days thereafter, pay the required amount to
Holder by wire transfer of immediately available funds to an account designated
by Holder and Holder shall surrender to the Company the Option and any
certificates evidencing the Company Common Shares purchased thereunder with
respect to which Holder then has beneficial ownership.
(c) The period for exercise of the rights provided under this Section 8
shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, for the expiration of all statutory
waiting periods, and to the extent required to obtain any required stockholder
approval or until such stockholder approval is no longer required pursuant to
the Company's certificate of incorporation; and (ii) to the extent necessary to
avoid liability under Section 16(b) of the Exchange Act by reason of such
exercise.
(d) If within 12 months after the date the Merger Agreement was terminated
pursuant to the terms thereof, neither the Holder nor any other person has
acquired more than fifty percent of the issued and outstanding Company Common
Shares, the Company will then have the right to purchase (the "REPURCHASE
RIGHT") all, but not less than all, of the Company Common Shares acquired upon
exercise of this Option of which the Holder is the beneficial owner on the date
the Company gives written notice of its intention to exercise the Repurchase
Right, at a price per share equal to the greater of (i) the Option Price or (ii)
the average of the closing price per Company Common Share on the NYSE Composite
Tape for the five consecutive trading days ending on and including the trading
date immediately prior to the consummation of such repurchase of Company Common
Shares.
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9. Registration Rights. At any time within 2 years after a Closing, if
requested by the Holder or any affiliate of the Holder who is a beneficial owner
of Company Common Shares issued upon exercise of the Option (each a
"SHAREHOLDER"), the Company shall, as expeditiously as possible file a
registration statement on a form for general use under the Securities Act if
necessary in order to permit the sale or other disposition of the Company Common
Shares that have been acquired upon exercise of the Option in accordance with
the intended method of sale or other disposition requested by any such
Shareholder. Each such Shareholder shall provide all information reasonably
requested by the Company for inclusion in any registration statement to be filed
hereunder. The Company shall use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 90 days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sales or other dispositions. The registration effected under this Section 9
shall be at the Company's expense except for underwriting commissions and the
fees and disbursements of such Shareholder's counsel attributable to the
registration of such Company Common Shares. In no event shall the Company be
required to effect more than three registrations hereunder. The filing of any
registration statement required hereunder may be delayed for such period of time
(not to exceed 90 days) as may reasonably be required to facilitate any public
distribution by the Company of Company Common Shares, if a special audit of the
Company would otherwise be required in connection therewith, at a time during
which the Company is in possession of material, non-public information
concerning it, its business affairs or a material transaction, in each case, the
public disclosure of which could have a material adverse effect on the Company
or significantly disrupt such material transaction or if, in the Company's
reasonable good faith judgement, such filing would require the disclosure of
material information that the Company has a bona fide business purpose for
preserving as confidential. If requested by any such Shareholder in connection
with such registration, the Company shall become a party to any underwriting
agreement relating to the sale of such shares on terms and including obligations
and indemnities that are customary for parties similarly situated. Upon
receiving any request for registration under this Section 9 from any
Shareholder, the Company agrees to send a copy thereof to any other person known
to the Company to be entitled to registration rights under this Section 9, in
each case, by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies.
10. Listing. If Company Common Shares or any other securities to be
acquired upon exercise of the Option are then-listed on the NYSE or any other
national securities exchange, upon the request of Holder, the Company will
promptly file an application to list the Company Common Shares or other
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<PAGE> 8
securities to be acquired upon exercise of the Option on the NYSE or such other
exchange and will use its best efforts to obtain approval of such listings as
soon as practicable.
11. Limitation on Profits. (a) Notwithstanding any other provision
contained herein or in the Merger Agreement to the contrary, in no event shall
Buyer's Total Profit (as defined below) exceed the amount of the applicable
Termination Fee and if it otherwise would exceed such amount, the Holder shall
repay the excess amounts to the Company in cash so that the Total Profit shall
not exceed the amount of the applicable Termination Fee.
(b) Notwithstanding anything to the contrary contained herein, the Option
may not be exercised for a number of Company Common Shares as would, as of the
date of exercise, result in a Notional Total Profit (as defined below) of more
than the amount of the applicable Termination Fee and if it otherwise would
exceed such amount, the exercise price for such shares will be increased so that
the Notional Total Profit shall not exceed the amount of the applicable
Termination Fee;
(c) As used herein, the term "TOTAL PROFIT" shall mean the aggregate
amount (before taxes) of the following: (i) the amount of the Termination Fee
received by the Buyer pursuant to Section 10.03 of the Merger Agreement, (ii)
the amount received by Buyer in connection with the Company's repurchase of the
Option (or any portion thereof) and/or Option Share, as applicable, pursuant to
Section 8 hereof, (iii) (x) the net cash amounts received by Buyer pursuant to
the sale of Option Shares (or any other securities into which such Option Shares
shall be converted or exchanged) to any unaffiliated party, less (y) Buyer's
Purchase Price for such Option Shares, and (iv) any amounts received by Buyer on
the transfer of the Option (or any portion thereof) to any unaffiliated party.
(d) As used herein, the term "NOTIONAL TOTAL PROFIT" with respect to any
number of shares as to which Buyer may propose to exercise the Option shall be
the Total Profit determined as of the date of such proposed exercise assuming
that the Option were exercised on such date for such number of shares and
assuming that each such share, together with each other Option Share, held by
Buyer and its affiliates as of such date, were sold for cash at the closing
market price on the NYSE Composite Tape for one Company Common Share as of the
close of business on the preceding trading day (less customary brokerage
commissions).
12. Transferability of the Option. Neither of the parties hereto may
assign any of its rights or obligations under this Option Agreement or the
Option created hereunder to any other person, without the express written
consent of the other party, except Buyer may assign, in whole or in part, its
rights and
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obligations hereunder to any wholly owned subsidiary of Buyer, provided that no
such assignment will relieve Buyer of its obligations hereunder. Any purported
assignment in violation hereof shall be null and void.
13. Miscellaneous.
(a) Expenses. Each of the parties hereto shall pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Entire Agreement. This Option Agreement, the Confidentiality Agreement
and the Merger Agreement (including the exhibits and schedules thereto)
constitute the entire agreement between the parties with respect to the subject
matter hereto and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and thereof.
(c) Successors; No Third-Party Beneficiaries. The terms and conditions of
this Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted transferees and
assigns. Nothing in this Option Agreement is intended to confer upon any Person,
other than the parties hereto, and their respective successors and permitted
assigns, any rights or remedies hereunder.
(d) Severability. Any term, provision, covenant or restriction contained
in this Option Agreement held by any court of competent jurisdiction to be
invalid, void or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the remaining terms,
provisions, covenants or restrictions contained in this Option Agreement nor the
validity or enforceability thereof in any other jurisdiction shall be affected
or impaired thereby. Any term, provision, covenant or restriction contained in
this Option Agreement that is so found to be so broad as to be unenforceable
shall be interpreted to be as broad as is enforceable.
(e) Notices. All notices or other communications that are required or
permitted hereunder shall be in writing and sufficient if delivered in
accordance with Section 11.01 of the Merger Agreement (which is incorporated
herein by reference).
(f) Counterparts. This Option Agreement may be executed in counterparts,
and each such counterpart shall be deemed to be an original
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instrument, but both such counterparts together shall constitute but one
agreement.
(g) Further Assurances. In the event of any exercise of the Option by
Holder, the Company and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(h) Specific Performance. The parties hereto agree that if for any reason
Holder or the Company shall have failed to perform its obligations under this
Option Agreement, then either party hereto seeking to enforce this Option
Agreement against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties hereto
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights that either
party hereto may have against the other party hereto for any failure to perform
its obligations under this Option Agreement.
(i) Governing Law. This Option Agreement shall be construed in accordance
with and governed by the internal laws of the State of Delaware without
reference to its principles of conflicts of laws.
(j) Consent to Jurisdiction; Venue. Section 11.07 of the Merger Agreement
is hereby incorporated herein by reference.
(k) Section 16(b). Periods of time that otherwise would run pursuant to
Section 3 or 8 hereof shall also be extended to the extent necessary for any
Holder to avoid liability under Section 16(b) of the Exchange Act.
(l) Waiver and Amendment. Any provision of this Option Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Option Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the date first written above.
THE CHUBB CORPORATION
By: /s/ Dean R. O'Hare
---------------------------------------
Name: Dean R. O'Hare
Title: Chairman and Chief Executive
Officer
EXECUTIVE RISK INC.
By: /s/ Stephen J. Sills
---------------------------------------
Name: Stephen J. Sills
Title: President and Chief Executive
Officer
11
