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AGREEMENT AND PLAN OF MERGER
Among
HUB INTERNATIONAL LIMITED,
416 ACQUISITION INC.
and
XXXX GROUP INC.
Dated as of January 19, 2001
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TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
SECTION 1.01. The Merger.......................................................1
SECTION 1.02. Closing..........................................................2
SECTION 1.03. Effective Time...................................................2
SECTION 1.04. Effects of the Merger............................................2
SECTION 1.05. Certificate of Incorporation and By-Laws
of the Surviving Corporation...................................2
SECTION 1.06. Directors and Officers of the Surviving Corporation..............2
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Company Common Stock...............................3
SECTION 2.02. Dissenting Shares................................................3
SECTION 2.03. Exchange of Certificates.........................................4
SECTION 2.04. Election to Increase the Cash Component..........................6
SECTION 2.05. Stock Transfer Books.............................................6
SECTION 2.06. Company Stock Options............................................6
SECTION 2.07. Company Restricted Stock.........................................7
SECTION 2.08. Interest on Merger Consideration.................................9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries....................10
SECTION 3.02. Certificate of Incorporation and By-Laws........................10
SECTION 3.03. Capitalization..................................................11
SECTION 3.04. Authority Relative to This Agreement............................11
SECTION 3.05. No Conflict; Required Filings and Consents......................12
SECTION 3.06. Permits; Compliance.............................................13
SECTION 3.07. SEC Filings; Financial Statements...............................13
SECTION 3.08. Undisclosed Liabilities.........................................14
SECTION 3.09. Absence of Certain Changes or Events............................14
SECTION 3.10. Absence of Litigation...........................................15
SECTION 3.11. Employee Benefit Matters........................................15
SECTION 3.12. Material Contracts..............................................17
SECTION 3.13. Environmental Matters...........................................19
SECTION 3.14. Title to Properties; Absence of Liens and Encumbrances..........20
SECTION 3.15. Intellectual Property...........................................20
SECTION 3.16. Taxes...........................................................21
SECTION 3.17. Board Approval; Vote Required...................................22
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SECTION 3.18. Employment Agreements and other Affiliate Transactions..........22
SECTION 3.19. Insurance.......................................................22
SECTION 3.20. State Takeover Statutes.........................................22
SECTION 3.21. Labor Matters...................................................23
SECTION 3.22. Brokers.........................................................24
SECTION 3.23. Title to Insurance Business.....................................24
SECTION 3.24. Absence of Restrictions on Conduct of Business..................24
SECTION 3.25. Computer Systems................................................24
SECTION 3.26. Insurance Companies.............................................24
SECTION 3.27. No Downgrading of Rating........................................24
SECTION 3.28. Fairness Opinion................................................25
SECTION 3.29. Insurance Company Organization and Qualification;
Subsidiaries..................................................25
SECTION 3.30. Insurance Company Certificate of Incorporation and By-Laws......26
SECTION 3.31. Insurance Company Capitalization................................26
SECTION 3.32. Insurance Company Permits; Compliance...........................27
SECTION 3.33. Insurance Company Financial Statements..........................27
SECTION 3.34. Undisclosed Liabilities of the Insurance Companies..............27
SECTION 3.35. Absence of Certain Changes or Events With Respect
to the Insurance Companies....................................28
SECTION 3.36. Absence of Insurance Company Litigation.........................28
SECTION 3.37. Insurance Company Material Contracts............................28
SECTION 3.38. Insurance Company Taxes.........................................30
SECTION 3.39. Absence of Restrictions on Conduct of Insurance
Company Business..............................................30
SECTION 3.40. Insurance Company Computer Systems..............................31
SECTION 3.41. No Downgrading of Rating of Insurance Companies.................31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.01. Organization and Qualification; Subsidiaries....................31
SECTION 4.02. Articles of Incorporation and By-Laws...........................31
SECTION 4.03. Authority Relative to This Agreement............................31
SECTION 4.04. Capitalization..................................................32
SECTION 4.05. No Conflict; Required Filings and Consents......................32
SECTION 4.06. Permits; Compliance.............................................33
SECTION 4.07. Filings; Financial Statements...................................34
SECTION 4.08. Undisclosed Liabilities.........................................34
SECTION 4.09. Taxes...........................................................35
SECTION 4.10. Operations of Merger Sub........................................35
SECTION 4.11. Financing.......................................................35
SECTION 4.12. Brokers.........................................................35
SECTION 4.13. Affiliate Transactions..........................................35
SECTION 4.14. Authorization of Parent Convertible Debentures..................36
SECTION 4.15. Indebtedness of Parent..........................................36
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ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger...........37
SECTION 5.02. Notification of Certain Matters.................................39
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Company Proxy Statement.................40
SECTION 6.02. Company Stockholders' Meeting...................................41
SECTION 6.03. Access to Information; Confidentiality..........................41
SECTION 6.04. No Solicitation or Negotiation..................................42
SECTION 6.05. Directors' and Officers' Indemnification and Insurance..........43
SECTION 6.06. Further Action; Consents; Filings...............................44
SECTION 6.07. Consent of Holders of Restricted Stock..........................44
SECTION 6.08. Public Announcements............................................45
SECTION 6.09. Parent Shareholders' Meeting....................................45
SECTION 6.10. Affiliates......................................................45
SECTION 6.11. Board Nomination................................................45
SECTION 6.12. Certain Funding of the Company..................................45
SECTION 6.13. Parent Debentures...............................................45
SECTION 6.14. Filing With Insurance Regulatory Authorities....................46
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger........................................46
SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub..........47
SECTION 7.03. Conditions to the Obligations of the Company....................48
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination.....................................................48
SECTION 8.02. Effect of Termination...........................................50
SECTION 8.03. Amendment.......................................................51
SECTION 8.04. Waiver..........................................................51
SECTION 8.05. Fees and Expenses...............................................51
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Notices.........................................................52
SECTION 9.02. Non-Survival of Representations, Warranties
and Agreements................................................53
SECTION 9.03. Parties in Interest.............................................54
SECTION 9.04. Certain Definitions.............................................54
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SECTION 9.05. Severability....................................................56
SECTION 9.06. Specific Performance............................................57
SECTION 9.07. Governing Law; Forum............................................57
SECTION 9.08. Headings........................................................57
SECTION 9.09. Counterparts....................................................57
SECTION 9.10. Entire Agreement................................................57
SECTION 9.11. Waiver of Jury Trial............................................58
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Glossary of Defined Terms
Location of
Defined Term Definition
Acquisition Proposal..................................................ss.9.04(a)
Action...................................................................ss.3.10
Affiliate................................................................ss.6.10
Agreement...............................................................Recitals
beneficial owner......................................................ss.9.04(c)
Bermuda Co............................................................ss.3.30(a)
Bermuda Co. Common Stock..............................................ss.3.32(b)
Blue Sky Laws.........................................................ss.3.05(b)
Board...................................................................Recitals
business day..........................................................ss.9.04(a)
Canadian GAAP.........................................................ss.4.07(b)
Cash Component........................................................ss.2.01(a)
Certificate of Merger....................................................ss.1.02
Certificates..........................................................ss.2.03(b)
Closing..................................................................ss.1.02
Closing Date.............................................................ss.1.02
Code..................................................................ss.2.03(e)
Company.................................................................Preamble
Company Balance Sheet.................................................ss.3.07(b)
Company Benefit Plans.................................................ss.3.11(a)
Company Board Approval................................................ss.3.17(a)
Company Common Stock....................................................Recitals
Company Disclosure Schedule...........................................ss.3.01(b)
Company Material Contracts............................................ss.3.12(a)
Company Permits.......................................................ss.3.06(a)
Company Proxy Statement..................................................ss.3.23
Company SEC Reports...................................................ss.3.07(a)
Company Stock Option Plan................................................ss.2.05
Company Stock Options....................................................ss.2.05
Company Stockholders' Approval...........................................ss.3.04
Company Stockholders' Meeting............................................ss.6.02
Company Stockholders' Vote...............................................ss.3.04
Company Subsidiaries..................................................ss.3.01(a)
Computer Systems......................................................ss.9.04(e)
Confidentiality Agreement.............................................ss.6.03(b)
control...............................................................ss.9.04(f)
Debenture Component...................................................ss.2.01(a)
DGCL....................................................................Recitals
Dissenting Shares .......................................................ss.2.02
Effective Time...........................................................ss.1.03
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Employee Termination..................................................ss.2.07(c)
Environmental Laws.......................................................ss.3.13
Environmental Permits....................................................ss.3.13
ERISA.................................................................ss.3.11(a)
Excess Debenture Component............................................ss.2.04(f)
Exchange Act..........................................................ss.3.05(b)
Exchange Agent........................................................ss.2.03(a)
Exchange Fund.........................................................ss.2.03(a)
Expenses..............................................................ss.8.05(b)
Fee...................................................................ss.8.05(a)
Governmental Entity...................................................ss.3.05(b)
Hazardous Substances.....................................................ss.3.13
HSR Act...............................................................ss.3.05(b)
Insignificant Insurance Subsidiaries..................................ss.3.30(d)
Insurance Companies...................................................ss.3.30(a)
Insurance Company Balance Sheets.........................................ss.3.34
Insurance Company Material Contracts..................................ss.3.38(a)
Insurance Company Permits................................................ss.3.33
Insurance Company Subsidiaries........................................ss.3.30(a)
Insurance Financial Statements...........................................ss.3.34
Intellectual Property....................................................ss.3.15
IRS...................................................................ss.3.11(a)
Law...................................................................ss.3.05(a)
Liens.................................................................ss.3.14(b)
Material Adverse Effect...............................................ss.9.04(h)
Merger..................................................................Preamble
Merger Consideration..................................................ss.2.01(a)
Merger Sub..............................................................Preamble
Multiemployer Plan....................................................ss.3.11(b)
Multiple Employer Plan..................................................ss.11(b)
Nasdaq................................................................ss.3.05(b)
Order.................................................................ss.7.01(c)
OSC...................................................................ss.4.05(b)
Parent..................................................................Preamble
Parent Common Shares.....................................................ss.4.04
Parent Debentures.....................................................ss.9.04(i)
Parent Preferred Shares..................................................ss.4.04
Parent Reports...........................................................ss.4.07
Parent Shareholders' Approval............................................ss.4.03
Parent Shareholders' Meeting.............................................ss.6.10
Parent Share Options.....................................................ss.4.04
Parent Share Option Plans................................................ss.4.04
Parent Permits...........................................................ss.4.05
Parent Subsidiaries......................................................ss.4.04
Payment Time..........................................................ss.2.07(d)
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Performance Stock Plan................................................ss.9.04(k)
Person................................................................ss.9.04(j)
Principal Stockholders..................................................Recitals
Related Party Transactions............................................ss.4.04(c)
Restricted Share......................................................ss.2.07(a)
Registration Statement................................................ss.6.01(a)
Representatives.......................................................ss.6.03(b)
Required Consents.....................................................ss.3.05(b)
Rhode Island Co..........................................................ss.3.30
Rhode Island Co. Common Stock.........................................ss.3.32(a)
SEC...................................................................ss.2.04(b)
Securities Act........................................................ss.3.05(b)
Significant Insurer......................................................ss.3.27
subsidiary............................................................ss.9.04(l)
Superior Proposal.....................................................ss.9.04(m)
Surviving Corporation....................................................ss.1.01
Taxes.................................................................ss.9.04(n)
TSE...................................................................ss.4.05(b)
U.S. GAAP...............................................................3.07(b)
Vested Share Consideration............................................ss.2.07(a)
Vested Share Right....................................................ss.2.07(a)
Voting Agreements.......................................................Recitals
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AGREEMENT AND PLAN OF MERGER dated as of January 19, 2001 (this
"Agreement") among Hub International Limited, a corporation organized under the
laws of Ontario ("Parent"), 416 Acquisition Inc., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), and Xxxx Group Inc., a
Delaware corporation (the "Company").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of Parent, Merger Sub
and the Company have each determined that it is in the best interests of each
corporation and its respective stockholders to merge Merger Sub with and into
the Company;
WHEREAS, the respective Boards of Directors of Parent, Merger Sub
and the Company have approved and declared advisable this Agreement and the
merger of Merger Sub with and into the Company (the "Merger") in accordance with
the Delaware General Corporation law (the "DGCL") upon the terms and subject to
the conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, par value $ .01 per share, of the Company ("Company
Common Stock"), other than shares owned by Parent, Merger Sub or the Company,
and other than Dissenting Shares (as defined in Section 2.02(a) below), will be
converted into the right to receive a combination of Parent Debentures (as
defined herein) and cash, without interest thereon, except as otherwise provided
in Section 2.08 hereof, per share of Company Common Stock, as provided for
herein;
WHEREAS, on the date hereof, and as a condition and inducement to
Parent's willingness to enter into this Agreement, Parent, Merger Sub and
certain stockholders of the Company who collectively hold a majority of the
outstanding shares of the Company (the "Principal Stockholders") have entered
into stock option and voting agreements (the "Voting Agreements") pursuant to
which such stockholders agreed (i) to vote to approve the Merger and adopt this
Agreement, (ii) to grant an option to Parent to purchase their Company Common
Stock and (iii) to take certain other actions in furtherance of the Merger upon
the terms and subject to the conditions set forth in the Voting Agreements; and
WHEREAS, Parent intends to issue and sell to Fairfax Financial
Holdings Limited certain securities to obtain financing for a portion of the
aggregate Merger Consideration (as defined herein);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement and in accordance with the DGCL, at the
Effective Time (as defined in Section 1.03 herein) Merger Sub shall be merged
with and into the Company. As a result of the
Merger, the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
SECTION 1.02. Closing. The closing of the Merger (the "Closing")
shall take place at 10:00 a.m. (New York time) at the offices of Shearman &
Sterling, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000 on a date to be
specified by the parties hereto (the "Closing Date"), which shall be no later
than the second business day after satisfaction or waiver of the conditions set
forth in Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of such
conditions), unless another time, date or place is agreed to by the parties
hereto.
SECTION 1.03. Effective Time. On the Closing Date, the parties
shall file a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in such form as is required by, and
executed in accordance with, the relevant provisions of the DGCL and shall make
all other filings or recordings required by applicable law in connection with
the Merger. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware or at
such later date or time as is agreed upon by the parties and specified in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the
effects as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities, obligations, restrictions
and duties of the Company and Merger Sub shall become the debts, liabilities,
obligations, restrictions and duties of the Surviving Corporation.
SECTION 1.05. Certificate of Incorporation and By-Laws of the
Surviving Corporation. (a) At the Effective Time, the Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by law and such Certificate of
Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective
Time, and subject to Section 6.05(a), the By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended as provided by law, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.06. Directors and Officers of the Surviving Corporation.
(a) The directors of Merger Sub immediately prior to the Effective Time shall be
the initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-laws of the Surviving
Corporation.
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(b) The officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified or
until their earlier death, resignation or approval.
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Company Common Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of Parent,
Merger Sub or the Company:
(a) Conversion of Company Common Stock. Subject to
Sections 2.02 and 2.07, each issued and outstanding share of
Company Common Stock (other than shares to be canceled pursuant to
Section 2.01(b)) shall be automatically converted into the right to
receive $14 (the "Merger Consideration") payable as follows: (A)
net amount of $9.3334 in cash, without interest thereon, except as
otherwise provided in Section 2.08 hereof (the "Cash Component"),
and (B) $4.6666 principal amount of a Parent Debenture (the
"Debenture Component"). Pursuant to Section 2.04, Parent may elect
to increase the Cash Component and decrease the Debenture Component
as provided therein. As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration,
without interest, except as otherwise provided in Section 2.08
hereof.
(b) Cancellation of Treasury Stock and Parent-Owned
Stock. Each share of Company Common Stock owned by Parent or any
direct or indirect wholly owned subsidiary of Parent or held in the
treasury of the Company or any Company Subsidiary shall be canceled
and extinguished without any conversion thereof and no payment or
distribution shall be made with respect thereto.
(c) Conversion of Merger Sub Common Stock. 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 exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share, of
the Surviving Corporation.
SECTION 2.02. Dissenting Shares. (a) Notwithstanding any provision
of this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into, or represent the right to
receive, the Merger Consideration. Such stockholders shall be entitled to
receive payment of the appraised value of such shares held by them in accordance
with the provisions of such section 262, except that all
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Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares under such section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration, without any interest thereon, upon surrender,
in the manner provided in Section 2.03, of the certificate or certificates that
formerly evidenced such shares.
(b) The Company shall give Parent (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to the DGCL and received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
SECTION 2.03. Exchange of Certificates. (a) Exchange Agent.
Immediately after the Effective Time, Parent shall deposit, or shall cause to be
deposited, with a bank or trust company designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of Company Common Stock, for exchange in accordance with this Article II through
the Exchange Agent, (i) certificates evidencing the Parent Debentures issuable
pursuant to Section 2.01(a) as of the Effective Time and (ii) cash, in an
aggregate amount sufficient to pay the total cash payable to the holders of
shares of Company Common Stock pursuant to Section 2.01(a) (such cash and
certificates of Parent Debentures being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions from
Parent, deliver the Parent Debentures and cash contemplated to be issued or paid
pursuant to Section 2.01 out of the Exchange Fund. Except as contemplated by
Sections 2.03(c) and (g) hereof, the Exchange Fund shall not be used for any
other purpose.
(b) Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (other
than shares of Company Common Stock that have been cancelled pursuant to Section
2.01(b)) (the "Certificates"), and whose shares of Company Common Stock were
converted into the right to receive the Merger Consideration pursuant to Section
2.01, (i) a letter of transmittal (which shall be in customary form, shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall have such other conditions as Parent may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates pursuant to such letter of transmittal in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a Certificate for
cancellation together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and such other documents
as may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration and
the Certificate so surrendered shall forthwith be cancelled. Subject to Section
2.03(e), under no circumstances will any holder of a Certificate be entitled to
receive any part of the Merger Consideration until such holder shall have
surrendered such Certificate. In the event of a transfer of ownership of shares
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of Company Common Stock which is not registered in the transfer records of the
Company, the Merger Consideration may be paid in accordance with this Article II
to the transferee if the Certificate evidencing such shares of Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration. Except as otherwise provided in Section 2.08 hereof, no interest
shall be paid or will accrue on any cash payable to holders of Certificates
pursuant to provisions of this Article II on the Merger Consideration.
(c) No Liability. Neither Parent nor the Surviving Corporation
shall be liable to any holder of shares of Company Common Stock in respect of
any Merger Consideration that is delivered to a public official pursuant to any
abandoned property, escheat or similar Law. If any Certificate shall not have
been surrendered prior to six months after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.05(b))), any such Merger Consideration, except to the extent permitted
by applicable Law, will become the property of the Surviving Corporation, free
and clear of all claims or interest of any person previously entitled thereto.
(d) Withholding. Each of the Surviving Corporation, Parent and the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold under the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
any state, local or foreign tax law, with respect to the making of such payment.
To the extent that amounts are so withheld by the Surviving Corporation, Parent
or the Exchange Agent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
shares of Company Common Stock in respect of which such deduction and
withholding were made by the Surviving Corporation, Parent or the Exchange
Agent, as the case may be.
(e) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration, without any interest thereon.
(f) No Fractional Debentures. Parent Debentures issued upon the
surrender for exchange of Certificates shall be issued only in principal amounts
of $1,000 and integral multiples thereof. If the aggregate principal amount of
Debenture Component due to a holder of a Certificate pursuant to Section 2.01(a)
above is less than $1,000, then such holder shall receive cash in lieu of such
Debenture Component. If the aggregate principal amount of Debenture Component
due to a holder of a Certificate pursuant to Section 2.01(a) above exceeds
$1,000,
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then, with respect to that amount of Debenture Component that exceeds
$1,000 or the nearest integral multiple thereof (the "Excess Debenture
Component"), such holder shall receive cash in lieu of the Excess Debenture
Component.
(g) Investment of Exchange Fund. The Exchange Fund may be invested by
the Exchange Agent, pursuant to instructions from Parent and on behalf of the
stockholders of the Company, in securities issued or guaranteed by the United
States government or certificates of deposit of commercial banks that have, or
are members of a group of commercial banks that has, consolidated total assets
of not less than $500,000,000. Any net profit resulting from, or interest or
income produced by, such investments shall be payable to the Surviving
Corporation or Parent, as Parent directs.
(h) No Further Rights in Company Common Stock. All Parent Debentures
issued or cash paid upon conversion of the Company Common Stock in accordance
with the terms hereof shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such Company Common Stock.
SECTION 2.04. Election to Increase the Cash Component. Notwithstanding
anything to the contrary herein, Parent may in its sole discretion, on any date
prior to the effectiveness of the Registration Statement (as defined herein)
with the Securities and Exchange Commission (the "SEC"), elect to increase the
Cash Component up to $14 and decrease the Debenture Component correspondingly.
The Parent shall evidence any such election by delivering a written notice to
the Company stating the Cash Component and Debenture Component.
SECTION 2.05. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and, thereafter, there shall be no
further registration of transfers of shares of Company Common Stock theretofore
outstanding on the records of the Company. From and after the Effective Time,
the holders of Certificates representing shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock formerly represented
thereby, except as otherwise provided in this Agreement or by Law.
SECTION 2.06. Company Stock Options. Prior to the Effective Time, all
outstanding stock options (the "Company Stock Options") issued under the
Company's Amended and Restated Stock Option Plan (the "Company Stock Option
Plan") shall become vested (i.e., such Company Stock Options shall become fully
exercisable as to all shares of Company Common Stock covered thereby and as to
which such Company Stock Options have not been previously exercised) and,
immediately prior to the Effective Time, for each Company Stock Option, the
holder of each such Company Stock Option (an "Optionee") shall be entitled to
receive, in settlement and cancellation thereof, an amount of cash equal to the
product of (A) the difference between the Merger Consideration and the exercise
price per share of Company Common Stock provided in each Company Stock Option,
and (B) the number of shares of Company Common Stock covered by such Company
Stock Option, which payment shall be made to each Optionee immediately prior to
the Effective Time by the Company. As of the
6
Effective Time, the Company shall cause the Company Stock Option Plan and each
outstanding Company Stock Option to terminate.
SECTION 2.07. Company Restricted Stock. (a) Immediately prior to the
Merger, each holder (a "Performance Stock Holder") of shares of Company Common
Stock granted pursuant to the Stock Performance Plan (as defined herein) prior
to the date hereof (each a "Performance Stock Share"), which Performance Stock
Share is (i) outstanding immediately prior to the Effective Time and (ii) either
(x) has vested pursuant to, and in accordance with, the terms of the Performance
Stock Plan or (y) will as a result of the Merger become vested pursuant to, and
in accordance with, the Performance Stock Plan, shall be cancelled and such
Performance Stock Holder shall be entitled to a right (a "Vested Share Right")
to receive in full payment therefor and settlement thereof an amount of cash
equal to $14 per Performance Stock Share without interest thereon (the "Vested
Share Consideration") less applicable withholding taxes. The Board of Directors
of the Company (the "Board") shall cause the Performance Stock Plan to terminate
as of the Effective Time and each Performance Stock Share outstanding at the
Effective Time shall be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such Performance Stock Shares shall
cease to have any rights with respect thereto except as set forth in this
Section 2.07.
(b) The aggregate amount of the Vested Share Consideration that could
become payable pursuant to Section 2.07(a), which the parties agree is currently
equal to $2,668,070, subject to adjustment in accordance with the terms hereof
(the "Escrow Fund"), shall be paid by the Parent to a mutually agreeable escrow
agent (the "Escrow Agent") as soon as practicable after the Effective Time
pursuant to an escrow agreement mutually agreeable to the Parent, the Company
and the Escrow Agent (the "Escrow Agreement"). The Escrow Agreement shall
provide that the entire Escrow Fund shall be paid promptly after the first
anniversary of the Effective Time, and, except as provided below, not before
that time, to the One-Year Qualified Holders (as defined below). Payment of the
Escrow Fund to the One-Year Qualified Holders shall be made pro rata to each
such holder according to the number of his or her Performance Stock Shares that
were cancelled pursuant to Section 2.07(a) above.
(c) A "One-Year Qualified Holder" shall mean any Performance Stock
Holder (i) who continues to be employed by the Surviving Corporation, the Parent
or any of their direct or indirect subsidiaries on the first anniversary of the
Effective Time or (ii) whose employment with the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries was terminated on or
prior to the first anniversary of the Effective Time only by reason of one of
the following: (x) by such Performance Stock Holder's death or disability (as
defined in the Company's applicable medical or disability plan), (y) by the
Surviving Corporation, the Parent or any of their direct or indirect
subsidiaries without Cause (as defined below); or (z) by the Performance Stock
Holder for Good Reason (as defined below). Upon any Performance Stock Holder's
death after the Effective Time but on or before the first anniversary thereof,
any such holder's heirs shall be entitled to receive as promptly as practicable
all payments in respect of such Vested Share Right without waiting until the
first anniversary of the Effective Time. Upon any Performance Stock Holder's
termination from employment without Cause by the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries, or
7
termination by the Performance Stock Holder for Good Reason, after the Closing
Date but on or before the first anniversary thereof, any such holder shall be
entitled to receive as promptly as practicable all payments in respect of such
Vested Share Right without waiting until the first anniversary of the Effective
Time.
(d) For purposes of Section 2.07(c):
(x) "Cause" shall mean (i) a breach by the Performance Stock Holder of
the provisions of his or her Employment Agreement, which breach shall not
have been cured by the Performance Stock Holder within thirty (30) days
following notice thereof by the employer, the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries to the Performance
Stock Holder, (ii) the commission of gross negligence or bad faith by the
Performance Stock Holder in the course of the Performance Stock Holder's
employment, (iii) the commission by the Performance Stock Holder of a
criminal act of fraud, theft or dishonesty causing damages to the Surviving
Corporation, the Parent or any of their direct or indirect subsidiaries or
(iv) the Performance Stock Holder's conviction of (or plea of nolo
contendere to) any felony, or misdemeanor involving moral turpitude if such
misdemeanor results in financial harm to or adversely affects the goodwill
of the Surviving Corporation, the Parent or any of their direct or indirect
subsidiaries; and
(y) "Good Reason" shall mean:
(i) the assignment to the Performance Stock Holder of any
duties substantially inconsistent with the position with the Company
or its direct or indirect subsidiaries that the Performance Stock
Holder held immediately prior to the Effective Time, or a significant
adverse alteration in the nature or status of the Performance Stock
Holder's responsibilities or the conditions of the Performance Stock
Holder's employment from those in effect immediately prior to the
Effective Time, excluding for this purpose an isolated and inadvertent
action not taken in bad faith and which is remedied by the Surviving
Corporation, the Parent or any of their direct or indirect
subsidiaries, promptly after receipt of notice thereof given by the
Performance Stock Holder;
(ii) a material reduction by the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries in the
Performance Stock Holder's annual base salary as in effect on the date
hereof or as the same may be increased from time to time, except for
across-the-board salary reductions similarly affecting most key
personnel of the Surviving Corporation, the Parent or any of their
direct or indirect subsidiaries and most key personnel of any person
in control of the Parent;
(iii) any failure by the Surviving Corporation, the Parent
or any of their direct or indirect subsidiaries, as applicable, to
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Surviving Corporation or the
8
Parent, as applicable, to assume expressly and agree to perform the
provisions of any employment agreement to which the Performance Stock
Holder is a party in the same manner and to the same extent that the
Surviving Corporation, the Parent or any of their direct or indirect
subsidiaries would be required to perform if no such succession had
taken place;
(iv) the relocation of the offices at which the Performance
Stock Holder is principally employed immediately prior to the
Effective Time hereunder to a location more than 35 miles from such
location, or the imposition of any requirement by the Surviving
Corporation, the Parent or any of their direct or indirect
subsidiaries that the Performance Stock Holder be based anywhere other
than the offices at which the Performance Stock Holder is principally
employed immediately prior to the Effective Time, except for business
related travel to an extent substantially consistent with the
Performance Stock Holder's business travel obligations immediately
prior to the Effective Time; or
(v) the failure by the Parent or the Surviving Corporation,
as the case may be, to continue to provide the Performance Stock
Holder with benefits substantially similar to those enjoyed by the
Performance Stock Holder under any of the life insurance, medical,
accident, disability or other employee benefit or compensation plans
of the Company or any of the Company Subsidiaries in which the
Performance Stock Holder was participating at the Effective Time or
the failure by the Parent or the Surviving Corporation, as the case
may be, to provide the Performance Stock Holder with the number of
paid vacation days to which the Performance Stock Holder is entitled
on the basis of years of service with the Company or any of its
subsidiaries, as the case may be, in accordance with the normal
vacation policies of the Company or any such subsidiary, as the case
may be, in effect at the Effective Time, unless such failure or taking
of action similarly affects most key personnel of the Parent and its
subsidiaries.
SECTION 2.08. Interest on Merger Consideration. If the Effective Time
shall not have occurred on or before the 180th day (the "Interest Date")
following the date on which the Company Proxy Statement (as defined herein) is
filed with the SEC, then the Merger Consideration shall be adjusted by adjusting
each of the Cash Component and the Debenture Component to reflect the accrual of
interest at a rate of 8.5% per annum for the period beginning on the day
immediately following the Interest Date and ending on the date of the Effective
Time. Notwithstanding the previous sentence, no interest shall accrue and no
adjustment to the Merger Consideration shall be made if the Company shall have
failed in any material respect to comply with Section 6.06.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to enter into this Agreement, the Company hereby
represents and warrants to Parent and Merger Sub that:
9
SECTION 3.01. Organization and Qualification; Subsidiaries. (a) Each
of the Company and each operating subsidiary of the Company with total assets in
excess of $50,000 on its balance sheet at September 30, 2000 (collectively, the
"Company Subsidiaries") is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted except where the failure to be so organized,
existing or in good standing or to have such power, authority, and governmental
approvals would not prevent or materially delay consummation of the Merger or
otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect (as defined in Section 9.04). The
Company and each of the Company Subsidiaries is duly qualified or licensed as a
foreign corporation or organization to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not prevent or materially delay consummation of the
Merger or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Section 3.01(b) of the disclosure schedule prepared by the Company
and delivered by the Company to Parent prior to the execution of this Agreement
and forming a part of this Agreement (the "Company Disclosure Schedule") sets
forth a true and complete list of all the Company Subsidiaries, together with
the jurisdiction of incorporation of each Company Subsidiary and the percentage
of the outstanding capital stock of each Company Subsidiary owned by the Company
and each Company Subsidiary, and separately identifies all subsidiaries of the
Company that are not Company Subsidiaries (collectively, the "Insignificant
Subsidiaries"). Except as set forth in Section 3.01(b) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary directly or indirectly
owns, or has outstanding contractual obligations to acquire, any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity.
(c) None of the Insignificant Subsidiaries has any liabilities or
obligation of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due), except for such liabilities and
obligations as would not prevent or materially delay consummation of the Merger
or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or any Company
Subsidiary.
SECTION 3.02. Certificate of Incorporation and By-Laws. The Company
has heretofore made available to Parent a complete and correct copy of the
Certificate of Incorporation and the By-Laws, each as amended to date, of the
Company and each Company Subsidiary. Such Certificates of Incorporation and
By-Laws are in full force and effect. Neither the Company nor any Company
Subsidiary is in violation of any of the provisions of its
10
Certificate of Incorporation or By-Laws. True and complete copies of all minute
books of the Company have been made available by the Company to Parent.
SECTION 3.03. Capitalization. (a) The authorized capital stock of the
Company consists of (a) 20,000,000 shares of Company Common Stock and (b)
1,000,000 shares of preferred stock, par value $1.00 per share, of the Company
(the "Company Preferred Stock"). As of the date hereof, (a) 8,481,471 shares of
Company Common Stock and (b) no shares of Company Preferred Stock were issued
and outstanding. All of the issued and outstanding shares of Company Common
Stock are validly issued, fully paid and nonassessable. 4,481 shares of Company
Common Stock and no shares of Company Preferred Stock, are held in the treasury
of the Company or by any Company Subsidiary and 1,350,000 shares of Company
Common Stock have been duly reserved for future issuance pursuant to the Company
Stock Option Plan. There are no issued or outstanding bonds, debentures, notes,
convertible notes or other indebtedness of the Company having the right to vote
on any matters on which stockholders of the Company may vote. Except for the
Company Stock Options granted pursuant to the Company Stock Option Plans or
pursuant to agreements or arrangements described in Section 3.03 of the Company
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company or any Company
Subsidiary is a party relating to the issued or unissued stock of the Company or
any Company Subsidiary or conditionally or absolutely obligating the Company or
any Company Subsidiary to issue or sell any shares of stock of, or other equity
interests in, the Company or any Company Subsidiary. Section 3.03(a) of the
Company Disclosure Schedule sets forth all Company Stock Options, including the
relevant vesting times and exercise periods. All shares of Company Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and non-assessable. There are no
outstanding obligations (whether conditional or absolute) of the Company or any
Company Subsidiary to repurchase, redeem or otherwise acquire any shares or
other equity interests of Company Common Stock or any shares or other equity
interests of any Company Subsidiary. Each outstanding share of stock or other
equity interest of each Company Subsidiary is duly authorized, validly issued,
fully paid and non-assessable and each such share or other equity interest owned
by the Company or another Company Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Company Subsidiary's voting rights,
charges and other encumbrances of any nature whatsoever.
(b) Restricted Stock. Section 3.03(b) of the Company Disclosure
Schedule sets forth a true and complete list of each holder of Restricted
Shares, and identifies how many Restricted Shares of each such holder (i) are
vested as of the date hereof and (ii) may be vested, whether by reason of the
Merger (assuming only for purposes of this Section 3.03(b) that the Effective
Time is at December 31, 2001) or otherwise at December 31, 2001.
SECTION 3.04. Authority Relative to This Agreement. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and perform its obligations hereunder and to consummate the Merger and
the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the
11
consummation by the Company of the Merger and the other transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the Merger
and the other transactions contemplated by this Agreement (other than with
respect to the Merger, the approval and adoption of this Agreement and the
Merger by the affirmative vote of holders of a majority of the Company Common
Stock (the "Company Stockholders' Approval") entitled to vote on the matter (the
"Company Stockholders' Vote"), and the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware as required by the DGCL). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The Board has approved this
Agreement, the Merger and the other transactions contemplated herein and such
approvals are sufficient so that the restrictions on business combinations set
forth in Section 203(a) of the DGCL shall not apply to the Merger.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) Except
as set forth in Section 3.05 of the Company Disclosure Schedule, the execution
and delivery of this Agreement do not, and performance of this Agreement by the
Company will not, (i) conflict with or violate the Certificate of Incorporation
or By-Laws of the Company or any equivalent organizational documents of any
Company Subsidiary, (ii) conflict with or violate any federal, national, state,
provincial, municipal or local law, statute, ordinance, rule, regulation, order,
injunction, judgment or decree ("Law") applicable to the Company or any Company
Subsidiary or by which any property or asset of the Company or any Company
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any Company Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or materially delay
consummation of the Merger or otherwise prevent or materially delay the Company
from performing its obligations under this Agreement and would not, individually
or in the aggregate, have a Material Adverse Effect on the Company or the
Insurance Companies.
(b) Except as set forth in Section 3.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, national, state, provincial, municipal or local government, any
instrumentality, subdivision, court, administrative agency or commission or
other authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or any other governmental or
quasi-governmental authority (a "Governmental Entity"), except (i) for (A) the
pre-merger notification requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the requirements of
other applicable competition laws, (B) the requisite approvals of insurance
12
regulatory authorities (including, without limitation, the insurance regulatory
authorities of Rhode Island), (C) applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act of 1933, as amended, and the rules and regulations thereunder (the
"Securities Act"), state securities or "blue sky" laws (the "Blue Sky Laws") and
state takeover laws, (D) the DGCL with respect to the filing of the Delaware
Certificate of Merger and (E) the rules and regulations of the Nasdaq National
Market (the "Nasdaq") (the foregoing clauses (i)(A) through (E) being referred
to collectively as the "Required Consents") and (ii) where the failure to obtain
any such consent, approval, authorization or permit, or to make any such filing
or notification, would not prevent or materially delay consummation of the
Merger, or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or the Insurance
Companies.
SECTION 3.06. Permits; Compliance. (a) Except as disclosed in Section
3.06(a) of the Company Disclosure Schedule, each of the Company and the Company
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for the Company or any
Company Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits") except where the
failure to obtain any such Company Permits would not prevent or materially delay
consummation of the Merger, or otherwise prevent or materially delay the Company
from performing its obligations under this Agreement and would not, individually
or in the aggregate, have a Material Adverse Effect. As of the date hereof, no
suspension or cancellation of any of the Company Permits is pending or, to the
knowledge of the Company, threatened.
(b) Except as disclosed in Section 3.06(b) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is in conflict with, or
in default or violation of, any (i) Law applicable to the Company or any Company
Subsidiary or by which any property or asset of the Company or any Company
Subsidiary is bound or affected, (ii) note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Company Subsidiary is a party or by which the
Company or any Company Subsidiary or any property or asset of the Company or any
Company Subsidiary is bound or affected or (iii) Company Permits, except in each
case for any such conflicts, defaults or violations that would not prevent or
materially delay consummation of the Merger or otherwise prevent or materially
delay the Company from performing its obligations under this Agreement and would
not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has
filed all forms, reports and documents required to be filed by it with the SEC
since December 31, 1998 and has heretofore delivered or made available to
Parent, in the form filed with the SEC, (i) its Annual Reports on Form 10-K for
the fiscal years ended December 31, 1998 and 1999, (ii) its Quarterly Reports on
Form 10-Q for the periods ended March 31, 2000, June 30, 2000 and September 30,
2000, (iii) all proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since May 1, 1998 and (iv) all
other forms, reports
13
and other registration statements (other than Quarterly Reports on Form 10-Q not
referred to in clause (ii) above) filed by the Company with the SEC since April
1, 1998 (the forms, reports and other documents referred to in clauses (i),
(ii), (iii) and (iv) above being, collectively, the "Company SEC Reports") and
(v) complete (i.e., unredacted) copies of each exhibit to the Company SEC
Reports filed with the SEC. The Company SEC Reports (i) were prepared in
accordance with either the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations promulgated thereunder,
and (ii) did not, at the time they were filed, or, if amended, as of the date of
such amendment, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No Company Subsidiary is required to file any form, report
or other document with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Company SEC Reports was prepared in
accordance with United States generally accepted accounting principles ("U.S.
GAAP") applied on a consistent basis throughout the periods indicated (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Regulation S-X adopted by the SEC) and each presented in all
material respects, the consolidated financial position, results of operations
and cash flows of the Company and the consolidated subsidiaries of the Company
as at the respective dates thereof and for the respective periods indicated
therein, except as otherwise noted therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which would not have
had, individually or in the aggregate, a Material Adverse Effect). The balance
sheet of the Company contained in the Company SEC Reports as of September 30,
2000 is hereinafter referred to as the "Company Balance Sheet".
(c) The Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications that have not been filed with
the SEC to all agreements, documents or other instruments that previously had
been filed by the Company with the SEC and are currently in effect.
SECTION 3.08. Undisclosed Liabilities. Except for those liabilities
that are disclosed in Section 3.08 of the Company Disclosure Schedule or are
fully reflected or reserved against on the Company Balance Sheet, neither the
Company nor any Company Subsidiary has outstanding any liability or obligation
of any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due), except for liabilities and obligations that have
been incurred since the date of the Company Balance Sheet in the ordinary course
of business, that would not prevent or materially delay consummation of the
Merger or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and that would not, individually or in the
aggregate, have a Material Adverse Effect. With respect to liabilities or
obligations concerning the matters addressed in Sections 3.07, 3.11, 3.13, and
3.16, the provisions of such Sections and not this Section 3.08 shall apply.
SECTION 3.09. Absence of Certain Changes or Events. From September 30,
2000 through the date hereof, except as set forth in Section 3.09 of the Company
Disclosure Schedule, (a) each of the Company and the Company Subsidiaries has
conducted its business
14
only in the ordinary course and (b) there has not been any circumstance, event,
occurrence, change or effect that would reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.10. Absence of Litigation. Except as specifically disclosed
in Section 3.10 of the Company Disclosure Schedule, there is no litigation,
suit, claim, action, proceeding or investigation (an "Action") pending or, to
the knowledge of the Company, threatened against the Company or any Company
Subsidiary, or against any property or asset of the Company or any Company
Subsidiary, before any court, arbitrator or Governmental Entity, domestic or
foreign which the Company reasonably believes, individually or in the aggregate,
could result in liability of the Company or any Company Subsidiary in amounts in
excess of $50,000. Except as specifically disclosed in Section 3.10 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary nor
any property or asset of the Company or any Company Subsidiary is subject to any
continuing order of, consent decree, settlement agreement or similar written
agreement with, or, to the knowledge of the Company, continuing investigation
by, any Governmental Entity, or any order, writ, judgment, injunction, decree,
determination or award of any Governmental Entity that would prevent or
materially delay consummation of the Merger or otherwise prevent or materially
delay the Company from performing its obligations under this Agreement or would,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.11. Employee Benefit Matters. (a) Plans and Material
Documents. Section 3.11 (a) of the Company Disclosure Schedule lists (i) all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, consulting, termination,
severance or other contracts or agreements, whether legally enforceable or not,
to which the Company or any Company Subsidiary is a party, with respect to which
the Company or any Company Subsidiary has any obligation or which are
maintained, contributed to or sponsored by the Company or any Company Subsidiary
for the benefit of any current or former employee, consultant, officer or
director of the Company or any Company Subsidiary, (ii) each employee benefit
plan for which the Company or any Company Subsidiary could incur liability under
section 4069 of ERISA in the event such plan has been or were to be terminated,
(iii) any plan in respect of which the Company or any Company Subsidiary could
incur liability under section 4212(c) of ERISA and (iv) any contracts,
arrangements or understandings between the Company or any Company Subsidiary and
any employee of the Company or any Company Subsidiary including, without
limitation, any contracts, arrangements or understandings relating to a sale of
the Company or any Company Subsidiary (collectively, the "Company Benefit
Plans"). Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, each Company Benefit Plan is in writing and the Company has made
available to Parent a true and complete copy of each Company Benefit Plan and a
true and complete copy of each material document, if any, prepared in connection
with each such Company Benefit Plan, including, without limitation, a copy of
(i) each trust or other funding arrangement currently in effect, (ii) the
current summary plan description and any subsequent summary of material
modifications, (iii) the most recently
15
filed Internal Revenue Service (the "IRS") Form 5500, (iv) the most recently
received IRS determination letter for each such Company Benefit Plan and (v) the
most recently prepared actuarial report and financial statement in connection
with each such Company Benefit Plan. Except as disclosed in Section 3.11(a) of
the Company Disclosure Schedule, there are no other employee benefit plans,
programs, arrangements or agreements, whether formal or informal, whether in
writing or not, to which the Company or any Company Subsidiary is a party, with
respect to which the Company or any Company Subsidiary has any obligation or
which are maintained, contributed to or sponsored by the Company or any Company
Subsidiary for the benefit of any current or former employee, consultant,
officer or director of the Company or any Company Subsidiary. Neither the
Company nor any Company Subsidiary has any express or implied commitment,
whether legally enforceable or not, (i) to create, incur liability with respect
to or cause to exist any other employee benefit plan, program or arrangement,
(ii) to enter into any contract or agreement to provide compensation or benefits
to any individual or (iii) to modify, change or terminate any Company Benefit
Plan, other than with respect to a modification, change or termination required
by ERISA or the Code.
(b) Absence of Certain Types of Plans. Except as disclosed in Section
3.11(b) of the Company Disclosure Schedule, none of the Company Benefit Plans is
a multiemployer plan (within the meaning of section 3(37) or 4001(a)(3) of
ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the
meaning of Section 4001(a)(15) of ERISA) for which the Company or any Company
Subsidiary could incur liability under Section 4063 or 4064 of ERISA (a
"Multiple Employer Plan"). Except as disclosed in Section 3.11(b) of the Company
Disclosure Schedule, none of the Company Benefit Plans (i) provides for the
payment of separation, severance, termination or similar-type benefits to any
person, (ii) obligates the Company or any Company Subsidiary to pay separation,
severance, termination or similar-type benefits solely or partially as a result
of any transaction contemplated by this Agreement, or (iii) obligates the
Company or any Company Subsidiary to make any payment or provide any benefit as
a result of a "change in control", within the meaning of such term under Section
280G of the Code. None of the Company Benefit Plans provides for or promises
retiree medical, disability or life insurance benefits to any current or former
employee, officer or director of the Company or any Company Subsidiary. Each of
the Company Benefit Plans is subject only to the Laws of the United States or a
political subdivision thereof.
(c) Compliance. Except as disclosed in Section 3.11(c) of the Company
Disclosure Schedule, to the knowledge of the Company, each Company Benefit Plan
is now and always has been operated in all respects in accordance with its terms
and the requirements of all applicable laws and regulations and rules
promulgated thereunder, including, without limitation, ERISA and the Code,
except for such non-compliance as would not result in a Material Adverse Effect
or has not or would not be reasonably likely to result in a significant expense
to the Company. The Company and all Company Subsidiaries have performed all
material obligations required to be performed by them under, are not in any
material respect in default under or in material violation of, and have no
knowledge of any such default or violation by any other party with respect to,
any Company Benefit Plan. No action, claim or proceeding is pending or, to the
knowledge of the Company, threatened with respect to any Company Benefit Plan
(other than
16
claims for benefits in the ordinary course) and, to the knowledge of the
Company, no fact or event exists that could reasonably give rise to any such
action, claim or proceeding.
(d) Qualification of Certain Plans. Each Company Benefit Plan that is
intended to be qualified under section 401(a) of the Code or section 401(k) of
the Code has received a favorable determination letter from the IRS covering all
of the provisions applicable to the Company Benefit Plan, and no fact or event
has occurred since the date of such determination letter or letters from the IRS
that is likely to adversely affect the qualified status of any such Company
Benefit Plan or the exempt status of any such trust.
(e) Absence of Certain Liabilities. To the knowledge of the Company,
there has not been any nonexempt prohibited transaction (within the meaning of
Section 406 and 408 of ERISA or Section 4975 of the Code) with respect to any
Company Benefit Plan. Neither the Company nor any Company Subsidiary has
incurred any liability that has not been satisfied under, arising out of or by
operation of Title IV of ERISA, including, without limitation, any liability in
connection with (i) the termination or reorganization of any employee benefit
plan subject to Title IV of ERISA, (ii) the withdrawal from any Multiemployer
Plan within the five-year period immediately preceding the date of this
Agreement or (iii) the withdrawal from any Multiple Employer Plan, and no fact
or event exists which could give rise to any such liability.
(f) Plan Contributions and Funding. All contributions, premiums or
payments required to be made with respect to any Company Benefit Plan have been
made on or before their due dates. All such contributions have been fully
deductible for income tax purposes and no such deduction has been challenged or
disallowed by any Governmental Entity and no fact or event exists which could
give rise to any such challenge or disallowance.
(g) Severance Payments. Except as disclosed in Section 3.11(g) of the
Company Disclosure Schedule, the consummation of the transactions contemplated
by this Agreement will not, either alone or in combination with another event,
(i) entitle any current or former employee, officer or director of the Company
or any Company Subsidiary to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, (ii) accelerate
the time of payment or vesting, or increase the amount, of compensation due any
such employee, officer or director or (iii) constitute a "change of control"
under any Company Benefit Plan.
(h) There is no Company Benefit Plan that is not subject to United
States law.
SECTION 3.12. Material Contracts. (a) Subsections (i) through (xi) of
Section 3.12(a) of the Company Disclosure Schedule contain a list of the
following types of contracts and agreements to which the Company or any Company
Subsidiary is a party (such contracts, agreements and arrangements as are
required to be set forth in Section 3.12(a) of the Company Disclosure Schedule
being the "Company Material Contracts"):
(i) each contract and agreement which (A) has or is likely to involve
consideration of more than $100,000, in the aggregate, during one or more
of the calendar years ending December 31, 2000 or 2001 or (B) is likely to
involve
17
consideration of more than $100,000, in the aggregate, over the remaining
term of such contract, and which, in either case, cannot be canceled by the
Company or any Company Subsidiary without penalty or further payment and
without more than 90 days' notice;
(ii) all management contracts (excluding contracts for employment) and
contracts with other consultants which have or are likely to involve
consideration of more than $100,000, including any contracts involving the
payment of royalties or other amounts calculated based upon the revenues or
income of the Company or any Company Subsidiary or income or revenues
related to any product of the Company or any Company Subsidiary to which
the Company or any Company Subsidiary is a party;
(iii) all contracts and agreements evidencing indebtedness for
borrowed money;
(iv) all contracts and agreements with any Governmental Entity to
which the Company or any Company Subsidiary is a party;
(v) all contracts and agreements that limit, or purport to limit, the
ability of the Company or any Company Subsidiary to compete in any line of
business or with any person or entity or in any geographic area or during
any period of time;
(vi) other than those entered into in the ordinary course of business,
all material contracts or arrangements that result in any person or entity
holding a power of attorney from the Company or any Company Subsidiary that
relates to the Company, any Company Subsidiary or their respective
businesses;
(vii) all contracts, agreements, commitments and instruments relating
to any obligation to engage in a merger, consolidation, business
combination, share exchange or business acquisition, or for the purchase or
sale of any assets of the Company or any of the Company Subsidiaries other
than in the ordinary course of business;
(viii) other than those entered into in the ordinary course of
business, all contracts, agreements, commitments and instruments that
include any indemnification, contribution or support obligations in an
amount which would reasonably be expected to exceed $100,000 or which in
the aggregate would reasonably be expected to exceed $100,000;
(ix) all contracts, agreements, commitments and instruments that
obligate capital expenditures involving total payments of more than
$100,000;
(x) all contracts, agreements, commitments and instruments that
obligate the Company or any Company Subsidiary to issue or sell any capital
stock; and
(xi) all other contracts and agreements, whether or not made in the
ordinary course of business, which are material to the Company or any
Company Subsidiary or the conduct of their respective businesses, or the
absence of which would prevent or
18
materially delay consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement or would, individually or in the aggregate, have a Material
Adverse Effect.
(b) Except as would not prevent or materially delay consummation of
the Merger or otherwise prevent or materially delay the Company from performing
its obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect, (i) each Company Material Contract is
a legal, valid and binding agreement in full force and effect, and none of the
Company Material Contracts is in default by its terms or has been canceled by
the other party and no event has occurred that with notice or lapse of time or
both would constitute a default, (ii) to the Company's knowledge, no other party
is in breach or violation of, or default (where applicable) under, any Company
Material Contract; (iii) no Company or Company Subsidiary is in receipt of any
claim of default (where applicable) under any such agreement and (iv) neither
the execution of this Agreement nor the consummation of the Merger or any other
transaction contemplated herein shall constitute default, give rise to
cancellation rights, or otherwise adversely affect any of the Company's rights
under any Company Material Contract. The Company has furnished or made available
to Parent true and complete copies of all Company Material Contracts, including
any amendments thereto.
SECTION 3.13. Environmental Matters . Except as described in Section
3.13 of the Company Disclosure Schedule and as would not, individually or in the
aggregate, have a Material Adverse Effect, (a) the Company and the Company
Subsidiaries have not violated and are not in violation of any Environmental Law
(as defined below); (b) none of the properties currently or formerly owned,
leased or operated by the Company and the Company Subsidiaries (including,
without limitation, soils and surface and ground waters) are or were
contaminated with any Hazardous Substance (as defined below); (c) neither the
Company nor the Company Subsidiaries are liable for any off-site contamination
by Hazardous Substances; (d) the Company and the Company Subsidiaries are not
liable under any Environmental Law (including, without limitation, pending or
threatened liens); (e) the Company and the Company Subsidiaries have all
permits, licenses and other authorizations required under any Environmental Law
("Environmental Permits"); (f) the Company and the Company Subsidiaries are in
compliance with their Environmental Permits; and (g) neither the execution of
this Agreement nor the consummation of the transactions contemplated herein will
require any investigation, remediation or other action with respect to Hazardous
Substances, or any notice to or consent of Governmental Entities or third
parties, pursuant to any applicable Environmental Law or Environmental Permit,
including, without limitation, the Connecticut Transfer Act.
"Environmental Law" means any applicable federal, state, local or
foreign law relating to (A) releases of Hazardous Substances or materials
containing Hazardous Substances; (B) the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Substances or materials containing
Hazardous Substances; or (C) otherwise relating to pollution or protection of
the environment, health, safety or natural resources.
"Hazardous Substances" means (i) those substances defined in or
regulated under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource
19
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act and the Clean Air Act; (ii) petroleum and petroleum products, including
crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any
mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; (v) any
other contaminant; and (vi) any substance, material or waste regulated by any
federal, state, local or foreign Governmental Entity pursuant to any
Environmental Law.
SECTION 3.14. Title to Properties; Absence of Liens and Encumbrances.
(a) Section 3.14(a)(i) of the Company Disclosure Schedule lists the real
property interests owned by the Company and the Company Subsidiaries. Section
3.14(a)(ii) of the Company Disclosure Schedule lists all real property leases to
which the Company or any Company Subsidiary is a party, and each amendment
thereto. Other than the owned real property identified in Section 3.14(a)(i) of
the Company Disclosure Schedule and leaseholds created under the real property
leases identified in Section 3.14(a) of the Company Disclosure Schedule, the
Company and the Company Subsidiaries have no ownership or leasehold interest in
any real property.
(b) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, each of the Company and the Company Subsidiaries has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, real,
personal and mixed, used or held for use in its business, free and clear of any
liens, pledges, charges, claims, security interests or other encumbrances of any
sort ("Liens"), except for Liens in respect of obligations not yet due, which
are owed in respect of taxes or which otherwise are owed to landlords, carriers,
warehousepersons or laborers, except for such Liens or other imperfections of
title and encumbrances, if any, which are not material in character, amount or
extent, and which do not materially detract from the value, or materially
interfere with the present or contemplated use, of the property subject thereto
or affected thereby.
SECTION 3.15. Intellectual Property. (a) The Company and the Company
Subsidiaries own or possess adequate licenses or other valid rights to use all
material Intellectual Property (as defined below) used or held for use in
connection with the business of the Company and the Company Subsidiaries as
currently conducted.
(b) To the knowledge of the Company, no current or prior use of any
Intellectual Property by the Company or any of the Company Subsidiaries or
current or prior product sold, imported or offered for sale by the Company and
the Company Subsidiaries infringes on or otherwise violates the rights of any
person and such use, sale, importation and offer to sell is and has been in
accordance with all applicable licenses pursuant to which the Company or any of
the Company Subsidiaries acquired the right to use such Intellectual Property
other than as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(c) To the knowledge of the Company, no Intellectual Property owned or
licensed by the Company or the Company Subsidiaries is being used or enforced in
a matter that would result in the abandonment, cancellation or unenforceability
of such Intellectual Property
20
other than as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(d) To the knowledge of the Company, and except as would not,
individually or in the aggregate, have a Material Adverse Effect, (i) there has
been no misappropriation of any material trade secrets or other material
confidential Intellectual Property of the Company or any Company Subsidiary by
any person, (ii) no employee, independent contractor or agent of the Company or
any Company Subsidiary has misappropriated any trade secrets of any other person
in the course of such performance as an employee, independent contractor or
agent and (iii) no employee, independent contractor or agent of Company or any
Company Subsidiary is in default or breach of any term of any employment
agreement, non-disclosure agreement, assignment of invention agreement or
similar agreement or contract relating in any way to the protection, ownership,
development, use or transfer of the Company's and the Company Subsidiaries'
Intellectual Property.
"Intellectual Property" means all trademarks, trademark rights, trade
name, trade name rights, trade dress and other indications of origin, brand
names, certification rights, service marks, applications for trademarks and for
service marks, know-how and other proprietary rights and information;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, patent rights and trade secrets; proprietary writings and
other works, whether copyrightable or not, in any jurisdiction; and any similar
intellectual property or proprietary rights.
SECTION 3.16. Taxes. The Company and the Company Subsidiaries have
filed all United States federal, state, local and non-United States Tax returns
and reports due and required to be filed by them and have paid and discharged
all Taxes required to be paid or discharged, other than (a) such Taxes, returns
or reports as are being contested in good faith by appropriate proceedings and
(b) such Taxes, returns or reports or other occurrences that would not,
individually or in the aggregate, have a Material Adverse Effect. No United
States (federal, state or local) or non-United States taxing authority or agency
is asserting in writing or threatening to assert in writing against the Company
or any Company Subsidiary any deficiency or claim for any Taxes or interest
thereon or penalties in connection therewith. Neither the Company nor any
Company Subsidiary has granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of any Tax. The
accruals and reserves for Taxes reflected in the Company Balance Sheet are
adequate to cover all Taxes accruable through such date (including interest and
penalties, if any, thereon) in accordance with U.S. GAAP. Neither the Company
nor any Company Subsidiary has made an election under Section 341(f) of the
Code. There are no Tax liens upon any property or assets of the Company or any
of the Company Subsidiaries except liens for current Taxes not yet due. Neither
the Company nor any of the Company Subsidiaries has been required to include in
income any adjustment pursuant to Section 481 of the Code by reason of a
voluntary change in accounting method initiated by the Company or any of the
Company Subsidiaries, and the IRS has not initiated or proposed any such
adjustment or change in accounting method, in either case which adjustment or
change would have a Material Adverse Effect.
21
SECTION 3.17. Board Approval; Vote Required. (a) The Board, by
resolutions duly adopted by unanimous vote at a meeting duly called and held and
not subsequently rescinded or modified in any way on or prior to the date hereof
(the "Company Board Approval"), has duly (i) approved this Agreement and the
Merger, and determined that the execution, delivery and performance of this
Agreement is advisable and (ii) recommended that the stockholders of the Company
approve the Merger and this Agreement and directed that this Agreement and the
transactions contemplated hereby be submitted for consideration by the Company's
stockholders at the Company Stockholders' Meeting (as hereinafter defined).
(b) The Company Stockholders' Approval is the only vote of the holders
of any class or series of capital stock of the Company necessary to approve and
adopt this Agreement, the Merger and the other transactions contemplated by this
Agreement.
SECTION 3.18. Employment Agreements and other Affiliate Transactions.
Except as disclosed in Section 3.18 of the Company Disclosure Schedule and
except for the ownership of shares of Company Common Stock and Company Options
pursuant to the Company Benefit Plans, there are no material contracts,
commitments, agreements, arrangements or other transactions between the Company
or any of the Company Subsidiaries, on the one hand, and any (i) officer or
director of the Company or, (ii) officer or director of any of the Company
Subsidiaries pursuant to which the Company or any Company Subsidiary is
obligated to make payments totaling more then $100,000, (iii) record or
beneficial owner of five percent or more of the voting securities of the Company
or (iv) person or entity known to the Company that directly or indirectly
controls, is controlled by, or is under common control with any such officer,
director or beneficial owner, on the other hand.
SECTION 3.19. Insurance. Section 3.19 of the Company Disclosure
Schedule contains a true, correct and complete list of all policies of insurance
to which each of the Company and the Company Subsidiaries are a party or are a
beneficiary or named insured. The Company has provided or made available to
Parent true, correct and complete copies of all policies of insurance to which
each of the Company and the Company Subsidiaries are a party or are a
beneficiary or named insured that Parent has requested from the Company or its
representatives. The Company and the Company Subsidiaries maintain insurance
coverage with reputable insurers in such amounts and covering such risks as are
in accordance with normal industry practice for companies engaged in businesses
similar to that of the Company and the Company Subsidiaries (taking into account
the cost and availability of such insurance).
SECTION 3.20. State Takeover Statutes. (a) Except for Section 203 of
the DGCL, no "fair price", "moratorium", "control share acquisition" or other
similar anti-takeover statute or regulation is applicable, by reason of the
Company's being a party to the Merger or this Agreement or the transactions
contemplated hereby or thereby. Neither the Company nor any of the Company
Subsidiaries is a party to any "stockholder rights" plan or any similar
anti-takeover plan or device.
(b) Prior to the time this Agreement was executed, the Board has taken
all action necessary, if any, to exempt under or make not subject to Section 203
of the DGCL (i) the execution of this Agreement, (ii) the Merger and (iii) the
other transactions contemplated hereby.
22
SECTION 3.21. Labor Matters. (a) Except as set forth in Section 3.21
of the Company Disclosure Schedule, to the knowledge of the Company and the
Company Subsidiaries (i) there are no controversies pending or, to the knowledge
of the Company, threatened between the Company or any Company Subsidiary and any
of their respective employees, which controversies would prevent or materially
delay consummation of the Merger or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement or would,
individually or in the aggregate, have a Material Adverse Effect; (ii) neither
the Company nor any Company Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or any Company Subsidiary, nor, to the knowledge of the Company, are
there any activities or proceedings of any labor union to organize any such
employees; (iii) neither the Company nor any Company Subsidiary has breached or
otherwise failed to comply with any provision of any such agreement or contract,
and there are no grievances outstanding against the Company or any Company
Subsidiary under any such agreement or contract which have resulted, or are
reasonably likely to result, in, individually or in the aggregate, a Material
Adverse Effect; (iv) there are no unfair labor practice complaints pending
against the Company or any Company Subsidiary before the National Labor
Relations Board or any current union representation questions involving
employees of the Company or any Company Subsidiary; and (v) there is no strike,
slowdown, work stoppage or lockout, or, to the knowledge of the Company, threat
thereof, by or with respect to any employees of the Company or any Company
Subsidiary.
(b) Except as set forth in Section 3.21(b) of the Company Disclosure
Schedule, to the knowledge of the Company and the Company Subsidiaries, the
Company and the Company Subsidiaries are in compliance with all applicable laws
relating to the employment of labor, including those related to wages, hours,
collective bargaining and the payment and withholding of taxes and other sums as
required by the appropriate Governmental Entity and has withheld and paid to the
appropriate Governmental Entity or are holding for payment not yet due to such
Governmental Entity all amounts required to be withheld from employees of the
Company or any Company Subsidiary and are not liable for any arrears of wages,
taxes, penalties or other sums for failure to comply with any of the foregoing
except for any non-compliance that would not prevent or materially delay
consummation of the Merger or otherwise prevent or materially delay the Company
from performing its obligations under this Agreement and would not, individually
or in the aggregate, have a Material Adverse Effect. The Company and the Company
Subsidiaries have paid in full to all employees or adequately accrued for in
accordance with U.S. GAAP consistently applied all wages, salaries, commissions,
bonuses, benefits and other compensation due to or on behalf of such employees
and there is no claim against the Company or any Company Subsidiary with respect
to payment of wages, salary or overtime pay that has been asserted or, to the
Company's knowledge, is now pending or threatened before any Governmental Entity
with respect to any persons currently or formerly employed by the Company or any
Company Subsidiary except for any such claims that would not, individually or in
the aggregate, have a Material Adverse Effect. Neither the Company nor any
Company Subsidiary is a party to, or otherwise bound by, any consent decree
with, or citation by, any Governmental Entity relating to employees or
employment practices. There is no charge or proceeding with respect to a
violation of any occupational safety or health standards that has been asserted
or, to the Company's knowledge, is now pending or threatened with
23
respect to the Company or any Company Subsidiary. To the Company's knowledge,
there is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted or is now pending or
threatened before the United States Equal Employment Opportunity Commission, or
any other Governmental Entity in any jurisdiction in which the Company or any
Company Subsidiary have employed or employ any person.
SECTION 3.22. Brokers. No broker, finder or investment banker (other
than ZS Fund L.P. ("ZS") and Xxx-Xxxx, Xxxxxx Inc. ("Xxx-Xxxx")) is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or the other transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has heretofore made available
upon request to Parent complete and correct copies of all agreements between the
Company, ZS and Xxx-Xxxx pursuant to which such firms would be entitled to any
payment relating to the Merger or any other transactions, which payments to ZS
and Xxx-Xxxx will not exceed $950,000 in the aggregate.
SECTION 3.23. Title to Insurance Business. Except as set forth in
Section 3.23 of the Company Disclosure Schedule, to the knowledge of the
Company, no employee or producer of the Company or any of its subsidiaries, nor
any other person, has any agreement by which they have a claim, right, title or
interest in or to the book of insurance business serviced by the Company or any
Company Subsidiary.
SECTION 3.24. Absence of Restrictions on Conduct of Business. Other
than ordinary course regulatory restrictions, no oral or written contract,
license or permit restricts the ability of the Company or any Company Subsidiary
to own, possess or use its assets or conduct its business or operations in any
geographic area or restricts in any way the full participation of any employees,
producers or agents of the Company or any Company Subsidiary in the operation of
such business.
SECTION 3.25. Computer Systems. Other than in respect of ordinary
course maintenance and repairs, the Computer Systems of the Company and each
Company Subsidiary are operational except where a failure to be so operational
would not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.26. Insurance Companies. Listed in Section 3.26 of the
Company Disclosure Schedule are the names and addresses of the ten most
significant insurance companies (each a "Significant Insurer") to the business
of the Company and the Company Subsidiaries as a whole, as determined by the
aggregate amount of premium received by the Company and the Company Subsidiaries
from such insurance company during the fiscal year ended September 1, 2000.
SECTION 3.27. No Downgrading of Rating. As of the date hereof, and
except for any downgrading which may occur solely as a result of the Merger or
the Related Party Transactions, there has not occurred any downgrading, nor has
the Company become aware of any pending or threatened downgrading, of the
Company's or any of the Company Subsidiaries' rating by A.M. Best.
24
SECTION 3.28. Fairness Opinion. The Company has received a written
opinion from Xxx-Xxxx stating that the Merger Consideration is fair to the
stockholders of the Company from a financial point of view and has delivered a
copy of such written opinion to Parent.
SECTION 3.29. Insurance Company Organization and Qualification;
Subsidiaries. (a) Each of Old Lyme Insurance Company of Rhode Island, Inc.
("Rhode Island Co.") and Old Lyme Insurance Company Ltd. ("Bermuda Co.", and
together with Rhode Island Co., the "Insurance Companies") and each subsidiary
of the Insurance Companies (collectively, the "Insurance Company Subsidiaries")
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of the Insurance Companies and each of the Insurance Company
Subsidiaries is duly qualified or licensed as a foreign corporation or
organization to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Material Adverse Effect (as defined in
Section 9.04).
(b) Section 3.29(b) of the Company Disclosure Schedule sets forth a
true and complete list of all the Insurance Company Subsidiaries, together with
the jurisdiction of incorporation of each Insurance Company Subsidiary and the
percentage of the outstanding capital stock of each Insurance Company Subsidiary
owned by the Insurance Company and each Insurance Company Subsidiary, and
separately identifies all subsidiaries of each of the Insurance Companies that
are not Insurance Company Subsidiaries (collectively, the "Insignificant
Insurance Subsidiaries") . Except as set forth in Section 3.29(b) of the Company
Disclosure Schedule, neither the Insurance Company nor any Insurance Company
Subsidiary directly or indirectly owns, or has outstanding contractual
obligations to acquire, any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
(c) Each of the Insurance Companies and each of the Insurance Company
Subsidiaries is licensed as an authorized insurer in each jurisdiction in which
it presently writes insurance for the type of insurance it presently writes in
such jurisdictions and meets in all material respects all statutory and
regulatory requirements of all Governmental Entities (as hereinafter defined)
which have jurisdiction over it to be an authorized insurer. Section 3.29(c) of
the Company Disclosure Schedule sets forth each state in which each of the
Insurance Companies and each of the Insurance Company Subsidiaries is an
admitted or non-admitted insurer; and for each state in which it is nonadmitted,
whether it has been approved or not disapproved.
(d) None of the Insignificant Insurance Subsidiaries have any
liabilities, except for such liabilities as would not prevent or materially
delay consummation of the Merger and would not, individually or in the
aggregate, have a Material Adverse Effect on the Insurance Companies or any
Insurance Company Subsidiaries.
25
SECTION 3.30. Insurance Company Certificate of Incorporation and
By-Laws. The Company has heretofore made available to Parent a complete and
correct copy of the Certificate of Incorporation and the By-Laws, each as
amended to date, of each of the Insurance Companies and each Insurance Company
Subsidiary. Such Certificates of Incorporation and By-Laws are in full force and
effect. Neither the Insurance Companies nor any Insurance Company Subsidiary is
in violation of any of the provisions of its Certificate of Incorporation or
By-Laws. True and complete copies of all minute books of each of the Insurance
Companies have been made available by the Company to Parent.
SECTION 3.31. Insurance Company Capitalization. (a) The authorized
capital stock of Rhode Island Co. consists of (a) 10,000,000 shares of common
stock, par value $14.50 per share ("Rhode Island Co. Common Stock") and (b)
100,000 shares of preferred stock, par value $1.00 per share ("Rhode Island Co.
Preferred Stock"). As of the date hereof, 200,000 shares of Rhode Island Co.
Common Stock were issued and outstanding and 100,000 shares of Rhode Island Co.
Preferred Stock were issued and outstanding. All of the issued and outstanding
shares of Rhode Island Co. Common Stock are validly issued, fully paid and
nonassessable and are held by the Company, free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Rhode Island Co.'s voting rights, charges and other encumbrances
of any nature whatsoever.
(b) The authorized capital stock of Bermuda Co. consists of 100,000
shares of common stock, par value $1.20 per share ("Bermuda Co. Common Stock").
As of the date hereof, 100,000 shares of Bermuda Co. Common Stock were issued
and outstanding. All of the issued and outstanding shares of Bermuda Co. Common
Stock are validly issued, fully paid and nonassessable and are held by the
Company, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on the Bermuda's
voting rights, charges and other encumbrances of any nature whatsoever.
(c) There are no issued or outstanding bonds, debentures, notes,
convertible notes or other indebtedness of either Insurance Company having the
right to vote on any matters on which stockholders of such Insurance Company may
vote. There are no options, warrants or other rights, agreements, arrangements
or commitments of any character relating to the issued or unissued stock of
either of the Insurance Companies or any Insurance Company Subsidiary or
conditionally or absolutely obligating either of the Insurance Companies or any
Insurance Company Subsidiary to issue or sell any shares of stock of, or other
equity interests in, the Insurance Companies or any Insurance Company
Subsidiary. Neither of the Insurance Companies nor any Insurance Company
Subsidiary have outstanding obligations (whether conditional or absolute) to
repurchase, redeem or otherwise acquire any shares or other equity interests of
Common Stock or any shares or other equity interests of any Insurance Company
Subsidiary. Each outstanding share of stock or other equity interest of each
Insurance Company Subsidiary is duly authorized, validly issued, fully paid and
non-assessable and each such share or other equity interest owned by the
Insurance Companies or another Insurance Company Subsidiary is free and clear of
all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on such Insurance Company's or such other
Insurance Company Subsidiary's voting rights, charges and other encumbrances of
any nature whatsoever.
26
SECTION 3.32. Insurance Company Permits; Compliance. (a) Except as
disclosed in Section 3.32(a) of the Company Disclosure Schedule, each of the
Insurance Companies and the Insurance Company Subsidiaries is in possession of
all franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity necessary for each of the Insurance Companies or any Insurance Company
Subsidiary to own, lease and operate its properties or to carry on its business
as it is now being conducted (the "Insurance Company Permits") except where the
failure to obtain any such Insurance Company Permits, would not, individually or
in the aggregate, have a Material Adverse Effect. As of the date hereof, no
suspension or cancellation of any of the Insurance Company Permits is pending
or, to the knowledge of the Company, threatened.
(b) Except as disclosed in Section 3.32(b) of the Company Disclosure
Schedule, neither the Insurance Companies nor any Insurance Company Subsidiary
is in conflict with, or in default or violation of, (i) any Law applicable to
the Insurance Companies or any Insurance Company Subsidiary or by which any
property or asset of the Insurance Companies or any Insurance Company Subsidiary
is bound or affected, (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Insurance Companies or any Insurance Company Subsidiary is a party
or by which the Insurance Companies or any Insurance Company Subsidiary or any
property or asset of the Insurance Companies or any Insurance Company Subsidiary
is bound or affected or (iii) any Insurance Company Permits, except in each case
for any such conflicts, defaults or violations that would not, individually or
in the aggregate, have a Material Adverse Effect.
SECTION 3.33. Insurance Company Financial Statements. True and
complete copies of the audited statutory financial statements of each of the
Insurance Companies as of December 31, 1999 and for the year ended December 31,
1999, together with all related notes and schedules thereto and (ii) the
unaudited financial statements of the Insurance Companies as of September 30,
2000 and for the period then ended (the "Insurance Financial Statements") are
attached as Section 3.33 of the Company Disclosure Schedule. The Insurance
Financial Statements were prepared in conformity with the statutory accounting
practices prescribed or permitted by the state or nation of domicile for each
the Insurance Companies applied on a consistent basis throughout the periods
indicated, and each presents fairly, in all material respects, the financial
position of the Insurance Company to which it relates as at the respective dates
thereof and for the respective periods indicated therein, except as otherwise
noted therein. The balance sheets of each of Rhode Island Co. and Bermuda Co.
contained in the Insurance Financial Statements as of September 30, 2000 are
hereinafter referred to as the "Insurance Company Balance Sheets".
SECTION 3.34. Undisclosed Liabilities of the Insurance Companies.
Except for those liabilities that are disclosed in Section 3.34 of the Company
Disclosure Schedule or are fully reflected or reserved against on the Insurance
Company Balance Sheets, neither the Insurance Companies nor any Insurance
Company Subsidiary has outstanding any liability or obligation of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due), except for liabilities and obligations that have been
incurred
27
since the date of the Insurance Company Balance Sheets in the ordinary course of
business and that would not, individually or in the aggregate, have a Material
Adverse Effect. With respect to liabilities or obligations concerning the
matters addressed in Section 3.38, the provisions of such Section and not this
Section 3.34 shall apply.
SECTION 3.35. Absence of Certain Changes or Events With Respect to the
Insurance Companies. From September 30, 2000 through the date hereof, except as
set forth in Section 3.35 of the Company Disclosure Schedule, (a) each of the
Insurance Companies and each of the Insurance Company Subsidiaries has conducted
its business only in the ordinary course, (b) since such date, there has not
been any circumstance, event, occurrence, change or effect that would reasonably
be expected, individually or in the aggregate, to have a Material Adverse Effect
and (c) neither the Insurance Companies nor any Insurance Company Subsidiary has
taken or permitted any action that if taken or permitted after the date hereof
would constitute a breach of any of the covenants set forth in Section 5.01.
SECTION 3.36. Absence of Insurance Company Litigation. Except as
specifically disclosed in Section 3.36 of the Company Disclosure Schedule and
except for claims under policies in the ordinary course, there is no Action
pending against the Insurance Companies or any Insurance Company Subsidiary, or
against any property or asset of the Insurance Companies or any Insurance
Company Subsidiary, before any court, arbitrator or Governmental Entity,
domestic or foreign which the Company reasonably believes, individually or in
the aggregate, would be reasonably likely to result in liability of any
Insurance Company or any Insurance Company Subsidiary in amounts in excess of
$50,000. Except as specifically disclosed in Section 3.36 of the Company
Disclosure Schedule, neither the Insurance Companies nor any Insurance Company
Subsidiary nor any property or asset of the Insurance Company or any Insurance
Company Subsidiary is subject to any continuing order of, consent decree,
settlement agreement or similar written agreement with, or, to the knowledge of
the Company, continuing investigation by, any Governmental Entity, or any order,
writ, judgment, injunction, decree, determination or award of any Governmental
Entity that would, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 3.37. Insurance Company Material Contracts. (a) Subsections
(i) through (x) of Section 3.37 of the Company Disclosure Schedule contain a
list of the following types of contracts and agreements to which either of the
Insurance Companies or any Insurance Company Subsidiary is a party (such
contracts, agreements and arrangements as are required to be set forth in
Section 3.37 of the Company Disclosure Schedule being the "Insurance Company
Material Contracts"):
(i) each contract and agreement which (A) has or is likely to involve
consideration of more than $50,000, in the aggregate, during one or more of
the calendar years ending December 31, 2000 or 2001 or (B) is likely to
involve consideration of more than $50,000, in the aggregate, over the
remaining term of such contract, and which, in either case, cannot be
canceled by either of the Insurance Companies or any Insurance Company
Subsidiary without penalty or further payment and without more than 90
days' notice;
28
(ii) all management contracts (excluding contracts for employment) and
contracts with other consultants which has or is likely to involve
consideration of more than $50,000, including any contracts involving the
payment of royalties or other amounts calculated based upon the revenues or
income of each of the Insurance Companies or any Insurance Company
Subsidiary or income or revenues related to any product of either of the
Insurance Companies or any Insurance Company Subsidiary to which either of
the Insurance Companies or any Insurance Company Subsidiary is a party;
(iii) all contracts and agreements evidencing indebtedness for
borrowed money;
(iv) all contracts and agreements with any Governmental Entity to
which either of the Insurance Companies or any Insurance Company Subsidiary
is a party;
(v) all contracts and agreements that limit, or purport to limit, the
ability of either of the Insurance Companies or any Insurance Company
Subsidiary to compete in any line of business or with any person or entity
or in any geographic area or during any period of time;
(vi) other than in those entered into in the ordinary course of
business, all contracts, agreements, commitments and instruments that
obligate either of the Insurance Companies or any Insurance Company
Subsidiary to make any payments or issue or pay in excess of $50,000 to any
employee or consultant or make any payments or issue or pay anything of
value to any affiliate, director or officer;
(vii) all contracts, agreements, commitments and instruments that
include any indemnification, contribution or support obligations in an
amount which would reasonably be expected to exceed $50,000 or which in the
aggregate would reasonably be expected to exceed $50,000;
(viii) other than in those entered into in the ordinary course of
business, all contracts, agreements, commitments and instruments that
obligate capital expenditures involving total payments of more than
$50,000;
(ix) all contracts, agreements, commitments and instruments that
obligate either of the Insurance Companies or any Insurance Company
Subsidiary to issue or sell any capital stock; and
(x) all other contracts and agreements, whether or not made in the
ordinary course of business, which are material to either of the Insurance
Companies or any Insurance Company Subsidiary or the conduct of their
respective businesses, or the absence of which would, individually or in
the aggregate, have a Material Adverse Effect.
(b) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, (i) each Insurance Company Material Contract is a
legal, valid and binding
29
agreement in full force and effect, and none of the Insurance Company Material
Contracts is in default by its terms or has been canceled by the other party and
no event has occurred that with notice or lapse of time or both would constitute
a default, (ii) to the Company's knowledge, no other party is in breach or
violation of, or default (where applicable) under, any Insurance Company
Material Contract; (iii) neither of the Insurance Companies nor any Insurance
Company Subsidiary is in receipt of any claim of default (where applicable)
under any such agreement; and (iv) neither the execution of this Agreement nor
the consummation of the Merger or any other transaction contemplated herein
shall constitute default, give rise to cancellation rights, or otherwise
adversely affect any of either of the Insurance Company's rights under any
Insurance Company Material Contract. The Company has furnished or made available
to Parent true and complete copies of all Insurance Company Material Contracts,
including any amendments thereto.
SECTION 3.38. Insurance Company Taxes. The Insurance Companies and the
Insurance Company Subsidiaries have filed all United States federal, state,
local and non-United States Tax returns and reports due and required to be filed
by them and have paid and discharged all Taxes due and required to be paid or
discharged, other than (a) such Taxes, returns or reports as are being contested
in good faith by appropriate proceedings and (b) such Taxes, returns or reports
or other occurrences that would not, individually or in the aggregate, have a
Material Adverse Effect. No United States (federal, state or local) or
non-United States taxing authority or agency is asserting in writing or
threatening to assert in writing against the Insurance Companies or any
Insurance Company Subsidiary any deficiency or claim for any Taxes or interest
thereon or penalties in connection therewith. Neither the Insurance Companies
nor any Insurance Company Subsidiary has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of
any Tax. The accruals and reserves for Taxes reflected in the Company Balance
Sheet are adequate to cover all Taxes accruable through such date (including
interest and penalties, if any, thereon) in accordance with U.S. GAAP. Neither
the Insurance Company nor any Insurance Company Subsidiary has made an election
under Section 341(f) of the Code. There are no Tax liens upon any property or
assets of the Insurance Companies or any of the Insurance Company Subsidiaries
except liens for current Taxes not yet due. Neither the Insurance Companies nor
any of the Insurance Company Subsidiaries has been required to include in income
any adjustment pursuant to Section 481 of the Code by reason of a voluntary
change in accounting method initiated by the Insurance Companies or any of the
Insurance Company Subsidiaries, and the IRS has not initiated or proposed any
such adjustment or change in accounting method, in either case which adjustment
or change would have a Material Adverse Effect.
SECTION 3.39. Absence of Restrictions on Conduct of Insurance Company
Business. Other than ordinary course regulatory restrictions, no oral or written
contract, license or permit restricts the ability of the Insurance Companies or
any Insurance Company Subsidiary to own, possess or use its assets or conduct
its business or operations in any geographic area or restricts in any way the
full participation of any employees, producers or agents of the Insurance
Companies or any Insurance Company Subsidiary in the operation of such business.
30
SECTION 3.40. Insurance Company Computer Systems. Other than in
respect of ordinary course maintenance and repairs, the Computer Systems of each
of the Insurance Companies and each Insurance Company Subsidiary are
operational, except where a failure to be so operational would not, individually
or in the aggregate, have a Material Adverse Effect.
SECTION 3.41. No Downgrading of Rating of Insurance Companies. As of
the date hereof, and except for any downgrading which may occur solely as a
result of the Merger or the Related Party Transactions, there has not occurred
any downgrading, nor has the Company become aware of any pending or overtly
threatened downgrading, of either of the Insurance Company's or any of the
Insurance Company Subsidiaries' rating by A.M. Best.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As an inducement to the Company to enter into this Agreement, Parent
and Merger Sub hereby, jointly and severally, represent and warrant to the
Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Parent is
a corporation duly organized and validly existing under the laws of Ontario.
Merger Sub is a corporation duly organized under the laws of the State of
Delaware, and each of Parent and Merger Sub has all requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
SECTION 4.02. Articles of Incorporation and By-Laws. Parent has
heretofore made available to the Company a complete and correct copy of the
Articles of Incorporation and By-Laws, each as amended to date, of Parent and
the Certificate of Incorporation and By-Laws of Merger Sub. Such respective
organizational documents are in full force and effect and neither Parent nor
Merger Sub is in violation of any of the provisions of its respective
organizational documents.
SECTION 4.03. Authority Relative to This Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Merger and the other transactions contemplated by this Agreement. The
execution and delivery of this Agreement by each of Parent and Merger Sub and
the consummation by each of Parent and Merger Sub of the Merger and the other
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement or
to consummate the Merger and the other transactions contemplated by this
Agreement (other than, if required, the approval and adoption of the Related
Party Transactions (as defined herein) by the requisite vote of approval of the
shareholders of Parent (the "Parent Shareholders' Approval") entitled to vote on
the matter and the filing of the Certificate of Merger with the Secretary of
State of the State of
31
Delaware as required by the DGCL). The board of directors of Parent, by
resolutions duly adopted by vote at a meeting duly called and held and not
subsequently rescinded or modified in any way on or prior to the date hereof,
has duly approved this Agreement and the Merger, and determined that the
execution, delivery and performance of this Agreement is advisable. This
Agreement has been duly and validly executed and delivered by each of Parent and
Merger Sub and, assuming the due authorization, execution and delivery by the
Company, constitutes the legal, valid and binding obligation of each of Parent
and Merger Sub, enforceable against each of Parent and Merger Sub in accordance
with its terms.
SECTION 4.04. Capitalization. (a) The authorized capital stock of
Parent consists of (a) an unlimited number of common shares of Parent (the
"Parent Common Shares") and (b) an unlimited number of preference shares of
Parent (the "Parent Preferred Shares"). As of the date hereof, (a) 18,585,654
Parent Common Shares and (b) no Parent Preferred Shares were issued and
outstanding. All of the issued and outstanding Parent Common Shares are validly
issued, fully paid and nonassessable. No Parent Common Shares or Parent
Preferred Shares are held in the treasury of Parent or by any subsidiary of
Parent (the "Parent Subsidiaries"). There are no issued or outstanding bonds,
debentures, notes, convertible notes or other indebtedness of Parent having the
right to vote on any matters on which shareholders of Parent may vote. Except
for the agreements or arrangements described in Section 4.04 of the Parent
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
stock of Parent or conditionally or absolutely obligating Parent or any
Subsidiary to issue or sell any shares of stock of, or other equity interests
in, Parent. Section 4.04 of Parent Disclosure Schedule sets forth details
regarding the Parent Executive Share Purchase Plan, including the relevant
vesting times. All Parent Common Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding obligations (whether conditional or
absolute) of Parent to repurchase, redeem or otherwise acquire any shares or
other equity interests of Parent Common Shares. Each outstanding share of stock
or other equity interest of each Parent Subsidiary is duly authorized, validly
issued, fully paid and non-assessable and each such share or other equity
interest owned by Parent is free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
Parent's voting rights, charges and other encumbrances of any nature whatsoever.
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by each of Parent and Merger Sub do
not, and the performance of this Agreement will not, (i) conflict with or
violate the Articles of Incorporation or By-Laws of Parent or the Certificate of
Incorporation or By-Laws of Merger Sub, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 4.05(b) have been
obtained and all filings and notifications described in Section 4.05(b) have
been made, conflict with or violate any Law applicable to Parent or Merger Sub
or by which any property or asset of Parent or Merger Sub is bound or affected
or (iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of
Parent or Merger Sub pursuant to, any
32
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation, except, with respect to clauses
(ii) and (iii) of this Section 4.05(a), for any such conflicts, violations,
breaches, defaults or other occurrences that would not prevent or materially
delay the consummation of the transactions contemplated by, or otherwise prevent
Parent and Merger Sub from performing their material obligations under, this
Agreement.
(b) The execution and delivery of this Agreement by each of Parent and
Merger Sub do not, and the performance of this Agreement by each of Parent and
Merger Sub will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Entity, except for (A) the
pre-merger notification requirements of the HSR Act and the requirements of
other applicable competition laws, (B) the requisite approvals of insurance
regulatory authorities (including, without limitation, the insurance regulatory
authorities of Rhode Island), (C) applicable requirements, if any, of the
Exchange Act, the Securities Act or Blue Sky Laws and state takeover laws, (D)
the DGCL with respect to the filing of the Delaware Certificate of Merger, (E)
all filings, consents, approvals and authorizations to be made with or received
from the Toronto Stock Exchange (the "TSE") and the Ontario Securities
Commission (the "OSC") in connection with the Related Party Transactions, (F)
the approval of the TSE in connection with the issuance of the Parent Debentures
and the underlying Parent Common Shares and (G) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications would not prevent or materially delay the consummation of the
transactions contemplated by, or otherwise prevent Parent and Merger Sub from
performing their material obligations under, this Agreement.
(c) As used in this Agreement, "Related Party Transactions" means the
issuance and sale by Parent of certain convertible debentures to Fairfax
Financial Holdings Limited and the Parent Debentures and the Company Common
Stock underlying such securities and the sale of the capital stock of the
Insurance Companies by the Surviving Corporation to a subsidiary of Fairfax
Financial Holdings Limited.
SECTION 4.06. Permits; Compliance. (a) Except as disclosed in Section
4.06(a) of the Parent Disclosure Schedule, each of Parent and the Parent
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for Parent or any
Parent Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Parent Permits") except where the
failure to obtain any such Parent Permits, would not prevent or materially delay
consummation of the Merger, or otherwise prevent or materially delay Parent from
performing its obligations under this Agreement and would not, individually or
in the aggregate, have a Material Adverse Effect. As of the date hereof, no
suspension or cancellation of any of the Parent Permits is pending or, to the
knowledge of Parent, threatened.
(b) Except as disclosed in Section 4.06(b) of the Parent Disclosure
Schedule, neither Parent nor any Parent Subsidiary is in conflict with, or in
default or violation of, (i) any Law applicable to Parent or any Parent
Subsidiary or by which any property or asset of Parent or any Parent Subsidiary
is bound or affected, (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any
33
any Parent Subsidiary is a party or by which Parent or Parent Subsidiary or any
property or asset of Parent or any Parent Subsidiary is bound or affected or
(iii) any Parent Permits, except in each case for any such conflicts, defaults
or violations that would not prevent or materially delay consummation of the
Merger or otherwise prevent or materially delay Parent from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 4.07. Filings; Financial Statements. (a) Parent has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the TSE and the OSC since December 31, 1998 (collectively, including
all exhibits thereto and any registration statement filed since such date, the
"Parent Reports"). As of the respective dates they were filed, (i) the Parent
Reports complied in all material respects with the requirements of the TSE and
the OSC, as the case may be and (ii) none of the Parent Reports contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Parent Reports was prepared in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP") applied on a consistent basis throughout the periods indicated (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Canadian GAAP) and each presented or will present fairly, in all
material respects, the consolidated financial position, results of operations
and cash flows of Parent and its consolidated subsidiaries as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which are not expected to be material,
individually or in the aggregate).
(c) Parent has heretofore furnished to the Company a complete and
correct copy of any amendments or modifications (which have not yet been filed
with the TSE or the OSC but which are required to be filed) to agreements,
documents or other instruments which previously had been filed by Parent with
the TSE or the OSC.
(d) Both before and after giving effect to the direct and indirect
liabilities and obligations of the Parent arising under this Agreement, whether
absolute or contingent, the Parent: (i) is solvent (i.e., the aggregate fair
value of its assets exceeds the sum of its liabilities); (ii) has adequate
working capital; and (iii) is able to pay its debts as they mature.
SECTION 4.08. Undisclosed Liabilities. Except for those liabilities
that are disclosed in Section 4.08 of the Parent Disclosure Schedule or are
fully reflected or reserved against on the balance sheet of Parent contained in
the Parent Reports as of September 30, 2000 (the "Parent Balance Sheet"),
neither Parent nor any Parent Subsidiary has outstanding any liability or
obligation of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due), except for liabilities and
obligations that have been incurred since the date of the Parent Balance Sheet
in the ordinary course of business, that would not prevent or materially delay
consummation of the Merger or otherwise prevent or
34
materially delay Parent from performing its obligations under this Agreement and
that would not, individually or in the aggregate, have a Material Adverse
Effect. With respect to liabilities or obligations concerning the matters
addressed in Sections 4.07 and 4.09, the provisions of such Sections and not
this Section 4.08 shall apply.
SECTION 4.09. Taxes. Parent and the Parent Subsidiaries have filed all
United States federal, state, local and non-United States Tax returns and
reports due and required to be filed by them and have paid and discharged all
Taxes required to be paid or discharged, other than (a) such Taxes, returns or
reports as are being contested in good faith by appropriate proceedings and (b)
such Taxes, returns or reports or other occurrences that would not, individually
or in the aggregate, have a Material Adverse Effect. No United States (federal,
state or local) or non-United States taxing authority or agency is asserting in
writing or threatening in writing to assert against Parent or any Parent
Subsidiary any deficiency or claim for any Taxes or interest thereon or
penalties in connection therewith. Neither Parent nor any Parent Subsidiary has
granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of any Tax. The accruals and reserves
for Taxes reflected in the Parent Balance Sheet are adequate to cover all Taxes
accruable through such date (including interest and penalties, if any, thereon)
in accordance with Canadian GAAP. Parent and the Parent Subsidiaries have
withheld from all payments made by them, or otherwise collected, and have
remitted all amounts in respect of Taxes required to be withheld, collected or
remitted by them to the applicable governmental authorities within the required
time periods, except where the failure to so withhold or remit such amounts
would not result in a Material Adverse Effect. There are no Tax liens upon any
property or assets of Parent or any of the Parent Subsidiaries except liens for
current Taxes not yet due.
SECTION 4.10. Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement,
has engaged in no other business activities and has conducted its operations
only as contemplated by this Agreement.
SECTION 4.11. Financing. Parent has financing arrangements that will
provide sufficient funds to pay, or cause Merger Sub to pay, the aggregate
Merger Consideration in connection with the Merger and consummate the Merger.
SECTION 4.12. Brokers. Except as disclosed in Section 4.12 of the
Parent Disclosure Schedule, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or the other transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Parent or Merger Sub.
SECTION 4.13. Affiliate Transactions. Except as disclosed in Section
4.13 of the Parent Disclosure Schedule and except for the ownership of Parent
Common Shares and Parent Share Options pursuant to the Parent Share Option
Plans, there are no material contracts, commitments, agreements, arrangements or
other transactions between Parent or any of Parent Subsidiaries, on the one
hand, and any (i) officer or director of Parent or any of Parent Subsidiaries,
(ii) record or beneficial owner of five percent or more of the voting securities
of Parent or (iii) person or entity known to Parent that directly or indirectly
controls, is controlled
35
by, or is under common control with any such officer, director or beneficial
owner, on the other hand.
SECTION 4.14. Authorization of Parent Convertible Debentures. The
Parent Convertible Debentures have been duly authorized by Parent and, when
executed, authenticated, issued and delivered in accordance with the indenture
under which the Parent Debentures will be issued, will constitute legal, valid
and binding obligations of Parent enforceable against Parent in accordance with
their terms. The Parent Convertible Debentures will, when issued, be registered
under the Securities Act and registered or exempt from registration under the
applicable Blue Sky Laws.
SECTION 4.15. Indebtedness of Parent. Section 4.15 of the Parent
Disclosure Schedule contains a true, correct and complete list of all of the
Parent's indebtedness for borrowed money and Parent is not in default in any
material respect of any of its obligations thereunder.
SECTION 4.16. Additional Representations and Warranties of Parent. (a)
Parent is a reporting issuer in good standing under the Securities Act (Ontario)
and has been a reporting issuer for the last twelve months.
(b) The issued and outstanding Parent Common Shares in the capital of
Parent are listed and posted for trading on the TSE and Parent is not in
material default of any of the policies or by-laws of the TSE.
(c) No securities commission, stock exchange or similar regulatory
authority has issued or is threatening to issue any order preventing or
suspending trading in any securities of Parent, nor has Parent received a notice
that any such order is pending.
(d) The Parent Common Shares issuable upon conversion of the Parent
Debentures have been, or will be prior to the Effective Time, duly reserved and
authorized for issuance, and such Parent Common Shares, when issued and
delivered upon due conversion of the Parent Debentures, will be fully paid and
non-assessable shares in the capital of Parent listed and posted for trading on
the TSE.
(e) The issuance and delivery of the Parent Debentures to the holders
of Company Common Stock and of the Parent Common Shares upon the conversion of
the Parent Debentures is exempt from the prospectus and registration
requirements of the Securities Act (Ontario), and no prospectus or other
document must be filed with, proceeding taken against or approval, permit,
consent or authorization to be obtained, from the Ontario Securities Commission
under applicable securities laws, rules, regulations, notices and policies in
Ontario.
(f) Neither the Parent Debentures nor the Parent Common Shares
issuable upon the conversion of the Parent Debentures will be subject to a "hold
period" under applicable securities laws, rules, regulations, notices and
policies in Ontario, provided that:
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(i) at the time of the first trade of such security, the Parent is a
reporting issuer in Ontario and has been a reporting issuer in Ontario for
at least 12 months;
(ii) in the case of a person or company in a special relationship with
Parent, the person or company effecting the first trade of such security
has reasonable grounds to believe Parent is not in default under the
Securities Act (Ontario) and the regulations made thereunder;
(iii) disclosure to the OSC has been made of the issuance of the
Parent Debentures and the Parent Common Shares issuable upon the conversion
of the Parent Debentures;
(iv) no unusual effort is made to prepare the market or to create a
demand for the securities and no extraordinary commission or consideration
is paid for the trade; and
(v) the trade is not a "control block distribution".
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger.
Except as contemplated by this Agreement, the Company agrees that, between the
date of this Agreement and the Effective Time, unless Parent shall otherwise
consent in writing (which consent shall not be unreasonably withheld or
delayed), the businesses of the Company and the Company Subsidiaries shall be
conducted only in, and the Company and the Company Subsidiaries shall not take
any action except in, the ordinary course of business; and the Company shall use
its reasonable best efforts to preserve substantially intact the business
organization of the Company and the Company Subsidiaries, maintain their rights
and keep available the services of the current officers, employees and
consultants of the Company and the Company Subsidiaries and to preserve the
current relationships of the Company and the Company Subsidiaries with
customers, licensors, licensees and other persons with which the Company or any
Company Subsidiary has significant business relations and where the loss of any
such relationship would, either individually or in the aggregate, have a
Material Adverse Effect.
By way of amplification and not limitation, except as contemplated by
this Agreement, neither the Company nor any of its subsidiaries shall, between
the date of this Agreement and the Effective Time, directly or indirectly, do,
or propose to do, any of the following without the prior written consent of
Parent:
(a) amend or otherwise change its Certificate of Incorporation or
By-Laws or equivalent organizational documents;
(b) transfer, issue, sell, pledge, lease, license, dispose, grant,
encumber, or authorize for transfer, issuance, sale, pledge, lease,
license, disposition, grant or
37
encumbrance (i) any shares of its stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such stock, or any other ownership interest (including, without
limitation, any phantom interest), of the Company or any Company Subsidiary
or (ii) any assets of the Company or any Company Subsidiary except in the
ordinary course of business ;
(c) authorize, declare, set aside, make or pay any dividend payment or
other distribution, payable in cash, stock, property or otherwise, with
respect to any of its stock, except for regular quarterly dividends on
Company Common Stock declared and paid in cash at times consistent with
past practice in an aggregate amount not in excess of $0.025 per share of
Company Common Stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets or any other business combination) any
interest in any corporation, partnership, other business organization or
any division thereof or all or substantially all of the assets of any such
entity, except for ordinary course organizations affiliated to a purchasing
group of the Company or any Company Subsidiary;
(f) incur any material indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse the obligations of any
person, or make any loans, advances or capital contributions to any person
or grant any security interest in any of its assets except in the ordinary
course of business if the same would not be reasonably likely to have a
Material Adverse Effect;
(g) enter into any lease for the principal location of the Company in
New York City;
(h) authorize, or make any commitment with respect to, any capital
expenditures that are, in the aggregate, in excess of $500,000 for the
Company and its subsidiaries taken as a whole;
(i) other than to facilitate the consummation of the transactions
contemplated hereby, waive any stock repurchase or acceleration rights in
any material respect, amend or change the terms of any options or
restricted stock in any material respect, or reprice options granted under
any Company Stock Option Plan or authorize cash payments in exchange for
any options granted under any such plans (except to implement the
amendments to the Performance Stock Plan previously authorized by the
Board);
(j) (i) increase the compensation payable or to become payable to its
directors, officers or employees (except for increases in the ordinary
course of business and consistent and with current budgets, as disclosed in
Section 5.01(j) of the Company Disclosure Schedule, in salaries or wages of
employees of the Company or any Company Subsidiary or directors or officers
of the Company or any Company Subsidiary who are
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employed at will by the Company or such Company Subsidiaries), (ii) grant
any rights to severance or termination pay to, or enter into any employment
or severance agreement with, any director, officer or other employee of the
Company or any Company Subsidiary (except in the ordinary course of
business to any employee of the Company or any Company Subsidiary who are
not directors or officers of the Company or any Company Subsidiary), or
establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund or policy for the benefit
of any director, officer or employee, (iii) take any affirmative action to
accelerate the vesting of any stock-based compensation, or (iv) hire or
retain any person other than as an employee at will if such person's
aggregate annual or annualized compensation is expected to be in excess of
$100,000;
(k) take any action with respect to accounting principles or
procedures, other than reasonable and usual actions in the ordinary course
of business or required actions pursuant to a change in applicable
statutory or generally accepted accounting principles;
(l) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) of
more than $500,000 individually or in the aggregate, other than the
payment, discharge or satisfaction, in the ordinary course of business, of
liabilities reflected or reserved against in the Company Balance Sheet or
subsequently incurred in the ordinary course of business;
(m) take any action that results in any of the conditions to the
Merger set forth in Article VII not being satisfied, except any action as
may be required by applicable Law; or
(n) announce an intention to authorize or enter into any agreement or
otherwise make any commitment to do any of the foregoing.
SECTION 5.02. Notification of Certain Matters. Parent shall give
prompt notice to the Company, and the Company shall give prompt notice to
Parent, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause (A) any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect or (B) any covenant, condition or agreement contained in this Agreement
not to be complied with or satisfied in any material respect and (ii) any
failure of Parent or the Company, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.02 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Company Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) Parent and
the Company shall prepare the Company Proxy Statement and (ii) Parent and the
Company shall prepare and file with the SEC a registration statement on Form F-4
(together with all amendments thereto, the "Registration Statement") in which
the Company Proxy Statement shall be included as a prospectus, in connection
with the registration under the Securities Act of the Parent Debentures to be
issued to the stockholders of the Company pursuant to the Merger. Parent and the
Company each shall use their reasonable best efforts to cause the Registration
Statement to become effective as promptly as practicable, and, prior to the
effective date of the Registration Statement, Parent shall take all or any
action required under any applicable federal or state securities Laws in
connection with the issuance of the Parent Debentures. Each party shall furnish
all information concerning such party and its affiliates that the other party
may reasonably request in connection with such actions and the preparation of
the Registration Statement and the Company Proxy Statement. As promptly as
practicable after the Registration Statement shall have become effective, the
Company shall mail the Company Proxy Statement to its stockholders. Subject to
Section 6.04(b), the Company Proxy Statement shall include the Company Board
Approval.
(b) Parent and Merger Sub shall cooperate with the Company in the
preparation of the Company Proxy Statement. Parent and the Company each will
advise the other, promptly after they receive notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order, or of any request by the SEC
for amendment of the Company Proxy Statement or the Registration Statement or
comments thereon and responses thereto or requests by the SEC for additional
information. Each party shall give the other party and its counsel the
opportunity to review the Company Proxy Statement or Registration Statement, as
applicable, including all amendments and supplements thereto, prior to their
being filed with the SEC and shall give the other party and its counsel the
opportunity to review all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company, Parent and Merger Sub agrees to use its reasonable best efforts,
after consultation with the other parties hereto, to respond promptly to all
such comments of and requests by the SEC and to cause the Company Proxy
Statement and all required amendments and supplements thereto to be mailed to
the holders of shares of Company Common Stock entitled to vote at the Company
Stockholders' Meeting at the earliest practicable time.
(c) The information supplied by the Company for inclusion in the
Registration Statement and the Company Proxy Statement shall not, at (i) the
time the Company Proxy Statement is cleared by the SEC, (ii) the time the
Company Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of the Company, (iii) the time of the Company
Stockholders' Meeting, and (iv) the Effective Time, contain any untrue statement
of a material fact or fail to state any material fact required to be stated
therein or necessary in
40
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders' Meeting that has become false or misleading. If, at any
time prior to the Effective Time, any event or circumstance relating to the
Company or any Company Subsidiary, or any of their respective officers or
directors, that should be set forth in an amendment or a supplement to the
Registration Statement or the Company Proxy Statement should be discovered by
the Company, the Company shall promptly inform Parent. The Company Proxy
Statement and all other documents for which the Company is responsible in
connection with the Merger or the other transactions contemplated by this
Agreement will comply as to form and substance in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
(d) The information supplied by Parent for inclusion in the
Registration Statement and the Company Proxy Statement shall not, at (i) the
time the Registration Statement is declared effective, (ii) the time the Company
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to the stockholders of Parent and the Company, (iii) the time of the Company
Stockholders' Meeting and (iv) the Effective Time, contain any untrue statement
of a material fact or fail 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 or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting that has become false or
misleading. If, at any time prior to the Effective Time, any event or
circumstance relating to Parent or Merger Sub, or their respective officers or
directors, should be discovered by Parent which should be set forth in an
amendment or a supplement to the Registration Statement and the Company Proxy
Statement, Parent shall promptly inform the Company.
SECTION 6.02. Company Stockholders' Meeting. The Company, acting
through the Board, shall, in accordance with applicable law and the Company's
Certificate of Incorporation and By-Laws, (i) duly call, give notice of, convene
and hold a meeting of the holders of Company Common Stock as promptly as
practicable after the date on which the Company Proxy Statement is cleared by
the SEC for the purpose of voting upon the approval of the Merger, this
Agreement and other transactions contemplated herein (the "Company Stockholders'
Meeting") and (ii) subject to Section 6.04 hereof, (A) include in the Company
Proxy Statement the unanimous recommendation of the Board that the stockholders
of the Company approve and adopt this Agreement, the Merger and the other
transactions contemplated by this Agreement and (B) use its best efforts to
obtain such approval and adoption.
SECTION 6.03. Access to Information; Confidentiality. (a) From the
date hereof until the Effective Time, the Company shall, and shall cause the
Company Subsidiaries and the officers, directors, employees, auditors and agents
of the Company and the Company Subsidiaries to, afford the officers, employees
and agents of Parent and Merger Sub and persons providing or proposing to
provide Parent or Merger Sub with financing for the Merger and other
transactions contemplated by this Agreement and other representatives
(collectively, the "Parent Representatives") of Parent complete access at all
reasonable times to the officers, employees, agents, properties, offices, plants
and other facilities, books and records of the Company and
41
each Company Subsidiary, and shall furnish Parent and Merger Sub and persons
providing or proposing to provide Parent or Merger Sub with financing for the
Merger and other transactions contemplated by this Agreement with such
financial, operating and other data and information as Parent or Merger Sub,
through its officers, employees or agents, may reasonably request.
(b) From the date hereof until the Effective Time, Parent shall, and
shall cause the Parent Subsidiaries and the officers, directors, employees,
auditors and agents of Parent and the Parent Subsidiaries to, afford the
officers, employees and agents of the Company and other representatives
(collectively, the "Company Representatives", and, together with the Parent
Representatives, the "Representatives") of the Company complete access at all
reasonable times to the officers, employees, agents, properties, offices, plants
and other facilities, books and records of Parent and each Parent Subsidiary,
and shall furnish the Company with such financial, operating and other data and
information as the Company, through its officers, employees or agents, may
reasonably request.
(c) Each party to this Agreement shall comply with, and shall cause
its Representatives to comply with, all of their obligations under the
Confidentiality Agreements listed in Section 6.03(c) of each of the Company
Disclosure Schedule and the Parent Disclosure Schedule (the "Confidentiality
Agreements"). All information obtained by a party or any of its Representatives
pursuant to (a) or (b) above shall be subject to the Confidentiality Agreements.
SECTION 6.04. No Solicitation or Negotiation. (a) Neither the Company
nor any Company Subsidiary shall, directly or indirectly, through any officer,
director, agent or otherwise, (i) solicit, initiate or encourage the submission
of, any Acquisition Proposal (as defined in Section 9.04) or (ii) except as
required by the fiduciary duties of the Board under applicable law after having
received advice from outside legal counsel and after giving prior written notice
to Parent and Merger Sub and entering into a customary confidentiality agreement
on terms no less favorable to the Company than those contained in the
Confidentiality Agreement, participate in any discussions or negotiations
regarding, or furnish to any person, any information with respect to, or
otherwise cooperate in any way with respect to, or assist or participate in,
facilitate or encourage, any unsolicited proposal that constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal.
(b) Except as set forth in this Section 6.04(b), neither the Board nor
any committee thereof shall (i) withdraw, modify or change, or propose to
withdraw, modify or change, in a manner adverse to Parent or Merger Sub, the
approval or recommendation by the Board or any such committee of this Agreement,
the Merger or any other transaction contemplated hereby, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, in the event that, prior to obtaining the Company
Stockholders' Approval, the Board determines in good faith that it is required
to do so by its fiduciary duties under applicable law after having received
advice from outside legal counsel, the Board may withdraw or modify its approval
or recommendation of the Merger, but only to terminate this Agreement in
accordance with Section 8.01(j) (and, concurrently with such termination, cause
the Company to enter into an agreement with respect to a Superior Proposal).
42
(c) The Company shall, and shall direct or cause its directors,
officers, employees, representatives and agents to, immediately cease and cause
to be terminated any discussions or negotiations with any parties that may be
ongoing with respect to any Acquisition Proposal.
(d) The Company shall promptly advise Parent orally and in writing of
(i) any Acquisition Proposal or any request for information with respect to any
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal or request and the identity of the person making such Acquisition
Proposal or request and (ii) any changes in any such Acquisition Proposal or
request.
(e) The Company agrees, except as required by the Board's fiduciary
duties under applicable law after having received advice from outside legal
counsel, not to release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which the Company is a party.
SECTION 6.05. Directors' and Officers' Indemnification and Insurance.
(a) The Bylaws of the Surviving Corporation shall contain the respective
provisions that are set forth, as of the date of this Agreement, in Article Nine
of the Certificate of Incorporation of the Company, which provisions shall not
be amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at or at any time prior to the Effective Time were directors,
officers, employees, fiduciaries or agents of the Company (or their estates or
personal representatives), unless such modifications shall be required by law.
(b) For a period of six years after the Effective Time, the Surviving
Corporation shall maintain in effect the current directors' and officers'
liability insurance policies maintained by the Company (provided that the
Surviving Corporation may substitute therefor policies of substantially similar
coverage containing terms and conditions that are not on the whole materially
less favorable) with respect to claims arising from facts or events that
occurred prior to the Effective Time; provided, however, that in no event shall
the Surviving Corporation be required to expend pursuant to this Section 6.05(b)
more than an amount per year equal to 125% of current annual premiums paid by
the Company for such insurance (which premiums the Company represents and
warrants to be approximately $278,000 per year in the aggregate) (the "Maximum
Premium") unless the directors agree to reimburse the Surviving Corporation in
full for the amount by which the annual premium exceeds the Maximum Premium.
(c) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity in such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each case, proper provision shall be made so that
the successors and assigns of the Surviving Corporation or, at Parent's option,
Parent, shall assume the obligations set forth in this Section 6.05.
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SECTION 6.06. Further Action; Consents; Filings. (a) Upon the terms
and subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts expeditiously to (i) take, or cause to be taken, all
appropriate action and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
Merger and the other transactions contemplated by this Agreement, (ii) obtain
from Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or the
Company or any of their respective subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated by this Agreement and (iii)
make all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement, the Merger and the other transactions
contemplated by this Agreement that are required under (A) the Exchange Act and
the Securities Act and the rules and regulations thereunder and any other
applicable federal or state securities laws, (B) the HSR Act and any other
antitrust regulations, (C) the rules and regulations of all relevant insurance
regulatory authorities and (D) any other applicable Law. The parties hereto
shall cooperate with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
party and its advisors prior to filing and, if requested, by accepting all
reasonable additions, deletions or changes suggested in connection therewith.
(b) (i) Each party to this Agreement shall give any notices to third
parties, and use its reasonable best efforts to obtain any third party consents
(without making any payments therefor), (A) necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, (B) required to be
disclosed in the Company Disclosure Schedule or the Parent Disclosure Schedule
(as applicable) or (C) required to prevent a Material Adverse Effect from
occurring prior to or after the Effective Time.
(ii) From the date of this Agreement until the Effective Time, each
party to this Agreement shall promptly notify the other party in writing of any
pending or, to the knowledge of such party, threatened action, suit, arbitration
or other proceeding or investigation by any Governmental Entity or any other
person (i) challenging or seeking damages in connection with the Merger or the
conversion of Company Common Stock into the Merger Consideration pursuant to the
Merger, (ii) seeking to restrain or prohibit the consummation of the Merger or
otherwise limiting the right of Parent or its subsidiaries to own or operate all
or any portion of the businesses or assets of the Company or its subsidiaries,
or (iii) which could reasonably be expected to have a Material Adverse Effect.
Each of the parties hereto agrees to cooperate and use its reasonable best
efforts to vigorously contest and resist any such action, including
administrative or judicial actions, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and that restricts, prevents or
prohibits consummation of the Merger, including, without limitation, by
vigorously pursuing all available avenues of administrative and judicial appeal.
SECTION 6.07. Consent of Holders of Restricted Stock. Prior to the
Effective Time, and in accordance with the terms and conditions of the
Performance Stock Plan, the Company shall obtain from each holder of Restricted
Shares written consent to the cancellation
44
of such Restricted Shares in consideration for the payment provided herein, and
shall take all such other actions as may be necessary so that the terms of
Section 2.07 may be carried out and so that, except for the Vested Share Rights
(as described in Section 2.07), no person will continue to have any rights with
respect to the Restricted Shares or pursuant to the Performance Stock Plan at
any time after the Effective Time.
SECTION 6.08. Public Announcements. Parent and the Company agree that
no public release or announcement concerning the Merger and other transactions
contemplated in this Agreement shall be issued by either party without the prior
consent of the other party (which consent shall not be unreasonably withheld),
except as such release or announcement may be required by Law or the rules or
regulations of the Nasdaq or the TSE, in which case the party required to make
the release or announcement shall use its best efforts to allow the other party
reasonable time to comment on such release or announcement in advance of such
issuance.
SECTION 6.09. Parent Shareholders' Meeting. If required, Parent,
acting through its Board of Directors, shall, in accordance with applicable law
and the Parent's Certificate of Incorporation and By-Laws, and no later than May
10, 2001, duly call, give notice of, convene and hold a meeting (the "Parent
Shareholders' Meeting") of holders of the Parent Common Shares for the purpose
of obtaining the Parent Shareholders' Approval.
SECTION 6.10. Affiliates. Prior to the Effective Time, the Company
shall deliver to Parent a list of names and addresses of those Persons who are,
in the Company's reasonable judgment, on such date, affiliates (within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act (each such Person being an "Affiliate")) of the Company. The
Company shall provide Parent with such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company shall use
its reasonable best efforts to deliver or cause to be delivered to Parent, prior
to the Effective Time, an affiliate letter substantially in the form attached
hereto as Exhibit 6.10, executed by each of the Affiliates of the Company
identified in the foregoing list and any Person who shall, to the knowledge of
the Company, have become an Affiliate of the Company subsequent to the delivery
of such list.
SECTION 6.11. Board Nomination. As soon as practicable after the
Effective Time, Parent shall cause Xxxxx Xxxxxxx to become a member of the Board
of Directors of Parent. Prior to the Effective Time, Parent shall cause Xxxxx
Xxxxxxx to become a member of the board of directors of Merger Sub.
SECTION 6.12. Certain Funding of the Company. In the event the Company
is required to repay its indebtedness to Summit Bank and/or has its loan
availability reduced or terminated in order to consummate the Merger or as a
result of signing this Agreement, Parent will provide or cause to be provided a
substantially equivalent loan facility to the Company or assist in such
repayment.
SECTION 6.13. Parent Debentures. Parent shall make or cause to be made
all required filings under the Securities Act and the Trust Indenture Act of
1939, as amended, to register the offer and sale of the Parent Debentures.
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SECTION 6.14. Filing With Insurance Regulatory Authorities. Parent
shall cause a Form A to be filed with the appropriate insurance regulatory
authority with respect to the Merger within 30 business days of the date of this
Agreement.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective obligations of
the Company, Parent and Merger Sub to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable Law:
(a) Approval. Each of the Company Stockholders' Approval and Parent
Shareholders' Approval shall have been obtained.
(b) No Order. No Governmental Entity, nor any court of competent
jurisdiction or arbitrator, shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, judgment, decree,
injunction, executive order or award (whether temporary, preliminary or
permanent) (collectively, "Order") that is then in effect, and has the
effect of making the Merger illegal or otherwise restricting, preventing or
prohibiting consummation of the Merger or any other transactions
contemplated by this Agreement.
(c) Consents. All consents, approvals and authorizations (including,
without limitation, the Required Consents which, for greater clarity,
include the consents and approvals of the Rhode Island insurance regulatory
authorities) legally required to be obtained to consummate the Merger and
the other transactions contemplated in and by this Agreement shall have
been obtained from and made with all Governmental Entities.
(d) Antitrust Waiting Periods. Any waiting period (and any extensions
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(e) Actions. No Action shall have been brought and remain pending by
any Governmental Entity or other person, entity or group that seeks to
prevent or delay the consummation of the transactions contemplated by this
Agreement.
(f) Effective Registration Statement. If any Parent Debentures are to
be issued, the Registration Statement shall have been declared effective by
the SEC under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
SEC and no proceeding for that purpose shall have been initiated by the
SEC.
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SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the
Effective Time, as though made at and as of the Effective Time, except that
those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date, and Parent
shall have received a certificate of the Chief Executive Officer or Chief
Financial Officer of the Company to that effect.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent shall have received a certificate
of the Chief Executive Officer or Chief Financial Officer of the Company to
that effect.
(c) Consents. All consents from third parties under any Company
Material Contract required as a result of the transactions contemplated by
this Agreement shall have been obtained.
(d) Regulatory Consents. All consents, approvals and authorizations
required to be made with or received from the TSE and the OSC under
applicable laws, rules and regulations regarding the Related Party
Transactions have been received.
(e) Actions. No Action shall have been brought and remain pending by
any Governmental Entity or other person, entity or group that would
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
(f) Employment Agreement. Xxxxx Xxxxxxx, the president of the Company,
has executed an employment agreement, together with a related management
bonus agreement and restricted stock arrangement, substantially in the form
of Exhibit A to this Agreement, and such employment agreement shall be in
full force and effect as of the Closing Date.
(g) Waiver. Prior to the Closing Date, Xxxxxxxxxxx Xxxxxx, Inc.,
formerly known as Xxxxxx, Xxxx & Weiner, Inc. ("SRW"), ASCO Risk Management
Corp., formerly known as Amsco Coverage Corp. ("Amsco") and DS Risk
Management Corp., formerly known as D.S.I. Associates, Inc. ("DSI"), shall
have delivered a written and executed waiver (the "Waiver") of all of their
respective rights to receive securities of the Company under the Asset
Purchase Agreement among Xxxx Insurance Associates, Inc., SRW, Amsco and
DSI, Xxxxxxx Xxxxxxxxxxx and Xxxx Xxxxxx dated as of January 1, 1999,
pursuant to which SRW, Amsco and DSI shall have agreed to accept cash in
lieu of securities of the Company and the Company shall have delivered to
Parent an executed copy of such Waiver.
47
SECTION 7.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all material respects as of the date hereof and as of
the Effective Time, as though made on and as of the Effective Time, except
that those representations and warranties that address matters only as of a
particular date shall remain true and correct in all material respects as
of such date, and the Company shall have received a certificate of the
Chief Executive Officer or Chief Financial Officer of Parent to that
effect.
(b) Agreements and Covenants. Each of Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Time (provided that any agreement or covenant
that is qualified by materiality or by reference to a Material Adverse
Effect shall have been performed or complied with in all respects on or
prior to the Effective Time) and the Company shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
Parent to that effect.
(c) Parent Common Shares. The Parent Common Shares shall continue to
be posted for trading on the TSE and that number of Parent Common Shares
which may be issued upon the conversion of the Parent Debentures have been
reserved for issuance by Parent at the Effective Time.
(d) Change of Control. Fairfax Financial Holdings Limited and its
affiliates shall not have sold or otherwise disposed of such number of
Parent Common Shares to cause it or they at the Closing Date to no longer
beneficially own at least 30% of the outstanding Parent Common Shares and
to no longer beneficially own more Parent Common Shares than any other
shareholder of Parent.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of this Agreement and the transactions contemplated by
this Agreement, as follows:
(a) by mutual written consent of each of Parent, Merger Sub and the
Company duly authorized by the Boards of Directors of each of Parent,
Merger Sub and the Company;
48
(b) by either Parent, Merger Sub or the Company if the Effective Time
shall not have occurred on or before December 31, 2001; provided, however,
that the right to terminate this Agreement under this Section 8.01(b) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(c) by either Parent or the Company, if there shall be any Order of a
Governmental Entity (whether temporary, preliminary or permanent) which is
then in effect and has the effect of making consummation of the Merger
illegal or otherwise preventing or prohibiting consummation of the Merger;
provided, however, that the provisions of this Section 8.01(c) shall not be
available to any party whose failure to fulfill its obligations hereunder
shall have been the cause of, or shall have resulted in, such Order;
(d) by Parent if the TSE or the OSC shall have indicated in writing
that it has made a final and nonappealable determination that it will not
grant a consent, approval or authorization referred to under Section
7.02(d) of this Agreement;
(e) by Parent if (i) the Board withholds, withdraws, modifies or
changes the Company Board Approval in a manner adverse to Parent or shall
have resolved to do so, (ii) the Board shall have recommended to the
stockholders of the Company an Acquisition Proposal or shall have resolved
to do so or shall have entered into any letter of intent or similar
document or any agreement, contract or commitment accepting any Acquisition
Proposal, (iii) the Company shall have failed to include the Company Board
Approval in the Company Proxy Statement, (iv) if management of the Company
shall fail to certify that the Board has not withdrawn, modified or
changed, or resolved to do any of the foregoing with respect to, its
recommendation in favor of the approval of the Merger and this Agreement
within five business days after Parent requests in good faith, based on its
good faith belief that such certification is desired under the
circumstances, (v) a tender offer or exchange offer for 30% or more of the
outstanding shares of stock of the Company is commenced and, within five
business days after such offer is commenced, the Board fails to recommend
against acceptance of such tender offer or exchange offer by its
stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders) or
(vi) the Company Stockholders' Meeting is not held within 45 days after the
date on which the Registration Statement shall have become effective;
(f) by either Parent or the Company if this Agreement and the
transactions contemplated herein shall fail to receive the requisite vote
for approval at the Company Stockholders' Meeting;
(g) by either Parent or the Company if this Agreement and the
transactions contemplated herein shall fail to receive the requisite vote
for approval at the Parent Shareholders' Meeting;
49
(h) by Parent upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in either Section 7.02(a) or
(b) would not be satisfied (a "Terminating Company Breach"); provided,
however, that, if such Terminating Company Breach is curable by the Company
through the exercise of all reasonable efforts and the Company continues to
exercise all reasonable efforts, Parent may not terminate this Agreement
under this Section 8.01(h) for a period of 30 days from the date on which
Parent delivers to the Company written notice setting forth in reasonable
detail the circumstances giving rise to such Terminating Company Breach;
provided further that if, within such 30 day period, the Company does cure
such Terminating Company Breach so that the conditions set forth in either
Section 7.02(a) or (b) would no longer be breached thereby, then Parent
shall not be entitled to terminate this Agreement pursuant to this Section
8.01(h).
(i) by the Company upon a breach of any representation, warranty,
covenant or agreement on the part of Parent or Merger Sub set forth in this
Agreement, or if any representation or warranty of Parent or Merger Sub
shall have become untrue, in either case such that the conditions set forth
either in Section 7.03(a) or (b) would not be satisfied (a "Terminating
Parent Breach"); provided, however, that, if such Terminating Parent Breach
is curable by Parent through the exercise of all reasonable efforts and
Parent continues to exercise all reasonable efforts, Company may not
terminate this Agreement under this Section 8.01(i) for a period of 30 days
from the date on which the Company delivers to Parent written notice
setting forth in reasonable detail the circumstances giving rise to such
Terminating Parent Breach; provided further that if, within such 30 day
period, Parent does cure such Terminating Company Breach so that the
conditions set forth in either Section 7.03(a) or (b) would no longer be
breached thereby, then the Company shall not be entitled to terminate this
Agreement pursuant to this Section 8.01(i)
(j) by the Company, upon approval of the Board, if prior to the
Company Stockholders' Approval, the Board determines in good faith that it
is required to do so by its fiduciary duties under applicable law after
having received advice from outside legal counsel in order to enter into an
agreement with respect to a Superior Proposal, upon five business days'
prior written notice to Parent, setting forth in reasonable detail the
identity of the person making, and the final terms and conditions of, the
Superior Proposal and after duly considering any proposals that may be made
by Parent during such five business day period; provided, however, that any
termination of this Agreement pursuant to this Section 8.01(j) shall not be
effective until the Company has made full payment of all amounts provided
under Section 8.05; or
(k) by Parent, if the Company shall have breached its obligations
under Section 6.04.
SECTION 8.02. Effect of Termination. In the event of termination of
this Agreement pursuant to Section 8.01, this Agreement shall forthwith become
void, there shall be
50
no liability under this Agreement on the part of Parent, Merger Sub or the
Company or any of their respective officers or directors, and all rights and
obligations of each party hereto shall cease, subject to the remedies of the
parties set forth in Section 8.05; provided, however, that nothing herein shall
relieve any party from liability for the willful breach of any of its
representations, warranties, covenants or agreements set forth in this Agreement
and that the Confidentiality Agreement shall survive termination of this
Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval of the Merger and this Agreement by the stockholders of the Company, no
amendment may be made that would reduce the amount or change the type of
consideration into which each Share shall be converted upon consummation of the
Merger. This Agreement may not be amended, except by an instrument in writing
signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein of any other party hereto or in
any document delivered pursuant hereto, and (c) waive compliance with any
agreement of any other party hereto or condition contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 8.05. Fees and Expenses. (a) In the event that
(i) this Agreement is terminated pursuant to Section 8.01(e), 8.01(j)
or 8.01(k); or
(ii) this Agreement is terminated pursuant to Section 8.01(f) or
8.01(h) and the Company enters into an agreement with respect to an
Acquisition Proposal, or an Acquisition Proposal is consummated, in each
case within 12 months after such termination, and the Company shall not
theretofore have been required to pay the Fee to Parent pursuant to Section
8.05(a)(i) or 8.05(a)(ii);
then, in any such event, the Company shall pay Parent promptly (but in no
event later than 10 business days after the first of such events shall have
occurred) a fee equal to $3,855,000 (the "Fee"), which amount shall be payable
in immediately available funds, plus all Expenses (as hereinafter defined).
(b) If Parent shall fail to receive the requisite vote for approval at
the Parent Shareholders' Meeting and as a result Parent is unable to consummate
the transaction, then, in such event, Parent shall pay the Company promptly (but
in no event later than 10 business days after the failure to receive the
requisite vote for approval) the Fee, which amount shall be payable in
immediately available funds, plus all Expenses.
51
(c) If this Agreement is terminated for any reason whatsoever and a
party hereto is in material breach of its material covenants and agreements
contained in this Agreement or is in material breach of its representations and
warranties contained in this Agreement, such party shall, whether or not any
payment is made pursuant to Section 8.05(a), reimburse the other party hereto
and their respective stockholders and affiliates (not later than five business
days after submission of statements therefor) for all out-of-pocket expenses and
fees (including, without limitation, all fees of counsel, accountants, experts
and consultants and their respective stockholders and affiliates) incurred or
accrued by either of them or on their behalf in connection with the Merger or
other transactions contemplated by this Agreement and for which such party or
its stockholders or affiliates is liable (all the foregoing being referred to
herein collectively as the "Expenses"); provided, however, that in no event
shall either party be obligated to pay Expenses incurred by the other party in
excess of $1,000,000.
(d) Except as set forth in this Section 8.05, all costs and expenses
incurred in connection with this Agreement, the Voting Agreements and the Merger
or other transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Merger and other transactions
contemplated by this Agreement are consummated, except that the Company and
Parent each shall pay one-half of all Expenses relating to printing and filing
of the Registration Statement and the Proxy Statement, and all SEC and other
regulatory filing fees incurred in connection with the Registration Statement
and the Proxy Statement.
(e) In the event that the Company shall fail to pay the Fee or any
Expenses when due, the term "Expenses" shall be deemed to include the costs and
expenses actually incurred or accrued by Parent and Merger Sub and their
respective stockholders and affiliates (including, without limitation, fees and
expenses of counsel) in connection with the collection under and enforcement of
this Section 8.05, together with interest on such unpaid Fee and Expenses,
commencing on the date that the Fee or such Expenses became due, at a rate equal
to the rate of interest publicly announced by Citibank, N.A., from time to time,
in the City of New York, as such bank's Base Rate plus 2%.
(f) In the event that Parent shall fail to pay any Expenses when due,
the term "Expenses" shall be deemed to include the costs and expenses actually
incurred or accrued by the Company and their respective stockholders and
affiliates (including, without limitation, fees and expenses of counsel) in
connection with the collection under and enforcement of this Section 8.05,
together with interest on such unpaid Expenses, commencing on the date that such
Expenses became due, at a rate equal to the rate of interest publicly announced
by Citibank, N.A., from time to time, in the City of New York, as such bank's
Base Rate plus 2%.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following
52
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.01):
if to Parent or Merger Sub:
Hub International Limited
000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Facsimile No.: (000) 000-0000
Attention: W. Xxxx Xxxxx
with a copy to:
Shearman & Sterling
000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxx, Esq.
if to the Company:
Xxxx Group Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: President
with a copy to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx, Esq.
and
Xxx Xxxxxxx, Esq.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
SECTION 9.02. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement and
any certificate delivered
53
pursuant hereto by any person shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Section 8.01, as the case may be,
except that the agreements set forth in Section 6.05 shall survive the Effective
Time indefinitely and those set forth in Sections 6.03(c), 6.08, 6.11, 8.02,
8.05 and this Article IX shall survive termination of this Agreement
indefinitely unless a different period is set forth in any such Section.
SECTION 9.03. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 6.05 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
SECTION 9.04. Certain Definitions. For purposes of this Agreement, the
term:
(a) "Acquisition Proposal" means (i) any proposal or offer from any
person relating to any direct or indirect acquisition of (A) 30% or more of
the fair market value of the assets of the Company and its subsidiaries
taken as a whole or (B) over 30% of any class of equity securities of the
Company or of any Company Subsidiary; (ii) any tender offer or exchange
offer, as defined pursuant to the Exchange Act, that, if consummated, would
result in any person beneficially owning 30% or more of any class of equity
securities of the Company or any Company Subsidiary; (iii) any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any Company
Subsidiary, other than the transactions contemplated by this Agreement;
(iv) any person or entity shall have acquired, after the date hereof,
beneficial ownership or the right to acquire beneficial ownership of, or
any "group" (as such term is defined under ----- Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder;
provided, however, that any "group" formed or deemed formed by persons
taking actions in furtherance of this Agreement shall not be deemed to
constitute a group) shall have been formed that beneficially owns or has
the right to acquire beneficial ownership of, 30% or more of any class of
equity securities of the Company or any person, entity or "group"
beneficially owning, as of the date hereof, 30% or more of any class of
equity securities of the Company shall have acquired, after the date
hereof, beneficial ownership or the right to acquire beneficial ownership
of an additional 1% of such class of equity securities of the Company; (v)
the declaration or payment by the Company, of an extraordinary dividend on
any of its shares of capital stock or the effectuation by the Company of a
recapitalization or other type of transaction that would involve either a
change in the Company's outstanding capital stock or a distribution of
assets of any kind to the holders of such capital stock; (vi) the
repurchase by the Company of shares of Company Common Stock or (vii) any
other transaction the consummation of which would reasonably be expected to
impede, interfere with, prevent or materially delay consummation of the
Merger or the transactions contemplated by this Agreement.
54
(b) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with such specified person.
(c) "beneficial owner" with respect to any shares means a person who
shall be deemed to be the beneficial owner of such shares (i) that such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly
or indirectly, (ii) that such person or any of its affiliates or associates
has, directly or indirectly, (A) the right to acquire (whether such right
is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding, or (iii) that are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares.
(d) "business day" means any day on which both the principal offices
of the SEC in Washington, D.C. are open to accept filings, or, in the case
of determining a date when any payment is due, any day (other than a
Saturday or a Sunday) on which banks are not required or authorized to
close in The City of New York.
(e) "Computer Systems" shall mean all computer, hardware, software,
systems, and equipment (including embedded microcontrollers in non-computer
equipment) embedded within or required to operate the current products of
the Company and the Company Subsidiaries, and/or material to or necessary
for the Company and the Company Subsidiaries to carry on their businesses
as currently conducted.
(f) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise.
(g) "Material Adverse Effect" means (i) when used in connection with
the Company or a Company Subsidiary any circumstance, event, occurrence,
change or effect that is or will be materially adverse to the business,
operations, properties, condition (financial or otherwise), assets
(tangible or intangible), liabilities (including contingent liabilities) or
results of operations of the Company and the Company Subsidiaries taken as
a whole, (ii) when used in connection with the Insurance Companies or
Insurance Company Subsidiaries any circumstance, event, occurrence, change
or effect that is materially adverse to the business, operations,
properties, condition (financial or otherwise), assets (tangible or
intangible), liabilities (including contingent liabilities) or results of
operations of the Insurance Companies and their subsidiaries taken as a
whole, and (iii) when used in connection with the Parent or
55
Merger Sub means any circumstance, event, occurrence, change or effect that
is or is likely to be materially adverse to the business, operations,
properties, condition (financial or otherwise), assets (tangible or
intangible), liabilities (including contingent liabilities) or results of
operations of the Parent and its subsidiaries taken as a whole.
(h) "Parent Debentures" means the 8.5% convertible subordinated
debentures due 2006 that shall be issued pursuant to an indenture (the form
of which is attached hereto as Exhibit B) by Parent to holders of the
Company Common Stock in accordance with the provisions of Article II
hereof, as a component of the Merger Consideration.
(i) "Performance Stock Plan" shall mean the Company's Performance
Stock Plan.
(j) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person"
as defined in section 13(d)(3) of the Exchange Act), trust, association or
entity or government, or political subdivision, agency or instrumentality
of a government.
(k) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means an affiliate controlled by
such person, directly or indirectly, through one or more intermediaries.
(l) "Superior Proposal: means any Acquisition Proposal on terms which
the Board determines, in its good faith judgment (after having received the
advice of a financial advisor of recognized reputation), to be more
favorable to the Company's stockholders than the Merger and for which
financing, to the extent required, is then committed.
(m) "Taxes" shall mean any and all taxes, fees, levies, duties,
tariffs, imposts and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Entity or taxing authority,
including, without limitation: taxes or other charges on or with respect to
income, franchise, windfall or other profits, gross receipts, property,
sales, use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value-added or gains taxes; license, registration and documentation fees;
and customers' duties, tariffs and similar charges.
(n) "$" or "dollar" means a United States dollar.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect as long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon determination that any such
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall
56
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement be consummated as
originally contemplated to the fullest extent possible.
SECTION 9.06. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 9.07. Governing Law; Forum. Except to the extent that the
Merger is mandatorily governed by the DGCL, this Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York applicable
to contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law principles. All Actions arising out of or
relating to this Agreement shall be heard and determined in the United States
District Court for the Southern District of New York. Each of the parties to
this Agreement (a) consents to submit itself to the personal jurisdiction of the
United States District Court for the Southern District of New York for the
purpose of any Action arising out of or relating to this Agreement brought by
any party hereto, and (b) irrevocably waive, and agree not to assert by way of
motion, defense, or otherwise, in any such Action, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the Action is
brought in an inconvenient forum, that the venue of the Action is improper, or
that this Agreement or the transactions contemplated herein may not be enforced
in or by any of the above-named courts. Parent agrees that it may be served with
process in the State of New York and irrevocably appoints Odyssey Reinsurance
Corporation, 0 Xxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, as the agent of Parent
to accept service of process relating to any Action arising out of or relating
to this Agreement.
SECTION 9.08. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.09. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.10. Entire Agreement. This Agreement (including the Company
Disclosure Schedule and the Parent Disclosure Schedule), the Voting Agreements
and the Confidentiality Agreements constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof. This Agreement shall not be
assigned (whether pursuant to a merger, by operation of law or otherwise),
except that Parent and Merger Sub may assign all or any of their rights and
obligations hereunder to any affiliate of Parent, provided that no such
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations.
57
SECTION 9.11. Waiver of Jury Trial. Each of the parties hereto hereby
waives to the fullest extent permitted by applicable law any right it may have
to a trial by jury with respect to any litigation directly or indirectly arising
out of, under or in connection with this Agreement or the transactions
contemplated by this Agreement. Each of the parties hereto (a) certifies that 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 that foregoing waiver and (b) acknowledges that it and the other
hereto have been induced to enter into this Agreement and the transactions
contemplated by this Agreement, as applicable, by, among other things, the
mutual waivers and certifications in this Section 9.11.
58
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
HUB INTERNATIONAL LIMITED
By:
-----------------------------------------------
Name:
Title:
416 ACQUISITION INC.
By:
-----------------------------------------------
Name:
Title:
XXXX GROUP INC.
By:
-----------------------------------------------
Name:
Title:
59
EXHIBIT 6.10
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF THE COMPANY
[------------], [----]
Hub International Limited
000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Xxxx Group Inc., a Delaware corporation (the "Company"),
as the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), and/or (ii) used in and for purposes of
Accounting Series Releases 130 and 135, as amended, of the Commission. Pursuant
to the terms of the Agreement and Plan of Merger, dated as of January 19, 2001
(the "Merger Agreement"), among Hub International Limited, a corporation
organized under the laws of Ontario ("Parent"), 416 Acquisition Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and the
Company, Merger Sub will be merged with and into the Company (the "Merger").
Capitalized terms used in this letter agreement without definition shall have
the meanings assigned to them in the Merger Agreement.
As a result of the Merger, I may receive the 8.5% Subordinated
Convertible Debentures due 2006 (the "Parent Debentures")to be issued by Parent
on the Closing Date pursuant to an indenture among Parent and o, as trustee. I
would receive such Parent Debentures in exchange for shares (or upon exercise of
options for shares) owned by me of common stock, par value $.01 per share, of
the Company (the "Company Common Stock").
1. I represent, warrant and covenant to Parent that in the event I
receive any Parent Debentures as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Parent Debentures in violation of the Act or the Rules and Regulations.
60
B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Parent Debentures, to the extent I felt necessary, with my counsel or
counsel for the Company.
C. I have been advised that the issuance of the Parent Debentures to
me pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form F-4. However, I have also been
advised that, because at the time the Merger is submitted for a vote of the
stockholders of the Company, (a) I may be deemed to be an affiliate of the
Company and (b) the distribution by me of the Parent Debentures has not
been registered under the Act, I may not sell, transfer or otherwise
dispose of the Parent Debentures issued to me in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under the
Act, (ii) such sale, transfer or other disposition has been registered
under the Act, or (iii) in the opinion of counsel reasonably acceptable to
Parent, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. I understand that Parent is under no obligation to register the
sale, transfer or other disposition of the Parent Debentures by me or on my
behalf under the Act or, except as provided in paragraph 2(A) below, to
take any other action necessary in order to make compliance with an
exemption from such registration available.
E. I understand that there will be placed on the certificates for the
Parent Debentures issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED
IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED [_______ ___, ______]
BETWEEN THE REGISTERED HOLDER HEREOF AND HUB INTERNATIONAL LIMITED, A COPY
OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF HUB INTERNATIONAL
LIMITED."
F. I understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement,
Parent reserves the right to put the following legend on the certificates
issued to my transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE BEEN
61
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
G. Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of
this letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with me
as follows:
A. For so long as and to the extent necessary to permit me to sell the
Parent Debentures pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Act, Parent shall (a) use its reasonable best efforts to (i)
file, on a timely basis, all reports and data required to be filed with the
Commission by it pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and (ii) furnish to me upon request a
written statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale of the Parent
Debentures by me under Rule 145, and (b) otherwise use its reasonable
efforts to permit such sales pursuant to Rule 145 and Rule 144. Parent
hereby represents to me that it has filed all reports required to be filed
with the Commission under Section 13 of the 1934 Act during the preceding
12 months.
B. It is understood and agreed that certificates with the legends set
forth in paragraphs 1(E) and 1(F) above will be substituted by delivery of
certificates without such legends if (i) one year shall have elapsed from
the date the undersigned acquired the Parent Debentures received in the
Merger and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the
undersigned acquired the Parent Debentures received in the Merger and the
provisions of Rule 145(d)(3) are then applicable to the undersigned, or
(iii) Parent has received either an opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to Parent, or a "no action" letter
obtained by the undersigned from the staff of the Commission, to the effect
that the restrictions imposed by Rule 145 under the Act no longer apply to
the undersigned.
------------------------------
Name of Affiliate
62
DISCLOSURE SCHEDULE OF XXXX GROUP INC. (THE "COMPANY")
-------
TO THE AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 19, 2001
("MERGER AGREEMENT") BY AND AMONG
----------------
HUB INTERNATIONAL LIMITED,
416 ACQUISITION INC.
AND THE COMPANY
Capitalized terms used in the following Schedules and not defined
therein shall have the same meanings assigned to such terms in the Merger
Agreement. The disclosures contained in any Schedule are to be taken as relating
to all representations and warranties in the Agreement regardless of the
Schedule in which said disclosure appears.
SCHEDULE 3.01(b)
Company Subsidiaries
Company Subsidiary Jurisdiction of Percentage of Percentage of
------------------ Incorporation Outstanding Company Outstanding Company
------------- Capital Stock Owned by Capital Stock Owned
the Company by the Company
---------------------- Subsidiary
-------------------
Xxxx Insurance Associates, Inc. ("KIA") Delaware 100% 0%
Xxxx-Western Ins. & Risk Services ("KWIR") Delaware 100% 0%
Western Group Administrators Inc.* Delaware 0% 100% by KWIR
American Coverage Administrators Inc.* Delaware 0% 100% by KWIR
Old Lyme Insurance Company of Rhode Island, Rhode Island 100% 0%
Inc.
Old Lyme Insurance Company Ltd. ("OLIS") Bermuda 100% 0%
Park Brokerage Ltd. Bermuda 0% 100% by XXXX
Xxxx Insurance Associates, Inc. New England Delaware 100% 0%
Program Brokerage Corporation Delaware 100% 0%
Xxxx Services Corporation Delaware 100% 0%
Xxxx Administrators Corporation Delaware 100% 0%
Claims Administration Corporation ("CAC") Delaware 100% 0%
* Such entities are Insignificant Subsidiaries.
2
1. CAC owns warrants that, if exercised, would, together with its
equity interest, give it approximately 6.0% ownership of Xxxxxxxxxxxx.xxx.
2. The Company administers over twenty purchasing groups. See Attached
List.
3. Pursuant to a Purchase Agreement among KIA, Xxxx Group of Florida,
Inc. ("Xxxx"), Xxxxxx Virtue and Xxxxx Xxxxxxx dated as of January 1, 2000, KIA
is entitled to up to 25% of the profits of Xxxx.
4. Interim Operating Agreement (and related agreement) between Risk
Data Services, LLC and Xxxx Insurance Associates, Inc. (internet exchange),
dated December 1, 2000.
5. See Attached List of Investments.
3
SCHEDULE 3.03
Capitalization
1. Amended and Restated Stock Option Plan: 1,350,000 shares of common
stock are reserved for use under this plan. The purpose of this plan is to
attract and retain key employees.
2. Stock Performance Plan. See Schedule 3.03(b) hereof.
3. Outside Directors of the Company receive 5,000 stock options
annually on October 31 pursuant to resolutions of the Board of Directors.
4. 401(k) Retirement Savings Plan: Subject to certain guidelines, a
participant in this plan who saves at least 5% of his annual salary in this plan
will be eligible for a Company contribution of 1% of his annual salary in the
form of Company common stock.
5. Purchase Agreement among Xxxx Insurance Associates, Inc., Xxxx
Group of Florida, Inc., Xxxxxx Virtue and Xxxxx Xxxxxxx dated as of January 1,
2000.
4
SCHEDULE 3.03(a)
Company Stock Options
See attached chart.*
* Each of the options vests at the rate of 20% a year for five years, with the
exception of Xxxxx Xxxxxxx'x xxxxx of 200,000 options, which vest quarterly. The
options may be exercised at any time after they vest. Subject to a time
restriction, vested options expire one year after the date of such termination.
5
SCHEDULE 3.03(b)
Restricted Stock
Restricted Share Holder Restricted Shares Vested as of Restricted Shares that may be
----------------------- ------------------------------- -----------------------------
January 19, 2001 Vested as of December 31, 2001
---------------- ------------------------------
Xxxx Xxxxxx-Xxxx 0 15,385
Xxxx Xxxxx 0 38,461
Xxx X. Xxxxxxx 0 7,692
Xxxxxx Xxxx 0 15,919
Xxxxxx Xxxxx 0 10,406
Xxxxxxx Xxxxx 0 15,385
Xxxxxxx X. Xxxxxxx 0 38,461
Xxxxx Xxxxxxxx 0 7,692
Xxxxxx Xxxxx 0 12,895
Xxx Xxxxxx 0 7,692
Xxxx Xxxxxx 0 15,385
Xxxxxxx Xxxxxx 0 5,203
6
SCHEDULE 3.05
Conflicts
1. Loan Agreement by and between the Company and Summit Bank, dated
June 24, 1998.
2. Common Stock Purchase Warrants issued by Cyber$ettle, Inc. to
Claims Administration Corporation.
3. The Employment Agreements of the individuals listed below contain
severance provisions:
(a) Xxxxxx Xxxxx
(b) Xxxx Xxxxxxx
(c) Xxxxxxx Xxxxxx
(d) Xxxxxxx Xxxxxxx
(e) Xxxxx Xxxxxxx
(f) Xxxxxx Xxxxx
(g) Xxxxxxx Xxxxxxxxxxx
(h) Xxxx Xxxxxx
4. Office Lease entered into by and between Arcadia Gateway Centre
Associates, Ltd. and Xxxx-Western Insurance & Risk Services, Inc. dated June 30,
2000, amended by Addendum No. 1 to Office Lease dated July 19, 2000.
5. The payments to Xxxxxx, Xxxx & Wiener, Inc., AMSCO Coverage Corp.
and D.S.I. Associates, Inc., pursuant to Section 3.2 of the Asset Purchase
Agreement among Xxxx Insurance Associates, Inc., Xxxxxx, Xxxx & Weiner, Inc.,
Amsco Coverage Corp. and D.S.I. Associates, Inc., Xxxxxxx Xxxxxxxxxxx and Xxxx
Xxxxxx dated as of January 1, 1999.
6. Interim Operating Agreement (and related agreement) between Risk
Data Services, LLC and Xxxx Insurance Associates, Inc. (internet exchange),
dated December 1, 2000.
7
SCHEDULE 3.05(b)
Consents of Governmental Entities
None
8
SCHEDULE 3.06(a)
Company Permits
I There are certain insurance brokerage transactions for which one of
the Company Subsidiaries utilizes the insurance brokerage/agent license of
another Company Subsidiary.
9
SCHEDULE 3.06(b)
Compliance
None.
10
SCHEDULE 3.08
Undisclosed Liabilities
None.
11
SCHEDULE 3.09
Absence of Certain Changes or Events
None.
12
SCHEDULE 3.10
Litigation
1. Ivory Holding v. Program Brokerage Corporation and Claims
Administration Corporation.
2. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., Classic Realty, et al.
3. Lefstan Realty v. Claims Administration Corporation and Old Lyme
Insurance Company of Rhode Island, Inc.
4. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., 910 Southern Realty, et al.
5. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., Norwax Associates, et al.
6. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., Fein Property Management Corp.
7. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., RSG Properties.
8. Xxxxx x. United Harlem x. Xxxx Insurance Associates, Inc.
9. Dezer Properties x. Xxxx Insurance Associates, Inc.
10. Citiwide Cleaning x. Xxxx Insurance Associates, Inc.
11. Xxxxxx x. Xxxx Insurance Associates, Inc. and Xxxx Corporation of
Connecticut.
12. City of Xxxx Cove x. Xxxx Insurance Associates, Inc.
13. Xxxxxxx x. BB & BB Mgmt.
14. WSR v. the Company.
15. Xxxxxxx v. Claims Administration Corporation.
16. Clarendon v. the Xxxx Insurance Associates, Inc.
17. American Federal Group x. Xxxx Insurance Associates, Inc.
13
18. Xxxxxxxx x. Xxxx Insurance Associates, Inc.
19. CGS v. Program Brokerage Corporation and Xxxx Insurance
Associates, Inc.
20. Xxxx-Western Insurance & Risk Services, Inc. x. Xxxxxx.
21. Xxxxxx x. Xxxx Insurance Associates, Inc.
22. TPS NY x. Xxxx Services Corporation.
23. Certain subsidiaries were the subject of an administrative
investigation commenced in 1992 by the New York Insurance Department relating to
how property insurance policies were issued for the Residential Real Estate
Program. While the Company had discussions with the New York Insurance
Department regarding settlement of such investigation several years ago, there
have been no recent discussions or activity relating to this matter.
14
SCHEDULE 3.11(a)
Company Benefit Plans
Plan Provider / Administrator
Life US Life
Guardian Life
Accidental Death & Dismemberment AIG Life
Travel Accident AIG Life
Voluntary Life US Life
Health Anthem Health Plan
Blue Chip RI
Dental Prudential / Antnauhsc
Vision Xxxxx Vision
Short Term Disability Arista
Long Term Disability Prudential
Long Term Care First Union
401(k) Plan Stanwich Benefits
Flexible Spending Account BAI
Stock Performance Plan
Amended and Restated Stock Option Plan
Severance Benefits Plan
Xxxx International, L.P. Pension Plan --
terminated on July 1, 1995
15
SCHEDULE 3.11(b)
Certain Types of Plans
1. Severance Benefits Plan.
2. Amended and Restated Stock Option Plan.
3. Stock Performance Plan.
4. See Schedule 3.11(g).
16
SCHEDULE 3.11(c)
Compliance
The Xxxx Retirement Savings Plan failed to enforce the terms of
certain loans to participants made under such plan which were not timely repaid.
17
SCHEDULE 3.11(g)
Severance Payments
1. Upon involuntary termination of employment, without cause, as a
result of a sale or merger, employees receive one-half of one week's basic rate
of pay for each completed full year of service, up to a maximum of two week's
pay. Each effected employee who executes a release and waiver receives one
week's base rate of pay for each year of service, with no maximum.
2. The following individuals are each a party to a severance agreement
with the Company in lieu of any severance such individual may be entitled to
under his or her employment agreement: Xxxxxxx Xxxxxxx, Xxxx Xxxxx, Xxxxxx
Xxxxx, Xxx Xxxx, Xxxxx Xxxxxxxx, Xxx Xxxxxxx and Xxxxxx Xxxxxxx.
3. The Employment Agreements of the individuals listed below contain
severance provisions:
(a) Xxxxxx Xxxxx
(b) Xxxx Xxxxxxx
(c) Xxxxxxx Xxxxxx
(d) Xxxxxxx Xxxxxxx
(e) Xxxxx Xxxxxxx
(f) Xxxxxx Xxxxx
(g) Xxxxxxx Xxxxxxxxxxx
(h) Xxxx Xxxxxx
4. The consummation of the Transaction will result in payments to
insiders of Restricted Stock pursuant to Section 2.07 of the Agreement.
5. The consummation of the Agreement will constitute a "Change of
Control" under the Severance Benefits Plan, the Stock Performance Plan and the
Amended and Restated Stock Option Plan.
18
SCHEDULE 3.12(a)
Material Contracts
1. Loan Agreement by and between the Company and Summit Bank, dated
June 24, 1998.
2. Letter Agreement, dated July 26, 2000, relating to investment in
Savoy at Staten Island Limited Partnership.
3. Subscription Agreement between We Media, Inc. and Old Lyme
Insurance Company of Rhode Island, Inc. dated January 2, 2001.
4. Common Stock Purchase Warrants issued by Cyber$ettle, Inc. to
Claims Administration Corporation.
5. Stock Purchase Letter between Claims Administration Corporation and
XxxxxxxxxXxxxxx.xxx, Inc. dated August 15, 2000.
6. Subscription Agreement between Xxxxxxxxx Partners IV, L.P. and Xxxx
Insurance Associates, Inc. dated August 20, 1999.
7. Asset Purchase Agreement among Xxxx Insurance Associates, Inc.,
Xxxxxx, Xxxx & Weiner, Inc., Amsco Coverage Corp. and D.S.I. Associates, Inc.,
Xxxxxxx Xxxxxxxxxxx and Xxxx Xxxxxx dated as of January 1, 1999.
8. Employment agreements, excluding bonuses and commissions, with each
of the following people (it should be noted that standard producers not listed
below can potentially earn commissions which bring them over $100,000 in annual
compensation ):
(i) Xxxxxxxx Xxxxxxxxxx
(ii) Xxxxxx Xxxx
(iii) Xxx Xxxxxxx
(iv) Xxxxxxx Xxxxxxx
(v) Xxxxxx Xxxxx
(vi) Xxxxx Xxxxxxxxxx
(vii) Xxxxx Xxxxxxxx
(viii) Xxxxxx Xxxxxx
(ix) Xxxxx Page
(x) Xxxxx Xxxxxxxx
(xi) Xxxxx Xxxxxxx
(xii) Xxx Xxxxxx
(xiii) Xxxx Xxxxx
(xiv) Xxxxx Xxxxxxx
(xv) Xxxxxx Xxxx
19
(xvi) Xxxx Xxxxxx
(xvii) Xxxxxx Xxxx
(xviii) Xxxxxx Xxxxx
(xix) Xxxxxxx Xxxxx
(xx) Xxxxxxx Xxxxxxxxxxx
(xxi) Xxxx Xxxxxx
(xxii) Xxxxxx Xxxxxxx
(xxiii) Xxxx Xxxxxx
(xxiv) Xxxxxxx Xxxxxx
(xxv) Xxxxxxxxxxx Xxxxx
(xxvi) Xxxxx Xxxxxxx
(xxvii) Xxxxxx Xxxxx
(xxviii)Xxxx Xxxxxx Xxxxxxxx
(xxix) Xxxxxxxxx X'Xxxxxx
(xxx) Xxx Xxxx
(xxxi) Xxxxxx Xxxxx
(xxxii) Xxxxxxx XxXxxxxx
(xxxiii)Xxxxxx Xxxxxxx
(xxxiv) Xxxx Xxxxxxx
9. Purchase Agreement among Xxxx Corporation of Connecticut, Xxxxxx X.
Xxxxx Agency, Inc. and Xxxxxx X. Xxxxx dated as of August 1, 1998.
10. Purchase Agreement among Xxxx Insurance Associates, Inc., Xxxx
Group of Florida, Inc., Xxxxxx Virtue and Xxxxx Xxxxxxx dated as of January 1,
2000.
11. Settlement Agreement among Xxxx Insurance Associates, Inc., FIA,
Inc., Broken & Unwritten, Inc. and Xxxxxx X. Xxxxxxxx dated as of October 15,
1999.
12. Agreement between Claims Administration Corporation and Sun TV,
Inc. dated February 14, 1994.
13. Agreement between the Company and First Insurance Funding Corp.,
relating to the Council of Insurance Agents and Brokers.
14. Co-Branding Agreement between Xxxx Insurance Associates, Inc. and
We Media Inc. dated April 14, 2000.
15. Agreement between Xxxx Insurance Associates, Inc. and Newmark &
Company Real Estate, Inc. dated March 2, 2000.
16. Agreement between AlphaRisk Management and Xxxx Insurance
Associates, Inc. dated August 1995.
17. Premium Finance Disclosure Statement and Security Agreement
between Program Brokerage Corporation and AI Credit Corp., dated December 22,
1999.
20
18. Guarantee by Program Brokerage Corporation of Indebtedness to AI
Credit Corp. dated December 22, 1999.
19. Commercial Note between AI Credit Corp., Xxxx Insurance
Associates, Inc., and the Company.
20. All inter-company loans identified in Section 3.18.
21. Loan Agreement between Old Lyme Insurance Company of Rhode Island,
Inc. and Program Brokerage Corporation dated June 1, 2000.
22. Loan Agreement between Old Lyme Insurance Company of Rhode Island,
Inc. and Xxxx Insurance Associates, Inc. dated March 17, 1999.
23. Letter Agreement between the Company and ZS Fund LP, dated as of
January 5, 2001.
24. Agreement between Xxxx Insurance Associates, Inc. and Xxxxxxxxx
Xxxxxx, effective January 1, 1999, previous agreement between the parties, dated
May 1, 1997.
25. Letter Agreement, dated January 27, 2000, between the Company and
Xxx-Xxxx, Xxxxxx Inc.
26. Program License Agreement between Virtual Research Corporation and
Xxxx Insurance Associates, Inc. dated February 24, 1997.
27. Co-Branding Agreement between Xxxx Insurance Associates and
x0xXxxxxx.xxx, Inc. dated April 14, 2000.
28. Program Agreement between PricewaterhouseCoopers LLP and Xxxx
Insurance Associates, Inc. dated as of August 11, 2000.
29. Netmarketing Services Agreement between Xxxx Insurance Associates,
Inc. and Netmarketing, LLC dated December 3, 1999.
30. Letter Agreement between Xxxx Group Inc and
XxxxxxxxXxxxxxxxxxx.xxx, LLC dated November 14, 2000.
31. Agreement between BenefitPoint, Inc. and Xxxx Insurance
Associates, Inc. dated April, 2000.
32. All Real Property Leases identified in Section 3.14(a).
21
33. Agreement between Xxxx Insurance Associates, Inc. and Tobron
Office Furniture Corp. relating to the purchase of furniture for Arcadia,
California and Long Island, New York offices dated August 2000.
34. Unexecuted Proposal between Xxxx Insurance Associates, Inc. and
Bergon Construction Corp. relating to construction of offices on Long Island,
New York dated October 2000.
35. Interim Operating Agreement between Risk Data Services, LLC and
Xxxx Insurance Associates, Inc. (internet exchange) dated December 1, 2000.
36. Agreement between Xxxxxx North America Inc. and Xxxx Insurance
Associates, Inc. effective February 1, 2001. Note: Not yet signed.
37. Amended and Restated Stock Option Plan.
38. Annual Incentive Plans, including MAIP and SAIP.
39. Stock Performance Plan.
40. 401(k) Retirement Savings Plan
41. Purchase Agreement by and between Xxxx Insurance Associates, Inc.
and Setnor Xxxx Xxxxxxxxx Inc. made and entered into as of March 1, 2000.
42. Agreement between Claims Administration Corporation and Xxxxxxx
Xxxxx & Xxxxxx, LLP, dated February 1, 1995.
43. Acquisition Agreement by and among Old Lyme Holding Corporation,
Xxxx International L.P., and Xxxx Holding Corp. dated as of August 3, 1995
(Indemnity Agreement - Section 7.1).
44. Xxxx Insurance Associates, Inc. has service fee agreements with
the following entities (clients) for more than $100,000 per year:
(a) UJA/FOJP
(b) Combined Coordinating Council
(c) Tishman Construction Corp.
(d) Niagra La Salle
(e) Broadwall Management
(f) RCPI Trust
(g) Arcade Cleaning
(h) Chelsea Property Group
22
45. The Company has entered into a letter agreement with Xxxxx X.
Xxxxxxx, a Stockholder and the Company's Chief Executive Officer, pursuant to
which the Company will pay Xx. Xxxxxxx a bonus of up to $750,000 (but not less
than $716,000) immediately prior to the Effective Time.
46. Pledge Agreement between Old Lyme Insurance Company, Ltd. and The
Bank of Bermuda Limited dated February 17, 1993.
23
SCHEDULE 3.13
Environmental Matters
None
24
SCHEDULE 3.14(a)
Title to Properties
A. Liens
1. Liens in favor of Summit Bank pursuant to the Loan Agreement by and
between the Company and Summit Bank, dated June 24, 1998.
2. Inter-company liens in favor of Old Lyme Holding Corporation by
each of:
(a) Xxxx Insurance Associates L.P.
(b) The Xxxx Group, Inc.
(c) Xxxx Corporation of Connecticut
(d) Xxxx Insurance Services of California, Inc.
(e) Xxxx Corporation of Connecticut
3. Liens in favor of The Bank of Bermuda Limited relating to a line of
credit with an outstanding balance of approximately $700,000.
4. Liens granted pursuant to the Pledge Agreement between Old Lyme
Holding Corporation and Shawmut Bank Connecticut NA dated as of June 30, 1994
(the underlying line of credit has been paid off).
5. Liens securing obligations under equipment leases in the ordinary
course of business.
6. Liens arising in the ordinary course of business.
B. Owned Real Property
1. Condominium located at 000 Xxxxx Xxxxxx Xxxx., Xxxxx 00, Xxxxxxx
Xxxxx Xxxxxx 00000.
C. Leased Real Property
2. Sublease Agreement among Xxxxxx Xxxx Associates, Inc. and Xxxxxxxx
Healthcare Communications, Inc. and Xxx Xxxxxxx Xxxxx Advertising, Inc. made as
of April 15, 1996.
3. Office Sublease made by and between Xxxxxxxx & Company and Xxxx
Insurance Associates, Inc. dated as of February 23, 1999.
4. Agreement of Lease between Lexington Avenue & 42nd Street
Corporation and Xxxx Insurance Associates, Inc. (as successor to Xxxxxx Xxxx
Associates, Inc.) made of as May 1, 1991, amended by Letter Agreement dated as
of May 1, 1991, Letter Agreement dated
25
December 1, 1991, Amendment of Lease made as of July 14, 1992, and Second
Amendment of Lease made as of August 1, 1997.
5. Lease Agreement between 0000 Xxxx Xxxx Xxxx Associates Limited
Partnership and Xxxx Corporation of Connecticut made as of July 9, 1997.
6. Agreement of Lease between Oyster Bay Properties LLC and Xxxx
Insurance Associates, Inc. made as of March 13, 2000.
7. Agreement between Landmark 302 Holdings L.L.C. and Xxxx Insurance
Associates Inc.
8. Office Lease entered into by and between Arcadia Gateway Centre
Associates, Ltd. and Xxxx-Western Insurance & Risk Services, Inc. dated June 30,
2000, amended by Addendum No. 1 to Office Lease dated July 19, 2000.
9. Sublease by and between Xxxx Insurance Associates, Inc. and
Xxxxxxxxxxx.xxx, Inc. made as of April 2000.
10. Agreement of Lease by and between Old Lyme Insurance Company of
Rhode Island, Inc. and Program Brokerage Corp. dated April 15, 1992.
11. Sublease by and between Xxxx Insurance Associates, Inc. and 5B
Technologies Corporation made as of August 31, 2000.
26
SCHEDULE 3.18
Affiliate Transactions
1. International Advisory Services, Ltd., an insurance management
company located in Bermuda of which Xxxxxx Xxxxxxx, a Director of the Company,
and an officer of Old Lyme Insurance Co., Ltd., is a director, provides various
management services to Old Lyme Insurance Co., Ltd., a subsidiary of the
Company. During 1997, 1998 and 1999, Old Lyme Insurance Co., Ltd. paid to
International Advisory Services, Ltd. management fees of $37,500, $30,000 and
$20,000, respectively. Xx. Xxxxxxx is also a director of an insurance brokerage
company, H & H Reinsurance Brokers, Ltd. Pursuant to a reinsurance contract
between Old Lyme Insurance Company of Rhode Island, Inc. and unrelated insurance
carriers (Transatlantic Reinsurance Company and USF Reinsurance Company), H & H
Reinsurance Brokers, Ltd. received commissions from Old Lyme Insurance Company
of Rhode Island, Inc. of $38,114, $0, and $0, in 1997, 1998 and 1999,
respectively, in connection with such contract.
2. Xxx X. Xxxxxxxx, a Director of the Company, is a director of, and
had shared beneficial ownership of more than ten percent of the outstanding
common stock of Sun Television and Appliances, Inc. ("Sun"). Pursuant to an
Agreement between Claims Administration Corporation and Sun, Claims
Administration Corporation agreed to assume certain of the extended service
contracts which Sun sold in conjunction with Sun's sale of appliances to retail
customers. Pursuant to the Agreement, Sun was required to pay Claims
Administration Corporation 30% (later modified to 35%) of the retail selling
price of the assumed extended service contracts, payable in increments to Claims
Administration Corporation over the period of the service contract. Claims
Administration Corporation was then required to return to Sun, after the life of
the service contract expired, an amount equal to what it had received from Sun
less the product of Expenses (what Sun charged to Claims Administration
Corporation for repairing the appliances - see the next paragraph) times 1.2. In
no event, however, would Claims Administration Corporation earn less than 2% or
more than 3% of the retail price of the extended service contracts. Pursuant to
a second agreement, the "Master Service Agreement," Sun agreed to service the
extended service contracts assumed by Claims Administration Corporation pursuant
to the Agreement described above. Claims Administration Corporation agreed to
pay Sun the cost of the repair, less 20%. In mid-1998, Claims Administration
Corporation terminated the Agreements due to Sun's failure to maintain a certain
minimum net worth (a provision of the Agreement) and by failing to remit
payments to Claims Administration Corporation. Soon thereafter, Sun filed for
bankruptcy. Claims Administration Corporation filed a proof of claim on March
11, 1999 for any and all amounts that are due and owing under the Agreement.
3. Letter Agreement between the Company and ZS Fund LP, dated as of
January 5, 2001.
4. Binding Authority Agreement made by and between Old Lyme Insurance
Company of Rhode Island, Inc. and Program Brokerage Corporation.
27
5. Claims Services Agreement by and between Old Lyme Insurance Company
of Rhode Island, Inc. and Claims Administration Corporation made effective
January 1, 1994, amended by Amendment to Claims Services Agreement made as of
July 1, 1998.
6. Agreement to allocate expenses directly incurred by Xxxx Group Inc.
for directors and officers insurance coverage and the Delaware Franchise Tax to
Xxxx Insurance Associates, Inc., Program Brokerage Corp., Old Lyme Insurance
Company of Rhode Island, Inc., Old Lyme Insurance Co., Ltd. and Claims
Administration Corp.
7. Agreement to allocate expenses directly incurred by Xxxx Insurance
Associates, Inc. and/or Program Brokerage Corp. to Old Lyme Insurance Company of
Rhode Island, Inc., Claims Administration Corp. and other operating subsidiaries
(except Old Lyme Insurance Co., Ltd.).
8. Agreement to allocate the accrued Incentive Plan expenses incurred
quarterly by Xxxx Insurance Associates, Inc. to Program Brokerage Corporation,
Claims Administration Corp. and Old Lyme Insurance Company of Rhode Island, Inc.
9. License Agreement between Xxxx Insurance Associates, Inc. and Old
Lyme Insurance Company of Rhode Island, Inc. and other affiliates.
10. Agreement of Lease by and between Old Lyme Insurance Company of
Rhode Island, Inc. and Program Brokerage Corp.
11. Tax Allocation Agreement between Xxxx Group Inc. and Xxxx
Insurance Associates, Inc., Xxxx-Western Ins. & Risk Services, Western Group
Administrators Inc., American Coverage Administrators Inc., Old Lyme Insurance
Company of Rhode Island, Inc., Xxxx Insurance Associates, Inc. New England,
Program Brokerage Corporation, Xxxx Services Corporation, Xxxx Administrators
Corporation, and Claims Administration Corporation.
12. Agreement between Old Lyme Insurance Company of Rhode Island, Inc.
and Program Brokerage Corporation relating to, among other things, the payment
of a brokerage commission.
13. Agreement for a $3,000,000 line of credit between Old Lyme
Insurance Company of Rhode Island, Inc. and Program Brokerage Corporation dated
June 1, 2000.
14. Loan Agreement between Old Lyme Insurance Company of Rhode Island,
Inc. and Xxxx Insurance Associates, Inc. dated March 17, 1999.
15. Acquisition Agreement by and among Old Lyme Holding Corporation,
Xxxx International L.P., and Xxxx Holding Corp. dated as of August 3, 1995
(Indemnity Agreement - Section 7.1).
16. Contingency commission agreement between Old Lyme Insurance Co.,
Ltd. and Program Brokerage Corporation.
28
17. The Company has entered into a letter agreement with Xxxxx X.
Xxxxxxx, a Stockholder and the Company's Chief Executive Officer, pursuant to
which the Company will pay Xx. Xxxxxxx a bonus of up to $750,000 (but not less
than $716,000) immediately prior to the Effective Time.
18. See Employment Agreements listed in Schedule 3.12(a).
29
SCHEDULE 3.19
Insurance
The following is a list of all policies of insurance to which each of
the Company and the Company Subsidiaries are a party or are a beneficiary or
named insured:
Type of Insurance Named Insured Insurance Company Policy No. Term Premium
----------------- ------------- ----------------- ---------- ---- -------
Domestic Package The Company Federal Insurance 0694-18-27 June 1, 2000 to $76,388
Policy Company June 1, 2001
Foreign Package The Company Federal Insurance 7324-91-22 June 1, 2000 to $3,195
Policy Company June 1, 2001
Workers' The Company Federal Insurance Unassigned November 1, 2000 $62,650
Compensation Company to 2001
Workers' Program Beacon Mutual 018805 February 25, 2000 $2,781
Compensation Brokerage Insurance Co. to 2001
Corporation
Workers' Old Lyme Beacon Mutual 004625 June 5, 2000 to $559
Compensation Insurance Insurance Co. June 5, 2001
Company of Rhode
Island, Inc.
Umbrella Liability The Company U.S. Fire 5530714218 June 1, 2000 to $14,280
Insurance Co. 2001
Employee Fidelity The Company National Union 000-00-00 December 21, 1998 $16,126
Fire to December 21, (annual)
2001
Fiduciary Liability The Company National Union 000-00-00 January 15, 2000 $2,570
Pension Trust Fire Ins. Co. to 2001
30
Directors & The Company, [et National Union 000-00-00 August 17, 1998 $205,000
Officers Liability al] Fire to August 17, 2001
Excess Directors & The Company Continental DOX161804337 August 17, 1998 $63,000
Officers Liability Casualty Ins. Co. to August 17, 2001
Employment The Company, [et American 000-00-00 April 1, 2000 to $23,000
Practices Liability al] International April 1, 2001
Specialty Lines
Employed Lawyers The Company American 000-00-00 February 25, 2000 $7,280
Professional International to February 25,
Liability Specialty Lines 2001
Errors & Omissions The Company, [et American 000-00-00 July 31, 2000 to $680,000
Liability al] International 2002 (2 years)
Specialty Lines
31
SCHEDULE 3.21
Labor Matters
1. Xxxxxxxx x. Xxxx Insurance Associates, Inc.
2. Xxxx-Western Insurance & Risk Services, Inc. x. Xxxxxx.
32
SCHEDULE 3.21(a)
Collective Bargaining Agreements
None.
33
SCHEDULE 3.21(b)
Non-Compliance With Applicable Labor and Employment Laws
None.
34
SCHEDULE 3.24
Title to Insurance Business
1. Program Brokerage Corporation: title to insurance accounts whose
business is placed by sub-brokerage companies through Program Brokerage
Corporation remain with such sub-brokerage companies.
2. Xxxxx Xxxxxx: title to group insurance policies produced and
serviced by Xxxxx Xxxxxx prior to the commencement of his employment with Xxxx
Insurance Associates, Inc.
35
SCHEDULE 3.27
Insurance Companies
1. Xxxxxx Insurance Companies
2. American International Group
3. RLI Insurance Company
4. Chubb Group of Insurance Companies
5. CGU Insurance Company
6. Old Lyme Insurance Company of Rhode Island, Inc.
7. Highlands Insurance Company
8. Xxxx & Xxxxxxx Insurance Company
9. Discover Reinsurance Company
10. The Hartford
36
SCHEDULE 3.30(b)
Insurance Company Subsidiaries
Insurance Company Jurisdiction of Capital Stock Percentage of Outstanding
Subsidiary Incorporation Ownership Insurance Company
------------------ --------------- ------------- Subsidiary Capital Stock
Owned by the other
Insurance Company
Subsidiary
--------------------------
Old Lyme Insurance Company Rhode Island 100% owned by the Company
Company of Rhode Island,
Inc.
Old Lyme Insurance Ltd. Bermuda 100% owned by the Company ____
Park Brokerage Ltd. Bermuda 100% owned by Old Lyme 0%
Insurance Ltd.
37
SCHEDULE 3.30(c)
Insurance Company Subsidiaries
Insurance Company Each State in which such Each State in which such If Non-Admitted,
----------------- Insurance Company is an Insurance Company is a Approved or
Admitted Insurer Non-Admitted Insurer Disapproved
----------------------- ------------------------ ----------------
Old Lyme Insurance Company of Rhode Island New Jersey "Approved"
Rhode Island, Inc. New York "Approved"
Old Lyme Insurance Company None None
Ltd.
Park Brokerage Ltd. None None
38
SCHEDULE 3.33(a)
Insurance Company Permits
None.
39
SCHEDULE 3.33(b)
Compliance
None.
40
SCHEDULE 3.34
Insurance Company Financial Statements
See attached.
41
SCHEDULE 3.35
Undisclosed Liabilities of the Insurance Companies
None.
42
SCHEDULE 3.36
Absence of Certain Changes with Respect to the Insurance Companies
None.
43
SCHEDULE 3.37
Insurance Company Litigation
1. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., Classic Realty, et al.
2. Lefstan Realty v. Claims Administration Corporation and Old Lyme
Insurance Company of Rhode Island, Inc.
3. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., 910 Southern Realty, et al.
4. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., Norwax Associates, et al.
5. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., Fein Property Management Corp.
6. National Casualty v. Claims Administration Corporation, Old Lyme
Insurance Company of Rhode Island, Inc., RSG Properties.
7. Ivory Holding v. Program Brokerage Corporation and Claims
Administration Corporation.
44
SCHEDULE 3.38(i)
Insurance Company Material Contracts
1. Management Services Agreement between International Advisory
Services, Ltd. and Old Lyme Insurance Co., Ltd.
2. Agreement between Old Lyme Insurance Company of Rhode Island, Inc.
and Program Brokerage Corporation relating to, among other things, the payment
of a brokerage commission.
3. Various Investment Management Agreements between Old Lyme Insurance
Company of Rhode Island, Inc. and Monarch Financial Co.
4. Various Investment Management Agreements between Old Lyme Insurance
Company of Rhode Island, Inc. and State Street Bank.
5. Various Investment Management Agreements between Old Lyme Insurance
Company of Rhode Island, Inc. and Summit Bank.
6. Various Trust Account Agreements between Old Lyme Insurance Company
of Rhode Island, Inc. and State Street Bank.
7. Various Trust Account Agreements between Old Lyme Insurance Company
of Rhode Island, Inc. and Summit Bank.
8. Facultative Reinsurance Agreement between Old Lyme Insurance Co.,
Ltd. and National Union Fire Insurance Co. of Pittsburgh, PA.
9. Contingency commission agreement between Old Lyme Insurance Co.,
Ltd. and Program Brokerage Corporation.
45
10. Reinsurance agreements between Old Lyme Insurance Company of Rhode
Island, Inc. and:
(A) Ceded Business:
(i) National Reinsurance Co. -- 6/20/95-12/1/98 -
#6234--01A/B
(ii) PXRE Reinsurance Co. -- 12/1/98 until termination
-- #D105
(iii) Transatlantic Reinsurance Co. and USF Reinsurance
Co. -- 4/15/96--12/21/97 -- #2559/96 & 97
(iv) Transatlantic Reinsurance Co. -- 12/1/95--12/10/97
-- #2546/95 & 96
(v) Transatlantic Reinsurance Co. -- 12/11/97--98 -- #
2546/97
(vi) CNA Reinsurance Company Limited -- 6/1/99--00 --
#2546/99
(vii) PXRE Reinsurance Co. -- 9/8/98 until termination
-- #D117
(viii) PXRE Reinsurance Co. -- 9/8/98--9/8/99 -- #D117
(ix) PXRE Reinsurance Co. -- 9/8/99--00 -- #D117C
(x) PXRE Reinsurance Co. -- 10/20/98--99 --# D121
(xi) PXRE Reinsurance Co. -- 10/20/99--00 -- #D121
(xii) The Hartford Steam Boiler Inspection and Insurance
Co. -- various -- #1000251
(xiv) PXRE Reinsurance Co. -- 9/1/99--00 -- #D129
(xv) PXRE Reinsurance Co. -- #D130
(B) Assumed Business:
(i) RLI Insurance Co. -- various (1/1/94 -- present)
(various programs; property & general liability)
(ii) Reliance Insurance Co. -- various (12/1/95 --
present) (AROMA -- general liability and lead)
(iii) Discover Reinsurance Co. -- various (12/1/95 --
present) (AROMA -- general liability and lead)
46
(iv) National Union Fire Insurance Co. of Pittsburgh,
PA -- 12/10/97--98 (lead)
(v) Lumbermen's Mutual Insurance Co. -- 9/1/98--00
(business owner policies and commercial auto)
(vi) Connecticut Indemnity Insurance Co. -- 9/1/98--00
(POME)
(vii) National Union Fire Insurance Co. of Pittsburgh,
PA -- 11/1/98--until terminated (PWC)
(viii) Highlands Insurance Co. -- 8/1/99--00 (BOP)
(ix) Genesis Insurance Co. and Genesis Indemnity
Insurance Co. -- 9/1/99--00 (Hospitality program)
(x) PXRE Reinsurance Co.-- (AROMA -- general liability
and lead)
47
SCHEDULE 5.01
Conduct of Business Pending the Merger
None.
48
SCHEDULE 6.03
Confidentiality Agreements
1. Mutual Non-Disclosure and Confidentiality Agreement, dated October
24, 2000, between the Company and Hub International Limited.
2. Confidentiality Agreement, dated December 1, 2000 between the
Company and Fairfax Financial Holdings Limited.
3. Letter Agreement between the Company and ZS Fund LP, dated as of
January 5, 2001.
49
Parent Disclosure Schedule
Delivered in connection with the
Agreement and Plan of Merger
among
HUB INTERNATIONAL LIMITED,
416 ACQUISITION INC.
and
XXXX GROUP INC.
Dated as of January 19, 2001
Pursuant to the Agreement and Plan of Merger dated as of January 19, 2001
(the "Agreement") among Hub International Limited ("Parent"), 416 Acquisition
Inc. and Xxxx Group Inc. (the "Company"), Parent hereby provides the following
information in accordance with the referenced paragraphs of the Agreement.
Except as otherwise limited herein, all information and disclosures contained in
this Disclosure Schedule ("Disclosure Schedule") are made as of the date of the
Agreement, and their accuracy is confirmed only as of that date and not at a
time thereafter. Terms used herein and not otherwise defined shall have the
meaning set forth in the Agreement.
Every matter, document and item referred to, set forth or described herein
under any section of this Disclosure Schedule shall be deemed to be disclosure
under all relevant sections of this Disclosure Schedule and shall be deemed to
qualify each of the representations and warranties of Parent in the Agreement,
to the extent such matter, document or item may apply. The headings and
descriptions of representations and warranties are for convenience of reference
only and are not intended and do not alter the meaning of any provision of the
Agreement.
In accordance with the Agreement, Parent hereby discloses to the Company
the following:
Section 4.04
Capitalization
Executive Share Purchase Plan: In January, 1999, Parent established an Executive
Share Purchase Plan (the "ESP Plan") whereby certain employees of Parent and
subsidiaries of Parent (the "Participants") have been extended loans ("ESPP
Loans") from Bank of Montreal (the "Bank") to acquire Parent Common Shares.
Parent may be called upon to purchase the ESPP Loans from the Bank pursuant to a
Purchase Agreement between Parent and the Bank . Parent and the employing
subsidiary of Parent pay interest on the ESPP Loans on behalf of the
Participants and the shares vest as to 10% of the number of allocated shares per
year while the respective Participant continues to be employed by Parent or a
subsidiary. Shares to be allocated to employees may be either purchased on the
market or issued from treasury. Parent is currently obligated to allocate
approximately a further Cdn$8,824,678 in Parent Common Shares (the "Required
Shares") to prospective Participants (including Parent Common Shares to be
issued subsequent to completion of the transaction referred to under "Xxxxxxx
Xxxxxxx Purchase" in Section 4.08 of the Parent Disclosure Schedule. It is
presently anticipated that the Required Shares will be obtained from the
existing inventory of unallocated shares in the ESPP Plan and from purchases
from shareholders either directly or in the market at then current market
prices.
Former Employee: Parent has an obligation in 2001 to purchase 87,062 Parent
Common Shares from a former employee (price to reflect current trading price).
Section 4.06
Permits; Compliance
Bank of Montreal: Approval required from Bank of Montreal in accordance with
Credit Agreement between Parent (formerly "The Hub Group Limited") and Bank of
Montreal, which consent has been obtained.
Section 4.08
Undisclosed Liabilities
Xxxxxxx Xxxxxxx Purchase: Parent has entered into a letter of intent to purchase
all of the issued and outstanding stock in Xxxxxxx Xxxxxxx Group, Inc., an
insurance agency based in Michigan. The purchase price of US$28,164,000 will be
paid as to $7,416,000 by certified check or bank draft and $20,748,000 by the
issuance of Parent Common Shares at Cdn$17 per share. The transaction is
anticipated to close at or about March 31, 2001.
ESPP Loan Guarantees: Parent has guaranteed the ESPP Loans (see "Executive Share
Purchase Plan" under Section 4.04 of the Parent Disclosure Schedule).
Former Employee: See "Former Employee" under Section 4.04 of the Parent
Disclosure Schedule.
Law Suits and Claims (including Errors and Omissions Claims): Certain of
Parent's subsidiaries are subject to claims as summarized in the attached
Addendum 4.08.
Section 4.09
Taxes
Roll-Overs: Parent will be filing S. 85 Election Forms with Revenue Canada in
respect of certain inter-company share "roll-overs" executed in 1999 and 2000
for corporate organizational purposes.
Section 4.12
Brokers
Formal Valuation and Fairness Opinion: Parent has retained an investment banker
to provide a formal valuation in respect of the Related Party Transactions and a
fairness opinion in respect of the Merger.
Section 4.13
Affiliate Transactions
Related Party Transactions: Parent will be completing the Related Party
Transactions, which will include issuing a six-year 8.5% convertible
subordinated debenture to Fairfax Financial Holdings Limited.
Management Bonus Agreements: Parent is party to a Management Bonus Agreement
with each of its operating subsidiaries whereby a portion of the profit, if any,
in the respective brokerage is allocated in accordance with a prescribed formula
to management of the respective brokerage for distribution.
Executive Employment Agreements: Certain members of the management of Parent and
its subsidiaries have entered into employment agreements (the "Executive
Employment Agreements") with the respective employer. The Executive Employment
Agreements address, inter alia, title, duties compensation, severance and
non-competition obligations.
Leases: Certain of Parent's subsidiaries lease premises that are owned directly
or indirectly by shareholders of Parent. The terms of such leases are
commercially reasonable.
Section 4.15
Indebtedness of Parent
Indebtedness: Parent indebtedness as at December 31, 2000 (exclusive of the
indebtedness of subsidiaries) was $47,076,276 under the facility described under
Section 4.06 of the Parent Disclosure Schedule.
EXHIBIT A
[To Agreement and
Plan of Merger]
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated _________________, 2001.
BETWEEN:
XXXXX X. XXXXXXX
(the "Executive")
-and-
XXXX GROUP INC., a corporation
incorporated pursuant to the laws of Delaware
(the "Agency")
-and-
HUB INTERNATIONAL LIMITED, a corporation
incorporated pursuant to the laws of Ontario
("Hub")
In consideration of the mutual covenants and agreements contained herein,
the parties hereto agree as follows.
1. Interpretation
(1) In this Agreement:
(a) "Agreement" means this agreement, all Schedules attached hereto
and the amendments made hereto by written agreement between the
Executive and the Agency;
(b) "Basic Compensation" means the compensation indicated in Schedule
"B";
(c) "Benefits" means the benefits to which the Executive is entitled
in accordance with Schedule "B";
(d) "Cause" means (i) a material breach by the Executive of the
provisions of this Agreement, which breach shall not have been
cured by the Executive within thirty (30) days following notice
thereof by the Agency to the Executive, (ii) the commission of
gross negligence or bad faith by the Executive in the course of
the Executive's employment, which commission has a material
adverse effect on the Agency or Hub, (iii) the commission by the
Executive of a criminal act of fraud, theft
or dishonesty causing material damages to the Company or Hub,
(iv) the Executive's conviction of (or plead nolo contendere to)
any felony, or misdemeanor involving moral turpitude if such
misdemeanor results in material financial harm to or materially
adversely affects the goodwill of the Agency or Hub, or (v) such
other act or omission that a court of competent jurisdiction
declares in a written ruling to be a breach of the Executive's
responsibilities hereunder of such materiality as to justify a
termination of the Executive's employment by the Agency.
(e) "Good Reason" means any breach of the terms of this Agreement by
the Agency or Hub, including but not limited to any of the
following:
(i) the assignment to the Executive of any duties
substantially inconsistent with the Executive's positions as set
forth on Schedule A, or a significant adverse alteration in the
nature or status of the Executive's responsibilities or duties or
the conditions of the Executive's employment compared to the
responsibilities, duties and conditions in effect for the
Executive's employment with respect to the business of the Agency
immediately prior to the date of this Agreement, excluding any
isolated and inadvertent action that is not taken in bad faith
and that is remedied by the Agency or Hub, as applicable, within
thirty (30) days after receipt of notice thereof given by the
Executive;
(ii) a reduction in the Executive's Basic Compensation;
(iii)any failure by the Agency or Hub to require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the business and/or assets of the Agency to assume expressly
and agree to perform the provisions of this Agreement in the
same manner and to the same extent that the Agency and Hub
would be required to perform if no such succession had taken
place;
(iv) the relocation of the offices at which the Executive is
principally employed immediately prior to the date of the
Closing hereunder to a location more than 20 miles from such
location; and
(v) the failure by the Agency or Hub to continue to provide the
Executive with the benefits described on Schedule B.
(f) "Death" means a natural death and, in addition, is deemed to
include a continuous period of at least six months during which
time the Executive has not been in the offices of the Agency
during normal working hours and the Executive's whereabouts are
unknown to the Agency;
(g) "Disability" means the mental or physical state of the Executive
is such that the Executive would be considered to suffer from a
"total disability" or a "disability" or to be "totally disabled"
or "disabled" in accordance with the Agency's group benefits
insurance policy at the relevant time;
(h) "Hub" means Hub International Limited;
(i) "Hub Group" means Hub and the Subsidiaries;
-2-
(j) "Investment Letter" means the investment letter referred to in
item 4 of schedule D and attached as Exhibit A hereto which will
be executed and delivered on the date hereof between the
Executive and Hub.
(k) "Management Bonus Agreement" means, subject to item 1 of Schedule
D hereto, the Management Bonus Agreement attached as Exhibit B
hereto which will be executed and delivered on the date hereof
between the Agency and Hub, and a copy of which (as executed)
will be provided to the Executive;
(l) "Restricted Period" means the two-year period ending on the
second anniversary of the termination of the Executive's
employment hereunder for whatever reason;
(m) "Restricted Stock Arrangement" means the plan or other
arrangement referred to in item 3 of Schedule D;
(n) "Schedule" means a schedule to this Agreement;
(o) "Section" means a section or subsection of this Agreement;
(p) "Services" means the positions, duties and the responsibilities
set out in Schedule "A" to this Agreement, as the same may be
amended or extended by agreement of the parties from time to
time;
(q) "Subsidiaries" means the "subsidiary companies", as defined in
the Securities Act (Ontario), of Hub, including the Agency and
Hub U.S. Holdings, Inc.;
(r) "Vacation" means the vacation to which Executive is entitled, as
contemplated in Schedule "B".
(2) It is agreed by and between the parties hereto that the Schedules
referred to herein, as itemized below and attached hereto, shall form
a part of this Agreement and this Agreement shall be construed as
incorporating such Schedules:
Schedule A - Services
Schedule B - Basic Compensation, Benefits and Vacation
Schedule C - Alternative Dispute Resolution
Schedule D - Additional Provisions
2. Employment
(1) The Agency agrees to employ the Executive during the term of
employment hereunder in the positions and with the duties and
responsibilities set out in Schedule A and the Executive accepts such
employment and represents to the Agency that the Executive has the
required skills and expertise to perform the Services.
(2) During the term of employment hereunder the Executive agrees to devote
the whole of the Executive's business time and attention to the
Services, and to the other activities contemplated in item 1 of
Schedule D, in a conscientious and competent manner and with the
utmost integrity.
(3) The Executive shall perform the Services primarily at the office of
the Agency located in the City of New York, NY in the United States of
America and at such other locations as the
-3-
Agency's and Hub's reasonable needs may dictate from time to time,
provided that the Executive will not be required to move the
Executive's residence.
(4) During the term of employment hereunder, Hub shall put forth, and
management shall recommend, the Executive for election to the Board of
Directors of Hub at each annual general meeting of the stockholders of
Hub.
(5) During the term of employment hereunder the Executive shall be
entitled to the benefits of: (a) all indemnification provisions
contained in the Agency's and Hub's Certificate of Incorporation or
Articles of Incorporation or by-laws, as the case may be (and for this
purpose, the Agency and Hub agree that no amendment shall be made
thereto which materially changes such indemnification provisions,
other than to enhance the protection thereby afforded to the
Executive); and (b) all of the Company's insurance policies, including
directors and officers liability policies, to the extent that such
policies are generally applicable to other officers and directors.
3. Remuneration and Benefits
(1) During the term of employment hereunder the Agency shall pay the
Executive the Basic Compensation in such payment periods as are
established from time to time by the Agency for its employees, subject
to deduction and remittance to the appropriate governmental authority
of all applicable taxes and other amounts.
(2) The Executive shall be entitled to and the Agency shall provide the
Benefits.
(3) The Agency shall reimburse the Executive for reasonable travel and
other business expenses incurred by the Executive in performing the
Services, in accordance with approved budgets.
(4) The Executive shall be entitled to the Vacation, to be scheduled at
the mutual convenience of the parties.
(5) The Executive shall be entitled to participate in the Management Bonus
Agreement as an Eligible Manager (as defined therein) on the basis
that notwithstanding any discretion otherwise exercisable by the
President of the Agency as to the payment of bonuses under the
Management Bonus Agreement, the Executive shall receive 50% of the
aggregate of any bonus paid thereunder to the Eligible Managers
collectively to a maximum annual amount equal to the Basic
Compensation for the period of one year. The Executive shall be
"President of the Agency" for purposes of the foregoing sentence and
in that capacity shall have the authority to exercise the discretion
as to the payment of bonuses under the Management Bonus Agreement.
4. Property, Confidentiality and Non-Solicitation
(1) Property. The Executive acknowledges and agrees that all books of
business, policies of insurance, documents, computer records, vouchers
and other books, papers and records connected with the business of the
Agency or the other Subsidiaries of Hub Group, whether paid for,
serviced or produced by the respective corporation of Hub Group or
not, are the property of the respective corporation and shall be at
all times open to the respective corporation for the purposes of
examination, and shall be turned over and surrendered to the
respective corporation or its representatives upon the order of the
respective corporation or on the termination of the Executive's
employment with the Agency for any reason whatsoever.
-4-
(2) Confidentiality. The Executive acknowledges that in the course of
carrying out the Executive's duties to the Agency, the Executive will
have access to and will be entrusted with confidential information
concerning the business and corporate affairs of the Agency, the other
corporations of Hub Group and their clients ("Confidential
Information"), including information pertaining to the respective
corporation's relationships with insurance carriers, employee and
producer compensation structures, client underwriting and policy
renewal information, internal accounting procedures, policies and
information, unique insurance product features, insurance programs
developed by the respective corporation (with or without the
assistance of the Executive), marketing strategies and employee
training procedures. The Executive agrees that all Confidential
Information acquired by the Executive or disclosed to the Executive
shall be held in the strictest confidence. The Executive shall not
disclose any Confidential Information to any other person without the
prior written consent of the respective corporation, except as may be
required for the Executive to fulfill the Executive's employment
duties to the Agency or as may be required by law. The Executive shall
not make use of any Confidential Information for the Executive's own
benefit or for the benefit of any other person or persons, firm,
partnership, association or corporation other than Hub Group, or
assist others in so doing; provided that nothing herein shall prohibit
the Executive from using Confidential Information that:
(a) was readily available to the public at the time such information
was available to the Executive;
(b) became readily available to the public after the time such
information was made available to the Executive other than
through a breach of this Agreement; or
(c) is lawfully and in good faith obtained by the Executive from an
independent third party without a breach of this Agreement.
The Executive acknowledges and agrees that the disclosure of any
Confidential Information to competitors of the Agency or the other
corporations of Hub Group or to the general public in violation of the
terms of this Section 4(2) may be highly detrimental to the business
interests of Hub Group. The Executive acknowledges and agrees that the
right of Hub Group to maintain Confidential Information as confidential
in accordance herewith constitutes a proprietary right that the
respective corporation is entitled to protect. Unless otherwise agreed
to by the respective corporation, all Confidential Information shall be
and shall remain the sole and exclusive property of the respective
corporation subject to the terms of this Section 4(2). The Executive
shall return to the Agency, forthwith upon the effective date of
termination of the Executive's employment for any reason whatsoever,
all records of Confidential Information in the possession of the
Executive which were acquired in connection with the Executive's
employment by the Agency. The Executive hereby agrees with the Agency
that, in the event of any breach by the Executive of the provisions of
this Section 4(2), the respective corporation(s) of Hub Group shall be
entitled to equitable relief, including an injunction and specific
performance, in any competent court having jurisdiction over the
Executive, in addition to all other remedies available to the
respective corporation at law or in equity.
(3) Non-Competition and Non-Solicitation
(a) The Executive covenants and agrees that the Executive will not,
without the prior written consent of the Agency, during the
Restricted Period, either individually, in partnership, jointly,
or in conjunction with any other person or persons, firm,
partnership, association, company, corporation or any other
entity as principal, agent, employee, shareholder, or in any
other capacity whatsoever carry on or be engaged in any aspect of
the insurance
-5-
agency business in the United States, or advise, lend money to,
guarantee the debts or obligations of, or permit the Executive's
name or any part thereof to be used or employed by any other
person or persons, firm, partnership, association, company,
corporation or any other entity engaged in any aspect of the
insurance agency business in the United States. Notwithstanding
the foregoing, the provisions of this Section 4(3)(a) shall not:
(i) apply in the event that this Agreement is terminated by the
Agency without Cause or by the Executive for Good Reason,
including in accordance with Section 5(2); or
(ii) prohibit the Executive from directly or indirectly owning up
to 10% of the issued capital stock of any public company the
price of whose shares is quoted in a published newspaper of
general circulation.
(b) The Executive agrees that during the Restricted Period the
Executive shall not directly or indirectly approach or solicit
any client, employee or producer of Hub Group except for the
benefit of Hub Group or attempt to direct any such client,
employee or producer away from Hub Group, subject to the same
limitation set forth in the last sentence of Section 4(3)(a)
above.
(c) If the Executive violates any of the provisions of Section
4(3)(b), the Executive shall pay to Hub a sum equal to one and
one-half times the annual renewal commissions generated by
clients obtained by the Executive in violation of Section
4(3)(b).
(d) The amount payable by the Executive under Section 4(3)(c) shall
be paid in cash and as soon as it is determinable and may be set
off by the Agency against any amount owing or to become owing by
the Agency or Hub to the Executive. The Executive acknowledges
that the said amount is a reasonable calculation of the
respective corporation's liquidated damages given the interest of
the corporation in maintaining its client base and the future
profits which would be foregone by the corporation if the
Executive violates the provisions of Section 4(3)(b). The
Executive further acknowledges that the payment by the Executive
pursuant to Section 4(3)(c) shall in no way limit the other
remedies to which the respective corporation of Hub Group may be
entitled as a result of the Executive's breach of Section 4(3)(a)
or (b). Without limiting the generality of the foregoing, the
Executive recognizes that a breach by the Executive of any of the
covenants contained in Section 4(3)(a) would result in ongoing
damages to the respective corporation of Hub Group and that Hub
Group may not be adequately compensated for such damages by the
payment of the amounts contemplated in Section 4(3)(c). The
Executive agrees that in the event of any such breach, and in
addition to any other remedies available to Hub Group at law or
otherwise, Hub shall, on behalf of the respective corporation of
Hub Group, be entitled as a matter of right to apply to a court
of competent jurisdiction for relief by way of injunction,
restraining order, decree or otherwise as may be appropriate to
ensure compliance by the Executive with the provisions of
Sections 4(3)(a) and (b).
(4) The Executive agrees that all restrictions in this Section 4 are
necessary and fundamental to the protection of the business of the
Agency and the other corporations of Hub Group and are reasonable. If,
at the time of enforcement of this Section 4, a court should hold that
the duration, scope or area restrictions stated herein are
unreasonable under the circumstances then existing, the parties agree
that the maximum duration, scope or area that is reasonable under such
circumstances shall be substituted for the stated scope, duration or
area, as the
-6-
case may be, and the court shall be allowed to revise the relevant
restrictions contained herein to cover the maximum period, scope and
area permitted by law.
5. Term and Termination
(1) This Agreement and the term of the employment of the Executive
hereunder shall be for an indefinite term, subject to termination in
accordance with the terms of this Agreement.
(2) This Agreement and the term of the employment of the Executive
hereunder may be terminated by the Agency for any reason whatsoever by
written notice to the Executive, or by the Executive for Good Reason
by written notice to the Agency, provided that, in the event that the
Agreement is terminated in accordance with this Section 5(2), the
Executive shall be:
(a) paid the Basic Compensation for the period up to the effective
date of termination;
(b) paid a portion of the Management Bonus payable for the year
during which the Executive's employment is terminated calculated
by dividing the Management Bonus for that year by twelve and
multiplying it by the number or months or portions of a month of
that year up to and including the effective date of the
termination of the Executive's employment; and
(c) entitled to continue to receive an amount equal to the Basic
Compensation and the group insurance and automobile allowance
components of the Benefits for the severance period hereinafter
defined.
For the purposes of this Section 5(2), "severance period" means the
period commencing as at the effective date of such termination and
ending on the first anniversary of the date thereof. Notwithstanding
the foregoing, in the event that the Executive breaches any of the
provisions of Section 4, effective as at the date of such breach the
Executive shall cease to be entitled to any further payment, provided
that in no event shall the Executive be paid an amount that is less
than the prescribed minimum under applicable employment standards
legislation.
(3) Notwithstanding Section 5(2), this Agreement may be terminated
immediately by the Agency for Cause, without further obligation to the
Executive, provided that the Executive shall be entitled to receive an
amount equal to the Basic Compensation and the Benefits to the date of
termination.
(4) Notwithstanding Section 5(2), this Agreement may be terminated by the
Agency on notice to the Executive due to the Disability of the
Executive, upon ninety (90) days' notice to the Executive.
(5) Notwithstanding Section 5(2), this Agreement shall be terminated
immediately upon the Death of the Executive or, unless otherwise
agreed by the parties, upon the Executive attaining sixty-five (65)
years of age.
(6) Upon termination of this Agreement in accordance with Section 5(2) the
Executive shall have no other claim against the Agency for damages for
failure to give reasonable notice or pay in lieu of notice or
severance pay, except as set out in Section 5(2).
(7) In the event of termination of this Agreement in accordance with the
terms hereof, the provisions of Section 4 shall continue in full force
and effect.
-7-
6. Alternative Dispute Resolution
The parties agree to submit any disputes to mediation in accordance with
the procedures set out in Schedule C.
7. General Provisions
(1) In the event any payment, distribution or other benefit received by
the Executive under this Agreement or any other contract or
arrangement (including, but not limited to, any acceleration of the
exerciseability of any stock option or the vesting of any stock or
other property or any payment made to the Executive in connection with
a change of control of the Agency or Hub or any severance payment
provided herein) (a "Payment") would be subject to the excise tax
imposed by section 4999 of the Internal Revenue Code of 1986 (such
excise tax, together with any similar tax under any new or replacement
provision to such Section 4999, are hereinafter collectively referred
to as the "Excise Tax"), including any payment, distribution or other
benefit that when aggregated with any other payment, distribution or
other benefit (whether or not such received or made pursuant to this
agreement) results in the imposition of the Excise Tax, then the
Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes, including without limitation, any Excise Tax
or other tax imposed upon any amounts received under this Section
7(1), the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payment. All determinations required
to be made under this Section 7(1), including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination,
shall be made by the Agency's independent accounting firm which shall
provide detailed supporting calculations both to the Agency and the
Executive within 15 business days of the receipt of notice from the
Executive that there has been or will be a Payment, or such earlier
time as is requested by the Agency.
(2) Any and all previous agreements, written or oral, between the parties
hereto or on their behalf relating to the employment of the Executive
by the Agency, other than the Management Bonus Agreement, are hereby
terminated and cancelled and each of the parties hereto hereby
releases and forever discharges the other hereto of and from all
manner of actions, causes of action, claims and demands whatsoever
under or in respect of any such agreement.
(3) The provisions hereof, when the context permits, shall inure to the
benefit of and be binding upon the heirs, executors, administrators
and legal personal representatives of the Executive and the successors
and assigns of the Agency, respectively.
(4) This Agreement shall be construed in accordance with the laws of the
Sate of New York and the laws of the United States applicable therein.
(5) If any covenant or provision of this Agreement is determined to be
void or unenforceable, in whole or in part, it shall not be deemed to
affect or impair the validity of any other covenant or provision and
this Agreement shall be read and construed as if such void or
unenforceable provision were excluded from this Agreement.
(6) Any notice, demand, request, consent, approval or waiver required or
permitted to be given hereunder shall be in writing and may be given
to the party for whom it is intended by personally delivering it to
such party or by mailing the same by prepaid registered mail:
(a) In the case of the Agency, to:
-8-
Xxxx Group Inc.
000 Xxxx 00xx Xx.
Xxx Xxxx, XX
00000
Attention: Chief Financial Officer
(b) In the case of the Executive:
0000 Xxxxxxxxxx Xxxxx
Xxxxxxx, Xxx Xxxx 00000
(c) In the case of Hub:
Hub International Limited
00 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxxxx, XX
00000
Any such notice or other documents delivered personally shall be
deemed to have been received by and given to the addressee on the
day of delivery and any such notice or other documents mailed, as
aforesaid, shall be deemed to have been received by and given to
the addressee on the third business day following the date of
mailing. Any party may at any time give notice to the other or any
change of address.
(7) All amounts referred to herein and in the Schedules hereto are in U.S.
currency unless otherwise indicated.
8. Additional Provisions
The provisions in Schedule D form part of this Agreement.
IN WITNESS THEREOF the parties hereto have hereunto executed this Agreement
as of the day and year first above written.
HUB INTERNATIONAL LIMITED XXXX GROUP INC.
By: By:
_____________________________ __________________________________
Name: Name:
Title: Title:
I have authority to bind the I have authority to bind the
corporation. corporation.
-9-
SIGNED AND DELIVERED in the presence of: )
)
)
(Signature) )
)
_________________________________________
(Print Name) )
) ____________________________________
_________________________________________ XXXXX X. XXXXXXX
(Address)
-10-
SCHEDULE A
SERVICES
The Executive shall be the President and Chief Executive Officer of the Agency
and in that capacity shall perform such duties and shall have such authority as
are customary and appropriate to those positions and as are consistent with the
duties and authority of the Executive in connection with his employment with
respect to the business of the Agency prior to the date of this Agreement,
including, without limitation, the full authority and responsibility for the
day-to-day management of the Agency (including hiring and firing personnel) in a
manner consistent with prior practice; and the Executive shall have such
additional duties and responsibilities consistent with his positions as
described above as the Agency, acting reasonably, may assign from time to time
(all of the foregoing, collectively, the "Services").
-11-
SCHEDULE B
BASIC COMPENSATION
The Agency will pay the Executive an annual salary of $500,000.
BENEFITS
o Group insurance (including medical, extended health, dental, short and long
term disability and life insurance) and such other benefits as are made
available to employees of the Agency, provided that the Executive qualifies
for coverage under such plans.
o The Agency shall provide the Executive with the same additional benefits he
received under his employment agreement dated as of January 2, 1997 (a copy
of which has been provided to the Agency and Hub), including but not
limited to the benefits enumerated in section 2(c)(iii) thereof.
VACATION
The Executive shall be entitled to a minimum of four (4) weeks vacation per year
and such additional vacation as may be agreed upon by the parties and as is
reasonable under all of the circumstances, including the amount of vacation
taken by other executives of similar standing in Hub Group (the "Vacation").
-12-
SCHEDULE C
ALTERNATIVE DISPUTE RESOLUTION
1. Disputes will be submitted to mediation before a mediator in New York, New
York as a condition precedent to resort to litigation by any party to this
Agreement; provided, however, any party may seek injunctive relief in court
to preserve the status quo pending the completion of mediation. The
mediator shall be chosen by mutual agreement of the parties; provided,
however, if the parties are unable to agree upon a mediator within ten
days, the mediation shall be conducted by a mediator to be identified by
the parties within 30 days of the execution hereof.
2. At such time as a dispute shall arise that is submitted to mediation, each
of the parties shall execute such mediation agreement in such form as shall
then be used by the chosen mediator or mediation firm for such purposes and
shall join in a request that the mediator provide an evaluation of the
parties' cases and of the likely resolution of the dispute if not settled.
The cost of the mediator and mediation shall be borne equally by the
parties.
3 In the event that one party to this Agreement is willing to accept the
mediator's proposed resolution of the dispute, if any, but the other party
(the "Contesting Party") elects to pursue claims in a court of competent
jurisdiction and the determination of the rights of the Contesting Party
under the final judgment of the court on the Contesting Party's claim(s) is
less advantageous to the Contesting Party than the determination of such
rights contained in the mediator's evaluation of such claim(s), the
Contesting Party shall be deemed to have agreed to pay the costs and
expenses of litigation of such claim(s), including reasonable attorneys'
fees of the other party to the litigation.
-13-
SCHEDULE D
ADDITIONAL PROVISIONS
1. The Executive, the Agency and Hub agree that, simultaneously with the
execution and delivery of this Agreement, the Management Bonus Agreement
will be executed and delivered in substantially the form attached as
Exhibit B to this Agreement; provided, however, that prior to such
execution and delivery that agreement will require certain modifications to
correctly reflect the understanding of the parties that the Eligible
Employees referred to therein will be entitled to the same bonus of
$1,333,000 in any future year in which the Agency produces "NIBGAIT" (as
defined therein) of $17,571,000 and to correctly reflect the calculation of
NIBGAIT in accordance with the one-page schedule (entitled "NIBGAIT
Analysis") attached to Exhibit B. Further, if NIBGAIT is affected by a
change in the corporate organization structure of the Agency, NIBGAIT will
be revised.
2. Hub hereby appoints the Executive as the President of the U.S. Operations
of Hub International Limited and the Executive hereby accepts such
appointment, to continue for the duration of the Executive's employment
under this Agreement, provided that, save and except for reimbursement for
expenses incurred in the fulfillment of such office, the Executive shall
not be entitled to any further compensation beyond that contemplated
herein. The Executive shall perform such duties as Hub, acting reasonably,
shall assign from time to time in connection such position, provided that
such duties shall not interfere with the Executive's ability to provide the
Services.
3. The Executive, the Agency and Hub agree that promptly after the execution
and delivery of this Agreement, Hub will establish a restricted stock plan
or arrangement for the benefit of various employees of the Hub Group (the
"Restricted Stock Arrangement") pursuant to which Hub will contribute for
the benefit of certain key employees of the Company (including the
Executive) a number of shares (the "Xxxx Agency Shares") of its common
stock having a value of $3,000,000 (U.S.) with each share valued at $17.00
(Canadian). The exchange rate for this purpose shall be 1.5 Canadian
Dollars to each U.S. Dollar. The Restricted Stock Arrangement shall include
the following provisions:
* One-third of the Xxxx Agency Shares in the Restricted Stock
Arrangement shall be allocated to the Executive.
* The Executive shall have the authority to allocate the remaining
two-thirds of the Xxxx Agency Shares among certain key employees of
the Agency.
* The awarded stock vests as to 50% after 5 years (unless waived by the
executive) and 50% after 10 years.
* The award will cease to vest if the executive has for any reason
ceased to be an employee before the award vests, except in the
following cases:
- Normal retirement age (award vests fully);
- Dismissal without just cause (award vests fully);
- Death (award vests pro rata); and
- Long-term disability (award vests pro rata)
-14-
SCHEDULE D (continued)
ADDITIONAL PROVISIONS
4. The Executive and Hub agree that, simultaneously with the execution and
delivery of this Agreement, they shall execute and deliver the Investment
Letter in the form attached as Exhibit A and shall consummate the
transactions contemplated therein as promptly as practicable.
-15-
EXHIBIT A
[To Executive
Employment Agreement]
HUB INTERNATIONAL LIMITED
00 Xxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
__________ __, 2001
Xx. Xxxxx X. Xxxxxxx
c/x Xxxx Group, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Re: Investment In Shares of Hub International Limited
Gentlemen:
Reference is hereby made to that certain agreement and plan of merger (the
"Merger Agreement") dated as of January __, 2001 between Xxxx Group Inc., a
Delaware corporation (the "Company"), Hub International Limited, an Ontario
corporation ("Hub"), and 416 Acquisition Inc., a Delaware corporation and a
wholly owned subsidiary of Hub ("Merger Sub"), pursuant to which the Company
will be merged with Merger Sub (the "Merger").
This letter agreement is being executed and delivered simultaneously with
the effective time under the Merger Agreement and sets forth the agreement of
Xxxxx X. Xxxxxxx ("Xxxxxxx"), a stockholder and the Chief Executive Officer of
the Company, with respect to the investment by Xxxxxxx in shares of the common
stock, par value $.__ per share (the "Hub Common Stock"), of Hub.
It is agreed as follows:
1. Xxxxxxx owns 1_______ shares of the common stock, par value $.01 per
share (the "Company Common Stock"), of the Company. Based upon that number of
shares of Company Common Stock, as a result of the Merger, Xxxxxxx will receive
aggregate merger consideration of $______ , consisting of $______ (U.S.) in cash
and $______ (U.S.) in principal amount of Parent Debentures (as defined in the
Merger Agreement); Hub may elect under the Merger Agreement to reduce or
eliminate the amount of the merger consideration to be paid in Parent Debentures
and pay cash in lieu of the Parent Debentures reduced or eliminated (the
-------------------
1 All blanks will be filled in prior to signing this agreement.
"Cancellation Amount"). In the event that Hub purchases for cancellation
Xxxxxxx'x Parent Indentures for cash, Xxxxxxx shall purchase Hub Shares as
referred to below. For the purpose of improving the parties' overall tax
position, the parties agree to consider any alternative structures for the
payment of the Hub Shares referred to below without disadvantaging either of the
parties.
2. Xxxxxxx will be entitled to a bonus from the Company (the "Bonus")
immediately prior to the effective time of the Merger, in an amount of cash of
up to $______ (U.S.), to be determined pursuant to a letter agreement between
the Company and Xxxxxxx dated January 19, 2001.
3. (a) Xxxxxxx wishes to invest the entire Net Cash Amount (as defined in
paragraph 3(b) below) in shares of Hub Common Stock. Accordingly, Xxxxxxx hereby
agrees to purchase from Hub, and Hub hereby agrees to sell to Xxxxxxx, promptly
after receipt by Xxxxxxx of the merger consideration (and the Cancellation
Amount, if applicable) and the Bonus, a number of shares (the "Shares") of Hub
Common Stock determined by dividing the Net Cash Amount by a purchase price of
$13 (Canadian) (which translates to $8.66-2/3rds (U.S.) at the exchange rate
agreed to by the parties). The aggregate purchase price to be paid by Xxxxxxx
for the Shares shall be the Net Cash Amount. Upon purchase as contemplated
hereby, each of the Hub Shares shall be duly authorized, validly issued,
fully-paid and non-assessable.
(b) For purposes of this agreement, the "Net Cash Amount" shall equal the
sum of (i) the total merger consideration of $_______ (U.S.) to be received by
Xxxxxxx times less 25% thereof (which percentage has been agreed upon by the
parties as the percentage to be used for this purpose to approximate the capital
tax rate applicable to Xxxxxxx) and (ii) the amount of the Bonus less 45%
thereof (which percentage has been agreed upon by the parties as the percentage
to be used for this purpose to approximate the combined ordinary income tax rate
applicable to Xxxxxxx).
4. As you know, the Shares are not registered under the securities laws and
therefore cannot be sold or transferred unless so registered or unless an
exemption is available. Accordingly, you may need to hold the Shares for an
indefinite period of time. You are acquiring the Shares for investment for your
own account and have no understanding or arrangement to sell or transfer any of
the Shares.
5. The Shares will be subject to an escrow agreement (the "Escrow
Agreement") in substantially the form of Exhibit A to this letter agreement.
Simultaneously with the purchase of the Shares, Xxxxxxx and Hub will enter into
the Escrow Agreement with an escrow agent mutually acceptable to them.
6. This agreement shall be governed by and construed in accordance with the
law of the state of New York applicable to agreements made and to be performed
entirely in New York.
-2-
If the foregoing correctly sets forth our understanding, please so indicate
by signing in the space provided below.
Very truly yours,
HUB INTERNATIONAL LIMITED
By: _________________________
Name:
Title:
ACCEPTED AND AGREED:
--------------------------------
Xxxxx X. Xxxxxxx
-3-
EXHIBIT B
[To Executive
Employment Agreement]
MANAGEMENT BONUS AGREEMENT
THIS AGREEMENT dated __________________, 2001.
BETWEEN:
HUB INTERNATIONAL LIMITED, a corporation incorporated under
the laws of Ontario ("Hub")
- and -
XXXX GROUP INC., a corporation incorporated under the laws
of the State of Delaware (the "Agency")
RECITALS:
A. the Agency is a wholly owned subsidiary of Hub; and
B. the parties wish to set out the terms and conditions pursuant to which
certain of the profits of the Agency shall be distributed to the
Eligible Managers (as hereinafter defined), in consideration for the
Eligible Managers providing management services to the Agency and to
Hub;
NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the
parties hereto agree as follows:
1. Definitions
In this Agreement,
"Acquired Agency" means any agency acquired by the Agency pursuant to
section 5 hereof;
"Agency" includes the Subsidiaries of the Agency, if any, unless the
context otherwise requires;
"Basic Profit" of the Agency for any fiscal year means, subject to
section 5(a)(iii) hereof, an amount equal to 28.3% (the "Basic Profit
Percentage") of the revenue of the Agency for that fiscal year from
all sources, net of brokerage commissions paid or payable to third
parties.
"Business Day" means any day, other than Saturday, Sunday or any
statutory holiday in the State of New York;
-2-
"Eligible Managers" means such individuals identified in writing to
Hub by Xxxxx X. Xxxxxxx, the President of the Agency, who participate
in the management of the Agency and who Xx. Xxxxxxx determines are
entitled to compensation pursuant to this Agreement from time to time,
collectively;
"Net Income" means [to be developed (in accordance with the "NIBGAIT
Analysis" attached hereto as Exhibit A) after execution of the
Agreement and Plan of Merger.];
"NIBGAIT" of the Agency, for any fiscal year, means Net Income for
that fiscal year plus the amount of any goodwill amortization or
impairment charge, interest expense and income taxes in each case to
the extent such items have been deducted in the determination of Net
Income for that period; provided, however, that, anything to the
contrary in the foregoing notwithstanding, in determining NIBGAIT for
any period, (i) there shall be included any goodwill amortization
expense attributable to deferred charges that arise in the normal
course of operations (such as amortization of computer software,
software rights and related licenses); (ii) there shall be excluded
any cost, expenses or liabilities incurred in connection with the
negotiation, execution, delivery and performance of the acquisition of
the Agency by Hub (the "Acquisition"), (iii) there shall be excluded
any brokerage or finder's commission, fees or similar compensation for
the Acquisition; (iv) there shall be excluded any expenses for legal
fees and costs related to the negotiation and consummation of the
Acquisition; (v) there shall be excluded any management fees, overhead
charges or similar corporate expenses attributable to Hub's ownership
of the Agency whether or not such charges are actually levied or paid
and whether or not such charges are in accordance with Hub's customary
practices; (vi) there shall be excluded any expense relating to the
amount of "excess NIBGAIT over Basic Profit" to be shared between Hub
and the Eligible Managers pursuant to this Agreement and (vii) there
shall be excluded any amount relating to any cost or expense for which
Hub ultimately obtains indemnification under the merger agreement
relating to the Acquisition.
"Shortfall" means, from time to time, the cumulative amount by which
the Agency's NIBGAIT for all fiscal years ending after the date of
this Agreement is less than the Basic Profit applicable for such
fiscal years, subject to reduction pursuant to section 4(a) hereof;
"Subsidiary" means a corporation, partnership, association or other
entity that is wholly-owned by the Agency or by a Subsidiary of the
Agency; and
"Year-End Profitability Bonus" means the bonus to which the Eligible
Managers are entitled if the Agency's NIBGAIT exceeds Basic Profit, as
set out in section 2(a) hereof.
-3-
2. Year-End Profitability Bonus
(a) Subject to the prior payment of any Shortfall, the excess of
NIBGAIT over Basic Profit for any fiscal year of the Agency
shall be shared between Hub and the Eligible Managers as to
50% each. This sharing shall continue for a minimum of ___
fiscal years after the date of this agreement and shall
commence as provided in section 2(e) below. A "fiscal year"
shall mean a period beginning January 1 and ending December
31 of each year.
(b) The Year-End Profitability Bonus, if any, will be allocated
amongst the Eligible Managers in accordance with the
instructions provided to the Agency by the President of the
Agency.
(c) Payment of the Year-End Profitability Bonus, if any, will be
made on or before the date which is thirty (30) days after
completion of the audited financial statements for the
Agency for the respective fiscal year of the Agency, but in
any event not later than ___ days after the end of each
respective fiscal year.
(d) The portion of Year-End Profitability Bonus payable to any
individual in the event that his/her employment with the
Agency is terminated by the Agency, without just cause, in
respect of the year in which his/her employment is so
terminated, will be a portion calculated by dividing the
total amount allocated to such individual for that year (as
determined under sections 2(a) and 2(b)) by twelve and
multiplying it by the number of months or portions of a
month of that year up to and including the effective date of
termination of the individual's employment. An individual
shall not be entitled to share in the Year-End Profitability
Bonus in respect of any year in which such individual's
employment ceases by way of the individual's voluntarily
resignation or by termination at the instance of the Agency
for just cause.
(e) Except as may be otherwise agreed by the parties, a Year-End
Profitability Bonus will not be paid under this Agreement in
respect of the fiscal year in which the Agency is acquired
by Hub if the acquisition is completed after June 30. In the
case of completion on or prior to June 30, the Agency shall
prepare a reasonable interim budget for the period
commencing as at the date of closing of the acquisition of
the Agency by Hub and ending December 31 of the same year
(to be reviewed and approved by Hub) and the Year-End
Profitability Bonus shall be calculated and payable based
upon such interim budget.
4. Shortfall
Notwithstanding the foregoing, in the event that a Shortfall exists,
the Shortfall shall be reduced by such amounts as otherwise would have
been distributed to the Eligible Managers as a Year-End Profitability
Bonus.
5. Acquisitions and Divestitures
(a) If after the date hereof the Agency wishes to acquire
another business unit or divest itself of any business unit:
(i) such transaction acquisition shall be completed
only with the consent of Hub;
-4-
(ii) the purchase price of any acquisition (including
related legal, accounting and other professional
fees approved by Hub) will be funded by Hub; (iii)
the purchase price of any divestiture (net of
related legal, accounting and other professional
fees approved by Hub) will be paid over to Hub;
(iv) upon completion of the transaction, the Basic
Profit will be increased or decreased, as
appropriate, in an amount to be determined in the
reasonable determination of the Agency and Hub
based on an assessment of all the circumstances
pertaining to the transaction including, without
limitation, the number of days of the fiscal year
during which the Agency was entitled to the
revenue of the acquired or disposed business unit
(from all sources), with such determination to be
subject to the concurrence of Xxxxx X. Xxxxxxx;
and
(v) the Year-End Profitability Bonus will be based on
the operations of the Agency including the
acquired business unit and excluding the divested
business unit.
6. Other Arrangements
For greater certainty, in the event that the Agency enters into any
arrangements in respect of: (a) a captive reinsurance company created
to reinsure selected business generated by the Agency and any other
insurance broker owned and/or controlled by Hub, or (b) the sharing of
net revenues in respect of any business generated by the Agency, any
revenue of the Agency resulting from such arrangements shall be
included in calculating the revenue of the Agency for the purposes of
calculating NIBGAIT (to determine the Year-End Profitability Bonus, if
any).
7. Hub Covenant
Hub agrees to cause the Agency to fulfill its commitments and
obligations under this Agreement in accordance with the terms and
conditions provided for herein.
8. Distribution of Balance
The net profit of the Agency, other than the Eligible Managers' Share,
may be distributed or retained by the Agency as Hub, in its sole
discretion, may determine.
9. [Financial Benchmarks]
[(a) The Agency will be required to prepare and submit to the
Audit Committee of Hub such information as the Audit
Committee may reasonably request from time to time in order
to allow it to perform the following functions in respect of
the Agency and such other functions as are typical of an
audit committee, including, without limitation:]
o [[review executive compensation
o review accounts receivable policies and accounts
receivable management
o ensure adherence to generally accepted accounting
principles and Hub's accounting policies
o review management of insurance company payables o
review all employee terminations and related
documentation
o review employee contracts
o review compensation structure
o compare all revenue and expense categories against
-5-
Hub's financial benchmarks o analyze contingent
profits received
o review all lease contracts and commitments
o review capital expenditures and compare to budget
submitted
o prepare summary report with findings and
recommendations
o review selling costs re eligibility and tax
deductibility]]
[(b) Upon the recommendation of Hub's Audit Committee, acting
reasonably, the Agency will adopt and implement such
systems, procedures and measures as are required to cause
the Agency to achieve at least Basic Profit and a NIBGAIT
Percentage of [__]%, including to restructure the
compensation scheme of the Eligible Managers.]
10. Notice
(a) Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be given by
prepaid first-class mail, by facsimile or other means of
electronic communication or by delivery as hereafter
provided. Any such notice or other communication, if mailed
by prepaid first-class mail at any time other than during a
general discontinuance of postal service due to strike,
lockout or otherwise, shall be deemed to have been received
on the fifth (5th) Business Day after the post-marked date
thereof, or if sent by facsimile or other means of
electronic communication, shall be deemed to have been
received on the Business Day following the sending, or if
delivered by hand shall be deemed to have been received at
the time it is delivered to the applicable address noted
below either to the individual designated below or to an
individual at such address having apparent authority to
accept deliveries on behalf of the addressee. Notice of
change of address shall also be governed by this section. In
the event of a general discontinuance of postal service due
to strike, lock-out or otherwise, notices or other
communications shall be delivered by hand or sent by
facsimile or other means of electronic communication and
shall be deemed to have been received in accordance with
this section. Notices and other communication shall be
addressed as follows:
(i) if to Hub:
Hub International Limited
00 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxxxx, XX 00000
Attention: General Counsel
Telecopier number: (000) 000-0000
(ii) if to the Agency:
Xxxx Group Inc.
000 Xxxx 00xx Xx.
Xxx Xxxx, XX 00000
Attention: President
Telecopier number: (000) 000-0000
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11. Assignment; Third Party Beneficiaries
This Agreement shall not be assigned by any of the parties hereto
without the express written consent of the other parties hereto. Xxxxx
X. Xxxxxxx and the other Eligible Managers shall be intended third
party beneficiaries of this Agreement and shall have the right to
enforce this agreement against the parties hereto.
12. Headings
The inclusion of headings in this agreement is for convenience of
reference only and shall not affect the construction or interpretation
hereof.
13. Invalidity of Provisions
Each of the provisions contained in this agreement is distinct and
severable and a declaration of invalidity or unenforceability of any
such provision by a court of competent jurisdiction shall not affect
the validity or enforceability of any other provision hereof.
14. Entire Agreement
This Agreement and the Schedule attached hereto constitutes the entire
agreement between the parties pertaining to the subject matter of this
Agreement. There are no warranties, representations or agreements
between the parties in connection with such subject matter except as
specifically set forth or referred to in this Agreement. No reliance
is placed on any representation, opinion, advice or assertion of fact
made by any party hereto or its directors, officers and agents, to any
other party hereto or its directors, officers and agents, except to
the extent that the same has been reduced to writing and included as a
term of this Agreement. Accordingly, there shall be no liability,
either in tort or in contract, assessed in relation to any such
representation, opinion, advice or assertion of fact, except to the
extent aforesaid.
15. Waiver, Amendment
Except as expressly provided in this Agreement, no amendment or waiver
of this Agreement shall be binding unless executed in writing by each
of the parties hereto. No waiver of any provision of this Agreement
shall constitute a waiver of any other provision nor shall any waiver
of any provision of this Agreement constitute a continuing waiver
unless otherwise expressly provided.
16. Currency
Except as expressly provided in this Agreement, all amounts in this
agreement shall be paid in U.S. currency.
17. Governing Law
This agreement shall be governed by and construed in accordance with
the laws of the State of New York.
18. Counterparts
This agreement may be signed in counterparts and each of such
counterparts shall constitute an original document and such
counterparts, taken together, shall constitute one and the same
instrument.
-8-
19. Arbitration
Any question, dispute or disagreement (hereinafter referred to as the
"Dispute") arising under or pertaining to this Agreement including the
interpretation, application construction of this Agreement or any part
thereof shall be determined by arbitration accordance with the
following terms and provisions:
(a) the Dispute shall be submitted to a single arbitrator as may
be agreed upon by the parties to such Dispute, provided that
if a single arbitrator has been requested by one of the
parties and the other party fails to agree on a single
arbitrator, then the Dispute may be referred to a board of
three (3) arbitrators, two (2) to be named, as to one (1)
each, by the parties and the third to be appointed by the
first two (2) named arbitrators;
(b) if either party shall refuse or neglect to appoint an
arbitrator within ten (10) Business Days after the other
party shall have appointed an arbitrator and shall have
served a written notice upon the party so refusing or
neglecting to appoint an arbitrator, then the arbitrator
first appointed shall proceed to hear and determine the
Dispute as if he or she were a single arbitrator appointed
by both parties or the purpose;
(c) if two (2) arbitrator are so named within the time
prescribed and they do not agree within a period of ten (10)
Business Days upon the appointment of the third arbitrator,
then each arbitrator shall prepare a list of three
independent arbitrators. Each arbitrator will have the
opportunity to designate as objectionable and eliminate one
arbitrator from the other arbitrator's list within seven (7)
Business Days after submission thereof, and the third
arbitrator shall then be selected by lot from the
arbitrators remaining on the lists submitted by the
arbitrators;
(d) the determination of the Dispute which shall be made by the
said arbitrators of a majority of them, or by a single
arbitrator, as the case may be, shall be final and binding
upon the parties hereto and the costs of the arbitration and
remuneration of the third arbitrator shall be borne equally
between all parties thereto, each party bearing the
remuneration of the arbitrator appointed by it; and
(e) the arbitration shall be conducted under the Commercial
Arbitration Rules of the American Arbitration Association as
in effect from time to time, except as modified by the
agreement of the parties to this Agreement. Except as
otherwise provided in this Section 19 or in the Commercial
Arbitration Rules of the American Arbitration Association as
in effect from time to time, the arbitration procedures and
any final determination hereunder shall be governed by, and
shall be enforced pursuant to, the State of New York.
IN WITNESS WHEREOF the parties hereto have executed this agreement on
the date first above written.
HUB INTERNATIONAL LIMITED XXXX GROUP INC.
by:__________________________________ by:__________________________________
Name: Name:
Title: Title:
EXHIBIT A
[To Investment Letter]
ESCROW AGREEMENT
THIS AGREEMENT dated as of ___________, 2001, among:
FAIRFAX FINANCIAL HOLDINGS LIMITED, a corporation incorporated
pursuant to the laws of Canada
("Fairfax")
AND:
HUB INTERNATIONAL LIMITED, a corporation incorporated pursuant to the
laws of Ontario
("Hub")
AND:
XXXXX X. XXXXXXX
(the "Shareholder")
AND:
CIBC MELLON TRUST COMPANY, a trust company pursuant to the laws of
Canada
(the "Escrow Agent")
WHEREAS:
A. the Shareholder has agreed to deposit with the Escrow Agent the aggregate
number of Hub common shares, as set forth on Schedule A hereto (and any
replacement securities in respect thereof) (the "Escrow Property"), to be held
by the Escrow Agent pursuant to the terms of this Agreement;
B. Fairfax is a substantial shareholder of Hub;
C. the Escrow Agent has agreed to hold the Escrow Property for Fairfax, Hub and
the Shareholder, on the basis that it will release the Escrow Property subject
to the terms and conditions of this Agreement.
NOW THEREFORE in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
-2-
1. Deposit and Escrow
(a) The Escrow Agent, as escrow agent for the parties hereto,
agrees to accept the Escrow Property from the Shareholder.
The Escrow Agent shall not use the Escrow Property or
disclose the same to any third party except as specifically
provided for herein. The Escrow Agent will hold the Escrow
Property in safekeeping at a location where it carries on
business in the City of Xxxxxxx, Xxxxxxx, unless and until
the Escrow Agent receives notice pursuant to this Agreement
that the Escrow Agent is to deliver some or all of the
Escrow Property to the Shareholder in accordance with this
Agreement.
(b) The parties acknowledge that the Escrow Property was
purchased and paid for by the Shareholder and is the
property of the Shareholder subject only to the terms of
this Agreement. The Shareholder shall be entitled to receive
directly all dividends and distributions on and in respect
of the Escrow Property (subject to the provisions of section
12 hereof in respect of certain transactions specified
therein) and to vote or give consents with respect to the
Escrow Property. During the period in which the Escrow
Property is held in escrow pursuant to the terms of the
Agreement, the Escrow Property shall remain registered in
the name of the Shareholder.
(c) The Shareholder agrees that except as expressly permitted
herein or except with the express written consent of Fairfax
and Hub, the Escrow Property and beneficial ownership of any
interest therein shall not be sold, assigned, redeemed,
surrendered for consideration, mortgaged, hypothecated,
charged, pledged, encumbered, alienated, released from
escrow, transferred within escrow or otherwise dealt with in
any manner, except as may be required by reason of the
bankruptcy of the Shareholder, in which case the Escrow
Agent shall hold the Escrow Property subject to this
Agreement for the benefit of whatever person shall be
legally entitled to become the registered owner thereof as
evidenced by the order of a court of competent jurisdiction.
The foregoing notwithstanding, the Shareholder shall be
entitled to transfer the beneficial ownership of the Escrow
Property to any family member or any trust or other entity
for the benefit of any family member provided that the
Escrow Property shall remain subject to the terms of this
agreement.
2. Payment to Escrow Agent
As payment for its services hereunder, the Escrow Agent shall receive
an annual fee as agreed upon with Hub, and Hub shall pay said fee on
execution of this Escrow Agreement and again within 30 days of receipt
of the Escrow Agent's invoice while this Escrow Agreement remains in
force. All reasonable out-of-pocket expenses incurred by the Escrow
Agent in performing services under this Escrow Agreement shall be for
the account of Hub, and shall be paid upon delivery of an invoice by
the Escrow Agent. If the fees or expenses remain unpaid for a period
of 120 days from the date of the invoice, the Escrow Agent shall be
entitled to release the Escrow Property to the Shareholder.
3. Terms of Release; Free Tradability
Subject to the terms of this Agreement, the Escrow Agent shall hold
the Escrow Property until the Escrow Property is released and
delivered to the Shareholder on the earlier of the dates and events
specified in sections 4 and 5. Hub shall cause any securities included
in the Escrow Property released to the Shareholder under this
Agreement to be immediately tradable (assuming such release occurs at
least 12 months after the date of this Agreement) under Canadian
securities laws (either pursuant to an exemption from registration or
pursuant to an effective registration statement with respect to such
shares) if held by a resident of Canada and subject in all events to
the assumption that there have been
-3-
no material changes in the applicable provisions of Canadian
securities laws from such laws as in effect of the date of this
Agreement.
4. Automatic Release
Subject to earlier release pursuant to section 5, the Escrow Agent
shall release and deliver to the Shareholder: (i) 10% of the Escrow
Property (based upon number of shares) on each of the third, fourth
and fifth anniversaries of this Agreement and (ii) the remaining 70%
of the Escrow Property on the tenth anniversary of this Agreement.
5. Early Release
Notwithstanding section 4, the Shareholder (or his estate, executor or
personal representative, as applicable) shall be entitled to the
release of the Escrow Property upon the occurrence of any of the
following events:
(a) the death of the Shareholder;
(b) the Shareholder suffering a disability, as such term is
defined in the Shareholder's employment agreement with Xxxx
Group Inc.;
(c) the Shareholder ceasing to be an employee of Hub and its
subsidiaries due to termination by the Shareholder's
employer, without "Cause" (as defined in the employment
agreement being entered into by the Shareholder, Hub and
Xxxx Group Inc.) (the "Employment Agreement") or due to
termination by the Shareholder for "Good Reason" (As defined
in the Employment Agreement); or
(d) the Shareholder receiving the express written consent of
Fairfax and Hub.
In addition to the release provisions provided for in section 6, the
Escrow Agent shall release the Escrow Property upon Hub providing the
Escrow Agent with written notice of the occurrence of any of the
foregoing events.
6. Release Notice
The Shareholder is entitled to give written notice (the "Release
Notice") to the Escrow Agent seeking release of any of the Escrow
Property at any time by reason of the occurrence of any of the events
set out in section 5 of this Escrow Agreement. The Shareholder shall
certify to the Escrow Agent that the Shareholder has contemporaneously
delivered a copy of the Release Notice to both Fairfax and Hub, by
telecopier or personal delivery at the addresses for notice set out
herein. The Release Notice shall, at the minimum, (i) be labelled
"Release Notice", (ii) identify this Escrow Agreement, (iii) specify
the reason for the request for release of any of the Escrow Property,
(iv) identify the Escrow Property which the Shareholder claims with
reasonable specificity, and (v) request the delivery of such Escrow
Property.
7. Challenge to Release Notice
Upon receipt of its copy of a Release Notice, if Fairfax or Hub wishes
to dispute the Release Notice, it shall, within ten days after the
receipt of the copy of the Release Notice, deliver to the Escrow Agent
and the Shareholder a sworn statement (the "Affidavit") saying that
the Shareholder is not entitled to the release of the Escrow Property
claimed and setting out its reasons for such dispute,
-4-
whereupon the provisions of section 8 of this Agreement will apply. If
the Escrow Agent receives the Affidavit within ten days of its receipt
of its copy of the Release Notice, the Escrow Agent shall continue to
hold the Escrow Property in accordance with this Escrow Agreement. If
the Escrow Agent does not receive the Affidavit within ten days of its
receipt of its copy of the Release Notice, the Escrow Agent is
authorized and directed to deliver the Escrow Property to the
Shareholder.
8. Disputes
In the event that Fairfax or Hub delivers the Affidavit to the Escrow
Agent in the manner and within the time period set forth in section 7
of this Agreement, the Escrow Agent shall not release the Escrow
Property to the Shareholder except in the following circumstances:
(1) pursuant to the final decision of an arbitration panel as
provided for in section 9;
(2) upon receipt of an agreement with authorized and notarized
signatures of Fairfax, Hub and the Shareholder, authorizing
the release of the Relevant Escrow Property;
(3) pursuant to the automatic release provisions of section 4;
or
(4) in the event of failure by Fairfax and Hub to appoint an
arbitrator pursuant to section 9.
9. Arbitration
Disputes arising under this Escrow Agreement shall be referred
immediately to, and be settled by, binding arbitration. The
arbitration panel shall consist of three persons. Fairfax and Hub
(acting together) and the Shareholder shall each appoint one
arbitrator within 15 days of receipt by the Shareholder of the
Affidavit, and the two arbitrators thereby appointed shall select a
third arbitrator within 15 days of their appointment. If Fairfax and
Hub fail to appoint an arbitrator in accordance with the foregoing,
the Shareholder shall so notify the Escrow Agent, with copy of such
notice to Fairfax and Hub, and the Escrow Agent shall proceed
forthwith as though it had not received the Affidavit. If the
Shareholder fails to appoint an arbitrator in accordance with the
foregoing, Fairfax and Hub shall so notify the Escrow Agent, with copy
of such notice to the Shareholder, and the Escrow Agent shall not
release the Escrow Property to the Shareholder until otherwise
permitted or called for pursuant to this Escrow Agreement (it being
understood that nothing in this provision shall prevent the Escrow
Agent from delivering the Escrow Property pursuant to the automatic
release provisions of section 4). The arbitration shall be conducted
in Toronto, Ontario at a location mutually agreed to by the parties,
or, in the event that they cannot agree within two days, as the
arbitration panel may decide, in accordance with the Arbitration Act,
1991 (Ontario). The Escrow Agent shall give prompt effect to any
arbitration award, and shall be protected in acting, notwithstanding
the right of either party to seek, in any court having jurisdiction
thereof, enforcement of a stay of any award rendered by the
arbitration panel.
10. Resignation of the Escrow Agent
The Escrow Agent may resign as escrow agent under this Escrow
Agreement without liability whatsoever for such termination, on giving
no less than thirty (30) days' written notice to each of Fairfax, Hub
and the Shareholder of the effective date of resignation (the
"Effective Date"). In the event of resignation by the Escrow Agent,
Hub may appoint a replacement escrow agent, provided that such
replacement shall be a chartered bank or trust company entitled to
carry on business as such in the Province of Ontario, who will agree
to accept the Escrow Property and be bound by the terms of this
Agreement as Escrow Agent. If within thirty (30) days from the
Effective Date a replacement
-5-
escrow agent has not been appointed, the Escrow Agent may apply to a
court of competent jurisdiction at Hub's expense for the appointment
of a successor escrow agent. If no replacement Escrow Agent is
appointed within 90 days of the Escrow Agent providing notice as
provided in this section, the Escrow Agent shall deliver the Escrow
Property to the Shareholder, and all of the Escrow Agent's duties
hereunder shall cease immediately.
11. Dividends, Distributions and Voting
The escrow of the Escrow Property as contemplated in this Escrow
Agreement will not impair any right of the Shareholder to receive a
dividend or other distribution on the Escrow Property or to elect the
form or manner in which a dividend or other distribution on the Escrow
Property will be paid. If, during the period in which any of the
Escrow Property is retained in escrow pursuant to this Escrow
Agreement, any distribution (other than a distribution of securities )
is received by the Escrow Agent in respect of the Escrow Property,
such distribution shall be held in trust for and on behalf of the
Shareholder and forthwith paid or transferred to the Shareholder. Any
distributions of securities received by the Escrow Agent in respect of
the Escrow Property shall be held in escrow by the Escrow Agent in
accordance with the provisions of this Agreement. The escrow of the
Escrow Property as contemplated herein will not impair any right of
the Shareholder to exercise voting rights attaching to the Escrow
Property.
12. Rights in Respect of Certain Transactions
(1) If the Shareholder wishes to tender certain of the Escrow
Property (the "Tendered Securities") to a bona fide formal
take-over bid, plan of arrangement, amalgamation, merger or
similar transaction (a "Transaction"), the Shareholder shall
deliver to the Escrow Agent:
(a) a written direction signed by the Shareholder (a
"Direction") that directs the Escrow Agent to
deliver to a specified person or company (the
"Depositary") either:
(i) certificates evidencing the Tendered
Securities; or
(ii) where the Shareholder has provided the
Escrow Agent with a notice of guaranteed
delivery or similar notice of the
Shareholder's intent to tender the
Tendered Securities to the Transaction,
that notice,
together with a letter of transmittal or similar document
and, where required, a transfer and power of attorney duly
executed for transfer, and any other documentation specified
or provided by the Shareholder and required to be delivered
to the Depositary under the terms of the Transaction; and
(b) such other information concerning or evidence of
the Transaction as the Escrow Agent may reasonably
require.
(2) Forthwith after its receipt of the information and
documentation specified in section 12(1), the Escrow Agent
will deliver to the Depositary, in accordance with the
Direction, the documentation specified or provided under
Section 12(1), together with a letter addressed to the
Depositary that:
(a) identifies the Tendered Securities;
(b) states that the Tendered Securities are held in
escrow;
-6-
(c) states that the Tendered Securities are delivered
only for the purposes of the Transaction and that
the Tendered Securities will be released from
escrow only upon receipt by the Escrow Agent of
the information described in Section 12(3) hereof;
(d) where certificates for Tendered Securities have
been delivered to the Depositary, requires the
Depositary to return to the Escrow Agent, as soon
as practicable, the certificates evidencing
Tendered Securities that are not releasable from
escrow as described in clause (c) above; and
(e) where applicable, requires the Depositary to
deliver or to cause to be delivered to the Escrow
Agent, as soon as practicable, the certificates
representing securities acquired by the
Shareholder in exchange, substitution or
consideration for the Tendered Securities pursuant
to the Transaction (the "Replacement Securities").
(3) The Tendered Securities will be released from escrow upon
receipt by the Escrow Agent of a declaration signed by the
Depositary or, if the Direction identifies the Depositary as
acting on behalf of another person or company in respect of
the Transaction, by that other person or company, that:
(a) the terms and conditions of the Transaction have
been met; and
(b) the Tendered Securities have either been taken up
and paid for or are subject to an unconditional
obligation to be taken up and paid for under the
Transaction.
(4) The Escrow Agent shall hold any Replacement Securities
acquired by the Shareholder under a Transaction in escrow on
the same terms and conditions, including release dates, as
applied to the Escrow Property for which they were
exchanged, substituted or for which they constituted
consideration; provided, however, that in any Transaction
that would result in the Shareholder incurring any tax
liability, the Escrow Agent shall distribute to the
Shareholder such amount of the Replacement Securities having
a value equal to such tax liability.
(5) Notwithstanding anything to the contrary contained herein,
if all or any portion of the consideration for the Tendered
Securities received pursuant to the Transaction includes
cash and such cash is paid to the Escrow Agent, such cash
shall be released from the escrow herein and delivered to
the Shareholders as soon as practicable after receipt by the
Escrow Agent.
13. Limitation on Escrow Agent's Responsibility and Liability
(1) Limitation on Obligations: The Escrow Agent shall not be
obliged or required to inspect the Escrow Property and shall
not be obligated to ensure that any Escrow Property held by
it pursuant to this Agreement is genuine or complete. The
Escrow Agent's obligation for safekeeping shall be limited
to providing the same degree of care for the Escrow Property
as it maintains for its own valuable documents.
(2) Protection for Acting in Good Faith: The Escrow Agent shall
be protected in relying and acting upon any written notice,
request, waiver, consent, receipt or other paper or document
furnished to it, not only in assuming its due execution and
the validity and effectiveness of its provisions but also as
to the truth and acceptability of any information therein
contained, which it in good faith believes to be genuine and
what it purports to be.
(3) Limitation on Liability: In no event shall the Escrow Agent
be liable for any act or failure to act under the provisions
of this Escrow Agreement, except where its acts are the
result of its
-7-
negligenceor willful misconduct. The Escrow Agent shall have
no duties except those which are expressly set forth herein,
and it shall not be bound by any notice of a claim or demand
with respect thereto, or any waiver, modification,
amendment, termination or rescission of this Escrow
Agreement, unless it shall have given its prior written
consent thereto.
(4) Indemnification: Fairfax, Hub and the Shareholders hereby
jointly and severally indemnify the Escrow Agent, its
officers and employees against any loss, liability, action,
claim, cost, expense, or damage (other than any caused by
the gross negligence or willful misconduct of the Escrow
Agent), including reasonable costs of litigation and counsel
fees, arising from and in connection with the performance of
the Escrow Agent's duties under this Agreement. This
provision shall survive the resignation or removal of the
Escrow Agent or the termination of this Escrow Agreement.
(5) Not a Trust Agreement: This Escrow Agreement shall not be
construed as a trust deed and the Escrow Agent shall not be
construed as a trustee for the parties with respect to the
Escrow Property.
(6) Advisors Provision: The Escrow Agent may retain legal
counsel and advisors as may be reasonably required for the
purpose of discharging its duties or determining its rights
under this Escrow Agreement, and may rely and act upon the
advice of such counsel or advisor. Hub shall pay or
reimburse the Escrow Agent for any reasonable fees, expenses
and disbursements of such counsel or advisors.
(7) Express Duties: The Escrow Agent shall have no duties or
responsibilities except as expressly provided in this Escrow
Agreement and shall have no liability or responsibility
arising under any other agreement, including any agreement
referred to in this Escrow Agreement, to which the Escrow
Agent is not a party.
14. Notices
All notices, consents, approvals, statements, authorizations,
documents, or other communications (collectively "notices") required
or permitted to be given hereunder shall be in writing, and shall be
delivered personally, sent by telecopier, and/or mailed by registered
mail, postage prepaid, at the addresses set forth hereunder, namely:
If to Hub, at: Hub International Limited
000 Xxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Fax: (000) 000-0000
Attn: General Counsel
If to Fairfax: Fairfax Financial Holdings Limited
00 Xxxxxxxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Fax: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxx
-8-
If to the Shareholder: 0000 Xxxxxxxxxx Xxxxx
Xxxxxxx, Xxx Xxxx 00000
If to the Escrow Agent: CIBC Mellon Trust Company
000 Xxx Xxxxxx
X.X. Xxx 0
Xxxxxxx, Xxxxxxx
X0X 0X0
Fax: (000) 000-0000
Attn: AVP, Client Services
or at any such other address or addresses as may be given by any of
them to the others in writing, in accordance with this section, from
time to time. If sent by first class mail, such notice shall be deemed
to have been given on the fifth business day following such mailing;
provided that if such notice shall have been mailed and if regular
mail service shall be interrupted by strike or other irregularity
before the deemed receipt of such notice as aforesaid, then such
notice shall not be effective unless delivered personally or sent by
telecopier. If delivered personally or sent by telecopier during
regular business hours, such notice shall be deemed to have been given
on the day of delivery or transmission, if during regular business
hours on a business day, or if not, on the business day next following
the day of delivery or transmission.
15. Termination of Escrow
This Escrow Agreement shall terminate on the date all of the Escrow
Property has been delivered to the Shareholder in accordance with the
terms of this Agreement.
16. Assignment; Waiver; Modification; Severability
This Escrow Agreement shall not be assigned, waived, amended, or
modified except by the written agreement of all the parties hereto.
Any invalidity, in whole or in part, of any provision of this Escrow
Agreement shall not affect the validity of any other of its
provisions.
17. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
18. Successor of Escrow Agent
Any corporation with which the Escrow Agent may be merged or
consolidated or amalgamated, or any corporation succeeding to the
business of the Escrow Agent shall be the successor to the Escrow
Agent hereunder without any further act on its part or of any of the
parties hereto.
19. Counterparts
This Agreement may be signed in counterparts, each of which when
signed and delivered shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
-9-
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed on the date first written above as follows:
HUB INTERNATIONAL LIMITED CIBC MELLON TRUST COMPANY
By: By:
---------------------------------------- -----------------------------
Name: Name:
Title: Title:
By:
-----------------------------
Name:
Title:
FAIRFAX FINANCIAL HOLDINGS LIMITED
By:
Name:
Title:
SIGNED AND DELIVERED in the presence of:)
)
)
----------------------------------------)
(Signature) )
)
----------------------------------------)
(Print Name) ) ------------------------------------
) XXXXX X. XXXXXXX
----------------------------------------)
(Address) )
-10-
SCHEDULE A
Escrow Property
_______________ common shares in the capital of Hub International Limited
