Exhibit 99.1
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AGREEMENT AND PLAN OF MERGER
DATED MAY 25, 2000
AMONG
RELIANCE GROUP HOLDINGS, INC.
LEUCADIA NATIONAL CORPORATION
AND
LEUCADIA ACQUISITION CORP.
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NY2:/912954/08/76830.0244
<PAGE>
DEFINITION INDEX
<TABLE>
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PAGE
<S> <C> <C>
Article I THE MERGER..............................................................................................2
SECTION 1.1 The Merger..............................................................................2
SECTION 1.2 Effective Time..........................................................................2
SECTION 1.3 Closing of the Merger...................................................................2
SECTION 1.4 Effects of the Merger...................................................................3
SECTION 1.5 Certificate of Incorporation and Bylaws.................................................3
SECTION 1.6 Directors...............................................................................3
SECTION 1.7 Officers................................................................................3
SECTION 1.8 Parent's Structuring Option.............................................................3
Article II CONVERSION OF SHARES....................................................................................4
SECTION 2.1 Conversion of Shares....................................................................4
SECTION 2.2 Stock Options...........................................................................5
SECTION 2.3 Exchange Fund...........................................................................6
SECTION 2.4 Exchange Procedures.....................................................................6
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates................................7
SECTION 2.6 No Further Ownership Rights in Company Common Stock.....................................7
SECTION 2.7 No Fractional Shares of Parent Common Stock.............................................7
SECTION 2.8 Termination of Exchange Fund............................................................8
SECTION 2.9 No Liability............................................................................8
SECTION 2.10 Lost Certificates.......................................................................9
SECTION 2.11 Withholding Rights......................................................................9
SECTION 2.12 Stock Transfer Books....................................................................9
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................9
SECTION 3.1 Organization and Qualification; Subsidiaries...........................................10
SECTION 3.2 Capitalization of the Company and Its Subsidiaries.....................................10
SECTION 3.3 Authority Relative to This Agreement; Consents and Approvals...........................11
SECTION 3.4 SEC Reports; Financial Statements......................................................12
SECTION 3.5 No Undisclosed Liabilities.............................................................13
SECTION 3.6 Absence of Changes.....................................................................13
<PAGE>
DEFINITION INDEX
(CONTINUED)
SECTION 3.7 Information Supplied...................................................................15
SECTION 3.8 Consents and Approvals; No Violations..................................................16
SECTION 3.9 No Default.............................................................................16
SECTION 3.10 Real Property..........................................................................17
SECTION 3.11 Litigation.............................................................................17
SECTION 3.12 Compliance with Applicable Law.........................................................18
SECTION 3.13 Employee Plans.........................................................................18
SECTION 3.14 Labor Matters..........................................................................21
SECTION 3.15 Environmental Matters..................................................................21
SECTION 3.16 Tax Matters............................................................................24
SECTION 3.17 Absence of Questionable Payments.......................................................28
SECTION 3.18 Material Contracts.....................................................................28
SECTION 3.19 Insurance..............................................................................29
SECTION 3.20 Risk Management Instruments............................................................29
SECTION 3.21 Intellectual Property..................................................................30
SECTION 3.22 Opinion of Financial Advisor...........................................................31
SECTION 3.23 Brokers................................................................................31
SECTION 3.24 Takeover Statute; Dissenters' Rights...................................................31
SECTION 3.25 Related Party Transaction..............................................................32
SECTION 3.26 SAP Statements.........................................................................32
SECTION 3.27 Reserves...............................................................................32
SECTION 3.28 Threats of Cancellation................................................................33
SECTION 3.29 Insurance Issued.......................................................................33
SECTION 3.30 Reinsurance and Coinsurance............................................................34
SECTION 3.31 Regulatory Matters.....................................................................35
SECTION 3.32 Surety Sale............................................................................35
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................................................36
SECTION 4.1 Organization...........................................................................36
SECTION 4.2 Capitalization of Parent and Its Subsidiaries..........................................36
<PAGE>
DEFINITION INDEX
(CONTINUED)
SECTION 4.3 Authority Relative to This Agreement...................................................37
SECTION 4.4 SEC Reports; Financial Statements......................................................38
SECTION 4.5 Information Supplied...................................................................39
SECTION 4.6 Consents and Approvals; No Violations..................................................39
SECTION 4.7 Compliance with Applicable Law.........................................................40
SECTION 4.8 Section 368(a) Reorganization..........................................................40
SECTION 4.9 No Prior Activities....................................................................40
SECTION 4.10 Brokers................................................................................41
SECTION 4.11 Company Benefit Plans and Employee Policies............................................41
SECTION 4.12 No Undisclosed Liabilities; Ordinary Course............................................41
SECTION 4.13 Prior Acquisition Approvals............................................................41
Article V COVENANTS RELATED TO CONDUCT OF BUSINESS...............................................................41
SECTION 5.1 Conduct of Business of the Company.....................................................41
SECTION 5.2 Conduct of Business of Parent..........................................................45
SECTION 5.3 Access to Information; Confidentiality.................................................46
Article VI ADDITIONAL AGREEMENTS..................................................................................47
SECTION 6.1 Preparation of S-4 and the Proxy Statement.............................................47
SECTION 6.2 Public Announcements...................................................................48
SECTION 6.3 Meetings...............................................................................48
SECTION 6.4 Commercially Reasonable Efforts........................................................49
SECTION 6.5 Acquisition Proposals..................................................................50
SECTION 6.6 Indemnification; Directors' and Officers' Insurance....................................51
SECTION 6.7 Notification of Certain Matters........................................................53
SECTION 6.8 SEC Filings............................................................................53
SECTION 6.9 Fees and Expenses......................................................................53
SECTION 6.10 Obligations of Merger Sub..............................................................54
SECTION 6.11 Listing of Stock.......................................................................54
SECTION 6.12 Antitakeover Statutes..................................................................54
SECTION 6.13 Additional Financial Statements........................................................54
SECTION 6.14 Tax Free Reorganization Treatment......................................................54
<PAGE>
DEFINITION INDEX
(CONTINUED)
SECTION 6.15 Stock Purchase Plan....................................................................55
SECTION 6.16 Employee Benefits......................................................................55
Article VII CONDITIONS TO CONSUMMATION OF THE MERGER...............................................................55
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger............................55
SECTION 7.2 Conditions to the Obligations of the Parent and Merger Sub.............................56
SECTION 7.3 Conditions to the Obligations of the Company...........................................57
Article VIII TERMINATION; AMENDMENT; WAIVER.........................................................................58
SECTION 8.1 Termination by Mutual Agreement........................................................58
SECTION 8.2 Termination by Either Parent or the Company............................................58
SECTION 8.3 Termination by the Company.............................................................59
SECTION 8.4 Termination by Parent..................................................................60
SECTION 8.5 Effect of Termination and Abandonment..................................................60
SECTION 8.6 Amendment..............................................................................61
SECTION 8.7 Extension; Waiver......................................................................62
Article IX MISCELLANEOUS..........................................................................................62
SECTION 9.1 Nonsurvival of Representations and Warranties..........................................62
SECTION 9.2 Entire Agreement; Assignment...........................................................62
SECTION 9.3 Notices................................................................................63
SECTION 9.4 Governing Law..........................................................................63
SECTION 9.5 Descriptive Headings...................................................................63
SECTION 9.6 Parties in Interest....................................................................63
SECTION 9.7 Severability...........................................................................63
SECTION 9.8 Specific Performance...................................................................64
SECTION 9.9 Counterparts...........................................................................64
SECTION 9.10 Interpretation.........................................................................64
SECTION 9.11 Definitions............................................................................65
SCHEDULES
Schedule I
Schedule 7.1
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DEFINITION INDEX
(CONTINUED)
ACQUISITION PROPOSAL:.....................................................................................................65
AGENT.....................................................................................................................33
AGGREGATE SHARES...........................................................................................................8
ANNUAL STATEMENT..........................................................................................................32
ANTITRUST LAW.............................................................................................................49
ASSUMED STOCK OPTION.......................................................................................................5
AUDIT DATE................................................................................................................13
BENEFICIAL OWNERSHIP:.....................................................................................................65
BENEFICIALLY OWN:.........................................................................................................65
CERTIFICATE OF MERGER......................................................................................................2
CERTIFICATES...............................................................................................................6
CLOSING....................................................................................................................2
CLOSING DATE...............................................................................................................2
CODE.......................................................................................................................1
COMMON SHARES TRUST........................................................................................................8
COMPANY....................................................................................................................1
COMPANY BOARD.............................................................................................................12
COMPANY COMMON STOCK.......................................................................................................1
COMPANY DISCLOSURE SCHEDULE................................................................................................9
COMPANY OPTION PLANS.......................................................................................................5
COMPANY PERMITS...........................................................................................................18
COMPANY REQUISITE VOTE....................................................................................................12
COMPANY SCHEDULE DELIVERY DATE.............................................................................................9
COMPANY SEC FILINGS.......................................................................................................12
COMPANY SEC REPORTS.......................................................................................................12
COMPANY SECURITIES:.......................................................................................................11
COMPANY STOCK OPTION.......................................................................................................5
COMPANY STOCKHOLDER MEETING...............................................................................................48
CONTRACTS.................................................................................................................33
COPYRIGHTS................................................................................................................31
COVERED TRANSACTIONS......................................................................................................31
DGCL.......................................................................................................................2
DOJ 49
DUE DILIGENCE PERIOD......................................................................................................57
EFFECTIVE DATE.............................................................................................................2
EFFECTIVE TIME.............................................................................................................2
EMPLOYEE BENEFIT PLAN.....................................................................................................19
EMPLOYEE BENEFIT PLANS....................................................................................................19
ENFORCEABILITY EXCEPTION..................................................................................................34
ENVIRONMENTAL COSTS AND LIABILITIES.......................................................................................21
ENVIRONMENTAL LAW.........................................................................................................22
ENVIRONMENTAL PERMITS.....................................................................................................23
<PAGE>
DEFINITION INDEX
(CONTINUED)
ERISA AFFILIATE...........................................................................................................19
ESCROW AGENT..............................................................................................................61
EXCESS SHARES..............................................................................................................8
EXCHANGE ACT..............................................................................................................12
EXCHANGE AGENT.............................................................................................................6
EXCHANGE FUND..............................................................................................................6
EXCHANGE RATIO.............................................................................................................4
EXPENSES..................................................................................................................53
FEE PAYMENT CONDITION.....................................................................................................61
FINANCIAL ADVISORS........................................................................................................31
FTC 49
GAAP......................................................................................................................12
GOVERNMENTAL ENTITY.......................................................................................................16
HAZARDOUS MATERIAL........................................................................................................22
HOLDERS....................................................................................................................1
HSR ACT...................................................................................................................16
INDEMNIFIED PARTIES.......................................................................................................51
INDEMNIFIED PARTY.........................................................................................................51
INSURANCE SUBSIDIARIES....................................................................................................18
INTELLECTUAL PROPERTY.....................................................................................................30
INVESTMENT GUIDELINES.....................................................................................................14
IRS 19
KNOW:.....................................................................................................................65
KNOWLEDGE:................................................................................................................65
LAW 16
LIEN......................................................................................................................11
MATERIAL ADVERSE EFFECT:..................................................................................................65
MATERIAL CONTRACTS........................................................................................................29
MATERIAL SUBSIDIARY.......................................................................................................10
MERGER.....................................................................................................................2
MERGER CONSIDERATION.......................................................................................................4
MERGER SUB.................................................................................................................1
MULTIEMPLOYER PLAN........................................................................................................19
MULTIPLE EMPLOYER PLANS...................................................................................................19
NET WORTH.................................................................................................................65
NET WORTH EFFECT..........................................................................................................65
NYSE.......................................................................................................................3
OPTION SHARES.............................................................................................................61
OTHER MATERIAL TAXES......................................................................................................25
PARENT.....................................................................................................................1
PARENT BOARD..............................................................................................................37
PARENT COMMON STOCK........................................................................................................4
PARENT DISCLOSURE SCHEDULE................................................................................................36
<PAGE>
DEFINITION INDEX
(CONTINUED)
PARENT PERMITS............................................................................................................40
PARENT REQUISITE VOTE.....................................................................................................38
PARENT SEC FILINGS........................................................................................................38
PARENT SEC REPORTS........................................................................................................38
PARENT SECURITIES.........................................................................................................37
PARENT STOCKHOLDER AGREEMENT...............................................................................................2
PARENT STOCKHOLDER MEETING................................................................................................48
PERMITTED LIEN............................................................................................................17
PERSON:...................................................................................................................65
PREFERRED STOCK...........................................................................................................10
PROXY STATEMENT...........................................................................................................15
QUARTERLY STATEMENT.......................................................................................................32
REAL PROPERTY LEASES......................................................................................................17
RECOGNITION AGREEMENT......................................................................................................1
REGISTRATION RIGHTS AGREEMENT..............................................................................................2
RELEASE...................................................................................................................22
REMEDIAL ACTION...........................................................................................................22
REPRESENTATIVES...........................................................................................................46
RESTRUCTURING PLAN........................................................................................................42
S-4 15
SAP STATEMENTS............................................................................................................32
SAP:......................................................................................................................66
SEC 12
SHARE......................................................................................................................4
SHARE ISSUANCE............................................................................................................15
SHARES.....................................................................................................................4
SIGNIFICANT SUBSIDIARIES..................................................................................................10
SIGNIFICANT SUBSIDIARY....................................................................................................10
SPECIFIED AGREEMENTS......................................................................................................37
SPECIFIED EXCEPTIONS......................................................................................................41
STOCK OPTION..............................................................................................................61
STOCK OPTION AGREEMENT.....................................................................................................1
STOCK PURCHASE PLAN........................................................................................................5
STOCKHOLDERS AGREEMENT.....................................................................................................1
SUBSIDIARY:...............................................................................................................65
SUPERIOR PROPOSAL.........................................................................................................50
SURETY AGREEMENT...........................................................................................................2
SURETY SALE DOCUMENTS.....................................................................................................35
SURVIVING CORPORATION......................................................................................................2
TAKEOVER STATUTES.........................................................................................................31
TAX 24
TAX EXEMPT USE PROPERTY...................................................................................................27
TAX RETURNS...............................................................................................................25
<PAGE>
DEFINITION INDEX
(CONTINUED)
TAXES.....................................................................................................................24
TERMINATION DATE:.........................................................................................................58
TITLE IV PLANS............................................................................................................19
TRADEMARKS................................................................................................................31
UNITED STATES REAL PROPERTY HOLDING CORPORATION...........................................................................27
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated May 25, 2000, is
among Reliance Group Holdings, Inc., a Delaware corporation (the "COMPANY"),
Leucadia National Corporation, a New York corporation ("PARENT"), and Leucadia
Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary
(as hereinafter defined) of Parent ("MERGER SUB").
WHEREAS, the Boards of Directors of the Company, Parent and
Merger Sub each have, in light of and subject to the terms and conditions set
forth herein, resolved to deem this Agreement and the transactions contemplated
hereby, including the Merger, taken together, advisable and fair to, and in the
best interests of, their respective stockholders;
WHEREAS, Parent has formed Merger Sub solely for the
purpose of completing the transaction contemplated by this Agreement, and except
for the transactions contemplated hereby, Merger Sub has not engaged in any
business activity;
WHEREAS, for federal income tax purposes, it is intended
that (i) the Merger shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE") and
(ii) this Agreement shall constitute a plan of reorganization within the meaning
of Treasury Regulations Section 1.368-3;
WHEREAS, contemporaneously with the execution and delivery
of this Agreement, as a condition and an inducement to the willingness of Parent
and Merger Sub to enter into this Agreement, the Company is entering into a
stock option agreement with Parent (the "STOCK OPTION AGREEMENT"), pursuant to
which the Company has granted Parent an option to purchase Shares (as
hereinafter defined) under the terms and conditions set forth in the Stock
Option Agreement;
WHEREAS, Parent and Merger Sub are unwilling to enter into
this Agreement (and effect the transactions contemplated hereby) unless
contemporaneously with the execution and delivery hereof, certain holders (the
"HOLDERS") of common stock, par value $.10 per share of the Company ("COMPANY
COMMON STOCK") enter into an agreement (the "STOCKHOLDERS AGREEMENT") providing
for certain matters with respect to their shares of Company Common Stock, the
Merger and other related transactions and, in order to induce Parent and Merger
Sub to enter into this Agreement, the Company has approved the execution and
delivery by Parent and the Holders of the Stockholders Agreement and the Holders
have agreed to execute and deliver the Stockholders Agreement;
WHEREAS, contemporaneously with the execution and delivery
of this Agreement, as a condition for the Company to enter into this Agreement,
Parent and Merger Sub are executing and delivering an agreement (the
"RECOGNITION AGREEMENT") acknowledging the obligation of the Company and certain
of its subsidiaries under that certain Asset Transfer Agreement by and among the
<PAGE>
Company, certain of its subsidiaries and Travelers Casualty and Surety Company
dated as of April 10, 2000, as in effect on the date hereof, without giving
effect to any amendments thereto entered into without the consent of Parent,
which consent shall not be withheld, delayed or conditioned unreasonably (the
"SURETY AGREEMENT") and setting forth certain obligations of Parent;
WHEREAS, the Company is unwilling to enter into this
Agreement (and effect the transactions contemplated hereby) unless
contemporaneously with the execution and delivery hereof certain Holders of
Parent Common Stock (as defined L.C. below) enter into an Agreement (the "PARENT
STOCKHOLDER AGREEMENT") providing for certain matters with respect to their
shares of Parent Common Stock;
WHEREAS, contemporaneously with the execution and delivery
of this Agreement, as a condition and inducement for the Holders to enter into
the Stockholders Agreement, Parent is executing and delivering a Registration
Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT");
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Merger Sub hereby
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. At the Effective Time (as
hereinafter defined) and upon the terms and subject to the conditions of this
Agreement and in accordance with the Delaware General Corporation Law (the
"DGCL"), Merger Sub shall be merged with and into the Company (the "MERGER").
Following the Merger, the Company shall continue as the surviving corporation
(the "SURVIVING CORPORATION") and the separate corporate existence of Merger Sub
shall cease.
SECTION 1.2 Effective Time. Subject to the provisions of
this Agreement, Parent, Merger Sub and the Company shall cause the Merger to be
consummated by filing an appropriate Certificate of Merger or other appropriate
documents (the "CERTIFICATE OF MERGER") with the Secretary of State of the State
of Delaware in such form as required by, and executed in accordance with, the
relevant provisions of the DGCL, as soon as practicable on or after the Closing
Date (as hereinafter defined). The Merger shall become effective upon such
filing or at such time thereafter as is provided in the Certificate of Merger
(the "EFFECTIVE TIME" and the date of such filing, the "EFFECTIVE DATE").
SECTION 1.3 Closing of the Merger. The closing of the
Merger (the "CLOSING") will take place at a time and on a date to be specified
by the parties (the "CLOSING DATE"), which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Article
VII (other than those conditions that by their nature are to be satisfied at the
2
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Closing, but subject to the fulfillment or waiver of those conditions), at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, or at such other time, date or place as agreed to in writing by the
parties hereto.
SECTION 1.4 Effects of the Merger. The Merger shall have
the effects set forth in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5 Certificate of Incorporation and Bylaws. The
certificate of incorporation of Merger Sub in effect at the Effective Time,
shall be the certificate of incorporation of the Surviving Corporation until
amended in accordance with applicable Law (as hereinafter defined). The bylaws
of the Merger Sub in effect at the Effective Time shall be the bylaws of the
Surviving Corporation until amended in accordance with applicable Law.
SECTION 1.6 Directors. The directors of Merger Sub at the
Effective Time shall be the initial directors of the Surviving Corporation, to
hold office in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation until their successors are duly elected or appointed
and qualified or until their earlier death, resignation or removal.
SECTION 1.7 Officers. The officers of Merger Sub at the
Effective Time shall be the initial officers of the Surviving Corporation, to
hold office in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation until their successors are duly elected or appointed
and qualified or until their earlier death, resignation or removal.
SECTION 1.8 Parent's Structuring Option At Parent's sole
option, the structure of the Merger may be changed to a consolidation or merger
transaction in which (i) the Company's stockholders receive shares in a publicly
traded Bermuda, Cayman Islands or Barbados company that is a successor to the
Parent, the stock of which is listed on the New York Stock Exchange, Inc.
("NYSE"); (ii) the Company or one of its subsidiaries acquires Parent in a
merger transaction; or (iii) Company would become a second tier subsidiary of
Parent; provided that in any such case (x) in the opinion of Dewey Ballantine
LLP the tax consequences to the stockholders of the Company and the Company (and
the likelihood of achieving those tax consequences) of the resulting transaction
are no worse than the tax consequences (and the likelihood of achieving those
tax consequences) of the Merger as currently contemplated, (y) the stockholders
of the Company receive in the aggregate the equivalent percentage of the common
equity securities (and have the equivalent rights with respect thereto,
including, without limitation, with respect to voting, receipt of dividends,
rights on liquidation or dissolution, and other similar rights) of the resulting
3
<PAGE>
public parent holding company to be outstanding following consummation of the
transaction as would be received under this Agreement upon consummation of the
Merger without giving effect to the exercise of this option and (z) the exercise
of this option would not reasonably be expected to delay consummation of the
transactions contemplated hereby by more than 30 days after the date of
consummation of the Merger that otherwise would reasonably be expected to occur.
Upon exercise of this option, the parties hereto agree to amend this Agreement
as necessary to reflect such new structure, including, without limitation,
amendments to Section 7.3(d) to reflect the structure of the resulting
transaction. Any such successor corporation shall expressly assume all Parent's
obligations hereunder, but such assumption shall not relieve Parent of its
obligations hereunder. Parent shall exercise its right to change the structure
as provided herein by written notice to the Company on or before the expiration
of the Due Diligence Period (as hereinafter defined).
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 Conversion of Shares. (a) At the Effective
Time, each outstanding share of the common stock, par value $.10 per share, of
Merger Sub shall, by virtue of the Merger and without any action on the part of
Parent, Merger Sub or the Company, be converted into one fully paid and
non-assessable share of common stock, par value $.10 per share, of the Surviving
Corporation.
(b) At the Effective Time, each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time
(individually a "SHARE" and collectively, the "SHARES") (other than (i) Shares
held by the Company and (ii) Shares held by Parent, Merger Sub or any other
subsidiary of Parent) shall, by virtue of the Merger and without any action on
the part of Merger Sub, the Company or the holder thereof, be converted into and
exchangeable for the right to receive .11059346 fully paid and non-assessable
share (the "EXCHANGE RATIO") of common stock, par value $1.00 per share, of
Parent ("PARENT COMMON STOCK") (all such shares of Parent Common Stock issued,
together with any cash in lieu of fractional shares of Parent Common Stock to be
paid pursuant to Section 2.7, being referred to as the "MERGER CONSIDERATION").
The Parent Common Stock to be issued in the Merger shall contain the legend
required pursuant to Article Fourth of Parent's Certificate of Incorporation.
(c) At the Effective Time, each Share held by Parent,
Merger Sub, any other subsidiary of Parent, or the Company (but not including
any subsidiary of the Company) immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Merger Sub, the
Company or the holder thereof, be canceled, retired and cease to exist and no
payment shall be made with respect thereto.
(d) If between the date of this Agreement and the Effective
Time the outstanding shares of Parent Common Stock shall have been changed into
a different number of shares or a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares or any similar event, the amount of shares of Parent Common
4
<PAGE>
Stock constituting the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares or such similar event.
SECTION 2.2 Stock Options. (a) As soon as practicable
following the date of this Agreement, Parent and Company (or, if appropriate,
any committee of the Board of Directors of Company administering the Company's
stock option plans, other than the Stock Purchase Plan (as defined)),
(collectively, the "COMPANY OPTION PLANS"), shall take such action as may be
required to effect the following provisions of this Section 2.2(a). Subject to
the provisions of Section 16 of the Exchange Act (as hereinafter defined), as of
the Effective Time each option to purchase Shares pursuant to the Company Option
Plans (a "COMPANY STOCK OPTION") which is then outstanding shall be assumed by
Parent and converted into an option (or a new substitute option shall be
granted) (an "ASSUMED STOCK OPTION") to purchase the number of shares of Parent
Common Stock (rounded down to the nearest whole share) equal to (x) the number
of Shares subject to such option multiplied by (y) the Exchange Ratio, at an
exercise price per share of Parent Common Stock (rounded up to the nearest
penny) equal to (A) the former exercise price per share of Company Common Stock
under such option immediately prior to the Effective Time divided by (B) the
Exchange Ratio. Except as provided above, the Assumed Stock Option shall be
subject to the same terms and conditions (including expiration date and exercise
provisions) as were applicable to the converted Company Stock Option immediately
prior to the Effective Time.
(b) As soon as practicable after the Effective Time, Parent
shall deliver to the holders of Company Stock Options appropriate notices
setting forth such holders' rights pursuant to the respective Company Option
Plans and the agreements evidencing the grants of such Company Stock Options and
that such Company Stock Options and agreements have been assumed by Parent and
shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 2.2). Parent shall comply with the terms of
the Company Option Plans.
(c) Parent shall take such actions as are reasonably
necessary for the assumption of the Company Option Plans pursuant to this
Section 2.2, including the reservation, issuance and listing on the NYSE of
Parent Common Stock as is necessary to effectuate the transactions contemplated
by this Section 2.2. Parent shall prepare and file on or prior to the Effective
Time with the SEC a registration statement on Form S-8 or other appropriate form
with respect to shares of Parent Common Stock subject to the Assumed Stock
Options and to maintain the effectiveness of such registration statement or
registration statements covering such Assumed Stock Options (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Assumed Stock Options remain outstanding.
(d) Outstanding options under the Company's Employee Stock
Purchase Plan (the "STOCK PURCHASE PLAN") shall be exercised upon the earlier of
the applicable stock purchase date under the Stock Purchase Plan or immediately
5
<PAGE>
prior to the Effective Time, and each participant in the Stock Purchase Plan
shall accordingly be issued Shares at that time for all outstanding options
under the Stock Purchase Plan as to which the participant has not previously
been issued Shares pursuant to the terms of the Stock Purchase Plan, and each
Share so issued shall by virtue of the Merger, and without any action on the
part of the holder thereof, be converted into the right to receive the Merger
Consideration. The Company Board shall take such actions as shall be necessary
to effectuate the provisions of this Section 2.2(d).
SECTION 2.3 Exchange Fund. Prior to the Effective Time,
Parent shall appoint a commercial bank or trust company reasonably acceptable to
the Company to act as exchange agent hereunder for the purpose of exchanging
Shares for the Merger Consideration (the "EXCHANGE AGENT"). At or prior to the
Effective Time, Parent shall deposit or cause Merger Sub to deposit with the
Exchange Agent, in trust for the benefit of holders of Shares, certificates
representing the Parent Common Stock issuable pursuant to Section 2.1 in
exchange for outstanding Shares. Parent agrees to make available to the Exchange
Agent from time to time as needed, cash sufficient to pay cash in lieu of
fractional shares pursuant to Section 2.7 and any dividends and other
distributions pursuant to Section 2.5. Any cash and certificates of Parent
Common Stock deposited with the Exchange Agent shall hereinafter be referred to
as the "EXCHANGE FUND."
SECTION 2.4 Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Surviving Corporation shall cause the
Exchange Agent to mail to each holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Shares (the
"CERTIFICATES") (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent, and which letter
shall be in customary form and have such other provisions as Parent may
reasonably specify, and (ii) instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (A)
shares of Parent Common Stock representing, in the aggregate, the whole number
of shares that such holder has the right to receive pursuant to Section 2.1
(after taking into account all Shares then held by such holder) and (B) a check
in the amount equal to the cash that such holder has the right to receive
pursuant to the provisions of this Article II, including cash in lieu of any
fractional shares of Parent Common Stock pursuant to Section 2.7 and any
dividends and other distributions pursuant to Section 2.5. No interest will be
paid or will accrue on any cash payable pursuant to Section 2.5 or Section 2.7.
In the event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, shares of Parent Common Stock
evidencing, in the aggregate, the proper number of shares of Parent Common
Stock, a check in the proper amount of cash in lieu of any fractional shares of
Parent Common Stock pursuant to Section 2.7 and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.5, may be
issued with respect to such Shares to such a transferee if the Certificate
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representing such Shares are presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer Taxes have been paid.
SECTION 2.5 Distributions with Respect to Unsurrendered
Certificates. No dividends or other distributions declared or made with respect
to shares of Parent Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock that such holder would be entitled to receive upon
surrender of such Certificate and no cash payment in lieu of fractional shares
of Parent Common Stock shall be paid to any such holder pursuant to Section 2.7
until such holder shall surrender such Certificate in accordance with Section
2.4. Subject to the effect of applicable Laws, following surrender of any such
Certificate, there shall be paid to such holder of shares of Parent Common Stock
issuable in exchange therefor, without interest, (a) promptly after the time of
such surrender, the amount of any cash payable in lieu of fractional shares of
Parent Common Stock to which such holder is entitled pursuant to Section 2.7 and
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock, and (b) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of Parent Common Stock.
SECTION 2.6 No Further Ownership Rights in Company Common
Stock. All shares of Parent Common Stock issued and cash paid upon conversion of
the Shares in accordance with the terms of Article I and this Article II
(including any cash paid pursuant to Sections 2.5 and 2.7) shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to the
Shares.
SECTION 2.7 No Fractional Shares of Parent Common Stock.
(a) No certificates or scrip of shares of Parent Common Stock representing
fractional shares of Parent Common Stock or book-entry credit of the same shall
be issued upon the surrender for exchange of Certificates and such fractional
share interests will not entitle the owner thereof to vote or to have any rights
of a shareholder of Parent or a holder of shares of Parent Common Stock.
Notwithstanding any other provision of this Agreement, each
holder of Shares exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Parent Common Stock (after taking
into account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i) such
fractional part of a share of Parent Common Stock multiplied by (ii) the closing
price on the NYSE (as reported in the New York City edition of the Wall Street
Journal or, if not reported thereby, another nationally recognized source) for a
share of Parent Common Stock on the date of the Effective Time. As promptly as
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practicable after the determination of the aggregate amount of cash to be paid
to holders of fractional interests, the Exchange Agent shall notify Parent and
Parent shall deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof. In lieu thereof, Parent
shall have the right to deliver to the Exchange Agent the aggregate number of
shares of Parent Common Stock to be issued in the Merger (the "AGGREGATE
SHARES"). Thereupon the Exchange Agent shall determine the excess of (i) the
number of Aggregate Shares over (ii) the number of full shares of Parent Common
Stock to be issued in the Merger (the "EXCESS SHARES"). Following the Effective
Time, the Exchange Agent as agent for the holders of the Aggregate Shares, shall
sell the Excess Shares at the prevailing prices on the NYSE. The sale of the
Excess Shares by the Exchange Agent shall be executed on the NYSE through one or
more member firms of the NYSE and shall be executed in round lots to the extent
practicable. The Exchange Agent shall use all reasonable efforts to complete the
sale of the Excess Shares as promptly following the Effective Time as, in the
Exchange Agent's reasonable judgment, is practicable consistent with obtaining
the best execution of such sales in light of prevailing market conditions. Until
the net proceeds of such sale or sales have been distributed to the holders of
Shares, the Exchange Agent will hold such proceeds in trust for such holders
(the "COMMON SHARES TRUST"). Parent shall pay all commissions, transfer taxes
and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with such sale of the
Excess Shares. The Exchange Agent shall determine the portion of the Common
Shares Trust to which each holder of shares shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of fractional
share interests to which such holder is entitled (after taking into account all
Shares held at the Effective Time by such holder) and the denominator of which
is the aggregate amount of fractional shares interests to which all holders of
Shares are entitled.
SECTION 2.8 Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders of Certificates for
six months after the Effective Time shall be delivered to Parent or otherwise on
the instruction of Parent, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation and Parent for the Merger Consideration with respect to
the Shares formerly represented thereby to which such holders are entitled
pursuant to Section 2.1 and Section 2.4, any cash in lieu of fractional shares
of Parent Common Stock to which such holders are entitled pursuant to Section
2.7 and any dividends or distributions with respect to shares of Parent Common
Stock to which such holders are entitled pursuant to Section 2.5.
SECTION 2.9 No Liability. None of Parent, Merger Sub, the
Company, the Surviving Corporation or the Exchange Agent shall be liable to any
person in respect of any Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law.
SECTION 2.10 Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed
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and, if required by the Surviving Corporation, the posting by such person of a
bond in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will deliver in exchange for such lost, stolen
or destroyed Certificate the applicable Merger Consideration with respect to the
Shares formerly represented thereby, any cash in lieu of fractional shares of
Parent Common Stock to which the holders thereof are entitled pursuant to
Section 2.7 and unpaid dividends and distributions on shares of Parent Common
Stock deliverable in respect thereof to which the holders thereof are entitled,
pursuant to Section 2.5 of this Agreement.
SECTION 2.11 Withholding Rights. Each of the Surviving
Corporation and Parent shall be entitled to deduct and withhold from the Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
Shares such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of a Tax Law. To the extent that amounts are so
withheld by the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes as having been paid to the
holder of the Shares in respect to which such deduction and withholding was made
by the Surviving Corporation or Parent, as the case may be.
SECTION 2.12 Stock Transfer Books. The stock transfer books
of the Company shall be closed immediately upon the Effective Time and there
shall be no further registration of transfers of Shares thereafter on the
records of the Company. On or after the Effective Time, any Certificates
presented to the Exchange Agent or Parent for any reason shall be converted into
the Merger Consideration with respect to the Shares formerly represented
thereby, any cash in lieu of fractional shares of Parent Common Stock to which
the holders thereof are entitled pursuant to Section 2.7 and any dividends or
other distributions to which the holders thereof are entitled pursuant to
Section 2.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule (each
section of which qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein), delivered by the Company
(the "COMPANY DISCLOSURE Schedule") to Parent prior to the execution of this
Agreement or promptly following execution of this Agreement, but in no event
later than fifteen business days following the date hereof (the "COMPANY
SCHEDULE DELIVERY DATE") or in the Company SEC Reports (as hereinafter defined)
the Company hereby represents and warrants to each of Parent and Merger Sub as
follows:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) The Company and each of its subsidiaries is a corporation or legal entity
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duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation and has all requisite corporate, partnership
or similar power and authority to own, lease and operate its properties and to
carry on its businesses as now conducted and proposed by the Company to be
conducted, except where the failure to be duly organized, existing and in good
standing or to have such power and authority would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(b) Section 3.1(b) of the Company Disclosure Schedule
contains a list of each subsidiary of the Company that constitutes a
"significant subsidiary" as that term is defined in Regulation S-X promulgated
under the Exchange Act (as defined below) together with each Insurance
Subsidiary (as hereinafter defined) (each a "SIGNIFICANT SUBSIDIARY" and
together, the "SIGNIFICANT Subsidiaries"), and each other subsidiary that is not
immaterial to the operation or business of the Company or any of its Significant
Subsidiaries (each, together with the Significant Subsidiaries, being a
"MATERIAL SUBSIDIARY")
(c) Each of the Company and its subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing does
not and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(d) The Company has made, or prior to the Company Schedule
Delivery Date will make, available to Parent accurate and complete copies of the
certificate of incorporation and bylaws, as currently in effect, of each of the
Company and each of its Material Subsidiaries.
SECTION 3.2 Capitalization of the Company and Its
Subsidiaries. (a) The authorized capital stock of the Company consists of: (i)
225,000,000 Shares, of which 114,835,000 Shares were issued and outstanding as
of the close of business on May 1, 2000 and 1,331,000 shares of which are owned
by subsidiaries of the Company, and (ii) 25,000,000 shares of preferred stock,
par value $1.00 per share (the "PREFERRED STOCK"), no shares of which are
outstanding. All of the issued and outstanding Shares have been validly issued,
and are duly authorized, fully paid, non-assessable and are free of preemptive
rights. As of May 18, 2000, (i) 35,397,614 Shares were reserved for issuance and
issuable upon or otherwise deliverable in connection with the exercise of
outstanding Company Stock Options issued pursuant to the Company Option Plans
and (ii) 566,232.337 Shares were reserved for issuance and issuable or otherwise
deliverable pursuant to the Stock Purchase Plan. Except as and to the extent
publicly disclosed by the Company in the Company SEC Reports (as hereinafter
defined), since December 31, 1999, no Company Stock Options have been granted.
Except as set forth above, as of the date hereof, there are outstanding (i) no
shares of capital stock or other voting securities of the Company; (ii) no
securities of the Company or any of its subsidiaries convertible into or
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exchangeable for shares of capital stock or voting securities of the Company;
and (iii) except as provided in this Agreement and the Stock Option Agreement,
no options or other rights to acquire from the Company or any of its
subsidiaries, and no obligations of the Company or any of its subsidiaries to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company; and (iv) no
equity equivalents, interests in the ownership or earnings of the Company or any
of its subsidiaries or other similar rights (including stock appreciation
rights, but excluding amounts payable under the Company's bonus and similar
plans) (collectively, "COMPANY SECURITIES"). There are no outstanding
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities. There are no stockholder agreements
(other than the Stock Option Agreement and the Stockholders Agreement), voting
trusts or other agreements or understandings to which the Company or any of its
subsidiaries is a party or to which it is bound relating to the voting of any
shares of capital stock of the Company. Section 3.2 of the Company Disclosure
Schedule sets forth information regarding the current exercise price, date of
grant and number of Company Stock Options granted for each holder thereof (with
information with respect to holders of such options valued at less than $100,000
being aggregated). Following the Effective Time, no holder of Company Stock
Options will have any right to receive shares of common stock of the Surviving
Corporation upon exercise of the Company Stock Options.
(b) All of the outstanding capital stock of the Company's
Material Subsidiaries is owned by the Company, directly or indirectly, free and
clear of any Lien (as hereinafter defined) or any other limitation or
restriction (including any restriction on the right to vote or sell the same,
except as may be provided as a matter of Law). There are no securities of the
Company or its subsidiaries convertible into or exchangeable for, no options or
other rights to acquire from the Company or its subsidiaries, and no other
contract, understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly of, any capital stock
or other ownership interests in, or any other securities of, any Material
Subsidiary of the Company. There are no outstanding contractual obligations of
the Company or its Material Subsidiaries to repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other ownership interests in
any Material Subsidiary of the Company. For purposes of this Agreement, "LIEN"
means, with respect to any asset (including, without limitation, any security)
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset.
SECTION 3.3 Authority Relative to This Agreement; Consents
and Approvals. (a) The Company has all necessary corporate power and authority
to execute and deliver this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby. No other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Stock Option Agreement or to consummate the transactions contemplated
hereby and thereby (other than, with respect to the Merger and this Agreement,
the Company Requisite Vote (as hereinafter defined)). This Agreement and the
Stock Option Agreement have been duly and validly executed and delivered by the
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Company and constitute valid, legal and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms,
subject to the Enforceability Exception (as hereinafter defined).
(b) The Board of Directors of the Company (the "COMPANY
BOARD") has, by unanimous vote of those present, duly and validly authorized the
execution and delivery of this Agreement and the Stock Option Agreement and
approved the consummation of the transactions contemplated hereby and thereby,
and taken all corporate actions required to be taken by the Company Board for
the consummation of the transactions, including the Merger, contemplated hereby
and has resolved (i) to deem this Agreement and the transactions contemplated
hereby, including the Merger, taken together, advisable and fair to, and in the
best interests of, the Company and its stockholders; and (ii) to recommend that
the stockholders of the Company approve and adopt this Agreement. The Company
Board has directed that this Agreement be submitted to the stockholders of the
Company for their approval. The affirmative approval of the holders of Shares
representing a majority of the votes that may be cast by the holders of all
outstanding Shares (voting as a single class) as of the record date for the
Company (the "COMPANY REQUISITE VOTE") is the only vote of the holders of any
class or series of capital stock of the Company necessary to adopt this
Agreement and approve the transactions contemplated hereby, including the
Merger.
SECTION 3.4 SEC Reports; Financial Statements. The Company
has filed all required forms, reports and documents with the Securities and
Exchange Commission ("SEC") since January 1, 1997, (the "COMPANY SEC FILINGS")
each of which has complied in all material respects with all applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), each as in effect on the dates such forms, reports
and documents were filed. The Company has heretofore made available to, or prior
to the Company Schedule Delivery Date will make available to, Parent in the form
filed with the SEC (including any amendments thereto), (i) its Annual Reports on
Form 10-K for each of the fiscal years ended December 31, 1999, 1998 and 1997;
(ii) all definitive proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since January 1, 1997; and (iii)
all other reports or registration statements filed by the Company with the SEC
since January 1, 2000 through the date of this Agreement (the "COMPANY SEC
REPORTS"). None of the Company SEC Filings, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Company SEC Filings complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto (including
footnote disclosure) and fairly present in all material respects, in conformity
with generally accepted accounting principles applied on a consistent basis
("GAAP") (except as may be indicated in the notes thereto), the consolidated
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financial position of the Company and its consolidated subsidiaries as of the
dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments and to
the fact that quarterly financial statements exclude certain footnotes required
by GAAP).
SECTION 3.5 No Undisclosed Liabilities. Except as and to
the extent publicly disclosed by the Company in the Company SEC Reports, as of
December 31, 1999 (the "AUDIT DATE"), none of the Company or its subsidiaries
has any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, and whether due or to become due or asserted or
unasserted, which (a) would be required by GAAP to be reflected in, reserved
against or otherwise described in the consolidated balance sheet of the Company
(including the notes thereto) or which (b) do or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company; provided that, solely with respect to clause (b), no representation is
made with respect to the adequacy of insurance reserves as of the Audit Date.
SECTION 3.6 Absence of Changes. Except as and to the extent
publicly disclosed in the Company SEC Reports, since the Audit Date, the Company
and its subsidiaries have conducted their business in the ordinary and usual
course consistent in all material respects with past practice and there has not
been:
(a) any event, occurrence or development which does or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company, or any direct or indirect repurchase, retirement, redemption or
other acquisition by the Company or any subsidiary of any Company securities;
(c) any amendment of any term of any outstanding security
of the Company or any subsidiary that would materially increase the obligations
of the Company or such subsidiary under such security;
(d) (i) any incurrence or assumption by the Company or any
subsidiary of any indebtedness for borrowed money other than (A) under existing
credit facilities (or any renewals, replacements or extensions that do not
increase the aggregate commitments thereunder) (x) in the ordinary and usual
course of business consistent in all material respects with past practice (it
being understood that any indebtedness incurred prior to the date hereof in
respect of capital expenditures shall be considered to have been in the ordinary
and usual course of business consistent with past practice) or (y) in connection
with (1) any acquisition or capital expenditure permitted by Section 5.1 or (2)
the transactions contemplated hereby or (B) borrowings by any direct or indirect
wholly-owned subsidiaries of the Company from a direct or indirect parent of
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such subsidiary, in the ordinary course of business consistent in all material
respects with past practice, or (ii) any guarantee, endorsement or other
incurrence or assumption of liability (whether directly, contingently or
otherwise) by the Company or any subsidiary for the obligations of any other
person (other than any wholly owned subsidiary of the Company), other than in
the ordinary and usual course of business consistent in all material respects
with past practice;
(e) any creation or assumption by the Company or any
subsidiary of any Lien on any material asset of the Company or any subsidiary,
other than in the ordinary and usual course of business consistent in all
material respects with past practice and other than Permitted Liens (as defined
herein);
(f) any making of any loan, advance or capital contribution
to or investment in any person by the Company or any subsidiary, other than (i)
any acquisition permitted by Section 5.1, (ii) loans, advances or capital
contributions to or investments in wholly owned subsidiaries of the Company,
(iii) loans or advances to employees of the Company or any subsidiary made in
the ordinary and usual course of business consistent in all material respects
with past practice or (iv) any of such made in connection with the investment
portfolio activities of any subsidiary of the Company made in the ordinary
course of business consistent in all material respects with the investment
policies and strategies of the Company and its subsidiaries as disclosed in
writing to Parent prior to the date hereof (the "INVESTMENT GUIDELINES");
(g) (i) any contract or agreement entered into by the
Company or any subsidiary on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business or (ii) any
modification, amendment, assignment, termination or relinquishment by the
Company or any subsidiary of any contract, license or other right (including any
insurance policy naming it as a beneficiary or a loss payable payee) that does
or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, other than, in the case of (i) and (ii),
transactions, commitments, contracts or agreements in the ordinary and usual
course of business consistent in all material respects with past practice and
those contemplated by this Agreement;
(h) any material change in any policy, practice or
principle for financial or Tax accounting purposes or otherwise of the Company
or any subsidiary with respect to accounting, reserving, hedging, tax, financial
reporting, actuarial, investing or otherwise engaging in derivatives
transactions, underwriting or claims administration, including any material
change in any method of calculating or estimating any bad debt, contingency,
insurance, or other reserve for financial reporting purposes or for any other
tax or accounting purpose (other than any change required by reason of a change
in applicable Law, GAAP or SAP);
(i) any (i) grant of any severance or termination pay to
any director, officer or employee of the Company or any of its subsidiaries;
(ii) entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or any of its subsidiaries; (iii) increase in
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benefits payable under any existing severance or termination pay policies or
employment agreements; or (iv) increase in compensation, bonus or other benefits
payable to directors, officers or employees of the Company or any of its
subsidiaries other than, in the case of clause (iv) only, increases prior to the
date hereof in compensation, bonus or other benefits payable to employees of the
Company or any of its subsidiaries in the ordinary and usual course of business
consistent in all material respects with past practice for amounts not in excess
of $50,000 for any employee, as disclosed in the Section 3.6 of the Company
Disclosure Schedule, or merit increases in salaries of employees at regularly
scheduled times in customary amounts consistent in all material respects with
past practices in amounts not to exceed $50,000 for any employee;
(j) any making or revocation of any Tax election that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company or any compromise of any material Tax liability or
any waiver or extension of the statute of limitations in respect of any material
Taxes; or
(k) agreement (whether written or oral) by the Company or
any of its subsidiaries to do any of the foregoing.
SECTION 3.7 Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of Parent Common Stock as required by
the terms of this Agreement (the "SHARE ISSUANCE") pursuant to the Merger (the
"S-4"), at the time the S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, and (ii) the proxy statement relating to
the Company Stockholder Meeting (as hereinafter defined) and the Parent
Stockholder Meeting (as hereinafter defined) if required to be held in
connection with the Merger and the Share Issuance (the "PROXY STATEMENT") will,
at the date mailed to stockholders and at the times of the meetings of
stockholders to be held in connection with the Merger or the Share Issuance,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
the Company, its officers and directors or any of its subsidiaries should occur
which is required in the view of counsel to the Company to be described in an
amendment of, or a supplement to, the S-4 or the Proxy Statement, the Company
shall promptly so advise Parent and such event shall be so described, and such
amendment or supplement (which Parent shall have a reasonable opportunity to
review) shall be promptly filed with the SEC and, as required by Law,
disseminated to the stockholders of the Company. The Proxy Statement, insofar as
it relates to the Company Stockholder Meeting, will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
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SECTION 3.8 Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, state securities or blue sky Laws, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), the filing and recordation
of the Certificate of Merger as required by the DGCL, the consents, filings
and/or notices required under the insurance laws of the jurisdictions set forth
in Section 3.8 of the Company Disclosure Schedule and as otherwise set forth in
Section 3.8 to the Company Disclosure Schedule, no filing with or notice to, and
no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"GOVERNMENTAL ENTITY") is necessary for the execution and delivery by the
Company of this Agreement or the Stock Option Agreement or the consummation by
the Company of the transactions contemplated hereby or thereby, except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings or give such notice do not or would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company. Neither the execution, delivery and performance of this Agreement or
the Stock Option Agreement by the Company nor the consummation by the Company of
the transactions contemplated hereby or thereby will (i) conflict with or result
in any breach of any provision of the respective certificate or articles of
incorporation or bylaws (or similar governing documents) of the Company or any
of its Material Subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under, or impose any material financial fine, penalty or payment with
respect to, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets may be bound,
or (iii) violate any Law applicable to the Company or any of its subsidiaries or
any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which do not or would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
SECTION 3.9 No Default. Neither the Company nor any of its
subsidiaries are in violation of any term of (i) its (A) certificate of
incorporation, or (B) (solely with respect to the Company and its Material
Subsidiaries) bylaws or other organizational documents, (ii) any agreement or
instrument related to indebtedness for borrowed money or any other agreement to
which it is a party or by which it is bound, or (iii) any foreign or domestic
law, order, writ, injunction, decree, ordinance, award, stipulation, statute,
judicial or administrative doctrine, rule or regulation entered by a
Governmental Entity ("LAW") applicable to the Company, its subsidiaries or any
of their respective properties or assets, the consequence of which violation
does or would reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company.
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SECTION 3.10 Real Property. (a) Section 3.10 of the Company
Disclosure Schedule sets forth all of the real property owned in fee by the
Company and its subsidiaries. Each of the Company and its subsidiaries has good
and marketable title to each material parcel of real property owned by it free
and clear of all Liens, except (i) Taxes and general and special assessments not
in default and payable without penalty and interest, and (ii) other liens,
mortgages, pledges, encumbrances and security interests which do not materially
interfere with the Company's of any of its subsidiaries' use and enjoyment of
such real property or materially detract from or diminish the value thereof and
(iii) workmen's, mechanic's and other similar liens (each a "PERMITTED LIEN").
(b) Section 3.10 of the Company Disclosure Schedule sets
forth all material leases, subleases and other agreements (the "REAL PROPERTY
LEASES") under which the Company or any of its subsidiaries uses or occupies or
has the right to use or occupy, now or in the future, any real property. The
Company has heretofore made available or will make available by the Company
Schedule Delivery Date to Parent true, correct and complete copies of all Real
Property Leases (and all modifications, amendments and supplements thereto and
all side letters to which the Company or any of its subsidiaries is a party
affecting the obligations of any party thereunder). Each Real Property Lease
constitutes the valid and legally binding obligation of the Company or its
subsidiaries, enforceable in accordance with its terms, subject to the
Enforceability Exception. All rent and other sums and charges payable by the
Company and its subsidiaries as tenants under each Real Property Lease are
current, no termination event or condition or uncured default of a material
nature on the part of the Company or any such subsidiary or, to the Company's
knowledge, the landlord, exists under any Real Property Lease. Each of the
Company and its subsidiaries has a good and valid leasehold interest in each
parcel of real property leased by it free and clear of all Liens, except
Permitted Liens.
(c) No party to any such Real Property Leases has given
written notice to the Company or any of its subsidiaries of, or has made a
written claim against the Company or any of its subsidiaries with respect to any
breach or default thereunder, in any such case in which such breach or default
does or would reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company (and to the knowledge of the Company or
such subsidiary, there are no such oral claims).
SECTION 3.11 Litigation. Except as and to the extent
publicly disclosed by the Company in the Company SEC Reports, there is no suit,
claim, action, proceeding or investigation (other than those relating to Taxes
which are governed by Section 3.16) pending or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries or any of their
respective properties or assets which (a) does or would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company or (b) questions the validity of this Agreement, the Stock Option
Agreement or any action to be taken by the Company in connection with the
consummation of the transactions contemplated hereby or is reasonably likely to
otherwise prevent or materially delay the consummation of the transactions
contemplated by this Agreement. Set forth on Section 3.11 of Company Disclosure
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Schedule, is a list of all written claims for damages against the Company or its
subsidiaries (other than claims pursuant to insurance policies issued by an
Insurance Subsidiary (as hereinafter defined) or related claims) known to the
Company or its subsidiaries seeking an amount in damages in excess of $500,000
(or if no damages amount is specified, where it is reasonably likely that such
damages may exceed $500,000). Except as and to the extent publicly disclosed by
the Company in the Company SEC Reports, none of the Company or its subsidiaries
is subject to any outstanding order, writ, injunction or decree which does or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. This Section 3.11 shall not be deemed to
cover matters covered by Section 3.31.
SECTION 3.12 Compliance with Applicable Law. The Company
and its subsidiaries hold all permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "COMPANY PERMITS"), except for failures to hold
such Company Permits which do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. The
Company and its subsidiaries are in compliance in all material respects with the
terms of the Company Permits, and the Company Permits are valid and in full
force and effect, except where the failure to be valid and in full force and
effect do not or would not reasonably be expected to have a Material Adverse
Effect on the Company. The businesses of the Company and its subsidiaries are
not being conducted in violation of any Law applicable to the Company or its
subsidiaries, except for violations which do not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company. No investigation or review by any Governmental Entity with respect
to the Company or its subsidiaries is pending nor, to the Company's knowledge,
has any Governmental Entity threatened or otherwise indicated an intention to
conduct the same other than those that the Company reasonably believes do not or
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. Section 3.12 of the Company Disclosure
Schedule contains a true and complete list of all jurisdictions in which each
subsidiary of the Company that transacts insurance or reinsurance business (the
"INSURANCE SUBSIDIARIES") is licensed to transact such business, in each case
identifying the lines of insurance or reinsurance business so authorized. This
Section 3.12 shall not be deemed to cover matters covered by Section 3.31.
SECTION 3.13 Employee Plans. (a) Section 3.13(a) of the
Company Disclosure Schedule sets forth a list of (i) all "employee benefit
plans," as defined in Section 3(3) of ERISA, and all other employee benefit
plans or other benefit arrangements or payroll practices including, without
limitation, executive compensation, consulting or other compensation agreements,
equity or equity-based compensation, deferred compensation arrangements, stock
purchase, severance pay, sick leave, vacation pay, salary continuation,
disability, hospitalization, medical insurance, life insurance, scholarship
programs and directors' benefit, or bonus or other incentive compensation
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arrangements, which the Company or any of its subsidiaries maintains,
contributes to or as to which the Company has any obligation or liability
(contingent or otherwise) (each an "EMPLOYEE BENEFIT PLAN" and collectively, the
"EMPLOYEE BENEFIT PLANS"); and (ii) all "employee pension plans", as defined in
Section 3(2) of ERISA, subject to Title IV of ERISA or Section 412 of the Code,
to which the Company, any of its subsidiaries or any trade or business (whether
or not incorporated) which is or has ever been under common control, or which is
or has ever been treated as a single employer, with the Company or any
subsidiary under Section 414(b), (c), (m) or (o) of the Code ("ERISA AFFILIATE")
has ever sponsored, maintained, contributed or been obligated to contribute in
the last six years (the "TITLE IV PLANS"). Except as separately set forth on
Section 3.13(a) of the Company Disclosure Schedule, none of the Employee Benefit
Plans is a multiemployer plan, as defined in Section 3(37) of ERISA
("MULTIEMPLOYER PLAN"), or is or has been subject to Sections 4063 or 4064 of
ERISA ("MULTIPLE EMPLOYER PLANS"), nor has the Company, its subsidiaries or any
ERISA Affiliate ever been obligated to contribute to a Multiemployer Plan.
(b) True, correct and complete copies of the following
documents, to the extent applicable, with respect to each of the Employee
Benefit Plans and Title IV Plans (other than a Multiemployer Plan) will be made
available or delivered to Parent by the Company no later than the Company
Schedule Delivery Date: (i) the most recent plan and related trust documents,
and amendments thereto; (ii) the three most recent Forms 5500 and schedules
thereto; (iii) the most recent Internal Revenue Service ("IRS") determination
letter; (iv) the three most recent financial statements and actuarial
valuations, if applicable; (v) the most recent summary plan descriptions; (vi)
material written communications to employees relating to any Employee Benefit
Plan within the preceding 60 days; and (vii) written descriptions of all
non-written Employee Benefit Plans.
(c) As of the date hereof, (i) all payments required to be
made by or under any Employee Benefit Plan, any related trusts, or any
collective bargaining agreement or pursuant to Law have been made by the due
date thereof (including any valid extension), and all contributions for any
period ending on or before the Closing Date which are not yet due will have been
paid or accrued on the balance sheet, if required by GAAP, on or prior to the
Closing Date; (ii) the Company and its subsidiaries have performed all material
obligations required to be performed by them under any Employee Benefit Plan;
(iii) the Employee Benefit Plans have been administered in material compliance
with their terms and the requirements of ERISA, the Code and other applicable
Laws; (iv) there are no material actions, suits, arbitrations or claims (other
than routine claims for benefits) pending or, to the Company's knowledge,
threatened with respect to any Employee Benefit Plan; and (v) the Company and
its subsidiaries have no material liability as a result of any "prohibited
transaction" (as defined in Section 406 of ERISA and Section 4975 of the Code)
for any excise Tax or civil penalty.
(d) Except as set forth in Section 3.13(d) of the Company
Disclosure Schedule:
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(i) With respect to each of the Title IV Plans, the assets
exceed the liabilities of such Plan based on the most recent actuarial report
for such Plan (including the assumptions contained therein).
(ii) There has been no "reportable event", as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to
the Title IV Plans, which would require the giving of notice or would
require disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA
and which (in either case) resulted or may reasonably be expected to
result in any Material Adverse Effect on the Company.
(iii) Neither the Company nor any ERISA Affiliate has since the Audit Date
any liability in respect of termination of any Title IV Plan, nor
have any such entities incurred any outstanding liability under
Section 4062 of ERISA to the Pension Benefit Guaranty Corporation
("PBGC"), or to a trustee appointed under Section 4042 of ERISA. All
premiums due the PBGC with respect to the Title IV Plans have been
paid.
(iv) Neither the Company nor any ERISA Affiliate or any organization to
which the Company or any ERISA Affiliate is a successor or parent
corporation, within the meaning of Section 4069(b) of ERISA, has
engaged in any transaction within the last five years which comes
within the meaning of Section 4069 of ERISA.
(e) The Company and its subsidiaries are not subject to any
unsatisfied withdrawal liability with respect to any Multiemployer Plan.
(f) Each of the Employee Benefit Plans which is intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so "qualified" and the trusts maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the Code,
and the Company knows of no fact which would adversely affect the qualified
status of any such Pension Plan or the exemption of such trust.
(g) None of the Employee Benefit Plans provide for
continuing post-employment health or life insurance coverage for any participant
or any beneficiary of a participant except as may be required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
(h) No stock or other security issued by the Company forms
a material part of the assets of any Employee Benefit Plan.
(i) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will by itself or
in combination with any other event (i) result in any material payment becoming
due, or materially increase the amount of compensation due, to any current or
former employee of the Company or any of its subsidiaries; (ii) materially
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increase any benefits otherwise payable under any Employee Benefit Plan; or
(iii) result in the acceleration of the time of payment or vesting of any such
material benefits.
SECTION 3.14 Labor Matters. (a) Section 3.14 of the Company
Disclosure sets forth a list of all employment, labor or collective bargaining
agreements to which the Company or any subsidiary is party and except as set
forth therein, there are no employment, labor or collective bargaining
agreements which pertain to employees of the Company or any of its subsidiaries.
The Company has heretofore made or, no later than on the Company Schedule
Delivery Date, will make available to Parent true and complete copies of (i) the
employment agreements listed on Section 3.14 of the Company Disclosure Schedule
and (ii) the labor or collective bargaining agreements listed on Section 3.14 of
the Company Disclosure Schedule, together with all amendments, modifications,
supplements and side letters affecting the duties, rights and obligations of any
party thereunder.
(b) Except as set forth in Section 3.14 of the Company
Disclosure Schedule, no employees of the Company or any of its subsidiaries are
represented by any labor organization; no labor organization or group of
employees of the Company or any of its subsidiaries has, to the Company's
knowledge, made a pending demand for recognition or certification; and, to the
Company's knowledge, there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. To the Company's knowledge, there
are no organizing activities involving the Company or any of its Subsidiaries
pending with any labor organization or group of employees of the Company or any
of its subsidiaries.
(c) There are no unfair labor practice charges or
grievances pending or, to the Company's knowledge, threatened in writing by or
on behalf of any employee or group of employees of the Company or any of its
subsidiaries.
(d) There are no complaints, charges or claims against the
Company or any of its subsidiaries pending, or, to the Company's knowledge,
threatened in writing to be brought or filed, with any Governmental Entity or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment of any individual by the Company
or any of its subsidiaries.
SECTION 3.15 Environmental Matters. (a) For purposes of
this Agreement:
(i) "ENVIRONMENTAL COSTS AND LIABILITIES" means any and all losses,
liabilities, obligations, damages (including compensatory, punitive
and consequential damages), fines, penalties, judgments, actions,
claims, costs and expenses (including, without limitation, fees,
disbursements and expenses of legal counsel, experts, engineers and
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consultants and the costs of investigation, feasibility studies and
the costs to clean up, remove, treat, or in any other way address any
Hazardous Materials (as hereinafter defined)) arising from, under or
pursuant to any Environmental Law (as hereinafter defined);
(ii) "ENVIRONMENTAL LAW" means any applicable federal, state, local or
foreign Law (including common Law), statute, or other legal
requirement relating to the protection of natural resources, the
environment and public and employee health and safety or pollution or
the release or exposure to Hazardous Materials (as hereinafter
defined) as such Laws have been and may be amended or supplemented as
of the Closing Date;
(iii) "HAZARDOUS MATERIAL" means any substance, material or waste which is
regulated, classified or otherwise characterized as hazardous, toxic,
pollutant, contaminant or words of similar meaning or regulatory
effect by any Governmental Entity, and includes, without limitation,
petroleum, petroleum by-products and wastes, asbestos and
polychlorinated biphenyls;
(iv) "RELEASE" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal,
leaching, or migration into the indoor or outdoor environment, or
into or out of any property owned, operated or leased by the
applicable party or its subsidiaries; and
(v) "REMEDIAL ACTION" means all actions, including, without limitation,
any capital expenditures, required by a Governmental Entity or
required under or taken pursuant to any Environmental Law to (A)
clean up, remove, treat, or in any other way, ameliorate or address
any Hazardous Materials or other substance in the indoor or outdoor
environment; (B) prevent the Release or threat of Release, or
minimize the further Release of any Hazardous Material so it does not
endanger or threaten to endanger the public health or welfare of the
indoor or outdoor environment; (C) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (D) bring the applicable party into
compliance in all material respects with any Environmental Law.
(b) Except as set forth in Section 3.15 of the Company
Disclosure Schedule:
(i) The Company and its subsidiaries have been and, as of the Closing
Date, will be, in material compliance with all Environmental Laws,
except where the failure to so comply does not or would not be
reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, and, to the Company's
knowledge, there are no facts, circumstances or conditions relating
to the current or former operations of the Company and its
subsidiaries or any real property currently or formerly owned,
operated or leased by the Company or its subsidiaries, which without
material capital expenditures, would prevent material compliance in
the future;
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(ii) The Company and its subsidiaries have obtained and will, as of the
Closing Date, maintain all permits, authorizations, licenses or
similar approvals required under applicable Environmental Laws
("ENVIRONMENTAL PERMITS") for the continued operations of their
respective businesses as currently operated and as will be operated
as of the Closing Date, except such Environmental Permits the lack of
which do not or would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the
Company;
(iii) The Company and its subsidiaries are not subject to any outstanding
written orders or parties to material contracts with any Governmental
Entity or other person respecting (A) Environmental Laws, (B)
Remedial Action or (C) any Release or threatened Release of a
Hazardous Material except for such orders or contracts that would not
reasonably be expected to have a Material Adverse Effect on the
Company;
(iv) The Company and its subsidiaries have not received any written
communication alleging, with respect to any such party, the violation
of or liability (real or potential) under any Environmental Law, and
to the Company's knowledge there are no investigations or proceedings
pending or threatened against the Company regarding potential
liability under Environmental Laws which violation or liability would
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company;
(v) To the knowledge of the Company, neither the Company nor any of its
subsidiaries has any contingent liability in connection with the
Release of any Hazardous Material (whether on-site or off-site) which
does or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, except as
provided under the terms of insurance policies issued by the
Insurance Subsidiaries;
(vi) The operations of the Company or its subsidiaries do not involve the
transportation, treatment, storage or disposal of hazardous waste, as
defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any state equivalent at quantities or
for durations requiring an Environmental Permit.
(vii) There is not now, nor to the Company's knowledge, has there been in
the past, on or in any property of the Company or its subsidiaries
any of the following: (A) any underground storage tanks or surface
impoundments, (B) any asbestos-containing materials, or (C) any
polychlorinated biphenyls, the presence of which would reasonably be
expected to have a Material Adverse Effect on the Company; and
(c) None of the exceptions set forth on Schedule 3.15 are
reasonably likely to result in the Company and its subsidiaries incurring
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Environmental Costs and Liabilities which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(d) No later than the Company Schedule Delivery Date, the
Company will make available to Parent and Purchaser copies of all
environmentally related assessments, audits, investigations, sampling or similar
reports relating to the Company or its subsidiaries or any real property
currently or formerly owned, operated or leased by the Company and its
subsidiaries, to the extent in the possession, custody or control of the Parent,
Company or its subsidiaries.
SECTION 3.16 Tax Matters. (a) The Company and each of its
subsidiaries, and each affiliated group (within the meaning of Section 1504 of
the Code) of which the Company or any of its subsidiaries is a member, has
timely filed all federal income Tax Returns and all other material Tax Returns
and reports required to be filed by it. All such Tax Returns are true, complete
and correct in all material respects. The Company and each of its subsidiaries
has timely paid (or the Company has timely paid on its subsidiaries' behalf) all
Taxes due for the periods covered by such Tax Returns except for any Taxes
reflected as a liability on financial statements properly reported in accordance
with GAAP. The Company and each of its subsidiaries will file all Tax Returns
that it may become required to file on or after the date of this Agreement and
on or before the Closing Date (taking into account extensions). All Tax Returns
that the Company and each of its subsidiaries files on or after the date of this
Agreement and prior to the Closing Date will be true, correct and complete in
all material respects, and all Taxes due in connection with such Tax Returns
will be paid when due except for any Taxes reflected as a liability on financial
statements properly reported in accordance with GAAP. The most recent
consolidated financial statements contained in the Company SEC Reports reflect
an adequate reserve for all Taxes payable by the Company and its subsidiaries
for all Taxable periods and portions thereof through the date of such financial
statements and the Company and each of its subsidiaries will maintain until the
Closing Date on its books and records reserves adequate to pay all Taxes not yet
due and payable in accordance with GAAP. The Company will make available to
Parent, no later than the Company Schedule Delivery Date, copies of (i) all
federal, state, local and foreign Tax Returns filed by the Company and each of
its subsidiaries for all taxable periods ending on or after December 31, 1996
and all Tax Returns for all other taxable periods with respect to which the
statute of limitations has not expired or been closed; and (ii) any audit report
issued within the last three years (or otherwise with respect to any audit or
investigation in progress) relating to Taxes due from or with respect to the
Company and each of its subsidiaries. For purposes of this Agreement, "TAX" or
"TAXES" shall mean all taxes, charges, fees, imposts, levies or other
assessments or liabilities, including, without limitation, all income, net
income, gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated Taxes, customs duties, fees, assessments and charges of
any kind whatsoever, together with any interest and any penalties, fines,
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assessments, reassessments, additions to Tax or additional amounts imposed by
any taxing authority (domestic or foreign) and shall include any transferee
liability in respect of Taxes, any liability in respect of Taxes imposed by
assumption, contract, Tax sharing agreement, Tax indemnity agreement, Tax
reimbursement agreement, Tax assumption agreement or any similar agreement, any
liability imposed pursuant to Treasury Regulation Section 1.1502-6(a) (or any
predecessor or successor thereof or any analogous or similar provision under
state, local or foreign law), and any liabilities imposed by operation of law or
otherwise. "TAX RETURNS" shall mean any report, return, document, declaration or
any other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any document with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return document, declaration
or other information.
(b) No material deficiencies for any Taxes have been
proposed, asserted or assessed in writing against the Company or any of its
subsidiaries that have not been fully paid or adequately provided for in the
appropriate financial statements of the Company and its subsidiaries, no
outstanding agreements, waivers, or arrangements extending the statutory period
of limitations applicable to any claim for, or the period for the collection or
assessment of, material Taxes due from or with respect to the Company or any of
its subsidiaries for any taxable period is in effect, no requests for waivers of
the time to assess any material Taxes due from or with respect to the Company or
any of its subsidiaries are pending, and to the knowledge of the Company, no
requests for waivers of the time to assess any other material Taxes that could
be imposed on the Company or any of its subsidiaries or for which the Company or
any of its subsidiaries could be liable ("OTHER MATERIAL TAXES") are pending and
no power of attorney with respect to any material Taxes has been executed or
filed with any taxing authority by the Company or any of its subsidiaries, or,
to the knowledge of the Company, by any other party whose Tax could be imposed
on the Company or any of its subsidiaries or for whose Tax the Company or any of
its subsidiaries could be liable. No material issues relating to (i) Taxes due
from or with respect to the Company or any of its subsidiaries or, (ii) to the
knowledge of the Company, any Other Material Taxes have been raised in writing
by the relevant taxing authority during any presently pending audit or
examination. No issue has been raised by any taxing authority which, by
application of the same principles, would reasonably be expected to result in a
proposed deficiency in a material amount for any subsequent taxable period. The
statute of limitations in respect of material Tax Returns of the Company or any
of its subsidiaries has expired or has been closed for all taxable periods ended
prior to December 31, 1996.
(c) No material liens for Taxes exist with respect to any
assets or properties of the Company or any of its subsidiaries, except for
statutory liens for Taxes not yet due and payable.
(d) None of the Company or any of its subsidiaries is a
party to, is bound by or has any obligation under any Tax sharing agreement, Tax
allocation agreement, Tax indemnity obligation or similar agreement, arrangement
or practice with respect to Taxes (including any advance pricing agreement,
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closing agreement or other agreement relating to Taxes with any taxing
authority).
(e) None of the Company or any of its subsidiaries has
taken or agreed to take any action, or to the knowledge of the Company is aware
of any fact or circumstance, that would reasonably be likely to prevent the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
(f) There are no employment, severance or termination
agreements, other compensation arrangements, Employee Benefit Plans, or other
contracts or agreements (including any stock options) currently in effect which
provide for the payment of any amount (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement that would give rise to a payment which is nondeductible by reason of
Section 280G of the Code.
(g) The Company and its subsidiaries have complied in all
material respects with all applicable Laws relating to the payment and
withholding of Taxes.
(h) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are currently pending with
regard to any material Taxes or Tax Returns of the Company or its subsidiaries
and neither the Company nor any of its subsidiaries has received a written
notice of any proposed or pending audit or proceeding.
(i) Neither the Company nor any of its subsidiaries nor any
other person on behalf thereof has agreed to or is required to make any
adjustment under Section 481(a) of the Code or any similar provision of state,
local or foreign Law by reason of a change in accounting method or has any
knowledge that the IRS or any other taxing authority has proposed any such
adjustment or change in accounting method, or has any application pending with
any taxing authority requesting permission for any changes in accounting methods
that relate to the business or operations of the Company or its subsidiaries.
(j) Neither the Company nor any of its subsidiaries nor any
other person on behalf thereof has (i) with regard to any assets or property
held or acquired by any of them, filed a consent to the application of Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by the Company or any of its subsidiaries; (ii)
executed or entered into a closing agreement pursuant to Section 7121 of the
Code (or any predecessor provision) or any similar provision of state, local or
foreign Tax Law with respect to the Company or any of its subsidiaries; (iii)
received or filed any requests for rulings or determinations in respect of any
Taxes; or (iv) extended the time within which to file any material Tax Return,
which Tax Return has since not been filed, or the assessment or collection of
material Taxes, which Taxes have not since been paid.
(k) No property owned by the Company or any of its
subsidiaries (i) is property required to be treated as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
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Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; (ii) constitutes "TAX EXEMPT USE PROPERTY" within the
meaning of Section 168(h)(1) of the Code; (iii) is Tax exempt bond financed
property" within the meaning of Section 168(g) of the Code; or (iv) is "limited
use property" within the meaning of Rev. Proc. 76-30.
(l) The Company is not currently, and has not been within
the last five years, a "UNITED STATES REAL PROPERTY HOLDING CORPORATION" within
the meaning of Section 897(c) of the Code.
(m) No subsidiary of the Company owns any Shares, other
than as disclosed on Section 3.18(m) of the Company Disclosure Schedule.
(n) To the Company's knowledge, no claim has been made
within the past three years by a taxing authority in a jurisdiction where the
Company or any of its subsidiaries does not file Tax Returns to the effect that
the Company or any of its subsidiaries is or may be subject to Tax by that
jurisdiction.
(o) Neither the Company nor any of its subsidiaries is a
party to any contract, agreement or other arrangement which could result in the
payment of amounts that could be nondeductible by reason of Section 162(m) of
the Code.
(p) Neither the Company nor any of its subsidiaries (i) has
been a member of an affiliated group within the meaning of Section 1504(a) of
the Code (or any similar or analogous group defined under a similar or analogous
state, local or foreign Law) other than an affiliated group the common parent of
which is the Company or (ii) has any liability under Treasury Regulation Section
1.1502-6 (or any predecessor or successor thereof or analogous or similar
provision under state, local or foreign Law), as a transferee or successor, by
contract or otherwise for Taxes of any affiliated group of which the Company is
not the common parent.
(q) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation"
(within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (i) in the
two years prior to the date of this Agreement or (ii) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
(r) None of the assets of the Company or its subsidiaries
directly or indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code.
(s) Neither the Company nor any of its subsidiaries (i)
engaged in any "intercompany transactions" in respect of which gain in excess of
$1 million for any single transaction or in excess of $10 million in the
aggregate with all other such transactions was and continues to be deferred
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pursuant to Treasury Regulation Section 1.1502-13 or any predecessor or
successor thereof or analogous or similar provision under state, local or
foreign Law or (ii) has "excess loss accounts" in excess of $1 million in
respect of the stock of any subsidiary or, in the aggregate for all such excess
loss accounts, in excess of $10 million pursuant to Treasury Regulation Section
1.1502-19, or any predecessor or successor thereof or analogous or similar
provision under state, local or foreign Law.
SECTION 3.17 Absence of Questionable Payments. Neither the
Company nor any of its subsidiaries nor, to the Company's knowledge, any
director, officer, agent, employee or other person acting on behalf of the
Company or any of its subsidiaries, has used any corporate or other funds for
unlawful contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Exchange Act. Neither the Company nor any of its subsidiaries
nor, to the Company's knowledge, any director, officer, agent, employee or other
person acting on behalf of the Company or any of its subsidiaries, has accepted
or received any unlawful contributions, payments, gifts, or expenditures. To the
Company's knowledge, the Company and each of its subsidiaries which is required
to file reports pursuant to Section 12 or 15(d) of the Exchange Act is in
compliance in all material respects with the provisions of Section 13(b) of the
Exchange Act.
SECTION 3.18 Material Contracts. (a) Section 3.18 of the
Company Disclosure Schedule sets forth a list of all Material Contracts (as
hereinafter defined). The Company has heretofore made available, or will prior
to the Company Schedule Delivery Date make available, to Parent true, correct
and complete copies of all written or oral contracts and agreements (and all
amendments, modifications and supplements thereto and all side letters to which
the Company or any of its subsidiaries is a party affecting the obligations of
any party thereunder) to which the Company or any of its subsidiaries is a party
or by which any of its properties or assets are bound that are material to the
business, properties or assets of the Company and its subsidiaries taken as a
whole, including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or assets
of the Company and its subsidiaries taken as a whole, all: (i) employment,
severance, product design or development, personal services, consulting,
non-competition or indemnification contracts (including, without limitation, any
contract to which the Company or any of its subsidiaries is a party involving
employees of the Company); (ii) licensing, merchandising or distribution
agreements; (iii) contracts granting a right of first refusal or first
negotiation; (iv) partnership or joint venture agreements; (v) agreements for
the acquisition, sale or lease of material properties or assets of the Company
(by merger, purchase or sale of assets or stock or otherwise) entered into since
January 1, 1997, excluding activities in the investment portfolio of the
Insurance Subsidiaries; (vi) contracts, agreements, stipulations, consent orders
and other arrangements with any Governmental Entity (other than insurance
regulatory authorities); (vii) loan or credit agreements, mortgages, indentures
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or other agreements or instruments evidencing indebtedness for borrowed money by
the Company or any of its subsidiaries or any such agreement pursuant to which
indebtedness for borrowed money may be incurred; (viii) agreements that purport
to limit, curtail or restrict the ability of the Company or any of its
subsidiaries to compete in any geographic area or line of business; (ix)
contracts or agreements that would be required to be filed as an exhibit to a
Form 10-K filed by the Company with the SEC on the date hereof; and (x)
commitments and agreements to enter into any of the foregoing (collectively, the
"MATERIAL CONTRACTS").
(b) Each of the Material Contracts constitutes the valid
and legally binding obligation of the Company or its subsidiaries, enforceable
in accordance with its terms (subject to the Enforceability Exception) and is in
full force and effect. There is no default under any Material Contract so listed
either by the Company or, to the Company's knowledge, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder by the Company or, to the
Company's knowledge, any other party, in any such case in which such default or
event does or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(c) No party to any such Material Contract has given notice
to the Company of or made a claim against the Company with respect to any
material breach or default thereunder, in any such case in which such breach or
default does or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
SECTION 3.19 Insurance. Section 3.19 of the Company
Disclosure Schedule sets forth a list of material insurance policies (including
information on the premiums payable in connection therewith and the scope and
amount of the coverage provided thereunder) maintained by the Company or any of
its subsidiaries that insure the business, operations, or affairs of the Company
or any subsidiary thereof or affect or relate to the ownership, use, or
operations of any of the assets of the Company or any subsidiary thereof. All
such policies (i) have been issued by insurers, which, in the Company's view,
are reputable and financially sound and (ii) in the Company's view, provide
coverage for the operations conducted by the Company and its subsidiaries of a
scope and coverage consistent with customary industry practice.
SECTION 3.20 Risk Management Instruments. All material
interest rate swaps, caps, floors, collars, option agreements, futures and
forward contracts and other similar risk management arrangements, whether
entered into for the Company's own account, or for the account of one or more of
the Company's subsidiaries, were entered into (a) in accordance in all material
respects with all applicable Law and in the Company's view with prudent business
practices and (b) with counterparties believed by the Company to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of the Company or one of its subsidiaries, enforceable in
accordance with its terms, subject to the Enforceability Exception. Neither the
Company nor any of its subsidiaries nor, to the Company's knowledge, any other
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party thereto, is in breach of any of its material obligations under any such
agreement or arrangement.
SECTION 3.21 Intellectual Property. (a) Section 3.21 of the
Company Disclosure Schedule sets forth a list of all patents, patent
applications, registered Trademarks (as hereinafter defined) and material
unregistered Trademarks, registered Copyrights (as hereinafter defined) and
material unregistered Copyrights, proprietary computer software and material
licenses where the Company or any of its subsidiaries are licensee (with the
exception of licenses of off-the-shelf software) included in the Intellectual
Property (as hereinafter defined) of the Company and its subsidiaries.
(b) The Company and its subsidiaries own or possess
adequate licenses or other valid rights to use (in each case, free and clear of
any Liens other than Permitted Liens), all Intellectual Property used or held
for use in connection with the business of the Company and its subsidiaries as
currently conducted or as contemplated to be conducted other than such
Intellectual Property the absence of which would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(c) The use of any Intellectual Property by the Company and
its subsidiaries does not infringe on or otherwise violate the rights of any
person and is in accordance with any applicable license pursuant to which the
Company or any of its subsidiaries acquired the right to use any Intellectual
Property other than as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company.
(d) To the Company's knowledge, no person is challenging,
infringing on or otherwise violating any right of the Company or any of its
subsidiaries with respect to any Intellectual Property owned by and/or licensed
to the Company or its subsidiaries other than as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
(e) Neither the Company nor any of its subsidiaries has
received any notice written or otherwise of any assertion or claim, pending or
not, with respect to any Intellectual Property used by the Company or its
subsidiaries other than as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(f) No Intellectual Property owned/or licensed by the
Company or its subsidiaries is being used or enforced in a manner that would
result in the abandonment, cancellation or unenforceability of such Intellectual
Property other than as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company. For purposes of this
Agreement, "INTELLECTUAL PROPERTY" means (i) all trademarks, trademark rights,
trade names, trade name rights, trade dress and other indications of origin,
corporate names, brand names, logos, certification rights, service marks,
applications for trademarks and for service marks, the goodwill associated with
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the foregoing and registration in any jurisdiction of, and applications in any
jurisdictions to register, the foregoing, including any extension, modification
or renewal of any such registration or application ("TRADEMARKS"); (ii) all
inventions, discoveries and ideas (whether patentable or unpatentable and
whether or not reduced to practice), in any jurisdiction, all improvements
thereto, and all patents, patent rights, applications for patents (including,
without limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; (iii) know-how and other proprietary rights and information,
nonpublic information, trade secrets and confidential information and rights in
any jurisdiction to limit the use or disclosure thereof by any person; (iv)
writings and other works, whether copyrightable or not, in any jurisdiction, and
all registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof ("COPYRIGHTS"); (v) all
mask works and all applications, registrations and renewals in connection
therewith, in any jurisdiction; (vi) all computer software (including data and
all available related documentation); (vii) any similar intellectual property or
proprietary rights; and (viii) all copies and tangible documentation thereof and
any claims or causes of action arising out of or relating to any infringement or
misappropriation of any of the foregoing.
SECTION 3.22 Opinion of Financial Advisor. Bear, Stearns &
Co. Inc. and Donaldson, Lufkin & Jenrette (the "FINANCIAL Advisors") have
delivered to the Company Board their opinions, dated the date of this Agreement,
to the effect that, as of such date, the Merger Consideration is fair to the
holders of Shares from a financial point of view, and such opinions have not
been withdrawn or modified.
SECTION 3.23 Brokers. No broker, finder or investment
banker (other than the Financial Advisors and Tri-River Capital Group, Inc.,
true and correct copies of whose engagement agreements have been provided or, no
later than the Company Schedule Delivery Date, will be provided to Parent) is
entitled to any brokerage, finder's or other fee or commission or expense
reimbursement in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company or any of its
affiliates.
SECTION 3.24 Takeover Statute; Dissenters' Rights. The
Company has taken all action required to be taken by it in order to exempt this
Agreement, the Stock Option Agreement, the Stockholders Agreement and the
transactions contemplated hereby and thereby from, and this Agreement, the Stock
Option Agreement, the Stockholders Agreement and the transactions contemplated
hereby and thereby (the "COVERED TRANSACTIONS") are exempt from, the
requirements of any "moratorium", "control share", "fair price", "affiliate
transaction", "business combination" or other antitakeover Laws and regulations
(other than insurance holding company laws) of any state (collectively,
"TAKEOVER STATUTES"), including, without limitation, Section 203 of the DGCL, or
any antitakeover provision in the Company's certificate of incorporation or
bylaws. The provisions of Section 203 of the DGCL do not apply to the Covered
Transactions. Holders of Shares do not have dissenters' rights in connection
with the Merger.
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SECTION 3.25 Related Party Transaction. Except as set forth
in the SEC Reports or in Section 3.25 of the Company Disclosure Schedule and
except in for those arrangements that would not be required to be disclosed
under Section 404 of Regulation S-K, assuming the disclosure requirements
contained therein applied to any such person, no director, officer or affiliate
of the Company (i) has any indebtedness or other similar obligation to the
Company or any of its subsidiaries, (ii) is the beneficiary of any guaranty or
similar instrument issued by the Company or any of its subsidiaries or (iii) is
a party to any legally binding contract, commitment or obligation to, from or
with the Company or any of its subsidiaries, other than employment related
benefits contemplated by or disclosed in this Agreement.
SECTION 3.26 SAP Statements. The Company has previously
made available or, no later than the Company Schedule Delivery Date, will make
available, to Parent true and complete copies of the following:
(a) the annual statement of each Insurance Subsidiary as at
December 31 in each of the years ended December 31, 1999, 1998 and 1997, in each
case as filed with the insurance regulatory authority of the jurisdiction of
domicile of the such Insurance Subsidiary (each, an "ANNUAL STATEMENT");
(b) the quarterly statement of each Insurance Subsidiary
for the quarter ended March 31, 2000, in each case as filed with the insurance
regulatory authority of the jurisdiction of domicile of such Insurance
Subsidiary (each, a "QUARTERLY STATEMENT"); and
(c) any annual statements or quarterly statements of any
Insurance Subsidiary that were filed during 2000 in any jurisdiction that differ
in any material respect from the corresponding Annual Statements and Quarterly
Statements that were filed during 2000 in the domicile jurisdictions of the
Insurance Subsidiaries.
Each such statement (collectively, the "SAP STATEMENTS") was prepared in
accordance in all material respects with SAP and presents fairly in all material
respects the financial position of the relevant Insurance Subsidiary as of the
respective dates thereof and the related summary of operations and changes in
capital and surplus and in cash flows of such Insurance Subsidiary for and
during the respective periods covered thereby.
SECTION 3.27 Reserves. All statutory reserves with respect
to insurance as established and reflected in the December 31, 1999 Annual
Statement and March 31, 2000 Quarterly Statement of each of the Insurance
Subsidiaries were determined, in all material respects, in accordance with the
requirements for reserves established by the insurance department (or comparable
regulatory authority) of the jurisdiction of domicile of such Insurance
Subsidiary and generally accepted actuarial standards and principles. The
admitted assets of each of the Insurance Subsidiaries, as determined under
applicable insurance Laws, are in an amount at least equal to the minimum
amounts as required by such Laws.
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SECTION 3.28 Threats of Cancellation. Except as disclosed
in Section 3.28 of the Company Disclosure Schedule, since December 31, 1999, no
policyholder, group of affiliated policyholders, or persons writing, selling, or
producing insurance business that individually or in the aggregate accounted for
5% or more of the aggregate premium considerations of the Insurance Subsidiaries
taken as a whole for the year ended December 31, 1999, has terminated or (to the
knowledge of the Company) threatened to terminate its relationship with the
Insurance Subsidiaries.
SECTION 3.29 Insurance Issued. Except as required by Law or
except as disclosed in Section 3.29 of the Company Disclosure Schedule:
(a) All outstanding insurance contracts, policies, binders
and other agreements (collectively, "CONTRACTS") issued, reinsured, or
underwritten by any Insurance Subsidiary are, to the extent required under
applicable Laws, on forms and at rates approved by the insurance regulatory
authority of the jurisdiction where issued or have been filed with and not
objected to by such authority within the period provided for objection, except
for such failures to obtain such approvals or make such filings as do not have
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company.
(b) All insurance Contract benefits payable by any
Insurance Subsidiary have in all material respects been paid in compliance with
the terms of the insurance and other Contracts under which they arose, except
for such benefits for which the relevant Insurance Subsidiary believes there is
a reasonable basis to contest payment.
(c) No outstanding insurance Contract issued, reinsured, or
underwritten by any Insurance Subsidiary entitles the holder thereof or any
other person to receive dividends, distributions, or other benefits based on the
revenues or earnings of the Company, any subsidiary thereof or any other person.
(d) The ratings applied by the Insurance Subsidiaries
conform in all material respects to the ratings required pursuant to the terms
of the respective reinsurance, coinsurance, or other similar Contracts to which
any Insurance Subsidiary is a party.
(e) To the knowledge of Company, all amounts to which any
Insurance Subsidiary is entitled under reinsurance, coinsurance, or other
similar Contracts (including without limitation amounts based on paid and unpaid
losses) are fully collectible.
(f) To the knowledge of the Company, each insurance agent,
solicitor, or customer representative, including without limitation salaried
employees of any Insurance Subsidiary performing the duties of an insurance
agent, solicitor, or customer representative (collectively, an "AGENT"), at the
time such Agent wrote, sold, or produced business, or performed such other act
that may require an agent's, solicitor's, or other insurance license within the
United States for or on behalf of such Insurance Subsidiary, was duly licensed
and appointed, where required, as an insurance agent (for the type of business
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written, sold, or produced by such Agent) in the particular jurisdiction in
which such Agent wrote, sold, produced, or serviced such business, as may be
required by the various states, except for such failures to be so licensed or
appointed as do not have and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(g) To the knowledge of the Company, no Agent is in
violation (or with or without notice or lapse of time or both, would be in
violation) of any term or provision of any Law or any writ, judgment, decree,
injunction, or similar order applicable to the writing, sale, or production of
business for or on behalf of any Insurance Subsidiary, except for such
violations as do not have and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(h) Except for insurance Contracts registered under
applicable securities laws, no insurance Contract issued or underwritten by any
Insurance Subsidiary at any time constituted a "security" (as such term is used
in federal or state securities Laws).
SECTION 3.30 Reinsurance and Coinsurance. Set forth in
Section 3.30 of the Company Disclosure Schedule is a list of all material
reinsurance and coinsurance treaties or agreements, including without limitation
retrocessional agreements, to which any Insurance Subsidiary is a party or has
any rights or obligations, a copy of each of which will be made available to
Parent no later than the Company Schedule Delivery Date. As of the date hereof,
all such treaties or agreements (i) are in full force and effect, (ii) to the
knowledge of the Company, constitute legal, valid and binding obligations of the
applicable counterparty enforceable against such counterparty in accordance with
their terms except to the extent that (a) enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, fraudulent conveyance,
preferential transfers, rehabilitation, moratorium, or similar Laws now or
hereafter in effect relating to or affecting creditors' rights generally or of
application to insurance companies relating to or affecting policyholders' and
creditors' rights and (b) the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court or other similar person before which any proceeding
therefor may be brought (collectively, the "ENFORCEABILITY EXCEPTION") and (iii)
constitute the valid and legally binding obligation of the relevant Insurance
Subsidiaries enforceable in accordance with their terms (subject to the
Enforceability Exception). Except as set forth in Section 3.30 of the Company
Disclosure Schedule, (i) neither any Insurance Subsidiary nor, to the knowledge
of the Company, any counterparty to any such reinsurance or coinsurance treaties
or agreements, is in material default under any such reinsurance or coinsurance
treaty or agreement; (ii) there is no current material dispute, controversy,
difference of interpretation, or disagreement in connection with any of such
reinsurance or coinsurance treaties or agreements or performance by any of the
respective parties thereunder; and (iii) all reinsurance premiums currently due
from the Insurance Subsidiaries under any of such reinsurance or coinsurance
treaties or agreements were paid in full or adequately reserved for by the
Insurance Subsidiaries.
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SECTION 3.31 Regulatory Matters. Except as set forth in
Section 3.31 to the Company Disclosure Schedule, neither the Company nor any
Insurance Subsidiary, or their respective properties, is a party to or is
subject to any order, decree, supervisory agreement, memorandum of understanding
or similar arrangement with, or a commitment letter or similar submission to, or
extraordinary supervisory letter from, any Governmental Entity responsible for
the regulation of insurance. Except as set forth in Section 3.31 of the Company
Disclosure Schedule, neither the Company nor any Insurance Subsidiary has been
advised in writing by any such Governmental Entity that such Governmental Entity
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, supervisory agreement, memorandum
of understanding, commitment letter, supervisory letter or similar submission.
The Company has made available or, no later than the Company Schedule Delivery
Date, will make available to Parent true and complete copies of all financial
and market conduct examination reports of all applicable insurance regulatory
authorities since January 1, 1995 relating to the Insurance Subsidiaries.
SECTION 3.32 Surety Sale.
(a) The parties acknowledge that the Company is making no
representation or warranty hereunder with respect to, and each representation
and warranty herein shall be deemed to be not referring to or covering the
Business (as defined in the Surety Agreement) or any assets or liabilities
related to the Business.
(b) The representations and warranties made by the Company
and any of its affiliates in the Surety Agreement and any document, certificate
or agreement relating thereto or delivered in connection therewith (collectively
with the Surety Agreement, the "SURETY SALE DOCUMENTS") were (when made) and
will be (at closing of the transactions contemplated thereby) true and correct,
and all covenants or other agreements to be performed by the Company or any of
its affiliates under the Surety Sale Documents have been (or will be as of
closing of the transactions contemplated thereby) performed or waived pursuant
to the terms thereof, except in each case for such failures to be true and
correct and such failures to perform as do not and are not reasonably expected
to result in a Material Adverse Effect on the Company. The Company and its
affiliates do not and are not reasonably likely to owe any amounts for
indemnification under the Surety Agreement or breach of any provision of any of
the Surety Sale Documents, except such amounts that are not, individually or in
the aggregate, reasonably likely to result in a Material Adverse Effect on the
Company. The provisions in this subjection 3.32(b) shall be operative only after
the consummation of the sale of the Business.
(c) If the transactions contemplated by the Surety Sale
Documents are not consummated prior to the Closing Date, then Sections 3.32(a)
and (b) above shall be of no further force or effect and the representations and
warranties set forth herein shall be deemed to refer to and cover the Business
and all assets or liabilities related to the Business, and the Company shall
promptly (but in any event by the earlier of (i) seven days after termination of
the Surety Agreement and (ii) seven days prior to the Closing Date) update the
Company Disclosure Schedule as necessary to reflect the Business.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule (each
section of which qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein) delivered by Parent to the
Company prior to the execution of this Agreement (the "PARENT DISCLOSURE
SCHEDULE"), or in the Parent SEC Reports, Parent and Merger Sub hereby represent
and warrant to the Company as follows:
SECTION 4.1 Organization. (a) Each of Parent and its
subsidiaries, including without limitation, the Merger Sub, is a corporation or
legal entity duly organized, validly existing and in good standing under the
Laws of the jurisdiction of its incorporation and has all requisite corporate,
partnership or similar power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted or proposed by Parent
to be conducted, except where the failure to be duly organized, existing and in
good standing or to have such power and authority would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent.
(b) Each of Parent and its subsidiaries, including without
limitation, the Merger Sub, is duly qualified or licensed and in good standing
to do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing does not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent.
(c) Parent has heretofore delivered to the Company accurate
and complete copies of the articles of incorporation and bylaws of Parent as
currently in effect.
SECTION 4.2 Capitalization of Parent and Its Subsidiaries.
(a) The authorized capital stock of Parent consists of: (i) 150,000,000 shares
of Parent Common Stock, of which 55,296,728 shares of Parent Common Stock were
issued and outstanding as of the close of business on May 8, 2000, and
63,116,263 shares of which are held as treasury shares, and (ii) 6,000,000
shares of preferred stock, $1.00 par value per share, no shares of which are
outstanding. All of the shares of Parent Common Stock have been duly authorized,
validly issued, and are fully paid, non-assessable and free of preemptive
rights. As of May 16, 2000, 2,000,000 shares of Parent Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of options or warrants to purchase Parent Common Stock. Except
as and to the extent publicly disclosed in the Parent SEC Reports (as
hereinafter defined), since December 31, 1999, no shares of Parent's capital
stock have been issued, and no stock options or warrants have been granted
except as disclosed in Section 4.2(a) of the Parent Disclosure Schedule. Except
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as described in the Parent SEC Reports, as disclosed in Section 4.2(a) of the
Parent Disclosure Schedule and as set forth above, as of the date hereof, there
are outstanding (i) no shares of capital stock or other voting securities of
Parent, (ii) no securities of Parent or any of its subsidiaries convertible into
or exchangeable for shares of capital stock or voting securities of Parent,
(iii) no options or other rights to acquire from Parent or any of its
subsidiaries, and no obligations of Parent or any of its subsidiaries to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Parent, and (iv) no
equity equivalents, interests in the ownership or earnings of Parent or any of
its subsidiaries or other similar rights (including stock appreciation rights)
(collectively, "PARENT SECURITIES"). There are no outstanding obligations of
Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire any
Parent Securities. Except as set forth in the Parent SEC Reports, or as
contemplated by this Agreement, there are no stockholder agreements, voting
trusts or other agreements or understandings to which Parent is a party or to
which it is bound relating to the voting of any shares of capital stock of
Parent. The Parent Company Stock constituting Merger Consideration, upon
issuance pursuant to the terms hereof, will be duly authorized, validly issued,
fully paid and non-assessable and listed on the NYSE.
(b) All of the outstanding capital stock of Parent's
subsidiaries (including Merger Sub) is owned by Parent, directly or indirectly,
free and clear of any Lien or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of Law), except as disclosed in Section 4.2(b) of the Parent Disclosure
Schedule. There are no securities of Parent or its subsidiaries convertible into
or exchangeable for, no options or other rights to acquire from Parent or its
subsidiaries, and no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any capital stock or other ownership interests in, or any other
securities of, any subsidiary of Parent. There are no outstanding contractual
obligations of Parent or its subsidiaries to repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other ownership interests in
any subsidiary of Parent.
SECTION 4.3 Authority Relative to This Agreement. (a) Each
of Parent and Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement, the Stock Option Agreement, the Registration
Rights Agreement and the Recognition Agreement (collectively, the "SPECIFIED
AGREEMENTS") and to consummate the transactions contemplated hereby and thereby.
No other corporate proceedings on the part of Parent or Merger Sub are necessary
to authorize the Specified Agreements or to consummate the transactions
contemplated hereby or thereby (other than, with respect the Share Issuance, the
Parent Requisite Vote (as hereinafter defined) if required). The Specified
Agreements have been duly and validly executed and delivered by each of Parent
and Merger Sub, as applicable, and constitute valid, legal and binding
agreements of each of Parent and Merger Sub, as applicable, enforceable against
each of Parent and Merger Sub, as applicable, in accordance with their
respective terms.
(b) The Boards of Directors of Parent (the "PARENT BOARD")
and Merger Sub and Parent as the sole stockholder of Merger Sub have duly and
validly authorized the execution and delivery of the Specified Agreements and
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the consummation of the transactions contemplated hereby and thereby, and taken
all corporate actions required to be taken by such Boards of Directors and
Parent as the sole stockholder of Merger Sub for the consummation of the
transactions. If required by the rules of the NYSE, the affirmative approval of
the holders of Parent Common Stock representing a majority of votes cast at the
Parent Stockholders Meeting (as hereinafter defined) (provided the total votes
cast on the proposal represent more than 50% of the Parent Common Stock entitled
to vote thereon) (the "PARENT REQUISITE VOTE") would be the only vote of the
holders of any class or series of capital stock of Parent necessary to approve
the Share Issuance. Article Fourth of Parent's Certificate of Incorporation is
inapplicable to the acquisition of any shares of Parent Common Stock by any
Holder of shares of Company Common Stock pursuant hereto. Other than Article
Fourth, the Parent Common Stock is not subject to any restriction on transfer
other than pursuant to applicable Law.
SECTION 4.4 SEC Reports; Financial Statements. (a) Parent
has filed all required forms, reports and documents with the SEC (the "PARENT
SEC FILINGS") since January 1, 1997, each of which has complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, each as in effect on the dates such forms, reports and documents were
filed. Parent has heretofore delivered to the Company, in the form filed with
the SEC (including any amendments thereto), (i) its Annual Reports on Form 10-K
for the fiscal year ended December 31, 1999, 1998 and 1997, (ii) all definitive
proxy statements relating to Parent's meetings of stockholders (whether annual
or special) held since January 1, 1997 and (iii) all other reports or
registration statements filed by Parent with the SEC since January 1, 2000
through the date of this Agreement (the "PARENT SEC REPORTS"). None of the
Parent SEC Filings, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of Parent
included in the Parent SEC Filings complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto (including footnote disclosure) and fairly
present in all material respects, in conformity with GAAP on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Parent and its consolidated subsidiaries as of the dates thereof and
their consolidated results of operations and changes in financial position for
the periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments and to the fact that quarterly
financial statements exclude certain footnotes required by GAAP). Since December
31, 1999, there has not been any change, or any application or request for any
change, by Parent or any of its subsidiaries in accounting principles, methods
or policies for financial accounting or Tax purposes.
SECTION 4.5 Information Supplied. None of the information
supplied or to be supplied by Parent or Merger Sub for inclusion or
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incorporation by reference in (i) the S-4 will, at the time the S-4 is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading
and (ii) the Proxy Statement will, at the date mailed to stockholders and at the
times of the Company Stockholder Meeting and the Parent Stockholder Meeting, if
required, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
Parent, its officers and directors or any of its subsidiaries should occur which
is required to be described in an amendment of, or a supplement to, the S-4 or
the Proxy Statement, Parent shall promptly so advise the Company and such event
shall be so described, and such amendment or supplement (which the Company shall
have a reasonable opportunity to review) shall be promptly filed with the SEC.
The S-4 will comply as to form in all material respects with the provisions of
the Securities Act and the rules and regulations thereunder.
SECTION 4.6 Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, state securities or blue sky Laws, the HSR Act, the filing and recordation
of the Certificate of Merger as required by the DGCL, the consents, filings
and/or notices required under the insurance laws of the jurisdictions set forth
in Section 4.6 of the Parent Disclosure Schedule and any filing, permit,
authorization, consent and approval required as a result of the conduct of the
Company's business, and as otherwise set forth in Section 4.6 to the Parent
Disclosure Schedule, no filing with or notice to, and no permit, authorization,
consent or approval of, any Governmental Entity is necessary for the execution
and delivery by Parent or Merger Sub of the Specified Agreements or the
consummation by Parent or Merger Sub of the transactions contemplated hereby or
thereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice do not or
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent. Neither the execution, delivery or
performance of the Specified Agreements by Parent or Merger Sub, as the case may
be, nor the consummation by Parent or Merger Sub, as the case may be, of the
transactions contemplated hereby or thereby will (i) conflict with or result in
any breach of any provision of the respective articles of incorporation or
bylaws (or similar governing documents) of Parent or Merger Sub or any of
Parent's subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or Lien)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Parent or Merger Sub or any of Parent's subsidiaries is a party or by
which any of them or any of their respective properties or assets may be bound
or (iii) violate any Law applicable to Parent or Merger Sub or any of Parent's
subsidiaries or any of their respective properties or assets, except in the case
of (ii) or (iii) for violations, breaches or defaults which do not or would not
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reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent or as disclosed in Section 4.6 of the Parent Disclosure
Schedule.
SECTION 4.7 Compliance with Applicable Law. Except as and
to the extent publicly disclosed by Parent in the Parent SEC Reports, Parent and
its subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "PARENT PERMITS"), except for failures to hold such
Parent Permits which do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. Except as
and to the extent publicly disclosed by Parent in the Parent SEC Reports, Parent
and its subsidiaries are in compliance with the terms of the Parent Permits,
except where the failure so to comply does not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent. Except as and to the extent publicly disclosed by Parent in the Parent
SEC Reports, the businesses of Parent and its subsidiaries are not being
conducted in violation of any Law, ordinance or regulation of any Governmental
Entity applicable to Parent or its subsidiaries except for violations which do
not and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent. Except as and to the extent
publicly disclosed by Parent in the Parent SEC Reports, no investigation or
review by any Governmental Entity with respect to Parent or its subsidiaries is
pending or to Parent's knowledge, threatened, nor, to Parent's knowledge, has
any Governmental Entity indicated an intention to conduct the same, other than,
in each case, those which Parent reasonably believes do not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
SECTION 4.8 Section 368(a) Reorganization. None of Parent
or any of its subsidiaries has taken or agreed to take any action, or to the
knowledge of Parent is aware of any fact or circumstance, that would reasonably
be likely to prevent the Merger from constituting a reorganization qualifying
under the provisions of section 368(a) of the Code.
SECTION 4.9 No Prior Activities. Except for obligations
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby,
Merger Sub has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
SECTION 4.10 Brokers. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Parent or Merger Sub or any of their
affiliates.
SECTION 4.11 Company Benefit Plans and Employee Policies.
Parent has no present plans or intention to alter or terminate upon
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effectiveness of the Merger any benefit plans or policies generally available or
applicable to employees of the Company and its subsidiaries.
SECTION 4.12 No Undisclosed Liabilities; Ordinary Course. Except as and to the
extent publicly disclosed by the Parent in the Parent SEC Reports, as of
December 31, 1999, none of the Parent or its subsidiaries has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, and
whether due or to become due or asserted or unasserted, which would be required
by GAAP to be reflected in, reserved against or otherwise described in the
Consolidated balance sheet of the Company (including the notes thereto) or which
do or would reasonably be expected to have individually or in the aggregate, a
Material Adverse Effect on the Parent. Since December 31, 1999, except and to
the extent publicly disclosed in the Parent SEC Reports, Parent and its
subsidiaries have conducted their business in the ordinary course consistent
with past practice.
SECTION 4.13 Prior Acquisition Approvals. Since 1990 and,
to the knowledge of Parent, prior to such time, no application or request for
approval to acquire control (whether by merger, stock acquisition or otherwise)
of any insurance or reinsurance company filed by or on behalf of Parent with any
Governmental Entity responsible for regulation of insurance has been denied,
disapproved or rejected.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company. Except (1)
as contemplated by this Agreement, (2) as required to permit the Company and its
subsidiaries to comply with the terms of the Surety Agreement and the Ancillary
Agreements (as defined in the Surety Agreement), (3) as contemplated by the
Restructuring Plan (as defined below), (4) the granting of restricted stock
pursuant to the Company's existing 2000 Restricted Stock Plan as set forth on
Schedule I hereto and (5) the refinancing of the Company's indebtedness
outstanding in the aggregate principal amount of $735.1 million at March 31,
2000 on terms and conditions consented to by Parent, which consent shall not be
unreasonably withheld, delayed or conditioned ((1), (2), (3), (4) and (5)) being
referred to hereinafter as the "SPECIFIED EXCEPTIONS"), during the period from
the date hereof to the Effective Time, the Company will, and will cause each of
its subsidiaries to, conduct its operations in the ordinary and usual course of
business consistent in all material respects with past practice and, to the
extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, (subject to the limitations imposed by
this Section 5.1) (i) use commercially reasonable efforts to preserve intact its
current business organizations, (ii) use commercially reasonable efforts to keep
available the service of its current officers and employees and (iii) use
commercially reasonable efforts to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
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and ongoing businesses shall be unimpaired in any material respect at the
Effective Time. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement or in the Company Disclosure
Schedule and except for the Specified Exceptions, prior to the Effective Time,
neither the Company nor any of its subsidiaries will, without the prior written
consent of Parent:
(a) amend its certificate of incorporation or (in the case
only of the Company and any Material Subsidiary) bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree
or commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities convertible into or exchangeable
for any stock or any equity equivalents (including, without limitation, any
stock options or stock appreciation rights), except for the issuance or sale of
Shares pursuant to outstanding Company Stock Options, pursuant to options
outstanding at the date hereof under the Stock Purchase Plan or sales or
issuances of securities of wholly-owned subsidiaries of the Company made to
other wholly-owned subsidiaries of the Company (in each case whether direct or
indirect);
(c) (i) split, combine or reclassify any shares of its
capital stock; (ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock (except to the extent any restriction in the payment of
dividends by any subsidiary of the Company is prohibited by the existing terms
of the Company's outstanding indebtedness and except for dividends from any
subsidiary of the Company to any wholly-owned subsidiary of the Company (whether
direct or indirect) or to the Company); (iii) make any other actual,
constructive or deemed distribution in respect of any shares of its capital
stock or otherwise make any payments to stockholders in their capacity as such;
or (iv) redeem, repurchase or otherwise acquire any of its securities or any
securities of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries, or take any action to
effect or implement any of the foregoing (other than the Merger and the
restructuring plan previously delivered to Parent (the "RESTRUCTURING PLAN"),
provided that such Restructuring Plan is not modified or changed in any material
respect or abandoned, in any case without the consent of Parent, such consent
not to be unreasonably withheld, delayed or conditioned);
(e) (i) incur or assume any long-term or short-term debt or
issue any debt securities, except for borrowings under (x) existing lines of
credit in the ordinary and usual course of business consistent in all material
respects with past practice and in amounts not to exceed $50,000 or (y) the
existing credit facility of Reliance Insurance Company used to meet its working
capital requirements in the ordinary course of business consistent in all
material respects with past practice; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary and
usual course of business consistent in all material respects with past practice
and in amounts not to exceed $50,000 individually (other than surety and
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fidelity bonds and policies issued by any Insurance Subsidiary in the ordinary
course of business consistent in all material respects with past practice);
(iii) make any loans, advances or capital contributions to, or investments in,
any other person (other than (x) to the wholly owned subsidiaries of the Company
or to the Company, in any case, in the ordinary and usual course of business
consistent in all material respects with past practice or (y) customary loans or
advances to employees in the ordinary and usual course of business consistent in
all material respects with past practice and in amounts not to exceed $50,000
individually); (iv) pledge or otherwise encumber shares of capital stock of the
Company or its subsidiaries other than the shares of capital stock of any
wholly-owned subsidiary (whether direct or indirect) of the Company to secure
any indebtedness to any wholly-owned direct or indirect subsidiary of the
Company; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Lien thereupon; provided,
however, that nothing in this Agreement shall be deemed to limit in any manner
the ability of the Insurance Subsidiaries to conduct their investment portfolio
activities in the ordinary course of business consistent in all material
respects with the Investment Guidelines;
(f) except as may be required by Law or as contemplated by
this Agreement, (i) enter into, adopt, amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment, severance or
other employee benefit agreement, trust, plan, fund, award or other arrangement
for the benefit or welfare of any director, officer or employee in any manner
(except with respect to termination or severance payment amounts not to exceed
$1,000,000 in the aggregate), (ii) (except as required under existing agreements
or applicable Law) increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any plan
and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock appreciation rights or performance units); or
(iii) contribute to or otherwise fund any trust (other than a trust qualifying
under Section 501(a) of the Code or with respect to health and dental benefits
for active employees under Section 501(c)(9) of the Code.
(g) acquire, sell, lease or dispose of any assets
(including, without limitation, by means of reinsurance) outside the ordinary
and usual course of business consistent in all material respects with past
practice or any assets which in the aggregate are material to the Company and
its subsidiaries taken as a whole, enter into any commitment or transaction
outside the ordinary and usual course of business consistent in all material
respects with past practice or grant any exclusive distribution rights;
provided, however, that nothing in this Agreement shall be deemed to limit in
any manner the ability of the Insurance Subsidiaries to conduct their investment
portfolio activities in the ordinary course of business consistent in all
material respects with the Investment Guidelines.
(h) except as may be required as a result of a change in
Law or in GAAP or SAP or, solely with respect to reserving principles or
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practices, generally accepted actuarial principles and practices, change any of
the accounting, reserving, underwriting and investing principles or practices
used by it or any of its subsidiaries;
(i) revalue in any material respect any of its assets,
including, without limitation, writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary and usual
course of business consistent in all material respects with past practice or as
required by GAAP, SAP or applicable Law;
(j) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement, other than in the ordinary and usual course of business consistent in
all material respects with past practice or amend in any material respect any of
the Material Contracts or the agreements referred to in Section 3.18; (iii)
authorize any unbudgeted capital expenditure or expenditures which,
individually, is in excess of $50,000 or, in the aggregate, are in excess of
$1,000,000; or (iv) enter into or amend any contract, agreement, commitment or
arrangement providing for the taking of any action that would be prohibited
hereunder; provided, however, that nothing in this Agreement shall be deemed to
limit in any manner the ability of the Insurance Subsidiaries to conduct their
investment portfolio activities in the ordinary course of business consistent in
all material respects with the Investment Guidelines.
(k) unless otherwise required by Law, make or revoke any
material Tax election, settle or compromise any Tax liability material to the
Company and its subsidiaries taken as a whole, or change (or make a request to
any taxing authority to change) any material aspect of its method of accounting
for Tax purposes or waive or extend the statute of limitations in respect of any
material Taxes;
(l) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary and usual course of business consistent in all material respects
with past practice of liabilities reflected or reserved against in the
consolidated financial statements of the Company and its subsidiaries or
incurred in the ordinary and usual course of business consistent in all material
respects with past practice or waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party;
(m) settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby;
(n) enter into any agreement or arrangement that limits or
otherwise restricts the Company or any of its subsidiaries or any successor
thereto or that could, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including Parent) or any successor thereto, from
engaging or competing in any line of business or in any geographic area;
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(o) maintain the reserves of the Insurance Subsidiaries
other than in accordance with the generally recognized actuarial methods and
standards followed by the Insurance Subsidiaries as of the date of this
Agreement, except as required by GAAP, SAP or applicable Law;
(p) allow any Insurance Subsidiary to enter into any
reinsurance or other similar contract, whether as reinsurer or reinsured,
including without limitation any surplus relief or financial reinsurance
contract, except in the ordinary course of business and consistent in all
material respects with past practice; or
(q) take, propose to take, or agree in writing or otherwise
to take, any of the actions described in Sections 5.1(a) through 5.1(p) or any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect (without regard to materiality)
in any manner which is reasonably likely to have a Material Adverse Effect on
the Company.
SECTION 5.2 Conduct of Business of Parent. Except (1) as
otherwise expressly provided in, or contemplated by, this Agreement, (2) to
permit after the Effective Time a transaction permitted under Section 1.8, or
(3) as set forth in the Parent Disclosure Schedule, prior to the Effective Time,
neither Parent nor any of its subsidiaries will, without the prior written
consent of the Company:
(a) amend its certificate of incorporation (or other
similar governing instrument);
(b) (i) split, combine or reclassify any shares of its
capital stock, (ii) declare, set aside or pay any dividend or other distribution
in respect of its capital stock except the declaration and payment of regular
cash dividends not in excess of $.50 per year per share of Parent Common Stock,
(iii) make any other actual, constructive or deemed distribution in respect of
any shares of its capital stock or otherwise make any payments to stockholders
in their capacity as such, or (iv) issue any Parent Company Stock at a price
below that of the then current fair market value therefor (it being understood
that any Parent Company Stock issued pursuant to the exercise of stock options
or warrants having an exercise price equal to or greater than the fair market
value of such Parent Company Stock on the date of grant of such option or
warrant shall be deemed to have been issued at the then current fair market
value);
(c) take, propose to take, or agree in writing or otherwise
to take, any of the actions described in Section 5.2(a) and (b) or any action
which would make the representations or warranties of Parent and Merger Sub in
this Agreement (i) which are qualified as to materiality untrue or incorrect or
(ii) which are not so qualified untrue in any material respect; or
(d) settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby; provided,
however, that Parent shall have the right to settle or compromise such suits,
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actions or claims without the consent of the Company so long as such settlement
or compromise releases the Company and any named affiliates of the Company from
all liability for or in connection with such action and does not contain any
admission of wrongdoing on the part of the Company or any named affiliate.
SECTION 5.3 Access to Information; Confidentiality. (a)
Between the date hereof and the Effective Time, the Company will give Parent and
Merger Sub, and Parent and Merger Sub will give the Company, and their
respective authorized representatives (including counsel, financial advisors and
auditors) ("REPRESENTATIVES") reasonable access during normal business hours
upon reasonable notice to all employees, plants, offices, warehouses and other
facilities and to all books and records of the Company and its subsidiaries, or
of Parent and its subsidiaries, as the case may be, will permit Parent and
Merger Sub, or the Company, as the case may be, to make such inspections as such
party or parties may reasonably require and will cause the Company's officers
and those of its subsidiaries or the Parent's officers and those of its
subsidiaries, as the case may be, to furnish the other party or parties with
such financial and operating data and other information with respect to the
business, properties and personnel of the Company and its subsidiaries or Parent
and its subsidiaries, as the case may be, as such other party or parties may
from time to time reasonably request, provided that no investigation pursuant to
this Section 5.3(a) shall affect or be deemed to modify any of the
representations or warranties made by the Company or the Parent and Merger Sub,
as the case may be.
(b) Between the date hereof and the Effective Time, the
Company shall furnish to Parent and Merger Sub (and with respect to clause (ii),
Parent shall furnish to the Company) (i) within five business days after the
delivery thereof to management, such monthly financial statements and data as
are regularly prepared for distribution to Company management and (ii) at the
earliest time they are available, such quarterly and annual financial statements
as are prepared for the Company's SEC filings, which (in the case of this clause
(ii)), shall be in accordance with the books and records of the Company.
(c) Each of Parent and Merger Sub will hold and will cause
its authorized Representatives to hold in confidence all documents and
information concerning the Company and its subsidiaries furnished to Parent or
Merger Sub in connection with the transactions contemplated by this Agreement.
Parent will keep all information supplied or made available to it hereunder in
confidence and shall not disclose such information to anyone else other than its
Representatives, except for such information that (i) is or becomes generally
available to the public other than as a result of disclosure by Parent in
violation of this Agreement or any other duty or obligation of confidentiality
imposed on Parent, (ii) is publicly known or available to Parent prior to its
disclosure by the Company, (iii) is obtained from a third party who, to Parent's
knowledge, is not under any confidentiality arrangement with or other duty or
obligation of confidentiality to the Company, (iv) is independently developed by
Parent, or (v) is required to be disclosed by law. Notwithstanding the
foregoing, Parent shall have the right to disclose information obtained under
this Agreement to any national securities exchange, or governmental agency or
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authority pursuant to a valid request therefor. In such event, Parent will use
commercially reasonable efforts to obtain confidential treatment for such
disclosure and will notify the Company of the request for disclosure.
The Company will hold and will cause its authorized
Representatives to hold in confidence all documents and information concerning
Parent and its subsidiaries furnished to the Company in connection with the
transactions contemplated by this Agreement. The Company will keep all
information supplied or made available to it hereunder in confidence and shall
not disclose such information to anyone else other than its Representatives,
except for such information that (i) is or become generally available to the
public other than as a result of disclosure by the Company in violation of this
Agreement or any other duty or obligation of confidentiality imposed on the
Company, (ii) is publicly known or available to the Company prior to its
disclosure by Parent, (iii) is obtained from a third party who, to the Company's
knowledge, is not under any confidentiality arrangement with or other duty or
obligation of confidentiality to Parent, (iv) is independently developed by the
Company, or (v) is required to be disclosed by law. Notwithstanding the
foregoing, the Company shall have the right to disclose information obtained
under this Agreement to any national securities exchange, or governmental agency
or authority pursuant to a valid request therefor. In such event, the Company
will request confidential treatment for such disclosure and will notify Parent
of the request for disclosure.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of S-4 and the Proxy Statement.
Parent and the Company will, as promptly as practicable, jointly prepare and
file with the SEC the S-4, containing a proxy statement/prospectus (which will
be a joint proxy statement/prospectus if the Parent Requisite Vote is required)
and forms of proxy, in connection with the registration under the Securities Act
of the shares of Parent Common Stock issuable pursuant to the transactions
contemplated hereby. Parent and the Company will, and will cause their
accountants and lawyers to, use all reasonable best efforts to have or cause the
S-4 declared effective as promptly as practicable after filing with the SEC,
including, without limitation, causing their accountants to deliver necessary or
required instruments such as opinions, consents and certificates, and will take
any other action required or necessary to be taken under federal or state
securities Laws or otherwise in connection with the registration process (other
than qualifying to do business in any jurisdiction which it is not now so
qualified or to file a general consent to service of process in any
jurisdiction). The Company and Parent shall, as promptly as practicable after
the receipt thereof, provide to the other party copies of any written comments
and advise the other party of any oral comments, with respect to the Proxy
Statement or the S-4 received from the staff of the SEC. The Company will
provide Parent with a reasonable opportunity to review and comment on any
amendment or supplement to the Proxy Statement prior to filing with the SEC and
will provide Parent with a copy of all such filings with the SEC. Each of Parent
and the Company will use commercially reasonable efforts to cause the Proxy
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Statement to be mailed to its stockholders at the earliest practicable date.
Parent will provide the Company with a reasonable opportunity to review and
comment on any amendment or supplement to the S-4 prior to filing with the SEC
and will provide the Company with a copy of all such filings with the SEC.
SECTION 6.2 Public Announcements. Each of Parent, Merger
Sub and the Company will consult with one another before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, including, without limitation, the
Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
Law or by obligations pursuant to any listing agreement with the NYSE, as
determined by Parent, Merger Sub or the Company, as the case may be.
SECTION 6.3 Meetings. (a) The Company shall take all lawful
action to (i) cause a special meeting of its stockholders (the "COMPANY
STOCKHOLDER MEETING") to be duly called and held as soon as practicable after
the date of this Agreement for the purpose of voting on the approval and
adoption of this Agreement and (ii) solicit proxies from its stockholders to
obtain the Company Requisite Vote for the approval and adoption of this
Agreement. The Company Board shall recommend approval and adoption of this
Agreement and the Merger by the Company's stockholders and, except as permitted
by Section 6.5(b), the Company Board shall not withdraw, amend or modify in a
manner adverse to Parent such recommendation (or announce publicly its intention
to do so). Notwithstanding the foregoing, regardless of whether the Company
Board has withdrawn, amended or modified its recommendation that its
stockholders approve and adopt this Agreement, unless this Agreement has been
terminated pursuant to the provisions of Article VIII, the Company shall be
required to hold the Company Stockholder Meeting.
(b) If the Parent Requisite Vote is required, Parent shall
take all lawful action to (i) cause a special meeting of its stockholders (the
"PARENT STOCKHOLDER MEETING") to be duly called and held as soon as practicable
after the date of this Agreement for the purpose of voting on the approval of
the Share Issuance and (ii) solicit proxies from its stockholders to obtain the
Parent Requisite Vote. If the Parent Requisite Vote is required, the Parent
Board shall recommend approval of the Share Issuance by Parent's stockholders
and, except if the Parent Board, after consultation with independent legal
counsel, determines in good faith that such action is necessary for the Parent
Board to comply with their fiduciary duty under applicable Law, the Parent Board
shall not be permitted to withdraw, amend or modify in a manner adverse to the
Company such recommendation (or announce publicly its intention to do so).
SECTION 6.4 Commercially Reasonable Efforts. (a) Subject to
the terms and conditions of this Agreement, each party will use its commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
Laws and Contracts to which any party hereto is a party or otherwise bound to
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consummate the Merger and the other transactions contemplated by this Agreement.
In furtherance and not in limitation of the foregoing, each party hereto agrees
to make an appropriate filing of a Notification and Report Form pursuant to the
HSR Act and all requisite state insurance regulatory filings with respect to the
transactions contemplated hereby as promptly as practicable and in any event
within ten business days of the date hereof with respect to HSR filings and
within twenty business days with respect to state insurance regulatory filings
(assuming reasonable cooperation from the Company in the preparation of plans of
operation for the Insurance Subsidiaries to be filed with such state insurance
filings), and to supply as promptly as practicable any additional information
and documentary material that may be requested pursuant to the HSR Act and use
its commercially reasonable efforts to take, or cause to be taken, all other
actions consistent with this Section 6.4 necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable. The Company and its counsel shall have the right to review and
comment upon the Form A and Form E filings (and any supplements or amendments
thereto) of Parent prior to their being filed to correct any inaccuracies
contained therein, which corrective comments shall be incorporated in the
filings. Parent shall keep the Company apprised on a timely basis of the status
of obtaining any applicable regulatory approvals and shall promptly deliver to
the Company copies of all filings made, and any supplements or amendments
thereto, and all notices, orders, opinions or other items received from any
applicable regulatory authority.
(b) Each of Parent and the Company shall, in connection
with the efforts referenced in Section 6.4(a) to obtain all requisite approvals
and authorizations for the transactions contemplated by this Agreement under the
HSR Act or any other Antitrust Law, use its commercially reasonable efforts to
(i) cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party; and (ii) keep the other party
informed in all material respects of any material communication received by such
party from, or given by such party to, the Federal Trade Commission (the "FTC"),
the Antitrust Division of the Department of Justice (the "DOJ") or any other
Governmental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any of
the transactions contemplated hereby. For purposes of this Agreement, "ANTITRUST
LAW" means the Sherman Act, as amended, the Clayton Act, as amended, the HSR
Act, the Federal Trade Commission Act, as amended, and all other Laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade or lessening of
competition through merger or acquisition.
(c) In furtherance and not in limitation of the covenants
of the parties contained in Sections 6.4(a) and (b), each of Parent and the
Company shall use its commercially reasonable efforts to resolve such objections
if any, as may be asserted a Governmental Entity or other person with respect to
the transactions contemplated hereby under any Antitrust Law.
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SECTION 6.5 Acquisition Proposals. (a) From the date hereof
until the termination hereof and except as expressly permitted by the following
provisions of this Section 6.5, the Company will not, nor will it permit any of
its subsidiaries to, nor will it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Acquisition
Proposal (as hereinafter defined) or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate, any Acquisition Proposal or any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal; provided, however, that nothing
contained in this Section 6.5(a) shall prohibit the Company Board from
furnishing information to, or entering into discussions or negotiations with,
any person that makes an unsolicited bona fide written Acquisition Proposal if,
and only to the extent that (A) the Company Stockholder Meeting shall not have
occurred, (B) the Company Board, after consultation with independent legal
counsel, determines in good faith that such action is necessary for the Company
Board to comply with its fiduciary duties to the Company's stockholders under
applicable Law, (C) the Company Board determines in good faith that such
Acquisition Proposal, if accepted, is reasonably likely to be consummated taking
into account all legal, financial, regulatory and other aspects of the proposal
and the person making the proposal, and believes in good faith, after
consultation with its Financial Advisors and after taking into account the
strategic benefits to be derived from the Merger and the long-term prospects of
Parent and its subsidiaries, would, if consummated, result in a transaction more
favorable to the Company's stockholders from a financial point of view than the
Merger (any such more favorable bona fide unsolicited Acquisition Proposal being
referred to herein as a "SUPERIOR PROPOSAL"), provided that, if necessary solely
to make the determination contemplated by clause (C) above, upon notification to
Parent of the identity of such third party, the Company may communicate with
such third party, with such communication to be solely for the limited purpose
set forth in this proviso, and (D) prior to taking such action, the Company (x)
provides reasonable notice to Parent to the effect that it is taking such
action; and (y) receives from such person an executed confidentiality agreement
in reasonably customary form and in any event containing terms at least as
stringent as those contained in paragraph 5.3 hereof between Parent and the
Company. Prior to providing any information to or entering into discussions
(including discussions permitted under the proviso contained in clause (C)
above) or negotiations with any person in connection with an Acquisition
Proposal by such person, the Company shall (i) notify Parent of any Acquisition
Proposal (including, without limitation, the material terms and conditions
thereof and the identity of the person making it) as promptly as practicable
(but in no case later than 24 hours) after its receipt thereof, (ii) provide
Parent with a copy of any written Acquisition Proposal or amendments or
supplements thereto, together with any other information available to the
Company related to the Acquisition Proposal, (iii) thereafter inform Parent on a
prompt basis of the status of any discussions or negotiations with such a third
party, and any material changes to the terms and conditions of such Acquisition
Proposal, and (iv) promptly give Parent a copy of any information delivered to
such person which has not previously been reviewed by Parent. Immediately after
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the execution and delivery of this Agreement, the Company will, and will cause
its subsidiaries and affiliates, and their respective officers, directors,
employees, investment bankers, attorneys, accountants and other agents to, cease
and terminate any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any possible Acquisition Proposal.
The Company agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 6.5(a).
(b) The Company Board will not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent, its approval or
recommendation of this Agreement or the Merger unless the Company Board after
consultation with independent legal counsel, determines in good faith that such
action is necessary for the Company Board to comply with the fiduciary duties to
the Company's stockholders under applicable Law; provided, however, the Company
Board may not approve or recommend (and in connection therewith, withdraw or
modify its approval or recommendation of this Agreement or the Merger) an
Acquisition Proposal unless such an Acquisition Proposal is a Superior Proposal
(and the Company shall have first complied with its obligations set forth in
Section 8.3(a) and the time period referred to in the last sentence of Section
8.3(a) has expired). Nothing contained in this Section 6.5(b) shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders which, in the good faith reasonable
judgment of the Company Board, after consultation with independent legal
counsel, is required under applicable Law; provided, that except as otherwise
permitted in this Section 6.5(b), the Company does not withdraw or modify, or
propose to withdraw or modify, its position with respect to the Merger or
approve or recommend, or propose to approve or recommend, an Acquisition
Proposal. Notwithstanding anything contained in this Agreement to the contrary,
any action by the Company Board permitted by, and taken in accordance with, this
Section 6.5(b) shall not constitute a breach of this Agreement by the Company.
Nothing in this Section 6.5(b) shall (i) permit the Company to terminate this
Agreement (except as made available in Article VIII hereof) or (ii) affect any
other obligations of the Company under this Agreement.
SECTION 6.6 Indemnification; Directors' and Officers'
Insurance. (a) From and after the Effective Time, Parent shall, or shall cause
the Company, to the fullest extent permitted by applicable Law, to indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Time, a director or
officer of the parties hereto or any subsidiary thereof (each an "INDEMNIFIED
PARTY" and, collectively, the "INDEMNIFIED PARTIES") against all losses,
expenses (including reasonable attorneys' fees and expenses), claims, damages,
judgments, fines or liabilities or amounts paid in settlement (provided,
however, that Parent shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld, conditioned
or delayed)), incurred in connection with any claim, action, suit, proceeding or
investigation, actual or threatened, whether civil, criminal or administrative,
in whole or in part, arising out of actions or omissions occurring at or prior
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to the Effective Time and whether asserted or claimed prior to, at or after the
Effective Time that are in whole or in part (i) based on, or arising out of the
fact that such person is or was a director, officer or employee of such party or
a subsidiary of such party or (ii) based on, arising out of or pertaining to the
transactions contemplated by this Agreement. The Indemnified Parties as a group
may retain only one law firm with respect to each related matter except to the
extent there is, in the opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of any two or more Indemnified Parties.
(b) Parent shall cause the Company to maintain in effect
until December 31, 2004 the Company's current policies of directors' and
officers' liability insurance for the benefit of those persons who are or were
immediately prior to the Effective Time (but only to the extent such persons are
covered by the Company's directors and officers liability insurance immediately
prior to the Effective Time) directors and officers of the Company after the
Effective Time; provided that the cost to Parent or the Company to maintain such
policies shall not exceed $1,500,000 per year, but in such case Parent shall
purchase or shall cause the Company to purchase as much coverage as possible for
such amount.
(c) In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set for in this
Section 6.6.
(d) To the fullest extent permitted by Law, from and after
the Effective Time, all rights to indemnification now existing as provided in
the Company's certificate of incorporation or bylaws in effect on the date
hereof shall survive the Merger and shall continue in full force and effect for
a period of not less than six years from the Effective Time. Parent shall pay
the reasonable costs and expenses (including reasonable legal fees and expenses)
that may be incurred by any Indemnified Party in successfully enforcing its
rights under this Section 6.6(d).
(e) The Company shall also advance expenses as incurred to
the fullest extent permitted under applicable law provided the Indemnified Party
to whom expenses are advanced provides (i) a written affirmation of his or her
good faith belief that the standard of conduct necessary for indemnification has
been met, and (ii) an undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to indemnification).
(f) The provisions of this Section 6.6 (i) shall survive
the Merger and are intended to be for the benefit of, and shall be enforceable
by, each Indemnified Party, his or her heirs and his or her Representatives and
(ii) are in addition to the rights that an Indemnified Party may have under any
agreements of or with the Company or any of its subsidiaries (such documents
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being listed in Section 6.6(f) of the Company Disclosure Schedule and copies of
such documents to be made available to Parent no later than the Company Schedule
Delivery Date).
SECTION 6.7 Notification of Certain Matters. The Company
shall give prompt notice to Parent and Merger Sub, and Parent and Merger Sub
shall give prompt notice to the Company, of (i) any material failure of the
Company, Parent or Merger Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, (ii) any written or, to the knowledge of the Company, oral notice of,
or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any contract or agreement material to the financial condition,
properties, businesses, results of operations or prospects of it and its
subsidiaries taken as a whole to which it or any of its subsidiaries is a party
or is subject, (iii) any written, or, to the knowledge of the Company, oral
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, or (iv) any Material Adverse Effect on it, other
than changes resulting from general economic conditions; provided, however, that
the delivery of any notice pursuant to this Section 6.7 shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 6.8 SEC Filings. Each of Parent and the Company
shall promptly provide the other party (or its counsel) with copies of all
filings made by the other party or any of its subsidiaries with the SEC or any
other state or federal Governmental Entity in connection with this Agreement and
the transactions contemplated hereby.
SECTION 6.9 Fees and Expenses. Whether or not the Merger is
consummated, all Expenses (as hereinafter defined) incurred in connection with
this Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby shall be paid by the party incurring such Expenses, except
(a) Expenses incurred in connection with the filing, printing and mailing of the
Proxy Statement and the S-4, which shall be shared equally by Company and
Parent, and (b) if applicable, as provided in Section 8.5, and (c) if the Merger
is consummated, the Surviving Corporation shall pay, or cause to be paid, any
and all property or transfer Taxes imposed on the Company (or its stockholders)
or any of its subsidiaries. As used in this Agreement, "EXPENSES" includes all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with, or related to, the authorization, preparation, negotiation, execution and
performance of this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby, including the preparation, filing, printing and
mailing of the Proxy Statement and the S-4 and the solicitation of stockholder
approvals and all other matters related to the transactions contemplated hereby.
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SECTION 6.10 Obligations of Merger Sub. Parent will take
all action necessary to cause Merger Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 6.11 Listing of Stock. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in connection
with the Merger to be approved for listing on the NYSE on or prior to the
Closing Date, subject to official notice of issuance.
SECTION 6.12 Antitakeover Statutes. If any Takeover Statute
is or may become applicable to the Merger, each of Parent and Company shall take
such actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on the Merger.
SECTION 6.13 Additional Financial Statements. As soon as
reasonably practicable after they become due, the Company shall cause the
Insurance Subsidiaries to make available to Parent quarterly and annual
statements of each of the Insurance Subsidiaries for all interim quarterly and
annual fiscal periods subsequent to March 31, 2000 and prior to the Closing
Date, together with the exhibits, schedules and notes thereto and any
affirmations and certifications filed therewith, as filed with the relevant
regulatory authorities, as applicable (each an "Additional Statutory
Statement"). Each Additional Statutory Statement shall conform to the
requirements of Section 3.26 of this Agreement as if set forth therein.
SECTION 6.14 Tax Free Reorganization Treatment. The
Company, Parent and Merger Sub shall execute and deliver to Dewey Ballantine
LLP, counsel to the Company, certificates containing customary representations
in form and substance reasonably acceptable to such law firm and at such time or
times as reasonably requested by such law firm in connection with the delivery
of its opinion to the Company with respect to the transactions contemplated
hereby. None of the Company, Parent or Merger Sub shall take or cause to be
taken any action which would cause to be untrue (or fail to take or cause not to
be taken any action which would cause to be untrue) any of the representations
in such certificates.
SECTION 6.15 Stock Purchase Plan. The Company agrees to
terminate the Stock Purchase Plan as promptly as possible, but in any event in a
manner and at a time so that no options may be granted under the Stock Purchase
Plan in excess of those outstanding on the date hereof. All such actions in
terminating the Stock Purchase Plan shall be reasonably acceptable to Parent.
SECTION 6.16 Employee Benefits. From and after the
Effective Time, Parent shall grant all employees of the Company for purposes of
all benefit rights, credit for all service with the Company prior to the
Effective Time (to the same extent that such service is taken into account for
comparable purposes under the Employee Benefit Plans) except to the extent that
this would result in (i) duplication of benefits or benefit accruals, or (ii)
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benefits in excess of the level or rate under the applicable Employee Benefit
Plans. Parent and Company agree that where applicable with respect to any
medical or dental benefit plan of Parent, (i) Parent shall waive, with respect
to any employees of the Company, any pre-existing condition exclusion or
eligibility waiting period (to the extent such exclusions or periods would not
have applied under the applicable Employee Benefit Plan) and (ii) that any
covered expenses incurred during the calendar year on or before the Effective
Time by employees of the Company or their covered dependents shall be taken into
account for purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions after the Effective Time to the same extent as
such expenses are taken into account under the applicable Employee Benefit
Plans.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to
Effect the Merger. The respective obligations of each party to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Effective Time of each of the following conditions, any or all of
which may be waived in whole or in part by the party being benefited thereby, to
the extent permitted by applicable Law:
(a) This Agreement shall have been approved and adopted by
the Company Requisite Vote and, if the Parent Requisite Vote is required, the
Share Issuance shall have been approved by the Parent Requisite Vote.
(b) Any waiting period applicable to the Merger under the
HSR Act shall have expired or early termination thereof shall have been granted
without limitation, restriction or condition.
(c) All consents, approvals, permits and authorizations of
any Governmental Entity set forth in Schedule 7.1 attached to this Agreement
shall have been obtained (or deemed obtained in accordance with the insurance
laws of any jurisdiction) and all such consents, approvals, permits and
authorizations shall be in full force and effect and shall not contain any
limitation, restriction, condition or other requirement that would reasonably be
expected to materially adversely affect the conduct of the business of any
Insurance Subsidiary or that would reasonably be expected to have an adverse
financial impact on Parent.
(d) There shall not be in effect any Law of any
Governmental Entity of competent jurisdiction, restraining, enjoining or
otherwise preventing consummation of the transactions contemplated by this
Agreement or permitting such consummation only subject to any condition or
restriction that has or would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company or a Material Adverse
Effect on Parent.
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(e) The S-4 shall have been declared effective by the SEC
and shall be effective at the Effective Time, and no stop order suspending
effectiveness shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the Securities Act or Exchange Act relating to the issuance or trading
of the Parent Common Stock shall have been received.
(f) The Parent Common Stock required to be issued hereunder
shall have been approved for listing on the NYSE, subject only to official
notice of issuance.
(g) The average closing price of the Parent Common Stock on
the NYSE, as set forth in the Wall Street Journal eastern edition over the five
business days immediately preceding the Closing Date shall be greater than
$10.00. (h) Joseph S. Steinberg and Ian M. Cumming shall be alive and not
permanently disabled.
SECTION 7.2 Conditions to the Obligations of the Parent and
Merger Sub. The respective obligations of Parent and Merger Sub to consummate
the transactions contemplated by this Agreement are subject to the fulfillment
at or prior to the Effective Time of each of the following additional
conditions, any or all of which may be waived in whole or part by Parent and
Merger Sub, as the case may be, to the extent permitted by applicable Law:
(a) The representations and warranties of the Company
contained herein, without regard to any qualification with respect to knowledge,
materiality or dollar amount, shall have been true when made and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true only as of the specified date), except where the
failure of any such representation or warranty to be so true is not,
individually or in the aggregate, reasonably likely to have a Net Worth Effect
on the Company; provided, however, that solely with respect to Section 3.11(b)
hereof, the existence of any proceeding commenced after the date hereof
challenging or seeking to challenge consummation of the Merger and the
transactions contemplated hereby shall be disregarded.
(b) The Company shall have performed or complied in all
material respects with all agreements and conditions contained herein required
to be performed or complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Parent a
certificate, dated the date of the Closing, signed by the President or any Vice
President of the Company (but without personal liability thereto), certifying as
to the fulfillment of the conditions specified in Sections 7.2(a) and 7.2(b).
(d) The Company shall have obtained the consent or approval
of each person whose consent or approval shall be required under any Material
Contract, Real Property Lease or other obligation to which the Company or any of
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its subsidiaries is a party, except those for which the failure to obtain such
consents or approvals does not or would not reasonably be expected to have,
individually or in the aggregate, a Net Worth Effect.
(e) Parent shall have completed its due diligence review of
the Company and its subsidiaries and affiliates and shall have determined that
the results thereof are wholly satisfactory to Parent in the sole exercise of
its discretion. In making this determination, the Parent shall owe no duty or
obligation to the Company and shall act solely in the best interests of Parent
as determined by Parent's Board. Parent shall have until the expiration of 30
days following the earlier of (i) the Company Schedule Delivery Date or (ii) the
date on which the Company Disclosure Schedule is delivered by the Company to
Parent, to notify the Company as to whether the results of its due diligence
review are wholly satisfactory to Parent (the "DUE DILIGENCE PERIOD"). This
condition shall be deemed satisfied and no longer operable if Parent has not
notified the Company of the failure of this condition on or before the
expiration of the Due Diligence Period.
(f) The Company shall have provided evidence reasonably
satisfactory to Parent that the Stock Purchase Plan has been terminated and that
no options thereunder (other than options outstanding on the date hereof) may be
granted and that all options outstanding on the date hereof have been exercised
or terminated.
SECTION 7.3 Conditions to the Obligations of the Company.
The obligations of the Company to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or prior to the Effective Time
of each of the following conditions, any or all of which may be waived in whole
or in part by the Company to the extent permitted by applicable Law:
(a) The representations and warranties of Parent and Merger
Sub contained herein without regard to any qualification with respect to
knowledge, materiality or dollar amount, shall have been true, when made and as
of the Closing Date (except for representations and warranties made as of a
specified date, which need be true only as of the specified date), except where
the failure of any such representation or warranty to be so true is not,
individually or in the aggregate, reasonably likely to have a Net Worth Effect
on Parent.
(b) Parent shall have performed or complied in all material
respects with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the time of the Closing.
(c) Parent shall have delivered to the Company a
certificate, dated the date of the Closing, signed by the President or any Vice
President of Parent (but without personal liability thereto), certifying as to
the fulfillment of the conditions specified in Section 7.3(a) and 7.3(b).
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(d) The Company shall have received an opinion of Dewey
Ballantine LLP, dated the Effective Date, based on customary representations of
the Company, Parent and Merger Sub in form and substance reasonably acceptable
to such law firm to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code.
(e) The Recognition Agreement and Registration Rights
Agreement shall be unamended and in full force and effect.
(f) Ian M. Cumming and Joseph S. Steinberg shall be
employed by Parent as Chairman of the Board and President, respectively.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement. This Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time, whether before or after the approval of the Merger by the
Company Requisite Vote and, if the Parent Requisite Vote is required, the
approval of the Share Issuance by the Parent Requisite Vote, by mutual written
consent of the Company and Parent by action of their respective Boards of
Directors.
SECTION 8.2 Termination by Either Parent or the 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 either Parent
or the Company if:
(a) the Merger shall not have been consummated by June 30,
2001 whether such date is before or after the date of approval of the Merger by
the Company Requisite Vote or, if required, of the Share Issuance by the Parent
Requisite Vote (the "TERMINATION Date"); provided, however, that if either
Parent or the Company determines that additional time is necessary in connection
with obtaining any consent, registration, approval, permit or authorization
required to be obtained from any Governmental Entity, the Termination Date may
be extended by Parent or the Company from time to time by written notice to the
other party to a date not beyond 60 days after above date;
(b) the Company Requisite Vote shall not have been obtained
at the Company Stockholder Meeting or at any adjournment or postponement
thereof;
(c) if the Parent Requisite Vote is required, the Parent
Requisite Vote shall not have been obtained at the Parent Stockholder Meeting or
at any adjournment or postponement thereof; or
(d) any order of a court of competent jurisdiction
permanently restraining, enjoining or otherwise prohibiting consummation of the
Merger shall become final and non-appealable (whether before or after the
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approval of the Merger by the Company Requisite Vote or, if required, of the
Share Issuance by the Parent Requisite Vote); provided, that the party seeking
to terminate this Agreement pursuant to this Section 8.2(d) shall have used
reasonable efforts to remove such order.
SECTION 8.3 Termination by the Company. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval of the Merger by the Company
Requisite Vote referred to in Section 7.1(a), by action of the Company Board:
(a) if (i) the Company is not in material breach of Section
6.5, (ii) the Merger shall not have been approved by the Company Requisite Vote,
(iii) the Company Board authorizes the Company, subject to complying with the
terms of this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and the Company notifies Parent
in writing that it intends to enter into such an agreement, attaching the most
current version of such agreement to such notice, and (iv) during the three-day
period after the Company's notice, (A) the Company shall have negotiated with,
and shall have caused its respective financial and legal advisors to, negotiate
with Parent to attempt to make such commercially reasonable adjustments in the
terms and conditions of this Agreement as would enable the Company to proceed
with the transactions contemplated herein and (B) the Board of Directors of the
Company shall have concluded, after considering the results of such
negotiations, that any Superior Proposal giving rise to the Company's notice
continues to be a Superior Proposal. The Company may not effect such termination
unless contemporaneously therewith the Company pays to Parent in immediately
available funds the fees required to be paid pursuant to Section 8.5. The
Company agrees (x) that it will not enter into a binding agreement referred to
in clause (iii) above until at least the fourth business day after it has
provided the notice to Parent required thereby and (y) to notify Parent promptly
if its intention to enter into a written agreement referred to in its
notification shall change at any time after giving such notification; or
(b) if there is a breach by Parent or Merger Subsidiary of
any representation, warranty, covenant or agreement contained in this Agreement
that would cause the condition set forth in Section 7.3(a) or 7.3(b) to not be
satisfied, which breach is not curable or if curable, is not cured within 45
days after written notice of such breach is given by the Company to Parent; or
(c) Parent shall have notified the Company on or before the
expiration of the Due Diligence Period that the condition contained in 7.2(e)
has not been satisfied.
SECTION 8.4 Termination by Parent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or, if required, after the approval of the Share Issuance
by the Parent Requisite Vote, if required, referred to in Section 7.1(a) if:
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(a) the Company enters into a binding agreement for a
Superior Proposal, or the Company Board withdraws or adversely modifies its
approval, or recommendation of, or takes a public position materially
inconsistent with its approval or recommendation of this Agreement, the Merger,
the Stock Option or the Stockholders Agreement or fails after reasonable written
request from Parent following the making of an Acquisition Proposal to reconfirm
its recommendation of this Agreement, the Merger, the Stock Option or the
Stockholders Agreement within five business days after a written request by
Parent to do so; or
(b) there is a breach by the Company of any representation,
warranty, covenant or agreement contained in this Agreement that would cause the
condition set forth in Section 7.2(a) or 7.2(b) to not be satisfied, which
breach is not curable, or if curable, is not cured within 45 days after written
notice of such breach is given by Parent to the Company; or
(c) Parent shall have notified the Company on or before the
expiration of the Due Diligence Period that the condition contained Section
7.2(e) has not been satisfied.
SECTION 8.5 Effect of Termination and Abandonment. (a) In
the event of termination of this Agreement and the abandonment of the Merger
pursuant to this Article VIII, this Agreement (other than this Section 8.5 and
Sections 5.3(c), 5.3(d), 6.9 and Article IX) shall become void and of no effect
with no liability on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors or other
Representatives); provided, however, except as otherwise provided herein, no
such termination shall relieve any party hereto of any liability or damages
resulting from any willful breach of this Agreement.
(b) In the event that (i) an Acquisition Proposal shall
have been made to the Company or any of its subsidiaries or any of its
stockholders or any person shall have publicly announced an intention (whether
or not conditional) to make an Acquisition Proposal with respect to the Company
or any of its subsidiaries and thereafter this Agreement is terminated by either
Parent or the Company pursuant to Section 8.2(b) (other than as a result of a
vote against the Merger Agreement by Parent), or (ii) this Agreement is
terminated by the Company pursuant to Section 8.3(a), or (iii) this Agreement is
terminated by Parent pursuant to Section 8.4(a), or (iv) if within 12 months of
the termination of this Agreement pursuant to Section 8.2(a), 8.2(b) (other than
as a result of a vote against the Merger Agreement by Parent), or 8.4(b) any
Acquisition Proposal by a third party is entered into, agreed to or consummated
by the Company, then the Company shall pay Parent a termination fee of $12.5
million, plus Expenses not to exceed $2,000,000, in same-day funds, on the date
of such termination, in the case of clauses (i), (ii) or (iii), or on the
earlier of the date an agreement is entered into with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated in the case of clause (iv),
subject to subparagraph (c) below.
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(c) As a condition to the Company's obligation to pay to
Parent the fee and Expenses under subparagraph (b) (the "FEE PAYMENT
CONDITION"), Parent shall have either (x) surrendered to the Company in a form
reasonably satisfactory to the Company the stock option as defined in the Stock
Option Agreement (to the extent unexercised)(the "STOCK OPTION") or (y) if the
Stock Option shall have been exercised, Parent shall return to the Company all
Company Common Stock issued on exercise of the Stock Option (the "OPTION
SHARES") and shall receive from the Company the exercise price paid by Parent
for the Option Shares in same day funds on the date of such return.
(d) Parent shall have 10 days from the earlier to occur of
the date of termination, entering into of the agreement or consummation of the
Acquisition Proposal (in each case referred to in subparagraph (b) above) to
satisfy the Fee Payment Condition by written notice delivered to the Company no
later than such tenth day. Pending such action on the part of Parent, the
Company shall pay any such fees and Expenses to Weil, Gotshal & Manges LLP as
escrow agent (the "ESCROW AGENT"). If the Fee Payment Condition is satisfied
within the 10 day period, the Escrow Agent shall pay all such fees (together
with any interest earned thereon) to Parent; if the Fee Payment Condition is not
satisfied within such 10 day period, the Escrow Agent shall return such fees
(together with any interest earned thereon) to the Company.
(e) The Company acknowledges that the agreements contained
in Sections 8.5(b) and (c) are an integral part of the transactions contemplated
by this Agreement, and that, without these agreements, the Company, Parent and
Merger Sub would not have entered into this Agreement; accordingly, if the
Company fails to promptly pay any amounts due pursuant to Sections 8.5(b) and
(c), and, in order to obtain such payment, Parent commences a suit which results
in a judgment against the Company for the amounts set forth in this Section 8.5,
the Company shall pay to Parent its reasonable costs and expenses (including
reasonable attorneys' fees) in connection with such suit, together with interest
from the date such amounts became due and payable on the amounts owed at the
prime rate of The Chase Manhattan Bank in effect from time to time during such
period plus five percent.
SECTION 8.6 Amendment. This Agreement may be amended by
action taken by the Company, Parent and Merger Sub at any time before or after
approval of the Merger by the Company Requisite Vote and, if required, the
approval of the Share Issuance by the Parent Requisite Vote, but, after any such
approval, no amendment shall be made which requires the approval of such
stockholders under applicable Law without such approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of the parties
hereto and may not be amended after the Effective Time.
SECTION 8.7 Extension; Waiver. At any time prior to the
Effective Time, each party hereto (for these purposes, Parent and Merger Sub
shall together be deemed one party and the Company shall be deemed the other
party) may (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
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compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of either 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. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties.
None of the representations, warranties, covenants and agreements in this
Agreement or in any exhibit, schedule or instrument delivered pursuant to this
Agreement shall survive beyond the Effective Time, except for those covenants
and agreements contained herein (including, without limitation, Section 6.14)
and therein that by their terms apply or are to be performed in whole or in part
after the Effective Time and this Article IX. This Section 9.1 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 9.2 Entire Agreement; Assignment. (a) The Specified
Agreements constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
(b) Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by operation of Law (including, but
not limited to, by merger or consolidation) or otherwise; provided, however,
that Merger Sub may assign, in its sole discretion, any or all of its rights,
interests and obligations under this Agreement to any direct wholly owned
subsidiary of Parent formed solely for the purpose of the transactions
contemplated hereby, but no such assignment shall relieve Parent or Merger Sub
of its obligations hereunder if such assignee does not perform such obligations.
Any assignment in violation of the preceding sentence shall be void. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 9.3 Notices. All notices, requests, instructions or
other documents to be given under this Agreement shall be in writing and shall
be deemed given, (i) five business days following sending by registered or
certified mail, postage prepaid, (ii) when received by the recipient's facsimile
machine if sent by facsimile; provided that the fax is promptly confirmed by
telephone confirmation thereof, (iii) when delivered, if delivered personally to
the intended recipient and (iv) one business day following sending by overnight
delivery via a national courier service, and in each case, addressed to a party
at the following address for such party:
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if to Parent or to Merger
Sub, to: Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Attention: President
Facsimile (212) 598-4869
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen E. Jacobs, Esq.
Facsimile: (212) 310-8007
if to the Company, to: Reliance Group Holdings, Inc.
55 East 52nd Street
New York, New York 10055
Attention: General Counsel
Facsimile: (212) 909-1864
with a copy to: Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Jonathan L. Freedman, Esq.
Facsimile: (212) 259-6333
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 Governing Law. This Agreement shall be governed
by and construed in accordance with the Laws of the State of Delaware, without
giving effect to the choice of Law principles thereof.
SECTION 9.5 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto and its
successors and permitted assigns, and, except as provided in Section 6.6,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 9.7 Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the other
provisions hereof. If any provision of this Agreement, or the application
thereof to any person or any circumstance, is invalid or unenforceable, (a) if
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necessary, a suitable and equitable provision shall be substituted therefor in
order to carry out, so far as may be valid and enforceable, the intent and
purpose of such invalid or unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected by such invalidity or unenforceability, nor
shall such invalidity or unenforceability affect the validity or enforceability
of such provision, or the application thereof, in any other jurisdiction.
SECTION 9.8 Specific Performance. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 9.10 Interpretation. (a) The words "hereof,"
"herein" and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, paragraph, exhibit
and schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." All terms defined in
this Agreement shall have the defined meanings contained herein when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, qualified or supplemented, including (in
the case of agreements and instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and all attachments
thereto and instruments incorporated therein. References to a person are also to
its permitted successors and assigns.
(b) The phrases "the date of this Agreement," "the date
hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to May 25, 2000.
(c) The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
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SECTION 9.11 Definitions. (a) "ACQUISITION PROPOSAL" means
an offer regarding any of the following (other than the transactions
contemplated by this Agreement) involving the Company or any of its Material
Subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 25 percent or more
of the assets of the Company and its subsidiaries, taken as a whole, in a single
transaction or series of related transactions; (iii) any tender offer or
exchange offer for 25 percent or more of the outstanding Shares or the filing of
a registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(b) "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have
the meaning provided in Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(c) "KNOW" or "KNOWLEDGE" means, with respect to a party,
the knowledge of such party's executive officers.
(d) "MATERIAL ADVERSE EFFECT" means with respect to an
entity, any change, circumstance or effect that, individually or in the
aggregate with all other changes, circumstances and effects, is or is reasonably
likely to be materially adverse to (i) the assets, properties, condition
(financial or otherwise) or results of operations of such entity and its
subsidiaries taken as a whole or (ii) the ability of such entity to consummate
the transactions contemplated by this Agreement or any of the Specified
Agreements to which such entity is a party.
(e) "NET WORTH" means, with respect to an entity, the
consolidated total assets of such entity and its subsidiaries minus the
consolidated total liabilities of such entity and its subsidiaries, each as of
the date specified and as set forth in a consolidated balance sheet of the
Company and its subsidiaries as of such date prepared in accordance with GAAP
consistently applied.
(f) "NET WORTH EFFECT" means, with respect to an entity, a
change, circumstance or effect that, individually or in the aggregate after
taking into account all other changes, circumstances and effects, is reasonably
likely to result in a reduction of 10% or more in the Net Worth of such entity
from the Net Worth of such entity as of March 31, 2000.
(g) "PERSON" means an individual, corporation, limited
liability company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(h) "SUBSIDIARY" means, when used with reference to any
entity, any corporation or other organization, whether incorporated or
unincorporated, (i) of which such party or any other subsidiary of such party is
a general or managing partner or (ii) the outstanding voting securities or
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interests of which, 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, is directly or indirectly
owned or controlled by such party or by any one or more of its subsidiaries.
"SAP" means statutory accounting principles prescribed or
permitted by the applicable insurance regulatory authority applied on a
consistent basis during the periods presented.
[signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed on its behalf as of the day and year first above
written.
LEUCADIA NATIONAL CORPORATION
By: /s/ Joseph A. Orlando
----------------------------------------
Name: Joseph A. Orlando
Title: Vice President
LEUCADIA ACQUISITION CORP.
By: /s/ Joseph A. Orlando
----------------------------------------
Name: Joseph A. Orlando
Title: Vice President
RELIANCE GROUP HOLDINGS, INC.
By: /s/ Lowell C. Freiberg
----------------------------------------
Name: Lowell C. Freiberg
Title: Executive Vice President and
Chief Financial Officer
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