Exhibit 2
______________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
Dated as of March 16, 0000
Xxxxxxx
XXXXX XXXX XX XXXXXXX
And
NORTH EAST INSURANCE COMPANY
______________________________________________________________________________
TABLE OF CONTENTS
Article and Section Page
ARTICLE I The Merger....................................................-7-
1.01 The Merger....................................................-7-
1.02 Closing.......................................................-7-
1.03 Effective Time of the Merger..................................-7-
1.04 Effects of the Merger.........................................-7-
1.05 Articles of Incorporation; By-Laws............................-7-
1.06 Directors.....................................................-7-
1.07 Officers......................................................-8-
ARTICLE II Effect of the Merger on the Capital Stock of the
Constituent Corporations......................................-8-
2.01 Effect on Capital Stock.......................................-8-
(a) Common Stock of Sub......................................-8-
(b) Cancellation of Treasury Stock and Parent-Owned
Company Common Stock.....................................-8-
(c) Conversion of Company Common Stock.......................-8-
(d) Cancellation and Retirement of Company Common Stock......-9-
(e) Election Procedures......................................-9-
(f) Pro Rata Selection Process..............................-11-
(g) Dissenting Shares.......................................-11-
2.02 Effect on Stock Plans and Company Stock Options..............-12-
2.03 Exchange of Certificates; Settlement of Company
Stock Options................................................-13-
2.04 Fractional Shares............................................-15-
ARTICLE III Representations and Warranties...............................-15-
3.01 Representations and Warranties of the Company................-15-
(a) Organization, Standing and Corporate Power..............-15-
(b) Subsidiaries............................................-15-
(c) Authority to Conduct Insurance Business.................-15-
(d) Capital Structure.......................................-16-
(e) Duly Authorized; No Violation...........................-16-
(f) Consents and Approvals..................................-17-
(g) SEC Filings.............................................-17-
(h) Other Regulatory Filings; Deficiencies..................-18-
(i) SEC Financial Statements................................-18-
(j) Other Financial Statements..............................-19-
(k) Information Supplied....................................-20-
(l) Litigation; Labor Matters...............................-20-
(m) Absence of Changes in Employee Benefit Plans............-21-
(n) ERISA Plans.............................................-21-
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(o) Certain Employee Payments...............................-22-
(p) Tax Returns and Tax Payments............................-23-
(q) Section 611-A of the MBCA Not Applicable................-23-
(r) Contracts...............................................-24-
(s) Compliance with Other Instruments and Laws..............-25-
(t) Absence of Certain Changes..............................-25-
(u) Insurance Policies......................................-26-
(v) Bank Accounts...........................................-26-
(w) Employees...............................................-26-
(x) Surplus Relief..........................................-26-
(y) Insurance Issued by Company and Subsidiaries............-26-
(z) Computer Equipment and Programs.........................-27-
(aa) Books and Records.......................................-28-
(bb) No Investment Company...................................-28-
(cc) Investment Portfolio....................................-28-
(dd) Discussions with Regulators.............................-28-
(ee) Brokers.................................................-28-
(ff) Opinion of Financial Advisor............................-28-
(gg) Board Recommendation....................................-28-
(hh) Required Company Vote...................................-29-
(ii) Properties..............................................-29-
(jj) Trademarks and Related Contracts........................-29-
(kk) Transactions with Affiliates............................-29-
3.02 Representations and Warranties of Parent and Sub..............-30-
(a) Organization, Standing and Corporate Power;
Authority to Conduct Insurance Business.................-30-
(b) Subsidiaries............................................-30-
(c) Capital Structure.......................................-30-
(d) Duly Authorized; No Violation...........................-31-
(e) Consents and Approvals..................................-31-
(f) SEC Filings.............................................-32-
(g) Other Regulatory Filings; Deficiencies..................-32-
(h) SEC Financial Statements; Undisclosed Liabilities.......-32-
(i) Other Financial Statements..............................-33-
(j) Information Supplied....................................-34-
(k) Absence of Certain Changes or Events....................-34-
(l) Brokers.................................................-35-
(m) Opinion of Financial Advisor............................-35-
(n) Required Parent Stockholder Vote........................-35-
(o) Interim Operations of Sub...............................-35-
(p) Board Recommendation....................................-35-
(q) Tax Returns and Tax Payments............................-35-
(r) Litigation, Compliance With Law.........................-35-
(s) Material Contract Defaults..............................-36-
(t) Assets..................................................-36-
(u) Trademarks and Related Contracts........................-36-
(v) Financial Capacity......................................-36-
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3.03 Continuing Disclosure.........................................-36-
ARTICLE IV Covenants Relating to Conduct of Business Prior to Merger.....-36-
4.01 As to the Company.............................................-36-
(a) Conduct of Business by the Company......................-36-
(b) Changes in Employment Arrangements......................-39-
(c) Severance...............................................-39-
(d) Transition..............................................-39-
4.02 Conduct of Business of Parent.................................-39-
ARTICLE V Additional Agreements.........................................-40-
5.01 Preparation of Form S-4 and the Joint Proxy Statement;
Stockholder Meetings..........................................-40-
5.02 Letter of the Company's Accountants...........................-41-
5.03 Letter of Parent's Accountants................................-41-
5.04 Access to Information, Confidentiality........................-42-
5.05 Reasonable Best Efforts.......................................-42-
5.06 Fees and Expenses; Certain Payments Upon Termination..........-43-
5.07 Public Announcements..........................................-44-
5.08 Xxxxxxx Xxxxxxx...............................................-44-
5.09 Stock Exchange Listing........................................-44-
5.10 Certain Provisions............................................-44-
5.11 No Solicitation...............................................-45-
5.12 Maintenance of Benefit Plans..................................-46-
ARTICLE VI Conditions Precedent..........................................-46-
6.01 Conditions to Each Party's Obligation To Effect the Merger....-46-
(a) Company Stockholder Approval............................-46-
(b) Parent Stockholder Approval.............................-46-
(c) NASDAQ Listing..........................................-46-
(d) No Injunctions or Restraints............................-46-
(e) Form S-4................................................-46-
(f) Due Organization of Sub; Approval of Merger.............-46-
6.02 Conditions to Obligations of Parent and Sub...................-46-
(a) Representations and Warranties..........................-47-
(b) Performance of Obligations of the Company...............-47-
(c) Authorization...........................................-47-
(d) Approval and Consents...................................-47-
(e) No Litigation...........................................-47-
(f) Legal Opinion...........................................-48-
(g) No Adverse Change.......................................-48-
(h) Clerk's Certificates....................................-48-
6.03 Conditions to Obligation of the Company..........................-48-
(a) Representations and Warranties..........................-48-
(b) Performance of Obligations of Parent and Sub............-49-
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(c) No Litigation...........................................-49-
(d) Approvals and Consents..................................-49-
(e) Legal Opinion...........................................-49-
(f) Authorization...........................................-49-
(g) Deposit with Exchange Agent.............................-49-
(h) Secretary's Certificates................................-49-
(i) No Adverse Change.......................................-50-
ARTICLE VII Termination, Amendment and Waiver.............................-50-
7.01 Termination...................................................-50-
7.02 Effect of Termination.........................................-52-
7.03 Amendment.....................................................-52-
7.04 Extension: Waiver.............................................-52-
7.05 Procedure for Termination. Amendment, Extension or Waiver....-52-
ARTICLE VIII General Provisions............................................-53-
8.01 Nonsurvival of Representations and Warranties.................-53-
8.02 Notices.......................................................-53-
8.03 Definitions...................................................-54-
8.04 Interpretation................................................-54-
8.05 Counterparts..................................................-54-
8.06 Entire Agreement, No Third-Party Beneficiaries................-54-
8.07 Governing Law.................................................-55-
8.08 Assignment....................................................-55-
8.09 Enforcement: Jurisdiction.....................................-55-
8.10 Severability..................................................-55-
EXHIBITS
Exhibit A Plan of Merger
Exhibit B Resolutions of the Company's Board of Directors
re: Directors' Stock Options
5
AGREEMENT AND PLAN OF MERGER made as of March 16, 1999 among MOTOR CLUB OF
AMERICA, a New Jersey corporation ("Parent"), and NORTH EAST INSURANCE COMPANY,
a Maine corporation (the "Company").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent and the Company
have determined that the merger of a wholly owned subsidiary of Parent, to be
incorporated under the laws of the State Maine ("Sub") (or, at the election of
Parent as set forth in Section 1.01 hereof, a wholly owned subsidiary of Parent
other than Sub) with and into the Company (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement, would be fair to and in
the best interests of their respective stockholders, and such Boards of
Directors have approved such Merger, pursuant to which: (a) each share of common
stock, par value $1.00 per share, of the Company issued and outstanding
immediately prior to the Effective Time of the Merger (as defined in Section
1.03 hereof) (other than shares of such common stock owned, directly or
indirectly, by the Company or any wholly owned subsidiary of the Company, or
held by the Company as treasury shares, or owned by Parent, Sub or any other
subsidiary of Parent) (the "Company Common Stock") will, at the individual
election of each holder of shares of such Company Common Stock (each, a "Company
Shareholder"), be converted into the right to receive, in exchange for the
shares of Company Common Stock then held by the Company Shareholder: (i) $3.30
in cash per share of Company Common Stock, or (ii) .19048 of a share of the
common stock, par value $.50 per share, of Parent (the "Parent Common Stock"),
or (iii) a combination of (i) and (ii) above, subject to proration pursuant to
Section 2.01(f) hereof in the event the Company Shareholders elect to receive
more than 290,389 shares of Parent Common Stock; and (b) except as otherwise
provided herein, each option to purchase shares of Company Common Stock (each, a
"Company Stock Option" and collectively the "Company Stock Options") outstanding
but unexercised immediately prior to the Effective Time of the Merger will be
converted into the right to receive from Parent payment of the excess, if any,
of the Per Share Cash Consideration (as defined in Section 2.01(c) hereof) over
the per share exercise price for each Company Option; and
WHEREAS, the affirmative vote of at least three-fourths of the
outstanding shares of the Company Common Stock is required for the approval of
the Merger and this Agreement (the "Company Stockholder Approval"); and
WHEREAS, the affirmative vote of at least a majority of the
outstanding shares present of Parent Common Stock shall be required for the
approval of the Merger and this Agreement (the "Parent Stockholder
Approval");and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
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ARTICLE I
The Merger
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Maine Business
Corporation Act (the "MBCA"), Sub shall be merged with and into the Company at
the Effective Time of the Merger. Upon the Effective Time of the Merger, the
separate existence of Sub shall cease, and the Company shall continue as the
surviving corporation (the "Surviving Corporation"). Subject to any applicable
requirements of the MBCA: (i) at the election of Parent, any wholly owned
subsidiary of Parent other than Sub may be substituted for Sub as a constituent
corporation in the Merger; and (ii) in the event that Parent notifies the
Company that it desires to substitute such a subsidiary, the parties agree to
amend this Agreement so that such substituted subsidiary shall become a
signatory hereto as "Sub."
SECTION 1.02 Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 7.01 hereof, and subject to the satisfaction or waiver of the conditions
set forth in Article VI, the closing of the Merger (the "Closing") will take
place at 10:00 am on a date to be specified by the parties (the "Closing Date"),
which date shall be no later than the fifth business day after satisfaction of
the conditions set forth in Article VI, at the offices of Xxxxx Cummis Radin
Tischman Xxxxxxx & Xxxxx, P.A., Xxx Xxxxxxxxxx Xxxxx, Xxxxxx, Xxx Xxxxxx
00000-0000, unless another date, time or place is agreed to in writing by the
parties hereto.
SECTION 1.03 Effective Time of the Merger. Upon the Closing, the
parties shall file articles of merger (the "Articles of Merger") with the
Secretary of State of the State of Maine and shall make all other filings or
recordings required under the MBCA. The Articles of Merger shall contain a Plan
of Merger substantially in the form annexed as Exhibit A hereto, setting forth
terms consistent with those in Articles I and II of this Agreement. The Merger
shall become effective at such time as the Articles of Merger shall have been
duly filed with the Secretary of State of the State of Maine, or at such later
time as is agreed by Parent and the Company and specified in the Articles of
Merger (the time the Merger becomes effective being referred to as the
"Effective Time of the Merger").
SECTION 1.04 Effects of the Merger. The Merger shall have the effects
set forth in Section 905 of the MBCA (or any successor provision thereto).
SECTION 1.05 Articles of Incorporation; By-Laws. (a) The articles of
incorporation of the Company, as in effect immediately prior to the Effective
Time of the Merger, shall be the articles of incorporation of the Surviving
Corporation.
(b) The By-laws of Sub as in effect at the Effective Time of the Merger
shall be the By-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.06 Directors. The Directors of Sub at the Effective Time of
the Merger (the "Existing Directors") shall be members of the Board of Directors
of the Surviving Corporation, and upon the effectiveness of the Merger, Parent
and such Existing Directors shall take such action as shall be necessary to
elect Xxxxxx X. Xxxxx as a Director of the Surviving Corporation, such Existing
7
Directors and Xxxxxx X. Xxxxx to constitute the whole Board of Directors of the
Surviving Corporation and to serve in such capacity until the annual meeting of
the Shareholder of the Surviving Corporation next following the Effective Time
of the Merger and thereafter until their successors are duly elected and
qualified.
SECTION 1.07 Officers. The officers of Sub at the Effective Time of
the Merger (the "Existing Officers") shall be officers of the Surviving
Corporation, holding the same offices therein as they held in Sub immediately
preceding the Effective Time of the Merger, and upon the effectiveness of the
Merger the Directors of the Surviving Corporation shall appoint Xxxxxx X. Xxxxx
as the President and Chief Operating Officer of the Surviving Corporation, such
Existing Officers and Xxxxxx X. Xxxxx to serve in such capacities for the terms
set forth in the By-Laws and thereafter until their successors have been duly
appointed and qualified.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations
SECTION 2.01 Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of any holder
of any shares of Company Common Stock or any shares of the capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock, par value $.01 per
share, of Sub issued and outstanding immediately prior to the Effective Time of
the Merger shall be converted into one (1) share of the common stock of the
Surviving Corporation and shall constitute the only issued and outstanding
capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Company Common Stock.
Each share of Company Common Stock that is owned directly or indirectly by the
Company or any wholly owned subsidiary of the Company, or held by the Company as
treasury shares, and each share of Company Common Stock that is directly or
indirectly owned by Parent, Sub or any other wholly owned subsidiary of Parent,
shall automatically be canceled and retired and shall cease to exist, and no
Parent Common Stock or other consideration shall be delivered or deliverable in
exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein, each issued and outstanding share of Company Common Stock (other than
any Dissenting Shares (as defined in Section 2.01 (g)(i) below)), shall cease to
be outstanding and, subject to proration pursuant to Section 2.01(f) hereof,
shall be converted into the right to receive from Parent, at the individual
election of the Company Shareholder as provided in Section 2.01(e) hereof:
(i) .19048 (the Exchange Ratio) of a fully paid and
non-assessable share of Parent Common Stock(the Per Share
Stock Consideration), or
(ii) $3.30 in cash (the "Per Share Cash Consideration"), or
8
(iii) a combination of Per Share Stock Consideration and Per Share
Cash Consideration,
provided, however, that the aggregate number of shares of Parent Common Stock
that shall be issued in the Merger shall not exceed 290,389 shares (the "Stock
Amount"), and provided further, that if between the date of this Agreement and
the Effective Time of the Merger the number of outstanding shares of Parent
Common Stock shall have been changed into a different number of shares of common
stock or into a different class of stock, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares, the Exchange Ratio (and the Stock Amount) shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(d) Cancellation and Retirement of Company Common Stock. From and after the
Effective Time of the Merger, all shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger, other than
Dissenting Shares, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
which immediately prior to the Effective Time of the Merger represented shares
of Company Common Stock (a "Company Share Certificate") shall cease to have any
rights with respect thereto, except the right to receive: (i) Per Share Stock
Consideration and/or Per Share Cash Consideration pursuant to Section 2.01(c)
(the "Merger Consideration"), subject to proration pursuant to Section 2.01(f);
(ii) any cash in lieu of fractional shares of Parent Common Stock to be paid in
consideration therefor upon surrender of such Company Share Certificate in
accordance with Section 2.04, and (iii) any dividends payable pursuant to
Section 2.03(f).
(e) Election Procedures. (i) Election forms (the "Election Forms"), letters
of transmittal, instructions and other appropriate and customary transmittal
materials (collectively, the "Election Materials"), which shall specify that
delivery shall be effected, and risk of loss and title to the Company Share
Certificates shall pass, only upon proper delivery of such Certificates to the
Exchange Agent appointed by Parent pursuant to Section 2.03(a) hereof, in such
form as Parent and Company shall mutually agree upon, shall be mailed 30 days
prior to the anticipated Effective Time of the Merger or on such other earlier
date as Parent and Company shall mutually agree upon (the "Mailing Date") to
each Company Shareholder who is a record holder of Company Common Stock as of
five (5) business days prior to the Mailing Date (the "Election Form Record
Date").
(ii) Each Election Form shall permit the Company Shareholder (or the
beneficial owner through appropriate and customary documentation and
instructions) either: (A) to elect to receive only Per Share Stock Consideration
with respect to such Company Shareholder's Company Common Stock ("Stock Election
Shares"); (B) to elect to receive only Per Share Cash Consideration with respect
to such Company Shareholder's Company Common Stock ("Cash Election Shares"); (C)
to elect to receive a combination of Per Share Stock Consideration and Per Share
Cash Consideration with respect to such Company Shareholder's Company Common
Stock ("Mixed Election Shares" and in each case of Mixed Election Shares, the
shares of Company Common Stock elected to be converted into the right to receive
Per Share Stock Consideration being hereinafter referred to as "Mixed Stock
Shares" and the shares of Company Common Stock elected to be converted into the
right to receive Per Share Cash Consideration being hereinafter referred to as
"Mixed Cash Shares"); or (D) to indicate that such Company Shareholder makes no
election ("No Election Shares"). Dissenting Shares (as defined below) shall be
treated as Cash Election Shares for purposes of this Section but shall not be
converted into the right to receive the Per Share Cash Consideration except as
provided in Section 2.01(g).
9
(iii)Any Company Common Stock with respect to which the Company
Shareholder (or the beneficial owner, as the case may be) shall not have
submitted to the Exchange Agent an effective, properly completed Election Form
on or before 5:00 p.m. on the 25th day following the Mailing Date (or such other
time and date as Parent and the Company may mutually agree) (the "Election
Deadline") shall also be deemed to be "No Election Shares."
(iv) The Exchange Agent shall make available up to two (2) separate
sets of Election Materials, or such additional sets of Election Materials as the
Exchange Agent in its sole discretion may permit, to all persons who become
holders (or beneficial owners) of Company Common Stock between the Election Form
Record Date and close of business on the business day prior to the Election
Deadline, and the Company shall provide to the Exchange Agent all information
reasonably necessary for it to perform as specified herein.
(v) Any such election shall have been properly made only if the
Exchange Agent shall have actually received a properly completed Election Form
by the Election Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more Company Share Certificates (or customary
affidavits and indemnification regarding the loss or destruction of such Company
Share Certificates or the guaranteed delivery of such Company Share
Certificates) representing all shares of Company Common Stock covered by such
Election Form, together with duly executed transmittal materials included in the
Election Materials. Any Election Form may be revoked or changed by the person
submitting such Election Form at or prior to the Election Deadline. In the event
an Election Form is revoked prior to the Election Deadline, the shares of
Company Common Stock represented by such Election Form shall become No Election
Shares and Parent shall cause the Company Share Certificates to be promptly
returned without charge to the person submitting the Election Form upon written
request to that effect from the person who submitted the Election Form. Subject
to the terms of this Agreement and of the Election Form, the Exchange Agent
shall have reasonable discretion to determine whether any election, revocation
or change has been properly or timely made and to disregard immaterial defects
in the Election Forms, and any good faith decisions of the Exchange Agent
regarding such matters shall be binding and conclusive. Neither Parent nor the
Exchange Agent shall be under any obligation to notify any person of any defect
in an Election Form.
(vi) Within five (5) business days after the Election Deadline, unless
the Effective Time of the Merger has not yet occurred, in which case as soon
thereafter as practicable, Parent shall cause the Exchange Agent to effect the
allocation among the Company Shareholders of rights to receive Per Share Stock
Consideration or Per Share Cash Consideration in the Merger, in accordance with
the Election Forms, as follows:
(A) Stock Election Shares Plus Mixed Stock Shares Not More
Than Stock Amount. If the number of shares of Parent Common Stock that
would be issued in the Merger upon conversion of the Stock Election
Shares and the Mixed Stock Shares into the right to receive Per Share
Stock Consideration is less than or equal to the Stock Amount, then:
(1) the Mixed Stock Shares and the Stock Election Shares
shall be converted into the right to receive the Per Share Stock
Consideration, and
10
(2) the Cash Election Shares, the No Election Shares and the
Mixed Cash Shares shall be converted into the right to receive the Per
Share Cash Consideration.
(B) Stock Election Shares Plus Mixed Stock Shares More Than
Stock Amount. If the number of shares of Parent Common Stock that
would be issued in the Merger upon the conversion of the Stock
Election Shares and Mixed Stock Shares into the right to receive Per
Share Stock Consideration is greater than the Stock Amount, then:
(1) the Mixed Cash Shares, Cash Election Shares and No
Election Shares shall be converted into the right to receive the Per
Share Cash Consideration,
(2) the Exchange Agent shall then select from among the
Stock Election Shares and the Mixed Stock Shares, by a pro rata
selection process (as described below) a sufficient number of shares
(the "Cash Designated Shares") such that the number of shares of
Parent Common Stock that will be issued in the Merger equals as
closely as practicable the Stock Amount, and all Cash Designated
Shares shall be converted into the right to receive the Per Share Cash
Consideration, and
(3) the Stock Election Shares and Mixed Stock Shares which
are not Cash Designated Shares shall be converted into the right to
receive the Per Share Stock Consideration.
(f) Pro Rata Selection Process. In the event the Exchange
Agent is required to select Cash Designated Shares pursuant to
subparagraph (B) (2) above, the Exchange Agent shall:
(A) as to each Company Shareholder who has made an election
for Stock Election Shares under subparagraph (c) (i) above or for
Mixed Stock Shares under subparagraph (c) (iii) above (each, a
"Prorated Company Shareholder"), the Exchange Agent shall calculate
the percentage of the aggregate of all Stock Election Shares and Mixed
Stock Shares that is represented by such Prorated Company
Shareholder's Stock Election Shares or Mixed Stock Shares, as the case
may be (in each case, the "Cash Designated Shares Percentage"); and
(B) calculate the number of shares (the "Excess Election
Shares") by which the aggregate of all Stock Election Shares and Mixed
Stock Shares exceeds the Stock Amount; and
(C) select from each Prorated Company Shareholder, and
designate as Cash Designated Shares, that number of shares of Parent
Common Stock otherwise issuable to such Shareholder in the Merger as
shall be equal (to the nearest whole share) to the product of the
applicable Cash Designated Shares Percentage, multiplied by the number
of Excess Election Shares.
(g) Dissenting Shares.(i) As used in this Agreement, the term "Dissenting
Shares" means any shares of Company Common Stock the holder of which elects to
exercise his or her right to dissent from the Merger and who satisfies the
requirements of subsections 2 and 3 of Section 909 of the MBCA. Holders of
Dissenting Shares shall be entitled to payment for such shares only to the
extent permitted by and in accordance with the MBCA; provided, however, that if,
in accordance with the MBCA, any holder of Dissenting Shares shall forfeit such
right to payment of the fair value thereof, such shares
11
shall thereupon be deemed to have been converted into the right to receive and
to have become exchangeable for the Per Share Cash Consideration as of the
Effective Time of the Merger.
(ii) The Company shall give Parent (A) prompt written notice
(including copies) of any written objections to the Merger, any written demands
for payment of the fair value of any shares of Company Common Stock, and any
other instruments served pursuant to the MBCA received by the Company (which
notice shall include the name of each Company Shareholder and the number of
shares of Company Common Stock to which such notice pertains); and (B) the
opportunity to direct all negotiations and proceedings with respect to such
demands under the MBCA. The Company shall not voluntarily make any payment with
respect to any demand for the payment of fair value or settle or offer to settle
any such demand, without Parent's prior written consent.
SECTION 2.02 Effect on Stock Plans and Company Stock Options. (a) As
soon as practicable following the date of this Agreement, but in any event prior
to the consummation of the Company Stockholder Approval, the Board of Directors
of the Company (or, if appropriate, any committee administering any stock option
plan, stock purchase plan or other plan, program or arrangement providing for
the issuance or grant of any interest in respect of the capital stock of the
Company or any Subsidiary (the "Stock Plans")), shall adopt such resolutions or
take such other actions as may be required to effect the following (it being
understood that if the following is not permitted pursuant to the terms of the
Stock Plans, the Company shall use its reasonable best efforts to obtain any
consents or take any other action necessary in order to effect the following):
(i) The terms and provisions of all outstanding Company Stock Options
granted under any Stock Plan, whether or not then exercisable, shall be amended
or otherwise adjusted to provide that, at the Effective Time of the Merger, each
unexercised Company Stock Option outstanding immediately prior to the Effective
Time of the Merger and having a per share exercise price equal to or exceeding
the Per Share Cash Consideration (as defined below) shall be canceled, and each
Company Stock Option not so canceled: (A) that was granted by the Company as an
incentive stock option in accordance with the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "IRC") (and each Company Stock
Option so granted being hereinafter referred to as a "Company ISO"), shall, at
the election of the grantee thereof, as to all or any portion of such Company
ISOs, (1) be converted into the right to receive from Parent a cash payment in
an amount equal to the excess, if any, of the Per Share Cash Consideration over
the per share exercise price for each such Company ISO, or (2) subject to the
limitation set forth in the last sentence of this clause (i), be converted into
the right to receive, from Parent, options granted by Parent as incentive stock
options in accordance with the requirements of IRC [SECTION]422 (each, a "Parent
ISO"), to purchase that number of shares of Parent Common Stock as shall be
equal to the number of shares of Company Common Stock issuable upon exercise of
such Company ISOs multiplied by the Exchange Ratio; and (B) that is not a
Company ISO, shall be converted into the right to receive from Parent a cash
payment in an amount equal to the excess, if any, of the Per Share Cash
Consideration over the per share exercise price for each Company Stock Option
("Payment in Settlement of Company Stock Options"). To the extent that any
Parent ISOs to be granted pursuant to sub-clause (A) above (and any
corresponding Company ISOs), would if so granted (in the case of such Parent
ISOs) and will (in the case of such corresponding Company ISOs) fail to qualify
as incentive stock options under IRC [SECTION]422 by reason of exceeding the
limitation of IRC [SECTION]422(d), then (in the case of such Company ISOs) the
Company and the holder of the Company ISO shall amend the terms of such option
to delay the exercise thereof until January 1, 2000, and such Company ISOs shall
be converted into the right to receive, from Parent, Parent ISOs which first
become exercisable on, January 1, 2000.
12
(ii) The terms and provisions of the Stock Plans shall be amended or
otherwise adjusted so as to provide that the Stock Plans shall terminate as of
the Effective Time of the Merger; and
(iii) During the period commencing on the date of this Agreement and ending
on the Effective Time of the Merger, the Company will not: (i) except for the
periodic grant of compensatory stock options to independent Directors of the
Company in accordance with the resolutions of the Company's Board of Directors
annexed hereto as Exhibit B (which are and at the Effective Time of the Merger
will be the only binding agreement of the Company to grant or issue to any
person any options or other rights to acquire, or securities exercisable for or
convertible into, any equity securities of the Company), grant any further
options or other rights to acquire, or issue any securities exercisable for or
convertible into, any equity securities of the Company; or (ii) except in the
case of the proper exercise of Company Stock Options, issue any equity
securities of the Company.
(b) Following the Effective Time of the Merger, no holder of a Company
Stock Option nor any participant in any Stock Plan shall have any right
thereunder to acquire equity securities of the Company or the Surviving
Corporation, and, except as provided above with respect to Company ISOs, shall
have only the right to receive from Parent Payment in Settlement of Company
Stock Options pursuant to the procedures set forth in Section 2.03 hereof.
SECTION 2.03 Exchange of Certificates; Settlement of Company Stock
Options. (a) Prior to the Mailing Date (as defined in Section 2.01 (e)(i)
above), Parent shall appoint an agent (the "Exchange Agent") for the purposes of
exchanging Company Share Certificates for the Merger Consideration, Exchanging
Company ISOs for Parent ISOs, making Payments in Settlement of Company Stock
Options and making payments in lieu of fractional shares pursuant to Section
2.04 hereof. At or before the Effective Time of the Merger, Parent shall deposit
with the Exchange Agent, for the benefit of the holders of Company Share
Certificates, certificates representing the Parent Common Stock issuable
pursuant to Section 2.01 in exchange for Company Share Certificates, Parent
instruments granting the Parent ISOs ("Parent ISO Agreements"), and cash in an
amount equal to the aggregate total amount of cash to be paid pursuant to
Sections 2.01, 2.02 and 2.04 hereof. Upon the Mailing Date, Parent will send, or
will cause the Exchange Agent to send, to each Company Shareholder and each
grantee of Company Stock Options at the Election Form Record Date, for use in
such exchange and/or settlement, the Election Materials, which shall, in
addition to the information set forth in Section 2.01(e) hereof, specify that
delivery of Payments in Settlement of Company Stock Options and of Parent ISO
Agreements shall be effected, and risk of loss and title to the instruments
granting such Company Stock Options, inclusive of Company ISOs (the "Option
Agreements") shall pass, only upon proper delivery of the Option Agreements to
the Exchange Agent. For purposes of Payments in Settlement of Company Stock
Options and delivery of Parent ISO Agreements, proper delivery of Option
Agreements to the Exchange Agent shall be determined in accordance with the
provisions of Section 2.01(e)(v), except that reference therein to "Company
Share Certificates" shall be deemed to refer to Option Agreements.
(b) (i) Each holder of Company Share Certificates that have been converted
into a right to receive the Merger Consideration, upon surrender to the Exchange
Agent of such Company Share Certificates together with a properly completed
letter of transmittal and Election Form covering such Company Share
Certificates, will be entitled to receive the Merger Consideration issuable in
respect of such Company Share Certificates, any cash payable in lieu of
fractional shares pursuant to Section 2.04 hereof, and any dividends payable
pursuant to Section 2.03(f); and (ii) each grantee of a Company Stock Option,
inclusive of Company ISOs, upon surrender to the Exchange Agent of the Option
Agreement together with a properly completed letter of transmittal and Election
Form covering such grantee's Company Stock Options, will be entitled to receive,
for each share of Company Common Stock issuable upon exercise of Company Stock
13
Options other than Company ISOs, cash Payment in Settlement of Company Stock
Options, and for each Company ISO, a Parent ISO calculated and determined in
accordance with Section 2.02(i) above together with a Parent ISO Agreement
granting the same. Until so surrendered, each such Company Share Certificate and
Option Agreement shall, after the Effective Time of the Merger, represent for
all purposes only the right to receive (x) the Merger Consideration, any cash
payable in lieu of fractional shares, and any dividends payable pursuant to
Section 2.03(f), (y) cash Payment in Settlement of Company Stock Options or (z)
Parent ISOs, as the case may be, respectively.
(c) If any portion of the Merger Consideration is to be issued to a person
other than the registered holder of a Company Share Certificate, it shall be a
condition to such payment that such Company Share Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such issuance shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of shares of Parent Common
Stock in exchange for the Company Share Certificate so surrendered or establish
to the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(d) After the Effective Time of the Merger, there shall be no further
registration of transfers of shares of Company Common Stock. If, after the
Effective Time of the Merger, Company Share Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for the applicable
Merger Consideration provided for, and in accordance with the procedures set
forth, in this Article II.
(e) Any portion of the Merger Consideration and the cash made available to
the Exchange Agent pursuant to Section 2.03(a) that remains unclaimed by the
holders of Company Share Certificates or Option Agreements (inclusive of Option
Agreements granting Company ISOs), as the case may be, six (6) months after the
Effective Time of the Merger shall be returned to Parent, upon demand, and any
such holder who has not exchanged his Company Share Certificates or such Option
Agreements, as the case may be, for the Merger Consideration or (in the case of
such Option Agreements) Payment in Settlement of Company Stock Options (or
Parent ISOs, as the case may be), prior to that time shall thereafter look only
to Parent for payment of the Merger Consideration, any Payment in Settlement of
Company Stock Options, (or Parent ISOs, as the case may be), and/or cash payable
cash payable in lieu of fractional shares pursuant to Section 2.04, and any
dividends payable pursuant to Section 2.03(f) in respect of his shares.
Notwithstanding the foregoing, Parent shall not be liable to any holder of
Company Share Certificates or Option Agreements (inclusive of Option Agreements
granting Company ISOs), for any amount paid to a public official pursuant to
applicable abandoned property laws. Any amounts or items remaining unclaimed by
holders of Company Share Certificates or Option Agreements (inclusive of Option
Agreements granting Company ISOs) seven (7) years after the Effective Time of
the Merger (or such earlier date immediately prior to such time as such amounts
would otherwise escheat to or become property of any governmental entity) shall,
to the extent permitted by applicable law, become the property of Parent free
and clear of any claims or interest of any person previously entitled thereto.
(f) No dividends or other distributions with respect to Parent Common Stock
issued in the Merger shall be paid to the holder of any unsurrendered Company
Share Certificates until such certificates are surrendered as provided in this
Section 2.03. Subject to the effect of applicable laws, following the surrender
of such certificates, there shall be paid, without interest, to the record
14
holder of the Parent Common Stock issued in exchange therefor at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time of the Merger payable prior to or on the date of
such surrender with respect to such whole shares of Parent Common Stock and not
previously paid, less the amount of any withholding taxes which may be required
thereon.
SECTION 2.04 Fractional Shares. No fractional shares of Parent Common
Stock shall be issued in the Merger, but in lieu thereof each holder of Company
Share Certificates otherwise entitled to a fractional share of Parent Common
Stock will be entitled to receive, from the Exchange Agent, a cash payment in
lieu of such fractional shares of Parent Common Stock at the rate of $3.30 per
share.
ARTICLE III
Representations and Warranties
SECTION 3.01 Representations and Warranties of the Company. The
Company represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and its
Subsidiaries (as defined in Section 3.01(b)) is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated and has all requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business, and is in good standing
as a foreign corporation, in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
(individually or in the aggregate) could not be reasonably expected to have a
Material Adverse Effect (as defined in Section 8.03) with respect to the Company
and its Subsidiaries. The Company Disclosure Schedule contains complete, true
and correct copies of the Articles of Incorporation and By-laws of the Company
and each of its Subsidiaries, in each case as amended to the date of this
Agreement, as well as correct, true and complete copies of all minutes of
meetings of the Boards of Directors and committees thereof of the Company and
each of its Subsidiaries since December 31, 1996.
(b) Subsidiaries. The only direct or indirect subsidiaries of the Company
are those listed in the Company Disclosure Schedule (each a "Subsidiary" and
collectively, the "Subsidiaries"). Except as set forth in the Company Disclosure
Schedule, all the outstanding shares of capital stock of each such Subsidiary
have been validly issued and are fully paid and nonassessable and are owned (of
record and beneficially) by the Company, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the ownership interests set forth
in the Company Disclosure Schedule, and securities held as Investment Assets (as
defined in Section 3.01(dd) hereof), the Company does not own, directly or
indirectly, any capital stock or other ownership interest, and does not have any
option or similar light to acquire any assets or equity or other ownership
interest, in any corporation, partnership, business association, joint venture
or other entity.
(c) Authority to Conduct Insurance Business. Each of the Company and its
Subsidiaries is duly licensed and in good standing, and has full power and
authority, to write the lines of insurance and otherwise conduct the business of
15
insurance in each state and other jurisdiction in which it is engaged in such
activities. None of the Company or any of its Subsidiaries is transacting or
conducting any insurance, re-insurance or other business in any state or
jurisdiction requiring a regulatory license therefor in which it is not so
licensed. The Company Disclosure Schedule sets forth a complete, true and
correct list, by Company and each Subsidiary, of: (i) the lines of insurance
written by it; (ii) any other insurance business conducted by it; (iii) the
states and other jurisdictions in which each of the activities listed pursuant
to clauses (i) and (ii), above, is being conducted; (iii)all licenses, permits,
approvals and other authorizations required in respect of each such activity by
each such state and other jurisdiction (the "Company Regulatory Licenses"); (iv)
the date upon which each Company Regulatory License was first issued or granted;
(v) the term of each Company Regulatory License; and (vi) the date (if any) upon
which each Company Regulatory License was most recently renewed, re-filed or
other action to maintain the same in full force and effect was taken. The
Company has delivered to Parent complete, true and correct copies of each
Company Regulatory License issued to it and to each of its Subsidiaries,
certified by the Secretary of the Company, all of which are in full force and
effect.
(d) Capital Structure. As of the date of this Agreement the authorized
capital stock of the Company consists of 12,000,000 shares of common stock, par
value $1.00 per share, of which 3,049,089 are issued and outstanding. As of the
date of this Agreement there are 395,000 Company Stock Options outstanding. The
Company Disclosure Schedule sets forth the name of each grantee of outstanding
Company Stock Options, the number of Company Stock Options held by each grantee,
and the exercise prices of each of such options. Except as set forth above, no
shares of the capital stock or other equity securities of the Company are
issued, reserved for issuance or outstanding. All outstanding shares of capital
stock of the Company are, and all shares will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth above, there are no: (i) shares of Company Common
Stock issuable pursuant to the Stock Plans; (ii) outstanding bonds, debentures,
notes or other indebtedness or shares of the Capital Stock or other securities
of the Company having the right to vote (or convertible into, or exchangeable or
exercisable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote; and (iii) outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any of its Subsidiaries is a party or by
which any of them is bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of the Company or
of any of its Subsidiaries or obligating the Company or any of its Subsidiaries
to issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. The only outstanding
indebtedness for borrowed money of the Company and its Subsidiaries is set forth
on the Company Disclosure Schedule. Except as set forth in the Company
Disclosure Schedule, and except for the Company Stock Options listed therein:
(x) there are no outstanding contractual obligations, commitments,
understandings or arrangements of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire or make any payment in respect of any
shares of capital stock of the Company or any of its Subsidiaries, and (y) to
the knowledge of the Company, there are no irrevocable proxies with respect to
shares of capital stock of the Company or any Subsidiary of the Company. Except
as set forth in the Company Disclosure Schedule and Exhibit B hereto, there are
no agreements or arrangements pursuant to which the Company is or could be
required to register shares of Company Common Stock or other securities under
the Securities Act of 1933, as amended (the "Securities Act"), or other
agreements or arrangements with or (to the Company's knowledge) among any
security holders of the Company with respect to securities of the Company.
16
(e) Duly Authorized; No Violation. The Company has the requisite corporate
and other power and authority to enter into this Agreement and, subject to the
Company Stockholder Approval, to consummate the transactions (including the
Merger) contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Merger and the other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of the Merger,
to the Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. Except as
disclosed in the Company Disclosure Schedule, the execution and delivery of this
Agreement do not, and the consummation of the Merger and the other transactions
contemplated hereby and thereby and compliance with the provisions hereof will
not, conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of, or give rise to any "put" right
with respect to, any obligation, or the loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries under: (i) the Articles of Incorporation or
By-laws of the Company or any of any of its Subsidiaries; (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license (including without
limitation any Company Regulatory License) applicable to the Company or any of
its Subsidiaries or their respective properties or assets; or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation
or arbitration award applicable to the Company or any of its Subsidiaries or
their respective properties or assets.
(f) Consents and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any Federal,
state or local government or any court, administrative agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions contemplated
hereby or thereby, except: (i) the filing of a premerger notification and report
form by the Company under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (ii) the filing with the SEC of (y) a proxy
statement relating to the Company Stockholder Approval (such proxy statement as
amended or supplemented from time to time, together with the proxy statement for
the Parent Stockholder Approval (the "Joint Proxy Statement"), and (z) such
reports under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the consents, approvals and other
authorizations of governmental entities having jurisdiction over the insurance
businesses of the Company and its Subsidiaries (the "Company Insurance
Regulatory Agencies") set forth in the Company Disclosure Schedule; (iv) filing
of the Articles of Merger with the Secretary of State of the State of Maine and
the filing of appropriate documents with the relevant authorities of other
states in which the Company and its Subsidiaries are qualified to do business
and (v) such other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as are set forth in the Company Disclosure
Schedule.
(g) SEC Filings. The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC since December 31, 1996, and
has delivered or made available to Parent all such reports, schedules, forms,
statements and other documents (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein,
17
the "Company SEC Documents"). As of their respective dates, and except as
otherwise amended or superseded by subsequently filed Company SEC Documents, the
Company SEC Documents complied in all material respects with the requirements of
the Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents (including any and all
financial statements included therein) as of such dates contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(h) Other Regulatory Filings; Deficiencies. The Company and each of its
Subsidiaries has duly filed and otherwise provided all reports, data, other
information and applications required to be filed with or otherwise provided to
the Insurance Departments of the states of Maine and New York, and (other than
the SEC) all other Governmental Entities (including without limitation insurance
departments and commissions) having jurisdiction over the Company or any of its
Subsidiaries, and all required regulatory approvals in respect of such reports,
data, other information and applications are in full force and effect at the
date hereof. The Company has furnished to Parent complete, true and correct
copies of: (i) all reports of examination of the Company and each of its
Subsidiaries issued by any Company Insurance Regulatory Agency (the "Examination
Reports"); (ii) all insurance holding company registrations and annual reports
filed with respect to the Company and each of its Subsidiaries; (iii) all other
regulatory filings by or in respect of the Company and each of its Subsidiaries;
and (iv) all complaints filed with or by, or issued by, any Company Insurance
Regulatory Agency, and all other regulatory proceedings, of any nature,
initiated or pending with respect to the Company or any of its Subsidiaries
("Complaints"), all within the five (5) year period immediately preceding the
date of this Agreement. Except as set forth on the Company Disclosure Schedule,
during such five (5) year period, no deficiency material to the financial
condition, operations, business or business prospects of the Company or any of
its Subsidiaries has been filed or asserted by any Company Insurance Regulatory
Agency in connection with respect to any report or filing made by, or other with
respect to, the Company or any of its Subsidiaries (each, a "Deficiency Report"
and collectively, the "Deficiency Reports"). The Company has provided to Parent
complete, true and correct copies of all written responses to: (x) all
Deficiency Reports; (y) all Examination Reports and Complaints; and (z) the
National Association of Insurance Commissioners regarding each Insurance
Regulatory Information System (IRIS) financial ratio results as to, and all Risk
Based Capital Reports as to, each of the Company and its Subsidiaries. On the
Closing Date, the Company and each of its Subsidiaries will have prepared
substantially complete drafts of all reports, data and other information and
applications that they will, respectively, be required to file with any
Governmental Entity (including without limitation any Company Insurance
Regulatory Agency) within sixty (60) days of the Closing Date, and such drafts
shall be in form and substance sufficient to enable the Surviving Corporation
and each Subsidiary to complete and make such filings, timely after the Closing
Date, without substantial modification.
(i) SEC Financial Statements. The consolidated financial statements of the
Company included in the Company SEC Documents (the "SEC Financial Statements")
comply in all material respects with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except, in the case of unaudited
consolidated quarterly statements, as permitted on Form 10-QSB of the SEC)
applied on a consistent basis during the periods involved and in accordance with
past practice (except as may be otherwise indicated in the notes thereto) and
fairly present the consolidated financial position of the Company and its
18
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to material year-end audit adjustments). Except
as set forth in the Company Disclosure Schedule, at the date of the most recent
audited financial statements of the Company included in the Company SEC
Documents, neither the Company nor any of its Subsidiaries had, and since such
date neither the Company nor any of such Subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect except (i) as and to the extent
reflected or reserved against on the financial statements contained in the
Company's Form 10-QSB for the period ended September 30, 1998, (ii) liabilities
of a nature substantially similar to those reflected on those financial
statements and incurred by the Company and its Subsidiaries solely in the
ordinary course of business consistent with past practice, and (iii) liabilities
incurred and/or reserved against in connection with claims under insurance
policies and annuities written and issued by the Company and/or any of its
Subsidiaries.
(j) Other Financial Statements. (i) The Company has delivered to Parent
complete, true and correct copies of all audited and unaudited quarterly, annual
and other financial statements of the Company and each of its Subsidiaries filed
with any Company Insurance Regulatory Agency during the five (5) year period
immediately preceding the date of this Agreement, together with all exhibits and
schedules thereto (the "Regulatory Financial Statements"). Each of the
Regulatory Financial Statements has been prepared in all material respects in
accordance with Statutory Accounting Principles ("SAP") applied on a consistent
basis during the periods involved, and fairly present the financial position,
assets and liabilities of the Company and its Subsidiaries, respectively, as of
the respective dates thereof and the results of their respective operations,
changes in capital and surplus and cash flows for the respective periods then
ended. Except as set forth on the Company Disclosure Schedule, at the respective
dates of the most recent of the Company's and each Subsidiary's Regulatory
Financial Statements, neither the Company nor any of its Subsidiaries had, and
since such respective dates neither the Company nor any of its Subsidiaries has
incurred, any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which (in the case of each of the Company and
its Subsidiaries, individually, and in the case of the Company and its
Subsidiaries on a consolidated basis) individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect except:(x) as and to
the extent reflected or reserved against on the most recent of their respective
Regulatory Financial Statements; (y) liabilities of a nature substantially
similar to those reflected on those financial statements and incurred by the
Company and its Subsidiaries, as the case may be, solely in the ordinary course
of business consistent with past practice; and (z) liabilities incurred and/or
reserved against in connection with claims under insurance policies and
annuities written and/or issued by the Company and/or any of its Subsidiaries,
respectively.
(ii) Since December 31, 1998 (which is the date of the most recent
Regulatory Financial Statements), there has been no Material Adverse Change in
the composition, nature or risk characteristics (credit quality or otherwise) of
any of the Company's or its Subsidiaries' investment portfolios. Except as
disclosed in the Company Disclosure Schedule, or in the financial statements and
reports delivered pursuant to this Section, neither the Company nor any of its
Subsidiaries have any debts, obligations or liabilities, contingent or
otherwise, whether individually or on a consolidated basis, that could
reasonably be expected to have a Material Adverse Effect.
(iii) All reserves, due and uncollected premiums and other related
items with respect to insurance contracts as established or reflected in the
Company Regulatory Financial Statements: (u) make reasonable provision for all
unpaid loss and loss adjustment expense obligations of the Company and its
Subsidiaries under the terms of their outstanding policies and agreements of
19
insurance; (v) were determined in accordance with accepted loss reserving
standards and principles consistently applied; (w) were fairly stated in
accordance with sound actuarial principles; (x) were based on actuarial
assumptions which produce reserves as great as those called for in any contract
provisions and the related reinsurance, coinsurance, and other similar
contracts; (y) met the requirements of the insurance laws and regulations of
each applicable jurisdiction, and of the National Association of Insurance
Commissioners model regulations and actuarial guidelines, and all appropriate
standards of practice as promulgated by the Actuarial Standards Board; and (z)
were computed on the basis of assumptions consistent with those used in
computing the corresponding items in the Regulatory Financial Statements for the
immediately preceding comparable period. Each of the Company and its
Subsidiaries owns assets that qualify as legal reserve assets under the
insurance laws and regulations of each applicable jurisdiction in an amount at
least equal to all such required reserves and other similar amounts.
(k) Information Supplied. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or incorporation by
reference in:(i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of Parent Common Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 is filed with the SEC, and at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; and (ii) the Joint Proxy Statement will, at
the date it is first mailed to the Company's stockholders or at the time of the
Company Stockholder Meeting (as defined in Section 5.01(b)), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Joint Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder, except
that no representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by or on behalf
of Parent or Sub for inclusion or incorporation by reference in the Joint Proxy
Statement.
(l) Litigation; Labor Matters. (i) The Company Disclosure Schedule sets
forth, as of the date of this Agreement, all suits, actions, counterclaims,
proceedings or governmental or internal investigations ("Actions") pending or,
to the knowledge of the Company, threatened in writing against or affecting the
Company or any of its Subsidiaries (other than American Colonial Insurance
Company ("ACIC")) other than: (A) those Actions (other than Actions described in
clause B, below) which individually could not reasonably be expected to result
in liability to the Company in excess of $40,000, net of insurance proceeds; and
(B) those Actions relating to any liability or alleged liability of the Company
or any Subsidiary of the Company (other than ACIC) as an insurer where,
individually, the reasonably expected loss does not exceed the amount reserved
therefor by the Company or Subsidiary, as the case may be, or if in excess, such
excess is not individually greater than $40,000, net of re-insurance proceeds.
The Company Disclosure Schedule lists all Actions pending, or to the knowledge
of the Company, threatened in writing against or affecting ACIC. Except as set
forth in the Company Disclosure Schedule, none of such Actions (and no other
Actions), individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect, or prevent or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement. In
addition, there is not any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding, pending or to the Company's
knowledge threatened against the Company or any of its Subsidiaries which could
reasonably be expected to have any such effect.
20
(ii) Neither the Company nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it or any of its
Subsidiaries the subject of any proceeding asserting that it or any Subsidiary
has committed an unfair labor practice or seeking to compel it or any Subsidiary
to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike, work stoppage or other labor dispute involving it or
any of its Subsidiaries pending or, to its knowledge, threatened, any of which
could reasonably be expected to have a Material Adverse Effect.
(m) Absence of Changes in Employee Benefit Plans. Except as set forth on
the Company Disclosure Schedule, since September 30, 1998, there has not been
any adoption or amendment by the Company or any of its Subsidiaries of any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether formal or informal, oral or
written) under which the Company or any of its Subsidiaries currently has an
obligation to provide benefits to any current or former employee, officer or
director of the Company or any of its Subsidiaries (collectively, "Employee
Benefit Plans"). Except as disclosed in the Company Disclosure Schedule, there
exists no written or oral employment, consulting, severance, change in control,
termination or indemnification agreement, with respect to any employee of either
the Company of any of its Subsidiaries who in 1998 earned in excess of $100,000
in total compensation, between the Company or any of its Subsidiaries and any
current or former employee, officer or director of the Company or any of its
Subsidiaries ("Employment Arrangements").
(n) ERISA Plans. (i) The Company Disclosure Schedule contains a list of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes
referred to herein as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(l) of ERISA, hereinafter a "Welfare Plan"), stock option,
stock purchase, deferred compensation plans or arrangements, and other material
employee fringe benefit plans or arrangements with respect to which the Company
and its Subsidiaries or any other person or entity that, together with the
Company, is treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code (each, including the Company, a "Commonly Controlled Entity") have
any liability on account of any present or former officers, employees, directors
or independent contractors of the Company (all the foregoing, including without
limitation all Employee Benefit Plans defined in Section 3.01(m), being herein
collectively called "Benefit Plans"). The Company has made available to Parent
true, complete and correct copies of (A) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (B) the two most recent
annual reports on Form 5500 and attached schedules filed with the Internal
Revenue Service with respect to each Benefit Plan (if any such report was
required by applicable law), (C) the most recent summary plan description for
each Benefit Plan for which such a summary plan description is required by
applicable law, (D) each trust agreement and material insurance or annuity
contract relating to any Benefit Plan, (E) the most recent determination letter,
if applicable, for any Benefit Plan and (F) each written Employment Arrangement.
(ii) Except as disclosed in the Company Disclosure Schedule, each
Benefit Plan has been established and administered in all material respects in
accordance with its terms. All the Benefit Plans are in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations. Except as disclosed in the Company
Disclosure Schedule, all reports, returns and similar documents with respect to
21
the Benefit Plans required to be filed with any governmental agency or
distributed to any Benefit Plan participant have been duly and timely filed or
distributed. Except as disclosed in the Company Disclosure Schedule, the Company
has not received notice of any investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Benefit Plans), suits or proceedings against or
involving any Benefit Plan or asserting any rights or claims to benefits under
any Benefit Plan that could give rise to any material liability, and, to the
best of the Company's knowledge, there are not any facts that could give rise to
any material liability in the event of any such investigation, claim, suit or
proceeding. With respect to the Benefit Plans, no event has occurred and no
condition exists that could reasonably be expected to subject any Commonly
Controlled Entity to any material tax, fine or penalty imposed by ERISA, the
Code or other applicable laws, rules and regulations.
(iii) Except as disclosed in the Company Disclosure Schedule, all
contributions to, and payments from, the Benefit Plans that may have been
required to be made in accordance with the terms of the Benefit Plans, any
applicable collective bargaining agreement and, when applicable, Section 302 of
ERISA or Section 412 of the Code, have been timely made.
(iv) Except as disclosed in the Company Disclosure Schedule, each
Benefit Plan intended to qualify under Section 401(a) of the Code has been the
subject of a determination letter from the Internal Revenue Service to the
effect that such Benefit Plan is qualified and exempt from Federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code or application
therefor has been timely made; no such determination letter has been revoked,
and, to the knowledge of the Company, revocation has not been threatened nor is
it expected.
(v) The Company Disclosure Schedule discloses whether: (A) any
"prohibited transaction" (as defined in Section 4975 of the Code or Section 406
of ERISA) has occurred during the past three years that involves the assets of
any Benefit Plan that could subject the Company, any of its employees or a
Company indemnified fiduciary under any Benefit Plan to a material tax or
penalty on prohibited transactions imposed by Section 4975 of ERISA or the
sanctions imposed under Title I of ERISA; or (B) any of the Benefit Plans has
been terminated.
(vi) No Commonly Controlled Entity sponsors, maintains, contributes to
or has any liability in respect of any "employee benefit plan" which is subject
to Title IV of ERISA, including any multiemployer plan, multiple employer plan
or single-employer plan.
(vii) No Commonly Controlled Entity has incurred any material
liability that remains unsatisfied to a Pension Plan (other than for
contributions not yet due) or to the Pension Benefit Guaranty Corporation (other
than for the payment of premiums not yet due).
(viii) Except as disclosed in the Company Disclosure Schedule, no
Commonly Controlled Entity has incurred any "withdrawal liability" (as defined
in Section 4201 of ERISA), which liability has not been fully paid as of the
date hereof, or has announced an intention to withdraw, but has not yet
completely withdrawn, from a "multiemployer plan"; and, to the best of the
Company's knowledge, no action has been taken, and no circumstances exist, that
alone or with the passage of time could result in either a partial or complete
withdrawal from such a Multiemployer Plan by any Commonly Controlled Entity.
(o) Certain Employee Payments. Except as disclosed in the Company
Disclosure Schedule, or as may be necessary to give effect to Section 2.02, no
22
Benefit Plan or Employment Arrangement provides for the payment to any current
or former director or employee of the Company or any Commonly Controlled Entity
of any money, other property or rights, or accelerates other rights or benefits
to any such employee or director as a result of the transactions contemplated by
this Agreement, whether or not: (i) such payment, acceleration or provision
would constitute a "parachute payment" (within the meaning of Section 280G of
the Code); or (ii) some other subsequent action or event would be required to
cause such payment acceleration or provision to be triggered. Except as
disclosed in the Company Disclosure Schedule, no payment, acceleration or
provision referred to in the preceding sentence would constitute or give rise to
a "parachute payment" within the meaning of Section 280G of the Code.
(p) Tax Returns and Tax Payments. The Company and each of its Subsidiaries,
and any consolidated, combined, unitary or aggregate group for Tax purposes of
which the Company or any of its Subsidiaries is or has been a member (a
"Consolidated Group") has timely filed all Tax Returns required to be filed by
it and has paid all Taxes shown thereon to be due. The Company and its
Subsidiaries have made or prior to the Closing will make adequate provision (to
the extent required by, and in accordance with GAAP) for all Taxes payable for
any periods that end before the Effective Time of the Merger for which no Tax
Returns have yet been filed and for any periods that begin before the Effective
Time of the Merger and end after the Effective Time of the Merger to the extent
such Taxes are attributable to the portion of any such period ending at the
Effective Time of the Merger, and the charges, accruals and reserves for Taxes
reflected in the financial statements of the Company and its Subsidiaries are
adequate under GAAP to cover the Tax liability accruing or payable by the
Company and its Subsidiaries in respect of periods prior to the date hereof.
Except as set forth in the Company Disclosure Schedule: (i) no material claim
for unpaid Taxes has become a lien against the property of the Company or any of
its Subsidiaries or is being asserted against the Company or any of its
Subsidiaries, (ii) no audit or other proceeding with respect to any Taxes due
from the Company or any of its Subsidiaries or any Tax Return of the Company or
any of its Subsidiaries is pending, threatened, to the best of the Company's
knowledge, or being conducted by a Tax Authority, and (iii) no extension of the
statute of limitations on the assessment of any Taxes has been granted by the
Company nor any of its Subsidiaries and is currently in effect, (iv) neither the
Company nor any of its Subsidiaries (A) has been a member of a Consolidated
Group filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company) or (B) has any liability for the Taxes
of any person (other than the Company and its Subsidiaries), including liability
arising from the application of Treasury Regulation section 1.1502-6 or any
analogous provision of state, local or foreign law, or as a transferee or
successor, by contract, or otherwise, (v) no consent under Section 341(f) of the
Code has been filed with respect to the Company or any of its Subsidiaries and
(vi) all Taxes required to be withheld, collected or deposited by or with
respect to the Company and each of its Subsidiaries have been timely withheld,
collected or deposited, as the case may be, and, to the extent required, have
been paid to the relevant taxing authority. As used herein, "Taxes" shall mean
all taxes of any kind, including those on or measured by or referred to as
income, gross receipts, sales, use, ad valorem franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
governments[ authority, domestic or foreign. As used herein, "Tax Return" shall
mean any return, report or statement required to be filed with any governmental
authority with respect to Taxes.
(q) Section 611-A of the MBCA Not Applicable. The Board of Directors of the
Company has, prior to the execution of this Agreement: (i) approved the
23
execution and delivery by the Company of this Agreement, and the consummation of
the Merger and the other transactions contemplated by this Agreement, and such
approval is sufficient to render Section 611-A (i) of the MBCA inapplicable to
this Agreement, the Merger, and the other transactions expressly contemplated
hereby. Other than Section 611-A of the MBCA and Sections 222 and 3474 of Title
24-A of the Maine Revised Statutes Annotated: (y) no state takeover statute or
similar statute or regulation of the State of Maine (and, to the knowledge of
the Company after due inquiry, of any other state or jurisdiction) applies or
purports to apply to this Agreement, the Merger, or any of the other
transactions contemplated hereby and (z) no provision of the Articles of
Incorporation, By-laws or other governing instruments of the Company or any of
its Subsidiaries, or the terms of any rights plan, rights offering or of any
security of the Company, would, directly or indirectly restrict or impair the
ability of Parent to vote, or otherwise to exercise the rights of a stockholder
with respect to, the Company Common Stock to be acquired or controlled by Parent
upon the consummation of the Merger.
(r) Contracts. Set forth in the Company Disclosure Schedule is a complete
and correct list as of the date hereof of all written or oral agreements,
contracts and commitments with an annual cost or benefit to any of the Company
and its Subsidiaries of $40,000 or more (the "Contracts"), to which any of the
Company and its Subsidiaries is bound or otherwise affected as of the date
hereof (other than insurance contracts sold by the company and its Subsidiaries
in the ordinary course of business or any agreements or contracts listed on
another schedule to this Agreement), including: (i) mortgages, indentures,
security agreements, loan and credit agreements and other agreements and
instruments relating to the borrowing of money or evidence of credit agreements
and other agreements and instruments relating to the borrowing of money or
evidence of credit where the Company or any of its Subsidiaries is debtor; (ii)
agreements or other arrangements with insurance agents and agencies and third
party administrators the terms and provisions of which are different from the
terms and provisions of the form of agreement annexed to the Company Disclosure
Schedule and pursuant to which the Company or any of its Subsidiaries has paid
$40,000 or more in commissions or other consideration during the calendar years
1997 or 1998; (iii) contracts for the provision of data-processing services,
(iv) finder's, franchise, distribution, sales or brokerage agreements; (v)
contracts or options to purchase or sell real property; (vi) contracts for the
purchase of materials, supplies or equipment, or for providing services; (vii)
contracts, arrangements or treaties with any party regarding reinsurance, excess
insurance, ceding of insurance, assumption of insurance, or indemnification with
respect to insurance currently being provided directly or indirectly by the
Company or any of its Subsidiaries or regarding the management of any portion of
its or their business or regarding the sale by it or any of them of its or their
products through any other company or the sale by any other company of its
products through the Company or any of its Subsidiaries, which have been entered
into on or after September 30, 1998; (viii) contracts with any entity that is an
Affiliate of the Company or any of its Subsidiaries or with any officer or
director of the Company or any of its Subsidiaries or any officer or director of
any other entity that is an Affiliate of the Company or any of its Subsidiaries,
or to the knowledge of the Company, any corporation controlled by such officer
or director; (ix) agreements and instruments representing loans or commitments
to loan to officers, directors, employees or agents (other than insurance
agents) of the Company or any of its Subsidiaries, or of any entity that is an
Affiliate of the Company or any of its Subsidiaries; (x) contracts of any kind
to which the United States government or any of its agencies is a party, or
under any federal, state or local law, regulation or executive order; (xi)
partnership or joint venture agreements of any kind; and (xii) other agreements,
contracts and commitments. The Company has delivered to Parent complete, true
and correct copies of all written Contracts together with all amendments thereto
and waivers and consents with respect thereto. In addition, the Company has made
available to Parent (y) all insurance policy forms used for products currently
marketed by it and by each of its Subsidiaries in its respective business and
that are currently in force, and (z) all forms of agreements or other
arrangements with insurance agents and agencies used by it and each of its
Subsidiaries in its respective business. All of such Contracts are in full force
24
and effect and, to the Company's knowledge, each party thereto has performed in
all material respects all of the obligations required to be performed by them to
date and are not in default thereunder in any material respect. No Contract to
which the Company or any of its Subsidiaries is a party, or by which any of them
or any of their respective properties is bound, limits either the Company or any
of its Subsidiaries' freedom to compete in any line of business or with any
person or entity. None of the Company or any Subsidiary of the Company has
outstanding any power of attorney other than as is customary in the insurance
industry to permit agents to execute binders. All contracts, arrangements or
treaties to which the Company or any Subsidiary of the Company is a party
regarding reinsurance, excess insurance, ceding of insurance, assumption of
insurance or indemnification with respect to insurance are listed on the Company
Disclosure Schedule.
(s) Compliance with Other Instruments and Laws. Neither the Company nor any
of its Subsidiaries is in violation or breach of any term of its respective
articles of incorporation or bylaws, or, in any material respect, to the
Company's knowledge, any mortgage, indenture, promissory note, pledge, security
agreement or other instrument or agreement relating to indebtedness for borrowed
money, any regulatory filing or undertaking of or affecting it, any judgment,
decree or order of any court or other tribunal having jurisdiction in which the
Company or any such Subsidiary is named, to which it is a party or by which it
or any of its assets is bound, any other instrument, contract or agreement, or
any statute, law, ordinance, rule, governmental regulation, permit, concession,
grant, franchise, license or other governmental authorization or approval
applicable to it or any of its respective assets. All insurance licenses
referred to in the Company Disclosure Schedule and all permits, concessions,
grants, franchises, other licenses and other governmental authorizations and
approvals necessary for the conduct of the business of the Company and its
Subsidiaries have been duly obtained and are in full force and effect and there
are no proceedings pending or, to the knowledge of the Company, threatened, that
may result in the revocation, cancellation, or suspension, or any adverse
modification, of any thereof. Subject to the receipt of the Governmental
Approvals, neither the execution, delivery and performance of this Agreement,
nor the consummation of the transactions contemplated thereby by the Company
will result in the loss, revocation, cancellation, suspension or modification of
any insurance license listed in the Company Disclosure Schedule, or any other
license or material contractual right held by the Company or any of its
Subsidiaries.
(t) Absence of Certain Changes. Except as set forth in the Company
Disclosure Schedule or otherwise provided in this Section 3.01, since September
30, 1998, neither the Company nor any Subsidiary of the Company has: (i) issued,
sold or delivery or agreed to issue, sell or deliver any additional shares of
its capital stock or any options, warrants or other rights to acquire any such
capital stock; or any securities convertible into or exchangeable for such
capital stock; (ii) incurred any material obligations or liabilities, whether
absolute, accrued, contingent or otherwise (including, without limitation,
liabilities as a guarantor or otherwise with respect to obligations of others),
other than obligations and liabilities relating to the issuance of insurance
policies and annuities in the ordinary course of the Company's and each of its
Subsidiaries' respective businesses, or incurred in the ordinary course of its
or any of their businesses, or obligations and liabilities otherwise reflected
on the financial statements contained in the Company SEC documents and on the
Regulatory Financial Statements; (iii) mortgaged, pledged, or subjected to any
lien, lease, security interest or other charge or encumbrance, any of its
respective material assets, tangible or intangible; (iv) acquired or disposed of
25
any material assets or properties, or entered into any agreement or other
arrangement for any such acquisition or disposition, except for assets acquired
or disposed of in the ordinary course of business; (v) declared, made, paid or
set apart any sums for any dividend or other distribution to its stockholders or
any Affiliate or purchased or redeemed any shares of its capital stock or
granted any option, warrant or right to purchase any such capital stock, or
reclassified any such capital stock; (vi) paid or become obligated to pay any
service fees or other sums to, or otherwise entered into any transactions with
or become obligated (financially or otherwise) to, any of its Affiliates; (vii)
forgiven or canceled any material debts or claims or waived any statutory,
contractual or common law rights of material value; (viii) entered into any
material transaction other than in the ordinary course of business; (ix) granted
any rights or licenses under any of their respective trade names or entered into
general agency arrangements; (x) entered into any agreement (other than in the
ordinary course of business) regarding reinsurance, surplus relief obligations,
excess insurance, ceding of insurance, assumption of insurance or
indemnification with respect to insurance or management of business; (xi)
suffered any Material Adverse Change; (xii) suffered any material damage,
destruction or loss, whether or not covered by insurance or reinsurance; (xiii)
suffered any strike, picketing, boycott or other labor trouble materially
adversely affecting their respective businesses, financial condition or
operations; (xiv) suffered the occurrence of any event which, if it had taken
place following the execution and delivery of this Agreement, would not have
been permitted by Section 4.01 hereof without the prior written consent of
Parent; or (xv) suffered the happenings of any condition, event or occurrence
which could reasonably be expected to prevent or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement.
(u) Insurance Policies. Set forth on the Company Disclosure Schedule is a
complete, true and correct list of all insurance policies maintained for the
benefit of any of the Company and its Subsidiaries (or any of their respective
officers and directors), in each case also setting forth the name of the
insurance carrier, the nature and extent of coverage (including all monetary
limits of coverage), and the term of each such policy.
(v) Bank Accounts. The Company Disclosure Schedule contains a complete,
true and correct list of: (i) each bank, trust company, other financial
institution, mutual fund and stock brokerage firm in which each of the Company
and its Subsidiaries has an account or safe deposit box; and (ii) each custodial
account maintained by each of the Company and its Subsidiaries, together with,
in each case, the names and account numbers of each such account, and the names
of all persons authorized to draw thereon or otherwise have access thereto.
(w) Employees. The Company Disclosure Schedule set forth a complete, true
and correct list of all employees, agents, (other than insurance agents),
consultants and other persons retained by each of the Company and its
Subsidiaries, together with the present rate of compensation, bonuses, and a
description of any written or oral agreement of employment or engagement to
which any of them is a party.
(x) Surplus Relief. At the date of this Agreement, neither the Company nor
any of its Subsidiaries was, currently is, and on the Closing Date will be,
subject to any obligations or reinsurance contracts or arrangements involving
surplus relief.
(y) Insurance Issued by Company and Subsidiaries.
26
(i) Except as set forth in the Company Disclosure Schedule, no claim
or allegation has been made that the Company or any of its Subsidiaries has in
bad faith denied or limited any insurance coverage of or the payment of any
insurance proceeds to an insured (a "Bad Faith Claim") which has resulted in an
order, decree or other requirement of a Company Insurance Regulatory Agency or a
court of competent jurisdiction in the past 6 years that the Company or any
Subsidiary of the Company institute or take any corrective action or cease any
practice or conduct.
(ii) All insurance contracts offered, issued, reinsured or
underwritten by the Company and any such Subsidiaries have been duly approved
under all applicable insurance laws and regulations and have been fully reserved
for as prescribed under such laws and regulations.
(iii) Except as disclosed in the Company Disclosure Schedule with
respect to the Company's AutoMatic product, the respective underwriting
standards utilized and ratings applied by the Company and each of its
Subsidiaries, at the time so utilized and/or applied, conformed in all material
respects to industry - accepted practices and have not been disputed or found
unacceptable by any Company Insurance Regulatory Agency, the Company's
independent accountants or the Company's actuaries.
(iv) The Company Disclosure Schedule sets forth each reinsurer and
other like entity with which the Company or any of its Subsidiaries has entered
into a reinsurance, coinsurance, assumption fronting or other similar contract
or contracts: (A) which is or has been insolvent or otherwise unable to pay its
obligations when due; (B) as to which the Company or any of its Subsidiaries has
commuted or intends to commute the proceeds receivable therefrom under such
contract or contracts; and (c) as to which the Company or any of its
Subsidiaries is disputing or has disputed the amounts receivable therefrom under
such contract or contracts.
(v) To the Company's knowledge, each insurance agent or general agent,
at the time such agent offered, wrote, sold or produced business for the Company
or any Subsidiary of the Company, was duly licensed as an insurance agent for
the business offered, written, sold or produced by such agent in the particular
jurisdiction in which such agent offered, wrote, sold or produced such business,
and except as set forth on the Company Disclosure Schedule, no insurance agent,
general agent or any group of affiliated agents has written 5% or more of the
Company's or any such Subsidiary's total in-force insurance business.
(vi) To the Company's knowledge, no present insurance agent of it or
any Subsidiary has materially violated any term or provision of any law or any
writ, judgment, decree, injunction or similar order applicable to or engaged in
any misrepresentation with respect to, the writing, sale or production of
business for it or any such Subsidiary.
(z) Computer Equipment and Programs. The Company Disclosure Schedule sets
forth a complete and correct list and summary description of all material
computer hardware, software, programs and similar systems owned by or licensed
to each of the Company and its Subsidiaries or being utilized in connection with
the business, operations or affairs of any of the Company and its Subsidiaries.
The computer hardware, software, programs and similar systems set forth on the
Company Disclosure Schedule are all of the computer hardware, software, programs
and similar systems necessary to enable each of the Company and its Subsidiaries
27
to conduct their respective business as presently conducted. Except as disclosed
in the Company Disclosure Schedule, each of the Company and its Subsidiaries
has, and after the Closing will have, the right to use, free and clear of any
royalty or other payment obligations all computer hardware, software, programs
and similar systems disclosed in the Company Disclosure Schedules. Neither the
Company nor any of its Subsidiaries is in conflict with or in violation or
infringement of, nor has any of them received any notice of any conflict with or
violation or infringement of or any claimed conflict with, any asserted rights
of any other person with respect to any computer hardware, software, programs,
or similar systems, including without limitation any such item disclosed on the
Company Disclosure Schedule. In all material respects, to the Company's
knowledge, all such computer hardware, software, programs and similar systems do
presently and will accurately handle, process, display and format (whether in
electronic, CRT or printed media) date information before, during and after
January 1, 2000 (including single century formulas, multi-century formulas and
leap years) in a manner that will: (i) not abnormally end or provide invalid
results; (ii) not adversely affect or impair the performance of such computer
hardware, software, programs and/or similar systems; and (iii) properly
interface and otherwise operate with other such items of computer hardware,
software, programs and similar systems including, without limitations, those of
Parent and the Other Parent Subsidiaries.
(aa) Books and Records. Except as set forth in the Company Disclosure
Schedule, to the Company's knowledge, the minute books and other similar records
of each of the Company and its Subsidiaries contain a complete and correct
record, in all material respects, of all actions taken at all meetings and by
all written consents in lieu of meetings of the stockholders and board of
directors of each of them, respectively and of each committee thereof since
January 1, 1994. The books and records of each of the Companies and its
Subsidiaries, accurately reflect in all material respects the business or
condition of each of them, respectively, and have been maintained in all
material respects in accordance with good business and bookkeeping practices.
(bb) No Investment Company. Neither the Company nor any Subsidiary of the
Company is, and none of them has registered as, an investment company within the
meaning of the Investment Company Act of 1940, as amended.
(cc) Investment Portfolio. The Company has provided Parent with a complete
and correct list as of January 31, 1999, of all stocks, notes, debentures,
bonds, mortgage loans, policy loans and other securities and investments owned
of record or beneficially by the Company or any Subsidiary of the Company, which
as of such date constitute the entire investment portfolio of the Company and
each such Subsidiary (which portfolios with additions and deletions thereto in
the ordinary course of business as permitted by this Agreement are hereafter
collectively referred to as the "Investment Assets"). The Company and each of
its Subsidiaries has good and indefeasible title to all of the Investment
Assets, and all of the Investment Assets are in compliance with the requirements
of all applicable laws and insurance regulations. As of the Closing, the
Company's and its Subsidiaries' investment portfolios shall consist of the
Investment Assets and they shall own and have good and indefeasible title to all
of the Investment Assets.
(dd) Discussions with Regulators. Except as set forth in the Company
Disclosure Schedule, neither the Company, any Subsidiary of the Company, nor any
officer, director, agent or representative of the Company or any such
Subsidiary, has received from any Company Insurance Regulatory Agency any
written notice or written inquiry regarding an adverse change in the Company's
28
or any such Subsidiary's condition (financial or otherwise) or regarding a
material breach of market conduct requirements by it or any of them that has
occurred or is alleged to have occurred after December 31, 1994.
(ee) Brokers. No broker, investment banker, financial advisor or other
person other than Sandler X'Xxxxx & Partners, L.P., is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
(ff) Opinion of Financial Advisor. The Company has received the opinion of
Sandler X'Xxxxx & Partners, L.P., dated the date of this Agreement, to the
effect that, as of the date thereof, the Merger Consideration is fair, from a
financial point of view, to the holders of the Company Common Stock.
(gg) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has: (i) determined that this Agreement and the
transactions contemplated hereby, inclusive of the Merger, taken together, are
fair to and in the best interests of the stockholders of the Company; and (ii)
resolved to recommend that the holders of the shares of Company Common Stock
approve this Agreement and the transactions contemplated herein, inclusive of
the Merger.
(hh) Required Company Vote. The Company Stockholder Approval, being the
affirmative vote of at least 75% of the outstanding shares of Company Common
Stock, is the only vote of the holders of any class or series of the Company's
securities necessary to approve this Agreement, the Merger and the other
transactions expressly contemplated hereby.
(ii) Properties. Except as disclosed in the Company Disclosure Schedule,
each of the Company and its Subsidiaries: (i) has good and marketable title to
all the properties and assets reflected in the latest audited balance sheet
included in the Company SEC Documents as being owned by the Company or any of
its Subsidiaries or acquired after the date thereof which are, individually or
in the aggregate, material to the Company's and such Subsidiaries' business on a
consolidated basis (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), free and clear of (A) all
material Liens except (1) statutory liens securing payments not yet due and (2)
such imperfections or irregularities of title, or other Liens (other than real
property mortgages or deeds of trust) as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise materially
impair business operations at such properties, and (B) all real property
mortgages and deeds of trust; and (ii) is the lessee of all real property
leasehold estates listed in the Company Disclosure Schedule, which are all of
the real property leasehold estates that are material to its and their
respective business on a consolidated basis and is in possession of the
properties purported to be leased thereunder, and each such lease is in full
force and effect and is valid without material default (and the lessee has not
received any notice of default, whether or not material) thereunder by the
lessee or, to the Company's knowledge, the lessor.
(jj) Trademarks and Related Contracts. The Company and each of its
Subsidiaries has the right to do business in Maine or New York, as the case may
be, under its corporate name, and each has the right to use (in each case, free
and clear of any material Liens) all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for the
conduct of its business as currently conducted. To the best knowledge of the
29
Company: (i) the use of such patents, trademarks, trade names, service marks,
copyrights, technology, know-how and processes by the Company and its
Subsidiaries and authorized users does not infringe on the rights of any person;
and (ii) no person is infringing on any right of the Company or any of its
Subsidiaries, with respect to any such patents, trademarks, trade names, service
marks, copyrights, technology, know-how or processes. The Company and its
Subsidiaries are not in breach or violation in any material respect of any
agreement relating to the use of any of the intellectual property identified in
this provision, and they have not received any notification written or oral from
any third party that there is any such violation, breach or inability to perform
under any such agreement. Except as contained in the Company Disclosure
Schedule, there are no agreements, written or oral, which in any material
respect limit or otherwise relate to any rights by the Company, its
shareholders, or an of its Subsidiaries to use any such intellectual property.
(kk) Transactions with Affiliates. Except as set forth in the Company
Disclosure Schedule and except for permitted dividends to the Company by ACIC,
and for the payment in the ordinary course of business of compensation to the
employees and directors of the Company and of ACIC, since September 30, 1998,
neither the Company nor any of its Subsidiaries has engaged in any transaction
with, or become obligated (financially or otherwise) to, any Affiliate of it.
SECTION 3.02 Representations and Warranties of Parent and Sub. Parent
represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power; Authority to Conduct
Insurance Business. Each of Parent and the Other Parent Subsidiaries (as defined
in Section 3.02(b)) is, and Sub will be, duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has (or will have) all requisite corporate power and authority to carry on its
business as now being (and in the case of Sub, will be) conducted. Each of
Parent and the Other Parent Subsidiaries is, and Sub will be, duly qualified as
a foreign corporation to do business, and is, and Sub will be, in good standing
as a foreign corporation, in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
(individually or in the aggregate) would not have a Material Adverse Effect with
respect to Parent, Sub and the Other Parent Subsidiaries. The Parent Disclosure
Schedule contains (and in the case of Sub, will contain) complete, true and
correct copies of Parent's Certificate of Incorporation and By-laws and the
certificate of incorporation and by-laws of Sub and the Other Parent
Subsidiaries, in each case as amended to the date of this Agreement. Each of the
Other Parent Subsidiaries are duly licensed as an insurer in, and otherwise
possesses all permits, consents and other governmental authorizations required
for each of them to conduct the type of insurance business presently conducted
by each of them, respectively, in each jurisdiction in which each of them is,
respectively, conducting a business of insurance, except that Sub will be duly
incorporated (but not otherwise licensed) as an insurer pursuant to the laws of
the State of Maine. The Parent Disclosure Schedule contains a complete, true and
correct list of all such licenses, permits, consents and other governmental
authorizations, each of which is in full force and effect, and none of which are
subject to any investigation or proceeding by any regulatory or other
governmental agency, or before any court or administrative body having
jurisdiction, that threatens or seeks to limit, suspend or revoke, or that may
reasonably result in the limitation, suspension or revocation of any such
license, permit, consent or other governmental authorization.
(b) Subsidiaries. The only direct or indirect subsidiaries of Parent (other
than Sub) are listed in the Parent Disclosure Schedule (collectively, the "Other
Parent Subsidiaries"). When issued, all the outstanding shares of the capital
30
stock of Sub will be, and all the outstanding shares of the capital stock of
each Other Parent Subsidiary have been, validly issued and are (or will be)
fully paid and nonassessable and are (or will be) owned (of record and
beneficially) by Parent, free and clear of all Liens. Except for the ownership
interests set forth in the Parent Disclosure Schedule, Parent does not own (and
with respect to Sub will not own), directly or indirectly, any capital stock or
other ownership interest, and does not have any option or other right to acquire
any assets or equity or other ownership interest in any corporation,
partnership, business association, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of Parent consists of
10,000,000 shares of common stock, par value $.50 per share, of which, 2,116,429
shares are issued and outstanding at the date of this Agreement. Except as set
forth in the Parent Disclosure Schedule, no shares of capital stock or other
equity securities of Parent are issued, reserved for issuance or outstanding.
All outstanding shares of capital stock of Parent are, and all shares which may
be issued pursuant to this Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. There are no outstanding bonds, debentures, notes or other indebtedness
or other securities of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of Parent may vote. Except as set forth in the Parent
Disclosure Schedule, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Parent is a party or by which it is bound obligating Parent to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity or voting securities of Parent or obligating
Parent to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. The authorized
capital stock of Sub will consist of 100 shares of common stock, par value $0.01
per share, all of which will have been validly issued, will be fully paid and
nonassessable and will be owned by Parent, free and clear of any Lien.
(d) Duly Authorized; No Violation. Parent has all requisite corporate and
other power and authority to enter into, execute and deliver this Agreement and,
subject to the Parent Stockholder Approval with respect to the Merger, Parent
has and Sub will have all requisite corporate and other power and authority to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the consummation by Parent of the Merger
and the other transactions contemplated hereby have been, and in the case of Sub
will be, duly authorized by all necessary corporate action on the part of Parent
and Sub, subject to the Parent Stockholder Approval. This Agreement has been
duly executed and delivered by Parent and constitutes a valid and binding
obligation of Parent, enforceable against in accordance with its terms. The
execution and delivery of this Agreement do not, and in the case of Sub will be,
and the consummation of the Merger and other transactions contemplated hereby
and thereby, and compliance with the provisions of this Agreement will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of, or any "put" right with respect
to, any obligation, or the loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Parent, Sub or any
of the other Parent Subsidiaries under: (i) the certificate of incorporation or
by-laws of Parent or Sub or any Other Parent Subsidiary; (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent, Sub
or any Other Parent Subsidiary or their respective properties or assets or;
(iii) subject to the governmental filings and other matters referred to in the
following sub-section, any judgment, order, decree, statute, law, ordinance,
rule, regulation or arbitration award applicable to Parent, Sub or any Other
Parent Subsidiary or their respective properties or assets.
31
(e) Consents and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any Governmental
Entity is (and in the case of Sub will be) required by or with respect to
Parent, Sub or any Other Parent Subsidiary in connection with the execution and
delivery of this Agreement by Parent or the consummation by Parent and/or Sub,
of any of the transactions contemplated hereby, except: (i) the filing of a
pre-merger notification and report form by Parent under the HSR Act; (ii) the
filing with the SEC of (x) the Joint Proxy Statement relating to the Parent
Stockholder Approval and a registration statement on Form S-4, and (y) such
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement; (iii) the
consents, approvals and other authorizations of Governmental Entities having
jurisdiction over the insurance business of Parent, Sub and the Other Parent
Subsidiaries (the "Parent Insurance Regulatory Agencies") set forth in the
Parent Disclosure Schedule; (iv) the filing of the Articles of Merger with the
Secretary of State of the State of Maine, and the filing of appropriate
documents with the relevant authorities of other states in which Parent is
qualified to do business; and (v) such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices as may be set
forth in the Parent Disclosure Schedule.
(f) SEC Filings. Parent has filed all material required reports, schedules,
forms, statements and other documents with the SEC since December 31, 1996, and
Parent has delivered or made available to the Company all reports, schedules,
forms, statements and other documents filed with the SEC since such date
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein, the "Parent SEC Documents"). As of
their respective dates, and except as otherwise amended or superseded by
subsequently filed Parent SEC Documents, the Parent SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents, and none of the
Parent SEC Documents (including any and all consolidated financial statements
included therein) as of such date contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent set forth in
the Parent Disclosure Schedule, and except to the extent amended or superseded
by a subsequent filing with the SEC (a copy of which has been provided to the
Company prior to the date of this Agreement), none of the Parent SEC Documents
filed by Parent contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Other Regulatory Filings; Deficiencies. Each of Parent and the Other
Parent Subsidiaries has duly filed and otherwise provided all reports, data,
other information and applications required to be filed with or otherwise
provided (and in the case of Sub, to the extent required by applicable law, will
duly file with and otherwise provide) to the Insurance Department of the State
of New Jersey and (other than the SEC) all other governmental entities
(including without limitation insurance departments and commissions) having
jurisdiction over Parent, Sub or any Other Parent Subsidiary, and all required
regulatory approvals in respect of such reports, data, other information and
application are in full force and effect at the date hereof. Parent has
furnished to the Company complete, true and correct copies of: (i) all reports
of examination of Parent and each of the Other Parent Subsidiaries issued by any
Parent Insurance Regulatory Agency (the "Parent Examination Reports"); (ii) all
insurance holding company registration and annual reports filed with respect to
Parent, Sub and each of the Other Parent Subsidiaries; (iii) all other
32
regulatory filings by or in respect of Parent, Sub and each of the other Parent
Subsidiaries; and (iv) all complaints filed with or by, or issued by, any Parent
Insurance Regulatory Agency, and all other regulatory proceedings, of any nature
initiated or pending with respect to Parent, Sub or any Other Parent
Subsidiaries ("Parent Complaints"), all within the five (5) year period
immediately preceding the date of this Agreement. Except as set forth on the
Parent Disclosure Schedule, during such five (5) year period, no deficiency
material to the financial condition, operations, business or business prospects
of Parent or any of the Other Parent Subsidiaries has been filed or asserted by
any Parent Insurance Regulatory Agency in connection with any report or filing
made by or otherwise with respect to, Parent or any of the Other Parent
Subsidiaries. (each, a "Parent Deficiency Report" and collectively , the "Parent
Deficiency Reports"). Parent has provided to the Company complete, true and
correct copies of all written responses to: (x) all Parent Deficiency Reports;
(y) all Parent Examination Reports and Parent Complaints; and (z) the National
Association of Insurance Commissioners regarding each Insurance Regulatory
Information System (IRIS) financial ratio results as to, and all Risk Based
Capital Reports as to, of each of Parent and the Other Parent Subsidiaries.
(h) SEC Financial Statements; Undisclosed Liabilities. The consolidated
financial statements of Parent included in the Parent SEC Documents comply with
all applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and the Other Parent
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments). Except as
set forth in the Parent Disclosure Schedule, at the date of the most recent
audited financial statements of Parent included in the Parent SEC Documents,
neither Parent, nor any Other Parent Subsidiary had, and since such date neither
Parent, Sub nor any Other Parent Subsidiary has, incurred any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect with respect to Parent, Sub and/or the Other Parent
Subsidiaries except:(i) as and to the extent reflected or reserved against on
the financial statements contained in Parent's report on Form 10-Q for the
three-month period ended September 30,1998; (ii) liabilities of a nature
substantially similar to those reflected on those financial statements and
incurred by Parent and the Parent Subsidiaries solely in the ordinary course of
business consistent with past practice; and (iii) liabilities incurred and/or
reserved against in connection with claims under insurance policies and
annuities written and issued by Parent and/or the Other Parent Subsidiaries.
(i) Other Financial Statements. (i) Parent has delivered to the Company
complete, true and correct copies of all audited and unaudited quarterly, annual
and other financial statements of Parent and each of the Other Parent
Subsidiaries filed with any Parent Insurance Regulatory Agency during the five
(5) year period immediately preceding the date of this Agreement, together with
all exhibits and schedules thereto (the "Parent Regulatory Financial
Statements"). Each of the Parent Regulatory Financial Statements has been
prepared in accordance with SAP applied on a consistent basis during the periods
involved, and fairly present the financial position, assets and liabilities of
the Parent and the Other Parent Subsidiaries, respectively, as of the respective
dates thereof and the results of their respective operations, changes in capital
and surplus and cash flows for the respective periods then ended. Except as set
forth on the Parent Disclosure Schedule, at the respective dates of the most
recent of the Parent's and the Parent Subsidiaries' Regulatory Financial
Statements, neither Parent nor any of the Other Parent Subsidiaries had, and
since such respective dates neither the Company nor any of the Other Parent
33
Subsidiaries has incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which (in the case of each of the
Parent and the Other Parent Subsidiaries, individually, and in the case of the
Parent and the Other Parent Subsidiaries on a consolidated basis) individually
or in the aggregate could reasonably be expected to have a Material Adverse
Effect with respect to the financial condition, operations, business or business
prospects of the Other Parent or any Parent Subsidiary except: (x) as and to the
extent reflected or reserved against on the most recent of their respective
Parent Regulatory Financial Statements, (y) liabilities of a nature
substantially similar to those reflected on those financial statements and
incurred by the Parent and the Other Parent Subsidiaries, as the case may be,
solely in the ordinary course of business consistent with past practice; and (z)
liabilities incurred and/or reserved against in connection with claims under
insurance policies and annuities written and/or issued by the Parent and/or any
of the Other Parent Subsidiaries, respectively.
(ii) Since the respective dates of the most recent Parent Regulatory
Financial Statements, there has been no material adverse change in the
composition, nature or risk characteristics (credit quality of otherwise) of any
of the Parent's or any Other Parent Subsidiaries' investment portfolios. Except
as disclosed in the Parent Disclosure Schedule, the financial statements and
reports delivered pursuant to this Section, or as otherwise referred to in this
Agreement, neither the Parent nor any of the Other Parent Subsidiaries have any
debts, obligations or liabilities, contingent or otherwise, that could
materially adversely affect its or their financial condition, whether
individually or on a consolidated basis.
(iii) All reserves, due and uncollected premiums and other related
items with respect to insurance contracts as established or reflected in the
Parent Regulatory Financial Statements: (v) were determined in accordance with
commonly accepted actuarial standards consistently applied, (w) were fairly
stated in accordance with sound actuarial principles; (x) were based on
actuarial assumptions which produce reserves as great as those called for in any
contract provisions and the related reinsurance, coinsurance, and other similar
contracts; (y) met the requirements of the insurance laws and regulations of
each applicable jurisdiction, and of the National Association of Insurance
Commissioners model regulations and actuarial guidelines, and all appropriate
standards of practice as promulgated by the Actuarial Standards Board; and (z)
were computed on the basis of assumptions consistent with those used in
computing the corresponding items in the Parent Regulatory Financial Statements
for the immediately preceding comparable period. Each of the Parent and the
Other Parent Subsidiaries owns assets that quality as legal reserve assets under
the insurance laws and regulations of each applicable jurisdiction in an amount
at least equal to all such required reserves and other similar amounts.
(j) Information Supplied. None of the information supplied or to be
supplied by or on behalf of Parent, Sub or any Other Parent Subsidiary for
inclusion or incorporation by reference in: (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC, and at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; and (ii) the Joint Proxy Statement will, at the date it is first
mailed to Parent's stockholders or at the time of the Parent Stockholder Meeting
(as defined in Section 5.01(c)), contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form S-4 and the Joint Proxy Statement will
comply as to form in all material respects with the requirements of the
34
Securities Act and the rules and regulations promulgated thereunder, except that
no representation or warranty is made by Parent, Sub or any Other Parent
Subsidiary with respect to statements made or incorporated by reference therein
based on information supplied by or on behalf of the Company for inclusion or
incorporation by reference in the Form S-4 or the Joint Proxy Statement.
(k) Absence of Certain Changes or Events. Except as disclosed in the Parent
Disclosure Schedule, since the date of the most recent audited financial
statements included in the Parent SEC Documents, Parent, and the Other Parent
Subsidiaries have (and Sub will have) conducted their business only in the
ordinary course consistent with past practice, and there is not and has not
been: (i) any Material Adverse Change with respect to their financial condition,
operations, businesses or business prospects; (ii) any condition, event or other
occurrence or circumstance which individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on or give rise to a
material adverse change with respect to Parent, Sub, or the Other Parent
Subsidiaries or their respective financial condition, operations, businesses or
business prospects; (iii) any condition, event or other occurrence or
circumstance which could reasonably be expected to prevent or materially delay
the ability of Parent and Sub to consummate the transactions contemplated by
this Agreement; or (iv) any event which, if it had occurred following the
execution and delivery of this Agreement, would not have been permitted by
Section 4.02 hereof without the Company's prior written consent.
(l) Brokers. No broker, investment banker, financial advisor or other
person other than Xxxxxxx, Xxxxxxx & Co. is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.
(m) Opinion of Financial Advisor. Parent has received the opinion of
Xxxxxxx Xxxxxxx & Co., dated the date of this Agreement, to the effect that the
Merger and the issuance of up to the Stock Amount of the Parent Common Stock in
connection with the Merger, taken as a whole, are fair, from a financial point
of view, to Parent and the holders of the Parent Common Stock.
(n) Required Parent Stockholder Vote. The execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
expressly contemplated hereby requires the affirmative vote of the holders of at
least a majority of the shares of Parent Common Stock present in person or
represented by proxy and entitled to vote at the Parent Stockholder Meeting. The
stockholder action specified above is collectively referred to as the "Parent
Stockholder Approval." Messrs. XxXxxxxxx, Xxxxxx and Xxxxxxx (who, presently in
the aggregate, beneficially own more than 42% of the outstanding Parent Common
Stock) have agreed to vote their shares in favor of this Agreement, the Merger,
and each of the other transactions expressly contemplated hereby.
(o) Interim Operations of Sub. Sub will be formed solely for the purpose of
engaging in the transactions contemplated hereby and, in all material respects,
will engage in no other business activities and will conduct its operations only
as contemplated hereby.
(p) Board Recommendation. The Board of Directors of Parent, at a meeting
duly called and held, has:(i) determined that this Agreement and the
transactions contemplated hereby, including the Exchange Ratio and the issuance
of shares of Parent Common Stock in the Merger, are fair to and in the best
interests of the stockholders of Parent; and (ii) resolved to recommend that the
35
holders of the shares of Parent Common Stock approve this Agreement, the Merger,
the issuance of shares of Parent Common Stock in connection with the Merger.
(q) Tax Returns and Tax Payments. Parent and the Other Parent Subsidiaries,
and any consolidated, combined, unitary or aggregate group for Tax purposes of
which Parent or any of its subsidiaries is or has been a member, has timely
filed all (and Sub will timely file) Tax Returns required to be filed by it and
has paid (and with the case of Sub will pay) all Taxes shown thereon to be due,
except to the extent that any such failure to file or pay could not reasonably
be expected to have a Material Adverse Effect on Parent.
(r) Litigation, Compliance With Law. (i) There are no suits, actions,
counterclaims, proceedings or investigations pending or, to the knowledge of
Parent, threatened in writing against Parent, Sub or the Other Parent
Subsidiaries other than those which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect with respect to Parent.
(ii) The conduct of the business of each of Parent and the Other
Parent Subsidiaries complies with (and in the case of Sub will comply with) all
statutes, laws, regulations, ordinances, rules, permits, concessions, grants,
franchises, licenses, other governmental authorizations and approvals,
judgments, orders, decrees or arbitration awards applicable thereto, except for
violations or failures so to comply, if any, that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect
with respect to Parent.
(s) Material Contract Defaults. Neither Parent, Sub nor any of the Other
Parent Subsidiaries is, or has received any notice or has any knowledge that any
other party is, in violation, default or unable to perform in any respect under
any contract, agreement, or arrangement (whether oral or written) to which
Parent, Sub or any of the Other Parent Subsidiaries is a party or by which it,
they are any of its or their assets is bound, which is material to the business
of Parent, Sub or any Other Parent Subsidiary, except for those violations,
defaults or inabilities to perform which could not reasonably be expected,
either individually or in the aggregate, to have a Material Adverse Effect with
respect to Parent.
(t) Assets. The assets, properties, rights and contracts, including (as
applicable), title or leaseholds thereto, of Parent, Sub and the Other Parent
Subsidiaries, taken as a whole, are sufficient to permit Parent, Sub and the
Other Parent Subsidiaries to conduct their business as currently being conducted
with only such exceptions as could not be reasonably expected to have a material
adverse effect on Parent.
(u) Trademarks and Related Contracts. Parent and each of the Other Parent
Subsidiaries owns and/or is licensed to use, and Sub will own and/or be licensed
to use, (in each case, free and clear of any Liens), all patents, trademarks,
trade names, copyrights, technology, know-how and processes used in or necessary
for the conduct of its business as currently conducted which are material to the
condition (financial and other), business, or operations of the Company, except
to the extent any such failure could not reasonably be expected to have a
Material Adverse Effect on Parent.
(v) Financial Capacity. Parent has, and at all times prior to the Effective
Time of the Merger will maintain, sufficient financial capacity to enable it to
perform its obligations under this Agreement, including without limitation the
obligation to pay the Merger Consideration.
36
SECTION 3.03 Continuing Disclosure. During the period commencing as of
the date of this Agreement and ending at the Effective Time of the Merger, each
of the Company and Parent shall, upon the happening of any event, occurrence or
circumstance which if occurring or known to the Company or Parent (as the case
may be) as of the date of this Agreement would have been required to be
disclosed in its respective Disclosure Schedule in order to make the disclosures
therein not misleading (or as to which a failure to disclose would be
misleading), promptly amend its Disclosure Schedule by inclusion of such event,
occurrence or circumstance and forward such amendment to the other party. Each
of the Company and Parent shall have the right to amend its Disclosure Schedule
in order to provide up-dated information or to correct prior, inadvertent errors
therein.
ARTICLE IV
Covenants Relating to Conduct of Business Prior to Merger
SECTION 4.01 As to the Company.
(a) Conduct of Business by the Company. During the period from the date of
this Agreement to the Effective Time of the Merger (except as otherwise
specifically required by the terms of this Agreement), the Company shall, and
shall cause its Subsidiaries to, act and carry on its and their respective
businesses only in the usual, regular and ordinary course of business consistent
with past practice and, to the extent consistent therewith, use its and their
reasonable best efforts to preserve intact its and their current business
organizations, keep available the services of its and their current officers and
employees and preserve its and~their relationships with brokers, agents,
suppliers, advertisers and others having business dealings with it and them to
the end that its and their goodwill and ongoing businesses shall be materially
unimpaired at the Effective Time of the Merger. Without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Effective Time of the Merger, the Company shall not and shall not permit any of
its Subsidiaries to, without the prior written consent of Parent, which consent
will not be withheld without Parent stating its reason therefor:
(i) (x) directly or indirectly declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital stock
(other than permitted dividends by ACIC); (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of any of its capital
stock; or (z) except pursuant to Company Stock Options or as otherwise may be
necessary to effectuate the provisions of Section 2.02 hereof, purchase, redeem
or otherwise acquire any shares of any of its capital stock or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities;
(ii) authorize for issuance, issue, deliver, sell, transfer, pledge or
otherwise encumber any shares of any of its capital stock or the capital stock
of any of its subsidiaries, any other voting securities or any securities
convertible into or exercisable or exchangeable for, or any rights (including
without limitation any Company Stock Options other than those issued to Company
Directors in accordance with past compensation practices pursuant to the
resolutions of the Company's Board of Directors set forth as Exhibit B hereto),
warrants, calls, commitments or options to acquire, any such shares, voting
securities or convertible securities or any other securities or equity
equivalents (including without limitation stock appreciation rights);
37
(iii) amend its articles of incorporation or by-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any material Lien or otherwise dispose of any of, close, discontinue or shut
down its lines of business or insurance products, or any of its material
properties or material assets;
(vi) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any of
its Subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing; (y) amend the terms of any outstanding security in a
manner that would increase its obligations thereunder; or (z) make any loans,
advances or capital contributions to, or investments in, the Company, any
Subsidiary of the Company or any other person;
(vii) acquire or agree to acquire any capital assets other than
replacements in ordinary course of having an aggregate value not in excess of $
50,000 or make or agree to make any capital expenditures other than in respect
of the foregoing;
(viii) other than as set forth in Section 4.01(a)(xii), below, pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction of: (w) claims in respect of its insurance policies;
(x) other liabilities or obligations in the ordinary course of business
consistent with past practice; (y) liabilities reflected or reserved against in
the most recent consolidated financial statements (or the notes thereto) of the
Company included in the SEC Documents; or (z) other claims, liabilities or
obligations in an amount, individually, not in excess of $40,000, or waive,
release, grant, or transfer any rights of material value or modify or change any
existing material license, lease, contract or other document in any manner that
would be material to the Company or any of its Subsidiaries or enter into any
new contract, lease or license other than renewals in the ordinary course of
business;
(ix) adopt a plan of complete or partial liquidation, merger,
consolidation, restructuring, recapitalization or reorganization, or resolutions
providing for or authorizing any of the foregoing;
(x) enter into any collective bargaining agreement, whether in the
first instance or as a renewal of or successor to any prior collective
bargaining agreement;
(xi) change any accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to GAAP, SAP or rules and regulations of the SEC or any
Company Regulatory Agency promulgated following the date hereof;
(xii) settle or compromise any Action (whether or not commenced prior
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to the date of this Agreement), other than any settlement or compromise not in
excess of amounts reserved therefor as of January 31, 1999, (provided that such
settlement or compromise does not involve any material non-monetary obligations
on the part of the Company), or if in excess of such reserved amounts, such
excess is not greater than $40,000;
(xiii) close, shut down or otherwise eliminate any of its facilities;
(xiv) enter into (or commit to enter into) any new lease or amend or
renew any existing lease or purchase or acquire or enter into any agreement to
purchase or acquire any real estate or terminate any existing lease, other than
leases for equipment (including without limitation any computer hardware or
software) requiring an aggregate annual commitment not in excess of $40,000;
(xv) change any Tax election, change any annual Tax accounting period,
change any method of Tax accounting, file any amended Tax return, enter into any
closing agreement relating to any material Tax, settle any material Tax claim or
assessment surrender any right to claim a Tax refund or consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment,
if such acts, either separately or in the aggregate, would have the effect of
materially increasing the Tax liability of or materially reducing the Tax assets
of the Company or any of its Subsidiaries or of Parent or any of its
subsidiaries;
(xvi) change the composition, fill any vacancies in or increase the
size of the Company's Board of Directors; or
(xvii) authorize any of, or commit or agree to take any of, the
foregoing actions or, to the extent not enumerated in the foregoing, any action
described in Section 3.01(u) hereof.
(b) Changes in Employment Arrangements. Without the written consent of
Parent, neither the Company nor any of its Subsidiaries shall (except as may be
required in order to give effect to the requirements of Section 2.02) adopt or
amend (except as may be required by law) any bonus, profit sharing,
compensation, stock option (including by accelerating or altering the vesting
thereof other than as required by the terms of the applicable plan or agreement)
pension, retirement, deferred compensation, severance, change-in-control, fringe
benefits, employment or other employee benefit plan, agreement, trust, fund or
other arrangement (including any Benefit Plan or Employment Arrangement) for the
benefit or welfare of any employee, director or former director or employee,
increase the compensation, bonus or fringe benefits of any director, employee or
former director or employee or pay any benefit not required by any existing
plan, arrangement or agreement, except that the Company will be permitted to
grant merit increases in salaries of employees (other than officers) at
regularly scheduled times in customary amounts consistent with past practices.
(c) Severance. Neither the Company nor any of its Subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof, other than so as to provide, in the event of
termination upon the request or direction of Parent during the twelve (12)-month
period beginning at the Effective Time of the Merger: (i) in the case of such
termination of Xxxxxx Xxxxx, Xxxxxxx Xxxxx or Xxxxx Xxxxx, a lump sum severance
payment in a amount equal to one-half of such individual's annual Company salary
at the date of termination net of applicable payroll withholding taxes and
39
similar charges; and (ii) in the case of any other salaried Company employee
other than Xxxxxx X. Xxxxxx and Xxxxxx X. Xxxxx, a lump sum severance payment in
an amount equal to one-twelfth of such individual's annual Company salary at the
date of termination net of applicable payroll withholding taxes and similar
charges.
(d) Transition. In order to facilitate the completion and occurrence of the
Conditions Precedent set forth in Article VI hereof, and to facilitate an
orderly transition of the business of the Company to a wholly owned subsidiary
of Parent and to permit the coordination of their related perations on a timely
basis, the Company shall (and shall cause its officers, directors and executive
employees to) consult with and assist Parent on such strategic, operational and
other matters as Parent may reasonably request, from time to time. Company shall
make available to Parent at the Company's facilities office space in order to
assist it in observing all operations and reviewing all matters concerning the
Company's affairs. Without in any way limiting the provisions of Section 5.04,
Parent, its subsidiaries, officers, employees, counsel, financial advisors and
other representatives shall, upon reasonable notice to the Company, be entitled
to review the operations and visit the facilities of the Company and its
subsidiaries at all times as may be deemed reasonably necessary by Parent in
order to accomplish the foregoing arrangement.
SECTION 4.02 Conduct of Business of Parent. (a) During the period from
the date of this Agreement to the Effective Time of the Merger (except as
otherwise specifically required by the terms of this Agreement), Parent shall,
to the extent consistent with Parent's reasonable commercial judgment and to the
extent material, use its reasonable best efforts to preserve intact its and its
subsidiaries' current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
brokers, agents, suppliers, advertisers and others having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time of the Merger.
(b) Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time of the Merger, Parent
shall not, directly or indirectly, without the prior written consent of the
Company (which consent will not be unreasonably withheld or delayed): (i) adopt
a plan of complete or partial liquidation or resolutions providing for or
authorizing such a liquidation or a dissolution, consolidation, restructuring,
recapitalization or reorganization; (ii) dispose of any material portion of its
assets except in the ordinary course of business; (iii) declare or pay any cash
dividend that would reasonably be expected to materially depress the market
price of the Parent Common Stock or materially reduce Parent's stockholders'
equity from such stockholders' equity as set forth on the most recent Parent SEC
Financial Statements; or (iv) suffer any Material Adverse Change.
ARTICLE V
Additional Agreements
SECTION 5.01 Preparation of Form S-4 and the Joint Proxy Statement;
Stockholder Meetings. (a) Promptly following the execution of this Agreement,
the Company and Parent shall prepare and file with the SEC the Joint Proxy
Statement, and Parent shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of the Company
and Parent shall use its reasonable best efforts to have the Form S-4 declared
40
effective under the Securities Act as promptly as practicable after such filing.
The Company will use its reasonable best efforts to cause the Joint Proxy
Statement to be mailed to the Company's stockholders, and Parent will use its
reasonable best efforts to cause the Joint Proxy Statement to be mailed to
Parent's stockholders, in each case as promptly as practicable after the Form
S-4 is declared effective under the Securities Act. The information provided and
to be provided by Parent, Sub and the Company, respectively, for use in the Form
S-4 shall, at the time the Form S-4 becomes effective and on the dates of each
of the Company Stockholder Meeting and the Parent Stockholder Meeting, be true
and correct in all material respects and shall not omit to state any material
fact required to be stated therein or necessary in order to make such
information not misleading, and the Company, Parent and Sub each agree to
correct immediately upon the discovery thereof any information provided by it
for use in the Form S-4 which shall have become false or misleading.
(b) The Company shall cause a meeting of its stockholders (the "Company
Stockholder Meeting") to be duly called and held within 45 days after the Form
S-4 becomes effective, for the purpose of voting on the approval and adoption of
this Agreement and the Merger. The Board of Directors of the Company shall
recommend approval and adoption of this Agreement and the Merger by the
Company's stockholders. The Board of Directors of the Company shall not be
permitted to withdraw, amend or modify in a manner adverse to Parent such
recommendation (or announce publicly its intention to do so), except that prior
to the date of the Company Stockholder Meeting, the Board of Directors shall be
permitted to withdraw, amend or modify its recommendation (or publicly announce
its intention to do so) but only if: (i) the Company has complied with Section
5.11; (ii) an Alternative Transaction (as defined in Section 7.01) shall have
been proposed by any person other than Parent or its Affiliates; (iii) the
Company shall have notified Parent of such Alternative Transaction at least five
(5) business days in advance of such withdrawal, amendment or modification; and
(iv) the Board of Directors of the Company (or an independent committee thereof)
shall have determined in its good faith judgment that such Alternative
Transaction is more favorable to the Company's stockholders than this Agreement
and the Merger and, as a result, the Board of Directors of the Company shall
have determined in good faith, consistent with the written opinion of Xxxxxxx &
Xxxx LLP, or another law firm of recognized reputation and standing retained by
the Company ("Company Counsel"), that it is obligated by its fiduciary duties
under applicable law to modify, amend or withdraw such recommendation; provided
that no such withdrawal, amendment or modification shall be made unless the
Company shall have delivered to Parent in accordance with Section 5.11(b) a
written notice advising Parent that the Board of Directors of the Company has
received a proposal for an Alternative Transaction, describing the material
terms thereof, and identifying the person making such proposal.
(c) Unless the Board of Directors of the Company shall take any action
permitted by the third sentence of paragraph (b) above, Parent shall cause a
meeting of its stockholders (the "Parent Stockholder Meeting") to be duly called
and held within 45 days after the Form S-4 becomes effective, for the purpose of
voting on the Merger and on the issuance of shares of Parent Common Stock in
connection with the transactions contemplated hereby. At such meeting, the Board
of Directors of Parent shall recommend approval by Parent's stockholders of the
Merger and such issuance of shares of Parent Common Stock. Nothing contained in
this Section 5.01(c) shall prohibit Parent from making any disclosure to
Parent's stockholders if, in the good faith judgment of the Board of Directors
of Parent, upon the advice of counsel, failure to make such disclosure would be
inconsistent with applicable laws.
(d) The recommendations of the Boards of Directors of Parent and the
Company referred to in paragraphs (b) and (c) above, together with copies of the
41
opinions referred to in Sections 3.01(gg) and 3.02(m), shall be included in the
Joint Proxy Statement. Parent and the Company will use reasonable efforts to
hold the Company Stockholder Meeting and the Parent Stockholder meeting on the
same day.
(e) The Company will cause its transfer agent to make the stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.02 Letter of the Company's Accountants. The Company shall
use its reasonable best efforts to cause to be delivered to Parent a letter of
the Company's independent public accountants, dated a date within two (2)
business days before the date on which the Form S-4 shall become effective and
addressed to Parent, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
In connection with the Company's efforts to obtain such letter, if requested by
Pricewaterhouse Coopers, LLP, Parent shall provide a representation letter to
Pricewaterhouse Coopers, LLP, complying with SAS 72, if then required.
SECTION 5.03 Letter of Parent's Accountants. Parent shall use its
reasonable best efforts to cause to be delivered to the Company a letter of
Parent's independent public accountants, dated a date within two (2) business
days before the date on which the Form S-4 shall become effective and addressed
to the Company, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
In connection with the Parent's efforts to obtain such letter, if requested by
Pricewaterhouse Coopers, LLP, the Company shall provide a representation letter
to Pricewaterhouse Coopers, LLP, complying with SAS 72, if then required.
SECTION 5.04 Access to Information, Confidentiality. (a) The Company
shall, and shall cause its Subsidiaries and its and their respective officers,
employees, counsel, financial advisors and other representatives, to afford to
Parent and its representatives reasonable access during normal business hours
during the period prior to the Effective Time of the Merger to its properties,
books, contracts, commitments, personnel and records and, during such period,
the Company shall, and shall cause its Subsidiaries and its and their respective
officers, employees and representatives to, furnish promptly to Parent: (i) a
copy of each report, schedule, registration statement and other document filed
by it or any of them during such period with any Company Insurance Regulatory
Agency, the SEC, any state securities agency or commission, or any other
Governmental Entity; and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as such other party
may from time to time reasonably request.
(b) During the period prior to the Effective Time of the Merger, Parent
shall provide the Company and its representatives with reasonable access during
normal business hours to its properties, books, contracts, commitments,
personnel and records as may be necessary to enable the Company to confirm the
accuracy of the representations and warranties of Parent set forth herein and
compliance by Parent and Sub of their obligations hereunder, and, during such
period, Parent shall, and shall cause its subsidiaries, officers, employees and
representatives to, furnish promptly to the Company:(i) a copy of each report,
schedule, registration statement and other document filed by it during such
period with any Parent Insurance Regulatory Agency, the SEC, any state
securities agency or commission, or any other Governmental Entity; and (ii) all
other information concerning its business, properties, financial condition,
operations and personnel as such other party may from time to time reasonably
request.
42
(c) The foregoing shall not require Parent or the Company to share any
information with respect to legal proceedings that could reasonably be expected
to give rise to a waiver of attorney-client privilege.
(d) Parent will hold, and will cause its directors, officers, employees,
accountants, counsel, financial advisors and other representatives to hold, any
nonpublic information of the Company in confidence to the extent required by,
and in accordance with, the provisions of the letter-agreement dated December
31, 1998, between Parent and the Company (the "Confidentiality Agreement"). The
Company will hold, and will cause its directors, officers, employees,
accountants, counsel, financial advisors and other representatives to hold, any
nonpublic information of Parent in confidence to the extent required by, and in
accordance with, the provisions of the letter-agreement dated January 29, 1999,
between Parent and the Company.
(e) No investigation pursuant to this Section 5.04 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 5.05 Reasonable Best Efforts. Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including, without limitation: (i)
promptly determining whether any filings are required to be made or consents,
approvals, waivers, permits or authorizations are required to be obtained (or,
which if not obtained, would result in an event of default, termination or
acceleration of any agreement or any put right under any agreement) under any
applicable law or regulation or from any governmental authorities or third
parties, including, without limitation, parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by this Agreement,
including the Merger, and (ii) in promptly making any such filings, in
furnishing information required in connection therewith and timely seeking to
obtain any such consents, approvals, permits or authorizations. Parent and the
Company shall mutually cooperate in order to facilitate the achievement of the
benefits reasonably anticipated from the Merger. In connection with any tax
opinion described in the Joint Proxy Statement, Parent, Sub and the Company
agree to deliver the letters of representation referred to therein, reasonable
under the circumstances as to their present intention and present knowledge.
SECTION 5.06 Fees and Expenses; Certain Payments Upon Termination.
(a) Except as set forth in Schedule 5.06(a), all fees and expenses incurred
in connection with this Agreement, the Merger and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated; provided, however, that other than the
registration fee for the Form S-4, investment banking fees and expenses, and
mailing and other distribution costs of the Joint Proxy Statement, Parent and
the Company shall share equally all fees and expenses, other than accountants'
and attorneys' fees, incurred in connection with the printing and filing of the
Joint Proxy Statement (including any preliminary materials related thereto) and
the Form S-4 (including financial statements and exhibits) and any amendments or
supplements thereto. Parent shall pay the filing fee for any filing under the
HSR Act.
43
(b) (i) In the event Parent terminates this Agreement other than: (A)
pursuant to any of Sections 7.01(a), 7.01(b), 7.01(c), 7.01(d), 7.01 (i) or
7.01(j); or (B) upon the happening of the events described in Section 5.06(c),
then Parent shall promptly pay the sum of $200,000 to the Company.
(ii) In the event the Company terminates this Agreement other than:
(A) pursuant to any of Sections 7.01(a), 7.01(b), 7.01(c), 7.01(e) or 7.01(h);
or (B) upon the happening of the events described in Section 5.07(c), then the
Company shall promptly pay the sum of $200,000 to Parent.
(c) Upon the happening of all of the following events:
(i) an Alternative Transaction (as defined in Section 7.01) is
commenced, disclosed, proposed or otherwise communicated to the Company at any
time on or after the date of this Agreement; and
(ii) the Board of Directors of the Company, in accordance with Section
5.01(b) hereof or otherwise, withdraws or modifies it approval and/or
recommendation of this Agreement or of the Merger, approves or recommends such
Alternative Transaction, or enters into an agreement with respect to such
Alternative Transaction; and
(iii) this Agreement is terminated pursuant to Section 7.01(f) or
7.01(g), then the Company shall promptly pay to Parent the sum of $300,000.
(d) All transfer, documentary, sales, use, registration, stock transfer
Taxes and other such Taxes (including all applicable real estate transfer or
gains Taxes) and related fees (including any penalties, interest and additions
to Tax) incurred prior to the Closing in connection with this Agreement and the
transactions contemplated hereby, shall be paid by the Company and the Company
shall timely make all filings, returns, reports and forms as may be required
prior to the Closing to comply with the provisions of such Tax laws.
SECTION 5.07 Public Announcements. Parent and, Sub, on the one hand,
and the Company, on the other hand, will consult with each other before holding
any press conferences or analyst calls and before issuing any press releases.
The parties will provide each other the opportunity to review and comment upon,
any press release with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release
prior to such consultation, except as may be required by applicable law,
judicial or binding administrative order, or by obligations imposed by NASDAQ.
SECTION 5.08. Xxxxxxx Xxxxxxx. The Company and its Subsidiaries shall
comply with and shall use their best efforts to cause their respective officers,
directors, agents, representatives, advisors and employees to comply with, the
provisions regarding the trading of Parent securities set forth in the fourth
paragraph of the letter-agreement between Parent and the Company dated December
31, 1998. The Company has no direct or indirect beneficial ownership of any
Parent Common Stock and (except with the consent of Parent, which may be
withheld for any reason or no reason) shall not acquire beneficial ownership of
any Parent Common Stock. Parent has no direct or indirect beneficial ownership
of any Company Common Stock and (except with the consent of the Company, which
may be withheld for any reason or no reason) shall not acquire beneficial
ownership of any Company Common Stock except pursuant to the Merger.
44
SECTION 5.09. Stock Exchange Listing. Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock to be issued in the
Merger to be approved for listing on the NASDAQ stock market, subject to
official notice of issuance, prior to the Closing Date.
SECTION 5.10. Certain Provisions. The Company shall not take, and
shall not permit any of its affiliates to take, any action which would require
or permit, or could reasonably be expected to require or permit, the Company or
any other person or entity to treat Parent or Sub, in acting pursuant to and as
permitted by this Agreement, as an "interested stockholder" with whom the
Company is prevented for any period pursuant to Section 611-A of the MBCA from
engaging in any "business combinations (as defined in Section 611-A of the MBCA)
or take any action (including any charter or by-law amendment) that has the
effect of rendering Section 611-A of the MBCA applicable to Parent or any of its
subsidiaries. The Company shall not, and shall not permit any of its affiliates
to, announce or disclose the Company's or such affiliate's intention to take any
such action or to treat Parent or Sub as such an "interested stockholder". In
the event that there shall be instituted or pending any action or proceeding
before any Governmental Entity to which the Company is a party claiming or
seeking a determination, directly or indirectly, that the Company is prevented
for any period pursuant to Section 611-A of the MBCA from engaging in any
"business combination" with Parent or Sub, the Company shall take the position
that the Company is not so prevented. The Company shall, upon the request of
Parent, take all reasonable steps to assist in any challenge by Parent or Sub to
the validity or applicability to the transactions contemplated by this
Agreement, including the Merger, or the transactions contemplated by any of the
foregoing, of any state law.
SECTION 5.11. No Solicitation.
(a) From and after the date of this Agreement, the Company shall not,
directly or indirectly, through any officer, director or employee of, or any
investment banker, attorney or other advisor to, or other representative or
agent of the Company or any of its Subsidiaries or otherwise: (i) solicit,
initiate or encourage any inquiry, offer or proposal, or any indication of
interest from, any Third Party (as defined below), regarding any direct or
indirect merger, or any acquisition or purchase of substantial assets, 10% or
more of the voting securities of the Company (including by way of a tender
offer) or similar transaction involving the Company or any Subsidiary of the
Company other than the Merger (any of the foregoing inquiries or proposals being
referred to herein as an "Acquisition Proposal") or (ii) participate in
negotiations or discussions concerning, or provide to any Third Party any
information relating to, or take any action to, facilitate or encourage any
inquiry, proposal or other effort by, on the part of or on behalf of, any Third
Party that constitutes or may reasonably be expected to lead to, any Acquisition
Proposal; provided, however, that prior to the Effective Time of the Merger, the
Company may participate in negotiations or discussions with, and provide
information to, any Third Party concerning an Acquisition Proposal submitted in
writing by such person to the Board of Directors of the Company after the date
of this Agreement if: (A) such Acquisition Proposal was not solicited, initiated
or encouraged in violation of this Agreement; (B) the Board of Directors of the
Company (or an independent committee thereof), in good faith, and after taking
into account all legal, financial, regulatory and other aspects of such
Acquisition Proposal and of such Third Party, determines that such Acquisition
Proposal is: (1) reasonably capable of resulting in, and reasonably likely to
result in, a completed Alternative Transaction; and (2) is (from a financial
45
point of view) more favorable to the Company's Stockholders than the Merger; and
(C) the Board of Directors of the Company (or an independent committee thereof)
determines in good faith, after consultation with and consistent with the
written opinion of Company Counsel, that it is necessary to do so in order not
to violate its fiduciary duties to the Company's stockholders under applicable
law. Nothing contained in this Section 5.11 shall prohibit the Board of
Directors of the Company from complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer; provided that the Board
shall not recommend that the stockholders of the Company tender or exchange any
shares of Company Common Stock in connection with such tender or exchange offer
unless failing to take such action would constitute a breach of the Board's
fiduciary duties under applicable law.
(b) The Company shall notify Parent as promptly as practicable if any
Acquisition Proposal is made and shall in such notice indicate in reasonable
detail the identity of the person making such Acquisition Proposal and the terms
and conditions of such Acquisition Proposal and shall keep Parent promptly
advised of all developments which could reasonably be expected to culminate in
the Board of Directors withdrawing, modifying or amending its recommendation of
the Merger and the other transactions contemplated by this Agreement. A copy of
the aforementioned opinion of Company Counsel (or a draft thereof, with a signed
copy to follow promptly after delivery to the Board of Directors of the Company)
shall be delivered to Parent not later than the day before such Board (or
Independent Committee thereof) meets to take action on any Acquisition Proposal;
provided, however, that such opinion or draft as delivered to Parent may exclude
any portion which Company Counsel determines to be a privileged attorney-client
communication.
(c) If, pursuant to the proviso to Section 5.11(a)(ii), the Company
provides nonpublic information to a person who makes an Acquisition Proposal,
the Company shall require such person to enter into a confidentiality agreement
substantially similar to the Confidentiality Agreement as a condition to and
before providing any such information.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Sub) conducted heretofore with respect to any Acquisition Proposal. The Company
agrees not to release (by waiver or otherwise) any third party from the
provisions of any confidentiality or standstill agreement to which the Company
is a party.
(e) The Company shall ensure that the officers, directors and relevant
employees of the Company and its Subsidiaries and any investment banker or other
advisor or representative retained by the Company are aware of the restrictions
described in this Section 5.11.
SECTION 5.12 Maintenance of Benefit Plans. The Company Benefit Plans
set forth in Schedule 5.12 shall either be maintained for a period of not less
than twelve (12) months beginning at the Effective Time of the Merger or, if not
so maintained, shall be replaced by benefit plans no less favorable to the
eligible participants therein than the Benefit Plans listed in Schedule 5.12.
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ARTICLE VI
Conditions Precedent
SECTION 6.01 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval shall
have been obtained.
(b) Parent Stockholder Approval. The Parent Stockholder Approval shall have
been obtained.
(c) NASDAQ Listing. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement (including shares issuable
upon the exercise of options) shall have been approved for listing on the NASDAQ
stock market, subject to official notice of issuance.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition enjoining or
preventing the consummation of the Merger shall be in effect.
(e) Form S-4. The Form S-4 shall have become effective under the Securities
Act and no stop order suspending the effectiveness thereof shall be in effect
and no procedures for such purpose shall be pending before or threatened by the
SEC.
(f) Due Organization of Sub; Approval of Merger. Sub shall have been duly
incorporated and organized as a Maine insurance corporation, and the Directors
and Shareholders of Sub shall have duly approved the Merger.
SECTION 6.02 Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are further subject to the
satisfaction (or waiver by Parent) of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date). Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect set forth
in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects the obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
47
(c) Authorization. All corporate action necessary to authorize the
execution, delivery and performance by the Company of this Agreement, and the
consummation of the transactions contemplated hereby, shall have been duly and
validly taken by the Company and the stockholders of the Company, respectively,
and the Company shall have furnished Parent with copies of all applicable
resolutions adopted by the Board of Directors and stockholders of the Company,
certified by the Secretary of the Company.
(d) Approval and Consents. The waiting period, if any, pursuant to the HSR
Act shall have expired or shall have been terminated without objection, and all
necessary approvals of the insurance departments of the States of Maine, New
York, and New Jersey and the insurance departments of all other states and
jurisdictions having jurisdiction over Parent, Sub, the Company and their
respective subsidiaries, and all other consents of any person listed on Schedule
6.02(d) required to permit the consummation of the transactions contemplated by
this Agreement without any violation by Parent, Sub, the Company or their
respective subsidiaries of any law or obligation, shall have been obtained and
such approvals and consents shall not contain any materially burdensome
conditions or requirements on or applicable to Parent, Sub, the Company or any
of their respective subsidiaries.
(e) No Litigation. There shall not be pending or threatened any material
suit, action or proceeding: (i) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions contemplated by
this Agreement or, on the basis of or as a result of the Merger or any of the
other transactions contemplated by this Agreement (and except as to the rights
of Dissenting Shares), seeking to obtain from Parent or any of its subsidiaries
any damages that are material in relation to Parent and its subsidiaries taken
as a whole; (ii) on the basis of or as a result of the Merger or any of the
other transactions contemplated by this Agreement seeking to prohibit or limit
the ownership or operation by the Company, Parent or any of their respective
subsidiaries of any material portion of the business or assets of the Company,
Parent or any of their respective subsidiaries, or to dispose of or hold
separate any material portion of the business or assets of the Company, Parent
or any of their respective subsidiaries; (iii) seeking to impose limitations on
the ability of Parent or Sub to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock or Common Stock of the
Surviving Corporation, including the right to vote the Company Common Stock or
Common Stock of the Surviving Corporation on all matters properly presented to
the stockholders of the Company or the Surviving Corporation, respectively; or
(iv) seeking to prohibit Parent or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the Company or
its subsidiaries.
(f) Legal Opinion. Parent shall have received the opinion of Xxxxxxx & Xxxx
LLP, as to such matters as may be reasonably requested by Parent.
(g) No Adverse Change. Since September 30, 1998, there shall not have been,
occurred or arisen any Material Adverse Change in, or any event, development,
transaction, condition or state of facts of any character (including without
limitation any damage, destruction or loss not covered by insurance or
reinsurance) that individually or in the aggregate has or can reasonably be
expected to have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole. For purposes of this Agreement: (i) a reduction in the
Company's direct premiums inforce shall not be deemed to have a Material Adverse
Effect if the amount thereof, as so reduced, is equal to or exceeds ninety (90%)
percent of the Company's direct premiums inforce at December 31, 1998, as set
forth in the Company Regulatory Financial Statement for the period ended
December 31, 1998; (ii) the termination of any insurance agent relationship with
48
the Company at any time on or after January 1, 1999, shall not be deemed to have
a Material Adverse Effect if all such former agents, taken as a group, accounted
for less than ten (10%) percent of the Company's direct premiums inforce at
December 31, 1998, as set forth in the Company Regulatory Financial Statement
for the period ended December 31, 1998; (iii) a reduction in the value of the
Investment Assets shall not be deemed to have a Material Adverse Effect if such
reduction would not have the effect of reducing by more than ten (10%) percent
the Company's (and its Subsidiaries') surplus as regards its policyholders if
those investments were sold; (iv) a reduction in the operating results of the
Company shall not be deemed to have a Material Adverse Effect if such reduction
would not result in the reduction of the Company's surplus as regards its
policyholders of more than ten (10%) percent from such surplus at December 31,
1998, as set forth in the Company Regulatory Financial Statements for the period
ended December 31, 1998; and (v) changes in Company reinsurance policies shall
not be deemed to have a Material Adverse Effect if the new or amended policies
will terminate upon the consummation of the Merger or are terminable by the
Company on not more than ninety (90) days' prior written notice, effective upon
the expiration of such notice period.
(h) Clerk's Certificates. Parent shall have received from the Company: (i)
a certificate dated the Closing Date from the Company's Clerk attaching (A) a
copy of the Company's Articles of Incorporation certified by the Secretary of
State of the State of Maine, which certification shall be dated not more than
ten (10) days prior to the Closing Date, (B) a copy of the Company's Bylaws, and
(C) a Good Standing Certificate for the Company from the Secretary of State of
the State of Maine, which Certificate shall be dated no more than ten (10) days
prior to the Closing Date; and (ii) a certificate dated the Closing Date from
the Secretary of each Subsidiary of the Company attaching (A) a copy of such
Subsidiary's Articles of Incorporation, certified by the Secretary of State of
the state of its incorporation, which certification shall be dated not more than
ten (10) days prior to the Closing Date, (B) a copy of such Subsidiary's Bylaws,
(C) a Good Standing Certificate for such Subsidiary from the Secretary of the
State of the state of its incorporation, which Certificate shall be dated no
more than ten (10) days prior to the Closing Date; and (iii) Certificates of
Status and Authority for the Company and each Subsidiary of the Company from the
Department of Insurance of each state in which it or they is or are conducting
an insurance business.
SECTION 6.03 Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to the satisfaction (or
waiver by the Company) of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and set forth in this Agreement shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date). The Company shall
have received a certificate signed on behalf of Parent by the chief executive
officer and the chief financial officer of Parent to the effect set forth in
this paragraph.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall have
performed in all material respects the obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed on behalf of Parent by the chief executive
officer and the chief financial officer of Parent to such effect.
49
(c) No Litigation. There shall not be pending or threatened any suit,
action or proceeding: (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by this
Agreement; or (ii) seeking to prohibit or limit the ownership or operation by
the Company, Parent or any of their respective subsidiaries of any material
portion of the business or assets of the Company, Parent or any of their
respective subsidiaries, or to dispose of or hold separate any material portion
of the business or assets of the Company, Parent or any of their respective
subsidiaries, on the basis of or as a result of the Merger or any of the other
transactions contemplated by this Agreement.
(d) Approvals and Consents. The waiting period, if any, pursuant to the HSR
Act shall have expired or shall have been terminated without objection, and all
necessary approvals of the insurance departments of the States of Maine, New
York and New Jersey, and the insurance departments of all other states or
jurisdictions having jurisdiction over Parent, Sub, the Company and their
respective subsidiaries, and all other consents of any other person listed on
Schedule 6.03(d) required to permit the consummation of the transactions
contemplated by this Agreement without any violation by Parent, Sub, the Company
or their respective subsidiaries of any law or obligation, shall have been
obtained.
(e) Legal Opinion. The Company shall have received the opinion of Xxxxx
Xxxxxx Xxxxx Tischman Xxxxxxx & Xxxxx, P.C. as to such matters as the Company
shall reasonably request.
(f) Authorization. All corporate action necessary to authorize the
execution, delivery and performance by Parent and Sub of this Agreement, and the
consummation of the transactions contemplated hereby, shall have been duly and
validly taken by Parent, Sub and the stockholders of Parent and Sub,
respectively, and Parent and Sub shall have furnished the Company with copies of
all applicable resolutions adopted by their respective Boards of Directors and
their respective stockholders, certified in each case by the Secretary of Parent
and Sub, respectively.
(g) Deposit with Exchange Agent. There shall have been deposited with the
Exchange Agent the Merger Consideration in accordance with Section 2.03.
(h) Secretary's Certificates. The Company shall have received from Parent:
(i) a certificate dated the Closing Date from the Parent's Secretary attaching a
Good Standing Certificate from the Department of Treasury of the State of New
Jersey and a Good Standing Certificate for Sub from the Secretary of State of
the State of Maine, which certificates shall be dated no more than ten (10) days
prior to the Closing Date; and (ii) a certificate dated the Closing Date from
the Secretary of Sub attaching a copy of Sub's By-laws; and (iii) Certificates
of Status and Authority for Sub from the Department of Insurance of each state
in which it or they is or are conducting an insurance business.
(i) No Adverse Change. Since December 31, 1998, there shall not have been,
occurred or arisen any Material Adverse Change in, or any event, development,
transaction, condition or state of facts of any character (including without
limitation any damage, destruction or loss not covered by insurance or
reinsurance) that individually or in the aggregate has or can reasonably be
expected to have a Material Adverse Effect on the Parent and the Other Parent
Subsidiaries, taken as a whole. For purposes of this Agreement: (i) a reduction
in Parent's direct premiums inforce shall not be deemed to have a Material
Adverse Effect if the amount thereof, as so reduced, is equal to or exceeds
ninety (90%) percent of Parent's direct premiums inforce at December 31, 1998,
as set forth in the Parent Regulatory Financial Statement for the period ended
December 31, 1998; (ii) the termination of any insurance agent relationship with
50
Parent at any time on or after January 1, 1999, shall not be deemed to have a
Material Adverse Effect if all such former agents, taken as a group, accounted
for less than ten (10%) percent of the Parent's direct premiums inforce at
December 31, 1998, as set forth in the Parent Regulatory Financial Statement for
the period ended December 31, 1998; (iii) a reduction in the value of the Parent
investment assets shall not be deemed to have a Material Adverse Effect if such
reduction would not have the effect of reducing by more than ten (10%) percent
Parent's (and its Subsidiaries') surplus as regards its policyholders if those
investments were sold; (iv) a reduction in the operating results of the Parent
shall not be deemed to have a Material Adverse Effect if such reduction would
not result in the reduction of Parent's surplus as regards its policyholders of
more than ten (10%) percent from such surplus at December 31, 1998, as set forth
in the Parent Regulatory Financial Statements for the period ended December 31,
1998; and (v) changes in Parent reinsurance policies shall not be deemed to have
a Material Adverse Effect if the new or amended policies will terminate upon the
consummation of the Merger or are terminable by Parent on not more than ninety
(90) days' prior written notice, effective upon the expiration of such notice
period.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01 Termination. This Agreement may be terminated and
abandoned at any time prior to the Effective Time of the Merger, and, except as
otherwise provided below, whether before or after approval of matters presented
in connection with the Merger by the stockholders of the Company or Parent:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any Governmental Entity (including
without limitation any Insurance Department of any state having jurisdiction
over Parent, Sub, the Company or any of their respective subsidiaries) within
the United States or any country or other jurisdiction in which either the
Company or Parent, directly or indirectly, has material assets or operations
shall have: (i) issued a determination, order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
Merger, or (ii) (in the case of any approval of or consent to the Merger by any
Governmental Entity which is required as a condition to the Closing hereunder)
issued a decision or determination not to give such approval or consent, and
such decision, determination, order, decree. ruling or other action shall have
become final and nonappealable; or
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before July 15, 1999, (other than due to the failure of the
party seeking to terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time of the
Merger); or
51
(d) by Parent, if any required approval of the stockholders of the Company
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof, or
(e) by the Company, if any required approval of the stockholders of Parent
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof; or
(f) by Parent, if prior to the Company Stockholder Meeting, the Board of
Directors of the Company shall have: (i) withdrawn, modified or amended in any
respect adverse to Parent or Sub its approval or recommendation of this
Agreement, the Merger or any of the other transactions contemplated herein or
resolved to do so; or (ii) recommended an Alternative Transaction from a person
other than Parent or any of its affiliates or resolved to do so; or
(g) by the Company, prior to the Effective Time of the Merger, if any
person (other than Parent or any of its affiliates) shall have proposed an
Alternative Transaction (A) that the Board of Directors of the Company
determines in its good faith judgment is more favorable to the Company's
stockholders than this Agreement and the Merger and (B) as a result of which the
Board of Directors of the Company determines in good faith, based upon the
advice of Company Counsel, that it is obligated by its fiduciary obligations
under applicable law to terminate this Agreement, provided that such termination
under this Section 7.01(g) shall not be effective until the Company has made the
payment required by Section 5.06; or
(h) by the Company, if, prior to the Effective Time of the Merger, there
shall have been a material breach of any covenant or agreement on the part of
Parent or Sub contained in this Agreement which materially adversely affects
Parent's or Sub's ability to consummate the Merger or any of the other
transactions contemplated herein and which shall not have been cured prior to
the date 10 business days following notice of such breach; or
(i) by Parent, if, prior to the Effective Time of the Merger, there shall
have been a breach of any covenant or agreement on the part of the Company
contained in this Agreement which is reasonably likely to have a Material
Adverse Effect with respect to the Company or which materially adversely affects
(or materially delays) the consummation of the Merger or any of the other
transactions contemplated herein and which shall not have been cured prior to
the date 10 business days following notice of such breach; or
(j) by Parent, if, at any time at or after the date of this Agreement,
Parent directly or indirectly discovers, has disclosed to it or otherwise learns
or becomes aware of any circumstance, occurrence, fact or event which (either
alone or in conjunction with any other extant circumstance, occurrence, fact or
event): (i) causes or can reasonably be expected to cause the consummation of
the Merger to have a Material Adverse Effect on Parent, Sub, any Other Parent
Subsidiary or the Surviving Corporation; (ii) is materially inconsistent in an
adverse manner from any of the warranties and representations of the Company
contained herein; (iii) would cause any of such representations and warranties
to be materially misleading, incomplete or otherwise inaccurate; or (iv) deviate
materially and adversely from the Company's latest audited financial statements
(or any subsequent audited financial statements prepared prior to the Effective
Time of the Merger).
52
As used herein, "Alternative Transaction" means any of: (i) a transaction
or series of transactions pursuant to which any person (or group of persons)
other than Parent and/or its affiliates (a "Third Party") acquires or would
acquire more than 10% of the then outstanding shares of Company Common Stock,
whether from the Company or pursuant to a tender offer or exchange offer or
otherwise; (ii) any direct or indirect acquisition or proposed acquisition of
the Company or any of its significant subsidiaries by means of a merger or other
business combination transaction (including any so-called "merger of equals" and
whether or not the Company or any of its significant subsidiaries is the entity
surviving any such merger or business combination transaction); or (iii) any
other transaction pursuant to which any Third Party acquires or would acquire
control of assets (including for this purpose the outstanding equity securities
of subsidiaries of the Company and any entity surviving any merger or business
combination including any of them) of the Company or any of its subsidiaries
having a fair market value equal to more than 10% of the fair market value of
all the assets of the Company and its subsidiaries, taken as a whole,
immediately prior to such transaction.
SECTION 7.02 Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, except as otherwise
provided herein. Nothing contained in this Section shall relieve any party for
any breach of the representations, warranties, covenants or agreements set forth
in this Agreement.
SECTION 7.03 Amendment. Any provision of this Agreement may be amended
or waived prior to the Effective Time of the Merger (whether before or after
approval of matters presented in connection with the Merger by the stockholders
of the Company or Parent) if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company and Parent or,
in the case of a waiver, by the party against whom the waiver is to be
effective; provided that after the adoption of this Agreement by the
stockholders of: (i) the Company, there shall be made no amendment that by law
requires further approval by the stockholders of the Company without the further
approval of such stockholders; and (ii) Parent, there shall be made no amendment
that by law requires further approval by the stockholders of Parent without the
further approval of such stockholders.
SECTION 7.04 Extension: Waiver. At any time prior to the Effective
Time of the Merger, the parties may: (i) extend the time for the performance of
any of the obligations or other acts of the other parties; (ii) waive any
inaccuracies in the representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement; or (iii) subject to the
proviso of Section 7.03, waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
SECTION 7.05 Procedure for Termination. Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.01, an amendment
of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, comply with Section 5.11 and
require, in the case of Parent, Sub or the Company, action by its Board of
Directors or the duly authorized designee of its Board of Directors.
53
ARTICLE VIII
General Provisions
SECTION 8.01 Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time of the
Merger. This Section 8.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time of
the Merger.
SECTION 8.02 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Motor Club of America
00 Xxxxx 00 Xxxxx
Xxxxxxx, Xxx Xxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
with a copy to:
Xxxxx Xxxxxx Xxxxx Tischman
Xxxxxxx & Gross, P.C.
Xxx Xxxxxxxxxx Xxxxx
Xxxxxx, Xxx Xxxxxx 00000-0000
Attention: Xxxxxxx X. North, III, Esq.
(b) if to the Company, to
North East Insurance Company
000 Xxxxx Xxxx
Xxxxxxxxxxx, Xxxxx 00000 - 1478
Attention: Xxxxxx X. Xxxxxx
00
with copies to:
Verrill & Xxxx, LLP
Xxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxx 00000-0000
Attention: Xxxxxxx Xxxxx, Esq.
SECTION 8.03 Definitions. For purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "Material Adverse Change" or "Material Adverse Effect" means, when used
in connection with the Company or Parent, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, assets, properties, condition (financial or
otherwise) or results of operations of such party and its subsidiaries taken as
a whole (after giving effect in the case of Parent to the consummation of the
Merger);
(c) "Person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
SECTION 8.04 Interpretation. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
SECTION 8.05 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.06 Entire Agreement, No Third-Party Beneficiaries. This
Agreement and the other agreements referred to herein constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
Agreement. This Agreement, other than Section 5.12, is not intended to confer
upon any person other than the parties any rights or remedies.
55
SECTION 8.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the state of New Jersey, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct wholly owned subsidiary of Parent pursuant
to Section 1.01, but no such assignment shall relieve Sub of any of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.09 Enforcement: Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any Federal
court located in the State of New Jersey or any New Jersey state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated by this Agreement may be brought against any of the
parties in any Federal court located in the State of New Jersey or any New
Jersey state court, and each of the parties hereto hereby consents to the
exclusive jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and waives any objection to
venue laid therein. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the State of New
Jersey. Without limiting the generality of the foregoing, each party hereto
agrees that service of process upon such party at the address referred to in
Section 8.02, together with written notice of such service to such party, shall
be deemed effective service of process upon such party.
SECTION 8.10. 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.
56
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
MOTOR CLUB OF AMERICA
By:________________________________
Name:
Title:
NORTH EAST INSURANCE COMPANY
By:________________________________
Name:
Title:
57
