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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
among
HIGHLANDS INSURANCE GROUP, INC.,
HIGHLANDS ACQUISITION CORP.
and
VIK BROTHERS INSURANCE, INC.
Dated as of February 13, 1997
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TABLE OF CONTENTS
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Page
ARTICLE I DEFINITIONS.....................................................................................2
ARTICLE II THE MERGER......................................................................................8
Section 2.1 The Merger.........................................................................8
Section 2.2 Effective Time.....................................................................9
Section 2.3 Effects of the Merger..............................................................9
Section 2.4 Articles of Incorporation.........................................................10
Section 2.5 By-Laws...........................................................................10
Section 2.6 Directors.........................................................................10
Section 2.7 Officers..........................................................................11
Section 2.8 Closing...........................................................................11
ARTICLE III CONVERSION OF SHARES; PAYMENTS.................................................................11
Section 3.1 Conversion of VBI Shares and
ACQUISITION CORP Capital Stock....................................................11
Section 3.2 No Fractional Shares..............................................................12
Section 3.3 Preferred Stock and Warrant Consideration.........................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES BY
HIG AND ACQUISITION CORP.......................................................................14
Section 4.1 Organization and Qualifications, etc.............................................14
Section 4.2 Subsidiaries.....................................................................16
Section 4.3 Non-Contravention................................................................18
Section 4.4 Capital Stock....................................................................19
Section 4.5 Financial Statements.............................................................19
Section 4.6 Changes. .......................................................................21
Section 4.7 Tax Returns and Payments.........................................................22
Section 4.8 Employee Benefit Plans...........................................................23
Section 4.9 No Undisclosed Liabilities or Agreements.........................................24
Section 4.10 Reserves.........................................................................24
Section 4.11 Litigation.......................................................................24
Section 4.12 Contracts........................................................................25
Section 4.13 Dividends........................................................................27
Section 4.14 Consents and Approvals of Governmental Authorities...............................28
Section 4.15 Regulatory Filings...............................................................28
Section 4.16 Compliance with Applicable Law...................................................29
Section 4.17 Accuracy of Information Furnished................................................30
Section 4.18 Environmental Matters............................................................30
Section 4.19 Broker's, Finder's or Similar Fees...............................................33
Section 4.20 Owned Real Property..............................................................33
ARTICLE V PRESENTATIONS AND WARRANTIES BY VBI............................................................34
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Section 5.1 Organization and Qualifications, etc.............................................34
Section 5.2 Subsidiaries.....................................................................35
Section 5.3 Non-Contravention................................................................37
Section 5.4 Capital Stock....................................................................38
Section 5.5 Financial Statements.............................................................39
Section 5.6 Changes..........................................................................40
Section 5.7 Tax Returns and Payments.........................................................41
Section 5.8 Employee Benefit Plans...........................................................42
Section 5.9 No Undisclosed Liabilities or Agreements.........................................43
Section 5.10 Reserves.........................................................................43
Section 5.11 Litigation.......................................................................43
Section 5.12 Contracts........................................................................44
Section 5.13 Dividends........................................................................47
Section 5.14 Consents and Approvals of Governmental Authorities...............................47
Section 5.15 Regulatory Filings...............................................................48
Section 5.16 Compliance with Applicable Law...................................................49
Section 5.17 Accuracy of Information Furnished................................................49
Section 5.18 Environmental Matters............................................................49
Section 5.19 Broker's, Finder's or Similar Fees...............................................51
Section 5.20 Owned Real Property..............................................................51
ARTICLE VI COVENANTS AND AGREEMENTS.......................................................................52
Section 6.1 Conduct of Business until Effective Time.........................................52
Section 6.2 Access and Confidentiality.......................................................55
Section 6.3 Interim Financial Statements and Reports.........................................57
Section 6.4 Compliance with Conditions Precedent.............................................58
Section 6.5 Regulatory Filings...............................................................58
Section 6.6 Stockholder Consent..............................................................58
Section 6.7 VBI Management Compensation......................................................58
Section 6.8 Fees and Expenses................................................................58
Section 6.9 Securities Amendments............................................................59
Section 6.10 Rule 16b-3.......................................................................60
Section 6.11 Capital Commitments..............................................................60
Section 6.12 A.M. Best Communications.........................................................60
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF VBI.................................................60
Section 7.1 No Material Adverse Change. .....................................................60
Section 7.2 Consents. ........................................................................61
Section 7.3 Opinion of HIG Counsel............................................................61
Section 7.4 Representations and Warranties; Obligation........................................61
Section 7.5 Agreements. .....................................................................61
Section 7.6 Securities Amendments.............................................................61
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HIG.................................................62
Section 8.1 No Material Adverse Change........................................................62
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Section 8.2 Opinion of VBI Counsel............................................................62
Section 8.3 Representations and Warranties; Obligations.......................................63
Section 8.4 Agreements........................................................................63
Section 8.5 Dividend Restrictions. ..........................................................63
Section 8.6 Reserves. .......................................................................64
Section 8.7 New Business and Renewals.........................................................64
Section 8.8 A.M. Best Rating..................................................................64
ARTICLE IX GENERAL CONDITIONS PRECEDENT....................................................................64
Section 9.1 Approvals.........................................................................64
Section 9.2 Approvals by Stockholders.........................................................65
Section 9.3 Waiting Period....................................................................65
ARTICLE X SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................................................65
ARTICLE XI TERMINATION.....................................................................................66
Section 11.1 Basis for Termination.............................................................66
Section 11.2 Written Notice....................................................................68
Section 11.3 Effect of Termination.............................................................68
ARTICLE XII AMENDMENTS; WAIVER...............................................................................68
Section 12.1 Amendments........................................................................68
Section 12.2 Waiver of Compliance..............................................................68
ARTICLE XIII MISCELLANEOUS...................................................................................69
Section 13.1 Entire Agreement..................................................................69
Section 13.2 Assignment........................................................................69
Section 13.3 Notices...........................................................................69
Section 13.4 Governing Law; Jurisdiction.......................................................70
Section 13.5 Descriptive Headings..............................................................71
Section 13.6 Counterparts......................................................................71
Section 13.7 Severability......................................................................71
Section 13.8 Third Party Beneficiaries.........................................................71
Section 13.9 Construction......................................................................72
Section 13.10 Publicity.........................................................................72
Section 13.11 Waiver of Jury Trial; Punitive Damages;
Prevailing Party's Fees and Expenses..............................................72
Section 13.12 Violations. .....................................................................72
Section 13.13 Break-Up Fee. ...................................................................73
ARTICLE XIV SPECIAL CONDITIONS...............................................................................74
Section 14.1 Bank Commitment...................................................................74
Section 14.2 Security Holder Agreements........................................................74
Section 14.3 Armco Agreement...................................................................74
Section 14.4 PMSC Agreement....................................................................75
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement"), dated as of February 13, 1997, by and among HIGHLANDS INSURANCE
GROUP, INC., a Delaware corporation ("HIG"), HIGHLANDS ACQUISITION CORP., a
Delaware corporation and wholly-owned subsidiary of HIG ("ACQUISITION CORP"),
and VIK BROTHERS INSURANCE, INC., an Indiana corporation ("VBI").
WHEREAS, HIG, ACQUISITION CORP and VBI are parties to an
Agreement and Plan of Merger dated as of June 21, 1996 (the "Prior Agreement")
and the parties hereto desire to amend the Prior Agreement in certain respects
and as so amended to restate the Prior Agreement in its entirety;
WHEREAS, each of the Board of Directors of HIG, ACQUISITION
CORP and VBI have determined that it is in the mutual best interests of HIG,
ACQUISITION CORP, VBI and their shareholders for VBI to enter into this
Agreement with HIG and ACQUISITION CORP, providing for the merger of ACQUISITION
CORP with and into VBI upon the terms and conditions set forth herein; and
WHEREAS, the consummation of the transactions contemplated by
this Agreement is subject to, among other things, obtaining the approval of
various regulatory authorities.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, and intending to be legally bound hereby, HIG, ACQUISITION CORP and VBI
hereby agree as follows:
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ARTICLE I
DEFINITIONS
The terms defined in this Article I, whenever used in this
Agreement, shall have the following meanings for all purposes of this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act.
"Am-Re" means American Re-Insurance Company.
"AMV" means Xxxxxxxxx X. Xxx.
"Armco" means collectively Armco Inc. and Armco Financial
Services Corporation.
"Armco Contingent Commission" means the liability recorded on
VBI's financial statements as of September 30, 1996 as the contingent commission
payable by VBI to Armco pursuant to the terms and conditions of the Stock
Purchase Agreement.
"Business Day" means a day on which national banks doing
business in New York City are open for business.
"Closing" has the meaning set forth in Section 2.8 of this
Agreement.
"Closing Date" has the meaning set forth in Section 2.8 of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commonly Controlled Entity" has the meaning of such term as
used in Sections 414(b), (c), (m) and (o) of the Code.
"Corporation Laws" has the meaning set forth in Section 2.1(a)
of this Agreement.
"Current Market Price Per Share" on any date means the average
of the daily closing prices of the HIG Shares for the twenty consecutive trading
days ending three
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business days prior to the date in question; provided that any HIG Shares sold
in any public offering of such HIG Shares which is registered under the
Securities Act shall be excluded in determining the Current Market Price Per
Share.
"Disclosure Letter" means that certain letter dated as of the
date hereof among VBI, HIG and ACQUISITION CORP.
"Effective Time" has the meaning set forth in Section 2.2 of
this Agreement.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA and all other deferred compensation, bonus,
other incentive compensation, vacation, severance pay, stock option, stock
purchase or other employee benefit plan or any material employee benefit
arrangement.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Financial Statements" means the audited and unaudited
financial statements referred to in Sections 4.5 and 5.5 of this Agreement.
"GAAP" means generally accepted accounting principles, as such
principles are applied in the United States as of the date of the applicable
Financial Statement or other document with respect to which the term is used.
"GAAP Quarterly Statement" means, as of a certain date or for
a fiscal quarter ended on a certain date, the consolidated balance sheet of VBI
or HIG, as the case may be, and its Subsidiaries as of such date and the
consolidated statements of
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operations, stockholders' equity and cash flows of VBI or HIG, as the case may
be, and its Subsidiaries for the quarter ended on such date, including notes
thereto.
"GMV" means Xxxxxx X. Xxx.
"HIG Insurance Subsidiary" means an HIG Subsidiary that is
also an Insurance Subsidiary.
"HIG Series One Preferred Stock" means a newly issued class of
preferred stock of HIG with terms as set forth in Schedule 3.4(c) attached
hereto.
"HIG Shares" means the common stock, par value $.01 per share,
of HIG, but shall exclude all common stock of HIG designated as Series B Common
Stock.
"ING" means ING Capital (U.S.) Corporation.
"Insurance Subsidiary" means an HIG Insurance Subsidiary or a
VBI Insurance Subsidiary, as the case may be, that is authorized to do business
as an insurer.
"IP" means Insurance Partners, L.P. and Insurance Partners
(Offshore) Bermuda, L.P., collectively.
"Knowledge" means, with respect to VBI, HIG or ACQUISITION
CORP, as the case may be, the knowledge of such corporation's current officers
after having made due inquiry of the appropriate individuals employed by such
corporation.
"Lien" has the meaning set forth in Section 4.2(a) of this
Agreement.
"Material Adverse Effect" means a material adverse effect on
the assets, results of operations, business, prospects or condition (financial
or otherwise) of the named entity and its Subsidiaries, taken as a whole.
"Merger" has the meaning set forth in Section 2.1 of this
Agreement.
"Merger Price" means $21.50 per share.
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"Northwestern Insurance Subsidiaries" means the Subsidiaries
of Northwestern National Holding Company, Inc. that are Insurance Subsidiaries.
"Person" (or "persons" as the context may require) means any
individual, corporation, partnership, firm, limited liability company, limited
liability partnership, joint venture, association, trust, unincorporated
organization, governmental or regulatory body or other entity of whatever
nature.
"Preferred Stock" means, collectively, the Series One
Preferred Stock, the Series Two Preferred Stock, the Series Three Preferred
Stock, the Series Four Preferred Stock, the Series Five Preferred Stock, the
Series Six Preferred Stock and the Series Seven Preferred Stock.
"Quarterly Statement" means, with respect to an Insurance
Subsidiary, the quarterly convention statement as of a certain date or for a
fiscal quarter ended on such date, prepared in accordance with Statutory
Accounting Principles and filed by such Insurance Subsidiary with the insurance
department of such Insurance Subsidiary's domiciliary state, including all
notes, schedules and exhibits thereto.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series One Preferred Stock" means VBI's Preferred Shares,
Series One, par value $.10 per Share.
"Series Two Preferred Stock" means VBI's Preferred Shares,
Series Two, par value $.10 per Share.
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"Series Three Preferred Stock" means VBI's Preferred Shares,
Series Three, par value $.10 per share.
"Series Four Preferred Stock" means VBI's Preferred Shares,
Series Four, par value $.10 per share.
"Series Five Preferred Stock" means VBI's Preferred Shares,
Series Five, par value $.10 per share.
"Series Six Preferred Stock" means VBI's Preferred Shares,
Series Six, par value $.10 per share.
"Series Seven Preferred Stock" means VBI's Preferred Shares,
Series Seven, par value $.10 per share.
"Statutory Accounting Principles" means the accounting
procedures and practices prescribed or permitted by the department of insurance
of the state of domicile of an Insurance Subsidiary and used by that Insurance
Subsidiary in the preparation of its Annual Statement.
"Statutory Statements" means financial statements prepared
using accounting procedures and practices prescribed or permitted by the
department of insurance of the state of domicile of an Insurance Subsidiary.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of August 2, 1994 between VBI and Armco.
"Subsidiary" means an HIG Subsidiary (as defined in Section
4.2(d)) or a VBI Subsidiary (as defined in Section 5.2(d)), as the case may be.
"Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation (a) income,
gross receipts, ad valorem, premium,
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excise, real property, personal property, guarantee fund assessments, sales,
use, transfer, withholding, employment, payroll, medicare and franchise taxes
imposed by the United States of America, or by any state, local, or foreign
government, or any subdivision, agency or other similar person of the United
States or any such government; and (b) any interest, fines, penalties,
assessments or additions to taxes resulting from, attributable to, or incurred
in connection with any Tax or any contest, dispute or refund thereof.
"Tax Returns" means any report, return or statement required
to be supplied to a taxing authority in connection with Taxes.
"VBI Insurance Subsidiary" means a VBI Subsidiary that is an
Insurance Subsidiary.
"VBI Shares" means the common shares, par value $.001 per
share, of VBI.
"Vik Brothers" means Xxxxxxxxx X. Xxx and Xxxxxx X. Xxx,
collectively.
ARTICLE II
THE MERGER
Section 2.1 The Merger.
(a) At the Effective Time (as herein defined) and upon the
terms and subject to the conditions of this Agreement, the Delaware General
Corporation Law (the "DGCL") and the Indiana Business Corporation Law (the
"BCL," together with the DGCL, the "Corporation Laws"), ACQUISITION CORP shall
be merged with and into VBI (the "Merger"). Following the Merger, VBI shall
continue as the surviving corporation (the "Surviving Corporation") with a name
designated by HIG prior to the Closing Date that
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does not include the word "Vik" and the separate corporate existence of
ACQUISITION CORP shall cease.
(b) VBI will take all action necessary in accordance with the
BCL, its Articles of Incorporation and its By-laws to obtain the written consent
of its shareholders, for the approval and adoption of this Agreement and the
transactions contemplated hereby.
(c) ACQUISITION CORP shall take all action necessary in
accordance with the DGCL, its Certificate of Incorporation and its By-laws to
obtain the written consent of its stockholder, for the approval and adoption of
this Agreement and the transactions contemplated hereby.
(d) HIG agrees to vote all of its shares of capital stock in
ACQUISITION CORP in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby.
(e) Each of the Vik Brothers has simultaneously with the
execution of this Agreement executed an amended and restated support agreement
pursuant to which he has agreed to vote his VBI Shares in favor of the approval
and adoption of this Agreement and the transactions contemplated hereby.
Section 2.2 Effective Time. As promptly as practicable after
satisfaction or waiver of all conditions to the Merger set forth in Articles
VII, VIII and IX, the parties hereto shall properly execute, and, on the Closing
Date, cause articles of merger to be filed with the Secretaries of State of the
States of Delaware and Indiana in accordance with and make all other filings or
recordings required under the Corporation Laws in connection with the Merger.
The Merger shall become effective upon the filing of the articles of
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merger with the Secretary of States of Delaware and Indiana, or at such later
time as is specified in the articles of merger (the "Effective Time").
Section 2.3 Effects of the Merger.
(a) The Merger shall have the effects set forth in the
Corporation Laws. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of VBI and ACQUISITION CORP shall vest in the Surviving
Corporation, and all debts, liabilities and duties of VBI and ACQUISITION CORP
shall become the debts, liabilities and duties of the Surviving Corporation.
(b) If at any time after the Effective Time the Surviving
Corporation shall consider or be advised that any further deeds, conveyances,
assignments or assurances or any other acts (collectively "Further Assurances")
are necessary, desirable or proper to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, the title to the assets, properties or
rights of VBI or ACQUISITION CORP acquired or to be acquired by reason of, or as
a result of the Merger, each of ACQUISITION CORP and VBI agrees that the
Surviving Corporation and its officers and directors shall execute and deliver
such Further Assurances as are necessary, desirable or proper to vest, perfect
or confirm, of record or otherwise, in the Surviving Corporation, the title to
such assets, properties or other rights. Each of VBI and ACQUISITION CORP
further agree that the officers and directors of the Surviving Corporation are
fully authorized in the name of VBI and ACQUISITION CORP to take any and all
such action.
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Section 2.4 Articles of Incorporation. The Articles of
Incorporation of the Surviving Corporation from and after the Effective Time
shall be in the form set forth in Schedule 2.4 hereto.
Section 2.5 By-Laws. At the Effective Time and without any
other further action on the part of VBI or ACQUISITION CORP, the By-Laws of the
Surviving Corporation shall be in the form set forth in Schedule 2.5 hereto and
thereafter may be amended or repealed in accordance with their terms or the
Articles of Incorporation of the Surviving Corporation and as provided by law.
Section 2.6 Directors. The directors set forth on Schedule 2.6
hereto shall be the directors of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation and until the earlier of his or her resignation or removal or until
his or her successor is duly elected and qualified, as the case may be.
Section 2.7 Officers. The officers set forth on Schedule 2.7
hereto shall be the officers of the Surviving Corporation to hold office in
accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation and until the earlier of his or her resignation or removal or until
his or her successor is duly appointed and qualified, as the case may be.
Section 2.8 Closing. The Closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Weil, Gotshal & Xxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, at 10:00
a.m. local time, on a date within five (5) Business Days after the last of the
conditions set forth in this Agreement are fulfilled or waived (subject to
applicable law), or at such other time and place and on such other date
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as HIG and VBI shall agree. The date upon which the Closing shall take place is
herein referred to as the "Closing Date."
ARTICLE III
CONVERSION OF SHARES; PAYMENTS
Section 3.1 Conversion of VBI Shares and ACQUISITION CORP
Capital Stock. At the Effective Time, (i) each VBI Share issued or outstanding
immediately prior to the Effective Time (including each VBI Share then held in
treasury by VBI), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled without payment of any consideration
therefor and without any conversion thereof; and (ii) each share of capital
stock of ACQUISITION CORP issued or outstanding immediately prior to the
Effective Time (including each such share then held in treasury by ACQUISITION
CORP), shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into one share of common stock of the Surviving
Corporation.
Section 3.2 No Fractional Shares. No fractional shares shall
be issued by HIG in the Merger. Each stockholder of VBI who otherwise would be
entitled to a fractional interest in an HIG Share shall be entitled to an
additional HIG Share only if such fractional interest is at least one-half of an
HIG Share.
Section 3.3 Preferred Stock and Warrant Consideration.
(a) At the Effective Time, the shares of Series One Preferred
Stock outstanding immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the part of the holders thereof be converted
into the right to receive
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an aggregate of 132,257 HIG Shares, upon surrender of the certificates formerly
representing such shares of Series One Preferred Stock. From and after the
Effective Time, each holder of outstanding certificates representing Series One
Preferred Stock shall be entitled to receive in exchange therefor a certificate
representing the HIG Shares into which such holder's Series One Preferred Stock
was converted.
(b) At the Effective Time, the shares of Series Two Preferred
Stock outstanding immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the part of the holders thereof be converted
into the right to receive an aggregate of 132,257 HIG Shares, upon surrender of
the certificates formerly representing such shares of Series Two Preferred
Stock. From and after the Effective Time, each holder of outstanding
certificates representing Series Two Preferred Stock shall be entitled to
receive in exchange therefor a certificate representing the HIG Shares into
which such holder's Series Two Preferred Stock was converted.
(c) At the Effective Time, each share of Series Three
Preferred Stock outstanding immediately prior to the Effective Time shall by
virtue of the Merger and without any action on the part of the holder thereof be
converted into the right to receive one share of HIG Series One Preferred Stock,
upon surrender of the certificates formerly representing such shares of Series
Three Preferred Stock. The rights, preferences and privileges of the HIG Series
One Preferred Stock are set forth in Schedule 3.4(c) attached hereto. From and
after the Effective Time, each holder of the outstanding certificates
representing Series Three Preferred Stock shall be entitled to receive in
exchange therefor a certificate representing the HIG Series One Preferred Stock
into which such holder's Series Three Preferred Stock was converted.
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(d) At the Effective Time, the shares of Series Four Preferred
Stock and Series Five Preferred Stock outstanding immediately prior to the
Effective Time shall by virtue of the Merger and without any action on the part
of the holders thereof be converted into the right to receive an aggregate of
440,856 HIG Shares, upon surrender of the certificates formerly representing
such shares of Series Four Preferred Stock and Series Five Preferred Stock. From
and after the Effective Time, each holder of outstanding certificates
representing Series Four Preferred Stock or Series Five Preferred Stock shall be
entitled to receive in exchange therefor a certificate representing the HIG
Shares into which such holder's Series Four Preferred Stock and Series Five
Preferred Stock was converted.
(e) At the Effective Time, the shares of Series Six Preferred
Stock outstanding immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the part of the holders thereof be converted
into the right to receive an aggregate of 302,326 HIG Shares, upon surrender of
the certificates formerly representing such shares of Series Six Preferred
Stock. From and after the Effective Time, each holder of the outstanding
certificates representing Series Six Preferred Stock shall be entitled to
receive in exchange therefor a certificate representing the HIG Shares into
which such holder's Series Six Preferred Stock was converted.
(f) At the Effective Time, the shares of Series Seven
Preferred Stock outstanding immediately prior to the Effective Time shall by
virtue of the Merger and without any action on the part of the holders thereof
be converted into the right to receive an aggregate of 661,283 HIG Shares, upon
surrender of the certificates formerly representing such shares of Series Seven
Preferred Stock. From and after the Effective
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Time, each holder of outstanding certificates representing Series Seven
Preferred Stock shall be entitled to receive in exchange therefor a certificate
representing the HIG Shares into which such holder's Series Seven Preferred
Stock was converted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
BY HIG AND ACQUISITION CORP
HIG and ACQUISITION CORP represent and warrant to VBI as
follows:
Section 4.1 Organization and Qualifications, etc. Each of HIG
and ACQUISITION CORP is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has the corporate and
other power and all necessary state authorizations to own, lease and operate all
of its properties and assets and to carry on its business as each is now being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction in which each owns property or conducts business, except where the
failure to have such authorization or to be so qualified would not have a
Material Adverse Effect on HIG or ACQUISITION CORP. Each of ACQUISITION CORP and
HIG has all requisite corporate and other power and is duly authorized, subject
to compliance with applicable insurance regulatory requirements, to merge
pursuant to this Agreement and to enter into the other agreements required to be
executed pursuant to this Agreement (the "Other Agreements") and to perform its
other obligations hereunder and thereunder. The execution, delivery and
performance by HIG and ACQUISITION CORP of this Agreement and each of the Other
Agreements, and the consummation by HIG and ACQUISITION CORP of the transactions
contemplated hereby
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and thereby, have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of HIG or ACQUISITION
CORP are necessary to authorize the execution, delivery or performance by HIG or
ACQUISITION CORP of this Agreement or the Other Agreements, or the consummation
of the transactions contemplated hereby and thereby. This Agreement has been,
and each of the Other Agreements will be as of the Closing Date, duly and
validly executed and delivered by HIG and ACQUISITION CORP. Subject to the
satisfaction of the conditions specified in Section 9.1 hereof (and assuming
this Agreement constitutes and each of the Other Agreements will constitute, as
of the Closing Date, valid and binding obligations of VBI), this Agreement
constitutes, and each of the Other Agreements will constitute as of the Closing
Date, valid and binding obligations of HIG and ACQUISITION CORP, enforceable
against each of them in accordance with its respective terms, except that (i)
such enforceability may be subject to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, rehabilitation, liquidation,
conservatorship, receivership or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The copies of each of HIG's and ACQUISITION
CORP's Certificate of Incorporation and By-laws which have been delivered by HIG
to VBI are complete and correct and in full force and effect at the date hereof.
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Section 4.2 Subsidiaries.
(a) Schedule 4.2(a) to the Disclosure Letter lists all HIG
Subsidiaries (as such term is defined in Section 4.2(d)), the jurisdiction of
incorporation of each such HIG Subsidiary and each jurisdiction where such HIG
Insurance Subsidiary is qualified to do business and licensed to do business as
an insurer. Except as indicated on such Schedule 4.2(a), HIG owns, directly or
indirectly, all of the securities of each of the HIG Subsidiaries free and clear
of all liens, charges, pledges, security interests or other encumbrances
(collectively, "Liens") and all capital stock of such HIG Subsidiaries has been
duly authorized and validly issued and is fully paid and nonassessable.
(b) None of the HIG Subsidiaries has any commitment (absolute,
contingent or otherwise) to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person (other than HIG or a HIG Subsidiary) any rights to acquire from such HIG
Subsidiary, any shares of its capital stock.
(c) Each HIG Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has the corporate and other power and all necessary
authorizations to own, lease and operate all of its properties and assets and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which it owns property
or conducts business, except where the failure to have such authorization or to
be so qualified would not have a Material Adverse Effect on such HIG Subsidiary.
Except as set forth in Schedule 4.2(c) to the Disclosure Letter, each HIG
Insurance Subsidiary is licensed to conduct business as an insurer in each
jurisdiction where the nature of its
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business requires such licensing, except in those instances in which the failure
to have such license would not have a Material Adverse Effect on such HIG
Insurance Subsidiary.
(d) As used in this Agreement, the term "HIG Subsidiary" means
any corporation or other organization whether incorporated or unincorporated of
which HIG and HIG Subsidiaries, separately or together, directly or indirectly,
own securities or interests having by their terms ordinary voting power to elect
a majority of the board of directors or others performing a similar function
with respect to such corporation or other organization; and the term "HIG
Significant Subsidiary" means a HIG Subsidiary which is a "Significant
Subsidiary" under the definition thereof in Regulation S-X promulgated by the
SEC as in effect on the date hereof, except that for this purpose the percentage
tests stated in subparagraphs (1), (2) and (3) of paragraph (w) of Rule 1.02 of
Regulation S-X shall be 5% instead of 10% as provided in Regulation S-X.
Section 4.3 Non-Contravention. Except as set forth in Schedule
4.3 to the Disclosure Letter, the execution, delivery and performance of this
Agreement and each of the Other Agreements does not and the consummation of the
transactions contemplated hereby will not (a) violate any provision of the
Articles or Certificate of Incorporation or ByLaws of HIG or of any HIG
Subsidiary; (b) violate any provision of, or result in the breach or the
acceleration of or entitle any party to accelerate (whether with the giving of
notice or lapse of time or both) any obligation under, or result in, or give
rise to a default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or the loss of any material benefit under any mortgage, lien, lease,
agreement, license or instrument to which HIG or any HIG Subsidiary is a party
or by which any of them is bound; (c) result in the creation or
-17-
imposition of any Liens upon any of the property of HIG or any HIG Subsidiary;
(d) violate any order, arbitration award, judgment, writ, injunction, decree,
statute, rule or regulation applicable to HIG, any HIG Subsidiary or ACQUISITION
CORP or any of their respective properties or assets; or (e) violate or conflict
with any other material restriction of any kind or character to which HIG or any
HIG Subsidiary, or the property of any of them, is subject; except for such
violations, breaches, defaults, terminations, cancellations, accelerations of
obligations, loss of benefits, Liens or conflicts under (b), (c), (d) or (e)
which would not have a Material Adverse Effect on HIG or any HIG Significant
Subsidiary.
Section 4.4 Capital Stock. The authorized capital stock of HIG
consists of (a) 50 million shares of common stock, par value $.01 per share (10
million shares of which are designated as Series B Common Stock, none of which
shares have been issued), of which as of the date of this Agreement 11,448,370
shares are issued and outstanding and none are held in the treasury of HIG and
(b) 10 million HIG Preferred Shares, $1.00 par value per share, of which no
shares are outstanding. HIG has no commitment (absolute, contingent or
otherwise) to issue or sell any shares of its capital stock or any securities or
obligations convertible into or exchangeable for, or giving any person any
rights to acquire from HIG, any shares of its capital stock other than (i) on
the conversion of $62,850,000 principal amount of HIG Convertible Subordinated
Debentures at a conversion price of $16.16; (ii) an aggregate of 4,787,778 HIG
Shares upon the exercise of the HIG Series A Warrants at $14.69 per Share and
the exercise of HIG Series B Warrants at $14.69 (subject to adjustment) per
Share; (iii) an aggregate of 227,419 HIG Shares upon the exercise of the HIG
Series A-2 Warrants at $14.69 (subject to adjustment) per Share and the exercise
of HIG Series B-2 Warrants at $14.69 (subject
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to adjustment) per Share; and (iv) 486,000 HIG Shares upon the exercise of
options granted under the HIG 1995 Stock Option Plan and the HIG 1995 Directors'
Stock Plan. Except as set forth on Schedule 4.4 to the Disclosure Letter, there
are no existing restrictions imposed by HIG on transfers of any HIG Shares and
no covenants to register any such shares under the Securities Act.
Section 4.5 Financial Statements.
(a) The balance sheets as of December 31, 1995, December 31,
1994 and December 31, 1993 of HIG and the HIG Subsidiaries on a consolidated
basis, and the related statements of operations, stockholders' equity and cash
flows for the years then ended, examined and reported upon by Xxxxxx Xxxxxxxx
LLP, certified public accountants, copies of which have been heretofore
delivered to VBI, have been prepared in accordance with GAAP applied on a
consistent basis, and fairly present the financial position of HIG and the HIG
Subsidiaries on a consolidated basis, respectively, at such dates and the
results of their operations and cash flows for such periods. Except as otherwise
shown on such balance sheet (including the notes thereto) or pledged in the
ordinary course of business and except as disposed of in the ordinary course of
business since that date, HIG or a HIG Subsidiary owns as of December 31, 1995
the properties and assets reflected on the December 31, 1995 consolidated
balance sheet, free and clear of any Liens.
(b) The unaudited balance sheet as of September 30, 1996, of
HIG and the HIG Subsidiaries on a consolidated basis, and the related unaudited
statement of operations, stockholders' equity and cash flows for the period then
ended, copies of which have been heretofore delivered to VBI, have been prepared
in accordance with
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GAAP applied on a consistent basis, and fairly present the financial position of
HIG and the HIG Subsidiaries on a consolidated basis, respectively, at such date
and the results of their operations and cash flows for such period except for
(i) year-end adjustments consisting only of normal recurring accruals and (ii)
omissions from the footnotes permitted for unaudited interim financial
statements by Regulation S-X promulgated by the SEC under the Securities Act and
the Exchange Act.
Section 4.6 Changes.
(a) Except as listed in Schedule 4.6 to the Disclosure Letter,
since December 31, 1995 there has not been:
(i) any damage, destruction or other casualty loss with
respect to property owned or leased by HIG or any HIG Subsidiary (whether or not
covered by insurance) having a Material Adverse Effect on HIG;
(ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of HIG Shares; or
(iii) any increase in compensation to any directors or
employees of HIG or any HIG Subsidiary earning more than $100,000 per annum or
in the benefits due under any Employee Benefit Plan.
(b) Except as listed in Schedule 4.6 to the Disclosure Letter,
since September 30, 1996 there has not been:
(i) any change in the financial condition or results of
operations of HIG and the HIG Subsidiaries taken as a whole from that reflected
in the financial statements as of and for the periods ended September 30, 1996
referred to in Section 4.5(b) hereof or any change in the business, assets or
prospects of HIG and the
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HIG Subsidiaries taken as a whole which would constitute a Material Adverse
Effect on HIG; or
(ii) any increase in the reserves for insurance policy
benefits, losses, claims and expenses carried on the books of HIG or any of the
HIG Subsidiaries which is material to the business, financial condition or
prospects of HIG and the HIG Subsidiaries taken as a whole.
Section 4.7 Tax Returns and Payments. Except as set forth on
Schedule 4.7 to the Disclosure Letter:
(a) all federal and all material state, local and foreign Tax
Returns of HIG and each HIG Subsidiary required to be filed have been filed and
all such Tax Returns are true, correct and complete in all material respects.
All Taxes due from or with respect to HIG or any HIG Subsidiary or any of their
properties have been paid, except in respect of state, local and foreign Taxes
which are immaterial in amount. HIG and each HIG Subsidiary has made all
required estimated Tax payments sufficient to avoid any material underpayment
penalties. HIG and each HIG Subsidiary has withheld and paid all Taxes required
by all applicable laws to be withheld or paid in connection with any amounts
paid or owing to any employee, creditor, independent contractor or other third
party.
(b) GAAP applied on a basis consistent with that followed by
HIG as of December 31,1994 and for the year then ended do not require any
provisions for federal income Taxes or for foreign, state or local Taxes in
excess of the amounts provided in the consolidated balance sheet of HIG and the
HIG Subsidiaries as of December 31, 1995;
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(c) there are no outstanding agreements, waivers or
arrangements extending the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to HIG or any HIG Subsidiary for any taxable period. No audit or
other proceeding by any court, governmental or regulatory authority, or similar
person is pending or, to the knowledge of HIG, threatened in regard to any Taxes
due from or with respect to HIG or any HIG Subsidiary or any Tax Return filed by
or with respect to HIG or any HIG Subsidiary;
(d) no assessment by any taxing authority in an amount
exceeding $100,000 in any case for any additional Taxes has been made or
proposed and remains unresolved; and
(e) none of HIG or any HIG Subsidiary is a party to, is bound
by, or has any obligation under, any Tax sharing agreement, Tax allocation
agreement or similar contract.
Section 4.8 Employee Benefit Plans. Schedule 4.8 to the
Disclosure Letter lists each Employee Benefit Plan or other plan maintained for
employees of HIG or any HIG Subsidiary (an "HIG Plan") and true and complete
copies of each such HIG Plan have heretofore been delivered to VBI. No Person
has incurred withdrawal liability to a multi-employer plan within the meaning of
Section 3(37) of ERISA, or has failed to satisfy (or obtained a waiver of or
variance from) a minimum funding requirement under Section 412 of the Code or
Section 302 of ERISA, while a Commonly Controlled Entity with respect to HIG.
Except as indicated on such Schedule 4.8, each of the HIG Plans covered by ERISA
(a) has been operated in all material respects in accordance with ERISA and
applicable law, (b) has not engaged in any prohibited transactions (as such term
is defined
-22-
in Section 406 of ERISA), and (c) has met the requirements for qualified status
under Section 401(a) of the Code to the extent such plan is intended to be so
qualified. Except as set forth in the Highlands Retiree Medical Program
document, and except for the 23 former employees of HIG who were covered by the
Halliburton Retiree Plan, neither HIG nor any HIG Subsidiary has made any
promise or undertaking, written or oral, to pay any part of the cost of the
medical, dental or other health care benefit for its employees after they
retire.
Section 4.9 No Undisclosed Liabilities or Agreements. Except
as disclosed in Schedule 4.9 to the Disclosure Letter or in the Financial
Statements referred to in Section 4.5(b) hereof, neither HIG nor any HIG
Subsidiary:
(a) has incurred since December 31, 1995 any debts,
liabilities or obligations (other than debts, liabilities or obligations
reasonably incurred in the ordinary course of business after December 31, 1995);
nor
(b) has conducted business otherwise than in the ordinary
course in any material respect since September 30, 1996.
Section 4.10 Reserves. The reserves carried on the books of
HIG and the HIG Subsidiaries as of September 30, 1996 for insurance policy
benefits, losses, claims and expenses are considered adequate by HIG.
Section 4.11 Litigation. Except for (a) routine litigation
relating to claims arising under insurance policies issued by any HIG Insurance
Subsidiary in the conduct of its insurance business and which are adequately
reserved, and (b) the litigation listed on Schedule 4.11 to the Disclosure
Letter, (i) there are no material actions, suits or proceedings pending or, to
the knowledge of HIG, threatened against HIG or any HIG
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Subsidiary before any court, arbitration tribunal or mediator or before or by
any governmental department, agency or instrumentality, and neither HIG nor any
HIG Subsidiary has received any written communication with respect to any such
threatened actions, suits or proceedings and (ii) there are no writs, judgments,
decrees, injunctions or similar orders of any governmental department, agency or
instrumentality outstanding against HIG or any HIG Subsidiary.
Section 4.12 Contracts. Schedule 4.12 to the Disclosure Letter
sets forth a list of the following:
(a) any collective bargaining agreement or other written
agreement of HIG or any HIG Subsidiary with any labor union;
(b) any written employment or consulting agreement, contract
or commitment between HIG or any HIG Subsidiary and any employee, officer or
director thereof (i) having more than one year to run from the date hereof, (ii)
providing for an obligation to pay or accrue compensation of $50,000 or more per
annum or (iii) providing for the payment or accrual of any additional
compensation upon a change in control of HIG or any HIG Subsidiary or upon any
termination of such employment or consulting relationship following a change in
control of HIG or any HIG Subsidiary;
(c) any agency or representation agreement of HIG or any HIG
Subsidiary with any Person which is not terminable by HIG or such HIG Subsidiary
without penalty upon not more than one hundred eighty (180) days' notice;
(d) any agreement, contract or commitment with any Person
containing any covenant limiting the freedom of HIG or any HIG Subsidiary to
engage in any line of business or to compete with any Person;
-24-
(e) any partnership, joint venture or profit sharing agreement
(other than insurance policies) of HIG or any HIG Subsidiary with any Person;
(f) any agreement, contract, commitment, indenture or other
instrument of HIG or any HIG Subsidiary relating to the borrowing of money; or
the direct or indirect guarantee of any obligation for, or an agreement to
service the repayment of, borrowed money, or any other contingent obligation in
respect to indebtedness of any other Person, including without limitation any
agreement or arrangement relating to the maintenance of compensating balances,
any agreement or arrangement with respect to lines of credit, any agreement or
arrangement to purchase or repurchase obligations of any other Person, any
agreement or arrangement to advance or supply funds to or to invest in any other
Person, any agreement or arrangement to pay for property, products or services
of any other Person even if such property, products or services are not
conveyed, delivered or rendered or any guarantee with respect to any lease or
other similar periodic payment to be made by any other Person;
(g) any lease of HIG or any HIG Subsidiary with annual rental
payments aggregating $50,000 or more;
(h) any agreement, contract or commitment of HIG or any HIG
Subsidiary relating to the disposition or acquisition of any investment in any
Person if such investment has a book value of, or the disposition or acquisition
price of such investment or interest is, $50,000 or more;
(i) any other agreement, contract or commitment (other than
pursuant to insurance policies issued by an HIG Insurance Subsidiary or
assessments from pools, assigned risk plans or residual market mechanisms) which
involves payment
-25-
or potential payment, pursuant to the terms of such agreement, contract or
commitment, by or to HIG or any HIG Subsidiary of $50,000 or more within any
twelve month period commencing after the date hereof;
(j) any reinsurance contract of HIG or any HIG Subsidiary
entered into since January 1, 1991 pursuant to which premiums ceded thereunder
exceed or may reasonably be expected to exceed $1,000,000 (except insofar as any
such agreement is solely among HIG and HIG Subsidiaries); or
(k) any agreement, contract, commitment or arrangement of HIG
or any HIG Subsidiary and any Affiliate of HIG or any HIG Subsidiary.
All the contracts, plans and instruments listed on such
Schedule 4.12 are in full force and effect and neither HIG nor any HIG
Significant Subsidiary (nor, to the Knowledge of HIG, any other party to any
such contract, plan or instrument) has breached any provision of, or is in
default in any respect under the terms of, any contract, plan or instrument
described in such Schedule 4.12, except for breaches or defaults of such
contracts, plans or instruments which would not have a Material Adverse Effect
on HIG. No party to any such contract, plan or instrument will have the right to
terminate any or all of the provisions of any such contract, plan or instrument
as a result of the transactions contemplated by this Agreement.
Section 4.13 Dividends. Schedule 4.13 to the Disclosure Letter
sets forth as to HIG and each HIG Significant Subsidiary each contractual
restriction or limitation on the payment of dividends. Except as set forth on
such Schedule and except for limits imposed by state corporation and state
insurance laws and regulations, there are no
-26-
restrictions or limitations with respect to dividends which may be declared and
paid by HIG or any HIG Significant Subsidiary.
Section 4.14 Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required in
connection with the execution and delivery of this Agreement or the Other
Agreements and the consummation of the transactions contemplated hereby or
thereby as a result of any characteristic of HIG, ACQUISITION CORP or of any of
the HIG Significant Subsidiaries or of the nature of its or their businesses or
operations, except for (a) requirements of the Securities Act, (b) requirements
of the Exchange Act, (c) requirements of any applicable state or foreign
securities laws, (d) requirements of any applicable state or foreign insurance
or insurance holding company laws or orders, (e) filings required by the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and (f) filing
and recordation of appropriate merger documents as required by the laws of the
State of Delaware and the State of Indiana.
Section 4.15 Regulatory Filings. Schedule 4.15 to the
Disclosure Letter lists (a) all annual statements ("Annual Insurance
Statements") which HIG and the HIG Insurance Subsidiaries have filed with or
submitted to the insurance regulatory commissions, agencies or authorities of
their respective domestic jurisdictions since December 31, 1993 and (b) all
reports of examinations issued by such insurance regulatory commissions,
agencies or authorities in respect of HIG or any of the HIG Insurance
Subsidiaries since December 31, 1993. Except as indicated on such Schedule 4.15,
(i) such filings or submissions were in substantial compliance with
-27-
applicable law when filed and, as of their respective dates, did not contain any
material false statements or misstatements of fact or omit to state any material
facts necessary to make the statements set forth therein not materially
misleading in light of the circumstances in which such statements were made;
(ii) no material deficiencies have been asserted to HIG in writing by any such
regulatory commission, agency or authority with respect to such filings or
submissions; and (iii) neither HIG nor any HIG Insurance Subsidiary has
submitted any written response with respect to material comments from regulatory
commissions, agencies or authorities concerning such filings, submissions or
reports of examination. The Statutory Statements of each of the HIG Insurance
Subsidiaries contained in the Annual Insurance Statements for the year ended
December 31, 1995 have been prepared in accordance with the required or
permitted Statutory Accounting Principles except as expressly set forth or
disclosed in the notes, exhibits or schedules thereto (which notes, exhibits and
schedules fairly present the data purported to be shown thereby).
Section 4.16 Compliance with Applicable Law. Except as
disclosed in Section 4.16 to the Disclosure Letter, HIG, ACQUISITION CORP and
each of the HIG Subsidiaries are, in the conduct of their businesses, in
compliance with all federal, state or local laws, statutes, ordinances and
regulations, the failure to comply with which would have a Material Adverse
Effect on HIG. HIG has filed with the SEC all forms, reports, documents and
registration statements (collectively, the "SEC Reports") required to be so
filed by it since January 1, 1994 under the Exchange Act or the Securities Act.
Section 4.17 Accuracy of Information Furnished. No
representation or warranty by HIG contained in this Agreement or in the Other
Agreements, no statement
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contained in any certificate or other instrument furnished or to be furnished to
VBI pursuant hereto or thereto, or in connection with the transactions
contemplated hereby or thereby, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact which is
necessary to make the statements contained herein or therein not misleading.
Section 4.18 Environmental Matters.
(a) For purposes of this Section 4.18 and Section 5.18:
(i) "Environmental Law" means any applicable law
regulating or prohibiting Releases into any part of the natural environment, or
pertaining to the protection of natural resources, the environment and public
and employee health and safety including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the
Clean Air Act (33 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act
(15 U.S.C. Section 7401 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136 et seq.), and the Occupational Safety and
Health Act (29 U.S.C. Section 651 et seq.) ("OSHA") and the regulations
promulgated pursuant thereto, and any such applicable state or local statutes,
and the regulations promulgated pursuant thereto, as such laws have been and may
be amended or supplemented through the Closing Date;
(ii) "Hazardous Material" means any substance, material or
waste which is regulated by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries conducts
business, or the United States,
-29-
including, without limitation, any material or substance which is defined as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or "restricted hazardous waste," "contaminant," "toxic waste"
or "toxic substance" under any provision or Environmental Law;
(iii) "Release" means any release, spill, effluent,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching, or migration into the indoor or outdoor environment, or into or out of
any property owned, operated or leased by the applicable party or its
Subsidiaries;
(iv) "Remedial Action" means all actions, including,
without limitation, any capital expenditures, required by a governmental entity
or required under any Environmental Law, or voluntarily undertaken to (A) clean
up, remove, treat, or in any other way ameliorate or address any Hazardous
Materials or other substance in the indoor or outdoor environment; (B) prevent
the Release or threat of Release, or minimize the further Release of any
Hazardous Material so it does not endanger or threaten to endanger the public
health or welfare of the indoor or outdoor environment; (C) perform pre-remedial
studies and investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (D) bring the applicable party into compliance with
any Environmental Law.
(b) Except as set forth on Schedule 4.18 to the Disclosure
Letter,
(i) the operations of HIG and the HIG Subsidiaries have
been in compliance with all Environmental Laws, except where the failure to so
comply would not have a Material Adverse Effect on HIG;
-30-
(ii) HIG and the HIG Subsidiaries have obtained and will,
as of the Closing Date, maintain all permits required under applicable
Environmental Laws of the continued operations of their respective businesses,
except such permits the lack of which would not have a Material Adverse Effect
on HIG;
(iii) HIG and the HIG Subsidiaries are not subject to any
outstanding written orders or material contracts with any governmental
department, agency or instrumentality or other Person respecting (A)
Environmental Laws, (B) Remedial Action or (C) any Release or threatened Release
of a Hazardous Material;
(iv) HIG and the HIG Subsidiaries have not received any
written communication alleging, with respect to any such party, the violation of
or liability under any Environmental Law, which violation or liability would
have a Material Adverse Effect on HIG;
(v) to the Knowledge of HIG, neither HIG nor any of the
HIG Subsidiaries has any contingent liability in connection with the release of
any Hazardous Material into the indoor or outdoor environment (whether on-site
or off-site) which would have a Material Adverse Effect on HIG;
(vi) the operations of HIG and the HIG Subsidiaries which
involve the generation, transportation, treatment, storage or disposal of
hazardous waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in
effect as of the date of this Agreement) or any state equivalent, are and have
been conducted in compliance with applicable Environmental Laws, except where
the failure so to comply would not have a Material Adverse Effect on HIG;
-31-
(vii) to the Knowledge of HIG, there is not now on or in
any property of HIG or the HIG Subsidiaries any of the following: (A) any
underground storage tanks or surface impoundments, (B) any asbestos-containing
materials, or (C) any polychlorinated biphenyls, except in material compliance
with applicable Environmental Laws; and
(viii) since December 31, 1992 there have been no
environmental inspections, investigations, studies, audits, tests, reviews or
other analyses conducted on behalf of HIG in relation to any real property or
business now or previously owned, operated, or leased by HIG or a HIG
Subsidiary.
Section 4.19 Broker's, Finder's or Similar Fees. Except
for fees payable to Xxxxx Xxxxxx, and other than pursuant to Section 6.8, there
are no brokerage commissions, finder's fees or similar fees or commissions
payable by HIG in connection with the transactions contemplated hereby based on
any agreement, arrangement or understanding with HIG or ACQUISITION CORP or any
action taken by HIG or ACQUISITION CORP.
Section 4.20 Owned Real Property. Schedule 4.20 to the
Disclosure Letter contains a true, correct and complete list of all real
property owned by HIG or any HIG Subsidiary. HIG or an HIG Subsidiary is the
holder of good, indefeasible and marketable fee simple title to such real
property free and clear of all Liens, except for such Liens which would not have
a Material Adverse Effect on HIG. There are no leases, subleases, tenancies,
licenses or other occupancy rights affecting any portion of such real property
except as set forth in such Schedule 4.20 to the Disclosure Letter.
-32-
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY VBI
VBI represents and warrants to HIG as follows:
Section 5.1 Organization and Qualifications, etc. VBI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Indiana, has the corporate and other power and all necessary
state authorizations to own, lease and operate all of its properties and assets
and to carry on its business as it is now being conducted, and is duly qualified
to do business and is in good standing in each jurisdiction in which it owns
property or conducts business, except where the failure to have such
authorization or to be so qualified would not have a Material Adverse Effect on
VBI. VBI has all requisite corporate and other power and is duly authorized,
subject to the approval of the stockholders of VBI and compliance with
applicable insurance regulatory requirements to merge pursuant to this Agreement
and to enter into the Other Agreements and to perform its other obligations
hereunder and thereunder. Other than the approval of the stockholders of VBI
which shall have occurred by the Closing Date, the execution, delivery and
performance by VBI of this Agreement and each of the Other Agreements, and the
consummation by VBI of the transactions contemplated hereby and thereby, have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of VBI are necessary to authorize the
execution, delivery or performance by VBI of this Agreement or the Other
Agreements, or the consummation of the transactions contemplated hereby and
thereby. This Agreement has been, and each of the Other Agreements will be as of
the Closing Date, duly and validly executed and delivered by VBI. Subject to the
approval of the stockholders of VBI and satisfaction of the
-33-
conditions specified in Section 9.1 hereof (and assuming this Agreement
constitutes and each of the Other Agreements will constitute, as of the Closing
Date, valid and binding obligations of HIG), this Agreement constitutes, and
each of the Other Agreements will constitute as of the Closing Date, valid and
binding obligations of VBI, enforceable against it in accordance with its
respective terms, except that (i) such enforceability may be subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
rehabilitation, liquidation, conservatorship, receivership or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The copies of VBI 's
Articles of Incorporation and By-laws which have been delivered by VBI to HIG
are complete and correct and in full force and effect at the date hereof.
Section 5.2 Subsidiaries.
(a) Schedule 5.2(a) to the Disclosure Letter lists all VBI
Subsidiaries (as such term is defined in Section 5.2(d)), the jurisdiction of
incorporation of each such VBI Subsidiary and each jurisdiction where such VBI
Insurance Subsidiary is qualified to do business and licensed to do business as
an insurer. Except as indicated on such Schedule 5.2(a), VBI owns, directly or
indirectly, all of the securities of each of the VBI Subsidiaries free and clear
of all Liens and all capital stock of such VBI Subsidiaries has been duly
authorized and validly issued and is fully paid and nonassessable.
(b) None of the VBI Subsidiaries has any commitment (absolute,
contingent or otherwise) to issue or sell any shares of its capital stock or any
securities or
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obligations convertible into or exchangeable for, or giving any person (other
than VBI or a VBI Subsidiary) any rights to acquire from such VBI Subsidiary,
any shares of its capital stock.
(c) Except as set forth in Schedule 5.2(c) to the Disclosure
Letter, each VBI Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the corporate and other power and all necessary authorizations to own, lease and
operate all of its properties and assets and to carry on its business as it is
now being conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which it owns property or conducts business,
except where the failure to have such authorization or to be so qualified would
not have a Material Adverse Effect on such VBI Subsidiary. Except as set forth
in Schedule 5.2(c) to the Disclosure Letter, each VBI Insurance Subsidiary is
licensed to conduct business as an insurer in each jurisdiction where the nature
of its business requires such licensing, except in those instances in which the
failure to have such license would not have a Material Adverse Effect on such
VBI Insurance Subsidiary.
(d) As used in this Agreement, the term "VBI Subsidiary" means
any corporation or other organization whether incorporated or unincorporated of
which VBI and VBI Subsidiaries, separately or together, directly or indirectly,
own securities or interests having by their terms ordinary voting power to elect
a majority of the board of directors or others performing a similar function
with respect to such corporation or other organization; and the term "VBI
Significant Subsidiary" means a VBI Subsidiary which is a "Significant
Subsidiary" under the definition thereof in Regulation S-X promulgated by the
SEC as in effect on the date hereof, except that for this purpose the percentage
tests
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stated in subparagraphs (1), (2) and (3) of paragraph (w) of Rule 1.02 of
Regulation S-X shall be 5% instead of 10% as provided in Regulation S-X.
Section 5.3 Non-Contravention. Except as set forth in Schedule
5.3 to the Disclosure Letter, the execution, delivery and performance of this
Agreement and each of the Other Agreements does not and, the consummation of the
transactions contemplated hereby will not (a) violate any provision of the
Articles or Certificate of Incorporation or ByLaws of VBI or of any VBI
Subsidiary, (b) violate any provision of, or result in the breach or the
acceleration of or entitle any party to accelerate (whether with the giving of
notice or lapse of time or both) any obligation under, or result in, or give
rise to a default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or the loss of any material benefit under any mortgage, lien, lease,
agreement, license or instrument to which VBI or any VBI Subsidiary is a party
or by which any of them is bound; (c) result in the creation or imposition of
any Liens upon any of the property of VBI or any VBI Subsidiary; (d) violate any
order, arbitration award, judgment, writ, injunction, decree, statute, rule or
regulation applicable to VBI, any VBI Subsidiary or any of their respective
properties or assets; or (e) violate or conflict with any other material
restriction of any kind or character to which VBI or any VBI Subsidiary, or the
property of any of them, is subject; except for such violations, breaches,
defaults, terminations, cancellations, accelerations of obligations, loss of
benefits, Liens or conflicts under (b), (c), (d) or (e) which would not have a
Material Adverse Effect on VBI or any VBI Significant Subsidiary.
Section 5.4 Capital Stock. The authorized capital stock of VBI
consists of (a) 2 million common shares, par value $.001 per share, of which as
of the date of this
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Agreement 271,800 are issued and outstanding and none are held in the treasury
of VBI and (b) 2 million preferred shares, $.10 par value per share, of which as
of the date of this Agreement (i) 1,500 shares have been designated Series One
Preferred Stock, of which 1,500 shares are issued and outstanding, (ii) 2,500
shares have been designated Series Two Preferred Stock, of which 1,231 shares
are issued and outstanding, (iii) 50,000 shares have been designated Series
Three Preferred Stock, of which 21,366 shares are issued and outstanding, (iv)
10,000 shares have been designated Series Four Preferred Stock, of which 10,000
shares are issued and outstanding, (v) 20,000 shares have been designated Series
Five Preferred Stock, of which 1,388 shares are issued and outstanding, (vi)
10,000 shares have been designated Series Six Preferred Stock, of which 10,000
shares are issued and outstanding and (vii) 40,000 shares have been designated
Series Seven Preferred Stock, of which 19,084 shares are issued and outstanding.
VBI has no commitment (absolute, contingent or otherwise) to issue or sell any
shares of its capital stock or any securities or obligations convertible into or
exchangeable for, or giving any person any rights to acquire from VBI, any
shares of its capital stock other than as set forth in Schedule 5.4 to the
Disclosure Letter. Except as set forth on Schedule 5.4 to the Disclosure Letter,
there are no existing restrictions imposed by VBI on transfers of any VBI Shares
and no covenants to register any such shares under the Securities Act.
Section 5.5 Financial Statements.
(a) The balance sheets as of December 31, 1995, December 31,
1994 and December 31, 1993 of VBI and the VBI Subsidiaries on a consolidated
basis, and the related statements of operations, stockholders' equity and cash
flows for the years then ended, examined and reported upon by Ernst & Young,
certified public accountants,
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copies of which have been heretofore delivered to HIG, have been prepared in
accordance with GAAP applied on a consistent basis, and fairly present the
financial position of VBI and the VBI Subsidiaries on a consolidated basis,
respectively, at such dates and the results of their operations and cash flows
for such periods. Except as otherwise shown on such balance sheets (including
the notes thereto), pledged in the ordinary course of business or listed on
Schedule 5.5 to the Disclosure Letter and except as disposed of in the ordinary
course of business since that date, VBI or a VBI Subsidiary owns as of December
31, 1995 the properties and assets reflected on the December 31, 1995
consolidated balance sheet, free and clear of any Liens.
(b) The unaudited balance sheet as of September 30, 1996, of
VBI and the VBI Subsidiaries on a consolidated basis, and the related unaudited
statement of operations, stockholders' equity and cash flows for the period then
ended, copies of which have been heretofore delivered to HIG, have been prepared
in accordance with GAAP applied on a consistent basis, and fairly present the
financial position of VBI and the VBI Subsidiaries on a consolidated basis,
respectively, at such date and the results of their operations and cash flows
for such period except for (i) year-end adjustments consisting only of normal
recurring accruals and (ii) omissions from the footnotes permitted for unaudited
interim financial statements by Regulation S-X promulgated by the SEC under the
Securities Act and the Exchange Act.
Section 5.6 Changes.
(a) Except as listed in Schedule 5.6 to the Disclosure Letter,
since December 31, 1995 there has not been:
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(i) any damage, destruction or other casualty loss with
respect to property owned or leased by VBI or any VBI Subsidiary (whether or not
covered by insurance) having a Material Adverse Effect on VBI;
(ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of VBI Shares; or
(iii) any increase in compensation to any directors or
employees of VBI or any VBI Subsidiary earning more than $100,000 per annum or
in the benefits due under any Employee Benefit Plan.
(b) Except as listed in Schedule 5.6 to the Disclosure Letter,
since September 30, 1996 there has not been:
(i) any change in the financial condition or results of
operations of VBI and the VBI Subsidiaries taken as a whole from that reflected
in the financial statements as of and for the periods ended September 30, 1996
referred to in Section 5.5(b) hereof or any change in the business, assets or
prospects of VBI and the VBI Subsidiaries taken as a whole which would
constitute a Material Adverse Effect on VBI; or
(ii) any increase in the reserves for insurance policy
benefits, losses, claims and expenses carried on the books of VBI or any of the
VBI Subsidiaries which is material to the business, financial condition or
prospects of VBI and the VBI Subsidiaries taken as a whole.
Section 5.7 Tax Returns and Payments. Except as set forth on
Schedule 5.7 to the Disclosure Letter:
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(a) all federal and all material state, local and foreign Tax
Returns of VBI and each VBI Subsidiary required to be filed have been filed and
all such Tax Returns are true, correct and complete in all material respects.
All Taxes due from or with respect to VBI or any VBI Subsidiary or any of their
properties have been paid, except in respect of state, local and foreign taxes
which are immaterial in amount. VBI and each VBI Subsidiary has made all
required estimated Tax payments sufficient to avoid any material underpayment
penalties. VBI and each VBI Subsidiary has withheld and paid all Taxes required
by all applicable laws to be withheld or paid in connection with any amounts
paid or owing to any employee, creditor, independent contractor or other third
party.
(b) GAAP applied on a basis consistent with that followed by
VBI as of December 31,1994 and for the year then ended do not require any
provisions for federal income Taxes or for foreign, state or local Taxes in
excess of the amounts provided in the consolidated balance sheet of VBI and the
VBI Subsidiaries as of December 31, 1995;
(c) there are no outstanding agreements, waivers or
arrangements extending the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to VBI or any VBI Subsidiary for any taxable period. No audit or
other proceeding by any court, governmental or regulatory authority or similar
person is pending or, to the knowledge of VBI, threatened in regard to any Taxes
due from or with respect to VBI or any VBI Subsidiary or any Tax Return filed by
or with respect to VBI or any VBI Subsidiary;
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(d) no assessment by any taxing authority in an amount
exceeding $100,000 in any case for any additional Taxes has been made or
proposed and remains unresolved;
(e) except as set forth in Schedule 5.12(k) to the Disclosure
Letter, none of VBI or any VBI Subsidiary is a party to, is bound by, or has any
obligation under, any Tax sharing agreement, Tax allocation agreement or similar
contract; and
(f) VBI is not and has not been during the previous five years
a "United States real property holding corporation" within the meaning of
Section 1445(b)(3) of the Code.
Section 5.8 Employee Benefit Plans. Schedule 5.8 to the
Disclosure Letter lists each Employee Benefit Plan or other plan maintained for
employees of VBI or any VBI Subsidiary (a "VBI Plan") and true and complete
copies of each such VBI Plan have heretofore been delivered to HIG. Except as
set forth in such Schedule 5.8, there are no unfunded accrued benefits under any
VBI Plan which is subject to the vesting and funding standards of ERISA, and
none of the VBI Plans are multi-employer plans within the meaning of Section
3(37) of ERISA. Except as indicated on such Schedule 5.8, each of the VBI Plans
covered by ERISA (a) has been operated in all material respects in accordance
with ERISA and applicable law, (b) has not engaged in any prohibited
transactions (as such term is defined in Section 406 of ERISA), and (c) has met
the minimum funding standards of the Code. No material Reportable Event (within
the meaning of the Code) has occurred and is continuing with respect to any VBI
Plan.
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Section 5.9 No Undisclosed Liabilities or Agreements. Except
as disclosed in Schedule 5.9 to the Disclosure Letter or in the Financial
Statements referred to in Section 5.5(b) hereof, neither VBI nor any VBI
Subsidiary:
(a) has incurred since December 31, 1995 any debts,
liabilities or obligations (other than debts, liabilities or obligations
reasonably incurred in the ordinary course of business after December 31, 1995);
nor
(b) has conducted business otherwise than in the ordinary
course in any material respect since September 30, 1996.
Section 5.10 Reserves. Except as disclosed in Schedule 5.10 to
the Disclosure Letter, the reserves carried on the books of VBI and the VBI
Subsidiaries as of September 30, 1996 for insurance policy benefits, losses,
claims and expenses are considered adequate by VBI.
Section 5.11 Litigation. Except for (a) routine litigation
relating to claims arising under insurance policies issued by any VBI Insurance
Subsidiary in the conduct of its insurance business and which are adequately
reserved, and (b) the litigation listed on Schedule 5.11 to the Disclosure
Letter, (i) there are no material actions, suits or proceedings pending or, to
the knowledge of VBI, threatened against VBI or any VBI Subsidiary before any
court, arbitration tribunal or mediator or before or by any governmental
department, agency or instrumentality and neither VBI nor any VBI Subsidiary has
received any written communication with respect to any such threatened actions,
suits or proceedings, and (ii) there are no writs, judgments, decrees,
injunctions or similar orders of any governmental department, agency or
instrumentality outstanding against VBI or any VBI Subsidiary.
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Section 5.12 Contracts. Schedule 5.12 to the Disclosure Letter
sets forth a list of the following:
(a) any collective bargaining agreement or other written
agreement of VBI or any VBI Subsidiary with any labor union;
(b) any written employment or consulting agreement, contract
or commitment between VBI or any VBI Subsidiary and any employee, officer or
director thereof (i) having more than one year to run from the date hereof, (ii)
providing for an obligation to pay or accrue compensation of $50,000 or more per
annum or (iii) providing for the payment or accrual of any additional
compensation upon a change in control of VBI or any VBI Subsidiary or upon any
termination of such employment or consulting relationship following a change in
control of VBI or any VBI Subsidiary;
(c) any agency or representation agreement of VBI or any VBI
Subsidiary with any Person which is not terminable by VBI or such VBI Subsidiary
without penalty upon not more than one hundred eighty (180) days' notice;
(d) any agreement, contract or commitment with any Person
containing any covenant limiting the freedom of VBI or any VBI Subsidiary to
engage in any line of business or to compete with any Person;
(e) any partnership, joint venture or profit sharing agreement
(other than insurance policies) of VBI or any VBI Subsidiary with any Person;
(f) any agreement, contract, commitment, indenture or other
instrument of VBI or any VBI Subsidiary relating to the borrowing of money; or
the direct or indirect guarantee of any obligation for, or an agreement to
survive the repayment of, borrowed money, or any other contingent obligation in
respect to indebtedness of any
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other Person, including without limitation any agreement or arrangement relating
to the maintenance of compensating balances, any agreement or arrangement with
respect to lines of credit, any agreement or arrangement to purchase or
repurchase obligations of any other Person, any agreement or arrangement to
advance or supply funds to or to invest in any other Person, any agreement or
arrangement to pay for property, products or services of any other Person even
if such property, products or services are not conveyed, delivered or rendered
or any guarantee with respect to any lease or other similar periodic payments to
be made by any other Person;
(g) any lease of VBI or any VBI Subsidiary with annual rental
payments aggregating $50,000 or more;
(h) any agreement, contract or commitment of VBI or any VBI
Subsidiary relating to the disposition or acquisition of any investment in any
Person if such investment has a book value of, or the disposition or acquisition
price of such investment or interest is, $50,000 or more;
(i) any other agreement, contract or commitment (other than
pursuant to insurance policies issued by a VBI Insurance Subsidiary or
assessments from pools, assigned risk plans or residual market mechanisms) which
involves payment or potential payment, pursuant to the terms of such agreement,
contract or commitment, by or to VBI or any VBI Subsidiary of $50,000 or more
within any twelve month period commencing after the date hereof;
(j) any reinsurance contract of VBI or any VBI Subsidiary
entered into since July 1, 1994 pursuant to which premiums ceded thereunder
exceed or may
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reasonably be expected to exceed $1,000,000 (except insofar as any such
agreement is solely among VBI and VBI Subsidiaries); or
(k) any agreement, contract, commitment or arrangement of VBI
or any VBI Subsidiary and any Affiliate of VBI or any VBI Subsidiary.
All the contracts, plans and instruments listed on Schedule
5.12 are in full force and effect and neither VBI nor any VBI Significant
Subsidiary (nor, to the Knowledge of VBI, any other party to any such contract,
plan or instrument) has breached any provision of, or is in default in any
respect under the terms of, any contract, plan or instrument described in such
Schedule 5.12, except for breaches or defaults of such contracts, plans or
instruments which would not have a Material Adverse Effect on VBI and those
breaches described on Schedule 5.12 to the Disclosure Letter. No party to any
such contract, plan or instrument will have the right to terminate any or all of
the provisions of any such contract, plan or instrument as a result of the
transactions contemplated by this Agreement.
Section 5.13 Dividends. Schedule 5.13 to the Disclosure Letter
sets forth as to VBI and each VBI Significant Subsidiary each contractual
restriction or limitation on the payment of dividends. Except as set forth on
such Schedule and except for limits imposed by state corporation and state
insurance laws and regulations, there are no restrictions or limitations with
respect to dividends which may be declared and paid by VBI or any VBI
Significant Subsidiary.
Section 5.14 Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required in
connection with the execution and
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delivery of this Agreement or the Other Agreements and the consummation of the
transactions contemplated hereby or thereby as a result of any characteristic of
VBI or of any of the VBI Significant Subsidiaries or of the nature of its or
their businesses or operations, except for (a) requirements of the Securities
Act, (b) requirements of the Exchange Act, (c) requirements of any applicable
state or foreign securities laws, (d) requirements of any applicable state or
foreign insurance or insurance holding company laws or orders, (e) filings
required by the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, and (f) filing and recordation of appropriate merger documents as
required by the laws of the State of Delaware and the State of Indiana.
Section 5.15 Regulatory Filings. Schedule 5.15 to the
Disclosure Letter lists (a) all Annual Insurance Statements which VBI and the
VBI Insurance Subsidiaries have filed with or submitted to the insurance
regulatory commissions, agencies or authorities of their respective domestic
jurisdictions since December 31, 1993, and (b) all reports of examinations
issued by such insurance regulatory commissions, agencies or authorities in
respect of VBI or any of the VBI Insurance Subsidiaries since December 31, 1993.
Except as indicated on such Schedule 5.15, (i) such filings or submissions were
in substantial compliance with applicable law when filed and, as of their
respective dates, did not contain any material false statements or misstatements
of fact or omit to state any material facts necessary to make the statements set
forth therein not materially misleading in light of the circumstances in which
such statements were made; (ii) no material deficiencies have been asserted to
VBI in writing by any such regulatory commission, agency or authority with
respect to such filings or submissions; and (iii) neither VBI nor any VBI
Insurance Subsidiary has submitted any written response with respect to material
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comments from regulatory commissions, agencies or authorities concerning such
filings, submissions or reports of examination. The Statutory Statements of each
of the VBI Insurance Subsidiaries contained in the Annual Insurance Statements
for the year ended December 31, 1995 have been prepared in accordance with the
required or permitted Statutory Accounting Principles, except as expressly set
forth or disclosed in the notes, exhibits or schedules thereto (which notes,
exhibits and schedules fairly present the data purported to be shown thereby).
Section 5.16 Compliance with Applicable Law. Except as
disclosed in Schedule 5.16 to the Disclosure Letter, VBI and each of the VBI
Subsidiaries are, in the conduct of their businesses, in compliance with all
federal, state or local laws, statutes, ordinances and regulations, the failure
to comply with which would have a Material Adverse Effect on VBI.
Section 5.17 Accuracy of Information Furnished. No
representation or warranty by VBI contained in this Agreement or in the Other
Agreements, no statement contained in any certificate or other instrument
furnished or to be furnished to HIG pursuant hereto or thereto, or in connection
with the transactions contemplated hereby or thereby, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact which is necessary to make the statements contained therein not
misleading.
Section 5.18 Environmental Matters. Except as set forth on
Schedule 5.18 to the Disclosure Letter,
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(a) the operations of VBI and the VBI Subsidiaries have been
in compliance with all Environmental Laws, except where the failure to so comply
would not have a Material Adverse Effect on VBI;
(b) VBI and the VBI Subsidiaries have obtained and will, as of
the Closing Date, maintain all permits required under applicable Environmental
Laws of the continued operations of their respective businesses, except such
permits the lack of which would not have a Material Adverse Effect on VBI;
(c) VBI and the VBI Subsidiaries are not subject to any
outstanding written orders or material contracts with any governmental
department, agency or instrumentality or other Person respecting (i)
Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of a Hazardous Material;
(d) VBI and the VBI Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation of or
liability under any Environmental Law, which violation or liability would have a
Material Adverse Effect on VBI;
(e) to the Knowledge of VBI, neither VBI nor any of the VBI
Subsidiaries has any contingent liability in connection with the release of any
Hazardous Material into the indoor or outdoor environment (whether on-site or
off-site) which would have a Material Adverse Effect on VBI;
(f) the operations of VBI and the VBI Subsidiaries which
involve the generation, transportation, treatment, storage or disposal of
hazardous waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in
effect as of the date of this Agreement) or any state equivalent, are and have
been conducted in compliance with
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applicable Environmental Laws, except where the failure so to comply would not
have a Material Adverse Effect on VBI;
(g) to the Knowledge of VBI, there is not now on or in any
property of VBI or the VBI Subsidiaries any of the following: (i) any
underground storage tanks or surface impoundments, (ii) any asbestos-containing
materials, or (iii) any polychlorinated biphenyls, except in material compliance
with applicable Environmental Laws;
(h) since December 31, 1992, there have been no environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
conducted on behalf of VBI in relation to any real property or business now or
previously owned, operated, or leased by VBI or a VBI Subsidiary; and
(i) neither VBI nor any VBI Subsidiary is an "Industrial
Establishment" as such term is defined in the New Jersey Industrial Site
Recovery Act, NJSA sections 13:1K-6 to -11.11 ("ISRA"), and the provisions of
ISRA are not applicable to VBI or any VBI Subsidiary. Neither VBI nor any VBI
Subsidiary is required to make any filing with or obtain the approval of the New
Jersey Department of Environmental Protection and Energy with respect to the
transactions contemplated pursuant to this Agreement.
Section 5.19 Broker's, Finder's or Similar Fees. Except for
the fee payable to Xxxxxxxxx, Lufkin & Xxxxxxxx Securities Corporation pursuant
to Section 6.8, there are no brokerage commissions, finder's fees or similar
fees or commissions payable by VBI in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
VBI or any action taken by VBI.
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Section 5.20 Owned Real Property. Schedule 5.20 to the
Disclosure Letter contains a true, correct and complete list of all real
property owned by VBI or any VBI Subsidiary. VBI or a VBI Subsidiary is the
holder of good, indefeasible and marketable fee simple title to such real
property free and clear of all Liens, except for such Liens which would not have
a Material Adverse Effect on VBI. There are no leases, subleases, tenancies,
licenses or other occupancy rights affecting any portion of such real property
except as set forth in such Schedule 5.20 to the Disclosure Letter.
ARTICLE VI
COVENANTS AND AGREEMENTS
Section 6.1 Conduct of Business until Effective Time.
(a) From the date of this Agreement until the Effective Time,
except with the prior written consent of HIG or as required by this Agreement,
VBI will conduct, and will cause the VBI Subsidiaries to conduct, their
respective businesses in the usual and ordinary course in substantially the same
manner as currently conducted and shall use reasonable efforts to preserve their
relations with customers, agents, employees and others having business dealings
with VBI or the VBI Subsidiaries. Without limiting the foregoing, VBI:
(i) will not
(A) declare or pay any dividends other than dividends
on the Preferred Stock provided for in the terms of the Preferred Stock; or
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(B) effect any stock split, stock dividend,
reclassification or other similar transaction;
(ii) will not, and will not permit any VBI Subsidiary to:
(A) merge or consolidate with any Person, except that
a Subsidiary may merge or consolidate with another Subsidiary or with VBI;
(B) make any acquisition or disposition, or enter into
an agreement to make any acquisition or disposition, of the stock or assets of
any Person, which shall involve the expenditure or receipt of more than $1
million (in cash or market value of securities or both), except for portfolio
and similar transactions in the ordinary course of investment operations and
except that it or a VBI Subsidiary may acquire stock or assets of a VBI
Subsidiary;
(C) authorize the creation or issuance of or issue,
sell or dispose of, or create any obligation to issue, sell or dispose of, any
shares of its capital stock or any securities or obligation convertible into or
exchangeable for, any shares of its capital stock except pursuant to existing
obligations;
(D) enter into or amend any employment contract with
any of its officers, directors or employees earning annual compensation of more
than $100,000, adopt or amend any Employee Benefit Plan in any material respect
or make any payments, awards or distributions under any Employee Benefit Plan or
otherwise not consistent with past practice or custom except (x) as required by
a contract in existence on the date hereof and listed in Schedules 5.8 or 5.12;
or (y) as necessary to make any Employee Benefit Plan of it listed on Schedules
5.8 or 5.12 meet the requirements of
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ERISA to the extent such amendment is described in either such schedule or is
approved by HIG; or
(E) initiate, solicit, encourage, negotiate, discuss,
consider or entertain (including, without limitation, by way of furnishing
information or assistance orally or in writing), or take any other action to
facilitate, any inquiries or the making of any proposal that relates to,
constitutes, or may be expected to lead to, or for the purpose of evaluating the
feasibility or advisability of making, any Acquisition Proposal (as defined
below), or enter into, maintain or continue discussions or negotiations with any
person or entity in furtherance of such inquiries or for the purpose of
obtaining an Acquisition Proposal or agree to or endorse any Acquisition
Proposal, or authorize or permit any of its officers, directors or employees or
any of its Subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by any of them to take any such
action. As used in this provision, "Acquisition Proposal" shall mean any of the
following involving VBI or any VBI Subsidiary: (i) any merger, consolidation,
share exchange, recapitalization, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of any material amount of the assets of VBI and the VBI
Subsidiaries, taken as a whole, in a single transaction or series of
transactions (including, without limitation, by means of any reinsurance or
comparable agreement) outside of the ordinary course of business; (iii) any
offer for any of the outstanding shares of capital stock of VBI or the filing of
any documents under the Securities Act or the Exchange Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing;
provided, however, that, unless HIG shall
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have previously given VBI written notice of its waiver of the condition
contained in Section 8.7 of this Agreement, the provisions of this Section
6.1(a)(ii)(E) shall not apply during the period beginning on April 1, 1997 and
ending on the earlier of the termination of this Agreement and VBI's receipt of
written notice from HIG that it has waived the condition contained in Section
8.7 of this Agreement.
(b) From the date of this Agreement until the Effective Time,
except with the prior written consent of VBI or as required by this Agreement,
each of HIG and ACQUISITION CORP, respectively, will conduct, and will cause the
HIG Subsidiaries to conduct, their respective businesses in the usual and
ordinary course in substantially the same manner as currently conducted and
shall use reasonable efforts to preserve their relations with customers, agents,
employees and others having business dealings with HIG or the HIG Subsidiaries.
Without limiting the foregoing, HIG and ACQUISITION CORP:
(i) will not
(A) declare or pay any dividends; or
(B) effect any stock split, stock dividend,
reclassification or other similar transaction;
(ii) will not, and will not permit any HIG Subsidiary to
authorize the creation or issuance of or issue, sell or dispose of, or create
any obligation to issue, sell or dispose of, any shares of its capital stock or
any securities or obligation convertible into or exchangeable for, any shares of
its capital stock, except pursuant to existing obligations.
Section 6.2 Access and Confidentiality.
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(a) From the date of this Agreement to the Effective Time, HIG
and VBI each shall afford to the officers and authorized representatives of the
other (including, without limitation, counsel, financial advisers and
independent accountants) full access to their respective properties, personnel,
books and records and those of their respective Subsidiaries in order that each
party may have full opportunity to make such investigations as it shall desire
to make of the affairs of the other; and the officers of each of HIG and VBI
will furnish the other with such additional financial and operating data and
other information as to their businesses and properties and those of their
Subsidiaries as the other shall from time to time reasonably request, including,
without limitation, information for inclusion in applications or statements to
be made to any governmental or regulatory body or securities exchange in
connection with the transactions contemplated by this Agreement.
(b) HIG and VBI each affirm and agree to continue to be
subject to the terms and provisions of the letter agreement dated November 27,
1995 between IP and VBI and the letter agreement dated February 28, 1996 between
HIG and VBI (the "Confidentiality Agreements"), which agreements shall remain in
full force and effect until terminated as provided therein.
(c) HIG and VBI each agree (i) to confer, subject to
applicable law, on a regular and frequent basis with one or more representatives
of the other to report operational matters of materiality and the general status
of ongoing operations and (ii) to notify the other of any change or prospective
change in the normal course of its or its Subsidiaries' businesses or in the
operations of its or its Subsidiaries' properties and of any governmental
complaints, investigations or hearings (or communications indicating
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that the same may be contemplated) if such change or prospective change,
complaint, investigation or hearing would be material to its and its
Subsidiaries' businesses or properties taken as a whole.
Section 6.3 Interim Financial Statements and Reports.
(a) Through the Closing Date, HIG shall provide to VBI as
promptly as practicable, but in no event later than 45 days after the end of
each quarter, (i) copies of the most recent Quarterly Statements filed by each
of the HIG Insurance Subsidiaries which shall present fairly, in all material
respects, the statutory financial condition as of the date presented and
statutory results of operations for the quarter then ended of such HIG Insurance
Subsidiary in conformity with Statutory Accounting Principles applied on a
consistent basis, subject to normal year-end adjustments and (ii) copies of the
most recent GAAP Quarterly Statements prepared by HIG which shall present
fairly, in all material respects, the consolidated financial position as of the
date presented and consolidated results of operations and cash flows of HIG and
its Subsidiaries for the quarter then ended in accordance with GAAP applied on a
consistent basis, subject to normal year-end adjustments.
(b) Through the Closing Date, VBI shall provide to HIG as
promptly as practicable, but in no event later than 45 days after the end of
each quarter, (i) copies of the most recent Quarterly Statements filed by each
of the VBI Insurance Subsidiaries which shall present fairly, in all material
respects, the statutory financial condition as of the date presented and
statutory results of operations for the quarter then ended of such VBI Insurance
Subsidiary in conformity with Statutory Accounting Principles applied on a
consistent basis, subject to normal year-end adjustments and (ii) copies of the
most recent
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XXXX Xxxxxxxxx Xxxxxxxxxx prepared by VBI which shall present fairly, in all
material respects, the consolidated financial position as of the date presented
and consolidated results of operations and cash flows of VBI and its
Subsidiaries for the quarter then ended in accordance with GAAP applied on a
consistent basis, subject to normal year-end adjustments.
Section 6.4 Compliance with Conditions Precedent. HIG and VBI
will each use its reasonable efforts to cause the conditions precedent to the
Merger set forth herein to be fulfilled and to consummate the Merger and all
transactions related thereto.
Section 6.5 Regulatory Filings. HIG and VBI will each promptly
file (and cause its Subsidiaries to file) with applicable regulatory authorities
and prosecute diligently the applications and related documents required to be
filed by it and its Subsidiaries in order to consummate the transactions
contemplated by this Agreement, and each of HIG and VBI shall cooperate (and
cause its Subsidiaries to cooperate) with the other as reasonably necessary in
connection with the filing and prosecution thereof.
Section 6.6 Stockholder Consent. VBI covenants and agrees that
its Board of Directors will, as soon as reasonably practicable hereafter,
recommend to its stockholders approval of this Agreement and the Merger and
solicit written consents from such stockholders for such approval.
Section 6.7 VBI Management Compensation. HIG and VBI will
cooperate in designing a management compensation package for VBI's senior
management which will be effective as of the Effective Time.
Section 6.8 Fees and Expenses. All fees to Xxxxxxxxx, Xxxxxx &
Xxxxxxxx Securities Corporation, legal fees to Schnader, Harrison, Xxxxx &
Xxxxx, Debevoise &
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Xxxxxxxx and Stroock & Stroock & Xxxxx LLP and accounting fees, and any other
reasonable expenses incurred by VBI in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Surviving Corporation at
Closing. VBI shall notify HIG of the amount of such fees and expenses no later
than five days prior to the Closing Date.
Section 6.9 Securities Amendments. Prior to the Closing Date,
HIG shall obtain (collectively the "Securities Amendments")
(a) amendments to the terms of its outstanding Common Stock
Subscription Warrants, Series A, Series B, Series A-2 and Series B-2 to provide
that there shall be no adjustment to the number of shares of HIG common stock
issuable upon exercise thereof as a result of any Additional Adverse Development
(as defined in such warrants);
(b) amendments to the terms of its outstanding Common Stock
Subscription Warrants, Series B and Series B-2 (collectively the "Series B
Warrants") to add a definition for "Change of Control" that is identical to the
definition of "Change of Control" in the HIG 10% Convertible Subordinated
Debentures due December 31, 2005 (the "Debentures"); and
(c) amendments to or waivers of the terms of its outstanding
Debentures, Common Stock Subscription Warrants, Series A and Series A-2, and
Series B Warrants to specify that the issuance of HIG Shares pursuant to this
Agreement shall not constitute a "Change of Control" pursuant to those
securities and shall not result in an adjustment to the number of shares of HIG
common stock issuable upon exercise thereof or an adjustment to the exercise or
conversion price thereof.
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Section 6.10 Rule 16b-3. Prior to the Closing Date, HIG shall
have obtained the approval of its board of directors required by Rule
16b-3(d)(1) under the Exchange Act with respect to the issuance of HIG Shares
pursuant to this Agreement.
Section 6.11 Capital Commitments. If required by applicable
insurance regulatory authorities, HIG shall commit to contribute additional
capital to the following VBI Insurance Subsidiaries in an amount not to exceed
the following: Pacific National Insurance Company, $5 million; State Capital
Insurance Company, $7 million; and LMI Insurance Company, $30 million.
Section 6.12 A.M. Best Communications. HIG shall send to VBI
copies of all written communications by HIG to A.M. Best, or received by HIG
from A.M. Best, with respect to the Merger and the upgrade in the rating of VBI
contemplated by Section 8.8.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF VBI
All obligations of VBI under this Agreement are subject to and
shall be conditional upon the satisfaction of each of the following conditions.
Section 7.1 No Material Adverse Change. There shall not have
been any change (except as set forth in the Disclosure Letter) in the
consolidated business, results of operations, financial condition or prospects
of HIG and the HIG Subsidiaries taken as a whole at any time between September
30, 1996 and the date of the Closing which would have a Material Adverse Effect
on HIG.
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Section 7.2 Consents. VBI shall have received consents or
waivers from such Persons as are necessary for VBI to consummate the
transactions contemplated by this Agreement.
Section 7.3 Opinion of HIG Counsel. At the Closing, VBI shall
have received from Weil, Gotshal & Xxxxxx LLP, counsel to HIG, a written opinion
reasonably satisfactory to VBI, dated as of the Closing Date, substantially to
the effect as set forth in Exhibit A hereto.
Section 7.4 Representations and Warranties; Obligation. The
representations and warranties of HIG contained in this Agreement shall have
been true and correct in all material respects at the date hereof and shall also
be true and correct in all material respects at and as of the Closing Date, with
the same force and effect as if made at and as of the Closing Date; HIG shall
have performed and complied in all material respects with all covenants,
obligations and agreements to be performed or complied with by it on or prior to
the Closing Date; and HIG shall have delivered to VBI a certificate, dated as of
the date of the Closing Date, of the chief executive officer of HIG to such
effect.
Section 7.5 Agreements. At the Closing, HIG and IP shall have
duly executed and delivered the Stockholders Agreement, attached as Exhibit B
hereto, the Registration Rights Agreement, attached as Exhibit C hereto, and the
Am-Re Registration Rights Agreement, attached as Exhibit D hereto.
Section 7.6 Securities Amendments. On or before the Closing,
HIG shall have obtained all of the Securities Amendments.
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ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HIG
All obligations of HIG under this Agreement are subject to and
shall be conditional upon the satisfaction of each of the following conditions.
Section 8.1 No Material Adverse Change. There shall not have
been any change (except as set forth in the Disclosure Letter) in the
consolidated business, results of operations, financial condition or prospects
of VBI and the VBI Subsidiaries taken as a whole at any time between September
30,1996 and the date of the Closing which would have a Material Adverse Effect
on VBI; provided, however, that the following shall not be deemed to have a
Material Adverse Effect on VBI: (i) the downgrade of VBI's A.M. Best rating to
B-, announced on January 21, 1997, (ii) any net costs to VBI in connection with
its current dispute with Cat. Limited, so long as such net costs do not
materially exceed $1.5 million, and (iii) the financial results of VBI as of
December 31, 1996 so long as such results are not materially worse than the
projected results at December 31, 1996, a copy of which have previously been
provided to HIG by VBI.
Section 8.2 Opinion of VBI Counsel. At the Closing, HIG shall
have received from Schnader, Harrison, Xxxxx & Xxxxx, co-counsel to VBI, and,
with respect to matters of Indiana law, Johnson, Smith, Fence, Densborn, Xxxxxx
& Xxxxx, written opinions reasonably satisfactory to HIG, dated as of the
Closing Date, substantially to the effect as set forth in Exhibit E hereto, and
from Stroock & Stroock & Xxxxx LLP, co-counsel to VBI, a written opinion
reasonably satisfactory to HIG, dated as of the Closing Date, substantially to
the effect as set forth in Exhibit F hereto.
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Section 8.3 Representations and Warranties; Obligations. The
representations and warranties of VBI contained in this Agreement shall have
been true and correct in all material respects at the date hereof and shall also
be true and correct in all material respects at and as of the Closing Date, with
the same force and effect as if made at and as of the Closing Date; VBI shall
have performed and complied in all material respects with all covenants,
obligations and agreements to be performed or complied with by it on or prior to
the Closing Date; and VBI shall have delivered to HIG a certificate, dated as of
the Closing Date, of the chief executive officer of VBI to such effect.
Section 8.4 Agreements. At the Closing, Xxxx Xxxxxx Xxx, The
Scandinavia Company, Inc. and Manoeuvre Ltd. shall have duly executed and
delivered the Stockholders Agreement, attached as Exhibit B hereto, and,
together with AMV, the Registration Rights Agreement, attached as Exhibit C
hereto, and Am-Re shall have duly executed and delivered the Am-Re Registration
Rights Agreement, attached as Exhibit D hereto.
Section 8.5 Dividend Restrictions. On or before the Closing
Date, all insurance regulatory issues shall have been resolved to HIG's
satisfaction, including the termination or cancellation of any restriction on
the ability of VBI or any of VBI's Subsidiaries to pay dividends (except any
such limits imposed by state corporation and state insurance law and
regulations), provided, however, that HIG shall not be required to contribute
more than the following amounts of additional capital to the following Insurance
Subsidiaries of VBI in order to secure such termination or cancellation: Pacific
National Insurance Company, $5 million, State Capital Insurance Company, $7
million and LMI Insurance Company, $30 million; or, if HIG shall have failed to
secure such termination or
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cancellation, such failure shall not have prevented HIG from obtaining financing
for the Merger on terms which are reasonably acceptable to HIG.
Section 8.6 Reserves. VBI shall have increased the reserves
for loss and loss adjustment expenses (including IBNR and losses from
uncollectible reinsurance) set forth on the books and records of its Insurance
Subsidiaries by at least $17 million since September 30, 1996.
Section 8.7 New Business and Renewals. During the period from
February 1, 1997 through the Closing Date, (i) the retention rate of VBI's
Insurance Subsidiaries, taken as a whole, for eligible renewals shall be not
less than 75% and (ii) new business submissions for VBI's Insurance
Subsidiaries, taken as a whole, shall be not less than 60% of the new business
submissions for VBI's Insurance Subsidiaries, taken as a whole, for the
comparable period in 1996.
Section 8.8 A.M. Best Rating. A.M. Best shall have confirmed a
rating of B+ for VBI after the Merger based upon the plan, previously delivered
by VBI to HIG, presented to A.M. Best.
ARTICLE IX
GENERAL CONDITIONS PRECEDENT
All obligations of each of VBI and HIG under this Agreement
are subject to and shall be conditional upon the satisfaction of each of the
following conditions:
Section 9.1 Approvals. VBI and HIG and their respective
Subsidiaries shall have (a) complied with all regulatory requirements of the
applicable regulatory authorities as necessary or desirable to consummate the
transactions contemplated by this
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Agreement and (b) obtained the consents, waivers or approvals, satisfactory in
form and substance to HIG and VBI, as necessary or desirable under the terms of
material debt instruments, leases, warrants and other agreements and instruments
to consummate the transactions contemplated by this Agreement.
Section 9.2 Approvals by Stockholders. The Merger shall have
received the requisite approvals of the stockholders of VBI and ACQUISITION CORP
under the Corporation Laws.
Section 9.3 Waiting Period. The waiting period (including any
extensions thereof) applicable to the Merger under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976 shall have been terminated or shall have
expired.
ARTICLE X
SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
All representations and warranties of the parties under this
Agreement or in any exhibit, schedule, certificate or other document delivered
pursuant hereto, shall expire on the Closing Date and shall not survive the
Closing Date.
ARTICLE XI
TERMINATION
Section 11.1 Basis for Termination. Notwithstanding its
approval by the stockholders of VBI and ACQUISITION CORP, this Agreement may be
terminated and the Merger provided for herein abandoned, at any time prior to
the Effective Time, without the creation of any liability by reason of such act
of termination, as follows:
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(a) By mutual consent evidenced in writing pursuant to
authorization of the Board of Directors of VBI and the Board of Directors of
HIG.
(b) By the Board of Directors of VBI or the Board of Directors
of HIG if:
(i) any insurance regulatory authority in any state of the
United States having jurisdiction over VBI or HIG, or any of their respective
Insurance Subsidiaries, or any other governmental agency or authority shall in
any order respecting this Agreement or the Merger impose any term or condition
(A) which modifies this Agreement as a whole in any material respect or (B)
which will materially and adversely affect the benefits to VBI and its
stockholders, if the VBI Board wishes to terminate this Agreement, or to HIG and
its stockholders, if the HIG Board wishes to terminate this Agreement, of the
transactions contemplated by this Agreement and is therefore unacceptable to
such Board;
(ii) the Effective Time has not occurred on or before
April 30, 1997 or such later date as shall have been agreed to in writing by VBI
and HIG;
(iii) HIG or ACQUISITION CORP, on the one hand or, VBI, on
the other hand, (A) has failed to perform or comply with its obligations and
covenants under this Agreement in any material respect or (B) has made a
material misrepresentation or breach of warranty in its representations and
warranties set forth herein or in any certificate or schedule delivered pursuant
hereto; or
(iv) there shall be pending, at the Closing Date, any
action, proceeding or investigation pending before any court or governmental
agency or authority in the United States, or threatened by any governmental
agency or authority in the United
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States, other than any action, proceeding or investigation relating to complying
with any regulatory requirement of a regulatory authority referred to in Section
9.1(a) that presents a substantial risk of (A) restraining, enjoining or
prohibiting transactions contemplated hereby or (B) obtaining of substantial
damages or other relief materially adverse in connection therewith (for purposes
of this paragraph (iv), an action, proceeding or investigation may be deemed to
be "threatened", if there is a reasonable likelihood that the action, proceeding
or investigation will be instituted), or if the transactions contemplated hereby
have become inadvisable or impracticable by reason of any order, decree or
judgment of any court of competent jurisdiction restraining or prohibiting such
transactions or permitting such transactions to proceed on terms or subject to
conditions with respect to any significant operation of VBI or HIG or any of
their respective Subsidiaries after the Effective Time.
Section 11.2 Written Notice. In order to terminate this
Agreement pursuant to Section 11.1 hereof, the party or parties so acting shall
give written notice thereof to the other parties hereto, specifying the grounds
therefor.
Section 11.3 Effect of Termination. In the event of the
termination of this Agreement pursuant to the foregoing provisions of this
Article XI, the provisions of this Agreement shall become void and have no
effect, with no liability on the part of any party, its stockholders, directors
or officers in respect thereof; provided, however, that no such termination
shall relieve any party hereto from liability for its breach of this Agreement.
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ARTICLE XII
AMENDMENTS; WAIVER
Section 12.1 Amendments. This Agreement may, subject to
applicable law, be amended, before or after the meeting of or execution of
written consents by the stockholders of VBI and ACQUISITION CORP by written
agreement authorized by the Boards of Directors of HIG and VBI hereto.
Section 12.2 Waiver of Compliance. Any failure of VBI or HIG
to comply with any obligation, covenant or agreement and any condition herein
may be expressly waived by the party which is, or whose stockholders are,
entitled to the benefits thereof, to the extent permitted under applicable law,
in writing by its Chairman of the Board or President or, by written agreement
authorized by its Board of Directors. Such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Entire Agreement. This Agreement, the exhibits,
schedules and other agreements referred to herein constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof.
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Section 13.2 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be negotiable or assignable by
any of the parties hereto without the prior written consent of the other
parties.
Section 13.3 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be deemed given
(i) upon delivery if delivered personally, (ii) upon receipt after mailing by
registered or certified mail (return receipt requested), or (iii) upon receipt
if sent by an overnight delivery service or sent by facsimile transmission (with
confirmation received) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
If to HIG or ACQUISITION CORP:
Highlands Insurance Group, Inc.
00000 Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: President
Telecopy No.: (000) 000-0000
with a copy to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxx
Telecopy No.: (000) 000-0000
If to VBI:
Vik Brothers Insurance, Inc.
0000 Xxxxx Xxxxx
Xxxxxxxxxxxxx, Xxx Xxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxxxx,
Executive Vice President and General Counsel
Telecopy No.: (000) 000-0000
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with a copy to:
Schnader, Harrison, Xxxxx & Xxxxx
0000 Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
Telecopy No.: (000) 000-0000
Xxxxxxxxx X. Xxx
Chairman and Chief Executive Officer
Vik Brothers Insurance, Inc. and subsidiaries
00 Xxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Telecopy No: (000) 000-0000
Section 13.4 Governing Law; Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof. Each of the parties to the Agreement (i)
agrees to submit to personal jurisdiction and to waive any objection as to venue
in the state or federal courts in the county of New Castle of the State of
Delaware, (ii) agrees that any action or proceeding shall be brought exclusively
in such courts and (iii) agrees that service of process in any such action shall
be effective if sent to such party at the address listed in Section 13.3 hereof.
Section 13.5 Descriptive Headings. The descriptive headings
used herein are inserted for convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of this Agreement.
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Section 13.6 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
Section 13.7 Severability. Whenever possible, each provision
or portion of any provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
Section 13.8 Third Party Beneficiaries. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto, and their
successors and assigns. There are no third party beneficiaries of or in this
Agreement or any of the terms or provisions hereof or any of the rights,
privileges, duties, liabilities or obligations created hereby.
Section 13.9 Construction. This Agreement is the result of
arms-length negotiations between the parties hereto and has been prepared
jointly by the parties. In applying and interpreting the provisions of this
Agreement, there shall be no presumption that the Agreement was prepared by any
one party or that the Agreement shall be construed in favor of or against any
one party.
Section 13.10 Publicity. So long as this Agreement is in
effect, no party shall issue or cause the publication of any press release or
other public announcement
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with respect to the transactions contemplated by this Agreement without the
consent of the other parties, unless such announcement is required by the
provisions of applicable law or regulations or by any governmental entity have
jurisdiction over such party.
Section 13.11 Waiver of Jury Trial; Punitive Damages;
Prevailing Party's Fees and Expenses. HIG, ACQUISITION CORP and VBI each (a)
hereby waive all right to trial by jury in any action or proceeding to enforce
or defend any rights under this Agreement and (b) agree to waive any and all
rights to request or receive punitive damages in connection with any action or
proceeding related to the subject matter of this Agreement. The substantially
prevailing party in any action or proceeding relating to this Agreement shall be
entitled to receive an award of, and to recover from any non-prevailing party,
any fees or expenses incurred by him or it (including, without limitation, fees
and disbursements of such prevailing party's counsel) in connection with any
such action or proceeding.
Section 13.12 Violations. If VBI violates Section 6.1 of this
Agreement as a result of any action taken by either of the Vik Brothers or any
action taken by any other person at the express request or direction of either
of the Vik Brothers, whether or not such action was authorized by the Board of
Directors of VBI, VBI shall pay $5 million to HIG as damages. VBI agrees that
such damages are reasonable in light of the facts and circumstances surrounding
this transaction and the negotiations pertaining thereto and waives any right to
claim such amounts are not reasonable. The parties agree that any actions taken
by Xxxxx Xxxxxx, Xxxxxxx Xxxxxxxxx or Xxxxxxx Xxxxxxxxxxx shall not be deemed
action taken at the express request or direction of either of the Vik Brothers.
If HIG becomes aware of any violation or alleged violation by VBI of this
Section 13.12, HIG
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shall promptly notify VBI of such violation or alleged violation, provided that
any such notification will not derogate HIG's rights under this Section 13.12.
Notwithstanding the provisions of this Section 13.12, HIG shall have such other
rights and remedies as specified in this Agreement (including, without
limitation, the right to obtain specific performance, injunctive relief,
additional monetary damages or otherwise). This Section 13.12 shall survive any
termination of this Agreement.
Section 13.13 Break-Up Fee. If HIG and ACQUISITION CORP are
prepared to consummate the Merger in accordance with the terms of this Agreement
and VBI fails to perform its obligations under this Agreement, and within one
year of such failure to perform, VBI executes an agreement with respect to any
transaction described in items (i), (ii) or (iii) in the definition of
Acquisition Proposal in Section 6.1(a)(ii)(E) of this Agreement or issues a
public announcement of the type described in item (iv) in such definition, VBI
shall pay $5 million to HIG as a break-up fee. Notwithstanding the provisions of
this Section 13.13, HIG shall have such other rights and remedies as specified
in this Agreement or the Amended and Restated Support Agreement dated the date
hereof (including, without limitation, the right to obtain specific performance,
injunctive relief, additional monetary damages or otherwise). This Section 13.13
shall survive any termination of this Agreement.
ARTICLE XIV
SPECIAL CONDITIONS
Section 14.1 Bank Commitment. Within five (5) Business Days
after the date of this Agreement, HIG shall have obtained a letter of commitment
from a bank
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reasonably acceptable to HIG, a copy of which shall have been delivered to VBI,
to provide HIG with a $65 million loan ("Credit Facility") on the Closing Date.
If HIG fails to obtain such letter within such five Business Day period, either
such party may terminate this Agreement.
Section 14.2 Security Holder Agreements. Within five (5)
Business Days after the date of this Agreement, VBI and HIG shall have obtained
agreements in form and substance reasonably satisfactory to both VBI and HIG
from each of the security holders of VBI consenting to this Agreement and the
Merger on the terms set forth herein. If VBI and HIG fail to obtain such
agreements within such five Business Day period, either such party may terminate
this Agreement.
Section 14.3 Armco Agreement. Within five (5) Business Days
after the date of this Agreement, VBI shall have obtained an agreement in form
and substance reasonably satisfactory to both VBI and HIG from Armco, a copy of
which shall have been delivered to HIG, providing that the amount of the Armco
Contingent Commission shall be reduced to not more than $8.5 million, payable in
cash on the Closing Date. If VBI fails to obtain such agreement within such five
Business Day period, either such party may terminate this Agreement.
Section 14.4 PMSC Agreement. Within five (5) Business Days
after the date of this Agreement, VBI shall have obtained an agreement in form
and substance reasonably satisfactory to both VBI and HIG from Policy Management
Systems Corporation ("PMSC"), a copy of which shall have been delivered to HIG,
pursuant to which PMSC shall have agreed to certain changes with respect to the
Master Agreement for Data Processing Services dated November 8, 1994 between VBI
and PMSC, as
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amended (the "Master Agreement"), including without limitation the termination
as of the Closing Date of the personal guaranty of AMV with respect to the
Master Agreement. If VBI fails to obtain such agreement within such five
Business Day period, either party may terminate this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all of the day and year first above written.
HIGHLANDS INSURANCE GROUP, INC.
Attest
/s/ Xxxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxxxxxx
---------------------------- ----------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: Chairman and CEO
VIK BROTHERS INSURANCE, INC.
Attest
By: /s/ Xxxxxx X. Xxx
---------------------------- ----------------------------
Name: Xxxxxx X. Xxx
Title: President
HIGHLANDS ACQUISITION CORP.
Attest
/s/ Xxxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxxxxxx
---------------------------- ----------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: Chairman and CEO
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