Exhibit 99.2
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of August 17, 2000 (this
"Agreement"), is between HSB Group, Inc., a Connecticut corporation ("Issuer")
and American International Group, Inc. , a Delaware corporation ("Grantee").
RECITALS
A. The Merger Agreement. Prior to the entry into this Agreement and
prior to the grant of the Option, Issuer, Grantee and Engine Acquisition
Corporation, a wholly-owned subsidiary of Grantee ("Merger Sub"), have entered
into an Agreement and Plan of Merger, dated as of the date of this Agreement
(the "Merger Agreement"; capitalized terms used but not defined herein shall
have the meanings set forth in the Merger Agreement), pursuant to which Grantee
and Issuer intend to effect a merger of Issuer with and into Merger Sub (the
"Merger").
B. The Stock Option Agreement. As an inducement and condition to
Grantee's and Merger Sub's willingness to enter into the Merger Agreement, and
in consideration thereof, the board of directors of Issuer has approved the
grant to Grantee of the Option pursuant to this Agreement and the acquisition of
shares of common stock, without par value ("Shares"), of Issuer by Grantee
pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Merger
Agreement, the parties agree as follows:
1. The Option. (a) Grant. Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms of this Agreement, up to 5,777,272 fully paid and nonassessable Shares at
a price per share in cash equal to $41 (the "Option Price"); provided, however,
that in no event shall the number of shares for which the Option is exercisable
exceed 19.9% of the Shares issued and outstanding at the time of exercise
(without giving effect to the Shares issued or issuable under the Option) (the
"Maximum Applicable Percentage"). The number of Shares purchasable upon exercise
of the Option and the Option Price are subject to adjustment as set forth in
this Agreement.
(b) Additional Shares. In the event that any additional Shares are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to an event described in Section 7 of this Agreement), the
aggregate number of Shares purchasable upon exercise of the Option (inclusive of
Shares, if any, previously purchased upon exercise of the Option) shall
automatically be increased (without any further action on the part of Issuer or
Grantee being necessary) so that, after such issuance, it equals the Maximum
Applicable Percentage. Any such increase shall not effect the Option Price.
2. Exercise; Closing. (a) Conditions to Exercise; Termination. Grantee
or any other person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person being referred to
in this Agreement as the "Holder") may exercise the Option, in whole or in part,
by delivering a written notice thereof as provided in Section 2(d) at any time
following the occurrence of a Triggering Event unless prior to such Triggering
Event the Effective Time shall have occurred. If no notice pursuant to the
preceding sentence has been delivered prior thereto, the Option shall terminate
upon either (i) the occurrence of the Effective Time, (ii) the close of business
on the day 180 days after the date that the Merger Agreement is terminated if in
connection with such termination Grantee is entitled to or has a possible
entitlement to receive a termination fee in accordance with Section 5.5 of the
Merger Agreement (or if, at the expiration of such 180 days, the Option cannot
be exercised by reason of any applicable judgment, decree, order, law,
regulation, notice, report, filing or application for approval, 10 business days
after such impediment to exercise shall have been removed), or (iii) the close
of business on the date that the Merger Agreement is terminated if in connection
with such termination Grantee is not entitled to and has no possible entitlement
to receive a termination fee in accordance with Section 5.5 of the Merger
Agreement.
(b) Triggering Event. A "Triggering Event" shall have occurred if: (i)
any person (other than Grantee or any of its subsidiaries) shall have commenced
(as such term is defined in Rule 14d-2 under the Securities Exchange Act of 1934
(the "Exchange Act")) a tender offer, or shall have filed a registration
statement under the Securities Act of 1933 (the "Securities Act") with respect
to an exchange offer, to purchase any Shares such that, upon consummation of
such offer, such person or a "group" (as such term is defined under the Exchange
Act) of which such person is a member shall have acquired beneficial ownership
(as such term is defined in Rule 13d-3 of the Exchange Act), or the right to
acquire beneficial ownership, of 15 percent or more of the then outstanding
Shares; (ii) any person (other than Grantee or any of its subsidiaries) shall
have publicly announced or delivered to Issuer a proposal, or disclosed publicly
or to Issuer an intention to make a proposal, to purchase 15% or more of the
assets or any equity securities of, or to engage in a merger, reorganization,
tender offer, share exchange, consolidation or similar transaction involving the
Issuer or any of its subsidiaries and the Issuer shall not have rejected such
proposal within 10 business days thereafter (an "Acquisition Transaction");
(iii) Issuer or any of its subsidiaries shall have authorized, recommended,
proposed or publicly announced an intention to authorize, recommend or propose,
or entered into, an agreement, including without limitation, an agreement in
principle, with any person (other than Grantee or any of its subsidiaries) to
effect or provide for an Acquisition Transaction; (iv) any person (other than
Grantee or any of its subsidiaries) shall have acquired beneficial ownership (as
such term is defined in Rule 13d-3 under the Exchange Act) or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
the Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, Shares (other than trust account
shares) aggregating 20 percent or more of the then outstanding Shares; or (v)
the Merger Agreement is terminated and Grantee thereby becomes entitled to
receive a termination fee pursuant to Section 5.5 of the Merger Agreement. As
used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d) of the Exchange Act.
(c) Notice of Triggering Event by Issuer. Issuer shall notify Grantee
promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If a Holder shall be entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which is referred to in this Agreement as the "Notice Date") specifying
(i) the total number of Shares that the Holder will purchase pursuant to such
exercise and (ii) a place and date (a "Closing Date") not earlier than three
business days nor later than 60 business days from the Notice Date for the
closing of such purchase (a "Closing").
(e) Regulatory Restrictions on Exercise. In the event that any full or
partial exercise of the Option would require (i) prior approval by or notice to
the insurance regulatory authorities of the jurisdictions in which the Company
Insurance Subsidiaries (as defined in the Merger Agreement) are domiciled, or
(ii) any filing under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvement Act of 1976,
as amended, the Holder shall not exercise the Option without obtaining any such
approval or effecting any such notice or filing.
(f) Payment of Purchase Price. At each Closing, the Holder shall pay to
Issuer the aggregate purchase price for the Shares purchased pursuant to the
exercise of the Option in immediately available funds by a wire transfer to a
bank account designated by Issuer, provided, that failure or refusal of Issuer
to designate such a bank account shall not preclude the Holder from exercising
the Option, in whole or in part.
(g) Delivery of Common Stock. At such Closing, simultaneously with the
payment of the purchase price by the Holder, Issuer shall deliver to the Holder
a certificate or certificates representing the number of Shares purchased by the
Holder, which Shares shall be free and clear of all liens, charges,
encumbrances, security interests ("Liens") or preemptive rights and, if the
Option shall be exercised in part only, a new Option evidencing the rights of
the Holder to purchase the balance (as adjusted pursuant to Section 1(b)) of the
Shares then purchasable under this Agreement.
(h) Restrictive Legend. Certificates for Shares delivered at a Closing
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is
subject to resale restrictions arising under the Securities Act of
1933, as amended."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the Holder shall have
delivered to Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act. In addition, such certificates
shall bear any other legend as may be required by applicable law.
(i) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by the Holder to Issuer of a written notice of exercise referred to in
Section 2(d) and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of Issuer shall then be closed or that certificates representing such
Shares shall not have been delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and
covenants in this Agreement, Issuer agrees:
(a) Shares Reserved for Issuance. It will maintain, free from
preemptive rights, sufficient authorized but unissued or treasury
Shares to issue the appropriate number of Shares pursuant to the terms
of this Agreement so that the Option may be fully exercised without
additional authorization of Shares after giving effect to all other
options, warrants, convertible securities and other rights of third
parties to purchase Shares from Issuer.
(b) No Avoidance. It will not avoid or seek to avoid (whether
by charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed under this
Agreement by Issuer.
(c) Further Assurances. Promptly after the date of this
Agreement it will take all actions as may from time to time be required
(including (i) complying with all applicable premerger notification,
reporting and waiting period requirements under the HSR Act and (ii) in
the event that prior notice, report, filing or approval with respect to
any foreign or state insurance regulator or other governmental entity
is necessary under any applicable foreign or United States federal,
state or local law before the Option may be exercised, cooperating
fully with the Holder in preparing and processing the required
applications or notices) in order to permit each Holder to exercise the
Option and purchase Shares pursuant to such exercise and to take all
action necessary to protect the rights of the Holder against dilution.
(d) Stock Exchange Listing. It will use its reasonable best
efforts to cause the Shares to be issued pursuant to the Option to be
approved for listing (to the extent they are not already listed) on the
New York Stock Exchange ("NYSE") and on all other stock exchanges on
which Shares of the Issuer are then listed, subject to official notice
of issuance.
4. Representations and Warranties of Issuer. Issuer represents and
warrants to Grantee as follows:
(a) Merger Agreement. Issuer hereby makes each of the
representations and warranties contained in Sections 3.1(a), 3.2, 3.4,
3.5, 3.17, 3.18 and 3.19 of the Merger Agreement as they relate to
Issuer and this Agreement, as if such representations were set forth in
this Agreement.
(b) Shares Reserved for Issuance; Capital Stock. Issuer has
taken all necessary corporate action to authorize and reserve, free
from preemptive rights, and permit it to issue, at all times from the
date hereof until the obligation to deliver Shares upon the exercise of
the Option terminates, sufficient authorized but unissued or treasury
Shares so that the Option may be fully exercised without additional
authorization of Shares after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase Shares from Issuer, and all such Shares, upon issuance
pursuant to the Option, will be duly authorized, validly issued, fully
paid and nonassessable, and will be delivered free and clear of all
claims and Liens (other than those created by this Agreement) and will
not be subject to any preemptive rights.
5. Representations and Warranties of Grantee. Grantee represents and
warrants to Issuer that Grantee has all requisite corporate power and authority
and has taken all corporate action necessary in order to execute, deliver and
perform its obligations under and to consummate the transactions contemplated by
this Agreement. This Agreement has been duly and validly executed and delivered
by Grantee and constitutes a valid and binding agreement of Grantee enforceable
against Grantee in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
6. Exchange; Replacement. This Agreement and the Option granted by this
Agreement are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of Shares
purchasable at such time under this Agreement, subject to corresponding
adjustments in the number of Shares purchasable upon exercise so that the
aggregate number of such Shares under all stock option agreements issued in
respect of this Agreement shall not exceed the Maximum Applicable Percentage.
Unless the context shall require otherwise, the terms "Agreement" and "Option"
as used in this Agreement include any stock option agreements and related
Options for which this Agreement (and the Option granted by this Agreement) may
be exchanged. Upon (i) receipt by Issuer of evidence reasonably satisfactory to
it of the loss, theft, destruction of this Agreement, or mutilation of this
Agreement, (ii) receipt by Issuer of reasonably satisfactory indemnification in
the case of loss, theft or destruction of this Agreement and (iii) surrender and
cancellation of this Agreement in the case of mutilation, Issuer will execute
and deliver a new Agreement of like tenor and date. Any such new Agreement
executed and delivered shall constitute an additional contractual obligation on
the part of Issuer to Holder, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by any person other than
Holder.
7. Adjustments. In addition to the adjustment to the total number of
Shares purchasable upon exercise of the Option pursuant to Section 1(b), the
total number of Shares purchasable upon the exercise of the Option and the
Option Price shall be subject to adjustment from time to time as follows:
(a) Number of Shares. In the event of any change in the
outstanding Shares by reason of stock dividends, stock splits,
split-ups, mergers, recapitalizations, reclassifications, combinations,
subdivisions, conversions, exchanges of shares or the like, the type
and number of Shares purchasable upon exercise of the Option shall be
appropriately adjusted, and proper provision shall be made in the
agreements governing any such transaction, so that (i) any Holder shall
receive upon exercise of the Option the number and class of shares,
other securities, property or cash that such Holder would have received
in respect of the Shares purchasable upon exercise of the Option if the
Option had been exercised and such Shares had been issued to such
Holder immediately prior to such event or the record date therefor, as
applicable, and (ii) in the event any additional Shares are to be
issued or otherwise become outstanding as a result of any such change
(other than pursuant to an exercise of the Option), the number of
Shares purchasable upon exercise of the Option shall be increased so
that, after such issuance and together with Shares previously issued
pursuant to the exercise of the Option (as adjusted on account of any
of the foregoing changes in the Shares), the number of Shares so
purchasable equals the Maximum Applicable Percentage of the number of
Shares issued and outstanding immediately after the consummation of
such change.
(b) Option Price. Whenever the number of Shares purchasable
upon exercise of the Option is adjusted as provided in this Section 7,
the Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which is equal to the number of Shares
purchasable prior to the adjustment and the denominator of which is
equal to the number of Shares purchasable after the adjustment.
8. Registration. Upon the occurrence of a Triggering Event, Issuer
shall, at the request of Grantee delivered in the written notice of exercise of
the Option provided for in Section 2(d), as promptly as practicable prepare,
file and keep current a shelf registration statement under the Securities Act
covering any or all Shares issued and issuable pursuant to the Option and shall
use its best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of any
Shares issued upon total or partial exercise of the Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee; provided, however,
that Issuer may postpone filing a registration statement relating to a
registration request by Grantee under this Section 8 for a period of time (not
in excess of 30 days) if in its reasonable judgment such filing would require
the disclosure of material information that Issuer has a bona fide business
purpose for preserving as confidential. Issuer will use its best efforts to
cause such registration statement first to become effective as soon as
practicable and then to remain effective for one year from the day such
registration statement first becomes effective or until such earlier date as all
Shares registered shall have been sold by Grantee. Issuer may request Grantee to
suspend use of the Registration Statement for no more than 30 consecutive days
(or, for no more than 90 days in any year) if Issuer is in possession of
material non-public information which it has a bona fide reason not to publicly
disclose. In connection with any such registration, Issuer and Grantee shall
provide each other with representations, warranties, indemnities and other
agreements customarily given in connection with such registrations. If requested
by Grantee in connection with such registration, Issuer shall become a party to
any underwriting agreement relating to the sale of such Shares, but only to the
extent of obligating Issuer in respect of representations warranties,
indemnities, contribution and other agreements customarily made by issuers in
such underwriting agreements. In the event that Grantee so requests, the closing
of the sale or other disposition of the Shares or other securities pursuant to a
registration statement filed pursuant to Section 8(a) shall occur substantially
simultaneously with the exercise of the Option. Any registration statement
prepared and filed under this Section 8, and any sale covered thereby, shall be
at Issuer's expense, except for underwriting discounts or commissions and
brokers fees.
9. Repurchase of Option and/or Shares. (a) Repurchase; Repurchase
Price. Upon the occurrence of a Triggering Event, (i) at the request of a
Holder, delivered in writing within 180 days of such occurrence (or such later
period as provided in Section 2(d) with respect to any required notice or
application or in Section 10), Issuer shall repurchase the Option from the
Holder, in whole or in part, at a price (the"Option Repurchase Price") equal to
the number of Shares then purchasable upon exercise of the Option (or such
lesser number of Shares as may be designated in the Repurchase Notice)
multiplied by the amount by which the market/offer price exceeds the Option
Price and (ii) at the request of a Holder or any person who has been a Holder
(for purposes of this Section 9 only, each such person being referred to as a
"Holder"), delivered in writing within 180 days of such occurrence (or such
later period as provided in Section 2(d) with respect to any required notice or
application or in Section 10), Issuer shall repurchase such number of Option
Shares from such Holder as the Holder shall designate in the Repurchase Notice
at a price (the "Option Share Repurchase Price") equal to the number of Shares
designated multiplied by the market/offer price. The term "market/offer price"
shall mean the highest of (x) the price per Share to be paid by any third party
pursuant to an agreement relating to an Acquisition Proposal with Issuer and (y)
the highest trading price for Shares on the NYSE (or, if the Shares are not then
listed on the NYSE, any other national securities or automated quotation system
on which the Shares are then listed or quoted) within the 120-day period
immediately preceding the delivery of the Repurchase Notice. In the event that
an Acquisition Proposal is made for the Shares or an agreement is entered into
relating to an Acquisition Proposal involving consideration other than cash, the
value of the securities or other property issuable or deliverable in exchange
for the Shares shall (I) if such consideration is in securities and such
securities are listed on a national securities exchange, be determined to be the
highest trading price for such securities on such national securities exchange
within the 120-day period immediately preceding the delivery of the Repurchase
Notice or (II) if such consideration is not securities, or if in securities and
such securities are not traded on a national securities exchange, be determined
in good faith by a nationally recognized investment banking firm selected by an
investment banking firm designated by Grantee and an investment banking firm
designated by Issuer.
(b) Method of Repurchase. A Holder may exercise its right to require
Issuer to repurchase the Option, in whole or in part, and/or any Option Shares
then owned by such Holder pursuant to this Section 9 by surrendering for such
purpose to Issuer, at its principal office, this Agreement or certificates for
Option Shares, as applicable, accompanied by a written notice or notices stating
that the Holder elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). As promptly as practicable, and in any event
within two business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of the Repurchase Notice relating
thereto, Issuer shall deliver or cause to be delivered to the Holder the
applicable Option Repurchase Price and/or the Option Share Repurchase Price. Any
Holder shall have the right to require that the repurchase of Option Shares
shall occur immediately after the exercise of all or part of the Option. In the
event that the Repurchase Notice shall request the repurchase of the Option in
part, Issuer shall deliver with the Option Repurchase Price a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of Shares
purchasable pursuant to the Option at the time of delivery of the Repurchase
Notice minus the number of Shares represented by that portion of the Option then
being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law or regulation (including, without limitation,
ss. 33-684 of the Connecticut Business Corporation Act) from repurchasing the
Option (or portion thereof) and/or any Option Shares subject to such Repurchase
Notice (and Issuer will undertake to use its reasonable best efforts to obtain
all required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), Issuer shall
immediately so notify the Holder in writing and thereafter deliver or cause to
be delivered, from time to time, to the Holder the portion of the Option
Repurchase Price and the Option Share Repurchase Price that Issuer is no longer
prohibited from delivering, within two business days after the date on which it
is no longer so prohibited; provided, however, that upon notification by Issuer
in writing of such prohibition, the Holder may, within five days of receipt of
such notification from Issuer, revoke in writing its Repurchase Notice, whether
in whole or to the extent of the prohibition, whereupon, in the latter case,
Issuer shall promptly (i) deliver to the Holder that portion of the Option
Repurchase Price and/or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver to the Holder, as appropriate, (A)
with respect to the Option, a new stock option agreement evidencing the right of
the Holder to purchase that number of Shares for which the surrendered stock
option agreement was exercisable at the time of delivery of the Repurchase
Notice less the number of shares as to which the Option Repurchase Price has
theretofore been delivered to the Holder, and/or (B) with respect to Option
Shares, a certificate for the Option Shares as to which the Option Share
Repurchase Price has not theretofore been delivered to the Holder.
Notwithstanding anything to the contrary in this Agreement, including, without
limitation, the time limitations on the exercise of the Option, the Holder may
give notice of exercise of the Option for 180 days after a notice of revocation
has been issued pursuant to this Section 9(c) and thereafter exercise the Option
in accordance with the applicable provisions of this Agreement.
(d) Acquisition Transactions. In addition to any other restrictions or
covenants, Issuer agrees that, in the event that a Holder delivers a Repurchase
Notice, Issuer shall not enter or agree to enter into an agreement or series of
agreements relating to a merger with or into or the consolidation with any other
person or entity, the sale of all or substantially all of the assets of Issuer
or any similar disposition unless the other party or parties to such agreement
or agreements agree in writing not to interfere with Issuer's obligations under
Section 9(a).
10. Extension of Exercise Periods. The 180-day periods for exercise of
certain rights under Sections 2 and 9 shall be extended in each such case at the
request of the Holder to the extent necessary to avoid liability by the Holder
under Section 16(b) of the Exchange Act, by reason of such exercise.
11. Assignment. Neither party may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other party except that Grantee may, without the
prior written consent of Issuer assign the Option, in whole or in part, to any
affiliate of Grantee. Any attempted assignment in contravention of the preceding
sentence shall be null and void.
12. Filings; Other Actions. Issuer and Grantee each will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and foreign and state insurance regulators and other governmental entities
necessary for the consummation of the transactions contemplated by this
Agreement.
13. Specific Performance. The parties acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be specifically enforceable through injunctive
or other equitable relief.
14. Severability. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 9, the full number of Shares
provided in Section 1(a) of this Agreement (as adjusted pursuant to Sections
1(b) and 7 of this Agreement), it is the express intention of Issuer to allow
the Holder to acquire or to require Issuer to repurchase such lesser number of
Shares as may be permissible, without any amendment or modification of this
Agreement.
15. Notices. Notices, requests, instructions, or other documents to be
given under this Agreement shall be in writing and shall be deemed given (i)
three business days following sending by registered or certified mail, postage
prepaid, (ii) when sent, if sent by facsimile, provided that a copy of the fax
is promptly sent by U.S. mail, (iii) when delivered, if delivered personally to
the intended recipient, and (iv) one business day later, if sent by overnight
delivery via a national courier service, in each case at the respective
addresses of the parties set forth in the Merger Agreement.
16. Expenses. Except as otherwise expressly provided in this Agreement
or in the Merger Agreement, all costs and expenses, incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
17. Entire Agreement. This Agreement and the Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral, between
the parties, with respect to the subject matter of this Agreement. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties and their respective successors and permitted assigns. Nothing in
this Agreement is intended to confer upon any person or entity, other than the
parties to this Agreement, and their respective successors and permitted
assigns, any rights or remedies under this Agreement.
18. Governing Law and Venue; Waiver of Jury Trial.
(a) Governing Law. This Agreement shall be deemed to be made in and in
all respects shall be interpreted, construed and governed by and in accordance
with the laws of the State of New York without regard to the conflict of law
principles thereof; provided, however, that the corporation and insurance laws
of the States of Connecticut and Delaware and other applicable States shall
govern as applicable. The parties irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the courts of the State of Delaware and
of the United States of America located in Wilmington, Delaware (the "Delaware
Courts") for any litigation arising out of or relating to this Agreement and the
transactions contemplated by this Agreement (and agree not to commence any
litigation relating thereto except in such Delaware Courts), waive any objection
to the laying of venue of any such litigation in the Delaware Courts and agree
not to plead or claim in any Delaware Court that such litigation brought therein
has been brought in an inconvenient forum.
(b) Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 18.
19. Captions. The Section and paragraph captions in this Agreement are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
20. Limitation on Profit. (a) Notwithstanding any other provision of
this Agreement, in no event shall the Grantee's Total Profit (as defined herein)
exceed in the aggregate $50 million (the "Maximum Amount") and, if it otherwise
would exceed such amount, the Grantee, at its sole election, shall either: (i)
reduce the number of Shares subject to this Option; (ii) deliver to the Issuer
for cancellation Option Shares previously purchased by Grantee; (iii) pay cash
to the Issuer, or (iv) any combination thereof, so that Grantee's actually
realized Total Profit shall not exceed the Maximum Amount taking into account
the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) which would
exceed the Maximum Amount and, if exercise of the Option otherwise would result
in the Notional Total Profit exceeding such amount, Grantee, at its discretion,
may (in addition to any of the actions specified in Section 20(a) above) (i)
reduce the number of Shares subject to the Option or (ii) increase the Option
Price for that number of Shares set forth in the exercise notice so that the
Notional Total Profit shall not exceed the Maximum Profit; provided, that
nothing in this sentence shall restrict any exercise of the Option permitted
hereby on any subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
or any Option Shares pursuant to Section 9, less, in the case of any repurchase
of Option Shares, (y) the Grantee's purchase price for such Option Shares, as
the case may be, plus (ii) (x) the net cash amounts received by Grantee pursuant
to the sale of Option Shares (or any other securities into which such Option
Shares are converted or exchanged) to any unaffiliated party, less (y) the
Grantee's purchase price of such Option Shares plus (iii) any termination fee
paid by the Issuer and received by the Grantee pursuant to Section 5.5 of the
Merger Agreement minus (iv) (x) the amounts of any cash previously paid by
Grantee to Issuer pursuant to this Section 20 plus (y) the value of the Option
Shares (or other securities) previously delivered by Grantee to Issuer for
cancellation pursuant to this Section 20.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of Shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposal
assuming that this Option were exercised on such date for such number of Shares
and assuming that such Shares, together with all other Option Shares held by
Grantee and its affiliates as of such date, were sold for cash at the closing
market price for the Shares as of the close of business on the preceding trading
day (less customary brokerage commissions).
(e) Notwithstanding any other provision of this Agreement, nothing in
this Agreement shall affect the ability of Grantee to receive, nor relieve
Issuer's obligation to pay, any termination fee provided for in Section 5.5 of
the Merger Agreement; provided that if and to the extent the Total Profit
received by Grantee would exceed the Maximum Profit following receipt of such
payment, Grantee shall be obligated to promptly comply with the terms of Section
20(a).
(f) For purposes of Section 20(a) and clause (iv) of Section 20(c), the
value of any Option Shares delivered by Grantee to Issuer shall be the
market/offer price of such Option Shares.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by duly authorized officers of the parties as of the day and year first written
above.
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ Xxxxxxxx X. Xxxxxxx
Name: Xxxxxxxx X. Xxxxxxx
Title: Vice President, Associate
General Counsel and Secretary
HSB GROUP, INC.
By: /s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President and
General Counsel
