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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 19, 1997
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__________
ALLMERICA FINANCIAL CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 1-13754 04-3263626
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(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction I.D. Number)
of Incorporation)
__________
440 Lincoln Street, Worcester, Massachusetts 01653
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(Address of Principal Executive Offices) (Zip Code)
(508) 855-1000
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Registrant's Telephone Number, including area code
Page 1 of 6 pages
Exhibit Index on page 6
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Item 5. Other Events
On February 19, 1997, Allmerica Financial Corporation ("AFC"), APY
Acquisition, Inc., a wholly owned subsidiary of AFC ("Merger Sub") and Allmerica
Property & Casualty Companies, Inc. ("Allmerica P&C") entered into an Agreement
and Plan of Merger (the "Merger Agreement"), pursuant to which AFC will acquire
all of the outstanding shares of Common Stock, $1.00 par value, of Allmerica P&C
(the "Allmerica P&C Common Stock") that AFC and its subsidiaries do not
currently own. Pursuant to the terms of the Merger Agreement, Merger Sub will
merge with and into Allmerica P&C (the "Merger"), resulting in Allmerica P&C
becoming a wholly owned subsidiary of AFC. Each outstanding share of Allmerica
P&C Common Stock, other than shares owned by AFC or its subsidiaries or by
persons who properly perfect their appraisal rights under the Delaware General
Corporation Law, will be converted into the right to receive, at the election of
the holder, one of the following (collectively, the "Merger Consideration"):
(i) (x) 0.4 (the "Standard Exchange Ratio") of a share of the Common Stock,
$.01 par value of AFC ("AFC Common Stock") and (y) an amount in cash,
without interest, equal to $17.60 (the "Standard Cash Consideration");
provided, however, that (1) in the event the average closing price of AFC
Common Stock for the ten consecutive trading days ending on the fifth
trading day prior to the effective date of the Merger (the "Average Stock
Price") is less than $36.00, the Standard Cash Consideration shall be
equal to (A) $32.00 less (B) the Standard Exchange Ratio multiplied by
the Average Stock Price and (2) in the event the Average Stock Price is
greater than $41.00, the Standard Cash Consideration shall be equal to
(A) $34.00 less (B) the Standard Exchange Ratio multiplied by the Average
Stock Price (collectively, the "Standard Consideration"); or
(ii) 0.85714 (the "Stock Exchange Ratio") of a share of AFC Common Stock (the
"Stock Consideration"); provided, however, that (1) in the event the
Average Stock Price is less than $36.00, the Stock Exchange Ratio shall
be equal to $32.00 divided by the Average Stock Price and (2) that in the
event the Average Stock Price is greater than $41.00, the Stock Exchange
Ratio shall be equal to $34.00 divided by the Average Stock Price; or
(iii) cash, without interest, in an amount equal to $33.00 (the "Cash
Consideration"); provided, however, that (1) in the event the Average
Stock Price is less than $36.00, the Cash Consideration shall be equal to
$32.00 and (2) in the event the Average Stock Price is more than
$41.00, the Cash Consideration shall be equal to $34.00.
The maximum number of shares of AFC Common Stock to be issued in the Merger is
approximately 9.67 million shares. The form of payment of the Merger
Consideration will be prorated in the event the Cash Consideration or the Stock
Consideration is over subscribed.
Immediately prior to the consummation of the Merger, the Certificate of
Incorporation of Allmerica P&C will be amended to authorize a Class B Common
Stock of Allmerica P&C, $5.00 par value (the "Class B Common Stock").
Immediately prior to the consummation of the Merger, each share of Allmerica P&C
Common Stock owned by AFC and its subsidiaries will be exchanged for one share
of Class B Common Stock (the "Recapitalization").
SMA Financial Corp. ("SMA"), a wholly owned subsidiary of AFC, is the holder
of 59.5% of the outstanding shares of Allmerica P&C Common Stock. AFC will
cause SMA to execute, as a stockholder of Allmerica P&C, a written consent of
shareholders (a) adopting the Merger Agreement and approving the Merger and (b)
approving the amendment to the certificate of incorporation of the Company to
authorize the issuance of the Class B Common Stock pursuant to the
Recapitalization.
The respective obligation of each party to the Merger Agreement to effect the
Merger is subject to the fulfillment of various conditions, including (i) that
all necessary approvals from insurance regulatory authorities and other
governmental authorities shall have been obtained, (ii) that the Form S-4 filed
to register the AFC Common Stock to be issued in connection with the Merger
shall have been declared effective by the Securities and Exchange Commission and
that such shares shall have been approved for listing on the New York Stock
Exchange (the "NYSE") and (iii) that the Recapitalization
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shall have been completed. Additionally, (i) the obligation of Allmerica P&C to
effect the Merger is subject to fulfillment of the conditions (a) that each of
AFC and Merger Sub shall have performed in all material respects its agreements
contained in the Merger Agreement and that the representations and warranties of
each contained therein shall have remained true and correct as of the effective
time of the Merger and (b) that the Special Committee of the Board of Directors
of Allmerica P&C (the "Special Committee") shall have received a fairness
opinion from Salomon Brothers Inc to the effect that the Merger Consideration is
fair, from a financial point of view, to the holders of Allmerica P&C Common
Stock (other than AFC and its subsidiaries) and such fairness opinion shall not
have been withdrawn and (ii) the obligation of AFC to effect the Merger is
subject to fulfillment of the conditions (a) that Allmerica P&C shall have
performed in all material respects its agreements contained in the Merger
Agreement and that the representations and warranties of Allmerica P&C contained
therein shall have remained true and correct as of the effective time of the
Merger and (b) that AFC shall have received a fairness opinion from Merrill
Lynch, Pierce, Fenner & Smith Incorporated to the effect that the Merger is
fair, from a financial point of view, to AFC and such fairness opinion shall not
have been withdrawn.
The Merger Agreement may be terminated and the Merger may be abandoned (i) by
the mutual consent of AFC, Merger Sub and, with the consent of the Special
Committee, Allmerica P&C, at any time prior to the Effective Time, (ii) by
action of the Board of Directors of either AFC or, with the consent of the
Special Committee, Allmerica P&C if (a) the Merger shall not have been
consummated by September 30, 1997, or (b) a United States federal or state court
of competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and nonappealable
or (c) insurance regulatory authorities shall have issued an order or ruling or
taken other action denying approval of the transactions contemplated by this
Agreement, and such order, ruling or other action shall have become final and
nonappealable, (iii) by action of the Board of Directors of Allmerica P&C (with
the consent of the Special Committee) if, prior to the Effective Time, (a) the
Board of Directors of Allmerica P&C determines in good faith, upon advice of
counsel, that notwithstanding a binding commitment to consummate the Merger
pursuant to the Merger Agreement entered into in the proper exercise of their
fiduciary duties, failure to terminate the Merger Agreement would likely be a
breach of such fiduciary duties by reason of an alternative proposal with
respect to Allmerica P&C being made, (b) there has been a material breach of any
of the covenants or agreements set forth in the Merger Agreement on the part of
AFC or (c) the Board of Directors of the Purchaser shall have withdrawn or
modified in a manner materially adverse to the Company its approval or
recommendation of the Merger Agreement or the Merger, (iv) by the Special
Committee on behalf of Allmerica P&C at any time prior to the Effective Time if
the Special Committee withdraws or materially modifies or changes its
recommendation of the Merger Agreement or the Merger and the Special Committee
determines in good faith, upon advice of counsel, that notwithstanding a binding
commitment to consummate the Merger pursuant to the Merger Agreement entered
into in the proper exercise of their fiduciary duties, failure to terminate the
Merger Agreement would likely be a breach of such fiduciary duties by reason of
an alternative proposal with respect to Allmerica P&C being made or (v) by
action of the Board of Directors of AFC, at any time prior to the Effective Time
if (a) the Board of Directors of Allmerica P&C and the Special Committee shall
have withdrawn or modified in a manner materially adverse to AFC its approval or
recommendation of the Merger Agreement or the Merger, or (b) there has been a
breach by Allmerica P&C of any representation or warranty contained in the
Merger Agreement which would have or would be reasonably likely to have a
material adverse effect on Allmerica P&C or (c) there has been a material breach
of any of the covenants or agreements set forth in the Merger Agreement on the
part of Allmerica P&C.
A copy of the Merger Agreement and the joint press release of AFC and
Allmerica P&C announcing the Merger Agreement are attached hereto as Exhibits 1
and 2, respectively, and the description of the Merger Agreement set forth above
is qualified in its entirety by reference to the Merger Agreement and each of
the press release and the Merger Agreement is incorporated by reference herein.
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Item 7. Financial Statements and Exhibits
Exhibit 1 Agreement and Plan of Merger dated February 19, 1997 among
AFC, Allmerica P&C and Merger Sub.
Exhibit 2 Joint press release of AFC and Allmerica P&C dated
February 19, 1997 announcing the Merger Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ALLMERICA FINANCIAL CORPORATION
By: /s/ John F. Kelly
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Title: Vice President
Date: February 19, 1997
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Exhibit Index Page
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Exhibit 1 Agreement and Plan of Merger dated February 19, 1997 among
AFC, Allmerica P&C and Merger Sub.
Exhibit 2 Joint press release of AFC and Allmerica P&C dated
February 19, 1997 announcing the Merger Agreement.
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EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ALLMERICA FINANCIAL CORPORATION
APY ACQUISITION, INC.
AND
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
Dated as of February 19, 1997
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TABLE OF CONTENTS
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Page
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ARTICLE 1 THE MERGER................................................... 1
1.1. The Merger................................................... 1
1.2. Effective Time............................................... 2
1.3. Effect of the Merger......................................... 2
1.4. Certificate of Incorporation, By-Laws........................ 3
1.5. Directors and Officers....................................... 3
ARTICLE 2 EFFECT OF THE MERGER ON SECURITIES OF THE COMPANY AND
MERGER SUB................................................... 3
2.1. Merger Sub Stock............................................. 3
2.2. Conversion of Company Common Stock; Recapitalization......... 3
2.3. Company Common Stock Elections............................... 6
2.4. Proration.................................................... 8
2.5. Dividends, Fractional Shares, Etc. .......................... 10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COMPANY.................... 11
3.1. Existence; Good Standing; Corporate Authority................ 11
3.2. Authorization, Validity and Effects of Agreements............ 12
3.3. Capitalization............................................... 12
3.4. Subsidiaries................................................. 12
3.5. No Conflict; Required Filings and Consents................... 13
3.6. Compliance................................................... 14
3.7. SEC Documents................................................ 14
3.8. Litigation................................................... 15
3.9. Absence of Certain Changes................................... 15
3.10. No Brokers................................................... 15
3.11. Opinion of Financial Advisor................................. 15
3.12. DGCL Section 203............................................. 15
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB... 16
4.1. Existence; Good Standing; Corporate Authority................ 16
4.2. Authorization; Validity and Effect of Agreements............. 16
4.3. Capitalization............................................... 16
4.4. Subsidiaries................................................. 17
4.5. No Conflict; Required Filings and Consents................... 17
4.6. Compliance................................................... 18
4.7. SEC Documents................................................ 18
4.8. Litigation................................................... 19
4.9. Absence of Certain Changes................................... 19
4.10. No Brokers................................................... 19
4.11. Opinion of Financial Advisor................................. 20
4.12. Financing.................................................... 20
4.13. No Regulatory Disqualifiers.................................. 20
4.14. DGCL Section 203............................................. 20
4.15. Interim Operations of the Sub................................ 20
ARTICLE 5 COVENANTS.................................................... 20
5.1. Alternative Proposals........................................ 20
5.2. Interim Operations........................................... 21
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5.3. Filings; Other Action........................................ 23
5.4. Inspection of Records........................................ 23
5.5. Publicity.................................................... 24
5.6. Registration Statement....................................... 24
5.7. Written Consent.............................................. 25
5.8. Listing Application.......................................... 25
5.9. Further Action............................................... 25
5.10. Expenses..................................................... 25
5.11. Takeover Statute............................................. 26
5.12. Indemnification.............................................. 26
5.13. Cooperation of the Purchaser................................. 27
5.14. Letter of Purchaser's Accountants............................ 28
5.15. Letter of Company's Accountants.............................. 28
ARTICLE 6 CONDITIONS................................................... 28
6.1. Conditions to Each Party's Obligation to Effect the Merger... 28
6.2. Conditions to Obligation of Company to Effect the Merger..... 29
6.3. Conditions to Obligation of Purchaser to Effect the Merger... 30
ARTICLE 7 TERMINATION.................................................. 30
7.1. Termination by Mutual Consent................................ 30
7.2. Termination by Either Purchaser or Company................... 30
7.3. Termination by Company....................................... 31
7.4. Termination by Special Committee............................. 31
7.5. Termination by Purchaser..................................... 31
7.6. Effect of Termination and Abandonment........................ 32
7.7. Extension; Waiver............................................ 32
ARTICLE 8 GENERAL PROVISIONS........................................... 32
8.1. Nonsurvival of Representations, Warranties and Agreements.... 33
8.2. Notices...................................................... 33
8.3. Assignment, Binding Effect................................... 33
8.4. Entire Agreement............................................. 34
8.5. Amendment.................................................... 34
8.6. Governing Law................................................ 34
8.7. Counterparts................................................. 34
8.8. Headings..................................................... 34
8.9. Interpretation............................................... 34
8.11. Incorporation of Exhibits.................................... 35
8.12. Severability................................................. 35
8.13. Enforcement of Agreement..................................... 35
8.14. Subsidiaries................................................. 35
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of February 19, 1997,
by and among Allmerica Financial Corporation, a Delaware corporation (the
"Purchaser"), APY Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of the Purchaser ("Merger Sub") and Allmerica Property & Casualty
Companies, Inc., a Delaware corporation (the "Company")
RECITALS
1. WHEREAS, the Boards of Directors of each of the Purchaser, Merger Sub and
the Company have approved and deem it advisable and in the best interest of
their respective companies and stockholders to consummate the merger provided
for herein, pursuant to which Merger Sub shall be merged with and into the
Company (the "Merger") in accordance with the Delaware General Corporation Law
(the "DGCL") and upon the terms and subject to the conditions set forth herein;
2. WHEREAS, the Company has duly constituted and authorized a special
committee (the "Special Committee") of the Board of Directors of the Company,
consisting of James A. Cotter, Jr. (Chairman), Dona Scott Laskey and M Howard
Jacobson, each an independent director the Company; and
3. WHEREAS, immediately prior to the Merger, each share of Company Common
Stock (as defined in Section 2.2(a)) held by the Purchaser and its wholly-owned
subsidiaries shall be exchanged for one share of Class B Common Stock (as
defined in Section 2.2(d)) of the Company; and
4. WHEREAS, the Purchaser, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing and of the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger.
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(a) At the Effective Time (as defined in Section 1.2), and subject to
and upon the terms and conditions of this Agreement and the DGCL, Merger
Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company after the Effective Time is hereinafter
sometimes referred to as the "Surviving Corporation" and sometimes referred
to as "the Company."
(b) Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to
Article 7 and subject to the satisfaction or waiver of the conditions set
forth in Article 6 (other than those conditions that by their nature are to
be satisfied at the Effective Time), the consummation of the Merger shall
take place as promptly as practicable (and in any event within five
business days) after satisfaction or waiver of the conditions set forth in
Article 6, at the offices of Ropes & Gray, One International Place, Boston,
Massachusetts, unless another date, time or place is agreed to in writing
by the parties hereto.
1.2 Effective Time. As promptly as practicable after the satisfaction or
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waiver of the conditions set forth in Article 6, the Company shall file a duly
executed certificate of merger in form mutually satisfactory to the parties
hereto as contemplated by the DGCL (the "Certificate of Merger"), with the
Secretary of State of the State of Delaware, in such
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form as required by, and executed in accordance with the relevant provisions of,
the DGCL (the time of such filing being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation. Moreover, at the Effective Time, all of the estate,
property, rights, privileges, powers and franchises of each of the Company and
Merger Sub, and all their property, real, personal and mixed, and all the debts
on whatever account to any of them, as well as all stock subscriptions and other
choses in action, belonging to any of them, shall be transferred to, and shall
be vested in, the Surviving Corporation without further act or deed; and the
Surviving Corporation shall be deemed to have assumed, and shall be liable for,
all debts, liabilities and obligations of each of the Company and Merger Sub in
the same manner and to the same extent as if the Surviving Corporation had
itself incurred such debts, liabilities and obligations.
1.4 Certificate of Incorporation, By-Laws.
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(a) At the Effective Time the certificate of incorporation of the
Company, as in effect immediately prior to the Effective Time (as amended
as provided for in Section 3.3), shall be the certificate of incorporation
of the Surviving Corporation until thereafter amended as provided by law
and such certificate of incorporation.
(b) The by-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereinafter amended as provided by the certificate of incorporation, the
Surviving Corporation and such by-laws.
1.5 Directors and Officers. The directors of Merger Sub immediately prior to
----------------------
the Effective Time shall be the initial directors of the Surviving Corporation
and the officers of the Company immediately prior to the Effective Time shall be
the initial officers of the Surviving Corporation, in each case to hold office
in accordance with the certificate of incorporation and by-laws of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
ARTICLE 2
EFFECT OF THE MERGER ON SECURITIES OF
THE COMPANY AND
MERGER SUB; RECAPITALIZATION
2.1 Merger Sub Stock. At the Effective Time, each share of the Common Stock,
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$.01 par value, of Merger Sub outstanding immediately prior to the Effective
Time shall be converted into and shall become one share of common stock, $.01
par value per share, of the Surviving Corporation.
2.2 Conversion of Company Common Stock; Recapitalization.
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(a) Except as otherwise provided in Section 2.5 and subject to
Sections 2.2(c), (d) and (e), and Section 2.4, at the Effective Time each
issued and outstanding share of Common Stock, $1.00 par value, of the
Company (the "Company Common Stock"), shall be converted into, at the
election of the holder thereof, one of the following (as adjusted pursuant
to Section 2.5 the "Merger Consideration"):
(i) for each such share of Company Common Stock (other than shares as to
which a Stock Election or Cash Election (each as defined below) has
been made), the right to receive (x) 0.4 (the "Standard Exchange
Ratio") of a share of the Common Stock, $.01 par value per share, of
the Purchaser ("Purchaser Common Stock"), and (y) an amount in cash,
without interest, equal to $17.60 (the "Standard Cash Consideration");
provided, however, that (1) in the event the Average Stock Price is
less than $36.00, the Standard Cash Consideration shall be equal to
(A) $32.00 less (B) the Standard Exchange Ratio
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multiplied by the Average Stock Price and (2) in the event the Average
Stock Price is greater than $41.00, the Standard Cash Consideration
shall be equal to (A) $34.00 less (B) the Standard Exchange Ratio
multiplied by the Average Stock Price (collectively, the "Standard
Consideration");
(ii) for each such share of Company Common Stock with respect to which an
election to receive solely Purchaser Common Stock has been effectively
made and not revoked or lost pursuant to Section 2.3(c), (d) and (e),
the right to receive 0.85714 (the "Stock Exchange Ratio") of a share
of Purchaser Common Stock (the "Stock Consideration"); provided,
however, that (1) in the event the Average Stock Price is less than
$36.00, the Stock Exchange Ratio shall be equal to $32.00 divided by
the Average Stock Price and (2) that in the event the Average Stock
Price is greater than $41.00, the Stock Exchange Ratio shall be equal
to $34.00 divided by the Average Stock Price; or
(iii) for each such share of Company Common Stock with respect to which an
election to receive solely cash has been effectively made and not
revoked or lost pursuant to Section 2.3(c), (d) or (e), the right to
receive in cash, without interest, an amount equal to $33.00 (the
"Cash Consideration"); provided, however, that (1) in the event the
Average Stock Price is less than $36.00, the Cash Consideration shall
be equal to $32.00 and (2) in the event the Average Stock Price is
more than $41.00, the Cash Consideration shall be equal to $34.00.
"Average Stock Price" means the average of the Closing Market Prices (as
hereinafter defined) for the ten consecutive trading days ending on the
[fifth] trading day prior to the Effective Time. The "Closing Market
Prices" for any trading day means the closing sales price of the Purchaser
Common Stock as reported in the New York Stock Exchange Composite Tape (as
reported by the Wall Street Journal or, if not reported thereby, as
reported by another source as mutually agreed by the Purchaser and, with
the consent of the Special Committee, the Company) for that day.
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time and except as provided in Sections
2.2(d) and 2.2(e), all shares of Company Common Stock shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist,
and each holder of such shares of Company Common Stock shall thereafter
cease to have any rights with respect to such shares of Company Common
Stock, except the right to receive, without interest, the Merger
Consideration and cash for fractional shares of Purchaser Common Stock in
accordance with Section 2.5(c) upon the surrender of a certificate
representing such shares of Company Common Stock (a "Company Certificate").
(c) Notwithstanding anything contained in this Section 2.2 to the
contrary, each share of Company Common Stock issued and held in the
Company's treasury or any wholly owned subsidiary thereof or by any wholly
owned subsidiary of the Purchaser other than SMA Financial Corp. ("SMA")
immediately prior to the Effective Time shall, by virtue of the Merger, be
cancelled and retired and shall cease to exist without payment of any
consideration therefor.
(d) Notwithstanding anything contained in this Section 2.2, immediately
prior to the Effective Time, each share of Company Common Stock held by
SMA, shall be exchanged for one share of Class B Common Stock, $5.00 par
value per share, of the Company ("Class B Common Stock") (the
"Recapitalization"). Such shares of Class B Common Stock shall remain
outstanding after the Merger.
(e) Notwithstanding anything in this Agreement to the contrary, holders
of Company Common Stock that have, as of the Effective Time, complied with
all procedures necessary to assert appraisal rights in accordance with
Section 262 of the DGCL, if applicable, shall have such rights, if any, as
they may have pursuant to Section 262 of the DGCL and such Company Common
Stock shall not be converted or be exchangeable as provided in this Section
2.2, but such holders shall be entitled to receive such payment as may be
determined to be due to such holders pursuant to the DGCL; provided,
however, that, if such holder shall have failed to perfect or shall have
effectively withdrawn or lost his right to appraisal and payment under the
DGCL, such holder's Company Common Stock shall thereupon be deemed to have
been converted and to have become exchangeable, as of the Effective Time,
into the
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Merger Consideration. The Company Common Stock described in this Section
2.2(e) held by holders who exercise and perfect appraisal rights are
referred to herein as "Dissenting Shares." The Company shall give the
Purchaser prompt notice of any demands for appraisal of shares received by
the Company (and shall also give the Purchaser prompt notice of any
withdrawals of such demands for appraisal rights) and (ii) the Purchaser
shall have the opportunity and right to participate in and direct all
negotiations and proceedings with respect to any such demands. Neither the
Company nor the Surviving Corporation, shall, except with the prior written
consent of the Purchaser, make any payment with respect to, or settle,
offer to settle or otherwise negotiate any such demand for appraisal
rights.
(f) At the Effective Time, each outstanding option or right to purchase
shares of Company Common Stock (a "Company Option") shall be converted into
an option to purchase shares of Purchaser Common Stock, as provided below.
Following the Effective Time, each such Company Option shall be exercisable
upon the same terms and conditions as then are applicable to such Company
Option, except that (i) each such Company Option shall be exercisable for
that number of shares of Purchaser Common Stock equal to the product of (x)
the number of shares of Company Common Stock for which such Company Option
was exercisable and (y) the Stock Consideration specified in Section
2.2(a)(ii) and (ii) the exercise price of such option shall be equal to the
exercise price per share of such option as of the date hereof divided by
the Stock Consideration. It is the intention of the parties that, to the
extent that any such Company Option constituted an "incentive stock
option"(within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") immediately prior to the Effective Time, such
option continue to qualify as an incentive stock option to the maximum
extent permitted by Section 422 of the Code, and that the assumption of the
Company Stock Options provided by this Section 2.2(f) satisfy the
conditions of Section 424(a) of the Code. From and after the date of this
Agreement, no additional options to purchase shares of Company Common Stock
shall be granted under the Company stock option plans or otherwise. Except
as otherwise agreed to by the parties, no person shall have any right under
any stock option plan (or any option granted thereunder) or other plan,
program or arrangement with respect to, including any right to acquire,
equity securities of the Company following the Effective Time.
2.3 Company Common Stock Elections.
------------------------------
(a) Each person who, at the Effective Time, is a record holder of shares
of Company Common Stock (other than holders of shares of Company Common
Stock to be cancelled as set forth in Section 2.2(c) or of Dissenting
Shares, or as provided in Section 2.2(d)) shall have the right to submit an
Election Form (as defined in Section 2.3(c)) specifying that such person
desires to have all of the shares of Company Common Stock owned by such
person converted into the right to receive either (i) the Standard
Consideration (a "Standard Election") (ii) the Stock Consideration (a
"Stock Election"), or (iii) the Cash Consideration (a "Cash Election").
(b) Promptly after the Allocation Determination (as defined in Section
2.3(d)), (i) the Purchaser shall deposit (or cause to be deposited) with a
bank or trust company to be designated by the Purchaser and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with
this Article 2, cash in an amount sufficient to pay the aggregate cash
portion of the Merger Consideration pursuant to Section 2.2(a) and (ii) the
Purchaser shall deposit (or cause to be deposited) with the Exchange Agent,
for the benefit of the holders of shares of Company Common Stock,
certificates representing the shares of Purchaser Common Stock ("Purchaser
Certificates") for exchange in accordance with this Article 2 (the cash and
certificates deposited pursuant to clauses (i) and (ii) being hereinafter
referred to as the "Exchange Fund").
(c) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of Company Common Stock
immediately prior to the Effective Time (excluding any shares of Company
Common Stock which (i) are cancelled pursuant to Section 2.2(c), (ii) are
Dissenting Shares or (iii) are exchanged in the Recapitalization) (A) a
letter of transmittal (the "Company Letter of Transmittal") (which shall
specify that delivery shall be effected, and risk of loss and title to the
Company Certificates shall pass, only upon delivery of such Company
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Purchaser shall specify), (B) instructions for use
in effecting the surrender of the Company
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<PAGE>
Certificates in exchange for the Merger Consideration with respect to the
shares of Company Common Stock formerly represented thereby, and (C) an
election form (the "Election Form") providing for such holders to make the
Standard Election, the Cash Election or the Stock Election. As of the
Election Deadline (as defined in Section 2.3(d)) all holders of Company
Common Stock immediately prior to the Effective Time (excluding any shares
of Company Common Stock that (i) are cancelled pursuant to Section 2.2(c)
or (ii) are exchanged in the Recapitalization) that shall not have properly
submitted to the Exchange Agent, or that shall have properly revoked, an
effective, properly completed Election Form shall be deemed to have made a
Standard Election (each a "Deemed Standard Election").
(d) Any Cash Election, Standard Election, or Stock Election shall have
been validly made only if the Exchange Agent shall have received by 5:00
p.m. Boston, Massachusetts time on a date (the "Election Deadline") to be
mutually agreed upon by the Purchaser and the Company (with the consent of
the Special Committee) (which date shall not be later than the twentieth
business day after the Effective Time), an Election Form properly completed
and executed (with the signature or signatures thereof guaranteed to the
extent required by the Election Form) by such holder accompanied by such
holder's Company Certificates, or by an appropriate guarantee of delivery
of such Company Certificates from a member of any registered national
securities exchange or of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company in the United States as set
forth in such Election Form. Any holder of Company Common Stock that has
made an election by submitting an Election Form to the Exchange Agent may
at any time prior to the Election Deadline change such holder's election by
submitting a revised Election Form, properly completed and signed that is
received by the Exchange Agent prior to the Election Deadline. Any holder
of Company Common Stock may at any time prior to the Election Deadline
revoke such holder's election and withdraw such holder's Company
Certificates deposited with the Exchange Agent by written notice to the
Exchange Agent received by the close of business on the day prior to the
Election Deadline. As soon as practicable after the Election Deadline (but
in no event later than ten business days after the Election Deadline), the
Exchange Agent shall determine the allocation of the cash portion of the
Merger Consideration and the stock portion of the Merger Consideration and
shall notify the Purchaser of its determined allocation (the "Allocation
Determination").
(e) From and after the Effective Time, each holder of a certificate that
immediately after the Recapitalization and immediately prior to the
Effective Time represented outstanding shares of Company Common Stock
shall, upon surrender of such certificate for cancellation to the Exchange
Agent, together with the Company Letter of Transmittal, duly executed, and
such other documents as the Purchaser or the Exchange Agent shall
reasonably request, be entitled to receive promptly after the Election
Deadline in exchange therefor (A) a check in the amount equal to the cash,
if any, which such holder has the right to receive pursuant to the
provisions of this Article 2 (including any cash in lieu of fractional
shares of Purchaser Common Stock pursuant to Section 2.5(c)), and (B) a
Purchaser Certificate representing that number of shares of Purchaser
Common Stock, if any, which such holder has the right to receive pursuant
to this Article 2 (in each case less the amount of any required withholding
taxes), and the Company Certificate so surrendered shall forthwith be
cancelled. Until surrendered as contemplated by this Section 2.3, each
Company Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration with respect
to the shares of Company Common Stock formerly represented thereby. If any
certificate for shares of Purchaser Common Stock to be issued in the Merger
is to be issued in a name other than that in which the certificate for
shares of Company Common Stock surrendered in exchange therefor is
registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other tax required by
reason of the issuance of certificates for such shares of Purchaser Common
Stock in a name other than that of the registered holder of the certificate
surrendered, or shall establish to the satisfaction of the Purchaser or its
agent that such tax has been paid or is not applicable.
(f) The Purchaser shall have the right to make rules, not inconsistent
with the terms of this Agreement, governing the validity of the Election
Forms, the manner and extent to which Standard Elections, Cash Elections or
Stock Elections are to be taken into account in making the determinations
prescribed by Section 2.4, the issuance and delivery of certificates for
Purchaser Common Stock into which shares of Company Common Stock are
converted in the Merger, and the payment of cash for shares of Company
Common Stock converted into the right to receive cash in the Merger.
-5-
<PAGE>
2.4 Proration.
---------
(a) As is more fully set forth below, the maximum number of shares of
Purchaser Common Stock issuable to holders of Company Common Stock (the
"Maximum Number of Purchaser Shares") shall not exceed the product of (x)
0.4 and (y) the number of Outstanding Company Shares (as defined below).
(b) As is more fully set forth below, the aggregate amount of cash to be
paid to holders of Outstanding Company Shares (as defined below) (the
"Maximum Cash Amount") shall not exceed the product of (x) the Standard
Cash Election and (y) the number of Outstanding Company Shares.
"Outstanding Company Shares" shall mean those shares of Company Common
Stock outstanding immediately prior to the Effective Time excluding (a)
shares of Company Common Stock that are cancelled pursuant to Section
2.2(c), (b) Dissenting Shares (but only for so long as such shares remain
Dissenting Shares), (c) shares exchanged in the Recapitalization and (d)
any other shares of Company Common Stock owned directly or indirectly by
the Purchaser.
(c) In the event that the aggregate number of shares of Purchaser Common
Stock issuable pursuant to the Stock Elections received by the Exchange
Agent exceeds an amount equal to the Maximum Number of Purchaser Shares
minus the number of shares of Purchaser Common Stock issuable pursuant to
Standard Elections and Deemed Standard Elections, including any fractional
shares of Purchaser Common Stock for which a cash adjustment shall be paid
pursuant to Section 2.5(c) (such difference, the "Remaining Purchaser
Shares"), each holder making a Stock Election shall receive, for each share
of Company Common Stock held by such holder, (x) a number of shares of
Purchaser Common Stock equal to the quotient obtained by dividing (i) the
Remaining Purchaser Shares by (ii) the aggregate number of shares of
Company Common Stock held by holders making Stock Elections (the "Stock
Election Company Shares"), plus (y) cash in an amount equal to the quotient
obtained by dividing (iii) the Remaining Stock Election Cash Amount (as
defined below) by (iv) the Stock Election Company Shares. The "Remaining
Stock Election Cash Amount" shall be equal to the Maximum Cash Amount minus
the amount of cash payable pursuant to Standard Elections, Deemed Standard
Elections and Cash Elections.
(d) In the event that the aggregate amount of cash payable pursuant to
Cash Elections received by the Exchange Agent exceeds the Maximum Cash
Amount minus the aggregate amount of cash payable pursuant to Standard
Elections and Deemed Standard Elections (such difference, the "Remaining
Cash"), each holder making a Cash Election shall receive, for each share of
Company Common Stock held by such holder, (x) cash in an amount equal to
the quotient obtained by dividing the (i) Remaining Cash by (ii) the
aggregate number of shares of Company Common Stock held by holders making
Cash Elections (the "Cash Election Company Shares"), plus (y) a number of
shares of Purchaser Common Stock equal to the quotient obtained by dividing
(iii) the Remaining Cash Election Purchaser Shares (as defined below) by
(iv) the Cash Election Company Shares. The "Remaining Cash Election
Purchaser Shares" shall be the number of shares of Purchaser Common Stock
equal to the Maximum Number of Purchaser Shares minus the number of shares
of Purchaser Common Stock issuable pursuant to Standard Elections, Deemed
Standard Elections and Stock Elections (including any fractional shares of
Purchaser Common Stock for which a cash adjustment shall be paid pursuant
to Section 2.5(c) in respect of such Standard Elections, Deemed Standard
Elections and Stock Elections).
2.5 Dividends, Fractional Shares, Etc.
----------------------------------
(a) Notwithstanding any other provisions of this Agreement, no dividends
or other distributions declared after the Effective Time on Purchaser
Common Stock shall be paid with respect to any shares of Company Common
Stock represented by a Company Certificate, until such Company Certificate
is surrendered for exchange as provided herein. Subject to the effect of
applicable laws, following surrender of any such Company Certificate, there
shall be paid to the holder of the Purchaser Certificates issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of
Purchaser Common Stock and not paid, less the amount of any withholding
taxes that may be required thereon, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date
-6-
<PAGE>
subsequent to surrender payable with respect to such whole shares of
Purchaser Common Stock, less the amount of any withholding taxes that may
be required thereon.
(b) At or after the Effective Time, there shall be no transfer on the
stock transfer books of the Company of the shares of Company Common Stock
that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates representing any such shares are presented
to the Surviving Corporation, they shall be cancelled and exchanged for the
Merger Consideration, if any, deliverable in respect thereof pursuant to
this Agreement.
(c) No fractional shares of Purchaser Common Stock shall be issued
pursuant to the Merger. In lieu of the issuance of any fractional share of
Purchaser Common Stock pursuant to the Merger, cash adjustments shall be
paid to holders in respect of any fractional share of Purchaser Common
Stock that would otherwise be issuable, and the amount of such cash
adjustment shall be equal to the product of such fractional amount and the
Average Stock Price.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Purchaser Common Stock) that remains
unclaimed by the former stockholders of the Company one year after the
Effective Time shall be delivered to the Purchaser. Any former stockholder
of the Company who has not theretofore complied with this Article 2 shall
thereafter look only to the Surviving Corporation and the Purchaser for
payment of the applicable Merger Consideration, cash in lieu of fractional
shares and unpaid dividends and distributions on the Purchaser Common Stock
deliverable in respect of each share of Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case
without any interest thereon.
(e) None of the Purchaser, the Company, Merger Sub, the Surviving
Corporation, the Exchange Agent or any other person shall be liable to any
former holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned or
unclaimed property, escheat or similar laws.
(f) In the event that any Company Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Company Certificate to be lost, stolen or destroyed
and, if required by the Purchaser, the posting by such person of a bond in
such reasonable amount as the Purchaser may direct as indemnity against any
claim that may be made against it with respect to such Company Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Company Certificate the applicable Merger Consideration, cash in
lieu of fractional shares, and unpaid dividends and distributions on shares
of Purchaser Common Stock, as provided in this Section 2.5, deliverable in
respect thereof pursuant to this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to the Purchaser (the "Company Disclosure Letter") or in the
Company Reports (as defined below), the Company represents and warrants to the
Purchaser and Merger Sub as of the date of this Agreement as follows:
3.1 Existence; Good Standing; Corporate Authority. The Company is a
---------------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. The Company is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where the failure to be so qualified
or to be in good standing would not have a material adverse effect on the
business, results of operations or financial condition or prospects of the
Company and its Subsidiaries taken as a whole (a "Company Material Adverse
Effect"). The Company has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
Each of the Company's Significant Subsidiaries (as defined in Section 8.14) is a
corporation or partnership duly organized, validly existing and in good standing
under the laws of its
-7-
<PAGE>
jurisdiction of incorporation or organization, has the corporate or partnership
power and authority to own its properties and to carry on its business as it is
now being conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its property or the
conduct of its business requires such qualification, except for jurisdictions in
which such failure to be so qualified or to be in good standing would not
individually or in the aggregate, have a Company Material Adverse Effect.
3.2 Authorization, Validity and Effects of Agreements. The Company has the
-------------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. Subject only to the
approval of this Agreement, the Merger and the transactions contemplated hereby
by the holders of a majority of the outstanding shares of Company Common Stock,
the consummation by the Company of the transactions contemplated hereby has been
duly authorized by all requisite corporate action. This Agreement constitutes,
and all agreements and documents contemplated hereby (when executed and
delivered pursuant hereto for value received) will constitute, valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
3.3 Capitalization. The authorized capital stock of the Company consists of
--------------
90,000,000 shares of Company Common Stock and 20,000,000 shares of preferred
stock, $1.00 par value (the "Company Preferred Stock"). Immediately prior to the
Effective Time and after any action required to be taken by Company stockholders
with respect to the Merger and the Recapitalization, the authorized capital
stock of the Company will be 60,000,000 shares of Company Common Stock
40,000,000 shares of Class B Common Stock and 20,000,000 shares of Company
Preferred Stock. As of December 31, 1996, there were 59,649,406 shares of
Company Common Stock, and no shares of Company Preferred Stock, issued and
outstanding and 2,246,600 shares of Company Common Stock held in the Company's
treasury. Since such date, (i) no additional shares of capital stock of the
Company have been issued, except pursuant to (a) the Recapitalization or (b) the
terms existing on the date hereof of the Company's stock option and employee
stock purchase plans, pension plans and other similar employee benefit plans
(the "Company Stock Plans") and (ii) no options or other rights to acquire
shares of the Company's capital stock have been granted. The Company has no
outstanding bonds, debentures, notes or other obligations, the holders of which
have the right to vote (or that are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter. All issued and outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except for the transactions contemplated by this Agreement, there are
not on the date hereof any existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments that obligate
the Company or any of its Subsidiaries to issue, transfer or sell any shares of
capital stock of the Company or any of its Subsidiaries (other than under the
Company Stock Plans).
3.4 Subsidiaries. The Company owns directly or indirectly each of the
------------
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect a majority of directors or others
performing similar functions with respect to such Company Significant
Subsidiary) of each of the Company's Significant Subsidiaries other than
Citizens Corporation. Each of the outstanding shares of capital stock of each
of the Company's Significant Subsidiaries is duly authorized, validly issued,
fully paid and nonassessable, and other than Citizens Corporation is owned,
directly or indirectly, by the Company. Each of the outstanding shares of
capital stock of each Significant Subsidiary of the Company other than Citizens
Corporation is owned, directly or indirectly, by the Company free and clear of
all liens, pledges, security interests, claims or other encumbrances other than
liens imposed by law which are not material. As of December 31, 1996, there
were outstanding 35,267,300 shares of capital stock of Citizens Corporation.
The Company owns indirectly 29,093,500 shares of capital stock of Citizens
Corporation and such shares are held indirectly by the Company free and clear of
all liens, pledges, security interests, claims or other encumbrances other than
liens imposed by law that are not material.
3.5 No Conflict; Required Filings and Consents. (a) The execution and
------------------------------------------
delivery of this Agreement by the Company do not, and the consummation by the
Company of the transactions contemplated hereby will not, (i) conflict with or
violate the certificate of incorporation or by-laws or equivalent
organizational documents of (x) the Company or (y) any Significant Subsidiary,
(ii) subject to making the filings and obtaining the approvals identified in
Section 3.5(b), conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or any Company Subsidiary (as
defined in Section 8.14) or by which any property or asset of the Company or any
Company Subsidiary is bound or affected, or (iii) subject to making the filings
and obtaining the approvals identified in Section 3.5(b), result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, result in the loss
-8-
<PAGE>
of a material benefit under, or give to others any right of purchase or sale, or
any right of termination, amendment, acceleration, increased payments or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of the Company or any Company Subsidiary pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any Company
Subsidiary is a party or by which the Company or any Company Subsidiary or any
property or asset of the Company or any Company Subsidiary is bound or affected,
except, in the case of clauses (i)(y), (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences that would not prevent or
delay consummation of any of the transactions contemplated hereby in any
material respect, or otherwise prevent the Company from performing its
obligations hereunder in any material respect, and would not, individually or in
the aggregate, have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement and the consummation by the Company of the
transactions contemplated hereby will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory commission, board or other authority, domestic or foreign (each a
"Governmental Entity"), except (i) for (A) applicable requirements, if any, of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), state securities or
"blue sky" laws ("Blue Sky Laws") and state takeover laws, (B) applicable
approvals of the state insurance commissioners of the States of Delaware,
Illinois, Indiana, Massachusetts, Michigan, New Hampshire, Ohio, Pennsylvania
and Texas, (C) filing and recordation of appropriate merger and similar
documents as required by Delaware law and (D) applicable requirements, if any,
of the Code and state, local and foreign tax laws, and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of any of the
transactions contemplated hereby in any material respect, or otherwise prevent
the Company from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a Company
Material Adverse Effect.
3.6 Compliance. Neither the Company nor any Company Subsidiary is in
----------
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any Company Subsidiary or
by which any property or asset of the Company or any Company Subsidiary is bound
or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any Company Subsidiary is a party or by which the Company or any
Company Subsidiary or any property or asset of the Company or any Company
Subsidiary is bound or affected, in each case except for any conflicts, defaults
or violations that would not, individually or in the aggregate, have a Company
Material Adverse Effect. The Company and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions required
by applicable law or governmental regulations in connection with their business
as now conducted, where the failure to obtain any such item or to take any such
action would have, individually or in the aggregate, a Company Material Adverse
Effect.
3.7 SEC Documents. (a) The Company has filed all forms, reports and
-------------
documents required to be filed by it with the Securities and Exchange Commission
("SEC") since December 31, 1993 (collectively, the "Company Reports"). As of
their respective dates, the Company Reports and any such reports, forms and
other documents filed by the Company with the SEC after the date of this
Agreement (i) complied, or will comply, as to form in all material respects with
the applicable requirements of the Securities Act, the Exchange Act, and the
rules and regulations thereunder and (ii) did not, or will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The
representation in clause (ii) of the preceding sentence shall not apply to any
misstatement or omission in any Company Report filed prior to the date of this
Agreement which was superseded by a subsequent Company Report filed prior to the
date of this Agreement.
(b) Each of the consolidated balance sheets of the Company included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents the consolidated financial position of the
Company and the Company Subsidiaries as of its date, and each of the
consolidated statements of income, retained earnings and cash flows of the
Company included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of the Company
and the Company Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments that would
not be material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.
-9-
<PAGE>
3.8 Litigation. There are no actions, suits or proceedings pending against
----------
the Company or the Company Subsidiaries or, to the knowledge of the Company,
threatened against the Company or the Company Subsidiaries, at law or in equity,
or before or by any federal or state commission, board, bureau, agency or
instrumentality, that are reasonably likely, individually or in the aggregate,
to have a Company Material Adverse Effect.
3.9 Absence of Certain Changes. Except as specifically contemplated by
--------------------------
this Agreement or as disclosed in the Company Reports or the Company Disclosure
Letter, since December 31, 1995, (i) no events or series of events have
occurred, and no circumstances have arisen, that are reasonably likely,
individually or in the aggregate, to result in a Company Material Adverse
Effect, (ii) there has not been any declaration, setting aside or payment of any
dividend or other distribution with respect to its capital stock (other than
regular quarterly cash dividends not in excess of $.05 per share), and (iii)
there has not been any material change in its accounting principles, practices
or methods.
3.10 No Brokers. The Company has not entered into any contract, arrangement
----------
or understanding with any person or firm that may result in the obligation of
the Company or the Purchaser to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby
except that the Company has retained Salomon Brothers Inc as its financial
advisor, the arrangements with which have been disclosed in writing to the
Purchaser prior to the date hereof. Other than the foregoing arrangements, the
Company is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
3.11 Opinion of Financial Advisor. The Special Committee of the Board of
----------------------------
Directors of the Company has received the opinion of Salomon Brothers Inc to the
effect that, as of the date hereof, the Merger Consideration is fair to the
holders of the Company Common Stock (other than the Purchaser and its
Subsidiaries) from a financial point of view.
3.12 DGCL Section 203. The business combination restrictions of Section 203
----------------
of the DGCL are not applicable to the transactions contemplated by this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PURCHASER AND MERGER SUB
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to the Company (the "Purchaser Disclosure Letter") or in the
Purchaser Reports (as defined below), each of the Purchaser and Merger Sub
represents and warrants to the Company as of the date of this Agreement as
follows:
4.1 Existence; Good Standing; Corporate Authority. Each of the Purchaser and
---------------------------------------------
Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Purchaser and Merger Sub is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other state of
the United States in which the character of the properties owned or leased by it
or in which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified or to be in good standing would not
have a material adverse effect on the business, results of operations or
financial condition or prospects of the Purchaser and its Subsidiaries taken as
a whole (a "Purchaser Material Adverse Effect"). The Purchaser has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted. Each of the Purchaser's Significant
Subsidiaries is a corporation or partnership duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, has the corporate or partnership power and authority to own its
properties and to carry on its business as it is now being conducted, and is
duly qualified to do business and is in good standing in each jurisdiction in
which the ownership of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not, individually or in the aggregate, have a
Purchaser Material Adverse Effect. The copies of the Purchaser's and Merger
Sub's certificates of incorporation and Bylaws previously made available to the
Company are true and correct.
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<PAGE>
4.2 Authorization; Validity and Effect of Agreements. Each of the Purchaser
------------------------------------------------
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
The consummation by the Purchaser and Merger Sub of the transactions
contemplated hereby when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of the
Purchaser and Merger Sub, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
4.3 Capitalization. The authorized capital stock of the Purchaser consists
--------------
of 300,000,000 shares of Purchaser Common Stock, and 20,000,000 shares of
preferred stock, $0.01 par value (the "Purchaser Preferred Stock"). As of
December 31, 1996, there were 50,134,651 shares of Purchaser Common Stock, and
no shares of Purchaser Preferred Stock, issued and outstanding and no shares of
Purchaser Common Stock held in the Purchaser's treasury. Since such date, no
additional shares of capital stock of the Purchaser have been issued except
pursuant to the Purchaser's stock option and employee stock purchase plans,
pension plans and other similar employee benefit plans (the "Purchaser Stock
Plans"). The Purchaser has no outstanding bonds, debentures, notes or other
obligations, the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Purchaser or any matter. All issued and outstanding
shares of Purchaser Common Stock are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. Except for (i) Company
Options that will be converted into options to purchase Purchaser Common Stock
pursuant to Section 2.2(f) and (ii) options and securities issued pursuant to
Purchaser Stock Plans, there are not on the date hereof any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments that obligate the Purchaser or any of its Subsidiaries
to issue, transfer or sell any shares of capital stock of the Purchaser or any
of its Subsidiaries.
4.4 Subsidiaries. The Purchaser owns directly or indirectly each of the
------------
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect a majority of directors or others
performing similar functions with respect to such Purchaser Significant
Subsidiary) of each of the Purchaser's Significant Subsidiaries and Merger Sub.
Each of the outstanding shares of capital stock of each of the Purchaser's
Significant Subsidiaries and Merger Sub is duly authorized, validly issued,
fully paid and nonassessable and is owned, directly or indirectly, by the
Purchaser. Each of the outstanding shares of capital stock of each Significant
Subsidiary of the Purchaser and Merger Sub is owned, directly or indirectly, by
the Purchaser free and clear of all liens, pledges, security interests, claims
or other encumbrances other than liens imposed by law that are not material.
4.5 No Conflict; Required Filings and Consents. (a) The execution and
------------------------------------------
delivery of this Agreement by the Purchaser and Merger Sub do not, and the
consummation by the Purchaser and Merger Sub of the transactions contemplated
hereby will not, (i) conflict with or violate the certificate of incorporation
or by-laws or equivalent organizational documents of the Purchaser, Merger Sub,
or any Significant Subsidiary, (ii) subject to making the filings and obtaining
the approvals identified in Section 4.5(b), conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Purchaser or any
Purchaser Subsidiary or by which any property or asset of the Purchaser or any
Purchaser Subsidiary is bound or affected, or (iii) subject to making the
filings and obtaining the approvals identified in Section 4.5(b), result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in the loss of a material
benefit under, or give to others any right of purchase or sale, or any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of the Purchaser or any Purchaser Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Purchaser or any Purchaser
Subsidiary is a party or by which the Purchaser or any Purchaser Subsidiary or
any property or asset of the Purchaser or any Purchaser Subsidiary is bound or
affected, except, in the case of clauses (i), (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that would not
prevent or delay consummation of any of the transactions contemplated hereby in
any material respect, or otherwise prevent the Purchaser or Merger Sub from
performing its obligations hereunder in any material respect, and would not,
individually or in the aggregate, have a Purchaser Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Purchaser and Merger
Sub do not, and the performance by the Purchaser and Merger Sub of this
Agreement and the consummation of the transactions contemplated hereby will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, except (i)
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for (A) applicable requirements, if any, of the Exchange Act, the Securities
Act, Blue Sky Laws and state takeover laws, (B) applicable approvals of the
state insurance commissioners of the States of Delaware, Illinois, Indiana,
Massachusetts, Michigan, New Hampshire, Ohio, Pennsylvania and Texas, (C) filing
and recordation of appropriate merger and similar documents as required by
Delaware law and (D) applicable requirements, if any, of the Code and state,
local and foreign tax laws, and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of any of the transactions contemplated
hereby in any material respect, or otherwise prevent the Purchaser or Merger Sub
from performing its obligations hereunder in any material respect, and would
not, individually or in the aggregate, have a Purchaser Material Adverse Effect.
4.6 Compliance. Neither the Purchaser nor any Purchaser Subsidiary is in
----------
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Purchaser or any Purchaser
Subsidiary or by which any property or asset of the Purchaser or any Purchaser
Subsidiary is bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Purchaser or any Purchaser Subsidiary is a party or by
which the Purchaser or any Purchaser Subsidiary or any property or asset of the
Purchaser or any Purchaser Subsidiary is bound or affected, in each case except
for any conflicts, defaults or violations that would not, individually or in the
aggregate, have a Purchaser Material Adverse Effect. The Purchaser and its
Subsidiaries have obtained all licenses, permits and other authorizations and
have taken all actions required by applicable law or governmental regulations in
connection with their business as now conducted, where the failure to obtain any
such item or to take any such action would have, individually or in the
aggregate, a Purchaser Material Adverse Effect.
4.7 SEC Documents. (a) The Purchaser has filed all forms, reports and
-------------
documents required to be filed by it with the SEC since October 16, 1995
(collectively, the "Purchaser Reports"). As of their respective dates, the
Purchaser Reports and any such reports, forms and other documents filed by the
Purchaser with the SEC after the date of this Agreement (i) complied, or will
comply, as to form in all material respects with the applicable requirements of
the Securities Act, the Exchange Act, and the rules and regulations thereunder
and (ii) did not, or will not, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The representation in clause (ii) of the
preceding sentence shall not apply to any misstatement or omission in any
Purchaser Report filed prior to the date of this Agreement which was superseded
by a subsequent Purchaser Report filed prior to the date of this Agreement.
(b) Each of the consolidated balance sheets included in or incorporated by
reference into the Purchaser Reports (including the related notes and schedules)
fairly presents the consolidated financial position of the Purchaser and the
Purchaser Subsidiaries as of its date, and each of the consolidated statements
of income, retained earnings and cash flows included in or incorporated by
reference into the Purchaser Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of the Purchaser and the Purchaser Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to normal year-
end audit adjustments that would not be material in amount or effect), in each
case in accordance with generally accepted accounting principles consistently
applied during the periods involved, except as may be noted therein.
4.8 Litigation. There are no actions, suits or proceedings pending against
----------
the Purchaser or the Purchaser Subsidiaries or, to the knowledge of the
Purchaser, threatened against the Purchaser or the Purchaser Subsidiaries, at
law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality, that are reasonably likely, individually or
in the aggregate, to have a Purchaser Material Adverse Effect.
4.9 Absence of Certain Changes. Except as specifically contemplated by this
--------------------------
Agreement or as disclosed in the Purchaser Reports or the Purchaser Disclosure
Letter, since December 31, 1995, (i) no event or series of events have occurred,
and no circumstances have arisen, that are reasonably likely, individually or in
the aggregate, to result in a Purchaser Material Adverse Effect, (ii) there has
not been any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock (other than regular quarterly
cash dividends not in excess of $.05 per share), and (iii) there has not been
any material change in its accounting principles, practices or methods.
4.10 No Brokers. The Purchaser has not entered into any contract,
----------
arrangement or understanding with any person or firm that may result in the
obligation of the Company or the Purchaser to pay any finder's fees, brokerage
or agent's
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<PAGE>
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby
except that the Purchaser has retained Merrill Lynch & Co. as its financial
advisor, the arrangements with which have been disclosed in writing to the
Company prior to the date hereof. Other than the foregoing arrangements, the
Company is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
4.11 Opinion of Financial Advisor. The Purchaser has received the opinion of
----------------------------
Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to the
effect that, as of the date hereof, the Merger is fair to the Purchaser from a
financial point of view.
4.12 Financing. Immediately following the Effective Time, the Purchaser will
---------
have available all of the funds required to satisfy the portion of the Merger
Consideration to be paid in cash pursuant to the terms hereof.
4.13 No Regulatory Disqualifiers. To the knowledge of the Purchaser, as of
---------------------------
the date hereof, no event has occurred or condition exists in connection with
the Merger that would cause the Purchaser to fail to satisfy any material
applicable statute or written regulation of any applicable insurance regulatory
authority.
4.14 DGCL Section 203. The business combination restrictions of Section 203
----------------
of the DGCL are not applicable to the transactions contemplated by this
Agreement.
4.15 Interim Operations of the Sub. The Sub was formed solely for the
-----------------------------
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities, had conducted its operations only as contemplated
hereby and will not have a negative net worth as of the Effective Time.
ARTICLE 5
COVENANTS
5.1 Alternative Proposals. Prior to the Effective Time, the Company agrees
---------------------
(a) that neither it nor any of its Subsidiaries shall, nor shall it or any of
its Subsidiaries permit their respective officers, directors, employees, agents
and representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) to, (x)
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to (i) a
merger, acquisition, consolidation or similar transaction involving, or purchase
of (A) any assets of the Company and its Subsidiaries (other than purchases of
securities and other investments from the Company's investment portfolio
consistent with past practice) or (B) any outstanding shares of Company Common
Stock, including any shares not already owned by the Purchaser or the Purchaser
Subsidiaries, (ii) any tender offer or exchange offer with respect to shares of
Company Common Stock, or (iii) any other transaction the consummation of which
could be reasonably expected to impede, interfere with, prevent or materially
delay the merger or which could reasonably be expected to dilute materially the
benefits to the Purchaser of the transactions contemplated under this Agreement
(any such proposal or offer being hereinafter referred to as an "Alternative
Proposal") or (y) engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Alternative Proposal (excluding the Merger and the
Recapitalization contemplated by this Agreement), or (z) agree to, recommend or
approve any Alternative Proposal, and (b) that it will notify the Purchaser
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or any discussions are
sought to be initiated or continued with, it. Nothing contained in this Section
5.1 shall prevent the Company or the Special Committee from discussing, for the
purpose of determining the terms and conditions of a bona fide Alternative
Proposal not solicited in violation of this Agreement provided that the Special
Committee determines in good faith, upon the advice of outside counsel, that
failure to do so would likely be a breach of its fiduciary duties.
(b) Except as set forth in this Section 5.2(b), neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to the Purchaser, the
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<PAGE>
approval or recommendation by such Board of Directors (or such committee) of
this Agreement or the Merger, (ii) approve or recommend, or propose to approve
or recommend, any Alternative Proposal or (iii) cause the Company to enter into
any agreement with respect to any Alternative Proposal; provided, however, in
-------- -------
the event that prior to the Effective Time the Board of Directors of the Company
or the Special Committee determines in good faith, upon advice of counsel, that
failure to do so would likely be a breach of its fiduciary duties, the Board of
Directors of the Company or the Special Committee, as the case may be, may
withdraw or modify its approval or recommendation of this Agreement and the
Merger as a result of an Alternative Proposal. The Purchaser shall immediately
advise the Company and the Special Committee orally and in writing of any
Alternative Proposals and shall describe the material terms and conditions of
such Alternative Proposal and the identity of the person making such Alternative
Proposal.
5.2 Interim Operations. (a) Prior to the Effective Time, except as set
------------------
forth in the Company Disclosure Letter or as contemplated by any other provision
of this Agreement, unless the Purchaser has consented in writing thereto, the
Company:
(i) shall, and shall cause each of its Significant Subsidiaries to,
conduct its operations according to their usual, regular and ordinary
course in substantially the same manner as heretofore conducted;
(ii) shall not amend its Certificate of Incorporation or Bylaws or
comparable governing instruments (other than to permit the
consummation of the transactions contemplated by this Agreement);
(iii) shall promptly notify the Purchaser of any breach of any
representation or warranty contained herein or any Company Material
Adverse Effect;
(iv) shall promptly deliver to the Purchaser true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the
date of this Agreement;
(v) shall not (x) except pursuant to the exercise of options, warrants,
conversion rights and other contractual rights existing on the date
hereof and disclosed pursuant to this Agreement, or pursuant to the
Recapitalization issue any shares of its capital stock, effect any
stock split or otherwise change its capitalization as it existed on
the date hereof, (y) grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to
acquire any shares of its capital stock, or (z) adopt any new employee
benefit plan (including any stock option, stock benefit or stock
purchase plan) or amend any existing employee benefit plan in any
material respect;
(vi) shall not (i) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital
stock or other ownership interests (other than regular quarterly cash
dividends not in excess of $.05 per share) or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its Subsidiaries, or make any
commitment for any such action;
(vii) shall not, and shall not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) except in the ordinary course of business and
consistent with past practice, or to acquire any business or assets,
in each case for an amount exceeding $25,000,000.
(viii) shall not incur any material amount of indebtedness for borrowed money
or make any loans, advances or capital contributions to, or
investments (other than noncontrolling investments in the ordinary
course of business) in any other person other than a wholly owned
Company Subsidiary, or issue or sell any debt securities, other than
borrowings under existing lines of credit in the ordinary course of
business, in each case in an amount exceeding $35,000,000; and
(ix) shall not make any change to its accounting (including tax accounting)
methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of
tax accounting methods, principles or practices, in the ordinary
course of business of the Company or any of its Subsidiaries.
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<PAGE>
(b) Prior to the Effective Time, except as set forth in the Purchaser
Disclosure Letter or as contemplated by this Agreement, unless the Company and
the Special Committee have consented in writing thereto, the Purchaser:
(i) shall not issue any shares of its capital stock at less than fair
market value (other than pursuant to any Purchaser Stock Plans) or
effect any stock split of its capital stock;
(ii) shall promptly notify the Company of any breach of any representation
or warranty contained herein or any Purchaser Material Adverse Effect;
(iii) shall promptly deliver to the Company true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the
date of this Agreement; and
(iv) shall not declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital
stock or other ownership interests (other than regular quarterly cash
dividends not to exceed $0.05 per share).
5.3 Filings; Other Action. Subject to the terms and conditions herein
---------------------
provided, the Company and the Purchaser shall: (a) promptly make their
respectively filings and thereafter make any other required submissions under
applicable state insurance laws; (b) use all reasonable efforts to cooperate
with one another in (i) determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
Governmental Entities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations; and (c) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement.
5.4 Inspection of Records. From the date hereof to the Effective Time, each
---------------------
of the Company and the Purchaser shall: (i) allow all designated officers,
attorneys, accountants and other representatives of the other reasonable access
at all reasonable times to the offices, records and files, correspondence,
audits and properties, as well as to all information relating to commitments,
contracts, titles and financial position, or otherwise pertaining to the
business and affairs, of the Company and the Purchaser and their respective
Subsidiaries, as the case may be, (ii) furnish to the other, the other's
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 the employees, counsel and financial
advisors of the Company or the Purchaser, as the case may be, to cooperate with
the other in the other's investigation of the business of it and its
Subsidiaries.
5.5 Publicity. At all times at or before the Effective Time, the Company,
---------
the Purchaser and the Special Committee shall consult with one another before
issuing or making any reports, statements, or release to the public with respect
to this Agreement or the transactions contemplated hereby and shall use good
faith efforts to agree on the text of a joint public report, statement, or
release or shall use good faith efforts to obtain the others' approval of the
text of any public report, statement, or release to be made solely on behalf of
any of the other. If the Company, the Purchaser and the Special Committee are
unable to agree on or approve any such public report, statement, or release and
such report, statement, or release is, in the judgment of legal counsel to the
Company, the Purchaser or the Special Committee, required by or advisable in
connection with applicable law or the rules and regulations of any applicable
stock exchange or may be appropriate in order to discharge its disclosure
obligations, then the Company, the Purchaser or the Special Committee, as the
case may be, may make or issue such report, statement, or release, provided that
such report, statement or release is provided to the others a reasonable period
prior to issuance and reasonable good faith efforts are made to obtain the
consent of the others to such report, statement or release.
5.6 Registration Statement. The Purchaser and the Company shall cooperate
----------------------
and promptly prepare and the Purchaser shall file with the SEC as soon as
practicable (i) a Schedule 13E-3 Transaction Statement (the "Transaction
Statement") under the Exchange Act with respect to the transactions contemplated
by this Agreement and (ii) a Registration Statement on Form S-4 (the "Form S-4)
under the Securities Act, with respect to the Purchaser Common Stock issuable in
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<PAGE>
the Merger. A portion of such Registration Statement shall also serve as an
information statement with respect to the transactions contemplated by this
Agreement, including the Merger (the "Information Statement/Prospectus"). Each
of the respective parties will cause the information required to be supplied by
such party for inclusion in the Information Statement/Prospectus, the Form S-4
and the Transaction Statement to (a) be supplied as promptly as practicable and
(b) 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 were made,
not misleading. The respective parties shall cause each of the Information
Statement/Prospectus, the Form S-4 and the Transaction Statement to comply as to
form in all material respects with the applicable rules and regulations
prescribed by the SEC. If at any time prior to the Effective Time, any event
with respect to a party should occur that is required to be described in an
amendment or, or a supplement to, the Transaction Statement, the Form S-4 or the
Information Statement/Prospectus, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the stockholders of the Company. Any statement that
is made or incorporated by reference in the Transaction Statement, the Form S-4
or the Information Statement/Prospectus shall be deemed modified or superseded
to the extent any later filed document incorporated by reference in the
Transaction Statement, Form S-4 or Information Statement/Prospectus or any
statement included in the Transaction Statement, the Form S-4 or the Information
Statement/Prospectus modifies or supersedes such earlier statement. As promptly
as practicable, the Purchaser shall use all reasonable efforts, and the Company
shall cooperate with the Purchaser, to (w) file the Information
Statement/Prospectus, the Form S-4 and the Transaction Statement with the
applicable regulatory authorities, (x) respond to any comments made by such
regulatory authorities with respect to the Information Statement/Prospectus, the
Form S-4 and the Transaction Statement, (y) have the Form S-4 declared effective
by the SEC and kept effective as long as is necessary to consummate the Merger
and (z) mail the Information Statement/Prospectus to the stockholders of the
Company. The Purchaser shall use its best efforts to obtain prior to the
effective date of the Form S-4, all necessary state securities law or "Blue Sky"
permits or approvals required to carry out the transactions contemplated by this
Agreement and shall pay all expenses incident thereto. The Purchaser shall
advise the Company and the Special Committee, promptly after it receives notice
thereof, of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the Purchaser Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Information Statement/Prospectus or the Form S-4 or comments
thereon and responses thereto or requests by the SEC for additional information.
5.7 Written Consent. The Purchaser shall cause SMA to execute, as
---------------
Stockholder of the Company, a written consent of shareholders (a) adopting of
this Agreement and approving the Merger and (b) approving the amendment to the
certificate of incorporation of the Company to authorize the issuance of the
Class B Common Stock pursuant to the Recapitalization (the "Written Consent").
5.8 Listing Application. The Purchaser shall promptly prepare and submit to
-------------------
the New York Stock Exchange, (the "NYSE") listing applications covering the
shares of Purchaser Common Stock issuable in the Merger, and shall use
reasonable efforts to obtain, prior to the Effective Time, approval for the
listing of such Purchaser Common Stock, subject to official notice of issuance.
5.9 Further Action. Each party hereto shall, subject to the fulfillment of
--------------
or before the Effective Time of each of the conditions or performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger and the
Recapitalization.
5.10 Expenses. Whether or not the Merger is consummated, all costs and
--------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except as
expressly provided herein and except that (a) the filing fee in connection with
the filing of the Form S-4, the Transaction Statement and the Information
Statement/Prospectus with the SEC and (b) the expenses incurred in connection
with printing and mailing the Form S-4 and the Information Statement/Prospectus
shall be shared equally by the Company and the Purchaser.
5.11 Takeover Statute. If any "fair price," "moratorium," "control share
----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the members
of the Special Committee of the Board of Directors of the Company and the Board
of Directors of the Company shall grant such
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<PAGE>
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and thereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby and thereby.
5.12 Indemnification.
---------------
(a) In the event of any threatened or actual claim, suit, proceeding or
investigation, whether civil, criminal or administrative (each, a "Claim"),
in which any of the present or former directors or officers (the
"Indemnified Parties") of the Company or any of its Subsidiaries is, or is
threatened to be, made a party by reason of the fact that he or she is or
was a director, officer, employee or agent of the Company or any of its
Subsidiaries, or is or was serving at the request of the Company or any of
its Subsidiaries as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, whether
before the Effective Time, or arising out of or related to the transactions
contemplated by this Agreement, the Surviving Corporation and the Purchaser
shall, jointly and severally, indemnify and hold harmless to the fullest
extent permitted under applicable law (and shall also advance expenses
incurred to the fullest extent permitted under applicable law) each such
Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with any such Claim. In the event of any such
Claim, the Purchaser and the Surviving Corporation shall proceed at their
own expense to defend and dispose of such Claim in the manner they deem
appropriate, provided that the Indemnified Party shall have the right to
employ separate legal counsel and participate in the defense of such Claim
at his or her own expense, unless the interests of such Indemnified Party
in such Claim are materially different from and in conflict with those of
the Purchaser and the Surviving Corporation or that he or she may have
defenses that are different from or in addition to and in conflict with
those of the Purchaser and the Surviving Corporation, in which case the
fees and expenses of such counsel shall be paid by the Purchaser and the
Surviving Corporation. Neither the Company, the Purchaser nor the
Surviving Corporation shall (i) be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld), (ii) have any obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and
such determination shall have become final and nonappealable, that
indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law. Any Indemnified Party wishing to claim
indemnification under this Section 5.12(a), upon learning of any such
claim, action, suit, proceeding or investigation, shall promptly notify the
Surviving Corporation, although the failure to so notify shall not relieve
the Surviving Corporation from any liability, except to the extent that
such failure prejudices the Surviving Corporation.
(b) All rights to indemnification (including with respect to the
advancement of expenses) for acts or omissions occurring prior to the
Effective Time now existing in favor of the Indemnified Parties as provided
in the certificates of incorporation or by-laws of the Company or its
Subsidiaries shall survive the Merger and shall continue in full force and
effect in accordance with their terms for a period of six years following
the Effective Time (or if the Merger is not consummated, six years from the
date of this Agreement); provided, however, that all rights to
indemnification in respect to any claim asserted or made within such period
shall continue until disposition of such claim.
(c) The provisions of this Section 5.12 are intended to be for the
benefit of, and shall be enforceable by, each such Indemnified Party and
each such Indemnified Party's heirs and representatives.
(d) The Company shall maintain its existing officers' and directors'
liability insurance or reasonably comparable liability insurance ("D&O
Insurance") for a period of six years following the Effective Time (or if
the Merger is not consummated, six years from the date of this Agreement);
so long as the annual premium therefor is not more than 200% in excess of
the last annual premium paid prior to the date hereof (the "Current
Premium"); provided, however, that if the existing D&O Insurance expires,
is terminated or cancelled during such six-year period, the Surviving
Corporation shall use its best efforts to obtain as much D&O Insurance as
can be obtained for the remainder of such period for a premium not in
excess (on an annualized basis) of 200% of the Current Premium.
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<PAGE>
5.13 Cooperation of the Purchaser. The Purchaser shall take all actions
----------------------------
reasonably necessary to permit the Company to fulfill its obligations under this
Agreement, including using reasonable efforts to cause directors, officers or
employees of the Company who are directors, officers or employees of the
Purchaser or any of its Subsidiaries to approve or take or refrain from taking
any actions by the Company required (or prohibited, as the case may be) by this
Agreement. The Purchaser shall not willfully interfere with the Company's
performance of its obligations under this Agreement. Notwithstanding any other
provision of this Agreement, any actions or omissions of the Company that result
from a violation by the Purchaser of the preceding sentence shall not be deemed
a breach of this Agreement by the Company.
5.14 Letter of Purchaser's Accountants. Following receipt by Price
---------------------------------
Waterhouse LLP, the Purchaser's independent auditors, of (i) an appropriate
request from the Company pursuant to SAS No. 72 and (ii) such additional
information or representations reasonably required by Price Waterhouse LLP, the
Purchaser shall use best efforts to cause to be delivered to the Company a
letter of Price Waterhouse LLP, dated a date within two business days before the
effective date of the S-4, and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in connection
with registration statements and disclosure statements similar to this S-4 and
the Information Statement/Prospectus.
5.15 Letter of Company's Accountants. Following receipt by Price Waterhouse
-------------------------------
LLP, the Company's independent auditors, of an appropriate request from the
Purchaser pursuant to SAS No. 72, the Company shall use best efforts to cause to
be delivered to the Purchaser a letter of Price Waterhouse LLP, dated a date
within two business days before the effective date of the S-4, and addressed to
the Purchaser, in form and substance satisfactory to the Purchaser and customary
in scope and substance for "cold comfort" letters delivered by independent
public accountants in connection with registration statements and disclosure
statements similar to the S-4 and the Information Statement/Prospectus.
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved in the manner required by applicable law or by the applicable
regulations of any stock exchange or other regulatory body, as the case may
be, by the holders of the issued and outstanding shares of capital stock of
the Company.
(b) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
(c) The Form S-4 shall have become effective and shall be effective at
the Effective Time, and no stop order suspending effectiveness of the Form
S-4 shall have been issued, and the SEC shall not have initiated, or, to
the knowledge of the Purchaser or the Company, threatened to initiate, any
action, suit, proceeding or investigation to suspend the effectiveness
thereof, and all necessary approvals under state securities laws relating
to the issuance or trading of the Purchaser Common Stock to be issued to
the Company stockholders in connection with the Merger shall have been
received.
(d) All orders and approvals of the insurance regulatory authorities
required in connection with the consummation of the transactions
contemplated hereby shall have been obtained or made, whether or not any
appeal or request for reconsideration of such order is pending, or whether
the time for filing any appeal or request for reconsideration or for any
action by the insurance regulatory authorities has expired.
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(e) All consents, authorizations, orders and approvals of filings or
registrations with) any Governmental Entity (other than the insurance
regulatory authorities) required in connection with the execution, delivery
and performance of this Agreement shall have been obtained or made, except
for any documents required to be filed after the Effective Time and except
where the failure to have obtained or made any such consent, authorization,
order, approval, filing or registration would not have a material adverse
effect on the business, results of operations or financial condition of the
Purchaser and the Company (and their respective Subsidiaries), taken as a
whole, following the Effective Time.
(f) The Purchaser Common Stock to be issued in the Company stockholders
in connection with the Merger shall have been approved for listing on the
NYSE, subject only to official notice of issuance.
(g) The Recapitalization shall have been completed.
6.2 Conditions to Obligation of Company to Effect the Merger. The obligation
--------------------------------------------------------
of the Company to effect the Merger shall be subject to the fulfillment at or
prior to the Effective Time of the condition that:
(a) each of the Purchaser and Merger Sub shall have performed in all
material respects its agreements contained in this Agreement required to be
performed on or prior to the Effective Time, the representations and
warranties of the Purchaser and Merger Sub contained in this Agreement and
in any document delivered in connection herewith shall be true and correct
as of the Effective Time, except (i) for changes specifically permitted by
this Agreement and (ii) that those representations and warranties that
address matters only as of a particular date shall remain true and correct
as of such date, and the Company shall have received a certificate of the
President or a Vice President of the Purchaser, dated the Effective Time,
certifying to such effect.
(b) the Company shall have received the fairness opinion of Salomon
Brothers Inc to the effect that, as of the date hereof, the Merger
Consideration is fair to the holders of the Company Common Stock (other
than the Purchaser and its Subsidiaries) from a financial point of view and
such fairness opinion shall not have been withdrawn.
6.3 Conditions to Obligation of Purchaser to Effect the Merger. The
----------------------------------------------------------
obligation of the Purchaser to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the condition that:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, the representations and warranties of the Company
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct as of the Effective Time, except (i) for
changes specifically permitted by this Agreement and (ii) that those
representations and warranties that address matters only as of a particular
date shall remain true and correct as of such date, and the Purchaser shall
have received a certificate of the President or a Vice President of the
Company, dated the Effective Time, certifying to such effect; provided,
however, that the existence of any facts, conditions or circumstances that
the Purchaser, in light of its ownership of Company Common Stock and
representation on the Board of Directors of the Company, knew as of the
date hereof shall not be a basis for or give rise to any claim or assertion
that the representations and warranties of the Company are not true and
correct as of the Effective Time.
(b) Purchaser shall have received a fairness opinion of Merrill Lynch to
the effect that, as of the date hereof, the Merger is fair to the Purchaser
from a financial point of view and such fairness opinion shall not have
been withdrawn.
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ARTICLE 7
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated and the
-----------------------------
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval of this Agreement by the stockholders of the Company, by the mutual
consent of the Purchaser, Merger Sub and, with the consent of the Special
Committee, the Company.
7.2 Termination by Either Purchaser or Company. This Agreement may be
------------------------------------------
terminated and the Merger may be abandoned by action of the Board of Directors
of either the Purchaser or (with the consent of the Special Committee of the
Board of Directors of the Company) the Company if (a) the Merger shall not have
been consummated by September 30, 1997, or (b) a United States federal or state
court of competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and nonappealable;
provided that the party seeking to terminate this Agreement pursuant to this
clause (b) shall have used all reasonable efforts to remove such injunction,
order or decree, and provided, in the case of a termination pursuant to clause
(a) above, that the terminating party shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by September 30,
1997, or (c) insurance regulatory authorities shall have issued an order or
ruling or taken other action denying approval of the transactions contemplated
by this Agreement, and such order, ruling or other action shall have become
final and nonappealable.
7.3 Termination by Company. This Agreement may be terminated and the Merger
----------------------
may be abandoned at any time prior to the Effective Time, by action of the Board
of Directors of the Company (with the consent of the Special Committee) if,
prior to the Effective Time, (a) the Board of Directors determines in good
faith, upon advice of counsel, that notwithstanding a binding commitment to
consummate the Merger pursuant to the Merger Agreement entered into in the
proper exercise of their fiduciary duties, failure to terminate this Agreement
would likely be a breach of such fiduciary duties by reason of an Alternative
Proposal being made; provided that the Company shall notify the Purchaser
promptly of its intention to terminate this Agreement or to enter into a
definitive agreement with respect to any Alternative Proposal, but in no event
shall such notice be given less than 48 hours prior to the public announcement
of the Company's termination of this Agreement, or (b) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the Purchaser, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by the Company to
the Purchaser, or (c) the Board of Directors of the Purchaser shall have
withdrawn or modified in a manner materially adverse to the Company its approval
or recommendation of this Agreement or the Merger.
7.4 Termination by Special Committee. This Agreement may be terminated and
--------------------------------
the Merger may be abandoned by the Special Committee on behalf of the Company at
any time prior to the Effective Time if the Special Committee withdraws or
materially modifies or changes its recommendation of this Agreement or the
Merger and the Special Committee determines in good faith, upon advice of
counsel, that notwithstanding a binding commitment to consummate the Merger
pursuant to the Merger Agreement entered into in the proper exercise of their
fiduciary duties, failure to terminate this Agreement would likely be a breach
of such fiduciary duties by reason of an Alternative Proposal; provided that the
Special Committee shall notify the Company and the Purchaser promptly of its
intention to terminate this Agreement, but in no event shall such notice be
given less than 48 hours prior to the public announcement of such termination.
7.5 Termination by Purchaser. This Agreement may be terminated and the
------------------------
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by the stockholders of the Company, by action of the Board of
Directors of the Purchaser, if (a) the Board of Directors of the Company and the
Special Committee shall have withdrawn or modified in a manner materially
adverse to the Purchaser its approval or recommendation of this Agreement or the
Merger, or (b) there has been a breach by the Company of any representation or
warranty contained in this Agreement which would have or would be reasonably
likely to have a Company Material Adverse Effect, or (c) there has been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of the Company, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Purchaser to the Company; provided, however, that the existence of
any facts, conditions or circumstances that the Purchaser, in light of its
ownership of Company Common Stock and representation on the Board of Directors
of the Company, knew as of the date hereof shall not be a basis for or give rise
to any right of Purchaser to terminate this Agreement pursuant to (b) above due
to a breach of a representation or warranty of the Company.
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7.6 Effect of Termination and Abandonment. (a) In the event of termination
-------------------------------------
of this Agreement and the abandonment of the Merger pursuant to this Article 7,
all obligations of the parties hereto shall terminate, except the obligations of
the parties pursuant to this Sections 5.10 and 5.12 and except for the
provisions of Article 8. Moreover, in the event of termination of this
Agreement pursuant to Section 7.3 or Section 7.5, nothing herein shall prejudice
the ability of the nonbreaching party from seeking damages from any other party
for any willful breach of this Agreement, including, without limitation,
attorneys' fees and the right to pursue any remedy at law or in equity.
7.7 Extension; Waiver. At any time prior to the Effective Time, any party
-----------------
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto or (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein;
provided, however, that any such action taken by the Board of Directors of the
Company shall require the consent of the Special Committee. Any term or
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof; such waiver must be in writing and must be
executed by the President, chief executive officer, chief financial officer,
general counsel, or chief operating officer of such party; provided, however,
that the waiver of any of the terms or conditions by the Company shall require
the consent of the Special Committee. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. All
---------------------------------------------------------
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger; provided, however, that the agreements contained in Article 2,
Sections 5.10 and 5.12 and this Article 8 shall survive the Merger and Section
7.6 shall survive termination.
8.2 Notices. Any notice required to be given hereunder shall be sufficient
-------
if in writing, and sent by facsimile transmission and by courier service (with
proof of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Purchaser: If to the Company:
Allmerica Financial Corporation Allmerica Property & Casualty
Companies, Inc
440 Lincoln Street 440 Lincoln Street
Worcester, MA 01653 Worcester, MA 01653
Attention: Edward J. Parry III Attention: James A. Cotter, Jr.
Telecopier No.: (508) 855-4640 Telecopier No.: [(508) 855-7588]
With copies to: With copies to:
Ropes & Gray LeBoeuf, Lamb, Greene &
MacRae, L.L.P.
One International Place 125 West 55th Street
Boston, MA 02110 New York, NY 10019
Attention: Lauren I. Norton, Esq. Attention: William S. Lamb, Esq.
Telecopier No.: (617) 951-7050 Telecopier No.: (212) 424-8500
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.3 Assignment, Binding Effect. Neither this Agreement nor any of the
--------------------------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the
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other parties; provided, however, that any assignment of this Agreement shall
require the consent of the Special Committee. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Except as
specifically provided in this Agreement to the contrary, nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
8.4 Entire Agreement. This Agreement, the Exhibits, the Company Disclosure
----------------
Letter and the Purchaser Disclosure Letter between the Company and the Purchaser
and any documents delivered by the parties in connection herewith constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any party hereto unless made in writing and signed by all
parties hereto.
8.5 Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval; provided, however, that
any amendment to this Agreement shall require the consent of the Special
Committee. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws.
8.7 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.8 Headings. Headings of the Articles and Sections of this Agreement are
--------
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
8.9 Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.10 Waivers. Except as provided in this Agreement, no action taken pursuant
-------
to this Agreement, including, without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11 Incorporation of Exhibits. The Company Disclosure Letter, the Purchaser
-------------------------
Disclosure Letter and all Exhibits attached hereto and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
8.12 Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
8.13 Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is
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accordingly agreed that any party hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Delaware Court, this being
in addition to any other remedy to which such party may be entitled to at law or
in equity.
8.14 Subsidiaries. As used in this Agreement, the word "Subsidiary" or in
------------
the plural "Subsidiaries" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, of
which such party directly or indirectly owns or controls at least a majority of
the securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization, or any
organization of which such party is a general partner. When a reference is made
in this Agreement to Significant Subsidiaries, the words "Significant
Subsidiaries" shall refer to Subsidiaries (as defined above) which constitute
"significant subsidiaries" under Rule 405 promulgated by the SEC under the
Securities Act. For purposes of this Agreement, each of the Company and each
Subsidiary of the Company shall be deemed not to be a Subsidiary of the
Purchaser.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
ATTEST: ALLMERICA FINANCIAL CORPORATION
By: /s/ John F. Kelly By: /s/ John F. O'Brien
-------------------------------- --------------------------------
Title: Chief Executive Officer
ATTEST: ALLMERICA PROPERTY & CASUALTY
COMPANIES, INC.
By: /s/ John F. Kelly By: /s/ John F. O'Brien
-------------------------------- --------------------------------
Title: Chief Executive Officer
ATTEST: APY ACQUISITION, INC.
By: /s/ John F. Kelly By: /s/ Edward J. Parry III
-------------------------------- --------------------------------
Title: President
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EXHIBIT 2
ALLMERICA FINANCIAL CORPORATION,
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
ANNOUNCE DEFINITIVE MERGER AGREEMENT
Worcester, Mass., February 19, 1997 -- Allmerica Financial Corporation
(NYSE:AFC) and Allmerica Property & Casualty Companies, Inc. (NYSE:APY)
announced the signing of a definitive merger agreement in which Allmerica
Financial will acquire the 40.5% of Allmerica P&C, or 24.2 million
shares, that it is does not already own, for approximately $800 million, or
$33.00 per share.
"Allmerica P&C is vital to our success, and remains central to our core strategy
of offering clients a range of financial security and insurance protection
products," said John F. O'Brien, chief executive officer at Allmerica Financial
Corporation. "This combination allows Allmerica Financial to allocate capital
more flexibly among operations, and will enable us to further focus attention on
enhancing long-term shareholder value."
Under the terms of the transaction, shareholders of Allmerica P&C will have the
right to receive $17.60 in cash and 0.40 shares of Allmerica Financial common
stock in exchange for each share of Allmerica P&C. However, if Allmerica
Financial's 10-day average closing stock price prior to the consummation of the
merger falls below $36.00 per share or increases above $41.00 per share, the
cash component of the merger consideration will be adjusted so that the value
received by Allmerica P&C shareholders in the exchange is no less than $32.00
per share and no greater than $34.00 per share. Additionally, in lieu of
receiving the specified combination of cash and stock, shareholders of Allmerica
P&C may elect to receive consideration either entirely in the form of cash or
entirely in common shares of Allmerica Financial. However, these elections will
be limited by aggregate amounts of Allmerica Financial common stock and cash
issuable in the merger. An aggregate of approximately 9.67 million shares of
Allmerica Financial common stock will be issued to Allmerica P&C shareholders in
the merger transaction.
Consummation of the merger is subject to customary terms and conditions,
including review by insurance regulators and the Securities and Exchange
Commission, and is expected to be completed by the third quarter of 1997.
Allmerica Financial Corporation, headquartered in Worcester, Mass., is the
holding company for a diversified group of insurance and financial services
companies with total assets of $19 billion. Allmerica Financial markets
insurance and retirement savings products, as well as group benefit programs, to
individual and institutional clients. Through Allmerica P&C, Allmerica
Financial offers property and casualty insurance products nationally through an
independent agent network.
Allmerica P&C is among the top 30 property and casualty insurers in the United
States, based on net written premium. Allmerica P&C is regionally-focused in
the Northeast and Michigan, and operates through two primary subsidiaries, The
Hanover Insurance Company and Citizens Corporation (NYSE: CZC).
CONTACTS
Investors Media
- --------- -----
Jean Peters Michael F. Buckley
Vice President, Investor Relations Director, Public Information
(508) 855-3599 (508) 855-3099
