EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
among
21ST CENTURY INSURANCE GROUP,
AMERICAN INTERNATIONAL GROUP, INC.
and
AIG TW CORP.
Dated as of May 15, 2007
TABLE OF CONTENTS
PAGE
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ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger....................................................... 1
1.2. Closing.......................................................... 2
1.3. Effective Time................................................... 2
ARTICLE II
Certificate of Incorporation and By-Laws of the Surviving Corporation
2.1. The Certificate of Incorporation................................. 2
2.2. The By-Laws...................................................... 2
ARTICLE III
Officers and Directors of the Surviving Corporation
3.1. Directors........................................................ 3
3.2. Officers......................................................... 3
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates
4.1. Effect on Capital Stock.......................................... 3
4.2. Exchange of Certificates......................................... 4
4.3. Treatment of Stock Plans......................................... 6
4.4. Adjustments to Prevent Dilution.................................. 8
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company.................... 8
5.2. Representations and Warranties of Parent and Merger Sub.......... 33
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ARTICLE VI
Covenants
6.1. Interim Operations............................................... 36
6.2. Acquisition Proposals............................................ 41
6.3. Information Supplied............................................. 45
6.4. Stockholders Meeting............................................. 45
6.5. Filings; Other Actions; Notification............................. 45
6.6. Access and Reports............................................... 47
6.7. Stock Exchange De-listing........................................ 48
6.8. Publicity........................................................ 48
6.9. Employee Benefits................................................ 48
6.10. Expenses......................................................... 49
6.11. Indemnification; Directors' and Officers' Insurance.............. 49
6.12. Debenture........................................................ 52
6.13. Other Actions by the Company..................................... 52
6.14. Parent Vote...................................................... 52
6.15. Continuation of Special Committee................................ 53
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger....... 53
7.2. Conditions to Obligations of Parent and Merger Sub............... 53
7.3. Conditions to Obligation of the Company.......................... 54
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent.................................... 55
8.2. Termination by Either Parent or the Company...................... 55
8.3. Termination by the Company....................................... 56
8.4. Termination by Parent............................................ 56
8.5. Effect of Termination and Abandonment............................ 56
ARTICLE IX
Miscellaneous and General
9.1. Survival......................................................... 57
9.2. Modification or Amendment........................................ 57
9.3. Waiver of Conditions............................................. 57
9.4. Counterparts..................................................... 57
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9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL; SPECIFIC
PERFORMANCE...................................................... 58
9.6. Notices.......................................................... 59
9.7. Entire Agreement................................................. 60
9.8. No Third-Party Beneficiaries..................................... 60
9.9. Obligations of Parent and of the Company......................... 61
9.10. Definitions...................................................... 61
9.11. Severability..................................................... 61
9.12. Interpretation; Construction..................................... 61
9.13. Knowledge........................................................ 61
9.14. Assignment....................................................... 62
Annex A Defined Terms.................................................... A-1
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"),
dated as of May 15, 2007, among 21st Century Insurance Group, a Delaware
corporation (the "Company"), American International Group, Inc., a Delaware
corporation ("Parent"), and AIG TW Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub," the Company and Merger Sub sometimes
being hereinafter collectively referred to as the "Constituent Corporations").
RECITALS
WHEREAS, Parent and the boards of directors of Merger Sub and the
Company have approved and declared advisable the merger of Merger Sub with and
into the Company (the "Merger") upon the terms and subject to the conditions set
forth in this Agreement and have approved and declared advisable this Agreement;
WHEREAS, the board of directors of the Company upon the recommendation
of a special committee of the board of directors of the Company consisting of
independent directors not affiliated with Parent (the "Special Committee") has
(i) determined that the Merger and the other transactions contemplated hereby
are fair to and in the best interests of the Company and its stockholders other
than Parent and its Affiliates (as defined in Section 5.1(i)(ii)), (ii) approved
and declared advisable this Agreement, the Merger and the transactions
contemplated hereby and (iii) resolved to recommend to such stockholders their
approval of the Merger and this Agreement; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.3),
Merger Sub shall be merged with and into the Company and the separate corporate
existence of Merger Sub shall thereupon cease. The Company shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"), and the separate corporate existence of the Company,
with all its rights, privileges, immunities, powers
and franchises, shall continue unaffected by the Merger. The Merger shall have
the effects specified in the Delaware General Corporation Law (the "DGCL").
1.2. Closing. Unless otherwise mutually agreed in writing between the
Company and Parent, the closing for the Merger (the "Closing") shall take place
at the offices of Xxxxxxxx & Xxxxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx,
at 9:00 A.M. on the first business day (the "Closing Date") following the day on
which the last to be satisfied or waived of the conditions set forth in Article
VII (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions) shall be
satisfied or waived in accordance with this Agreement. For purposes of this
Agreement, the term "business day" shall mean any day ending at 11:59 P.M.
(Eastern Time) other than a Saturday or Sunday or a day on which banks are
required or authorized to close in the City of New York.
1.3. Effective Time. As soon as practicable following the Closing, the
Company and Parent will cause a Certificate of Merger (the "Delaware Certificate
of Merger") to be executed, acknowledged and filed with the Secretary of State
of the State of Delaware as provided in Section 251 of the DGCL. The Merger
shall become effective at the time when the Delaware Certificate of Merger has
been duly filed with the Secretary of State of the State of Delaware or at such
later time as may be agreed upon by the parties in writing and specified in the
Delaware Certificate of Merger (the "Effective Time").
ARTICLE II
Certificate of Incorporation and By-Laws of the Surviving Corporation
2.1. The Certificate of Incorporation. The certificate of
incorporation of the Company as in effect immediately prior to the Effective
Time shall, from and after the Effective Time, be the certificate of
incorporation of the Surviving Corporation (the "Charter"), until duly amended
as provided therein or by applicable Laws (as defined in Section 5.1(i)(ii)).
2.2. The By-Laws. The by-laws of Merger Sub in effect immediately
prior to the Effective Time shall, from and after the Effective Time, be the
by-laws of the Surviving Corporation (the "By-Laws"), until thereafter amended
as provided therein or by applicable Laws.
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ARTICLE III
Officers and Directors of the Surviving Corporation
3.1. Directors. The board of directors of Merger Sub at the Effective
Time shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
3.2. Officers. The officers of the Company at the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates
4.1. Effect on Capital Stock. On the terms and subject to the
conditions set forth in this Agreement, as a result of the Merger and without
any action on the part of the holder of any capital stock of the Company:
(a) Merger Consideration. At the Effective Time, each share of the
common stock, par value $0.001 per share, of the Company (a "Share" or,
collectively, the "Shares") issued and outstanding immediately prior to the
Effective Time other than (i) Shares owned by Parent, Merger Sub or any other
direct or indirect wholly owned subsidiary of Parent, (ii) Shares owned by the
Company or any direct or indirect wholly owned subsidiary of the Company, and in
each case not held on behalf of third parties, (iii) Shares subject to Company
Awards, and (iv) Shares that are owned by stockholders ("Dissenting
Stockholders") who have perfected and not withdrawn a demand for appraisal
rights pursuant to Section 262 of the DGCL (each, an "Excluded Share" and
collectively, "Excluded Shares"), shall be converted into the right to receive
$22.00 per Share (the "Per Share Merger Consideration"). At the Effective Time,
all of the Shares (other than Excluded Shares referred to in clause (i) above)
shall cease to be outstanding, shall be cancelled and shall cease to exist, and
each certificate (a "Certificate") formerly representing any of the Shares
(other than Excluded Shares) shall thereafter represent only the right to
receive the Per Share Merger Consideration, without interest, and each
certificate formerly representing Shares owned by Dissenting Stockholders shall
thereafter represent only the right to receive the payment to which reference is
made in Section 4.2(f). For the avoidance of doubt, Shares held by any mutual
fund advised or managed by any of Parent, Merger Sub or any other direct or
indirect wholly owned subsidiary of Parent will not be included in clause (i) of
this Section 4.1(a), and will not be included in the Excluded Shares.
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(b) Cancellation of Treasury Stock; Parent-Owned Stock to Remain
Outstanding. At the Effective Time, each Excluded Share referred to in clause
(ii) of Section 4.1(a) shall, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, shall be cancelled
without payment of any consideration therefor and shall cease to exist. Each
Excluded Share referred to in clause (i) of Section 4.1(a) shall remain
outstanding without change.
(c) Merger Sub. At the Effective Time, each share of common stock, par
value $0.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become that number of shares of
common stock, par value $0.001 per share, of the Surviving Corporation
equivalent to the quotient obtained by dividing (i) the difference between (A)
the total number of outstanding Shares immediately prior to the Effective Time
and (B) the total number of Shares owned by Parent, Merger Sub or any other
direct or indirect wholly owned subsidiary of Parent immediately prior to the
Effective Time (for the avoidance of doubt, not including Shares held by any
mutual fund advised or managed by any of Parent, Merger Sub or any other direct
or indirect wholly owned subsidiary of Parent) by (ii) the total number of
shares of common stock, par value $0.01 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time.
4.2. Exchange of Certificates.
(a) Paying Agent. Promptly following the Effective Time, Parent shall
deposit, or shall cause to be deposited, with a paying agent selected by Parent
with the Company's prior approval (such approval not to be unreasonably withheld
or delayed) (the "Paying Agent"), for the benefit of the holders of Shares
(other than Excluded Shares), a cash amount in immediately available funds
necessary for the Paying Agent to make payments under Section 4.1(a) (such cash
being hereinafter referred to as the "Exchange Fund"). The Paying Agent shall
invest the Exchange Fund as directed by Parent, provided that such investments
shall be in obligations of or guaranteed by the United States of America, in
commercial paper obligations rated A-1 or P-1 or better by Xxxxx'x Investors
Service, Inc. or Standard & Poor's Corporation, respectively, or in certificates
of deposit, bank repurchase agreements or banker's acceptances of commercial
banks with capital exceeding $1 billion. Any interest and other income resulting
from such investment shall become a part of the Exchange Fund, and any amounts
in excess of the amounts payable under Section 4.1(a) shall be promptly returned
to Parent.
(b) Exchange Procedures. Immediately after the Effective Time (and in
any event within three (3) business days), the Surviving Corporation shall cause
the Paying Agent to mail to each holder of record of Shares (other than holders
of Excluded Shares) (i) a letter of transmittal in customary form specifying
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates (or affidavits of loss in
lieu thereof as provided in Section 4.2(e)) to the Paying Agent, such letter of
transmittal to be in such form and have such other provisions
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as Parent and the Company may reasonably agree, and (ii) instructions for use in
effecting the surrender of the Certificates (or affidavits of loss in lieu
thereof as provided in Section 4.2(e)) in exchange for the Per Share Merger
Consideration. Upon surrender of a Certificate (or affidavit of loss in lieu
thereof as provided in Section 4.2(e)) to the Paying Agent in accordance with
the terms of such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a cash amount in
immediately available funds (after giving effect to any required tax
withholdings as provided in Section 4.2(g)) equal to (x) the number of Shares
represented by such Certificate (or affidavit of loss in lieu thereof as
provided in Section 4.2(e)) multiplied by (y) the Per Share Merger
Consideration, and the Certificate so surrendered shall forthwith be cancelled.
No interest will be paid or accrued on any amount payable upon due surrender of
the Certificates. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a check for any cash to be
exchanged upon due surrender of the Certificate may be issued to such transferee
if the Certificate formerly representing such Shares is presented to the Paying
Agent, accompanied by all documents reasonably required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid or are not applicable.
(c) Transfers. From and after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time, except for Shares owned by
Parent or any direct or indirect wholly owned subsidiary of Parent. If, after
the Effective Time, any Certificate is presented to the Surviving Corporation,
Parent or the Paying Agent for transfer, except for Shares owned by Parent or
any direct or indirect wholly owned subsidiary of Parent, it shall be cancelled
and exchanged for a cash amount in immediately available funds (after giving
effect to any required tax withholdings as provided in Section 4.2(g)) equal to
(x) the number of Shares represented by such Certificate multiplied by (y) the
Per Share Merger Consideration.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) that remains unclaimed by
the stockholders of the Company for 180 days after the Effective Time shall be
delivered to the Surviving Corporation. Any holder of Shares (other than
Excluded Shares) who has not theretofore complied with this Article IV shall
thereafter look only to the Surviving Corporation for payment of the Per Share
Merger Consideration (after giving effect to any required tax withholdings as
provided in Section 4.2(g)) upon due surrender of its Certificates (or
affidavits of loss in lieu thereof), without any interest thereon.
Notwithstanding the foregoing, none of the Surviving Corporation, Parent, the
Paying Agent or any other Person shall be liable to any former holder of Shares
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar Laws. For the purposes of this Agreement,
the term "Person" shall mean any individual, corporation (including
not-for-profit), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, Governmental Entity (as
defined in Section 5.1(d)) or other entity of any kind or nature.
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(e) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond in customary amount and upon such terms as may be reasonably required by
Parent as indemnity against any claim that may be made against it or the
Surviving Corporation with respect to such Certificate, the Paying Agent will
issue a check in the amount (after giving effect to any required tax
withholdings) equal to the number of Shares represented by such lost, stolen or
destroyed Certificate multiplied by the Per Share Merger Consideration.
(f) Appraisal Rights. No Person who has perfected a demand for
appraisal rights pursuant to Section 262 of the DGCL shall be entitled to
receive the Per Share Merger Consideration with respect to the Shares owned by
such Person unless and until such Person shall have effectively withdrawn or
lost such Person's right to appraisal under the DGCL. Each Dissenting
Stockholder shall be entitled to receive only the payment provided by Section
262 of the DGCL with respect to Shares owned by such Dissenting Stockholder. The
Company shall give Parent (i) prompt notice of any written demands for
appraisal, attempted withdrawals of such demands, and any other instruments
served pursuant to applicable Law (as defined in Section 5.1(i)(ii)) that are
received by the Company relating to stockholders' rights of appraisal and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demand for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to
any demands for appraisal, offer to settle or settle any such demands or approve
any withdrawal of any such demands.
(g) Withholding Rights. Each of Parent and the Surviving Corporation
shall be entitled to deduct and withhold from the 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 Internal Revenue Code of 1986, as amended, or any other applicable state,
local or foreign Tax (as defined in Section 5.1(n)) law. To the extent that
amounts are so withheld by the Surviving Corporation or Parent, as the case may
be, such withheld amounts (i) shall be remitted by Parent or the Surviving
Corporation, as applicable, to the applicable Governmental Entity, and (ii)
shall be treated for all purposes of this Agreement as having been paid to the
holder of Shares in respect of which such deduction and withholding was made by
the Surviving Corporation or Parent, as the case may be.
4.3. Treatment of Stock Plans.
(a) Treatment of Options. At the Effective Time, each outstanding
option to purchase Shares (a "Company Option") under the Stock Plans (as defined
in Section 5.1(b)) that is vested at the Effective Time (including those that
vest at the Effective Time by virtue of having been scheduled to vest on or
before the first anniversary of the Effective Time) shall be cancelled and each
holder thereof shall receive from the Company, on the Closing Date, an amount in
cash equal to the product
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of (x) the total number of Shares subject to the Company Option times (y) the
excess, if any, of the Per Share Merger Consideration over the exercise price
per Share under such Company Option less applicable Taxes required to be
withheld with respect to such payment. For the avoidance of doubt, at the
Effective Time, each Company Option that is vested at the Effective Time
(including those that vest at the Effective Time by virtue of having been
scheduled to vest on or before the first anniversary of the Effective Time) in
which the Per Share Merger Consideration is equal to or less than the exercise
price per Share under such Company Option shall be terminated and be of no
further effect. All Company Options that are scheduled to vest following the
first anniversary of the Effective Time (after giving effect to any accelerated
vesting in connection with the transactions contemplated hereby) shall be
terminated and be of no further effect. As soon as is practicable following the
Effective Time, Parent will issue to the holder of any Company Option in which
the Per Share Merger Consideration is greater than the exercise price per Share
under such Company Option that is scheduled to vest following the first
anniversary of the Effective Time restricted stock units of Parent's common
stock ("Replacement RSUs") with a value as of the Effective Time as reasonably
determined by Parent in good faith equal to the product of (x) the number of
Shares subject to the Company Option times (y) the excess of the Per Share
Merger Consideration over the exercise price per Share under such Company
Option. The Replacement RSUs value will be based on the market value of Parent's
common stock at the Effective Time and will vest after three (3) years and will
otherwise be subject to such terms and conditions as are generally applicable to
Parent's RSUs. For the avoidance of doubt, no Replacement RSUs will be granted
with respect to any Company Option in which the Per Share Merger Consideration
is equal to or less than the exercise price per Share under such Company Option
that is scheduled to vest following the first anniversary of the Effective Time.
(b) Company Awards. At the Effective Time, each compensatory right of
any kind, contingent or accrued, to acquire or receive Shares or benefits
measured by the value of Shares, and each award of any kind consisting of Shares
that may be held, awarded, outstanding, payable or reserved for issuance under
the Stock Plans and any other Benefit Plans (as defined in Section 5.1(h)(i)),
other than Company Options (the "Company Awards"), shall be cancelled and each
holder thereof shall receive from the Company, on the Closing Date (or later to
the extent required to comply with the provisions of Section 409A of the Code
(as defined in Section 5.1(h)(ii)), an amount in cash equal to the product of
(x) the number of Shares actually or nominally subject to such Company Award
immediately prior to the Effective Time (including those that vest at the
Effective Time by virtue of having been scheduled to vest on or before the first
anniversary of the Effective Time) times (y) the Per Share Merger Consideration
(or, if the Company Award provides for payments to the extent the value of the
Shares exceed a specified reference price, the amount, if any, by which the Per
Share Merger Consideration exceeds such reference price), less applicable Taxes
required to be withheld with respect to such payment. Any Company Awards that
are scheduled to vest after the first anniversary of the Effective Time (after
giving effect to any accelerated vesting in connection with the transactions
contemplated hereby) shall be terminated and
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be of no further effect. As soon as is practicable following the Effective Time,
Parent will issue to the holder of any Company Award that is scheduled to vest
beyond the first anniversary of the Effective Time Replacement RSUs with a value
as reasonably determined in good faith by Parent equal to the product of (x) the
number of Shares actually subject to such Company Award times (y) the Per Share
Merger Consideration. The Replacement RSUs value will be based on the market
value of Parent's common stock at the Effective Time and will vest after three
(3) years and will otherwise be subject to such terms and conditions as are
generally applicable to Parent's RSUs.
(c) Corporate Actions. At or prior to the Effective Time, the Company,
the board of directors of the Company and the compensation committee of the
board of directors of the Company, as applicable, shall adopt any resolutions
and take any actions which are necessary to effectuate the provisions of Section
4.3(a) and 4.3(b), including obtaining the acknowledgments of all holders of
Company Options to the treatment under Section 4.3(a). The Company shall take
all actions necessary to ensure that from and after the Effective Time neither
Parent nor the Surviving Corporation will be required to deliver Shares or other
capital stock of the Company to any Person pursuant to or in settlement of
Company Options or Company Awards.
4.4. Adjustments to Prevent Dilution. In the event that the Company
changes the number of Shares or securities convertible or exchangeable into or
exercisable for Shares issued and outstanding prior to the Effective Time as a
result of a reclassification, stock split (including a reverse stock split),
stock dividend or distribution, recapitalization, merger, issuer tender or
exchange offer, or other similar transaction, the Per Share Merger Consideration
shall be equitably adjusted.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company. Except as set
forth in the Company Reports (as defined in Section 5.1(e)) filed with the
Securities and Exchange Commission (the "SEC") prior to the date hereof
(excluding, in each case, any disclosures set forth in any risk-factor section
or in any section relating to forward-looking statements) or in the
corresponding schedules or sub-schedules of the disclosure letter delivered to
Parent by the Company concurrent with entering into this Agreement (the "Company
Disclosure Letter") (it being agreed that disclosure of any item in any schedule
or sub-schedule of the Company Disclosure Letter shall be deemed disclosure with
respect to any other section or subsection to which the relevance of such item
is reasonably apparent), the Company hereby represents and warrants to Parent
and Merger Sub that:
(a) Organization, Good Standing and Qualification. (i) Each of the
Company and its Subsidiaries is a legal entity duly organized, validly existing
and in
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good standing (with respect to jurisdictions that recognize such concept) under
the Laws (as defined in Section 5.1(i)(ii)) of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority to
own, lease and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a
foreign corporation or other legal entity in each jurisdiction where the
ownership, leasing or operation of its assets or properties or conduct of its
business requires such qualification, except where the failure to be so
organized, qualified or in good standing, or to have such power or authority, is
not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect (as defined below). The Company has made available to
Parent complete and correct copies of the Company's and its Subsidiaries'
certificates of incorporation and by-laws or comparable governing documents,
each as amended to the date hereof, and each as so delivered (or made available)
is in full force and effect. As used in this Agreement, the term (i)
"Subsidiary" means, with respect to any Person, any other Person of which at
least a majority of the securities or ownership interests having by their terms
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions is directly or indirectly owned or
controlled by such Person and/or by one or more of its Subsidiaries, (ii)
"Significant Subsidiary" is as defined in Rule 1.02(w) of Regulation S-X
promulgated pursuant to the Securities Exchange Act of 1934, as amended and the
rules and regulations thereunder (the "Exchange Act"), and (iii) "Company
Material Adverse Effect" means a material adverse effect on the financial
condition, assets, liabilities, business or results of operations of the Company
and its Subsidiaries, taken as a whole; provided, however, that any effect to
the extent resulting from any of the following, in and of itself or themselves,
shall not constitute, and shall not be taken into account in determining whether
there has been or will be, a Company Material Adverse Effect:
(A) changes in general economic, regulatory or political
conditions or changes generally affecting the securities or financial
markets;
(B) any action required to be taken by the Company pursuant to
this Agreement or taken by the Company at the written request of Parent;
(C) any actions, suits, claims, hearings, arbitrations,
investigations or other proceedings relating to this Agreement, the Merger
or the transactions contemplated by this Agreement by or before any
Governmental Entity;
(D) any change in the market price or trading volume of
securities of the Company, provided that this clause will not exclude any
underlying change, event, circumstance, development or effect that may have
resulted in, or contributed to, a decline in trading price or change in
trading volume;
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(E) a material worsening of current conditions caused by an act
of terrorism or war (whether or not declared) occurring after the date of
this Agreement;
(F) changes generally affecting auto insurers, including the auto
insurance business of multi-line property and casualty insurers;
(G) seasonal fluctuations in the revenues, earnings, or other
financial performance of the Company to the extent generally consistent in
magnitude with prior years;
(H) any loss of, or adverse change in, the relationship of the
Company with its customers, employees or agents primarily caused by the
pendency or the announcement of the transactions contemplated by this
Agreement or the identity of Parent;
(I) any failure by the Company to meet any internal or published
projections, forecasts or revenue or earnings predictions, provided that
this clause will not exclude any underlying change, event, circumstance,
development or effect that may have resulted in, or contributed to, any
failure by the Company to meet such projections, forecasts or revenue or
earnings predictions;
(J) changes in United States generally accepted accounting
principles ("GAAP"), applicable Law or statutory accounting practices
prescribed or permitted by the applicable insurance regulatory authority
after the date hereof;
provided further that, with respect to clauses (A), (E), (F) and (J), such
change, event, circumstance or development does not (i) primarily relate only to
(or have the effect of primarily relating only to) the Company and its
Subsidiaries or (ii) disproportionately adversely affect the Company and its
Subsidiaries taken as a whole compared to other companies operating in the auto
insurance industry in the United States.
(ii) As of the date hereof, the Company conducts its insurance
operations through the Subsidiaries set forth on Schedule 5.1(a)(ii) of the
Company Disclosure Letter (collectively, the "Company Insurance
Subsidiaries"). Each of the Company Insurance Subsidiaries is (i) duly
licensed or authorized as an insurance company and, where applicable, a
reinsurance company, in its jurisdiction of incorporation, (ii) duly
licensed or authorized as an insurance company and, where applicable, a
reinsurance company, in each other jurisdiction where it is required to be
so licensed or authorized, and (iii) duly authorized in its jurisdiction of
incorporation and each other applicable jurisdiction to write each line of
business reported as being written in the Company SAP Statements (as
defined in Section 5.1(e)(v)), except, in any such case, where the failure
to be so licensed or authorized is not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect or
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prevent, materially delay or materially impair the ability of the Company
to consummate the transactions contemplated by this Agreement. The Company
has made all required filings under applicable insurance holding company
statutes, except where the failure to file is not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect.
(b) Capital Structure.
(i) The authorized capital stock of the Company consists of
110,000,000 Shares, of which 87,965,099 Shares were outstanding as of the
close of business on May 9, 2007, and 500,000 shares of $1 par value
preferred stock, none of which are outstanding. All of the outstanding
Shares have been duly authorized and are validly issued, fully paid and
nonassessable. Other than, 11,371,095 Shares reserved for issuance under
the 2004 Stock Option Plan and 233,000 Shares reserved for issuance under
the Company's Restrictive Shares Plan (collectively, the "Stock Plans"),
the Company has no Shares reserved for issuance. Schedule 5.1(b)(i) of the
Company Disclosure Letter contains a correct and complete list of options
and restricted stock, under the Stock Plans, including the holder, date of
grant, term, number of Shares and, where applicable, exercise price and
vesting schedule. Each of the outstanding shares of capital stock or other
securities of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and owned by the Company or by
a direct or indirect wholly owned Subsidiary of the Company, free and clear
of any lien, charge, pledge, security interest, claim or other encumbrance
(each, a "Lien"). Except as set forth above, there are no preemptive or
other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements, calls, puts, commitments or rights of any kind that obligate
the Company or any of its Subsidiaries to issue or sell or purchase any
shares of capital stock or other securities of the Company or any of its
Subsidiaries or any securities or obligations convertible or exchangeable
into or exercisable for, or giving any Person a right to subscribe for or
acquire, any securities of the Company or any of its Subsidiaries, and no
securities or obligations evidencing such rights are authorized, issued or
outstanding. Upon any issuance of any Shares in accordance with the terms
of the Stock Plans, such Shares will be duly authorized, validly issued,
fully paid and nonassessable and free and clear of any Liens. The Company
does not have outstanding any bonds, debentures, notes or other obligations
the holders of which have the right to vote (or which are convertible into
or exercisable for securities having the right to vote) with the
stockholders of the Company on any matter.
(ii) As of the date of this Agreement, Schedule 5.1(b)(ii) of the
Company Disclosure Letter sets forth (x) each of the Company's Subsidiaries
and the ownership interest of the Company in each such Subsidiary, as well
as the ownership interest of any other Person or Persons in each such
Subsidiary and (y) the Company's or its Subsidiaries' capital stock, equity
interest or other direct
-11-
or indirect ownership interest in any other Person other than securities in
a publicly traded company held for investment by the Company or any of its
Subsidiaries and consisting of less than 1% of the outstanding capital
stock of such company or any investments held in investment accounts of
Company Insurance Subsidiaries. The Company does not own, directly or
indirectly, any voting interest in any Person that requires a filing by
Parent under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
(c) Corporate Authority; Approval and Fairness.
(i) The Company has all requisite corporate power and authority and
has taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement, subject only to adoption of
this Agreement by the affirmative vote of the holders of a majority of the
outstanding Shares entitled to vote on such matter at a stockholders'
meeting duly called and held for such purpose (the "Company Requisite
Vote"), and to consummate the Merger. This Agreement has been duly executed
and delivered by the Company and, assuming the due authorization, execution
and delivery of this Agreement by each of Parent and Merger Sub,
constitutes a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
Laws of general applicability relating to or affecting creditors' rights
and to general equity principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law) (the "Bankruptcy and
Equity Exception").
(ii) (A) The board of directors of the Company and the Special
Committee have determined that the Merger and the other transactions
contemplated by this Agreement are fair to, and in the best interests of
the holders of Shares other than Parent and its Subsidiaries, approved and
declared advisable this Agreement, the Merger and the other transactions
contemplated hereby and resolved to recommend the Merger and adoption of
this Agreement to the holders of Shares (the "Company Recommendation"), (B)
the board of directors of the Company has directed that this Agreement be
submitted to the holders of Shares for their adoption and (C) the Special
Committee has received the written opinion of its financial advisor, Xxxxxx
Brothers, Inc., to the effect that, as of the date of such opinion, the Per
Share Merger Consideration is fair to such holders (other than Parent and
its Subsidiaries) from a financial point of view, a true and complete copy
of which opinion has been delivered to Parent. Based on information
available to the Company as of the date hereof, the board of directors of
the Company has taken all action so that Parent will not be prohibited from
entering into or consummating a "business combination" with the Company (as
such term is used in Section 203 of the DGCL) as a result of the execution
of this Agreement or the consummation of the transactions in the manner
contemplated hereby.
-12-
(d) Governmental Filings; No Violations; Certain Contracts.
(i) Other than (A) the filings and/or notices pursuant to Section 1.3,
(B) the filing of the applications and notices with applicable federal and
state regulatory authorities governing insurance (the "Insurance
Authorities") and the approval of such applications or the grant of
required licenses by such authorities or the expiration of any applicable
waiting periods thereunder (the "Company Approvals"), (C) the filing with
the SEC of the Proxy Statement (as defined in Section 6.3), (D) the filing
with the SEC of a Schedule 13E-3 (such Schedule 13-E, including any
amendment or supplement thereto, "Schedule 13E-3") and (E) the filing of
any notices with any local Governmental Entity (as defined below) the
absence of which would not be reasonably likely to have, individually or in
the aggregate, a material impact on the business of the Company or its
Subsidiaries, taken as a whole, no notices, reports or other filings are
required to be made by the Company or its Subsidiaries with, nor are any
consents, registrations, approvals, permits or authorizations required to
be obtained by the Company from, any domestic or foreign governmental or
regulatory authority, agency, commission, body, court or other legislative,
executive or judicial governmental entity or self-regulatory organization
(each, a "Governmental Entity"), in connection with the execution, delivery
and performance of this Agreement by the Company and the consummation of
the Merger and the other transactions contemplated hereby.
(ii) The execution and delivery of, and the performance of its
obligations under, this Agreement by the Company do not, and the
consummation of the Merger and the other transactions contemplated hereby
will not, constitute or result in (A) a breach or violation of, or a
default under, the certificate of incorporation or by-laws of the Company
or (B) with or without notice, lapse of time or both, a breach or violation
of, a termination (or right of termination) or a default under, a change in
the rights or obligations of any party under, the creation or acceleration
of any obligations or the creation of a Lien on any of the assets of the
Company or any of its Subsidiaries pursuant to any agreement, lease,
license, contract, note, mortgage, indenture, arrangement or other
obligation (each, a "Contract") binding upon the Company or any of its
Subsidiaries or, assuming (solely with respect to performance of its
obligations under this Agreement and consummation of the Merger and the
other transactions contemplated hereby) compliance with the matters
referred to in Section 5.1(d)(i), under any Law or governmental or
non-governmental permit, license, registration, authorization or approval
to which the Company or any of its Subsidiaries is subject, except, in the
case of clause (B) above, for any such breach, violation, termination,
default, creation, acceleration or change that, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse
Effect or prevent, materially delay or materially impair the consummation
of the transactions contemplated by this Agreement.
-13-
(iii) The Company and its Subsidiaries are not creditors or claimants
with respect to any debtors or debtor-in-possession subject to proceedings
under chapter 11 of title 11 of the United States Code with respect to
claims that, in the aggregate, constitute more than 2% of the gross assets
of the Company and its Subsidiaries (excluding cash and cash equivalents).
(e) Company Reports; Financial Statements.
(i) The Company has filed or furnished, as applicable, all forms,
statements, certifications, reports and documents required to be filed or
furnished by it with the SEC under the Exchange Act or the Securities Act
of 1933, as amended and the rules and regulations thereunder (the
"Securities Act") since May 1, 2004 (the "Applicable Date") (the forms,
statements, reports and documents filed or furnished since the Applicable
Date and those filed or furnished subsequent to the date hereof, including
any amendments thereto, the "Company Reports"). Each of the Company
Reports, at the time of its filing or being furnished complied in all
material respects with, to the extent in effect at the time of filing, the
applicable requirements of the Securities Act, the Exchange Act and the
Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx Act"), and any rules and
regulations promulgated thereunder applicable to the Company Reports. As of
their respective dates (or, if amended prior to the date hereof, as of the
date of such amendment), the Company Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not misleading.
(ii) Except as permitted by the Exchange Act, including Sections
13(k)(2) and (3) or rules of the SEC, since the enactment of the
Xxxxxxxx-Xxxxx Act, neither the Company nor any of its Subsidiaries has
made, arranged or modified (in any material way) any extensions of credit
in the form of a personal loan to any executive officer or director of the
Company.
(iii) The Company maintains disclosure controls and procedures
required by Rule 13a-15 or 15d-15 under the Exchange Act. Such disclosure
controls and procedures are effective to ensure that information required
to be disclosed by the Company is recorded and reported on a timely basis
to the individuals responsible for the preparation of the Company's filings
with the SEC and other public disclosure documents. The Company maintains
internal control over financial reporting (as defined in Rule 13a-15 or
15d-15, as applicable, under the Exchange Act). Such internal control over
financial reporting is effective in providing reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP. The
Company has disclosed and identified, based on the most recent evaluation
of its chief executive officer and its chief financial officer prior to the
date hereof, for the Company's auditors and the audit committee of the
-14-
Company's board of directors (A) any significant deficiencies in the design
or operation of its internal controls over financial reporting that are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information, (B) any material
weaknesses in internal control over financial reporting and (C) any fraud,
whether or not material, that involves management or other employees who
have a significant role in the Company's internal control over financial
reporting. Since the Applicable Date, no material complaints from any
source regarding accounting, internal accounting controls or auditing
matters, and no concerns from Company employees regarding material
questionable accounting or auditing matters, have been received by the
Company from any person in writing, from the Company's outside auditors,
actuaries or attorneys, or on the hotline maintained by the Company for
such purposes. No attorney representing the Company or any of its
Subsidiaries, whether or not employed by the Company or any of its
Subsidiaries, has reported evidence of a violation of securities laws,
breach of fiduciary duty or similar violation by the Company or any of its
officers, directors, employees or agents to the Company's chief legal
officer, audit committee (or other committee designated for the purpose) of
the board of directors or the board of directors pursuant to the rules
adopted pursuant to Section 307 of the Xxxxxxxx-Xxxxx Act or any Company
policy contemplating such reporting, including in instances not required by
those rules. Since the Applicable Date, any material change in internal
control over financial reporting or failure or inadequacy of disclosure
controls required to be disclosed in the Company Reports has been so
disclosed.
(iv) The consolidated balance sheets included in or incorporated by
reference into the Company Reports (including the related notes and
schedules) fairly present, in all material respects, the consolidated
financial position of the Company and its consolidated Subsidiaries, taken
as a whole, as of their respective dates, and the consolidated statements
of operations, changes in shareholders equity (deficit) and cash flows
included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly present, in all material
respects, the results of operations, retained earnings (loss) and changes
in financial position, as the case may be, of the Company and its
consolidated Subsidiaries, taken as a whole, for the periods set forth
therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect);
and in each case were prepared in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein.
(v) The Company has previously furnished or made available to Parent
true and complete copies of the annual statements or other comparable
statements for each of the years ended December 31, 2004, and December 31,
2005 and December 31, 2006, together with all exhibits and schedules
thereto (collectively, the "Company SAP Statements"), with respect to each
of the Company Insurance Subsidiaries, in each case as filed with the
Governmental Entity charged with
-15-
supervision of insurance companies of such Company Insurance Subsidiary's
jurisdiction of domicile. The Company SAP Statements were prepared in
conformity with applicable statutory accounting practices prescribed or
permitted by such Governmental Entity applied on a consistent basis ("SAP")
and present fairly, in all material respects, to the extent required by and
in conformity with SAP, the statutory financial condition of such Company
Insurance Subsidiary at their respective dates and the results of
operations, changes in capital and surplus and cash flow of such Company
Insurance Subsidiary for each of the periods then ended. The Company SAP
Statements were filed with the applicable Governmental Entity in a timely
fashion on forms prescribed or permitted by such Governmental Entity. No
deficiencies or violations material to the financial condition of any of
the Company Insurance Subsidiaries, individually, whether or not material
in the aggregate, have been asserted in writing by any Governmental Entity
which have not been cured or otherwise resolved to the satisfaction of such
Governmental Entity (unless not currently pending). The Company has made
available to Parent true and complete copies of all financial examinations,
market-conduct examinations and other reports of Governmental Entities
since December 31, 2004, including the most recent reports of state
insurance regulatory authorities, relating to each Company Insurance
Subsidiary. The quarterly and annual statements of each Company Insurance
Subsidiary filed on or after the date hereof and prior to the Closing
("Interim SAP Statements"), when filed with the applicable Governmental
Entities, including insurance regulatory authorities, of the applicable
jurisdictions, will present fairly, to the extent required by and in
conformity with SAP in all material respects, the statutory financial
condition of such Company Insurance Subsidiary at their respective dates
indicated and the results of operations, changes in capital and surplus and
cash flow of such Company Insurance Subsidiary for each of the periods
therein specified (subject to normal year-end adjustments) and will be
filed in a timely fashion on forms prescribed or permitted by the relevant
Governmental Entity. The Company will deliver to Parent true, correct and
complete copies of the Interim SAP Statements promptly after they are filed
with the applicable Governmental Entity in the domiciliary states.
(vi) The aggregate reserves for claims, losses (including, without
limitation, incurred but not reported losses), loss adjustment expenses
(whether allocated or unallocated) and unearned premium, as reflected in
each of the Company SAP Statements, (A) were determined in accordance with
presently accepted actuarial standards consistently applied (except as
otherwise noted in the financial statements and notes thereto included in
such financial statements); (B) are fairly stated in accordance with sound
actuarial principles; (C) were computed on the basis of methodologies
consistent in all material respects with those used in computing the
corresponding reserves in the prior fiscal years (except as otherwise noted
in the financial statements and notes thereto included in such financial
statements) and (D) include provisions for all actuarial reserves and
related items which ought to be established in accordance with applicable
Laws.
-16-
(f) Absence of Certain Changes. Since December 31, 2006, and except as
set forth on Schedule 5.1(f) of the Company Disclosure Letter or as required by
this Agreement, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course of such businesses and there
has not been:
(i) any change in the financial condition, assets, liabilities,
business or results of their operations or any circumstance, occurrence or
development which, individually or in the aggregate, has had or is
reasonably likely to have a Company Material Adverse Effect;
(ii) any material damage, destruction or other casualty loss with
respect to any material asset or property owned or leased by the Company or
any of its Subsidiaries, whether or not covered by insurance;
(iii) other than regular quarterly dividends on Shares of no more than
$0.16 per Share, 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 of its Subsidiaries (except for dividends or other
distributions by any direct or indirect wholly owned Subsidiary to the
Company or to any wholly owned Subsidiary of the Company), or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities
of the Company or any of its Subsidiaries (other than forfeitures of
nonvested Shares by Company employees that are accounted for as acquisition
of treasury stock);
(iv) any material change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries; or
(v) (A) any increase in the compensation payable or to become payable
to its officers or employees (except for increases in the ordinary course
of business and consistent with past practice) or (B) any establishment,
adoption, entry into or amendment of any collective bargaining, bonus,
profit sharing, thrift, compensation, employment, termination, severance or
other material plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee, except to the extent required
by applicable Laws; or
(vi) any action, event, occurrence or circumstance contemplated by
Section 6.1(a)(vi), 6.1(a)(ix), 6.1(a)(xi), 6.1(a)(xiii), 6.1(a)(xiv),
6.1(a)(xvi) or 6.1(a)(xviii)(1)-(6).
(g) Litigation and Liabilities. Except for actions, suits, claims,
hearings, arbitrations, investigations or other proceedings relating to
insurance and reinsurance liabilities incurred in the ordinary course of
business (other than liabilities relating to bad faith claims and claims
involving extra-contractual liabilities or damages in excess of policy limits),
as of the date of this Agreement, there are no civil, criminal or
-17-
administrative actions, suits, claims, hearings, arbitrations, investigations or
other proceedings pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries, that have had or would
reasonably be likely to have, individually or in the aggregate, a Company
Material Adverse Effect. Except (i) for those reflected or reserved against in
the Company's consolidated balance sheets (and the notes thereto) included in
the Company Reports filed with respect to the period ended December 31, 2006
with the SEC, (ii) for those insurance or reinsurance liabilities incurred in
the ordinary course of business after December 31, 2006 or (iii) for those that
are not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement, there are no
obligations or liabilities of the Company or any of its Subsidiaries, whether or
not accrued, contingent or otherwise and whether or not required to be disclosed
on a balance sheet prepared in accordance with GAAP or SAP. Neither the Company
nor any of its Subsidiaries is a party to or subject to the provisions of any
judgment, order, writ, injunction, decree or award of any Governmental Entity
which is, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement.
(h) Employee Benefits.
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current or former employees of the Company and its
subsidiaries (the "Employees") and current or former directors of the
Company, including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and deferred compensation, severance, stock
option, stock purchase, stock appreciation rights, stock-based, incentive
and bonus plans and employment and severance agreements (collectively, the
"Benefit Plans") are listed on Schedule 5.1(h)(i) of the Company Disclosure
Letter, and each Benefit Plan which has received a favorable opinion letter
from the Internal Revenue Service National Office, including any master or
prototype plan, has been separately identified. True and complete copies of
all Benefit Plans listed on Schedule 5.1(h)(i) of the Company Disclosure
Letter, including, but not limited to, any trust instruments, insurance
contracts and, with respect to any employee stock ownership plan, loan
agreements forming a part of any Benefit Plans, and all amendments thereto
have been provided or made available to Parent.
(ii) All Benefit Plans are in substantial compliance with ERISA, the
Internal Revenue Code of 1986, as amended (the "Code") and other applicable
laws. Each Benefit Plan which is subject to ERISA (an "ERISA Plan") that is
an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA (a "Pension Plan") intended to be qualified under Section 401(a) of
the Code, has received a favorable determination letter from the Internal
Revenue Service (the "IRS"), and the Company is not aware of any
circumstances likely to result in the
-18-
loss of the qualification of such Benefit Plan under Section 401(a) of the
Code. Neither the Company nor any of its Subsidiaries has engaged in a
transaction with respect to any ERISA Plan that, assuming the taxable
period of such transaction expired as of the date hereof, could subject the
Company or any Subsidiary to a material tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA. Neither the Company
nor any of its Subsidiaries has incurred or reasonably expects to incur a
material tax or penalty imposed by Section 4980F of the Code or Section 502
of ERISA or any material liability under Section 4071 of ERISA.
(iii) No liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by the Company or any of its Subsidiaries
with respect to any ongoing, frozen or terminated "single-employer plan,"
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which
is considered one employer with the Company under Section 4001 of ERISA or
Section 414 of the Code (an "ERISA Affiliate"). The Company and its
Subsidiaries have not contributed to, and do not have any liability with
respect to, a multiemployer plan within the meaning of Section 3(37) of
ERISA (regardless of whether based on contributions of an ERISA Affiliate).
No notice of a "reportable event," within the meaning of Section 4043 of
ERISA for which the reporting requirement has not been waived or extended,
other than pursuant to Pension Benefit Guaranty Corporation ("PBGC") Reg.
Section 4043.33 or 4043.66, has been required to be filed for any Pension
Plan or by any ERISA Affiliate within the 12 month period ending on the
date hereof. No notices have been required to be sent to participants and
beneficiaries or the PBGC under Section 302 or 4011 of ERISA or Section 412
of the Code.
(iv) All contributions required to be made under each Benefit Plan, as
of the date hereof, have been timely made and all obligations in respect of
each Benefit Plan, to the extent required, have been properly accrued and
reflected in the most recent consolidated balance sheet filed or
incorporated by reference in the Company Reports prior to the date hereof.
Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate
has an "accumulated funding deficiency" (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA
Affiliate has an outstanding funding waiver. Neither any Pension Plan nor
any single-employer plan of an ERISA Affiliate has been required to file
information pursuant to Section 4010 of ERISA for the current or most
recently completed plan year. It is not reasonably anticipated that
required minimum contributions to any Pension Plan under Section 412 of the
Code will be materially increased by application of Section 412(l) of the
Code. Neither the Company nor any of its Subsidiaries has provided, or is
required to provide, security to any Pension Plan or to any single-employer
plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
-19-
(v) Under each Pension Plan which is a single-employer plan, there has
been no material change in the financial condition, whether or not as a
result of a change in funding method, of such Pension Plan since the last
day of the most recent plan year.
(vi) Each Benefit Plan which is a nonqualified deferred compensation
plan within the meaning of Section 409A of the Code has been operated and
maintained in a good faith effort to comply in all material respects
according to the applicable requirements of Section 409A of the Code.
(vii) As of the date hereof, there is no material pending or, to the
knowledge of the Company, threatened, litigation relating to the Benefit
Plans. Neither the Company nor any of its Subsidiaries has any obligations
for retiree health and life benefits under any ERISA Plan or collective
bargaining agreement. The Company or its Subsidiaries may amend or
terminate any such plan at any time without incurring any liability
thereunder other than in respect of claims incurred prior to such amendment
or termination, except as required by applicable Law.
(viii) There has been no amendment to, announcement by the Company or
any of its subsidiaries relating to, or change in employee participation or
coverage under, any Benefit Plan which would increase materially the
expense of maintaining such plan above the level of the expense incurred
therefor for the most recent fiscal year. Except as set forth on Schedule
5.1(h)(viii) of the Company Disclosure Letter, neither the execution of
this Agreement, stockholder adoption of this Agreement nor the consummation
of the transactions contemplated hereby will (w) entitle any employees of
the Company or any of its Subsidiaries to severance pay or any increase in
severance pay upon any termination of employment after the date hereof, (x)
accelerate the time of payment or vesting or result in any payment or
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or result in any other material
obligation pursuant to, any of the Benefit Plans, (y) limit or restrict the
right of the Company or, after the consummation of the transactions
contemplated hereby, Parent to merge, amend or terminate any of the Benefit
Plans, or (z) result in payments under any of the Benefit Plans which would
not be deductible under Section 162(m) or Section 280G of the Code.
(i) Compliance with Laws; Licenses.
(i) The business and operations of the Company Insurance Subsidiaries
have been and are being conducted in compliance with all applicable
federal, state or local laws, statutes, ordinances, regulations and rules
regulating the business and products of insurance and reinsurance and all
applicable orders, bulletins, interpretations, opinions, circular letters
and directives of Governmental Entities relating to the regulation of
insurance and market conduct
-20-
recommendations resulting from market conduct examinations by insurance
regulatory authorities (collectively, "Insurance Laws"), except where the
failure to so conduct such business and operations is not, individually or
in the aggregate, reasonably likely to have a Company Material Adverse
Effect or prevent, materially delay or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement.
Notwithstanding the generality of the foregoing, each Company Insurance
Subsidiary, and to the knowledge of the Company, each Agent (as defined in
Section 5.1(r)(i)), has marketed, sold and issued insurance products in
compliance in all material respects with all Insurance Laws applicable to
the business of such Subsidiary and in the respective jurisdictions in
which such products have been sold, including, without limitation, in
compliance in all material respects with all applicable prohibitions
against "redlining" or withdrawal of business, with such exceptions that,
individually or in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect. In addition, (i) there is no pending or,
to the knowledge of the Company, threatened charge by any insurance
regulatory authority that the Company or any of the Company's Subsidiaries
has violated, nor any pending or, to the knowledge of the Company,
threatened investigation, inquiry, examination, enforcement action or other
such activity by any insurance regulatory authority with respect to
possible violations of, any applicable Laws where such violations are,
individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or prevent, materially delay or materially impair
the ability of the Company to consummate the transactions contemplated by
this Agreement; and (ii) none of the Company's Subsidiaries is subject to
any agreement, order or decree of any insurance regulatory authority
relating specifically to such Subsidiary (as opposed to insurance companies
generally), including without limitation relating to the ability to pay
dividends or relating to interaffiliate agreements or payments which are,
individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or prevent, materially delay or materially impair
the ability of the Company to consummate the transactions contemplated by
this Agreement.
(ii) In addition to Insurance Laws, the businesses of each of the
Company and its Subsidiaries have not been and are not being conducted in
violation of any other applicable federal, state or local law, statute,
ordinance or any rule, regulation, judgment, order, writ, injunction or
decree of any Governmental Entity (collectively, with Insurance Laws,
"Laws"), except for violations that, individually or in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect or prevent,
materially delay or materially impair the consummation of the transactions
contemplated by this Agreement. In addition to Insurance Laws, no
investigation or examination by any Governmental Entity with respect to the
Company or any of its Subsidiaries, including with respect to any possible
revocation, withdrawal, limitation or suspension of any insurance license
is pending or, to the knowledge of the Company, threatened, except for
those the outcome of which are not, individually or in the aggregate,
-21-
reasonably likely to have a Company Material Adverse Effect or prevent,
materially delay or materially impair the consummation of the transactions
contemplated by this Agreement. To the knowledge of the Company, no
material change is required in the Company's or any of its Subsidiaries'
processes, properties or procedures in connection with any such Laws, and
the Company has not received any written notice of any material
noncompliance with any such Laws that has not been cured as of the date
hereof. The Company and its Subsidiaries each has obtained and is in
compliance with all permits, licenses, certifications, approvals,
registrations, consents, authorizations, franchises, variances, exemptions
and orders issued or granted by a Governmental Entity ("Licenses")
necessary to conduct its business as presently conducted, except those the
absence of which would not, individually or in the aggregate, be reasonably
likely to have a Company Material Adverse Effect or prevent, materially
delay or materially impair the consummation of the transactions
contemplated by this Agreement. No insurance regulator in any state has
notified the Company or any of the Company Insurance Subsidiaries in
writing that any Company Insurance Subsidiary is commercially domiciled in
any jurisdiction and to the knowledge of the Company, there are no facts
that would result in any Company Insurance Subsidiary being commercially
domiciled in any state. Except as set forth on Schedule 5.1(i)(ii) of the
Company Disclosure Letter, to the knowledge of the Company, none of the
Company or any Company Insurance Subsidiary, or any of their respective
Affiliates, (A) has purposefully engaged in, or colluded with or assisted
any other Persons with, the paying of contingent commissions or similar
incentive payments to steer business to them or colluded with Agents or
brokers or other producers or intermediaries to "rig bids" or submit false
quotes to customers or (B) is a party to any agreement that provides for
any payment by or to any Company of any variable or contingent commissions
or payments based upon the profitability, claims handling, sales volume or
loss ratio of the business that is the subject of such agreement. The
Company and each Company Insurance Subsidiary have made all required
notices, submissions, reports or other filings under applicable Insurance
Law, including insurance holding company statutes, and all Contracts,
agreements, arrangements and transactions in effect between any Company
Insurance Subsidiary and any Affiliate are in compliance with the
requirements of all applicable insurance holding company statutes, except
for any such failures or instances of noncompliance that would not
reasonably be likely, individually or in the aggregate, to result in a
Company Material Adverse Effect. For purposes of this Agreement, the term
"Affiliate" when used with respect to any party shall mean any Person who
is an "affiliate" of that party within the meaning of Rule 405 promulgated
under the Securities Act.
-22-
(j) Material Contracts and Government Contracts.
(i) As of the date of this Agreement, except as set forth on Schedule
5.1(j) of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries is a party to or bound by:
(A) any lease of (i) real property or (ii) personal property
providing for annual rentals of $500,000 or more not cancelable by the
Company (without premium or penalty) within six (6) months;
(B) any Contract that requires or is reasonably likely in the
ordinary course of business to result in either (x) annual payments to or
from the Company and its Subsidiaries of more than $500,000 or (y)
aggregate payments to or from the Company and its Subsidiaries of more than
$1,000,000;
(C) other than with respect to any partnership that is wholly
owned by the Company or any wholly owned Subsidiary of the Company, any
partnership, joint venture or other similar agreement or arrangement
relating to the formation, creation, operation, management or control of
any partnership or joint venture;
(D) any Contract (other than among direct or indirect wholly
owned Subsidiaries of the Company) relating to indebtedness for borrowed
money in amounts greater than $500,000 (in either case, whether incurred,
assumed, guaranteed or secured by any asset);
(E) any non-competition Contract or other Contract that (I)
purports to limit in any material respect either the type of business in
which the Company or its Affiliates may engage or the manner or locations
in which any of them may so engage in any business, (II) could require the
disposition of any material assets or line of business of the Company or
its Affiliates or (III) grants "most favored nation" status that applies to
the Company and its Affiliates or (IV) prohibits or limits the right of the
Company or any of its Affiliates to make, sell or distribute any products
or services or use, transfer, license, distribute or enforce any of their
respective Intellectual Property owned by the Company or any of its
Affiliates, in a manner that is material to their business as presently
conducted;
(F) any Contract to which the Company or any of its Subsidiaries
is a party containing a standstill or similar agreement pursuant to which
one party has agreed not to acquire assets or securities of the other party
or any of its Affiliates;
(G) any Contract between the Company or any of its Subsidiaries
and any director or executive officer of the Company or, to the knowledge
of the Company, any Person beneficially owning five (5) percent or more of
the outstanding Shares (other than Parent or any of Parent's Subsidiaries);
-23-
(H) other than any Contract filed as an exhibit to the Company's
Annual Report on Form 10-K pursuant to Item 601(b)(10) of Regulation S-K
under the Securities Act, any Contract providing for indemnification by the
Company or any of its Subsidiaries of any Person, except for any such
Contract that is (x) not material to the Company or any of its Subsidiaries
and (y) entered into in the ordinary course of business;
(I) any Contract that contains a put, call or similar right
pursuant to which the Company or any of its Subsidiaries could be required
to purchase or sell, as applicable, any equity interests of any Person or
assets that have a fair market value or purchase price of more than
$500,000;
(J) any reinsurance and coinsurance Contracts, including
retrocessional agreements or surplus relief agreements, to which any
Company Insurance Subsidiary is a party or under which any Company
Insurance Subsidiary has any existing rights, obligations or liabilities;
(K) any Government Contract (as defined below) (i) involving
aggregate payments to or from the Company and its Subsidiaries of more than
$500,000 or (ii) with any agency, body or instrumentality of the federal
government of the United States of America;
(L) any agency, general agency or managing general agency
Contracts, joint marketing Contracts, program administrator Contracts,
commission Contracts, placement service Contracts or other broker
Contracts, including any Contracts, whereby underwriting authority or other
authority to execute and issue insurance policies is given to a third party
and which require or are reasonably likely to result in aggregate annual
payments to or from the Company and its Subsidiaries of more than $250,000;
(M) any Contract pursuant to which the Company or any Subsidiary
grants or obtains the right to use Intellectual Property requiring annual
payments to or from the Company or its Subsidiaries in excess of $250,000
or any Contract relating to Intellectual Property which is otherwise
material to the conduct of the Company and/or its Subsidiaries' businesses
as currently conducted (other than Contracts granting rights to use
commercial off-the-shelf software that has not been modified or customized
specifically for the Company and/or its Subsidiaries); and
(N) any other Contract that, if terminated or subject to a
default by any party thereto, would, individually or in the aggregate, be
reasonably likely to result in a Company Material Adverse Effect (such
Contracts, together with the Contracts described in clauses (A) - (M) and
any Contract required to be filed as an exhibit to the Company's Annual
Report on Form 10-K pursuant to Item 601(b)(10) of Regulation S-K under the
Securities Act as currently in effect, and
-24-
together with all exhibits and schedules to such Contracts, collectively
the "Material Contracts").
As used herein, "Government Contract" means any contract to which the
Company or any of its Subsidiaries is a party, or by which any of them are
bound, the ultimate contracting party of which is a Governmental Entity
(including any subcontract with a prime contractor or other subcontractor who is
a party to any such contract).
(ii) A true and complete copy of each Material Contract has previously
been delivered or made available to Parent and, except as would not
reasonably be likely to have a Company Material Adverse Effect, (A) each
such Contract is a valid and binding agreement of the Company or one of its
Subsidiaries, as the case may be, (B) is in full force and effect, and (C)
neither the Company nor any of its Subsidiaries nor, to the knowledge of
the Company, any other party thereto is in default or breach in any respect
under the terms of any such Contract.
(k) Real Property.
(i) Except in any such case as is not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect,
with respect to the real property owned by the Company or its Subsidiaries
(the "Owned Real Property"), (A) the Company or one of its Subsidiaries, as
applicable, has good and marketable title to the Owned Real Property, free
and clear of any Encumbrance, and (B) there are no outstanding options or
rights of first refusal to purchase the Owned Real Property, or any portion
thereof or interest therein.
(ii) With respect to the real property leased or subleased to the
Company or its Subsidiaries (the "Leased Real Property"), the lease or
sublease for such property is valid, legally binding, enforceable (subject
to the Bankruptcy and Equity Exception) and in full force and effect, and
none of the Company or any of its Subsidiaries is in breach of or default
under such lease or sublease, and no event has occurred which, with notice,
lapse of time or both, would constitute a breach or default by any of the
Company or its Subsidiaries or permit termination, modification or
acceleration by any third party thereunder, or prevent, materially delay or
materially impair the consummation of the transactions contemplated by this
Agreement except in each case, to the extent any of the foregoing is not,
individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect.
(iii) Schedule 5.1(k)(iii) of the Company Disclosure Letter contains a
true and complete list of all Owned Real Property setting forth a correct
street address and such other information as is reasonably necessary to
identify each parcel of Owned Real Property.
(iv) For purposes of this Section 5.1(k) and Section 6.1(a)(v) only,
"Encumbrance" means any mortgage, lien, pledge, charge, security interest,
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easement, covenant or other restriction or title matter or encumbrance of
any kind in respect of such asset but specifically excludes (a) specified
encumbrances described in Schedule 5.1(k)(iv) of the Company Disclosure
Letter; (b) encumbrances for current Taxes or other governmental charges
not yet delinquent; (c) liens imposed by Law, such as landlords',
mechanics', carriers', workmen's, repairmen's or other like encumbrances
arising or incurred in the ordinary course of business consistent with past
practice relating to obligations as to which there is no default on the
part of Company, or the validity or amount of which is being contested in
good faith by appropriate proceedings and reserved against to the extent
required by GAAP; and (d) any other encumbrances or matters that do not,
individually or in the aggregate, materially impair the continued use or
operation of the specific parcel of Owned Real Property to which they
relate or the conduct of the business of the Company and its Subsidiaries
as presently conducted.
(l) Takeover Statutes. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (each, a
"Takeover Statute") or any anti-takeover provision in the Company's certificate
of incorporation or by-laws is applicable to the Company, the Shares, the Merger
or the other transactions contemplated by this Agreement.
(m) Environmental Matters. Except for such matters that, individually
or in the aggregate, are not reasonably likely to have a Company Material
Adverse Effect: (i) the Company and its Subsidiaries have been and are in
compliance with all applicable Environmental Laws; (ii) no property owned or
operated by the Company or any of its Subsidiaries has been contaminated with
any Hazardous Substance (as defined below) in a manner that could be expected to
require remediation or other action pursuant to any Environmental Law; (iii)
neither the Company nor any of its Subsidiaries is liable for any Hazardous
Substance disposal or contamination on any third-party property; (iv) neither
the Company nor any of its Subsidiaries is the subject of any pending or, to the
knowledge of the Company, threatened investigation relating to any Environmental
Law; (v) neither the Company nor any of its Subsidiaries has received any
written notice, demand, letter, claim or request for information alleging that
the Company or any of its Subsidiaries may be in violation of or subject to
liability under any Environmental Law; (vi) neither the Company nor any of its
Subsidiaries is subject to any order, decree or injunction with any Governmental
Entity relating to liability under any Environmental Law or relating to
Hazardous Substances; (vii) to the knowledge of the Company there are no other
circumstances or conditions involving the Company or any of its Subsidiaries
that could reasonably be expected to result in any claim or liability pursuant
to any Environmental Law excluding claims or liabilities arising out of or
pursuant to any policies of insurance written or issued by the Company or any of
its Subsidiaries; and (viii) the Company has made available to Parent copies of
all material environmental reports and assessments relating to the Company or
its Subsidiaries.
-26-
As used herein, the term "Environmental Law" means any federal, state
or local statute, law, regulation, order, decree, permit, authorization or
judgment relating to: (A) the protection, investigation or restoration of the
environment or natural resources, (B) the handling, use, presence, disposal,
release or threatened release of any Hazardous Substance or (C) noise, odor,
indoor air, employee exposure to Hazardous Substances, wetlands, pollution,
contamination or any injury or threat of injury to persons or property relating
to any Hazardous Substance.
As used herein, the term "Hazardous Substance" means any substance
that is: (A) listed, classified or regulated pursuant to any Environmental Law;
or (B) any petroleum product or by product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, toxic mold,
radioactive material or radon.
(n) Taxes. Except as set forth on Schedule 5.1(n) of the Company
Disclosure Letter, the Company and each of its Subsidiaries (i) have prepared in
good faith and duly and timely filed (taking into account any extension of time
within which to file) all material Tax Returns (as defined below) required to be
filed by any of them and all such filed Tax Returns are complete and accurate in
all material respects; (ii) have paid all material Taxes (as defined below) that
are required to be paid or that the Company or any of its Subsidiaries are
obligated to withhold from amounts owing to any employee, creditor or third
party, except, in each case, with respect to (A) Taxes that are not yet due and
payable and (B) matters contested in good faith; and (iii) have not waived any
statute of limitations with respect to Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency that will remain in effect after
the Closing. Except as set forth on Schedule 5.1(n) of the Company Disclosure
Letter, as of the date hereof, there are not pending or, to the knowledge of the
Company, threatened in writing, any audits, examinations, investigations or
other proceedings in respect of Taxes or Tax matters. There are not any
unresolved questions or claims, that have been comminucated to the Company in
writing, concerning the Company's or any of its Subsidiaries' Tax liability that
are, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect and are not disclosed or provided for in the Company
Reports. The Company has made available to Parent true and correct copies of the
United States federal income Tax Returns filed by the Company and its
Subsidiaries for each of the fiscal years ended December 31, 2005, 2004, 2003
and 2002. The charges, accruals and reserves for Taxes due, or accrued but not
yet due, relating to the income, properties or operations of the Company and
each of its Subsidiaries reflected on the most recent financial statements (i)
included in the Company Reports are adequate to cover such Taxes as of the date
of such Company Reports, (ii) included in the Company's books and records for
any period that is subsequent to the date of such Company Reports, are adequate
to cover such Taxes reflected in such books and records. Neither the Company nor
any of its Subsidiaries (i) is a life insurance company for U.S. federal income
tax purposes, (ii) has issued any contracts during any period for which the
statute of limitations to contest the Tax treatments of such contracts remains
open, that would, for U.S. federal income tax purposes, properly be
characterized as life insurance or annuity contracts, (iii) has participated in
any Reportable Transactions as defined in Treasury
-27-
Regulations Section 1.6011-4(b) and (c)(3), or (iv) is a United States real
property holding corporation, as such term is defined in Section 897(c)(2) of
the Code.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the term "Taxes") includes all federal, state, local and
foreign income, profits, franchise, gross receipts, environmental, customs duty,
capital stock, severances, stamp, payroll, sales, employment, unemployment,
disability, use, property, withholding, excise, production, value added,
occupancy and other taxes, duties or similar governmental assessments, together
with all interest, penalties and additions imposed with respect to such amounts
and any interest in respect of such penalties and additions, and (ii) the term
"Tax Return" includes all returns and reports (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
(o) Labor Matters. Neither the Company nor any of its Subsidiaries is
a party to or otherwise bound by any collective bargaining agreement or other
Contract with a labor union or labor organization, nor, is the Company or any of
its Subsidiaries the subject of any material proceeding asserting that the
Company or any of its Subsidiaries has committed an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization nor
is there pending or, to the knowledge of the Company, threatened any labor
strike, dispute, walk-out, work stoppage, slow-down or lockout involving the
Company or any of its Subsidiaries. To the knowledge of the Company, there are
no organizational efforts with respect to the formation of a collective
bargaining unit presently being made involving employees of the Company or any
of its Subsidiaries. The Company and its Subsidiaries have complied in all
material respects with the reporting requirements of the Labor Management
Reporting and Disclosure Act. Each of the Company and each of its Subsidiaries
is in compliance in all material respects with all currently applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours. Neither the Company nor any of its Subsidiaries
has any current material liabilities for the payment of any compensation,
damages, fines, penalties or other amounts, however designated, for failure to
comply with any of the requirements of applicable law described in the preceding
sentence.
(p) Intellectual Property.
(i) To the knowledge of the Company, the Company and its Subsidiaries
have sufficient rights to use all Intellectual Property (as defined in
Section 5.1(p)(v)) used by the Company and its Subsidiaries in their
business as presently conducted. To the knowledge of the Company, the
registrations and applications for the Intellectual Property owned by the
Company and its Subsidiaries are valid, enforceable and subsisting. The
Intellectual Property owned by the Company and its Subsidiaries is not
subject to any outstanding order, judgment, decree or agreement adversely
affecting the Company's or its Subsidiaries' use thereof or its rights
thereto, in a manner that is material to their
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business as presently conducted. To the knowledge of the Company, (i) the
Company and its Subsidiaries are not infringing or otherwise violating and
have not infringed or otherwise violated the Intellectual Property rights
of any third party during the four (4) year period immediately preceding
the date of this Agreement, and (ii) no third party is materially
infringing or otherwise violating the Intellectual Property of the Company
or its Subsidiaries.
(ii) The Company and its Subsidiaries have taken reasonable measures
to protect the confidentiality and value of all material Trade Secrets that
are owned, used or held for use by the Company and its Subsidiaries, and to
the Company's knowledge, such Trade Secrets have not been used, disclosed
to or discovered by any third party except pursuant to valid non-disclosure
and/or license agreements or other confidentiality obligations which have
not been breached.
(iii) The Company and its Subsidiaries have not granted any licenses
or other rights to third parties to use its Intellectual Property that are
presently in effect other than licenses granted in the ordinary course of
business, copies of which have been previously provided to Parent. Except
as set forth in Schedule 5.1(p)(iii) of the Company Disclosure Letter, the
Company and its Subsidiaries do not obtain any rights to use third-party
Intellectual Property pursuant to sublicenses or pursuant to
cross-licenses, settlement agreements or other royalty-free agreements that
are material to the conduct of their business as presently conducted (other
than Contracts granting rights to use commercial off-the-shelf software
that has not been modified or customized specifically for the Company
and/or its Subsidiaries).
(iv) The IT Assets (as defined in Section 5.1(p)(v)) operate and
perform as required by the Company and its Subsidiaries to conduct their
business as presently conducted, except as, individually or in the
aggregate, would not reasonably be likely to have a Company Material
Adverse Effect. No person has gained unauthorized access to the IT Assets,
except as, individually or in the aggregate, would not reasonably be likely
to have a Company Material Adverse Effect. The Company and its Subsidiaries
have implemented reasonable backup and disaster recovery technology. The
Company and its Subsidiaries have taken reasonable measures, including,
where applicable, firewalls and other security devices, to protect the
confidentiality of customer information consistent with applicable Law and
current industry standards, except as, individually or in the aggregate,
would not reasonably be likely to have a Company Material Adverse Effect.
There have been no security breaches of the Company's IT Assets in the past
three (3) years, except as, individually or in the aggregate, would not
reasonably be likely to have a Company Material Adverse Effect.
(v) For purposes of this Agreement, the following terms have the
following meanings:
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"Intellectual Property" means all (i) trademarks, service marks, brand
names, certification marks, Internet domain names, logos, trade dress,
trade names, and other indicia of origin, all applications and
registrations for the foregoing, including all renewals of same, and all
goodwill associated therewith and symbolized thereby; (ii) intellectual
property rights in and to inventions and discoveries, whether patentable or
not, and all patents, invention disclosures and applications therefor,
including divisions, continuations, continuations-in-part, extensions and
reissues thereof; (iii) confidential information, proprietary information,
trade secrets and know-how, including confidential and proprietary
processes, schematics, business methods, formulae, drawings, prototypes,
models, designs, customer lists and supplier lists (collectively, "Trade
Secrets"); (iv) published and unpublished copyrightable works of authorship
(including, without limitation, proprietary databases and other
compilations of information), copyrights therein and thereto, and
registrations and applications therefor, and all renewals, extensions and
reversions thereof; and (v) all other intellectual property or proprietary
rights therein.
"IT Assets" means computers, computer software, firmware, middleware,
servers, workstations, routers, hubs, switches, data communications lines,
and all other information technology equipment, and all associated
documentation, used by the Company or its Subsidiaries in the conduct of
their business as presently conducted.
(q) Insurance Maintained by Company. The Company maintains fire and
casualty, general liability, directors and officers, errors and omissions,
business interruption, product liability, and sprinkler and water damage
insurance policies (including all applications, supplements, endorsements,
riders and ancillary agreements in connection therewith, "Insurance Policies")
with reputable insurance carriers. The Insurance Policies provide adequate
coverage for all normal risks incident to the business of the Company and its
Subsidiaries and their respective properties and assets, except for any such
failures to maintain insurance policies that, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect. Each
Insurance Policy is in full force and effect and all premiums due with respect
to all Insurance Policies have been paid, with such exceptions that,
individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect.
(r) Insurance Matters.
(i) Except as otherwise is not reasonably likely to have, individually
or in the aggregate, a Company Material Adverse Effect or prevent,
materially delay or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement, all policies,
binders, slips, certificates, and other agreements of insurance, in effect
as of the date hereof that are issued by the Company Insurance Subsidiaries
(the "Company Insurance Contracts") and any and all marketing materials,
are, to the extent required under
-30-
applicable Law, on forms approved by applicable insurance regulatory
authorities which have been filed and not objected to by such authorities
within the period provided for objection (the "Forms"). The Forms comply in
all material respects with the Insurance Laws applicable thereto and, as to
premium rates established by any Company Insurance Subsidiary which are
required to be filed with or approved by insurance regulatory authorities,
the rates have been so filed or approved and the premiums charged are
within the amount permitted by Insurance Laws applicable thereto, except
where the failure to be so filed or approved is not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect. To
the knowledge of the Company, each agent, representative, distributor,
broker, employee or other Person authorized to sell or administer products
on behalf of any Company Insurance Subsidiary ("Agent") was duly licensed
(for the type of activity and business written, sold, produced,
underwritten or managed) except as would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect, and
was appointed by the Company in compliance with applicable Law and all
processes and procedures used in making inquiries with respect of such
Person were undertaken in material compliance with applicable Law, except
as would not be reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. Each of the Contracts between
the Company and any Agent who has sold, underwritten, or issued business
for or on behalf of the Company since January 1, 2005, is valid, binding
and in full force and effect in accordance with its terms, except as would
not be reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect.
(ii) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which any Company Insurance Subsidiary is a
party or under which any Company Insurance Subsidiary has any existing
rights, obligations or liabilities are in full force and effect, except for
such treaties or agreements the failure to be in full force and effect of
which is not reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect. Except as is not reasonably likely to
have, individually or in the aggregate, a Company Material Adverse Effect
or prevent, materially delay or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement, no
Company Insurance Subsidiary, or, to the knowledge of the Company, any
other party to a material reinsurance or coinsurance treaty or agreement to
which any Company Insurance Subsidiary is a party, is in default in any
material respect as to any provision thereof, and no such agreement
contains any provision providing that the other party thereto may terminate
such agreement, or that such agreement will be automatically terminated, by
reason of the transactions contemplated by this Agreement. To the knowledge
of the Company, the financial condition of the other parties to any such
agreement is impaired with the result that a default thereunder may
reasonably be anticipated, whether or not such default may be cured by the
operation of any offset clause in such agreement, that is, individually or
in the
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aggregate, reasonably likely to have a Company Material Adverse Effect. All
reinsurance and retrocession agreements to which any Company Insurance
Subsidiary is a party, either as a cedent or a reinsurer or
retrocessionaire, comply in all material respects with all risk transfer
criteria under GAAP and applicable SAP, and to the knowledge of the
Company, there is no investigation, inquiry or proceeding currently pending
before or by Governmental Entity, to which the Company or any Company
Insurance Subsidiary is subject, with respect to the risk transfer
characteristics or the reporting or disclosure thereof, of any such
reinsurance or retrocession.
(iii) Prior to the date hereof, the Company has delivered or made
available to Parent a true and complete copy of any material actuarial
reports prepared by actuaries, independent or otherwise, with respect to
any Company Insurance Subsidiary since January 1, 2004, and all
attachments, addenda, supplements and modifications thereto (the "Company
Actuarial Analyses"). The information and data furnished by any Company
Insurance Subsidiary to its actuaries in connection with the preparation of
the Company Actuarial Analyses were accurate in all material respects.
Furthermore, each Company Actuarial Analysis was based, in all material
respects, upon an accurate inventory of policies in force for the Company
Insurance Subsidiaries, as the case may be, at the relevant time of
preparation and conforms to the requirements of applicable Law.
(iv) None of Standard & Poor's Corporation, Fitch Investors, or A.M.
Best Company has announced that it has under surveillance or review (with
negative implications) its rating of the financial strength or
claims-paying ability of any Company Insurance Subsidiary or imposed
conditions (financial or otherwise) on retaining any currently held rating
assigned to any Company Insurance Subsidiary which is rated as of the date
of this Agreement, and the Company has no reason (other than the entry into
the Agreement and the transactions contemplated hereby) to believe that any
rating presently held by the Company Insurance Subsidiaries is likely to be
modified, qualified, lowered or placed under such surveillance for any
reason.
(v) The Company and the Company Insurance Subsidiaries have filed all
reports, statements, documents, registrations, filings or submissions
(including without limitation any sales material) required to be filed with
any Governmental Entity since the Applicable Date in the manner prescribed
by applicable Laws, except for any such non-compliance or failure to make
any such filing or filings which is not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect. All such
reports, registrations, filings and submissions were in compliance in all
material respects with Law when filed or as amended or supplemented, and no
deficiencies have been asserted in writing by any such Governmental Entity
with respect to such reports, registrations, filings or submissions that
have not been remedied, except for any non-compliance or
-32-
deficiencies which are not, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect.
(s) Risk-Based Capital; IRIS Ratios. Prior to the date hereof, the
Company has made available to Parent true and complete copies, or true and
accurate summaries, of any analyses, reports and other data prepared by any
Company Insurance Subsidiary or submitted by any Company Insurance Subsidiary to
any insurance regulatory authority or the National Association of Insurance
Committees relating to risk-based capital calculations or IRIS ratios for the
year ended or as of December 31, 2006.
(t) Company Investment Assets. The Company SAP Statements for each of
the Company Insurance Subsidiaries for the year ended December 31, 2006, to the
extent required by applicable Law, set forth a list, which list is accurate and
complete in all material respects, of all Company Investment Assets owned by
such Company Insurance Subsidiaries as of December 31, 2006, together with the
cost basis book or amortized value, as the case may be, of such Company
Investment Assets as of December 31, 2006. As used in this Agreement, "Company
Investment Assets" means bonds, stocks, mortgage loans or other investments that
are carried on the books and records of the Company and the Company Insurance
Subsidiaries.
(u) Investment Advisor. Neither the Company nor any of its
Subsidiaries conducts activities of or is otherwise deemed under applicable Law
to be an "investment advisor" as such term is defined in Section 2(a)(20) of the
Investment Company Act of 1940. Neither the Company nor any of its Subsidiaries
is an "investment company" as defined under the Investment Company Act of 1940.
(v) Brokers and Finders. Neither the Company nor any of its
Subsidiaries nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the Merger or the other
transactions contemplated in this Agreement except that the Company has employed
Xxxxxx Brothers as the financial advisor to the Special Committee. The Company
has made available to Parent a complete and accurate copy of all agreements
pursuant to which Xxxxxx Brothers is entitled to any fees and expenses in
connection with any of the transactions contemplated by this Agreement.
5.2. Representations and Warranties of Parent and Merger Sub. Except
as set forth in the forms, statements, certifications, reports and documents
filed with or furnished to the SEC prior to the date hereof by Parent pursuant
to the Exchange Act or the Securities Act (excluding, in each case, any
disclosures set forth in any risk-factor section or in any section relating to
forward-looking statements) or in the corresponding schedules or sub-schedules
of the disclosure letter delivered to the Company by Parent concurrent with
entering into this Agreement (the "Parent Disclosure Letter") (it being agreed
that disclosure of any item in any schedule or sub-schedule of the Parent
Disclosure Letter shall be deemed disclosure with respect to any other Section
or
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subsection to which the relevance of such item is reasonably apparent). Parent
and Merger Sub each hereby represent and warrant to the Company that:
(a) Organization, Good Standing and Qualification. Each of Parent and
Merger Sub is a legal entity duly organized, validly existing and in good
standing under the Laws of its respective jurisdiction of organization and has
all requisite corporate or similar power and authority to own, lease and operate
its properties and assets and to carry on its business as presently conducted
and is qualified to do business and is in good standing as a foreign corporation
in each jurisdiction where the ownership, leasing or operation of its assets or
properties or conduct of its business requires such qualification, except where
the failure to be so organized, qualified or in such good standing, or to have
such power or authority, would not, individually or in the aggregate, reasonably
be expected to prevent, materially delay or impair the ability of Parent and
Merger Sub to consummate the Merger and the other transactions contemplated by
this Agreement. Parent has made available to the Company a complete and correct
copy of the certificate of incorporation and by-laws of Parent and Merger Sub,
each as in effect on the date of this Agreement.
(b) Corporate Authority. No vote of holders of capital stock of Parent
is necessary to approve this Agreement and the Merger and the other transactions
contemplated hereby. Each of Parent and Merger Sub has all requisite corporate
power and authority and has taken all corporate action necessary in order to
execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly executed and delivered by each of Parent and Merger Sub
and is a valid and binding agreement of, Parent and Merger Sub, enforceable
against each of Parent and Merger Sub in accordance with its terms, subject to
the Bankruptcy and Equity Exception.
(c) Governmental Filings; No Violations; Etc.
(i) Other than (A) the filings and/or notices pursuant to Section 1.3,
(B) the filing of the applications and notices with applicable Insurance
Authorities and the approval of such applications or the grant of required
licenses by such authorities or the expiration of any applicable waiting
periods thereunder (the "Parent Approvals"), (C) the filing with the SEC of
the Proxy Statement (as defined in Section 6.3), and (D) the filing with
the SEC of a Schedule 13E-3, no notices, reports or other filings are
required to be made by Parent or Merger Sub with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained
by Parent or Merger Sub from, any Governmental Entity in connection with
the execution, delivery and performance of this Agreement by Parent and
Merger Sub and the consummation by Parent and Merger Sub of the Merger and
the other transactions contemplated hereby, except those that the failure
to make or obtain would not, individually or in the aggregate, reasonably
be expected to prevent or materially delay the ability of Parent and Merger
Sub to consummate the Merger and the other transactions contemplated by
this Agreement.
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(ii) The execution, delivery and performance of this Agreement by
Parent and Merger Sub do not, and the consummation by Parent and Merger Sub
of the Merger and the other transactions contemplated hereby will not,
constitute or result in (A) a breach or violation of, or a default under,
the certificate of incorporation or by-laws of Parent or Merger Sub or the
comparable governing instruments of any of its Subsidiaries, (B) with or
without notice, lapse of time or both, a breach or violation of, a
termination (or right of termination) or a default under, the creation or
acceleration of any obligations or the creation of a Lien on any of the
assets of Parent or any of its Subsidiaries pursuant to, any Contracts
binding upon Parent or any of its Subsidiaries or under any Law or
governmental or non-governmental permit, license, registration,
authorization or approval to which Parent or any of its Subsidiaries is
subject, or (C) any change in the rights or obligations of any party under
any of such Contracts, except, in the case of clause (B) or (C) above, for
any breach, violation, termination, default, creation, acceleration or
change that would not, individually or in the aggregate, reasonably be
expected to prevent or materially delay the ability of Parent or Merger Sub
to consummate the Merger and the other transactions contemplated by this
Agreement.
(d) Litigation. As of the date of this Agreement, there are no civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of Parent, threatened against Parent or
Merger Sub that seek to enjoin, or would reasonably be expected to have the
effect of preventing, making illegal, or otherwise interfering with, any of the
transactions contemplated by this Agreement, except as would not, individually
or in the aggregate, reasonably be expected to prevent or materially delay the
ability of Parent or Merger Sub to consummate the Merger and the other
transactions contemplated by this Agreement.
(e) Available Funds. Parent and Merger Sub have available to them, or
as of the Effective Time will have available to them, all funds necessary for
the payment to the Paying Agent of the aggregate Per Share Merger Consideration
and to satisfy all of their obligations under this Agreement.
(f) Capitalization of Merger Sub. The authorized capital stock of
Merger Sub consists solely of 100 shares of common stock, par value $0.01 per
share, all of which are validly issued and outstanding. All of the issued and
outstanding capital stock of Merger Sub is, and at the Effective Time will be,
owned by Parent or a direct or indirect wholly owned Subsidiary of Parent.
Merger Sub was formed solely for the purpose of engaging in the Merger and the
transactions contemplated by this Agreement and has not conducted any business
prior to the date hereof and has no, and prior to the Effective Time will have
no, assets, liabilities or obligations of any nature other than those incident
to its formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
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(g) Information Supplied. None of the information supplied by or on
behalf of Parent or Merger Sub for inclusion in the Proxy Statement and the
Schedule 13E-3 will, in the case of the Proxy Statement, at the date of mailing
to stockholders of the Company or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(h) Brokers and Finders. Neither Parent nor Merger Sub, or any of
their Subsidiaries or their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the Merger or the other
transactions contemplated in this Agreement except that Parent has employed Banc
of America Securities LLC and X.X. Xxxxxx Securities Inc. as its financial
advisors.
ARTICLE VI
Covenants
6.1. Interim Operations.
(a) The Company covenants and agrees that it will, and will cause its
Subsidiaries to, after the date hereof and prior to the earlier of the
termination of this Agreement or the Effective Time (unless Parent shall
otherwise approve in writing, and except as otherwise required by this
Agreement) and except as required by applicable Laws, conduct its and its
Subsidiaries' business in the ordinary course consistent with past practice
(including in respect of underwriting, pricing, claims handling, loss control,
investment, actuarial and reserving guidelines, practices, principles, methods
and policies) and, to the extent consistent therewith, it and its Subsidiaries
shall use their respective commercially reasonable efforts to preserve their
business organizations intact and their existing relationships with customers,
suppliers, Agents, creditors, lessors, officers, employees, business associates
and others with whom business relationships exist, and keep available the
services of its and its Subsidiaries' present employees. Parent, Merger Sub and
the Company acknowledge and agree that any actions taken by the Company to
pursue its expansion plans substantially consistent with its 2007 budget and
timetable as presented to Parent, shall be deemed to be taken in the ordinary
course of business consistent with past practice for purposes of this Agreement.
Without limiting the generality of the foregoing and in furtherance thereof,
from the date of this Agreement until the Effective Time, except (A) as
otherwise expressly required by this Agreement, (B) as Parent may approve in
writing (such approval not to be unreasonably withheld or delayed) or (C) as set
forth in Schedule 6.1 of the Company Disclosure Letter, the Company will not and
will not permit its Subsidiaries to:
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(i) adopt or propose any change in its certificate of incorporation or
by-laws or other applicable governing instruments;
(ii) merge or consolidate the Company or any of its Subsidiaries with
any other Person, except for any such transactions among wholly owned
Subsidiaries of the Company, or restructure, reorganize or completely or
partially liquidate or otherwise enter into any agreements or arrangements
imposing material changes or restrictions on its assets, operations or
businesses;
(iii) acquire assets outside of the ordinary course of business from
any other Person with a value or purchase price in the aggregate in excess
of $500,000 in any transaction or series of related transactions, other
than (A) acquisitions pursuant to Contracts in effect as of the date of
this Agreement or (B) acquisitions pursuant to capital expenditures in
accordance with Section 6.1(a)(x);
(iv) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, any shares of
capital stock of the Company or any of its Subsidiaries (other than the
issuance of shares by a wholly owned Subsidiary of the Company to the
Company or another wholly owned Subsidiary or the issuance of shares upon
exercise of Company Options outstanding as of the date of this Agreement),
or securities convertible or exchangeable into or exercisable for any
shares of such capital stock, or any options, warrants or other rights of
any kind to acquire any shares of such capital stock or such convertible or
exchangeable securities;
(v) create or incur any material Lien on any assets of the Company or
any of its Subsidiaries other than any Encumbrance in the ordinary course
of business;
(vi) make any loans, advances or capital contributions to or
investments in any Person, other than (A) the Company or any direct or
indirect wholly owned Subsidiary of the Company, (B) as required by any
existing Contracts or any Contract entered into in the ordinary course of
business after the date of this Agreement in accordance with this Section
6.1 and (C) advances and expense reimbursements to employees in the
ordinary course of business;
(vii) other than regular quarterly dividends on Shares of no more than
$0.16 per Share (the record dates for which shall be the close of business
on June 5, 2007, September 24, 2007, December 21, 2007 and March 5, 2008,
respectively) which are payable after the last day of any quarter),
declare, set aside, make or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, with respect to any of its capital
stock (except for dividends paid by any direct or indirect wholly owned
Subsidiary to the Company or to any other direct or indirect wholly owned
Subsidiary) or enter into any agreement with respect to the voting of its
capital stock, provided, that (x) if the Merger has
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closed after June 5, 2007 but before September 24, 2007, the Company may
declare a special dividend per Share equivalent to $0.16 multiplied by the
quotient obtained by dividing (A) the total number of days from and
including June 6, 2007 through and including the Closing Date by (B) the
total number of days from and including June 6, 2007 through and including
September 24, 2007, the record date for which shall be the close of
business on the last business day prior to the Closing Date; (y) if the
Merger has closed after September 24, 2007 but before December 21, 2007,
the Company may declare a special dividend per Share equivalent to $0.16
multiplied by the quotient obtained by dividing (A) the total number of
days from and including September 25, 2007 through and including the
Closing Date by (B) the total number of days from and including September
25, 2007 through and including December 21, 2007, the record date for which
shall be the close of business on the last business day prior to the
Closing Date; and (z) if the Merger has closed after December 21, 2007 but
before March 5, 2008, the Company may declare a special dividend per Share
equivalent to $0.16 multiplied by the quotient obtained by dividing (A) the
total number of days from and including December 22, 2007 through and
including the Closing Date by (B) the total number of days from and
including December 22, 2007 through and including March 5, 2008, the record
date for which shall be the close of business on the last business day
prior to the Closing Date. For the avoidance of doubt, the Company will not
and will not permit its Subsidiaries to declare a special dividend in
accordance with the provisions of this Section 6.1(a)(vii) for any period
if a regular quarterly dividend (the record dates for which shall be the
close of business on June 5, 2007, September 24, 2007, December 21, 2007
and March 5, 2008, respectively) covering such period has been declared,
set aside, made or paid. Subject to the terms and conditions set forth in
this Section 6.1(a)(vii), the Company and Parent shall cooperate with each
other and use their respective reasonable best efforts to take or cause to
be taken all actions, and do or cause to be done all things, reasonably
necessary, proper or advisable on its part under this Agreement and
applicable Laws to make effective any dividend declared pursuant to and in
compliance with this Section 6.1(a)(vii);
(viii) other than forfeitures of nonvested Shares by Company employees
that are accounted for as acquisition of treasury stock, reclassify, split,
combine, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock or securities convertible or
exchangeable into or exercisable for any shares of its capital stock;
(ix) incur any indebtedness for borrowed money or guarantee such
indebtedness of another Person, or issue or sell any debt securities or
warrants or other rights to acquire any debt security of the Company or any
of its Subsidiaries, except for (i) indebtedness for borrowed money
incurred in the ordinary course of business consistent with past practices
not to exceed $750,000 in the aggregate, (ii) in replacement of existing
indebtedness for borrowed money on terms substantially consistent with or
more beneficial than the indebtedness
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being replaced, (iii) guarantees incurred in compliance with this Section
6.1 by the Company of indebtedness of wholly owned Subsidiaries of the
Company or (iv) any intercompany indebtedness between the Company and any
of its Subsidiaries or between any of the Company's Subsidiaries;
(x) enter into, as principal or guarantor, any hedging or derivative
transactions, such as interest rate swaps, interest rate options (e.g.,
interest rate caps, interest rate floors and options on interest rate
swaps), currency swaps and options, commodity swaps and options, index
swaps and forward contracts and any other type of swap, option, forward or
derivative; provided, however, that the Company and its Subsidiaries may
enter into interest rate swaps on customary commercial terms consistent
with past practice and in compliance with the Company's risk management
policies in effect on the date of this Agreement, having an aggregate
notional amount no greater than the amount of outstanding debt at any given
time;
(xi) except as set forth in the capital budgets set forth in Schedule
6.1(a)(xi) of the Company Disclosure Letter and consistent therewith, make
or authorize any material capital expenditure;
(xii) (y) other than in the ordinary course of business consistent
with past practice, enter into any Contract (other than renewals) that
would have been a Material Contract had it been entered into prior to this
Agreement, and (z) make or commit to make any marketing expenditures in
excess of $10,000,000 in the aggregate per month, or in excess of
$25,000,000 in the aggregate over any three (3) month period;
(xiii) make any changes with respect to accounting policies or
procedures, except as required by changes in applicable Law, GAAP or SAP;
(xiv) settle any litigation or other proceedings before a Governmental
Entity for an amount in excess of $500,000 individually or $1,000,000 in
the aggregate or any obligation or liability of the Company in excess of
such amount, other than (A) ordinary course policy claim matters (except
individual claims involving extra-contractual liabilities in excess of
$250,000 above the applicable contractual liability), (B) the payment,
discharge or satisfaction of obligations or liabilities in accordance with
the terms of Contracts in effect as of the date hereof or (C) settlement of
any liability for which reserves have been made on the Company's financial
statements included in the Company Reports, provided, however, that such
settlement will not exceed the corresponding reserves by more than 10%;
(xv) other than in the ordinary course of business consistent with
past practice, amend, modify or terminate any Material Contract, or cancel,
modify or waive any debts or claims held by it or waive any rights having
in each case a value in excess of $500,000 individually or $1,000,000 in
the aggregate;
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(xvi) (A) make or rescind any material election relating to Taxes; (B)
file any amended income Tax Return or material claim for refund; (C) make
any material change in any method of accounting, keeping of books of
account or accounting practices or in any method of Tax accounting of the
Company or any Subsidiary unless required by GAAP or applicable Law; (D)
enter into or agree to any private letter ruling, closing agreement or
similar ruling or agreement with the Internal Revenue Service or any other
taxing authority or settle any audit or proceeding with respect to any
material amount of Taxes owed; or (E) file its federal income Tax Return
for the fiscal year ending on December 31, 2006 without providing Parent
reasonable opportunity to review and comment on such Tax Return;
(xvii) except as set forth in Section 6.1(a)(v) above, transfer, sell,
lease, license, mortgage, pledge, surrender, encumber, divest, cancel,
abandon or allow to lapse or expire or otherwise dispose of any material
assets, product lines or businesses of the Company or its Subsidiaries,
including capital stock of any of its Subsidiaries, except in the ordinary
course of business and sales of obsolete assets and except for sales,
leases, licenses or other dispositions of assets (other than any material
Intellectual Property Assets) with a fair market value not in excess of
$500,000 in the aggregate, other than pursuant to Contracts in effect prior
to the date of this Agreement;
(xviii) except as required pursuant to existing agreements in effect
prior to the date of this Agreement and set forth in Schedule 5.1(h)(i) of
the Company Disclosure Letter, or as otherwise required by this Agreement
or applicable Law, (1) grant or provide any severance or termination
payments or severance or termination benefits to any director, officer or
employee of the Company or any of its Subsidiaries, except, in the case of
employees who are not officers, in the ordinary course of business
consistent with past practice, (2) increase the compensation, bonus or
pension, welfare, severance or other benefits of, pay any bonus to, or make
any new equity awards to any director, officer or employee of the Company
or any of its Subsidiaries, except for increases in base salary and
payments of incentive bonuses to employees other than officers in the
ordinary course of business consistent with past practice, (3) establish,
adopt, amend or terminate any Benefit Plan or amend the terms of any
outstanding equity-based awards, (4) other than the execution of this
Agreement and consummation of the transactions contemplated hereby, take
any action to accelerate the vesting or payment, or fund or in any other
way secure the payment, of compensation or benefits under any Benefit Plan,
to the extent not already provided in any such Benefit Plan, (5) change any
actuarial or other assumptions used to calculate funding obligations with
respect to any Benefit Plan or to change the manner in which contributions
to such plans are made or the basis on which such contributions are
determined, except as may be required by GAAP, (6) forgive any loans to
directors, officers or employees of the Company or any of its Subsidiaries
or (7) hire (X) any new Employee with an annual salary exceeding
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$125,000, except (A) to make changes that are required by Law or (B) to
satisfy contractual obligations disclosed in the Company Disclosure Letter
existing as of the date hereof, or (Y) any new Employee for its call center
sale or service departments, except (A) to make changes that are required
by applicable Law, (B) to satisfy contractual obligations disclosed in the
Company Disclosure Letter existing as of the date hereof, (C) to replace
Employees for its call center sale or service departments, (D) to hire
twenty-five (25) full time equivalents to replace Employees that have left
its call center sale or service departments between March 31, 2007 and the
date hereof, or (E) hire additional ten (10) full time equivalents in any
calendar quarter;
(xix) take any action or omit to take any action that is reasonably
likely to result in any of the conditions to the Merger set forth in
Article VII not being satisfied;
(xx) enter into any new quota share or other reinsurance transaction
(i) which does not contain standard cancellation and termination
provisions, (ii) which, except in the ordinary course of business,
materially increases or reduces the Company Insurance Subsidiaries'
consolidated ratio of net written premiums to gross written premiums or
(iii) pursuant to which Company Insurance Subsidiaries cede premiums to any
Person other than the Company or any of its Subsidiaries;
(xxi) enter into or engage in (through acquisition, product extension
or otherwise) the business of selling any products or services materially
different from existing products or services of the Company and its
Subsidiaries or enter into or engage in new lines of business (as such term
is defined in the National Association of Insurance Commissioners
instructions for the preparation of the annual statement form) without
Parent's prior written approval); or
(xxii) agree, authorize or commit to do any of the foregoing.
(b) Parent shall not take or permit any of its Subsidiaries to take
any action or omit to take any action that is reasonably likely to (i) result in
any of the conditions of the Merger set forth in Article VII not being satisfied
or (ii) prevent the consummation of the Merger; provided, however, that Parent
shall not be required hereby to take or agree to any action that is reasonably
likely to result in an Adverse Condition.
6.2. Acquisition Proposals.
(a) No Solicitation or Negotiation. The Company agrees that, except as
expressly permitted by this Section 6.2, neither it nor any of its Subsidiaries
nor any of the officers and directors of it or its Subsidiaries shall, and that
it shall use its best efforts to instruct and cause its and its Subsidiaries',
officers, directors, employees, investment bankers, attorneys, accountants and
other advisors, agents or representatives (such officers, directors, employees,
investment bankers, attorneys, accountants and other
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advisors, agents or representatives, collectively, "Representatives") not to,
directly or indirectly:
(i) initiate, solicit, or knowingly encourage or facilitate any
inquiries or the making of any Acquisition Proposal (as defined below); or
(ii) engage in, continue or otherwise participate in any discussions
or negotiations regarding, or provide any confidential or non-public
information to any Person relating to, any Acquisition Proposal (except
solely to provide written notice of the existence of these provisions); or
(iii) otherwise knowingly facilitate any effort or attempt to make an
Acquisition Proposal.
Notwithstanding anything in the foregoing to the contrary, prior to
the time, but not after, the Company Requisite Vote is obtained, the Company may
(A) provide information in response to a request therefor by a Person who has
made an unsolicited bona fide written Acquisition Proposal if the Company
receives from the Person so requesting such information an executed
confidentiality agreement on terms not less restrictive to the other party than
those contained in the Confidentiality Agreement (as defined in Section 9.7) and
promptly discloses (and, if applicable, provides copies of) any such information
to Parent to the extent not previously provided to such party or (B) engage or
participate in any discussions or negotiations with any Person who has made such
an unsolicited bona fide written Acquisition Proposal, if and only to the extent
that, prior to taking any action described in clause (A) or (B) above, (x) the
board of directors of the Company or the Special Committee determines in good
faith after consultation with outside legal counsel that the failure to take
such action would reasonably be expected to result in a violation of the
directors' fiduciary duties under applicable Law and (y) the board of directors
of the Company or the Special Committee has determined in good faith that such
Acquisition Proposal either constitutes a Superior Proposal (as defined below)
or is reasonably likely to result in a Superior Proposal.
(b) Definitions. For purposes of this Agreement:
"Acquisition Proposal" means (i) any proposal or offer with respect to
a merger, joint venture, partnership, consolidation, dissolution,
liquidation, tender offer, recapitalization, reorganization, share
exchange, business combination or similar transaction involving the Company
or any of its Significant Subsidiaries and (ii) any proposal or offer to
acquire in any manner, directly or indirectly, 25% or more of the total
voting power or of any class of equity securities of the Company, or 25% or
more of the consolidated total assets (including, without limitation,
equity securities of its Subsidiaries) of the Company, in each case other
than the transactions contemplated by this Agreement.
"Superior Proposal" means an unsolicited bona fide Acquisition
Proposal involving more than 50% of the assets (on a consolidated basis) or
total voting
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power of the equity securities of the Company that the Special Committee
(after consultation with financial and legal advisors) has determined in
good faith, taking into account all legal, financial, regulatory and other
aspects of the proposal and the Person making the proposal (including any
break-up fees, expense reimbursement provisions and conditions to
consummation), (i) is more favorable to the Company's stockholders (other
than Parent and its direct or indirect wholly owned subsidiaries) from a
financial point of view than the transaction contemplated by this Agreement
and (ii) is reasonably capable of being completed on the terms proposed.
(c) No Change in Recommendation or Alternative Acquisition Agreement.
Neither the board of directors of the Company nor the Special Committee shall
directly or indirectly:
(i) withhold, withdraw or modify (or propose or resolve to withhold,
withdraw or modify), in a manner adverse to Parent, the Company
Recommendation with respect to the Merger;
(ii) approve, adopt or recommend, or propose to approve, adopt or
recommend, any Acquisition Proposal; or
(iii) cause or permit the Company or any of its Subsidiaries to enter
into any letter of intent, memorandum of understanding, agreement in
principle, acquisition agreement, merger agreement, option agreement, joint
venture agreement, partnership agreement or other similar agreement (other
than a confidentiality agreement entered into in compliance with Section
6.2(a)) relating to any Acquisition Proposal.
Notwithstanding the foregoing, prior to the time, but not after, the
Company Requisite Vote is obtained, the board of directors of the Company or the
Special Committee may withhold, withdraw or modify the Company Recommendation if
the board of directors of the Company or the Special Committee determines in
good faith, after consultation with legal and financial advisors, that the
failure to do so would reasonably be expected to result in a violation of the
directors' fiduciary duties under applicable Law (a "Change of Recommendation").
Notwithstanding anything to the contrary in this Section 6.2(c) or in any other
provision of this Agreement, prior to the earlier of the Effective Time or the
termination of this Agreement pursuant to ARTICLE VIII, (x) the receipt by the
board of directors of the Company or the Special Committee of an Acquisition
Proposal shall not (i) permit the Company to enter into any agreement with
respect to an Acquisition Proposal other than a confidentiality agreement, or
(ii) affect any other obligation of the Company under this Agreement, and (y) no
Change of Recommendation may be made until after the third (3rd) business day
following Parent's receipt of written notice (a "Notice of Change of
Recommendation") from the Company advising Parent that the board of directors of
the Company or the Special Committee intends to take such action and, if
applicable, specifying all material terms and conditions
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of any Superior Proposal that is the basis for the Change of Recommendation (it
being understood and agreed that any amendment to the financial terms or any
other material term of such Superior Proposal shall require a new Notice of
Change of Recommendation and a new three (3) business day period), and (iii) if
applicable, unless, during the three (3) business day period following the
Company's delivery of a Notice of Change of Recommendation and prior to
effecting such a Change of Recommendation, the Special Committee shall have
negotiated, and caused its financial and legal advisors to negotiate, with
Parent in good faith (to the extent that Parent desires to negotiate) to make
such adjustments in the terms and conditions of this Agreement so that such
Acquisition Proposal ceases to constitute a Superior Proposal. In determining
whether to make a Change of Recommendation, the Special Committee shall take
into account any changes to the terms of this Agreement proposed by Parent in
response to a Notice of Change of Recommendation or otherwise. Without limiting
the generality of the foregoing, the Company's obligations pursuant to Section
6.4 shall not be affected by (i) the commencement, public proposal, public
disclosure or communication to the Company of any Acquisition Proposal or (ii)
any Change of Recommendation or any withdrawal or modification by the Special
Committee of its recommendation to the board of directors of this Agreement.
(d) Certain Permitted Disclosures. Nothing contained in Section 6.2(a)
shall be deemed to prohibit the Company or the directors of the Company from
complying with Rule 14d-9 and Rule 14e-2 under the Exchange Act with respect to
an Acquisition Proposal; provided that neither the board of directors nor the
Special Committee may affect a Change of Recommendation unless permitted to do
so under, and in compliance with, this Section 6.2; and provided, further, that
any "stop, look and listen" or substantially similar communication of the type
contemplated by Rule 14d-9(f) under the Exchange Act shall not be deemed to be a
Change of Recommendation.
(e) Existing Discussions. The Company agrees that it will, and shall
cause its Subsidiaries and Representatives to, immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any 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 6.2 and in the Confidentiality Agreement. The Company
also agrees that it will promptly request each Person that has heretofore
executed a confidentiality agreement in connection with its consideration of
acquiring it or any of its Subsidiaries to return or destroy all confidential
information heretofore furnished to such Person by or on behalf of it or any of
its Subsidiaries.
(f) Notice. The Company agrees that it will promptly (and, in any
event, within 48 hours) notify Parent if any inquiries, proposals or offers with
respect to an Acquisition Proposal are received by, any such information is
requested from, or any such discussions or negotiations are sought to be
initiated or continued with, it or any of its Representatives indicating, in
connection with such notice, the name of such Person
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and the material terms and conditions of any proposals or offers (including, if
applicable, copies of any written requests, proposals or offers, including
proposed agreements) and thereafter shall keep Parent informed of any related
developments, discussions and negotiations on a reasonably current basis (and,
in any event within 48 hours of the occurrence of such developments, discussions
or negotiations).
6.3. Information Supplied. The Company shall prepare and file with the
SEC, as promptly as reasonably practicable after the date of this Agreement, a
proxy statement in preliminary form relating to the Stockholders Meeting (as
defined in Section 6.4) (such proxy statement, including any amendment or
supplement thereto, the "Proxy Statement") and Schedule 13E-3. The Company
agrees, as to itself and its Subsidiaries, that (i) the Proxy Statement and
Schedule 13E-3 will comply in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder and (ii)
none of the information supplied by it or any of its Subsidiaries for inclusion
or incorporation by reference in the Proxy Statement and Schedule 13E-3 will, at
the date of mailing to stockholders of the Company or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
6.4. Stockholders Meeting. (a) The Company will take, in accordance
with applicable Law and its certificate of incorporation and by-laws, all action
necessary to call, give notice of, convene and hold a meeting of holders of
Shares (the "Stockholders Meeting") as promptly as reasonably practicable after
the execution of this Agreement to consider and vote upon the adoption of this
Agreement. Subject to a Change of Recommendation in accordance with Section
6.2(c) hereof, the board of directors of the Company and the Special Committee
shall recommend such adoption and use its reasonable best efforts to solicit
such adoption of this Agreement.
6.5. Filings; Other Actions; Notification. (a) Proxy Statement and
Schedule 13E-3. The Company shall promptly notify Parent of the receipt of all
comments of the SEC with respect to the Proxy Statement and the Schedule 13E-3
and of any request by the SEC for any amendment or supplement thereto or for
additional information and shall promptly provide to Parent copies of all
correspondence between the Company and/or any of its Representatives and the SEC
with respect to the Proxy Statement and Schedule 13E-3. The Company and Parent
shall each use its reasonable best efforts to promptly provide responses to the
SEC with respect to all comments received on the Proxy Statement and Schedule
13E-3 by the SEC and the Company shall cause the definitive Proxy Statement to
be mailed as promptly as reasonably possible after the date the SEC staff
advises that it has no further comments thereon or that the Company may commence
mailing the Proxy Statement.
(b) Cooperation. Subject to the terms and conditions set forth in this
Agreement, the Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective reasonable
best efforts to take
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or cause to be taken all actions, and do or cause to be done all things,
reasonably necessary, proper or advisable on its part under this Agreement and
applicable Laws to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as practicable, including
preparing and filing as promptly as reasonably practicable all documentation to
effect all necessary notices, reports and other filings, including filings with
insurance regulatory authorities, and to obtain as promptly as reasonably
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement; provided, however, that nothing in
this Section 6.5 shall require, or be construed to require, Parent in connection
with receipt of any regulatory approval, to proffer to, or agree or commit to,
any prohibition, limitation, restraint, restriction or impairment with respect
to any of the assets, properties, licenses, rights, businesses, operations or
businesses of Parent and its Subsidiaries or the Company and its Subsidiaries or
any required sale, divestiture, transfer, license, lease, disposition of or
encumbrance or hold separate (including by trust or otherwise) arrangement with
respect to any of the assets, properties, licenses, rights, operations or
businesses of Parent and its Subsidiaries or the Company and its Subsidiaries or
conduct the business of Parent and its Subsidiaries or the Company and its
Subsidiaries in a specified manner or otherwise limit the freedom of action, or
agree to limit the freedom of action, with respect to any of the assets,
properties, licenses, rights, businesses, operations or businesses of Parent and
its Subsidiaries or the Company and its Subsidiaries, in such a manner that,
individually or in the aggregate, (i) is reasonably likely to have a Company
Material Adverse Effect, (ii) is reasonably likely to have more than a de
minimis adverse effect on the financial condition, assets, liabilities, business
or results of operations of the Parent or any of its Subsidiaries (excluding the
Company and its Subsidiaries), or (iii) is reasonably likely to impair in any
material respect the benefits to Parent expected by Parent to be realized from
consummation of the Merger (an "Adverse Condition"); provided, however, that
Parent can compel the Company to take any of the actions referred to above (or
agree to take such actions) if such actions are only effective after the
Effective Time. Subject to applicable Laws relating to the exchange of
information, Parent shall have the right to participate in all matters with any
Governmental Entity in connection with any filing, report or application
relating to this Agreement made or to be made with any Governmental Entity, and
any responses to inquiries therefrom and any discussions therewith, provided
that Parent and the Company shall have the right to review in advance and, to
the extent practicable, each will consult with the other on and consider in good
faith the views of the other in connection with, all of the information relating
to Parent or the Company, as the case may be, and any of their respective
Subsidiaries, that appears in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Proxy Statement and Schedule 13E-3).
(c) Information. The Company and Parent each shall, upon request by
the other, furnish the other with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably
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necessary or advisable in connection with the Proxy Statement, Schedule 13E-3 or
any other statement, filing, notice or application made by or on behalf of
Parent, the Company or any of their respective Subsidiaries to any third party
and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement.
(d) Status. Subject to applicable Laws and the instructions of any
Governmental Entity, the Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of written notices
or other written communications received by Parent or the Company, as the case
may be, or any of its Subsidiaries, from any third party and/or any Governmental
Entity with respect to the Merger and the other transactions contemplated by
this Agreement. The Company shall give prompt notice to Parent of any change,
fact or condition that is reasonably expected to result in a Company Material
Adverse Effect, and each of the Company and Parent shall give prompt notice to
the other of any failure of any condition to the other's obligations to effect
the Merger. For the avoidance of doubt such notice shall not be deemed to cure a
breach of the representations and warranties of the Company or Parent, as
applicable, or limit in any matter the Company's or Parent's causes of action
and remedies in law and equity.
6.6. Access and Reports. Subject to applicable Law, upon reasonable
notice and without unreasonable interference with the Company's operations, the
Company shall (and shall cause its Subsidiaries to) afford Parent's officers and
other authorized Representatives reasonable access, during normal business hours
throughout the period prior to the Effective Time, to its employees, properties,
Contracts, systems, books and records and, during such period, the Company shall
(and shall cause its Subsidiaries to) furnish promptly to Parent all information
concerning its business, properties and personnel as may reasonably be
requested, provided that no investigation pursuant to this Section 6.6 shall
affect or be deemed to modify any representation or warranty made by the Company
herein, and provided further that the foregoing shall not require the Company
(i) to permit any inspection, or to disclose any information, that in the
reasonable judgment of the Company would result in the disclosure of any trade
secrets of third parties or violate any of its obligations with respect to
confidentiality if the Company shall have used reasonable best efforts to obtain
the consent of such third party to such inspection or disclosure or (ii) to
disclose any privileged information of the Company or any of its Subsidiaries.
All requests for information made pursuant to this Section 6.6 shall be directed
to the executive officer or other Person designated by the Company in writing.
All such information shall be governed by the terms of the Confidentiality
Agreement. Parent shall reimburse the Company for all reasonable out-of-pocket
costs (which, for the avoidance of doubt, will not include salaries or other
compensation costs of employees of the Company and its Subsidiaries) incurred by
the Company and its Subsidiaries pursuant to this Section 6.6.
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6.7. Stock Exchange De-listing. Prior to the Closing Date, the Company
shall cooperate with Parent and use reasonable best efforts to take, or cause to
be taken, all actions, and do or cause to be done all things, reasonably
necessary, proper or advisable on its part under applicable Laws and rules and
policies of the NYSE to enable the delisting by the Surviving Corporation of the
Shares from the NYSE and the deregistration of the Shares under the Exchange Act
as promptly as practicable after the Effective Time.
6.8. Publicity. Except with respect to any Change of Recommendation
made in accordance with this Agreement, the Company and Parent each shall
consult with each other prior to issuing any press releases or otherwise making
public announcements with respect to the Merger and the other transactions
contemplated by this Agreement and prior to making any filings with any third
party and/or any Governmental Entity (including any national securities exchange
or interdealer quotation service) with respect thereto, except as may be
required by Law or by obligations pursuant to any listing agreement with or
rules of any national securities exchange or interdealer quotation service or by
the request of any Governmental Entity.
6.9. Employee Benefits. (a) Parent agrees that from and after the
Effective Time the employees of the Company and its Subsidiaries as of the
Effective Time ("Company Employees") will be eligible to participate in the
employee benefit plans of Parent on substantially the same terms and conditions
of similarly situated employees of Parent; provided that during the period
commencing at the Effective Time and ending on the date that Parent determines
to generally transition the Company's benefit arrangements (such date not to be
later than eighteen (18) months following the Effective Time, although the
Company shall use reasonable best efforts to transition the Company's benefit
arrangements by nine (9) months following the Effective Time), Parent shall
provide the Company Employees with pension and welfare benefits under employee
benefit plans that are substantially comparable in the aggregate to those
currently provided by the Company and its Subsidiaries to such employees
immediately prior to the Effective Time. Parent will cause any employee benefit
plans in which the Company Employees are entitled to participate ("Parent
Plans") to take into account for purposes of eligibility, and vesting
thereunder, except to the extent it would result in a duplication of benefits,
service by Company Employees to the Company and its Subsidiaries as if such
service were with Parent, to the same extent such service was credited under a
comparable Benefit Plan. Each Parent Plan shall waive pre-existing condition
limitations to the extent waived or not applicable under the corresponding
Benefit Plan. Company Employees shall be given credit under the applicable
Parent Plan for amounts paid prior to the Effective Time under a corresponding
Benefit Plan during the same period for purposes of applying deductibles,
co-payments and out-of-pocket maximums as though such amounts had been paid in
accordance with the terms and conditions of the Parent Plan. Notwithstanding the
foregoing, nothing contained herein shall (1) obligate Parent, the Surviving
Corporation or any of their Affiliates to (i) maintain any particular benefit
plan or the particular provisions of any benefit plan or (ii) retain the
employment of any particular employee; (2) be treated as an amendment of any
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Benefit Plan or (3) give any third party any right to enforce the provisions of
this Section 6.9.
(b) Prior to the Effective Time, if requested by Parent in writing, to
the extent permitted by applicable Law and the terms of the applicable plan or
arrangement, the Company shall (1) cause to be amended the employee benefit
plans and arrangements of it and its Subsidiaries to the extent necessary to
provide that no employees of Parent and its Subsidiaries shall commence
participation therein following the Effective Time unless the Surviving
Corporation or such Subsidiary explicitly authorizes such participation and (2)
cause the Company's 401(k) plan and, to the extent permitted by Section 409A of
the Code, supplemental 401(k) plan to be terminated effective immediately prior
to the Effective Time.
(c) From and after the Effective Time, Parent and the Surviving
Corporation shall treat the consummation of the Merger and the transactions
contemplated by this Agreement as a "change in control" for purposes of the 21st
Century Insurance Group Supplemental Executive Retirement Plan (the "SERP").
Immediately prior to the Effective Time, the Company shall terminate the
Executive Severance Plan for 20th Century Industries (the "ESP").
(d) Prior to making any written or oral communications to the
directors, officers or employees of the Company or any of its Subsidiaries
pertaining to compensation or benefit matters that are affected by the
transactions contemplated by this Agreement, the Company shall provide Parent
with a copy of the intended communication, Parent shall have a reasonable period
of time to review and comment on the communication, and Parent and the Company
shall cooperate in providing any such mutually agreeable communication.
(e) The Company shall, as soon as practicable following the date
hereof, amend the SERP to provide that (i) all benefits under the SERP will
cease to accrue as of the Effective Time, and (ii) participants in the SERP who
are actively employed by the Company or an Affiliate as of the date hereof shall
have the opportunity, prior to the Effective Time, to make a one time,
irrevocable election to have their benefits under the SERP be paid out to them,
in cash, on January 4, 2008 (subject to compliance with applicable law), which
payment shall be in full satisfaction of such participant's rights under the
SERP. The amount of the payment which each SERP participant shall be entitled to
elect shall be as set forth on Section 6.9(e) of the Company Disclosure Letter.
6.10. Expenses. Except as otherwise provided in Section 8.5, whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the Merger and the other transactions contemplated by
this Agreement shall be paid by the party incurring such expense.
6.11. Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, Parent and the Surviving Corporation agree that
they will jointly and severally indemnify and hold harmless each present and
former director and officer
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of the Company and any of its Subsidiaries (in each case, when acting in such
capacity), determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that the
Company would have been permitted under Delaware law and its certificate of
incorporation or by-laws in effect on the date hereof to indemnify such Person
(and the Surviving Corporation shall also advance expenses as incurred to the
fullest extent permitted under applicable Law, provided that the Person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Person is not entitled to indemnification); and
provided further that any determination required to be made with respect to
whether an officer's or director's conduct complies with the standards set forth
under Delaware law and the Company's certificate of incorporation and by-laws
shall be made by independent counsel selected by the Indemnified Party (such
independent counsel to be reasonably acceptable to the Surviving Corporation).
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.11, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify the Surviving
Corporation thereof, but the failure to so notify shall not relieve the
Surviving Corporation of any liability it may have to such Indemnified Party
except to the extent such failure materially prejudices the indemnifying party
and then only to such extent. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) the Surviving Corporation shall have the right to assume the defense
thereof and the Surviving Corporation shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if the Surviving Corporation elects not to assume such
defense or counsel for the Indemnified Parties advises that there are issues
which raise conflicts of interest between the Surviving Corporation and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them, and the Surviving Corporation shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that the Surviving Corporation shall be obligated
pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction unless the use of one counsel for such
Indemnified Parties would present such counsel with a conflict of interest,
provided that the smallest number of counsels necessary to avoid conflicts of
interest shall be used; (ii) the Indemnified Parties will cooperate in the
defense of any such matter to the extent reasonable; and (iii) the Surviving
Corporation shall not be liable for any settlement effected without its prior
written consent; and provided further that the Surviving Corporation shall not
have any obligation hereunder to any Indemnified Party if and when a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final,
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that the indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable Law. If such indemnity is not available with
respect to any Indemnified Party, then the Surviving Corporation and the
Indemnified Party shall contribute to the amount payable in such proportion as
is appropriate to reflect relative faults and benefits.
(c) Prior to the Effective Time, the Company shall and if the Company
is unable to, Parent shall cause the Surviving Corporation as of the Effective
Time to obtain and fully pay for "tail" insurance policies with a claims period
of six (6) years from and after the Effective Time from an insurance carrier
with the same or better credit rating as the Company's current insurance carrier
with respect to directors' and officers' liability insurance and fiduciary
liability insurance (collectively, "D&O Insurance") with benefits and levels of
coverage at least as favorable as the Company's existing policies with respect
to matters existing or occurring at or prior to the Effective Time (including in
connection with this Agreement or the transactions or actions contemplated
hereby); provided, however, that in no event shall the Company expend for such
policies a premium amount in excess of the amount set forth in Schedule 6.11(c)
of the Company Disclosure Letter. If the Company and the Surviving Corporation
for any reason fail to obtain such "tail" insurance policies as of the Effective
Time, the Surviving Corporation shall, and Parent shall cause the Surviving
Corporation to, continue to maintain in effect for a period of at least six (6)
years from and after the Effective Time the D&O Insurance in place as of the
date hereof with benefits and levels of coverage at least as favorable as
provided in the Company's existing policies as of the date hereof, or the
Surviving Corporation shall, and Parent shall cause the Surviving Corporation
to, use reasonable best efforts to purchase comparable D&O Insurance for such
six (6)-year period with benefits and levels of coverage at least as favorable
as provided in the Company's existing policies as of the date hereof; provided,
however, that in no event shall the Surviving Corporation be required to expend
for such policies an annual premium amount in excess of 200% of the annual
premiums currently paid by the Company for such insurance; and provided further
that if the annual premiums of such insurance coverage exceed such amount, the
Surviving Corporation shall obtain a policy with the greatest coverage available
for a cost not exceeding such amount.
(d) If the Surviving Corporation or any of its successors or assigns
(i) shall consolidate with or merge into any other corporation or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then, and
in each such case, proper provisions shall be made so that the successors and
assigns of the Surviving Corporation shall assume all of the obligations set
forth in this Section 6.11.
(e) The provisions of this Section 6.11 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties.
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(f) The rights of the Indemnified Parties under this Section 6.11
shall be in addition to any rights such Indemnified Parties may have under the
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries, or under any applicable Contracts or Laws.
6.12. Debenture. The Company agrees to use its reasonable best efforts
to promptly take or cause to be taken all actions, and do or cause to be done
all things, reasonably requested by Parent with respect to the assumption,
redemption, exchange offer or deregistration of the 5.90% Senior Notes issued
under the Indenture dated as of December 9, 2003 (the "Indenture") between the
Company and The Bank of New York, as trustee; provided, however, that the
parties hereby agree and acknowledge that this Section shall not require, or be
construed to require, the Company to irrevocably effect any assumption,
redemption, exchange offer or deregistration prior to the Closing.
6.13. Other Actions by the Company.
(a) Takeover Statutes. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, the Company and its board of directors shall grant such approvals and
take such actions as are necessary so that such transactions may be consummated
as promptly as reasonably practicable on the terms contemplated by this
Agreement and otherwise act to eliminate or minimize the effects of such statute
or regulation on such transactions.
(b) Section 16 Matters. Prior to the Effective Time, the board of
directors of the Company shall adopt resolutions that specify (1) the name of
each individual whose disposition of Shares (including Company Options and other
derivative securities with respect to Shares) is to be exempted, (2) the number
of Shares (including Company Options and other derivative securities with
respect to Shares) to be disposed of by each such individual and (3) that the
approval is granted for purposes of exempting the disposition from Section 16(b)
of the Exchange Act under Rule 16b-3(e) of the Exchange Act. The Company shall
provide to counsel of Parent for its review a true and complete copy of such
resolutions to be adopted by the board of directors of the Company prior to such
adoption.
(c) Tax Certificate. Immediately prior to the Closing, the Company
shall provide Parent a statement pursuant to Treasury Regulations Section
1.1445-2(c)(3) certifying that the Company is not a U.S. real property interest
(as defined by the Code).
6.14. Parent Vote. (a) Without limiting the effect of any vote or
consent of Parent with respect to any shares of common stock of Merger Sub prior
to the date hereof, Parent shall vote (or consent with respect to) or cause to
be voted (or a consent to be given with respect to) any shares of common stock
of Merger Sub beneficially owned by it or any of its Subsidiaries or with
respect to which it or any of its Subsidiaries has the power (by agreement,
proxy or otherwise) to cause to be voted (or to provide a consent), in favor of
the adoption and approval of this Agreement at any meeting of stockholders of
Merger Sub at which this Agreement shall be submitted for adoption and approval
and at
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all adjournments or postponements thereof (or, if applicable, by any action of
stockholders of Merger Sub by consent in lieu of a meeting).
(b) Parent shall vote or cause to be voted any Shares beneficially
owned by it or any of its Subsidiaries or with respect to which it or any of its
Subsidiaries has the power (by agreement, proxy or otherwise) to cause to be
voted, in each case as of the date hereof, in favor of the adoption and approval
of this Agreement at any meeting of stockholders of the Company at which this
Agreement shall be submitted for adoption and approval and at all adjournments
or postponements thereof. With respect to such Shares, Parent agrees that any
action to adopt and approve this Agreement shall be made only at a duly convened
meeting of stockholders of the Company for such purpose and that Parent shall
not and shall cause its Subsidiaries not to act by written consent in lieu of a
meeting to approve and adopt this Agreement or the transactions contemplated
hereby.
6.15. Continuation of Special Committee. Parent and Merger Sub agree
that, from and after the date of this Agreement, subject to applicable law, at
all times prior to the earlier of (i) the Closing or (ii) the termination of
this Agreement, they shall not authorize their designees to the Company's board
of directors to terminate the existence of the Special Committee or materially
change its duties or authority or its current membership (so long as its
existing members are willing to serve and have not been removed for cause).
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Closing Date of each of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved
and adopted by holders of Shares constituting the Company Requisite Vote in
accordance with applicable law and the certificate of incorporation and by-laws
of the Company.
(b) Litigation. No court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law that is in effect and restrains, enjoins or otherwise prohibits consummation
of the Merger (collectively, an "Order").
7.2. Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are also subject to
the
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satisfaction or waiver by Parent at or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of the Company contained in Section 5.1(b) Capital Structure, 5.1(c)
Corporate Authority; Approval and Fairness and 5.1(l) Takeover Statutes hereof,
shall be true and correct in all material respects as of the Closing Date as
though made on and as of such date and time except to the extent such
representations and warranties relate to an earlier date, in which case as of
such earlier date; (ii) the representation and warranty of the Company contained
in Section 5.1(f)(i) shall be true and correct as of the Closing Date as though
made on and as of such date and time; and (iii) the remaining representations
and warranties of the Company set forth in this Agreement shall be true and
correct as of the Closing Date as though made on and as of such date and time
(except to the extent that any such representation and warranty relates to an
earlier date, in which case as of such earlier date) without regard to any
qualifications or references to "Company Material Adverse Effect", "material" or
any other materiality qualifications or references contained in any specific
representation or warranty with only such exceptions as would not, individually
or in the aggregate, reasonably be likely to have a Company Material Adverse
Effect. Parent shall have received at the Closing a certificate signed on behalf
of the Company by an executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by an executive officer
of the Company to such effect.
(c) No Restraints. There shall not be instituted or pending any suit,
action or proceeding in which a Governmental Entity of competent jurisdiction is
seeking an Adverse Condition, and no Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law deemed applicable to the Merger individually or in the aggregate resulting
in, or that is reasonably likely to result in, an Adverse Condition.
(d) Governmental Consents. All Company Approvals, Parent Approvals and
Governmental Consents that have been obtained shall have been obtained without
the imposition of any term, condition or consequence the acceptance of which
would constitute an Adverse Condition.
7.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent set forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on and as of such date and time
(except to
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the extent that any such representation and warranty relates to an earlier date,
in which case as of such earlier date). The Company shall have received at the
Closing a certificate signed on behalf of Parent by an executive officer of
Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each of
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent and Merger Sub by an executive officer of Parent to such
effect.
(c) Governmental Consents. All Company Approvals and all Parent
Approvals shall have been obtained or made. Other than the filing pursuant to
Section 1.3, all other material authorizations, consents, orders or approvals
of, or declarations, notices or filings with, or expirations of waiting periods
imposed by, any Governmental Entity in connection with the Merger and the
consummation of the other transactions contemplated hereby by the Company,
Parent and Merger Sub ("Governmental Consents") shall have been made or obtained
(as the case may be).
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. 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 by the stockholders of the Company referred to in
Section 7.1(a), by mutual written consent of the Company (acting through the
Special Committee, if then in existence) and Parent.
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 either Parent or the Company (acting through the Special Committee, if
then in existence) if (a) the Merger shall not have been consummated by November
30, 2007, whether such date is before or after the date of approval by the
stockholders of the Company referred to in Section 7.1(a); provided, however,
that if Parent or the Company determines that additional time is necessary in
order to forestall any action to restrain, enjoin or prohibit the Merger by any
Governmental Entity, the Termination Date may be extended to a date not beyond
February 29, 2008 (the "Termination Date") if either Parent or the Company
notifies the other party in writing on or prior to November 30, 2007, (b) the
adoption of this Agreement by the stockholders of the Company referred to in
Section 7.1(a) shall not have been obtained at the Stockholders Meeting or at
any adjournment or postponement thereof, (c) the board of directors of the
Company (upon the recommendation of the Special Committee, if then in existence)
or the Special Committee shall have made a Change of Recommendation or (d) any
Order permanently restraining, enjoining or otherwise prohibiting consummation
of the Merger shall become
-55-
final and non-appealable (whether before or after the approval by the
stockholders of the Company referred to in Section 7.1(a)); provided that the
right to terminate this Agreement pursuant to this Section 8.2 shall not be
available to any party that has breached in any material respect its obligations
under this Agreement in any manner that shall have proximately contributed to
the occurrence of the failure of a condition to the consummation of the Merger.
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 by the
Company (acting through the Special Committee, if then in existence) if there
has been a breach of any representation, warranty, covenant or agreement made by
Parent or Merger Sub in this Agreement, or any such representation and warranty
shall have become untrue after the date of this Agreement, such that Section
7.3(a) or 7.3(b) is incapable of being satisfied; provided, however, that the
Company shall not have the right to terminate this Agreement pursuant to this
Section 8.3 if the Company is then in material breach of any of its covenants or
agreements contained in this Agreement.
8.4. Termination by Parent. 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 Parent if there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, or any
such representation and warranty shall have become untrue after the date of this
Agreement, such that Section 7.2(a) or 7.2(b) is incapable of being satisfied;
provided, however, that Parent shall not have the right to terminate this
Agreement pursuant to Section 8.4 if (i) Parent or Merger Sub is then in
material breach of any of its covenants or agreements contained in this
Agreement or (ii) the exercise of control over the Company by Parent, Merger Sub
or any of their affiliates or the exercise of Parent's rights as a stockholder
of the Company, is the primary cause of the breach by the Company giving rise to
Parent's right to terminate this Agreement pursuant to Section 8.4 or its
inability to cure such breach.
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 shall become void and of no effect with no
liability to any Person on the part of any party hereto (or of any of its
Representatives or Affiliates); provided, however, and notwithstanding anything
in the foregoing to the contrary, that (i) except as otherwise provided herein,
no such termination shall relieve any party hereto of any liability or damages
to the other party hereto resulting from any willful or intentional material
breach of this Agreement and (ii) the provisions set forth in the second
sentence of Section 9.1 shall survive the termination of this Agreement.
(b) In the event that this Agreement is terminated by the Company or
Parent pursuant to Section 8.2(c), then the Company shall promptly, but in no
event later than two (2) days after the date of such termination, pay Parent a
termination fee of $24,300,000 (the "Termination Fee"), payable by wire transfer
of same day funds. The
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Company acknowledges that the agreements contained in this Section 8.5(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 8.5(b), and, in order to obtain such payment, Parent or
Merger Sub commences a suit that results in a final and non-appealable judgment,
or the period of time for all appeals has expired, against the Company for the
fee set forth in this Section 8.5(b) or any portion of such fee, the Company
shall pay to Parent or Merger Sub its costs and expenses (including attorneys'
fees) in connection with such suit, together with interest on the amount of the
fee at the prime rate of Citibank in effect on the date such payment was
required to be made through the date of payment. Notwithstanding anything to the
contrary in this Agreement, the parties hereby acknowledge that in the event
that the Termination Fee becomes payable and is paid by the Company pursuant to
this Section 8.5(b), the Termination Fee shall be Parent's and Merger Sub's sole
and exclusive remedy for monetary damages under this Agreement.
ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the Company,
Parent and Merger Sub contained in Article IV and Sections 6.9 (Employee
Benefits), 6.10 (Expenses) and 6.11 (Indemnification; Directors' and Officers'
Insurance) shall survive the consummation of the Merger. This Article IX and the
agreements of the Company, Parent and Merger Sub contained in Section 6.10
(Expenses) and Section 8.5 (Effect of Termination and Abandonment) and the
Confidentiality Agreement shall survive the termination of this Agreement. All
other representations, warranties, covenants and agreements in this Agreement
shall not survive the consummation of the Merger or the termination of this
Agreement.
9.2. Modification or Amendment. Subject to the provisions of the
applicable Laws, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable Laws.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
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9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL; SPECIFIC
PERFORMANCE. (a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the personal
jurisdiction of the courts of the State of Delaware and the Federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a Delaware State or Federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and, to the extent permitted by Law, over the subject matter of
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 9.6 or in
such other manner as may be permitted by Law shall be valid and sufficient
service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
(c) 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 in the Court of Chancery
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of the State of Delaware, this being in addition to any other remedy to which
such party is entitled at law or in equity.
9.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
If to Parent or Merger Sub:
American International Group, Inc.,
00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
Attention: Xxxxx X. Xxxx
fax: (000) 000-0000
with a copy to General Counsel
fax: (000) 000-0000
(with a copy to
Xxxxxxxx & Xxxxxxxx LLP,
000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
fax: (000) 000-0000)
If to the Company:
21st Century Insurance Group,
0000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx,
Xxxxxxxx Xxxxx, XX 00000.
Attention: General Counsel
fax: (000) 000-0000
(with a copy to
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP,
000 Xxxx Xxxxxx Xxxxx, Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxx, Esq.
Xxxxx Xxxxx, Esq.
fax: (000) 000-0000)
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above. Any notice, request, instruction
or other document given as provided above shall be deemed given to the receiving
party upon actual receipt, if delivered personally; three (3) business days
after deposit in the mail, if sent by registered or certified mail; upon
confirmation of successful transmission if sent
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by facsimile (provided that, if given by facsimile, such notice, request,
instruction or other document shall be followed up within one (1) business day
by dispatch pursuant to one of the other methods described herein); or on the
next business day after deposit with an overnight courier, if sent by an
overnight courier.
9.7. Entire Agreement. This Agreement (including any exhibits hereto),
the Company Disclosure Letter and the Confidentiality Agreement, dated August
17, 2006, between Parent and the Company (the "Confidentiality Agreement")
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and oral, among the
parties, with respect to the subject matter hereof. EACH PARTY HERETO AGREES
THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT,
NEITHER PARENT AND MERGER SUB NOR THE COMPANY MAKES ANY OTHER REPRESENTATIONS OR
WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OR AS TO THE ACCURACY OR COMPLETENESS OF ANY OTHER
INFORMATION, MADE BY, OR MADE AVAILABLE BY, ITSELF OR ANY OF ITS
REPRESENTATIVES, WITH RESPECT TO, OR IN CONNECTION WITH, THE NEGOTIATION,
EXECUTION OR DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY,
NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER'S
REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY
ONE OR MORE OF THE FOREGOING.
9.8. No Third-Party Beneficiaries. Except as provided in Section 6.11
(Indemnification; Directors' and Officers' Insurance) only, Parent and the
Company hereby agree that their respective representations, warranties and
covenants set forth herein are solely for the benefit of the other party hereto,
in accordance with and subject to the terms of this Agreement, and this
Agreement is not intended to, and does not, confer upon any Person other than
the parties hereto any rights or remedies hereunder, including, without
limitation, the right to rely upon the representations and warranties set forth
herein. The parties hereto further agree that the rights of third-party
beneficiaries under Section 6.11 shall not arise unless and until the Effective
Time occurs. The representations and warranties in this Agreement are the
product of negotiations among the parties hereto and are for the sole benefit of
the parties hereto. Any inaccuracies in such representations and warranties are
subject to waiver by the parties hereto in accordance with Section 9.3 without
notice or liability to any other Person. In some instances, the representations
and warranties in this Agreement may represent an allocation among the parties
hereto of risks associated with particular matters regardless of the knowledge
of any of the parties hereto. Consequently, Persons other than the parties
hereto may not rely upon the representations and warranties in this Agreement as
characterizations of actual facts or circumstances as of the date of this
Agreement or as of any other date.
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9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Definitions. Each of the terms set forth in Annex A is defined
in the Section of this Agreement set forth opposite such term.
9.11. 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) 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.
9.12. Interpretation; Construction. (a) The table of contents and
headings herein are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section or
Exhibit, such reference shall be to a Section of or Exhibit to this Agreement
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
(b) The parties have participated jointly in negotiating and drafting
this Agreement. In the event that an ambiguity or a 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 provision of this
Agreement.
(c) Each party hereto has or may have set forth information in its
respective Disclosure Letter in a schedule thereof that corresponds to the
Section of this Agreement to which it relates. The fact that any item of
information is disclosed in a Disclosure Letter to this Agreement shall not be
construed to mean that such information is required to be disclosed by this
Agreement.
9.13. Knowledge. When references are made in this agreement of
information being "to the knowledge of Parent" or "the knowledge of the Company"
or similar language, such knowledge shall refer to the knowledge of the officers
of Parent or
-61-
the Company, as the case may be, listed on Schedule 9.13 of the Parent
Disclosure Letter and the Company Disclosure Letter, as the case may be. Such
individuals shall be deemed to have "knowledge" of a particular fact or other
matter if: (a) such individual is actually aware of such fact or other matter;
or (b) such individual should reasonably have been aware of such fact or other
matter based on such individual's office or position.
9.14. Assignment. This Agreement shall not be assignable by operation
of law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another wholly owned direct or indirect subsidiary to be
a Constituent Corporation in lieu of Merger Sub, in which event all references
herein to Merger Sub shall be deemed references to such other subsidiary, except
that all representations and warranties made herein with respect to Merger Sub
as of the date of this Agreement shall be deemed representations and warranties
made with respect to such other subsidiary as of the date of such designation,
provided that any such designation shall not materially impede or delay the
consummation of the transactions contemplated by this Agreement or otherwise
materially impede the rights of the stockholders of the Company under this
Agreement. Any purported assignment in violation of this Agreement is void.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
21ST CENTURY INSURANCE GROUP
By: /s/ XXXXXXX X. XXXXXXXXX
------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
----------------------------------
Title: Senior Vice President, Secretary
& General Counsel
---------------------------------
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ XXXXX X. XXXXXXXXX
------------------------------------
Name: Xxxxx X. Xxxxxxxxx
----------------------------------
Title: Senior Vice President -
Strategic Planning
---------------------------------
AIG TW CORP.
By: /s/ XXXXX X. XXXXXXXXX
------------------------------------
Name: Xxxxx X. Xxxxxxxxx
----------------------------------
Title: President
---------------------------------
[Agreement and Plan of Merger Signature Page]
ANNEX A
DEFINED TERMS
Terms Section
----- -------------
Acquisition Proposal............................................ 6.2(b)
Adverse Condition............................................... 6.5(b)
Affiliate....................................................... 5.1(i)(ii)
Agent........................................................... 5.1(r)(i)
Agreement....................................................... Preamble
Applicable Date................................................. 5.1(e)(i)
Bankruptcy and Equity Exception................................. 5.1(c)(i)
Benefit Plans................................................... 5.1(h)(i)
business day.................................................... 1.2
By-Laws......................................................... 2.2
Certificate..................................................... 4.1(a)
Change of Recommendation........................................ 6.2(c)
Charter......................................................... 2.1
Closing......................................................... 1.2
Closing Date.................................................... 1.2
Code............................................................ 5.1(h)(ii)
Company......................................................... Preamble
Company Actuarial Analyses...................................... 5.1(r)(iii)
Company Approvals............................................... 5.1(d)(i)
Company Awards.................................................. 4.3(b)
Company Disclosure Letter....................................... 5.1
Company Employees............................................... 6.9(a)
Company Insurance Contracts..................................... 5.1(r)(i)
Company Insurance Subsidiaries.................................. 5.1(a)(ii)
Company Investment Assets....................................... 5.1(t)
Company Material Adverse Effect................................. 5.1(a)
Company Option.................................................. 4.3(a)
Company Recommendation.......................................... 5.1(c)(ii)(A)
Company Reports................................................. 5.1(e)(i)
Company Requisite Vote.......................................... 5.1(c)(i)
Company SAP Statements.......................................... 5.1(e)(v)
Confidentiality Agreement....................................... 9.7
Constituent Corporations........................................ Preamble
Contract........................................................ 5.1(d)(ii)
Costs........................................................... 6.11(a)
D&O Insurance................................................... 6.11(c)
Delaware Certificate of Merger.................................. 1.3
DGCL............................................................ 1.1
Dissenting Stockholders......................................... 4.1(a)
A-1
Terms Section
----- -------------
Effective Time.................................................. 1.3
Employees....................................................... 5.1(h)(i)
Encumbrance..................................................... 5.1(k)(iv)
Environmental Law............................................... 5.1(m)
ERISA........................................................... 5.1(h)(i)
ERISA Affiliate................................................. 5.1(h)(iii)
ERISA Plan...................................................... 5.1(h)(ii)
ESP............................................................. 6.9(c)
Exchange Act.................................................... 5.1(a)
Exchange Fund................................................... 4.2(a)
Excluded Share.................................................. 4.1(a)
Excluded Shares................................................. 4.1(a)
Forms........................................................... 5.1(r)(i)
GAAP............................................................ 5.1(a)(J)
Government Contract............................................. 5.1(j)(i)
Governmental Consents........................................... 7.3(c)
Governmental Entity............................................. 5.1(d)(i)
Hazardous Substance............................................. 5.1(m)
HSR Act......................................................... 5.1(b)(ii)
Indemnified Parties............................................. 6.11(a)
Indenture....................................................... 6.12
Insurance Authorities........................................... 5.1(d)(i)
Insurance Laws.................................................. 5.1(i)(i)
Insurance Policies.............................................. 5.1(q)
Intellectual Property........................................... 5.1(p)(v)
Interim SAP Statements.......................................... 5.1(e)(v)
IRS............................................................. 5.1(h)(ii)
IT Assets....................................................... 5.1(p)(v)
Laws............................................................ 5.1(i)(ii)
Leased Real Property............................................ 5.1(k)(ii)
Licenses........................................................ 5.1(i)(ii)
Lien............................................................ 5.1(b)(i)
Material Contracts.............................................. 5.1(j)(i)(N)
Merger.......................................................... Recitals
Merger Sub...................................................... Preamble
Notice of Change of Recommendation.............................. 6.2(c)
Order........................................................... 7.1(b)
Owned Real Property............................................. 5.1(k)(i)
Parent.......................................................... Preamble
Parent Approvals................................................ 5.2(c)(i)
Parent Disclosure Letter........................................ 5.2
Parent Plans.................................................... 6.9(a)
Paying Agent.................................................... 4.2(a)
PBGC............................................................ 5.1(h)(iii)
A-2
Terms Section
----- -------------
Pension Plan.................................................... 5.1(h)(ii)
Per Share Merger Consideration.................................. 4.1(a)
Person.......................................................... 4.2(d)
Proxy Statement................................................. 6.3
Replacement RSUs................................................ 4.3(a)
Representatives................................................. 6.2(a)
SAP............................................................. 5.1(e)(v)
Xxxxxxxx-Xxxxx Act.............................................. 5.1(e)(i)
Schedule 13E-3.................................................. 5.1(d)(i)
SEC............................................................. 5.1
Securities Act.................................................. 5.1(e)(i)
SERP............................................................ 6.9(c)
Share........................................................... 4.1(a)
Shares.......................................................... 4.1(a)
Significant Subsidiary.......................................... 5.1(a)
Special Committee............................................... Recitals
Stock Plans..................................................... 5.1(b)(i)
Stockholders Meeting............................................ 6.4
Subsidiary...................................................... 5.1(a)
Superior Proposal............................................... 6.2(b)
Surviving Corporation........................................... 1.1
Takeover Statute................................................ 5.1(l)
Tax............................................................. 5.1(n)
Tax Return...................................................... 5.1(n)
Taxes........................................................... 5.1(n)
Termination Date................................................ 8.2
Termination Fee................................................. 8.5(b)
Trade Secrets................................................... 5.1(p)(v)
A-3
