Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 20, 2001
BY AND AMONG
ABC ACQUISITION CORP.
CAPITOL TRANSAMERICA CORPORATION
AND
ALLEGHANY CORPORATION
TABLE OF CONTENTS
ARTICLE I DEFINITIONS........................................................1
Section 1.1 Definitions.................................................1
ARTICLE II THE MERGER........................................................8
Section 2.1 The Merger..................................................8
Section 2.2 Certificate of Incorporation and Bylaws of
the Surviving Corporation..................................8
Section 2.3 Board of Directors and Officers of the Surviving
Corporation................................................9
ARTICLE III CONVERSION OF SECURITIES AND RELATED MATTERS.....................9
Section 3.1 Conversion of Capital Stock.................................9
Section 3.2 Payment.....................................................9
Section 3.3 Company Stock Options......................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................12
Section 4.1 Corporate Existence and Power..............................12
Section 4.2 Corporate Authorization....................................12
Section 4.3 Governmental Authorization.................................12
Section 4.4 Non-Contravention..........................................13
Section 4.5 Capitalization.............................................13
Section 4.6 Subsidiaries...............................................14
Section 4.7 The Company SEC Documents..................................15
Section 4.8 Financial Statements; Reserves.............................16
Section 4.9 Agents and Producers; Fronting.............................18
Section 4.10 No Material Undisclosed Liabilities........................19
Section 4.11 Information to Be Supplied.................................19
Section 4.12 Absence of Certain Changes.................................19
Section 4.13 Interests of Directors and Officers........................21
Section 4.14 Intellectual Property......................................22
Section 4.15 Contracts..................................................22
Section 4.16 Litigation.................................................24
Section 4.17 Tax Matters................................................25
Section 4.18 Officers, Directors and Key Employees......................27
Section 4.19 Employees and Employee Benefits............................27
Section 4.20 Investment Securities......................................30
Section 4.21 Compliance with Laws.......................................30
Section 4.22 Insurance Matters..........................................31
Section 4.23 Directors' and Officers' Insurance Policies................33
Section 4.24 Environmental Matters......................................33
Section 4.25 Title to Property; Leases..................................33
Section 4.26 Real Property..............................................34
Section 4.27 Absence of Bank, Savings and Loan or Investment
Company Status............................................34
Section 4.28 Insurance Ratings..........................................34
Section 4.29 Operation of OMV Business..................................34
Section 4.30 Aggregate Materiality......................................35
Section 4.31 Finders' Fees; Opinion of Financial Adviser................35
Section 4.32 Required Vote; Board Approval..............................35
Section 4.33 State Takeover Statutes; No Rights Plan....................36
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERSUB............37
Section 5.1 Corporate Existence and Power..............................37
Section 5.2 Corporate Authorization....................................37
Section 5.3 Governmental Authorization.................................37
Section 5.4 Non-Contravention..........................................38
Section 5.5 Information to Be Supplied.................................38
Section 5.6 Finders' Fees..............................................38
Section 5.7 Financing..................................................38
Section 5.8 Ownership of Company Common Shares.........................38
ARTICLE VI COVENANTS OF THE COMPANY.........................................39
Section 6.1 The Company Interim Operations.............................39
Section 6.2 Company Shareholders Meeting...............................41
Section 6.3 Acquisition Proposals; Board Recommendation................41
Section 6.4 Certain Litigation.........................................43
Section 6.5 Certain Tax and Company Employee Plan Matters..............43
Section 6.6 Control of Operations......................................43
ARTICLE VII OTHER COVENANTS.................................................44
Section 7.1 Indemnification, Exculpation and Insurance.................44
Section 7.2 Reasonable Best Efforts....................................44
Section 7.3 Certain Filings; Cooperation in Receipt of Consents........45
Section 7.4 Public Announcements.......................................46
Section 7.5 Access to Information; Notification of Certain
Matters...................................................46
Section 7.6 Certain Matters............................................47
Section 7.7 Further Assurances.........................................47
ARTICLE VIII CONDITIONS TO THE MERGER.......................................48
Section 8.1 Conditions to the Obligations of Each Party................48
Section 8.2 Conditions to the Obligations of the Company...............48
Section 8.3 Conditions to the Obligations of Parent and
MergerSub.................................................49
ARTICLE IX TERMINATION......................................................51
Section 9.1 Termination................................................51
Section 9.2 Effect of Termination......................................52
Section 9.3 Termination Fee and Expenses...............................52
ARTICLE X MISCELLANEOUS.....................................................53
Section 10.1 Notices....................................................53
Section 10.2 Survival of Representations, Warranties and
Covenants after the Effective Time........................54
Section 10.3 Amendments; No Waivers.....................................54
Section 10.4 Successors and Assigns.....................................55
Section 10.5 Governing Law..............................................55
Section 10.6 Counterparts; Effectiveness; Third Party
Beneficiaries.............................................55
Section 10.7 Jurisdiction...............................................55
Section 10.8 Waiver of Jury Trial.......................................55
Section 10.9 Enforcement................................................56
Section 10.10 Entire Agreement...........................................56
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EXHIBITS AND SCHEDULES
EXHIBIT A Employment Agreement
EXHIBIT B List of Company SEC Documents
EXHIBIT C Required Insurance Related Consents and Approvals
EXHIBIT D Company Interim Operations
EXHIBIT E Form of Legal Opinion of Counsel to the Company
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 20, 2001,
by and among Capitol Transamerica Corporation, a Wisconsin corporation (the
"Company"), ABC Acquisition Corp., a Wisconsin corporation ("MergerSub") (the
Company and MergerSub being the constituent corporations in the Merger (as
hereinafter defined)), and Alleghany Corporation, a Delaware corporation and the
owner of all of the issued and outstanding shares of capital stock of MergerSub
("Parent") (Parent joining as an additional party, not being a constituent
corporation in the Merger (as hereinafter defined)).
RECITALS
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that a merger between MergerSub and the Company is advisable and in
the best interests of their respective companies and shareholders, and
accordingly have agreed to effect the merger provided for herein upon the terms
and subject to the conditions set forth herein; and
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to Parent and MergerSub's willingness to enter
into this Agreement, the Company and a key employee of the Company (the
"Executive") have entered into an Employment Agreement dated as of the date of
this Agreement and attached hereto as Exhibit A (the "Employment Agreement");
and
WHEREAS, by resolutions duly adopted, the respective Boards of Directors
of Parent, MergerSub and the Company have approved and adopted this Agreement
and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
(a) As used herein, the following terms have the following meanings:
"Acquisition Proposal" means any offer or proposal for, or indication of
interest in, a merger, consolidation, share exchange, business combination,
reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving, or any purchase or acquisition of, 20% or more of (i) any
class of equity securities of the Company or (ii) the consolidated assets of the
Company and its Subsidiaries, other than the transactions contemplated by this
Agreement.
"Actuarial Report" means the Report on Loss and Loss Adjustment Expense
Reserves prepared for Capitol Indemnity Corporation by Xxxx X. Xxxxx, FCSA, MAA,
doing business as Aspect, Inc., dated April 30, 2001, a true and correct copy of
which has been delivered to Parent.
"Affiliate" means, with respect to any Person, any other Person, directly
or indirectly, controlling, controlled by, or under common control with, such
Person. For purposes of this definition, the term "control" (including the
correlative terms "controlling," "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Business Day" means any day other than a Saturday, Sunday or one on which
banks are authorized by law to close in New York, New York.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Company Balance Sheet" means the Company's consolidated balance sheet
included in the Company 10-K relating to its fiscal year ended on December 31,
2000.
"Company Common Share" means one share of common stock of the Company,
$1.00 par value per share.
"Company Insurance Policies" means all policies of insurance (excluding
retrocession agreements and similar agreements) maintained by the Company or by
any of its Subsidiaries as of the date hereof with respect to their respective
properties and the conduct of their respective businesses.
"Company SEC Documents" means the following documents, all as filed with
the SEC prior to the date hereof: (i) the annual report on Form 10-K of the
Company (the "Company 10-Ks") for the fiscal years ended December 31, 1999 and
2000, (ii) the quarterly report on Form 10-Q of the Company (the "Company 10-Q")
for the fiscal quarter ended Xxxxx 00, 0000, (xxx) the Company's proxy statement
dated April 6, 2001 relating to the 2001 Annual Meeting of Shareholders (the
"Company Proxy Statement"), and (iv) all other reports, filings, registration
statements and other documents filed by the Company with the SEC since December
31, 1999.
"Contracts" means all contracts, agreements, undertakings, indentures,
notes, debentures, bonds, loans, instruments, leases, mortgages, commitments or
binding arrangements.
"Employee Program" means "any employee benefit plan" (as that term is
defined in Section 3(3) of ERISA), as well as any other plan, arrangement or
Contract involving direct or indirect compensation, in which any current or
former directors, officers, employees, consultants, agents or other independent
contractors of the Company
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or any of its Subsidiaries participate, or to which the Company or any of its
Subsidiaries has any liability or under which the Company or any of its
Subsidiaries has any present or future obligations or liability on behalf of
their respective current or former directors, officers, employees, consultants,
agents or other independent contractors or the dependents or beneficiaries of
any of the foregoing, including but not limited to, each retirement, pension,
profit-sharing, thrift, savings, target benefit, employee stock ownership, cash
or deferred, multiple employer, multiemployer or other similar plan, each other
deferred or incentive compensation, bonus, stay bonus, stock option, employee
stock purchase, "phantom stock" or stock appreciation right plan, each
employment agreement, stay bonus agreement, severance agreement, change in
control agreement or similar agreement, each other plan providing payment or
reimbursement for or of medical, dental or visual care, psychiatric counseling,
or vacation, sick, disability or severance pay and each other "fringe benefit"
plan or arrangement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder.
"ERISA Affiliate" shall mean any entity which has ever been considered a
single employer with the Company or any of its Subsidiaries under Section
4001(b) of ERISA or Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Governmental Entity" means any Federal, state, municipal or local
governmental authority, any foreign or international governmental authority, or
any court, administrative or regulatory agency or commission or other
governmental agency.
"Insurance Contracts" means all Contracts, treaties, policies or other
written arrangements to which any of the Company's Subsidiaries is a party or by
or to which any of them is bound or subject providing for insurance, ceding or
assumptions of reinsurance, excess insurance or retrocessions, including,
without limitation, all insurance policies, reinsurance policies, and
retrocession agreements, in each case as such Contract, treaty, policy or other
written arrangement may have been amended, modified or supplemented, other than
the Company Insurance Policies.
"knowledge" when used in the phrases "to the knowledge of the Company" or
"the Company has no knowledge" or words of similar import shall mean, and shall
be limited to, the knowledge of any of Messrs. Xxxxxx Xxxx, Xxxx Xxxxxxxxxx,
Xxxx Xxxx, Xx Xxxxxxxx, Xxxxxx Xxxxxx, Xxxxxxx Xxxxxxxx, Xxxxx Xxxxxxxx, Xxxxx
Xxxxx and Xxxx Xxxxx.
"Law" means all laws, statutes and ordinances and all regulations, rules
and other pronouncements of Governmental Entities having the effect of law of
the United States, any foreign country or any foreign or domestic state,
province, commonwealth, city, country, municipality, territory, protectorate,
possession or similar instrumentality or any Governmental Entity thereof.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset;
provided, however, that the term "Lien" shall not include (i) liens for water
and sewer charges not yet due and payable or being contested in good faith (and
for which adequate accruals or reserves have been established by the Company),
(ii) mechanics', carriers', workers', repairers', materialmen's, warehousemen's
and other similar liens arising or incurred in the ordinary course of business,
(iii) any lien for Taxes not yet due or delinquent or being contested in good
faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, and (iv) such liens, defects of title,
easements, restrictive covenants and similar encumbrances or impediments which,
individually or in the aggregate, would not be reasonably likely to materially
impair or interfere with the ability of the Company and its Subsidiaries, taken
as a whole, to conduct their respective businesses substantially in the manner
as such businesses are now being conducted.
"Material Adverse Effect" means a material adverse effect on the financial
condition, business or results of operations of a Person and its Subsidiaries,
taken as a whole, other than effects caused by or resulting from (i) changes in
general economic conditions, securities markets conditions or interest rate
levels, and (ii) in the case of the Company, effects caused by or resulting from
actions taken by Parent prior to the date of Closing. "Parent Material Adverse
Effect" means a Material Adverse Effect in respect of Parent and its
Subsidiaries, taken as a whole, and "Company Material Adverse Effect" means a
Material Adverse Effect in respect of the Company and its Subsidiaries, taken as
a whole.
"Material Contract" means any Contract required to be set forth on Section
4.15 of the Company Disclosure Schedule.
"Merger Shares" means each Company Common Share outstanding immediately
prior to the Effective Time (other than shares to be cancelled in accordance
with Section 3.1(b) hereof).
"OMV Business" means the senior living facility located in Mankato,
Minnesota which is owned and operated by Capitol Indemnity Corporation, a
Subsidiary of the Company.
"Person" means an individual, a corporation, a limited liability company,
a partnership, an association, a trust or any other entity or organization,
including any Governmental Entity.
"Proxy Statement" means the proxy statement used for the solicitation of
proxies by the Company at the Company Shareholders Meeting, together with any
amendments or supplements thereto.
"Rating Agency" means either of A.M. Best Company, Inc. or Standard &
Poor's Ratings Group.
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"Retiree" means (i) any retired or former director, officer or employee of
the Company or any of its Subsidiaries or (ii) any former consultant, agent or
other independent contractor of the Company or any of its Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary", when used with respect to any Person, means any other
Person, whether incorporated or unincorporated, of which (i) more than fifty
percent of the securities or other ownership interests or (ii) securities or
other interests having by their terms ordinary voting power to elect more than
fifty percent of the board of directors or others performing similar functions
with respect to such corporation or other organization, is directly owned or
controlled by such Person or by any one or more of its Subsidiaries.
"Superior Proposal" means a bona fide written proposal made by a Person
other than Parent which is (A) for a merger, consolidation, share exchange,
business combination, reorganization, recapitalization, liquidation, dissolution
or other similar transaction involving, or any purchase or acquisition of, (i)
more than fifty percent (50%) of the voting power of the Company Common Shares
or (ii) all or substantially all of the consolidated assets of the Company and
its Subsidiaries, and (B) otherwise on terms which the Company's Board of
Directors determines in good faith (after consultation with its investment
advisers and outside legal counsel) would result in a transaction, if
consummated, that is more favorable to the Company's shareholders, from a
financial point of view (which determination of the Board of Directors shall
take into account, among other things, the legal, financial, regulatory and
other aspects of the proposal, including conditions to consummation and the
identity of the offeror), than the transactions contemplated hereby (after duly
considering any revised proposal made by Parent as contemplated by Section
6.3(d) of this Agreement).
"Tax" and "Taxes" mean all income, profits, gains, gross receipts, net
worth, premium, value added, ad valorem, sales, use, excise, stamp, transfer,
franchise, withholding, payroll, employment, occupation, workers' compensation,
disability, severance, unemployment insurance, social security and property
taxes, and all other taxes, levies, fees, imposts, duties and charges of any
kind whatsoever, together with any interest, penalties and additions thereto
imposed by any Governmental Entity ("Taxing Authority"), including all amounts
imposed as a result of being a member of an affiliated or combined group.
"Tax Return" means all returns, reports, elections, estimates,
declarations, information statements and other forms and documents (including
all schedules, exhibits, and other attachments thereto) relating to, and
required to be filed or maintained in connection with the calculation,
determination, assessment or collection of, any Taxes (including estimated
Taxes).
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(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
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Acquisition Proposal Section 1.1(a)
Actuarial Analyses Section 4.8(e)
Actuarial Report Section 1.1(a)
Affiliate Section 1.1(a)
Agreement Preamble
Articles of Merger Section 2.1(b)
Broker Section 4.9(a)
Business Day Section 1.1(a)
Certificate Section 3.2(b)
Closing Section 2.1(d)
Code Section 1.1(a)
Company Preamble
Company 10-Ks Section 1.1(a)
Company 10-Q Section 1.1(a)
Company Assets Section 4.25
Company Audited Financial Statements Section 4.8(a)
Company Balance Sheet Section 1.1(a)
Company Common Share Section 1.1(a)
Company Employee Plan Section 4.19(a)
Company GAAP Financial Statements Section 4.8(a)
Company Government Approvals Section 4.3
Company Insurance Policies Section 1.1(a)
Company Insurance Subsidiaries Section 4.6(b)
Company Interim Financial Statements Section 4.8(a)
Company Material Adverse Effect Section 1.1(a)
Company Option Section 3.3(a)
Company Proxy Statement Section 1.1(a)
Company Recommendation Section 6.2
Company SEC Documents Section 1.1(a)
Company Securities Section 4.5(b)
Company Shareholder Approval Section 4.32(a)
Company Shareholders Meeting Section 6.2
Company Statutory Financial Statements Section 4.8(b)
Confidentiality Agreement Section 6.3(a)
Continuation Coverage Section 4.19(g)
Contracts Section 1.1(a)
Effective Time Section 2.1(b)
Employee Program Section 1.1(a)
Employment Agreement Recitals
End Date Section 9.1(b)
Environmental Laws Section 4.24(b)
ERISA Section 1.1(a)
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Term Section
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ERISA Affiliate Section 1.1(a)
ESOP Section 4.19(j)
Exchange Act Section 1.1(a)
Executive Recitals
Fund Section 3.2(a)
GAAP Section 4.8(a)
Governmental Entity Section 1.1(a)
HSR Act Section 4.3
Indemnified Parties Section 7.1(a)
Insurance Contracts Section 1.1(a)
Intellectual Property Section 4.14(a)
Intellectual Property Rights Section 4.14(b)
Investment Securities Section 4.20
knowledge Section 1.1(a)
Law Section 1.1(a)
Liabilities Section 4.10
Lien Section 1.1(a)
Material Adverse Effect Section 1.1(a)
Material Contract Section 1.1(a)
Merger Section 2.1(a)
Merger Consideration Section 3.1(a)
Merger Shares Section 1.1(a)
MergerSub Preamble
OMV Business Section 1.1(a)
Original Ratings Section 8.3(i)
Parent Preamble
Parent Government Approvals Section 5.3
Parent Material Adverse Effect Section 1.1(a)
Paying Agent Section 3.2(a)
Person Section 1.1(a)
Proxy Statement Section 1.1(a)
Rating Agency Section 1.1(a)
Real Property Section 4.26
Reinsurance Contracts Section 4.22(c)
Representatives Section 6.3(a)
Retiree Section 1.1(a)
SEC Section 1.1(a)
Securities Act Section 1.1(a)
Subsidiary Section 1.1(a)
Superior Proposal Section 1.1(a)
Surviving Corporation Section 2.1(a)
Tax, Taxes Section 1.1(a)
Taxing Authority Section 1.1(a)
Tax Return Section 1.1(a)
Termination Fee Section 9.3(c)
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Term Section
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Third-Party Intellectual Property Rights Section 4.14(b)
WBCL Section 2.1(a)
ARTICLE II
THE MERGER
Section 2.1 The Merger.
(a) At the Effective Time, MergerSub shall be merged (the "Merger") with
and into the Company in accordance with the terms and conditions of this
Agreement and of the Wisconsin Business Corporation Law (the "WBCL"), and the
separate corporate existence of MergerSub shall cease. Following the Effective
Time, the Company shall be the surviving corporation (sometimes hereinafter
referred to as the "Surviving Corporation").
(b) Not later than the second Business Day after satisfaction or, to the
extent permitted hereby, waiver of the conditions set forth in Article VIII
(other than conditions that by their nature are to be satisfied at the Closing,
but subject to those conditions), the Company and MergerSub will file articles
of merger (the "Articles of Merger") with the Department of Financial
Institutions of the State of Wisconsin and make all other filings or recordings
required by the WBCL in connection with the Merger. The Merger shall become
effective at such date and time (but not later than the close of business of the
date of Closing) which the parties hereto shall have agreed upon and designated
in the Articles of Merger filed with the Department of Financial Institutions of
the State of Wisconsin in accordance with the WBCL as the effective time of the
Merger (the "Effective Time").
(c) From and after the Effective Time, the Merger shall have the effects
set forth in the WBCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all properties, rights, privileges,
powers and franchises of MergerSub and the Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of MergerSub and the Company
shall become the debts, liabilities and duties of the Surviving Corporation, and
the Surviving Corporation shall continue its corporate existence under the WBCL.
(d) The closing of the Merger (the "Closing") shall be held at the offices
of Xxxxx Xxxxxxxxxx LLP, 1301 Avenue of the Americas, New York, NY (or such
other place as agreed by the parties) at 10:00 a.m. New York City time on a date
to be specified by the parties, which shall be no later than the second Business
Day after satisfaction or, to the extent permitted hereby, waiver of the
conditions set forth in Article VIII (other than conditions that by their nature
are to be satisfied at the Closing, but subject to those conditions), unless the
parties hereto agree to another date or time.
Section 2.2 Certificate of Incorporation and Bylaws of the Surviving
Corporation. The articles of incorporation of MergerSub, as in effect
immediately prior
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to the Effective Time, shall be the articles of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable Law. The bylaws of MergerSub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable Law.
Section 2.3. Board of Directors and Officers of the Surviving Corporation.
From and after the Effective Time (until successors are duly elected or
appointed and qualified), (i) the directors of MergerSub at the Effective Time
shall be the directors of the Surviving Corporation and (ii) the officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation. Immediately following the Effective Time, the
headquarters of the Surviving Corporation shall be located in Madison,
Wisconsin.
ARTICLE III
CONVERSION OF SECURITIES AND RELATED MATTERS
Section 3.1 Conversion of Capital Stock.
(a) At the Effective Time, by virtue of the Merger, each Merger Share
shall be cancelled and extinguished and converted into the right to receive
$16.50 in cash, without interest (the "Merger Consideration").
(b) At the Effective Time, each Company Common Share held by the Company
or any of its Subsidiaries, or owned by Parent or any of its Subsidiaries,
immediately prior to the Effective Time shall cease to be outstanding, be
cancelled and retired without payment of any consideration therefor and cease to
exist.
(c) At the Effective Time, each share of common stock of MergerSub issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
Section 3.2 Payment.
(a) Paying Agent. Promptly after the date hereof, Parent shall appoint a
commercial bank or trust company reasonably acceptable to the Company as a
paying agent (the "Paying Agent") for the benefit of holders of Company Common
Shares. At or immediately prior to the Effective Time, Parent shall provide to
the Paying Agent, for payment in accordance with this Section 3.2, through the
Paying Agent, cash in an amount equal to (1) (x) the Merger Consideration
multiplied by (y) the number of Merger Shares (such cash being hereinafter
referred to as the "Fund"). The Paying Agent shall, pursuant to irrevocable
instructions in accordance with this Article III, deliver to the holders of
Company Common Shares and Company Options the cash contemplated to be issued
pursuant to this Article III out of the Fund. Except as contemplated by this
Section 3.2, the Fund shall not be used for any other purpose. Such funds shall
be invested by the Paying Agent as directed by Parent; provided, however, that
such
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investments shall only be in obligations of or guaranteed by the United States
of America. Earnings from such investments shall be the sole and exclusive
property of Parent, and no part of such earnings shall accrue to the benefit of
holders of the Company Common Shares. If for any reason (including losses) the
Fund is inadequate to pay the cash amounts to which holders of shares of Company
Common Shares and Company Options shall be entitled, Parent shall in any event
remain liable to pay such amounts to such holders, and shall make available to
the Paying Agent additional funds for the payment thereof. The Fund shall not be
used for any purpose, except as expressly provided in this Agreement.
(b) Payment Procedures. As promptly as practicable after the Effective
Time, Parent shall send, or will cause the Paying Agent to send, to each holder
of record of a certificate or certificates (each, a "Certificate") that formerly
represented outstanding Company Common Shares that were converted into the right
to receive Merger Consideration pursuant to Section 3.1, a letter of transmittal
and instructions (which shall be in customary form reasonably approved by the
Company prior to the Effective Time and specify that delivery shall be effected,
and risk of loss and title shall pass, only upon delivery of the Certificates to
the Paying Agent) for use in the exchange for payment contemplated by this
Section 3.2. Upon surrender of a Certificate to the Paying Agent, together with
a duly executed letter of transmittal, the holder of such Certificate shall be
entitled to receive in exchange therefor the amount of Merger Consideration
which such holder has the right to receive pursuant to the provisions of this
Article III (after giving effect to any required withholding Tax). In no event
will holders of Company Common Shares be entitled to interest on the Merger
Consideration. Until surrendered as contemplated by this Section 3.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration. If any portion of the Merger
Consideration is to be paid to a Person other than the Person in whose name the
Certificate is registered, it shall be a condition to such payment that the
Certificate so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the Person requesting such payment shall pay to the
Paying Agent any transfer or other Taxes required as a result of such payment to
a Person other than the registered holder of such Certificate or establish to
the satisfaction of the Paying Agent that such Tax has been paid or is not
payable. If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by Parent, the posting by such
Person of a bond, in such reasonable amount as Parent may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Paying Agent will deliver, in exchange for such lost, stolen or destroyed
Certificate, the proper amount of the Merger Consideration, as contemplated by
this Article III.
(c) No Further Ownership Rights in the Company Common Shares. As of the
Effective Time, all Company Common Shares shall automatically be cancelled and
retired and shall cease to exist, and each holder of a Certificate representing
any such Company Common Shares shall cease to have any rights with respect
thereto, except the right to receive, upon surrender of such Certificate, the
Merger Consideration. As of the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
on the Company's stock transfer books of Company
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Common Shares outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged for payment as provided in this
Section 3.2.
(d) Return of Merger Consideration. Upon demand by Parent, the Paying
Agent shall deliver to Parent any portion of the Fund deposited with the Paying
Agent that remains undistributed to holders of Company Common Shares six months
after the Effective Time. Holders of Certificates who have not complied with
this Section 3.2 prior to such demand shall thereafter look only to Parent for
payment of any claim to the Merger Consideration.
(e) No Liability. Neither Parent nor the Paying Agent shall be liable to
any Person in respect of any Company Common Shares for any amounts paid to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
(f) Withholding Rights. Parent shall be entitled to deduct and withhold
from the Merger Consideration payable hereunder to any Person such amounts as it
is required to deduct and withhold with respect to the making of such payment
under any provision of Federal, state, local or foreign income Tax Law. To the
extent that Parent so withholds those amounts, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
Company Common Shares in respect of which such deduction and withholding was
made by Parent.
Section 3.3 Company Stock Options.
(a) Subject to the last sentence of Section 3.3(b) below, at the Effective
Time, each outstanding option to purchase Company Common Shares (each, a
"Company Option") shall entitle the holder to receive in settlement and
cancellation thereof a lump sum cash payment equal to (x) the product of (i) the
total number of Company Common Shares subject to such Company Option immediately
prior to the Effective Time and (ii) the excess of the Merger Consideration over
the exercise price per Company Common Share subject to such Company Option, less
(y) the amount of any Federal, state and local and foreign income and employment
Taxes required to be deducted and withheld by the Company and/or any Subsidiary
from, or with respect to, the exercise of the Company Option.
(b) Prior to the Effective Time, the Company and Parent shall take all
actions (including, if appropriate, amending the terms of the Company's stock
option plan and other compensation plans or any Employee Program) that are
necessary to give effect to the transactions contemplated by Section 3.3(a).
Section 3.3(b) of the Company Disclosure Schedule sets forth a true and complete
list of all outstanding Company Options, including the holder, number of Company
Common Shares subject to each such Company Option and exercise price per Company
Common Share. Without limitation of the foregoing, the Company agrees to use its
reasonable best efforts (i) to enter into with each holder of an outstanding
Company Option an amendment of the terms of the agreement pursuant to which such
Company Option was granted, which amendment shall be in a form satisfactory to
Parent and shall provide for the disposition of the Company Option as
contemplated by Section 3.3(a), and (ii) to obtain the consent of each holder of
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an outstanding Company Option to such amendment. It shall be a condition to the
payment to any holder of a Company Option of the amounts contemplated by Section
3.3(a) that such holder consent to the amendment of the terms of the agreement
pursuant to which such Company Option was granted as contemplated by this
Section 3.3(b).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (i) as disclosed in the Company Disclosure Schedule attached
hereto, which Company Disclosure Schedule identifies the Section (or, if
applicable, subsection) to which such exception relates and (ii) as specifically
disclosed in the Company SEC Documents filed with the SEC prior to the date
hereof and listed on Exhibit B hereto, the Company represents and warrants to
Parent and MergerSub that:
Section 4.1 Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of Wisconsin, and has all corporate powers required to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not be reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect. Section 4.1 of the Company Disclosure Schedule
sets forth a true and complete copy of each of the articles of incorporation and
bylaws of the Company as currently in effect.
Section 4.2 Corporate Authorization. The Company has full corporate power
and authority to enter into this Agreement and, except for the Company
Shareholder Approval (as hereinafter defined) in connection with the
consummation of the Merger, to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the Company and,
except for the Company Shareholder Approval in connection with the consummation
of the Merger, the consummation by it of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of the Company, and no other corporate proceedings on the part of the
Company are necessary to authorize the execution, delivery and performance of
this Agreement by the Company and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, assuming that this Agreement constitutes the legal, valid and
binding obligation of each of Parent and MergerSub, constitutes a legal, valid
and binding obligation of the Company, enforceable against it in accordance with
its terms.
Section 4.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no action by or in respect of,
or filing with, any Governmental Entity other than (i) the filing of the
Articles of Merger in accordance with the WBCL; (ii) compliance with any
applicable requirements of the
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Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000 (xxx "XXX Xxx"); (iii)
compliance with any applicable requirements of the Exchange Act; (iv) the filing
of the applications and notices with applicable Commissioners of Insurance and
the approval of such applications or the grant of required licenses by such
authorities or the expiration of any applicable waiting periods thereunder, in
each case as listed on Exhibit C hereto, and (v) all other consents, approvals,
actions, orders, authorizations, registrations, declarations and filings except
for those the failure of which to be obtained or made would not be reasonably
likely, individually or in the aggregate, to materially impair or interfere with
the ability of the Company and its Subsidiaries, taken as a whole, to conduct
their businesses substantially in the manner as such businesses are now being
conducted or otherwise have a Company Material Adverse Effect (collectively, the
"Company Government Approvals"); provided, however, that no representation is
made with respect to any of the foregoing that Parent, MergerSub or the Company
may be required to obtain because of its specific legal or regulatory status or
any other facts that specifically relate to Parent or MergerSub or any business
in which they engage.
Section 4.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the articles of incorporation or bylaws (or other comparable organizational
documents) of the Company or any of its Subsidiaries, (ii) assuming compliance
with the matters referred to in Section 4.3, contravene or conflict with or
constitute a violation of any provision of any Law, judgment, injunction, order
or decree binding upon or applicable to the Company or any of its Subsidiaries,
(iii) constitute a breach or default (or an event which, with notice or lapse of
time, or both, would constitute a breach or default) under or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
the Company or any of its Subsidiaries or to a loss of any benefit or status to
which the Company or any of its Subsidiaries is entitled under any provision of
any Contract binding upon the Company or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by the Company or any of
its Subsidiaries, or (iv) result in the creation or imposition of any Lien on
any asset of the Company or any of its Subsidiaries other than, in the case of
each of clauses (ii), (iii) and (iv), any such items that would not,
individually or in the aggregate, (x) be reasonably likely to have a Company
Material Adverse Effect or (y) prevent or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement.
Section 4.5 Capitalization.
(a) The authorized capital stock of the Company consists of 15,000,000
Company Common Shares. As of the close of business on June 25, 2001, there were
(i) 10,950,403 Company Common Shares issued and outstanding, (ii) 232,755
Company Common Shares held by the Company in its treasury, (iii) 377,812 Company
Common Shares held by the Subsidiaries of the Company, and (iv) outstanding
stock options to purchase an aggregate of up to 235,449 Company Common Shares.
All outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable (subject to the
provisions of Wis. Stats. Sec. 180.0622(2)(b) or any other statutes imposing
liability for unpaid wages). Neither the
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Company nor any of its Subsidiaries has any liability for unpaid wages except
for wages due for the current payroll cycle.
(b) Except (i) as set forth in this Section 4.5 and (ii) for changes since
May 31, 2001 resulting from the exercise of stock options, there are no
outstanding (x) shares of capital stock or other voting securities of the
Company, (y) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, or (z) options,
warrants or other rights of any kind (including, without limitation, preemptive
rights or subscription rights) to acquire from the Company, and there is no
obligation of the Company to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company (the items in clauses (x), (y) and (z) being referred
to collectively as the "Company Securities"). There are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities.
Section 4.6 Subsidiaries.
(a) Section 4.6(a) of the Company Disclosure Schedule sets forth a true
and complete list of the Subsidiaries of the Company. Each Subsidiary of the
Company is a corporation duly incorporated or an entity duly organized, and is
validly existing and in good standing, under the Laws of its jurisdiction of
incorporation or organization, has the requisite corporate power and authority
required to carry on its business as now conducted and is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, in each case with such exceptions
as, individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect. Section 4.6(a) of the Company Disclosure
Schedule sets forth (i) true and complete copies of the articles of
incorporation and bylaws (or other comparable organizational documents) of each
of the Subsidiaries of the Company as currently in effect and (ii) a true and
correct list of the current officers and directors of each of the Subsidiaries
of the Company.
(b) The Company conducts its insurance operations through the Subsidiaries
listed in Section 4.6(b) of the Company Disclosure Schedule (collectively, the
"Company Insurance Subsidiaries"). Each of the Company Insurance Subsidiaries is
(i) duly licensed or authorized as an insurance company in its jurisdiction of
incorporation, (ii) duly licensed or authorized, or otherwise eligible to act,
as an insurance company in each other jurisdiction where it is required to be so
licensed, authorized or eligible, and (iii) duly licensed, authorized or
eligible in its jurisdiction of incorporation and each other applicable
jurisdiction to write each line of business reported as being written in the
Company Statutory Financial Statements (as hereinafter defined). Section 4.6(b)
of the Company Disclosure Schedule sets forth a true and complete list of the
insurance licenses, authorizations and other approvals of the Company and each
of the Company Insurance Subsidiaries (including the jurisdictions in which the
Company and each of such Company Insurance Subsidiaries possess such insurance
licenses, authorizations or other approvals), together with true and correct
copies of such licenses. To the knowledge of the Company, neither the Company
nor any of the Company
-14-
Insurance Subsidiaries is improperly transacting any insurance or reinsurance
business in any jurisdiction in which it is not authorized or permitted to
transact such business. All of the licenses and authorizations set forth on
Section 4.6(b) of the Company Disclosure Schedule are valid and in full force
and effect. None of the Company Insurance Subsidiaries has at any time after
January 1, 1991 had its license or qualification to conduct insurance business
in any jurisdiction revoked or suspended and, to the knowledge of the Company,
(i) none of the Company Insurance Subsidiaries has at any time prior to January
1, 1991 had its license or qualification to conduct insurance business in any
jurisdiction revoked or suspended and (ii) no proceeding is pending in any
jurisdiction with a review to revocation or suspension of such license or
qualification. To the knowledge of the Company, since January 1, 1991, none of
the Company Insurance Subsidiaries has been involved in a proceeding in any such
jurisdiction with a view to revocation or suspension of any such license. The
Company has made all required filings under applicable insurance holding company
statutes except where the failure to file, individually or in the aggregate,
would not be reasonably likely to have a Company Material Adverse Effect. None
of the Company Insurance Subsidiaries is commercially domiciled for insurance
regulatory purposes in any jurisdiction.
(c) All of the outstanding shares of capital stock of, or other ownership
interests in, each Subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable (subject to the provisions
of Wis. Stats. Sec. 180.0622(2)(b), Wis. Stats. Sec. 611.33(1)(d) or any other
statutes imposing liability for unpaid wages), and are owned, directly or
indirectly, by the Company or one of its Subsidiaries, free and clear of any
Lien and free of any other limitation or restriction (including any limitation
or restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests). There are no outstanding (i) securities of
the Company or any of its Subsidiaries convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities or ownership
interests in any of its Subsidiaries, (ii) options, warrants or other rights of
any kind (including, without limitation, preemptive rights or subscription
rights) to acquire from the Company or any of its Subsidiaries, and no other
obligation of the Company or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock, voting
securities or ownership interests in, any of its Subsidiaries, or (iii)
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any outstanding securities of any of its Subsidiaries or any
capital stock of, or other ownership interests in, any of its Subsidiaries.
Except for the Investment Securities (as hereinafter defined), the Company does
not directly or indirectly own any interest in any corporation, partnership,
joint venture or other business association or entity other than the
Subsidiaries.
Section 4.7 The Company SEC Documents.
(a) The Company has delivered or made available to Parent copies of the
Company SEC Documents listed on Exhibit B hereto. The Company has filed all
reports, filings, registration statements and other documents required to be
filed by it with the SEC since December 31, 1998. No Subsidiary of the Company
is required to file any form, report, registration statement or prospectus or
other document with the SEC.
-15-
(b) As of their respective filing dates or, if amended, as of the date of
the last such amendment filed prior to the date hereof, each Company SEC
Document complied in all material respects with the applicable requirements of
the Securities Act and/or the Exchange Act, as the case may be.
(c) (i) No Company SEC Document filed pursuant to the Exchange Act
contained, as of its filing date or mailing date, as applicable, any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading, and (ii) no Company SEC Document
filed pursuant to the Securities Act, as amended or supplemented, if applicable,
contained, as of the date such document or amendment became effective, any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
Section 4.8 Financial Statements; Reserves.
(a) The audited consolidated financial statements included in the Company
10-Ks (the "Company Audited Financial Statements") were prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the periods involved (except as may be indicated in the notes thereto
regarding the adoption of new accounting policies). The Company Audited
Financial Statements have been audited by Ernst & Young LLP, and present fairly
in all material respects the consolidated financial position of the Company and
its Subsidiaries at the respective dates thereof and the consolidated results of
operations of the Company and its Subsidiaries for the respective periods then
ended. The unaudited consolidated interim financial statements included in the
Company 10-Q (the "Company Interim Financial Statements", and together with the
Company Audited Financial Statements, the "Company GAAP Financial Statements")
were prepared in accordance with GAAP consistently applied throughout the
periods involved and in a manner consistent with that employed in the Company
Audited Financial Statements. The Company Interim Financial Statements contain
limited footnote disclosures and are subject to normal recurring year-end
adjustments, but otherwise present fairly in all material respects the
consolidated financial condition and consolidated results of operations of the
Company and its Subsidiaries as of the dates and for the periods indicated
therein except as otherwise set forth therein.
(b) The Company has delivered or made available to Parent true and
complete copies of the NAIC Annual Convention Statement for the years ended
December 31, 1998, 1999 and 2000 and the Quarterly Convention Statement for the
quarterly period ended March 31, 2001 of each of the Company Insurance
Subsidiaries as filed with the applicable insurance regulatory authorities,
including all exhibits, interrogatories, notes, schedules and any actuarial
opinions, affirmations or certifications or other supporting documents filed in
connection therewith (collectively, the "Company Statutory Financial
Statements"). Except as expressly set forth in the notes, exhibits or schedules
thereto, the Company Statutory Financial Statements fairly present in all
material respects, in conformity with statutory accounting practices prescribed
or
-16-
permitted by the applicable insurance regulatory authority applied on a
consistent basis, the statutory financial position of such Company Insurance
Subsidiaries as at the respective dates thereof and the statutory results of
operations of such Subsidiaries for the respective periods then ended. The
Company Statutory Financial Statements complied in all material respects with
all applicable Laws when filed, and no deficiency has been asserted with respect
to any Company Statutory Financial Statements by the applicable insurance
regulatory body or any other governmental agency or body. The annual statutory
balance sheets and income statements included in the Company Statutory Financial
Statements have been audited by Ernst & Young LLP, and the Company has delivered
to Parent true and complete copies of all audit opinions related thereto.
(c) The Company's methodology for providing insurance loss reserves on the
Company GAAP Financial Statements and on the Company Statutory Financial
Statements is accurately described in the Actuarial Report.
(d) (i) The reserves carried on the Company Statutory Financial Statements
of each Company Insurance Subsidiary for the year ended December 31, 2000 and
the three-month period ended March 31, 2001 for unearned premiums, losses, loss
adjustment expenses, claims and similar purposes (including claims litigation)
are in compliance with the requirements for reserves established by the
insurance departments of the jurisdiction of domicile of such Company Insurance
Subsidiary, were determined in accordance with commonly accepted actuarial
standards of practice and principles consistently applied, were based on
actuarial assumptions that were in accordance with or stronger than those called
for in relevant policy and Contract provisions, and are fairly stated in
accordance with commonly accepted actuarial and statutory accounting principles;
(ii) to the knowledge of the Company, as of the dates of submission of the
Company Statutory Financial Statements for the year ended December 31, 2000 and
for the three-month period ended March 31, 2001, the reserves reflected thereon
were in the aggregate adequate to cover the total amount of all liabilities of
the Company and each Company Insurance Subsidiary under all outstanding
insurance, reinsurance and other applicable agreements as of the respective
dates of such Company Statutory Financial Statements, and as of such dates the
admitted assets of the Company and each Company Insurance Subsidiary as
determined under applicable Laws are in an amount at least equal to the minimum
amounts required by applicable Laws; and (iii) there are no agreements to which
any Company Insurance Subsidiary is a party concerning the maintenance of any
reserves by any of the Company Insurance Subsidiaries that go beyond normal
legal requirements of Law.
(e) The Company has delivered or made available to Parent true and
complete copies of all actuarial reports, actuarial certificates and loss and
loss adjustment expense reserve reports prepared and signed by Xxxx X. Xxxxx,
FCSA, MAA, doing business as Aspect, Inc., and any other report prepared by any
third-party actuarial consultant on behalf of or made available to the Company
or any of its Affiliates, in each case relating to the adequacy of the reserves
of any of the Company Insurance Subsidiaries for any period ended on or after
December 31, 1996 (the "Actuarial Analyses"). To the knowledge of the Company
the information and data furnished by the Company or any of the Company
Insurance Subsidiaries to its independent actuaries in
-17-
connection with the preparation of the Actuarial Analyses were accurate and
complete in all material respects as of their respective dates of delivery.
Section 4.9 Agents and Producers; Fronting.
(a) Section 4.9(a) of the Company Disclosure Schedule sets forth each
Contract with any agent, broker, intermediary, manager or producer ("Broker") to
place or sell any insurance or reinsurance policies on behalf of any Company
Insurance Subsidiary since January 1, 1999. Except as set forth on Section
4.9(a) of the Company Disclosure Schedule, no single Broker generated more than
5% of the aggregate gross written premium of the Company Insurance Subsidiaries
during each of the years ended December 31, 1999 or December 31, 2000. To the
knowledge of the Company, each Broker with more than 1% of the aggregate gross
written premium of the Company Insurance Subsidiaries during the year ended
December 31, 2000 is duly licensed (to the extent that such licenses are
required) in each jurisdiction in which the Broker places or sells insurance or
reinsurance on behalf of the Company Insurance Subsidiaries, and to the
knowledge of the Company, each such Broker is duly authorized and appointed by
the applicable Company Insurance Subsidiary pursuant to applicable insurance and
reinsurance Laws in all material respects. To the knowledge of the Company, all
Contracts between any Broker, on the one hand, and any Company Insurance
Subsidiary, on the other hand, are in compliance with all applicable insurance
and reinsurance Laws. Section 4.9(a) of the Company Disclosure Schedule sets
forth the Company's procedures for handling disciplinary actions or proceedings
involving Brokers. To the knowledge of the Company, no Broker or Brokers who
individually accounted for more than 1% of the aggregate gross written premiums
of the Company and its Subsidiaries during the year ended December 31, 2000, or
in the aggregate accounted for more than 10% of the aggregate gross premium
during the year ended December 31, 2000, have given or been given written notice
of termination or, to the knowledge of the Company, threatened or been
threatened with termination, or threatened or been threatened with a substantial
reduction in the amount of premiums to be written by such Person on behalf of
the Company Insurance Subsidiaries. There is no dispute material to the Company
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries by any Broker.
(b) Section 4.9(b) of the Company Disclosure Schedule sets forth a
complete and accurate list of the pools and fronting agreements, Contracts or
other instruments providing for insurance services (excluding Insurance
Contracts entered into in the ordinary course of business) to which any Company
Insurance Subsidiary has been a party since January 1, 1996, all of which either
(i) have been terminated prior to the date hereof or (ii) may be terminated at
the option of the Surviving Corporation on or after the date of the Effective
Time without the payment of any penalty.
(c) Neither the Company nor any of its Subsidiaries has any managing
general agency Contracts or other similar arrangements under which an
independent party has authority to perform underwriting analysis and issue
insurance or reinsurance policies on behalf of any of the Company Insurance
Subsidiaries or otherwise bind any of
-18-
the Company Insurance Subsidiaries without prior approval of the individual
insurance or reinsurance policy by the applicable Company Insurance Subsidiary.
Section 4.10 No Material Undisclosed Liabilities. (i) There are no
liabilities or obligations of the Company or of any Subsidiary of the Company of
any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise ("Liabilities") that would be required by GAAP to be
and were not reflected on or reserved against in the Company Balance Sheet or
disclosed in the notes thereto, and (ii) to the knowledge of the Company,
neither the Company nor any Subsidiary of the Company had any such Liabilities
whether or not required by GAAP to be reflected or reserved against in the
Company Balance Sheet, other than in the case of clauses (i) and (ii), (w)
liabilities or obligations disclosed or provided for in the Company Balance
Sheet or disclosed in the notes thereto; (x) liabilities or obligations incurred
or arising after December 31, 2000 and disclosed in the Company 10-Q or provided
for in the Company balance sheet (or notes thereto) included in the Company
10-Q; (y) liabilities or obligations arising pursuant to Insurance Contracts
entered into after December 31, 2000 in the ordinary course of business
consistent with past practice; and (z) other liabilities or obligations which
would not be reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect or prevent or materially impair the ability of
the Company to consummate any of the transactions contemplated by this
Agreement.
Section 4.11 Information to Be Supplied.
(a) The Proxy Statement, at the time of the mailing thereof and at the
time of the Company Shareholders Meeting (as hereinafter defined), will not
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 Proxy Statement will comply in all material respects with the
provisions of the Exchange Act and all SEC regulations and with the WBCL.
(b) Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to any statements made or incorporated by reference in the
Proxy Statement based on information supplied in writing by Parent expressly for
use therein.
Section 4.12 Absence of Certain Changes. Since December 31, 2000, except
as (i) disclosed in (x) the Company 10-K for the year ended December 31, 2000
included in the Company SEC Documents or provided for in the financial
statements (or notes thereto) included therein or (y) the Company 10-Q included
in the Company SEC Documents or provided for in the financial statements (or
notes thereto) included therein, or (ii) set forth on Section 4.12 of the
Company Disclosure Schedule, the Company and its Subsidiaries have in all
material respects conducted their business in the ordinary course consistent
with past practice, and since such date there has not been any action, event,
occurrence, development, change in method of doing business, or state of
circumstances or facts that, individually or in the aggregate, has had or would
be reasonably likely to have a Company Material Adverse Effect. Since December
31,
-19-
2000, neither the Company nor any of its Subsidiaries has:
(a) changed (x) any accounting principles and methods from those in effect
at December 31, 2000, except as required by changes in GAAP or statutory
accounting practices prescribed by applicable insurance regulatory authorities,
(y) any material policies or practices relating to underwriting, establishment
of reserves, investment or claims adjustment or (z) the Company's fiscal year;
(b) made, modified or revoked any Tax election or entered into any
settlement or compromise of any Tax liability that in either case is material to
the business of the Company and its Subsidiaries, taken as a whole;
(c) paid, discharged, settled or satisfied any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
other than (x) for claims, liabilities or obligations not in excess of $500,000
individually or $1 million in the aggregate, (y) an insurance claim arising in
the ordinary course of business, and (z) ordinary course repayment of
indebtedness or payment of contractual obligations when due;
(d) incurred any capital expenditures or any obligations or liabilities in
respect thereof involving expenditures or proceeds in an amount, individually or
in the aggregate, in excess of $1 million;
(e) except for acquisitions in the ordinary course of the investment
activities of the Company and its Subsidiaries consistent with past practice
that did not exceed $1 million, acquired (whether pursuant to merger, stock or
asset purchase or otherwise) in one transaction or series of related
transactions any assets of or equity interests in any Person;
(f) incurred any indebtedness for borrowed money, obligations under
capital leases or obligations to pay the deferred purchase price of property or
services, or guaranteed any such indebtedness or obligation or issued or sold
any debt securities or warrants or rights to acquire any debt securities of the
Company or any of its Subsidiaries or guaranteed any debt securities of others
or requested any advances in respect of, or made any drawdowns on, any existing
indebtedness which indebtedness incurred, obligations, advances or drawdowns
exceeded $500,000 individually or $2 million in the aggregate;
(g) made any material changes in its indemnity, underwriting, reinsurance,
marketing, investment or claims adjusting, settlement, processing or payment
policies and practices or the lines of business in which it engages, or types of
risks it underwrites, or the geographic areas in which it conducts business;
(h) suffered any physical damage, destruction or casualty loss, whether
covered by insurance or not, affecting any of the Real Property, Company Assets,
Intellectual Property or other property of the Company, which has had or would
be reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect;
-20-
(i) forgiven or permitted any cancellation of any material claim, debt or
account receivable, or effected the release of any material right or claim,
except in the ordinary course of business consistent with past practice in the
settlement of claims arising under Insurance Contracts;
(j) directly or indirectly made any payment, discharge or satisfaction of
any liability or obligation before the same became due in accordance with its
terms, other than in the ordinary course of business consistent with past
practice, or as fully reflected or reserved against in the Company GAAP
Financial Statements and the Company Statutory Financial Statements;
(k) made any revaluation of any assets or properties or write-down or
write-off of the value of any assets or properties or change in the basis of
valuation thereof (including, without limitation, any receivables) in an amount
in excess of $250,000 individually or $500,000 in the aggregate;
(l) entered into any joint venture or partnership arrangement with any
Person;
(m) accelerated the collection, or sale to third parties, of any material
amounts of receivables, or delayed the payment of any material amounts of
payables, other than in the ordinary course of business consistent with past
practice, or as fully reflected or reserved against in the Company GAAP
Financial Statements and the Company Statutory Financial Statements;
(n) entered into any Contract to do any of the foregoing;
(o) purchased any Company Common Shares, in open market purchases,
privately negotiated purchases or otherwise; or
(p) taken any other action described in Section 6.1 of this Agreement.
Section 4.13 Interests of Directors and Officers. Neither (i) any officer
or director of the Company or any officer or director of an Affiliate of the
Company (including any of its Subsidiaries) nor, to the knowledge of the
Company, any member of any such Person's immediate family or any entity
controlled by one or more of the foregoing, nor (ii) any Affiliate of the
Company (excluding Subsidiaries): (A) is a party to any transaction with the
Company or any of its Subsidiaries, including, without limitation, any Contract,
commitment or understanding (other than (A) any Insurance Contract entered into
in the ordinary course of business, and (B) any arrangement not subject to
written agreement and terminable by the Surviving Corporation at any time
involving payment of not more than $1,500 annually) (x) providing for the
furnishing of services (except in such Person's capacity as an officer or
director) by, (y) providing for the rental, lease or license of Real Property,
Company Assets, Intellectual Property or other property from, or (z) otherwise
requiring payments to (other than for services as officers or directors), or
from, any such Person; (B) to the knowledge of the Company, owns, directly or
indirectly, any interest in (excepting less than 1% stock holdings for
investment purposes in securities of publicly held and traded companies), or is
an officer,
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director, employee or consultant of, any Person that is, or is engaged in
business as, a competitor, lessor, lessee, Broker or customer of the Company or
any of its Subsidiaries; (C) owns, directly or indirectly, in whole or in part,
any Real Property, Company Assets, Intellectual Property or other property that
the Company or any of its Subsidiaries uses in the conduct of its business; or
(D) has any claim whatsoever against, or owes any amounts to, the Company or any
of its Subsidiaries, except for claims in the ordinary course of business,
including, without limitation, such as for accrued vacation pay or accrued
benefits under Company Employee Plans.
Section 4.14 Intellectual Property.
(a) The Company or one of its Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any application therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or materials (collectively, the
"Intellectual Property") that are used in the business of the Company and its
Subsidiaries as currently conducted, except for any such failures to own, be
licensed or possess that would not be reasonably likely to, individually or in
the aggregate, have a Company Material Adverse Effect. All patents, trademarks,
trade names, service marks and copyrights owned by the Company or one of its
Subsidiaries are valid, except for any such items the absence of which would not
be reasonably likely to, individually or in the aggregate, have a Company
Material Adverse Effect.
(b) Except as would not be reasonably likely to, individually or in the
aggregate, have a Company Material Adverse Effect:
(i) neither the Company nor any of its Subsidiaries is, nor will it
be as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any licenses,
sublicenses or other agreements as to which the Company or any of its
Subsidiaries is a party and pursuant to which the Company or any of its
Subsidiaries is authorized to use any third-party patents, trademarks,
service marks, or copyrights ("Third-Party Intellectual Property Rights");
and
(ii) no claims with respect to (A) the patents, registered and
unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor owned by the Company or any of its
Subsidiaries (the "Intellectual Property Rights"); (B) any trade secret
material to the Company or any of its Subsidiaries; or (C) Third-Party
Intellectual Property Rights, are pending or, to the knowledge of the
Company, threatened by any Person.
Section 4.15 Contracts.
(a) Section 4.15(a) of the Company Disclosure Schedule contains a true and
complete list of all of the following Contracts (excluding Insurance Contracts
and Contracts which are the subject of Section 4.9) to which the Company or any
of its
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Subsidiaries is a party or by or to which any of them or their assets or
properties are bound or subject, as each such Contract may have been amended,
modified or supplemented:
(i) material partnership or joint venture Contracts;
(ii) Contracts limiting the freedom or ability of the Company or any
of its Subsidiaries to engage in any line of business, engage in business
in any geographical area or compete with any other Person;
(iii) Contracts in any individual case involving amounts in excess
of $100,000 relating to the borrowing of money, or the direct or indirect
guaranty of any obligation for borrowed money, or Contracts to service the
repayment of borrowed money or any other obligation or liability in
respect of indebtedness for borrowed money of any other Person, including,
without limitation, any Contract relating to (A) the maintenance of
compensating balances, (B) any lines of credit, (C) the advance of any
funds to any other Person outside the ordinary course of business, (D) the
payment for property, products or services that are not conveyed,
delivered or rendered to any such party or (E) any obligation to
keep-well, make-whole or maintain working capital or earnings or perform
similar requirements;
(iv) lease, sublease, rental, licensing, use or similar Contracts
with respect to personal property providing for annual rental, license, or
use payments in any individual case in excess of $100,000 or the guaranty
of any such lease, sublease, rental or other Contracts;
(v) Contracts (A) outside the ordinary course of business for the
purchase, acquisition, sale or disposition of any assets or properties or
(B) for the grant to any Person (excluding the Company or its
Subsidiaries) of any option or preferential rights to purchase any assets
or properties;
(vi) employment Contracts with any current or former officer,
director or employee providing in any individual case for compensation of
$50,000 or more per annum (the name, position or capacity and rate of
compensation of each such Person and the expiration date of each such
Contract being accurately set forth in Section 4.15(a) of the Company
Disclosure Schedule);
(vii) Contracts (other than employment Contracts and other than
Employee Programs) with any current or former officer, director, any
Person known by the Company to be a beneficial owner of 5% or more of the
outstanding shares of Company Common Stock, employee or consultant, or, to
the knowledge of the Company, with an entity in which any of the foregoing
is a controlling person;
(viii) Contracts pursuant to which in any individual case there is
either a current or future obligation of the Company or any of its
Subsidiaries to make payments of more than $100,000 annually (other than
Contracts relating to
-23-
investments in the ordinary course of business and other than leases of
real property);
(ix) Contracts under which the Company or any of its Subsidiaries
agrees to indemnify any Person or to share Tax liability of any Person
(other than commercial contracts entered into in the ordinary course of
business consistent with past practice which include incidental
indemnification obligations on the part of the Company or one of its
Subsidiaries); and
(x) any other Contract material to the business of the Company or
any of its Subsidiaries (for purposes of this clause (x), a Contract shall
be deemed to be material if it would be required to be filed as an exhibit
to a report filed by the Company with the SEC pursuant to Item 601 of
Regulation S-K promulgated by the SEC).
(b) The Company has heretofore delivered or made available to the Parent
true and complete copies of all of the Material Contracts set forth in Section
4.15(a) of the Company Disclosure Schedule. Each of the Material Contracts is a
valid and binding obligation of the Company and the Subsidiaries party thereto
and, to the knowledge of the Company, is a valid and binding obligation of any
other Person party thereto, and is in full force and effect enforceable against
the parties thereto in accordance with its terms. Except as specified in Section
4.15(a) of the Company Disclosure Schedule, (i) none of the Company or any of
its Subsidiaries is in breach or violation of, or default under, any of the
Material Contracts, except for such breaches, violations and defaults as would
not be reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect and (ii) no consent by the other Person party to any of such
Material Contracts to the transfer of such Material Contracts from the Company
to the Surviving Corporation by operation of Law as a result of the Merger is
required.
Section 4.16 Litigation. There is no action, suit, investigation, claim,
arbitration or proceeding pending, or to the knowledge of the Company,
threatened against or affecting, the Company or any of its Subsidiaries or any
of their respective assets or properties before any arbitrator or Governmental
Entity other than (i) actions, suits, claims or proceedings arising in the
ordinary course of business which, if determined adversely to the Company or
such Subsidiary, would not to the Company's knowledge be reasonably expected to
involve payment by the Company or such Subsidiary of an amount in excess of
$50,000 (determined on an individual basis); and (ii) actions, suits, claims or
proceedings arising out of, or based upon, Insurance Contracts which neither (x)
would be reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect nor (y) assert a cause of action based upon action
allegedly taken in bad faith by the Company or by any of the Company Insurance
Subsidiaries or, to the knowledge of the Company, by any agent or broker acting
on behalf of the Company or any of the Company Insurance Subsidiaries. There is
no action, suit, investigation, arbitration or proceeding pending or, to the
knowledge of the Company, threatened against any current or former officer or
director of the Company or any of its Subsidiaries, or against any other person
whom the Company or any of its Subsidiaries has agreed to indemnify, concerning
such person's conduct as a director,
-24-
officer or employee of, or other activity in connection with, the Company or any
of its Subsidiaries. There is no outstanding order, writ, judgment, injunction,
fine, award, determination or decree of any court, other Governmental Entity or
arbitrator against the Company or any of its Subsidiaries or any of their
respective assets or properties which would be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect.
Section 4.17 Tax Matters.
(a) The Company is the common parent of an affiliated group of
corporations (within the meaning of Section 1504(a) of the Code) eligible to
file consolidated Federal income Tax Returns, of which the Company and each of
the Subsidiaries is a member. For all periods for which the relevant statutes of
limitations have not expired, the Company has included (or, with respect to the
taxable year ending on the Effective Time, will include) each of its
Subsidiaries in its consolidated Federal income Tax Return as a member of the
affiliated group of which the Company is the common parent.
(b) (i) For all periods for which the relevant statutes of
limitation have not expired, the Company and each of the Subsidiaries have
filed (or joined in the filing of) when due all Tax Returns required by
applicable law to be filed with respect to the Company or any of its
Subsidiaries and all Taxes shown to be due on such Tax Returns have been
paid;
(ii) all such Tax Returns were true, correct and complete in all
material respects as of the time of such filing;
(iii) all Taxes relating to periods for which the relevant statutes
of limitation have not expired owed by the Company or any of its
Subsidiaries (whether or not shown on any Tax Return) if required to have
been paid, have been paid (except for Taxes which are being contested in
good faith and for which adequate reserves have been provided on the
Company GAAP Financial Statements);
(iv) neither the Company nor any of its Subsidiaries has (or will
have) any liability under Treasury Regulations ss.1.1502.6 (or analogous
state, local or foreign provisions) by virtue of having been a member of
any "affiliated group" or other group filing on a consolidated, combined
or unitary basis (other than a group including only the Company and the
Subsidiaries as members) for any taxable periods for which the relevant
statutes of limitation have not expired ending on or before the Effective
Time;
(v) to the knowledge of the Company, there is no action, suit,
proceeding, investigation, audit or claim now pending against, or with
respect to, the Company or any of its Subsidiaries in respect of any Tax
or assessment, nor is any claim for additional Tax or assessment being
asserted by any Taxing Authority;
-25-
(vi) since January 1, 1991, no claim has been threatened or made by
any Taxing Authority in a jurisdiction where the Company or any of its
Subsidiaries does not currently file a Tax Return that it is or may be
subject to Tax by such jurisdiction;
(vii) there is no outstanding request for any extension of time
within which to pay any Taxes or file any material Tax Returns;
(viii) there has been no waiver or extension of any applicable
statute of limitations for the assessment or collection of any Taxes of
the Company or any of its Subsidiaries and no power of attorney granted by
or with respect to the Company or any Subsidiary for Taxes is currently in
force; moreover, no closing agreement pursuant to Section 7121 of the Code
(or any predecessor provision) or any similar provision of any state,
local or foreign law has been entered into by or with respect to the
Company or any Subsidiary;
(ix) no property of the Company or any of its Subsidiaries is
"tax-exempt use property" within the meaning of Section 168(h) of the
Code;
(x) neither the Company nor any of its Subsidiaries is a party to
any lease made pursuant to former Section 168(f)(8) of the Internal
Revenue Code of 1954;
(xi) no excess loss account (within the meaning of Treasury
Regulationsss.1.1502-19) exists with respect to the Company or any of its
Subsidiaries;
(xii) neither the Company nor any of its Subsidiaries has filed any
agreement or consent under Section 341(f) of the Code;
(xiii) neither the Company nor any of its Subsidiaries is a party to
any agreement, whether written or unwritten, providing for the payment of
Taxes, payment for Tax losses, entitlement to refunds or similar Tax
matters;
(xiv) no ruling with respect to Taxes (other than a request for
determination of the status of a qualified pension plan) has been
requested by or on behalf of the Company or any of its Subsidiaries;
(xv) neither the Company nor any of its Subsidiaries has been a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code;
(xvi) to the knowledge of the Company, the Company and each of its
Subsidiaries has withheld and paid all material Taxes required to be
withheld in connection with any amounts paid or owing to any employee,
creditor, independent contractor or other Person;
-26-
(xvii) neither the Company nor any Subsidiary has, or will have, on
or before the Effective Time, any liability for Taxes resulting from an
acceleration of an "intercompany transaction" within the meaning of
Treasury Regulation ss.1.1502-13(d) (or any analogous or similar provision
under state, local of foreign law or any predecessor provision or
regulation);
(xviii) no Subsidiary is a passive foreign investment company within
the meaning of Section 1297 of the Code; and
(xix) no Subsidiary is a controlled foreign corporation within the
meaning of Section 957 of the Code.
Section 4.18 Officers, Directors and Key Employees. Section 4.18 of the
Company Disclosure Schedule sets forth (i) the name, title and total
compensation (payable by the Company or any of its Subsidiaries) of each officer
and director of the Company and the Subsidiaries and of each other employee and
consultant of the Company and the Subsidiaries whose total compensation (so
payable and including bonuses and commissions) for the year ended December 31,
2000 equaled or exceeded $60,000 or who will receive compensation (including
bonuses and commissions) for the year ending December 31, 2001 equal to or in
excess of $60,000, (ii) all bonuses and other incentive compensation received by
such Persons since January 1, 2000, and any accrual for such bonuses and
incentive compensation, and (iii) all Contracts or commitments by the Company or
any of its Subsidiaries to increase the compensation or to modify the conditions
or terms of employment of any of their respective officers or directors, or
other employees or consultants of the Company and the Subsidiaries whose total
compensation (including bonuses and commissions) exceeds $60,000 per annum.
Section 4.19 Employees and Employee Benefits.
(a) Section 4.19(a) of the Company Disclosure Schedule sets forth an
accurate, correct and complete list of every Employee Program existing at the
date hereof or within the five-year period prior thereto, maintained,
administered or contributed to by the Company or any of its Subsidiaries, or
with respect to which an obligation of the Company or any of its Subsidiaries to
make any contribution exists (except that employment Contracts set forth on
Section 4.15(a) of the Company Disclosure Schedule need not be included on
Section 4.19(a) of the Company Disclosure Schedule). Any Employee Program listed
in Section 4.15(a) or Section 4.19(a) of the Company Disclosure Schedule is
referred to below as a "Company Employee Plan."
(b) The Company has made available to Parent with respect to each Company
Employee Plan accurate and complete copies of (i) all written documents
comprising such Company Employee Plan (including amendments, individual
agreements, service agreements, trusts and other funding agreements) or, in the
absence of any such written documents, a written description of such Company
Employee Plan, (ii) the three most recent annual returns in the Federal Form
5500 series (including all schedules thereto), if any, filed with respect to
such Company Employee Plan, (iii) the most recent audited financial statements
and actuarial reports, if any, pertaining to such Company Employee Plan, (iv)
the summary plan description currently in effect and all
-27-
material modifications thereto, if any, for such Company Employee Plan, (v) any
employee handbook which includes a description of such Company Employee Plan,
(vi) the most recent Internal Revenue Service determination letter, if any, for
such Company Employee Plan, and (vii) any other written communications to any
employee or employees, or to any other individual or individuals, to the extent
that the provisions of such Company Employee Plan described therein differ
materially from such provisions as set forth or described in the other
information or materials furnished under this subsection (b).
(c) To the knowledge of the Company, each Company Employee Plan which is
(or ever was) intended to qualify under Section 401(a) of the Code is so
qualified (or, if applicable, was so qualified upon its termination). Each such
Company Employee Plan has received a determination letter from the Internal
Revenue Service which states that such plan is so qualified, and on which the
Company and its Subsidiaries may currently rely.
(d) Each Company Employee Plan has been maintained in all material
respects in accordance with its terms and with all applicable laws, and no
failure to so maintain any Company Employee Plan will result from the completion
of the transactions contemplated by this Agreement (either alone or upon the
occurrence of any additional or subsequent event or events). Neither the Company
nor any of its Subsidiaries has any unsatisfied material liability, or any
unpaid material fine, penalty or Tax, with respect to any Company Employee Plan
or any other Employee Program. There has been no "prohibited transaction"
(within the meaning of Section 406 of ERISA or Section 4975 of the Code), or any
breach of any duty under ERISA, any other applicable law or any agreement, with
respect to any Company Employee Plan which could subject the Company or any of
its Subsidiaries to material liability either directly or indirectly (including,
without limitation, through any obligation of indemnification or contribution)
for any damages, penalties, Taxes or any other loss or expense. The Company and
each of its Subsidiaries has made full and timely payment of all contributions
required to be made by it to each Company Employee Plan by the terms of such
plan or under the applicable law. There have been no material violations of any
reporting or disclosure requirements under ERISA or the Code with respect to any
Company Employee Plan, including any requirement to file an annual return.
(e) No litigation or claim (other than routine claims for benefits), and
no governmental administrative proceeding, audit or investigation, is pending
or, to the knowledge of the Company, threatened with respect to any Company
Employee Plan.
(f) No Employee Program which has ever been maintained, administered or
contributed to by the Company or any of its Subsidiaries, or to which the
Company or any of its Subsidiaries has ever had any obligation to make a
contribution, is or ever was (i) a "multiemployer plan", as defined in Section
3(37) of ERISA, a "multiple employer plan", as described in Section 413(c) of
the Code or a "multiple employer welfare arrangement", as defined in Section
3(40) of ERISA, (ii) subject to the funding requirements of Section 302 of ERISA
or Section 412 of the Code, (iii) subject to Title IV of ERISA, (iv) an unfunded
plan of deferred compensation, (v) a "voluntary
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employees' beneficiary association" within the meaning of Section 501(c)(9) of
the Code, or (vi) maintained outside of the United States.
(g) All health and medical benefit coverage, and all death benefit
coverage, under each Company Employee Plan is provided solely through insurance.
No Company Employee Plan provides health or medical coverage, life insurance
coverage, or coverage for any other welfare benefit to any Retiree, except for
continuation coverage required by Section 4980B of the Code or Sections 601 to
608 of ERISA ("Continuation Coverage"). Any Continuation Coverage provided under
any Company Employee Plan is paid for solely by the individual receiving such
coverage. Neither the Company nor any of its Subsidiaries has any liability,
with respect to any Company Employee Plan which is funded wholly or partly
through an insurance policy, in the nature of a retroactive rate adjustment, a
loss sharing arrangement or any other actual or contingent liability arising
from any event occurring on or before the Closing.
(h) No employee of the Company or any of its Subsidiaries, or any other
individual, shall accrue or receive additional benefits, additional credit for
service, accelerated vesting or accelerated rights to payment of any benefit
under any Company Employee Plan, or become entitled to any severance,
termination allowance or similar payments or to the forgiveness of any
indebtedness, as a result of the execution and delivery of, or the transactions
contemplated by, this Agreement (either alone or upon the occurrence of any
additional or subsequent event or events). Such execution and delivery, or the
occurrence of such transactions, shall not result in any increase in the
contributions required to be made to any Company Employee Plan. No payment made
or contemplated under any Company Employee Plan, or by the Company or any of its
Subsidiaries, constituted, or would constitute, either (i) an "excess parachute
payment" within the meaning of Section 280G of the Code or (ii) a payment which
is not deductible by reason of Section 404 of the Code.
(i) To the knowledge of the Company, neither the Company nor any of its
Subsidiaries has received services from (i) any individual whom the Company or
any of its Subsidiaries has treated as an independent contractor, but who should
have been treated as a common-law employee, or (ii) any individual who is
treated as a leased employee of the Company or any of its Subsidiaries under
Section 414(n) of the Code, and who must be taken into account for purposes of
determining whether any Company Employee Plan meets the requirements of Section
414(n)(3) of the Code which apply to such Company Employee Plan.
(j) Except for the adoption of (i) an amendment to the ESOP or (ii) a plan
amendment which is needed to bring the plan documents into conformity with
statutory or regulatory changes enacted or promulgated in recent years and as to
which the period referred to in Section 401(b) of the Code will not have ended
prior to December 31, 2001, neither the Company nor any of its Subsidiaries is
under any obligation (express or implied) to modify any Company Employee Plan,
or to establish any new Employee Program. The Company or one of its Subsidiaries
has expressly reserved to itself the right to amend, modify or terminate each
Company Employee Plan (and any service or funding agreement or arrangement for
each Company Employee
-29-
Plan), at any time without liability or penalty to itself (other than routine
expenses). No Company Employee Plan requires the Company or any of its
Subsidiaries to continue to employ any employee, director or officer, or to
continue to use the services of any independent contractor. No Company Employee
Plan has invested in (i) insurance or annuity Contracts issued by an insurance
company with an A.M. Best Company, Inc. rating of claims-paying ability below
A++ or (ii) except for any Company Employee Plan which constitutes an "employee
stock ownership plan", within the meaning of Section 4975(e)(7) of the Code (an
"ESOP"),any employer securities or employer real property.
(k) There has been no amendment, interpretation or announcement by the
Company relating to any Company Employee Plan which would materially increase
the expense of maintaining such plan above the level of expense incurred with
respect to that plan for the year ended December 31, 2000.
(l) No ERISA Affiliate has any unpaid material liability, fine, penalty or
Tax with respect to any Employee Program for which the Company or any of its
Subsidiaries could be liable.
(m) Since January 1, 1998, there have been no repricings, cancellations
and regrants, or substitutions of any options to purchase Company Common Shares
awarded under any Company Employee Plan.
Section 4.20 Investment Securities. Attached as Section 4.20 of the
Disclosure Schedule are the reports regarding the stocks, bonds and other
securities (the "Investment Securities") held in the Company's investment
portfolio, each of which reports is true and complete as of the date indicated
thereon. The Investment Securities were acquired by the Company and its
Subsidiaries in the ordinary course of business. The acquisition and ownership
by the Company and its Subsidiaries of the Investment Securities complies with
all applicable insurance, trust and other Laws. The Company has good and valid
title to all such Investment Securities shown as assets in the balance sheet
included in the Company 10-Q (unless disposed of in the ordinary course of
business after the date of such balance sheet), free and clear of all Liens
except for restrictions in respect of deposits, statutory premium reserve
requirements and statutory pledges with state regulatory authorities disclosed
in the Company SEC Documents. None of the Company's Investment Securities are in
default in the payment of principal or interest or dividends or are materially
impaired. The NAIC Annual Convention Statements of the Company Insurance
Subsidiaries contain a complete description of all securities of the Company
Insurance Subsidiaries on deposit with each state insurance department as of
December 31, 2000.
Section 4.21 Compliance with Laws. The Company and its Subsidiaries have
all material licenses, permits and qualifications necessary to conduct their
businesses and own their properties in each jurisdiction in which the Company or
its Subsidiaries currently do business or own property, or in which such
license, permit or qualification is otherwise required. The Company and its
Subsidiaries have complied in all material respects with all Laws applicable to
their businesses. The present use by the Company and its Subsidiaries of their
respective properties, and the business conducted
-30-
by the Company and its Subsidiaries, does not violate any such Laws, in each
case except for such violations as would not be reasonably likely, individually
or in the aggregate, to have a Company Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has received notice of violation of any Law
or is in default with respect to any order, writ, judgment, award, injunction or
decree of any Governmental Entity which would affect any of their respective
assets, properties or operations, except for such violations or defaults as
would not be reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries
has received notice of any investigation or review being undertaken by, or
notice of any intention to conduct an investigation or review from, any
Governmental Entity with respect to the Company or its Subsidiaries or any of
their officers or employees (in their capacities as such), and, to the knowledge
of the Company, no such investigation or review is threatened. To the knowledge
of the Company, since January 1, 1996, the Company and its Subsidiaries have
timely filed all insurance related reports and returns required by Law and all
such returns and reports are true and correct in all material respects, and
there are no material deficiencies with respect to such filings or submissions.
Section 4.21 of the Company Disclosure Schedule indicates the most recent date
of the last completed insurance regulatory examination and audit, regular or
special, as the case may be, as to the Company and each of the Company Insurance
Subsidiaries for the jurisdictions listed therein, and a copy of the most recent
report of such examination has heretofore been delivered to Parent. There is no
agreement or understanding between the Company or any of the Company Insurance
Subsidiaries, on the one hand, and any regulatory authority, on the other hand,
concerning the payment of dividends by the Company or such Company Insurance
Subsidiary or the maintenance of any NAIC Insurance Regulatory Information
System Ratio. To the knowledge of the Company, neither the Company nor any of
its Subsidiaries, nor any director, officer, employee or agent of any of them,
on behalf of the Company or any of its Subsidiaries, has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful payments relating
to political activity, (ii) made any unlawful payment to any foreign or domestic
governmental official or employee or to any foreign or domestic political party
or campaign or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
Section 4.22 Insurance Matters.
(a) Policy Forms; Rates; Other filings. Each form of insurance policy,
policy endorsement or amendment, reinsurance Contract, application form and
sales material issued by the Company Insurance Subsidiaries in any jurisdiction
since December 31, 1999, was, as of its respective date of issuance, in
compliance in all material respects with all applicable Laws and, to the extent
required under applicable Law, has been approved (or has been submitted for
approval, which is pending, or has been filed and not objected to within the
period provided for objection), where required by the appropriate insurance
regulatory authorities of such jurisdiction. Any premium rates with respect to
insurance or reinsurance policies or Contracts currently issued by the Company
and the Company Insurance Subsidiaries which are required to be filed with or
approved by any Governmental Entity have been so filed or approved in accordance
with applicable Law, and such premiums charged thereon conform thereto, except
where the
-31-
failure to file, obtain such approval or conform would not be reasonably likely,
individually or in the aggregate, to have a Company Material Adverse Effect.
Since December 31, 1999, the Company and the Company Insurance Subsidiaries have
made all filings with statistical agents and rating organizations required by
applicable regulatory authorities, except where the failure to make such filings
would not be reasonably likely, individually or in the aggregate, to have a
Company Material Adverse Effect.
(b) Underwriting Management and Administration Agreements. All
underwriting management and/or administration agreements entered into by the
Company and any of the Company Insurance Subsidiaries as now in force are set
forth in Section 4.22(b) of the Company Disclosure Schedule and, to the extent
required under applicable Law, are in a form acceptable to applicable regulatory
authorities (or have been submitted for approval which is pending, or have been
filed and not objected to by such authorities within the period provided for
objection), except where the failure to obtain such approval or make such filing
would not be reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect.
(c) Reinsurance and Retrocession.
(i) Section 4.22(c) of the Company Disclosure Schedule contains a
true and complete list of all Contracts, treaties or arrangements entered
into after December 31, 1990 (including any terminated or expired treaty
or agreement under which there remains any outstanding liability with
respect to paid or unpaid case reserves in an individual amount in excess
of $200,000 regarding ceding or assumption of reinsurance, coinsurance,
excess insurance, or retrocessions ("Reinsurance Contracts")) to which any
of the Company Insurance Subsidiaries is a party or by or to which any of
them are bound or subject, as each such Reinsurance Contract may have been
amended, modified or supplemented. To the knowledge of the Company, each
of the foregoing Reinsurance Contracts is a valid and binding obligation
of the parties thereto, is in full force and effect and is enforceable in
accordance with its terms. None of the Company Insurance Subsidiaries nor,
to the knowledge of the Company, any other party thereto is in default in
any material respect with respect to any such Reinsurance Contract. There
are no material disputes as to reinsurance or retrocessional coverage
pending or, to the knowledge of the Company, threatened with respect to
any such Reinsurance Contract. No such Reinsurance Contract contains any
provision providing that any such other party thereto may terminate,
cancel or commute the same by reason of the transactions contemplated by
this Agreement.
(ii) Except as reflected on Schedule F of the Company Statutory
Financial Statements, each of the Company Insurance Subsidiaries is
entitled under applicable Law to take full credit in its Company Statutory
Financial Statements for all amounts recoverable by it pursuant to any
Reinsurance Contract, and all such amounts recoverable have been properly
recorded in the books and records of account of the Company Insurance
Subsidiaries and are properly reflected in the Company Statutory Financial
Statements. To the
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knowledge of the Company, all such amounts recoverable by the Company or
any of the Company Insurance Subsidiaries are fully collectible in due
course. Neither the Company nor any of its Subsidiaries has received
notice that any other party to any Reinsurance Contracts intends not to
perform under any such Reinsurance Contracts, and, to the knowledge of the
Company, the financial condition of any other party to any Reinsurance
Contract pursuant to which the Company and its Subsidiaries have ceded any
premiums is not impaired to the extent that a default thereunder is
reasonably anticipated.
Section 4.23 Directors' and Officers' Insurance Policies. The Company does
not have in effect any directors' and officers' insurance policies.
Section 4.24 Environmental Matters.
(a) To the knowledge of the Company, no written notice, notification,
demand, request for information, citation, summons, complaint or order has been
received or made by, and no investigation, action, claim, suit, proceeding or
review is pending or threatened by any Person against, the Company or any of its
Subsidiaries, with respect to any applicable Environmental Law (as hereinafter
defined). Except as would not be reasonably likely, individually or in the
aggregate, to have a Company Material Adverse Effect, (i) the Company and its
Subsidiaries are and have been in compliance with all applicable Environmental
Laws, and (ii) there are no liabilities or obligations of the Company or any of
its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
direct or indirect, determined, determinable or otherwise, arising under or
relating to any Environmental Law (including, without limitation, liabilities or
obligations relating to divested properties or businesses or predecessor
entities).
(b) For purposes of this Agreement, the term "Environmental Laws" means
any international, national, provincial, regional, Federal, state, local,
municipal and foreign Laws, judicial decisions, decrees, regulations,
ordinances, rules, judgments, orders, codes, injunctions, permits or
governmental agreements or other requirements relating to human health and
safety, to the environment, including, without limitation, natural resources, or
to pollutants, contaminants, wastes, or chemicals, petroleum products,
by-products or additives, asbestos, asbestos-containing material,
polychlorinated biphenyl's, radioactive material, hazardous substances or
wastes, or any other substance (including any product) regulated as harmful or
potentially harmful to human health or the environment.
Section 4.25 Title to Property; Leases. The Company and its Subsidiaries
have good, marketable and valid title to, or a valid leasehold interest in, or
valid right under Contract to use, all of the real and tangible personal
property purported to be owned by the Company or any of its Subsidiaries or used
in or reasonably necessary for the conduct of their respective businesses, free
and clear of all Liens (collectively, the "Company Assets"). The tangible
Company Assets, taken as a whole, have been maintained in a reasonably prudent
manner, are in good operating condition and repair (ordinary wear and tear
excepted), and no maintenance with respect thereto has been
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deferred or delayed in a manner that is reasonably likely to have a Company
Material Adverse Effect.
Section 4.26 Real Property. Section 4.26 of the Company Disclosure
Schedule contains a description that is complete and accurate in all material
respects of all real property and interests in real property owned by the
Company or any of its Subsidiaries and all leases of real property to which the
Company or any Subsidiary is a party or by which any of them holds a leasehold
interest that in any individual case involves the payment, pursuant to the terms
of such lease, by or to the Company or any of its Subsidiaries, of more than
$50,000 annually (collectively, "Real Property"). There are no persons other
than the Company and its Subsidiaries in possession of any of the Real Property
or any portion thereof and there are no Contracts granting to any person or
persons other than the Company and its Subsidiaries the right of use or
occupancy of any portion of the Real Property. Neither the Company nor any of
its Subsidiaries is obligated under or bound by any option, right of first
refusal, purchase Contract, or other instrument to sell or otherwise dispose of
any Real Property or any other interest in any Real Property.
Section 4.27 Absence of Bank, Savings and Loan or Investment Company
Status. Neither the Company nor any of its Subsidiaries (i) is an "insured bank"
or is eligible for Federal deposit insurance within the meaning of the Federal
Deposit Insurance Act, as amended; (ii) is a "savings association" for purposes
of the Regulations for Savings and Loan Holding Companies, 12 CFR xx.xx. 583-584
and the Regulations for the Acquisition of Control of Savings Associations, 12
CFR ss. 574; (iii) accepts deposits within the meaning of 12 U.S.C. ss. 378;
(iv) is a "bank" or a "bank holding company"; (v) owns or "controls" 5 percent
or more of the voting securities of a "bank" or "bank holding company," as such
terms are defined in the Bank Holding Company Act of 1956, as amended, and the
regulations promulgated thereunder; (vi) is regulated as a bank under the Laws
of its jurisdiction of incorporation; (vii) is a "savings and loan holding
company"; (viii) "controls" any "savings association," as such terms are defined
in 12 CFR xx.xx. 574 and 583; (ix) has acquired by purchase or otherwise, or
retains, more than 5 percent of the voting stock or shares of a "savings
association" or "savings and loan holding company," as such terms are defined in
12 CFR ss. 583; (x) is regulated as a savings and loan institution under the
Laws of its jurisdiction of incorporation; or (xi) is, "controls," or is
"controlled by" or acting on behalf of any Person that is, an "investment
company" or "investment adviser" as such terms are defined in the Investment
Company Act of 1940, as amended.
Section 4.28 Insurance Ratings. To the Company's knowledge, there is no
reason to believe that (i) any rating from A.M. Best Company, Inc. held by the
Company or any of its Subsidiaries or (ii) any financial strength rating by
Standard & Poor's Ratings Group held by the Company or any of its Subsidiaries
is or may be likely to be modified downward, qualified (other than in a positive
way), lowered or placed under surveillance for a possible downgrade for any
reason.
Section 4.29 Operation of OMV Business. All licenses, permits and
qualifications issued by Governmental Entities with regard to the operation of
the OMV
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Business are set forth on Section 4.29 of the Company Disclosure Schedule. To
the knowledge of the Company, Capitol Indemnity Corporation has all licenses,
permits and qualifications necessary to conduct the OMV Business. Capital
Indemnity Corporation has not had any license or qualification to conduct the
OMV Business revoked or suspended or been involved in a proceeding to revoke or
suspend any such license or qualification. Neither the Company nor any of its
Subsidiaries has received notice of any investigation or review being undertaken
by, or notice of any intention to conduct an investigation or review from, any
Governmental Entity with respect to possible revocation or suspension of any
license or qualification to conduct the OMV Business, and, to the knowledge of
the Company, no such investigation or review is threatened. Since January 1,
1999, Capitol Indemnity Corporation has not received notice of violation of any
Law applicable to the operation of the OMV Business. Neither the Company nor any
of its Subsidiaries has received notice of any investigation or review being
undertaken by, or notice of any intention to conduct an investigation or review
from, any Governmental Entity with respect to the operation of the OMV Business
and, to the knowledge of the Company, no such investigation or review is
threatened.
Section 4.30 Aggregate Materiality. There are no events, situations,
obligations or liabilities of the types described in this Article IV and
excepted therefrom solely because individually they would not reasonably be
likely to have a Company Material Adverse Effect which, in the aggregate, would
be reasonably likely to have a Company Material Adverse Effect.
Section 4.31 Finders' Fees; Opinion of Financial Adviser.
(a) Except for Lazard Freres & Co. LLC, there is no investment banker,
broker, finder or other intermediary who might be entitled to any fee or
commission from the Company, the Surviving Corporation or any of their
respective Affiliates in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. Prior to
the date hereof, the Company has provided to Parent true and correct information
regarding fees payable to, and a copy of its written agreement with, Lazard
Freres & Co. LLC.
(b) The Company has received the opinion dated the date hereof of Lazard
Freres & Co. LLC addressed to the Board of Directors of the Company to the
effect that, as of such date and subject to the exceptions stated therein, the
Merger Consideration is fair from a financial point of view to the holders of
Company Common Shares (other than Parent and its Affiliates), a copy of which
opinion has been delivered to Parent.
Section 4.32 Required Vote; Board Approval.
(a) Assuming the accuracy of the representation and warranty made by
Parent pursuant to Section 5.8 of this Agreement and compliance with the
covenant made by Parent pursuant to Section 7.6 of this Agreement, the only vote
of the holders of any class or series of capital stock of the Company required
by Law to approve this Agreement, the Merger and/or any of the other
transactions contemplated hereby is the
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affirmative vote of the holders of two-thirds of the outstanding Company Common
Shares to adopt and approve this Agreement and the Merger (the "Company
Shareholder Approval").
(b) The Company's Board of Directors has (i) determined that this
Agreement and the transactions contemplated hereby are in the best interests of
the Company and its shareholders, (ii) approved this Agreement and the
transactions contemplated hereby and (iii) resolved to recommend to such
shareholders that they vote in favor of adopting and approving this Agreement
and the Merger in accordance with the terms hereof.
Section 4.33 State Takeover Statutes; No Rights Plan. The "business
combination," "moratorium," "interested shareholder," "affiliated transaction,"
"control share" or other anti-takeover provisions of the WBCL and any
regulations enacted thereunder consist solely of those set forth in Sections
180.1130, 180.1131, 180.1132, 180.1133, 180.1134, 180.1140, 180.1141, 180.1142,
1180.1143, 180.1144 and 180.1150 of the WBCL. To the knowledge of the Company,
no other "business combination", "moratorium," "control share," "fair price,"
"interested shareholder," "affiliated transaction," or other anti-takeover laws
or regulations enacted under state or federal laws in the United States apply to
this Agreement or any of the transactions contemplated hereby. Prior to the time
that this Agreement was executed, the Board of Directors of the Company has
taken all action required to be taken by it with regard to this Agreement and
the transactions contemplated hereby in order to exempt this Agreement and the
transactions contemplated hereby from the "business combination" provision set
forth in Section 180.1141 of the WBCL, and accordingly, assuming the accuracy of
the representation and warranty made by Parent pursuant to Section 5.8 of this
Agreement and compliance with the covenant made by Parent pursuant to Section
7.6 of this Agreement, and further assuming that subsequent to the date hereof
and prior to the date of the Company Shareholders Meeting, no Person acquires
shares of Company Common Stock representing in excess of 20% of the voting power
in the election of directors of the Company, (i) the restrictions contained in
Section 180.1141(1) of the WBCL do not and will not apply to the consummation of
the Merger, (ii) the supermajority vote requirement set forth in Section
180.1131 of the WBCL does not and will not apply to the consummation of the
Merger and (iii) the provisions of Section 180.1150 of the WBCL will not have
the effect of reducing the voting power of any shares of Company Common Stock
with regard to the vote by holders of the outstanding Company Common Shares to
adopt and approve this Agreement and the Merger. The Company does not have a
"shareholder rights plan" or other arrangement of similar effect.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERSUB
Except as disclosed in the Parent Disclosure Schedule attached hereto,
which Parent Disclosure Schedule identifies the Section (or if applicable,
subsection) to which such exception relates, Parent and MergerSub jointly and
severally represent and warrant to the Company that:
Section 5.1 Corporate Existence and Power. Each of Parent and MergerSub is
a corporation duly incorporated, validly existing and in good standing under the
Laws of the jurisdiction of its organization and has all corporate powers
required to carry on its business as now conducted. Parent is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified would not be reasonably likely to have, individually
or in the aggregate, a Parent Material Adverse Effect. Parent has heretofore
delivered to the Company true and complete copies of each of the restated
certificate of incorporation and bylaws of Parent and the certificate of
incorporation and bylaws of MergerSub, all as currently in effect.
Section 5.2 Corporate Authorization. Each of Parent and MergerSub has full
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and MergerSub and the consummation by each of
them of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of either of them, and
no other corporate proceedings on the part of Parent or MergerSub are necessary
to authorize the execution, delivery and performance of this Agreement by Parent
and MergerSub and the consummation by them of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of Parent
and MergerSub and, assuming that this Agreement constitutes the legal, valid and
binding obligation of the Company, constitutes a legal, valid and binding
obligation of each of Parent and MergerSub, enforceable against it in accordance
with its terms.
Section 5.3 Governmental Authorization. The execution, delivery and
performance by Parent and MergerSub of this Agreement, and the consummation by
Parent and MergerSub of the transactions contemplated hereby require no action
by or in respect of, or filing with, any Governmental Entity other than (i) the
filing of the Articles of Merger in accordance with the WBCL; (ii) compliance
with any applicable requirements of the HSR Act; (iii) compliance with any
applicable requirements of the Exchange Act; and (iv) the filing of the
applications and notices with applicable Commissioners of Insurance and the
approval of such applications or the grant of required licenses by such
authorities or the expiration of any applicable waiting periods thereunder, in
each case as listed on Exhibit C hereto (collectively, the "Parent Government
Approvals"); provided, however, that no representation is made with respect to
any of the foregoing that Parent, MergerSub or the Company may be required to
obtain because of the specific legal or regulatory status of the Company or any
other facts that
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specifically relate to Company or any business engaged in by the Company or any
of its Subsidiaries.
Section 5.4 Non-Contravention. The execution, delivery and performance by
each of Parent and MergerSub of this Agreement and the consummation by Parent
and MergerSub of the transactions contemplated hereby do not and will not (i)
contravene or conflict with the restated certificate of incorporation or bylaws
of Parent or the certificate of incorporation or bylaws of MergerSub, (ii)
subject to receipt of the Parent Government Approvals, contravene or conflict
with or constitute a violation of any provision of any Law, judgment,
injunction, order or decree binding upon or applicable to Parent or any of its
Subsidiaries, (iii) constitute a breach or default (an event which, with notice
or lapse of time, or both, would constitute a breach or default) under or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of Parent or any of its Subsidiaries or to a loss of any benefit or
status to which Parent or any of its Subsidiaries is entitled under any
provision of any Contract binding upon Parent or any of its Subsidiaries or any
license, franchise, permit or other similar authorization held by Parent or any
of its Subsidiaries, or (iv) result in the creation or imposition of any Lien on
any asset of Parent or any of its Subsidiaries other than, in the case of each
of clauses (ii), (iii) and (iv), any such items that would not, individually or
in the aggregate, (x) be reasonably likely to have a Parent Material Adverse
Effect or (y) prevent or materially impair the ability of Parent or MergerSub to
consummate the transactions contemplated by this Agreement.
Section 5.5 Information to Be Supplied. The information to be supplied in
writing by Parent expressly for inclusion or incorporation by reference in the
Proxy Statement will, at the time of the mailing thereof and at the time of the
Company Shareholders Meeting, not 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.
Section 5.6 Finders' Fees. Except for Xxxxxxx Xxxxx & Co., whose fees will
be paid by Parent, there is no investment banker, broker, finder or other
intermediary who might be entitled to any fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent.
Section 5.7 Financing. Parent has and at the Effective Time will have
sufficient funds (i) to enable it to perform its obligations under this
Agreement and any other agreements contemplated hereby, and (ii) to pay all of
the related fees and expenses of Parent and MergerSub in connection with the
foregoing.
Section 5.8 Ownership of Company Common Shares. Other than as a result of
the execution and delivery of this Agreement and the Voting Agreements entered
into by and between Parent and certain shareholders of the Company dated the
date hereof pursuant to which such shareholders have agreed to vote their
Company Common Shares in favor of adopting and approving this Agreement and the
Merger, as
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of the date hereof, neither Parent, MergerSub, nor, to Parent's knowledge, any
Affiliate of Parent is a "significant shareholder" of the Company as that term
is defined in the WBCL.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company agrees that:
Section 6.1 The Company Interim Operations. Except as set forth in Exhibit
D hereto or as otherwise expressly contemplated hereby, without the prior
written consent of Parent, from the date hereof until the Effective Time, the
Company shall, and shall cause each of its Subsidiaries to, conduct its business
only in the ordinary course consistent with past practice and use its
commercially reasonable best efforts to (i) preserve intact its present business
organization, (ii) maintain in effect all licenses, approvals and
authorizations, including, without limitation, all licenses and permits that are
required by applicable Laws and Environmental Laws for the Company or any of its
Subsidiaries to carry on its business, and (iii) preserve the existing
relationships and goodwill with its key employees, its key agents, and its
material customers. Without limiting the generality of the foregoing, except as
set forth in Exhibit D hereto or as otherwise expressly contemplated hereby,
from the date hereof until the Effective Time, without the prior written consent
of Parent, the Company shall not, nor shall it permit any of its Subsidiaries
to:
(a) amend its articles of incorporation or bylaws (or other comparable
organizational documents);
(b) take any action with the intention or purpose of preventing or
impairing the ability of the Company to consummate the transactions contemplated
by this Agreement, including actions that would be reasonably likely to (x)
result in a failure of a condition to the obligations of Parent and MergerSub to
consummate the Merger or (y) prevent or impair the ability of the Company,
Parent or any of their Subsidiaries to obtain any consent, registration,
approval, permit or authorization required to be obtained from any Governmental
Entity prior to the Effective Time in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated by this
Agreement;
(c) split, combine or reclassify any shares of capital stock of the
Company or any Subsidiary of the Company or declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem, repurchase or
otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of
its securities or any securities of any of its Subsidiaries, except for (i)
regular quarterly cash dividends paid by the Company (having customary record
and payment dates, not in excess of $0.08 per Company Common Share) and (ii)
intercompany dividends paid by Subsidiaries of the Company to the Company in the
ordinary course of business consistent with past practice and subject to
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the regulatory restrictions established by the Commissioner of Insurance for the
State of Wisconsin;
(d) (i) issue, deliver or sell, or authorize the issuance, delivery or
sale of, any shares of its or any of its Subsidiaries' capital stock of any
class or any securities convertible into or exercisable for, or any rights,
warrants or options to acquire, any such capital stock or any such convertible
securities, other than the issuance of Company Common Shares upon the exercise
of stock options or pursuant to the express requirements of a Company Employee
Plan in accordance with its present terms; (ii) except for the amendments of the
agreements evidencing grants of Company Options contemplated by Section 3.3(b)
hereof, amend in any respect any term of any outstanding security of the Company
or any of its Subsidiaries or (iii) consent, including consent by the applicable
committee, to any transfer of a Company Option;
(e) manage its Investment Securities other than in the ordinary course
consistent with past practice;
(f) sell, lease, encumber or otherwise dispose of any assets, other than
(i) in the ordinary course of business consistent with past practice and (ii)
equipment and property no longer used in the operation of the Company's
business;
(g) (i) amend, modify, terminate or enter into any Material Contract of
the Company or any of its Subsidiaries or (ii) otherwise waive, release or
assign any material rights, claims or benefits of the Company or any of its
Subsidiaries thereunder, except, in the case of clause (ii), in the ordinary
course of business consistent with past practice in the settlement of claims
arising under Insurance Contracts;
(h) (i) except as required by Law, increase the amount of compensation of
any director or officer or make any increase in or commitment to increase any
employee benefits, (ii) except as required by Law, adopt any severance program
or grant any severance or termination pay to any director, officer or employee
of the Company or any of its Subsidiaries, (iii) adopt or implement any employee
retention program or other incentive arrangement not in existence on the date
hereof, (iv) adopt any Employee Program that, had it been in effect on the date
of this Agreement, would have been required to be set forth on Section 4.15(a)
or Section 4.19(a) of the Company Disclosure Schedule, (v) grant any awards
under any Company Employee Plan (including, without limitation, the grant of
stock options, stock appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing restrictions
in any benefit plans or agreements or awards made thereunder), (vi) except as
may be expressly required by the present terms of an existing Company Employee
Plan or an existing award granted pursuant thereto, or as required by Law, make
or agree to make any contribution to, or payment in respect of, any such plan or
award, or (vii) except as required by Law, amend in any respect any Company
Employee Plan or any award granted pursuant thereto; provided that nothing in
this Section 6.1(h) shall prohibit the Company from amending the agreements
evidencing grants of Company Options in the manner contemplated by Section
3.3(b) hereof or from amending each Company Employee Plan which prior to the
Effective Time constitutes an
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ESOP in such manner as Parent shall reasonably request pursuant to Section 6.5
hereof; or
(i) agree or otherwise commit to do any of the foregoing.
Parent and MergerSub acknowledge and agree that any action described in clauses
(a) through (i) above which is taken by the Company or one of its Subsidiaries
after receipt of the prior written consent of Parent shall not be deemed to
constitute a violation or breach of any representation or warranty set forth
herein.
Section 6.2 Company Shareholders Meeting. The Company shall cause a
meeting of its shareholders (the "Company Shareholders Meeting") to be duly
called and held for the purpose of obtaining the Company Shareholder Approval as
promptly as practicable after the date hereof (taking into account the
requirements of all applicable Laws). Except as expressly provided in this
Section 6.2, (i) the Company's Board of Directors shall submit this Agreement to
the shareholders of the Company and shall recommend to its shareholders the
approval and adoption of this Agreement and the Merger (the "Company
Recommendation"), and (ii) the Company shall use its reasonable best efforts to
solicit the Company Shareholder Approval. Without limiting the generality of the
foregoing, the Company agrees that its obligations under this Section 6.2 to
duly call and hold the Company Shareholders Meeting shall not be affected by the
commencement, public proposal, public disclosure or communication to the Company
of any Acquisition Proposal or the withholding, withdrawal or modification by
the Board of Directors of the Company Recommendation. The Board of Directors of
the Company shall be permitted to (x) withhold the Company Recommendation or (y)
withdraw or modify in a manner adverse to Parent the Company Recommendation, in
each case only if the Board of Directors of the Company determines in its good
faith judgment (after consulting with its outside legal counsel) that such
action is necessary for the Board of Directors to comply with its fiduciary
duties under applicable Law.
Section 6.3 Acquisition Proposals; Board Recommendation.
(a) The Company shall, and shall cause its Subsidiaries, and its and their
officers, directors, employees, financial advisers, attorneys, accountants and
other advisers, representatives and agents (collectively, "Representatives") to
cease and cause to be terminated immediately any discussions or negotiations
with any parties that may be ongoing with respect to, or that could reasonably
be expected to lead to, an Acquisition Proposal. The Company agrees that it
shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any of its Representatives, directly or indirectly, to (i)
solicit, initiate, facilitate or encourage (including by way of furnishing
information) the submission, making or announcement of any Acquisition Proposal,
(ii) initiate or engage in any discussions or negotiations regarding, or furnish
or disclose to any Person any information with respect to, or take any other
action to facilitate or in furtherance of any inquiries or the submission,
making or announcement of any proposal that constitutes, or may be reasonably
expected to lead to, any Acquisition Proposal, (iii) grant any waiver or release
under any standstill or similar agreement with respect to any class of the
Company's equity securities or (iv) enter into any agreement,
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arrangement or understanding with respect to any Acquisition Proposal or enter
into any agreement, arrangement or understanding requiring the Company to
abandon, terminate or fail to consummate the Merger or any other transaction
contemplated hereby; provided, however, that at any time before the Company
Shareholder Approval is obtained, solely in response to an unsolicited bona fide
written Acquisition Proposal that did not result from the breach of this Section
6.3 and following delivery to Parent of notice of such Acquisition Proposal in
compliance with its obligations under Section 6.3(c) hereof, the Company may (i)
furnish information to the party making the Acquisition Proposal, (ii) in
response to an unsolicited bona fide written Acquisition Proposal, initiate
and/or engage in discussions or negotiations regarding the Acquisition Proposal
and/or (iii) grant any waiver or release under any standstill or similar
agreement with respect to any class of the Company's equity securities to the
third party making the Acquisition Proposal, but only if (x) the Board of
Directors of the Company reasonably determines in its good faith judgment (A)
after consulting with its outside legal counsel, that such action is necessary
for the Board of Directors to comply with its fiduciary duties under applicable
Law and (B) after consultation with a financial adviser of nationally recognized
reputation, that such Acquisition Proposal constitutes, or is reasonably likely
to result in, a Superior Proposal, and (y) prior to furnishing any information
to such Person, such Person shall have entered into a confidentiality agreement
with the Company on terms no less favorable to the Company than the
Confidentiality Agreement between the Company and Parent dated as of April 9,
2001 (the "Confidentiality Agreement").
(b) Unless the Company's Board of Directors has previously withheld,
withdrawn, or is concurrently therewith withdrawing, the Company Recommendation,
neither the Company's Board of Directors nor any committee thereof shall
recommend any Acquisition Proposal to the Company's shareholders.
Notwithstanding the foregoing, nothing contained in this Section 6.3(b) or
elsewhere in this Agreement shall prevent the Company's Board of Directors from
complying with Rule 14e-2 under the Exchange Act with respect to any Acquisition
Proposal or making any disclosure required by applicable Law.
(c) Within one day following the date of receipt by the Company or any of
its Subsidiaries (or any of their respective directors, officers, agents or
advisers) of any Acquisition Proposal, any inquiry or contacts concerning, or
any request for information or for access to the properties, books or records of
the Company or any of its Subsidiaries or any request for a waiver or release
under any standstill or similar agreement, by any Person that has made an
Acquisition Proposal or indicates that it is considering making an Acquisition
Proposal, the Company shall (i) notify Parent that a Person has made or may be
considering making an Acquisition Proposal, (ii) notify Parent of the identity
of such Person and of the terms and conditions of such Acquisition Proposal,
inquiry, contact, or request, and (iii) provide copies of any written materials
received by the Company in respect of the foregoing. The Company agrees that it
shall keep Parent reasonably informed of the status and details (including
amendments or proposed amendments) of any such Acquisition Proposal, inquiry,
contact or request, and keep Parent reasonably informed as to the material
details of any information requested of or provided by the Company and as to the
material details of all discussions
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or negotiations with respect to any such request, Acquisition Proposal or
inquiry. The Company agrees that it shall simultaneously provide to Parent any
non-public information concerning the Company provided to any other Person or
group in connection with any Acquisition Proposal which was not previously
provided to Parent.
(d) Upon notice and in accordance with the terms of Section 9.1 hereof,
the Company may terminate this Agreement at any time before the Company
Shareholder Approval is obtained if (i) the Company's Board of Directors shall
have authorized the Company, subject to the terms and conditions of this
Agreement, to enter into a binding agreement concerning a transaction that
constitutes a Superior Proposal, (ii) the Company notifies Parent that it
intends to enter into such agreement, specifying the material terms and
conditions of such agreement and provides Parent with four Business Days (during
which period of four Business Days the Company shall refrain from entering into
such Agreement) to propose and agree to enter into a modification of this
Agreement, (iii) the Company's Board of Directors has duly considered any
proposals that Parent may make during the four Business Day period described in
(ii) above and the Company has fully cooperated with Parent during such four
Business Day period (including, without limitation, by complying with Section
6.3(c) of this Agreement) and the Company, after consideration of any proposals
made by Parent, determines in good faith that the Acquisition Proposal remains a
Superior Proposal, (iv) Parent has received the Termination Fee (as hereinafter
defined) contemplated by Section 9.3(b), and (v) the Company intends, in good
faith, to enter into a definitive agreement to effect the Superior Proposal
immediately following such termination.
Section 6.4 Certain Litigation. The Company agrees that it shall not
settle any litigation commenced after the date hereof against the Company or any
of its directors by any shareholder of the Company relating to the Merger or
this Agreement without the prior written consent of Parent. In addition, the
Company shall not cooperate with any third party that may hereafter seek to
restrain or prohibit or otherwise oppose the Merger and shall cooperate with
Parent and MergerSub to resist any such effort to restrain or prohibit or
otherwise oppose the Merger.
Section 6.5 Certain Tax and Company Employee Plan Matters. The Company
shall, or shall cause its Subsidiaries to, prepare and file all Tax Returns of
or including the Company and/or its Subsidiaries that are required to be filed
(with extensions) on or before the Effective Time and shall pay all Taxes due
with respect to such Tax Returns. All such Tax Returns will be made and filed by
the Company and its Subsidiaries in a manner consistent with the prior practice
of the Company and its Subsidiaries. The Company, prior to but effective as of
the Effective Time, shall adopt such amendments to each Company Employee Plan
which prior to the Effective Time constitutes an ESOP, in such manner as Parent
shall reasonably request to convert such ESOP into a plan which is qualified
under Section 401(a) of the Code but which is no longer an ESOP.
Section 6.6 Control of Operations. Nothing contained in this Agreement
shall give Parent or MergerSub, directly or indirectly, the right to control or
direct the operations of the Company or any of the Subsidiaries of the Company
prior to
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the Effective Time. Prior to the Effective Time, the Company shall exercise,
consistent with and subject to the terms and conditions of this Agreement,
complete control and supervision over its operations and the operations of the
Subsidiaries of the Company.
ARTICLE VII
OTHER COVENANTS
Section 7.1 Indemnification, Exculpation and Insurance.
(a) Parent agrees to cause the Surviving Corporation to maintain in effect
in accordance with their terms all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the Effective
Time now existing in favor of the current or former directors or officers of the
Company and its Subsidiaries (collectively, the "Indemnified Parties") as
provided in either (x) their respective articles of incorporation or bylaws (or
comparable organizational documents) set forth in Section 4.1 of the Company
Disclosure Schedule or Section 7.1 of the Company Disclosure Schedule and/or (y)
the indemnification agreements in effect as of the date hereof set forth in
Section 7.1 of the Company Disclosure Schedule, copies of which have been
delivered to Parent. In the event that, prior to the Effective Time, the Company
presents to Parent a proposal for the purchase of a policy for directors' and
officers' insurance covering actions of directors and officers prior to the
Effective Time, Parent agrees to consider approval of such proposal, provided
that (i) the aggregate cost to be incurred by the Company in connection with the
purchase of such policy does not exceed $100,000 and (ii) neither Parent nor the
Surviving Corporation shall have any obligation to procure any such policy
subsequent to the Effective Time. To the extent that Parent approves in writing
a proposal for the purchase of directors' and officers' insurance as
contemplated by the preceding sentence of this Section 7.1(a), the existence of
such policy at the Effective Time shall not be deemed to constitute a violation
or breach of any representation or warranty set forth herein.
(b) This Section 7.1 shall survive the consummation of the Merger and
shall be binding on all successors and assigns of Parent and the Surviving
Corporation.
(c) The provisions of this Section 7.1 are intended to be for the benefit
of, and shall be enforceable by, the Indemnified Parties and his or her heirs
and legal representatives.
Section 7.2 Reasonable Best Efforts. Subject to the terms and conditions
hereof, each party agrees that it will use its reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate the
transactions contemplated by this Agreement as promptly as practicable after the
date hereof, including, without limitation, (i) preparing and filing as promptly
as practicable all documentation to effect all necessary applications, notices,
petitions and filings and obtaining as promptly as practicable all consents,
waivers, licenses, orders, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
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Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement, (ii) taking all reasonable steps as
may be necessary to obtain all such consents, waivers, licenses, orders,
registrations, permits and authorizations (including, without limitation, making
an appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby as promptly as practicable
after the date hereof and supplying as promptly as practicable any additional
information and documentary material that may be requested pursuant to the HSR
Act and taking all other actions reasonably necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable), and (iii) defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any Governmental Entity vacated or
reversed. Nothing in this Section 7.2 shall require or be construed to require
Parent or any of its Subsidiaries to sell, license, hold separate or otherwise
dispose of or conduct their business in a specified manner, or agree to sell,
license, hold separate or otherwise dispose of or conduct their business in a
specified manner, or permit the sale, holding separate or other disposition of,
any assets of the Company, Parent or their respective Subsidiaries or the
conduct of their business in a specified manner, whether as a condition to
obtaining any approval from a Governmental Entity or any other Person or for any
other reason.
Section 7.3 Certain Filings; Cooperation in Receipt of Consents.
(a) As promptly as practicable after the date hereof, the Company shall
prepare and file with the SEC a preliminary Proxy Statement. The Company shall
give Parent a reasonable opportunity to review and comment on the Proxy
Statement, and any revision, amendment or supplement thereto, prior to filing or
transmission of such material to the SEC, and shall not so file or transmit any
such material to which Parent reasonably objects. The Company shall use its
reasonable best efforts to respond to any comments of the SEC or its staff and
to cause the Proxy Statement to be mailed to the shareholders of the Company as
promptly as practicable (taking into account the requirements of all applicable
Laws) and, if necessary, after the Proxy Statement shall have been so mailed, to
promptly circulate amended, supplemental or supplemented proxy material and, if
required in connection therewith, resolicit proxies. The Company will advise
Parent, promptly after it receives notice thereof, of any request by the SEC for
revision or amendment of the Proxy Statement or comments thereon or requests by
the SEC for additional information, and shall provide Parent with an opportunity
to review and comment on any responses to such comments or requests prior to
filing with, or transmission of such material to, the SEC, and shall not so file
or transmit any such material to which Parent reasonably objects. If at any time
prior to the Effective Time any information relating to either party, or any of
their respective Affiliates, officers or directors should be discovered by the
Company or Parent that should be set forth in an amendment or supplement to the
Proxy Statement, so that the Proxy Statement would not include any misstatement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party that discovers such information shall promptly notify
Parent or the Company, as the case may be, and the Company shall promptly file
an appropriate
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amendment or supplement describing such information with the SEC and, to the
extent required by Law, disseminate such amendment or supplement to Shareholders
of the Company. The Company shall not mail to its shareholders any Proxy
Statement, or any amendment or supplement thereto, to which Parent reasonably
objects.
(b) The Company and Parent shall cooperate with one another in (i)
determining whether any other action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any Material Contracts, in
connection with the consummation of the transactions contemplated hereby and
(ii) seeking any such other actions, consents, approvals or waivers or making
any such filings, furnishing information required in connection therewith and
seeking promptly to obtain any such actions, consents, approvals or waivers.
Each party shall permit the other party to review, in advance of any filing or
submission, and comment on any communication proposed to be filed or submitted
by it with, and shall consult with each other in advance of any hearing, meeting
or conference with, any Governmental Entity, A.M. Best, Standard & Poor's,
Xxxxx'x or other rating agency, or, in connection with any proceeding by a
private party, with any other Person, and to the extent permitted by the
applicable Governmental Entity or other Person, give the other party the
opportunity to attend and participate in such hearings, meetings and
conferences, in each case in connection with the transactions contemplated
hereby.
Section 7.4 Public Announcements. The parties shall consult with each
other before issuing, and provide each other a reasonable opportunity to review
and comment upon, any press release or public statement with respect to this
Agreement and the transactions contemplated hereby and, except as may be
required by applicable Law or any listing agreement with any national securities
exchange or the Nasdaq, will not issue any such press release or make any such
public statement prior to such consultation.
Section 7.5 Access to Information; Notification of Certain Matters.
(a) From the date hereof until the Effective Time, the Company shall, and
shall cause its Subsidiaries to, (i) give to Parent, its counsel, financial
advisers, auditors and other authorized representatives full access at all
reasonable times upon reasonable advance notice to their respective offices,
properties, books and records, Contracts, accountants, actuaries, management and
consultants, (ii) promptly furnish or make available to Parent, its counsel,
financial advisers, auditors and other authorized representatives such financial
and operating data and other information as such Persons may reasonably request
and (iii) instruct its employees, counsel, financial advisers, auditors and
other authorized representatives to cooperate with the reasonable requests of
Parent in its investigation. Any investigation pursuant to this Section 7.5(a)
shall be conducted in such manner so as not to interfere unreasonably with the
conduct of the business of the Company. All such information shall be governed
by the terms of the Confidentiality Agreement. No information or knowledge
obtained in any review or investigation made by Parent to the date hereof or
pursuant to this Section 7.5(a) shall affect or be deemed to modify any
representation or warranty made by the Company hereunder.
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(b) Each party hereto shall give notice to each other party hereto, as
promptly as practicable after the event giving rise to the requirement of such
notice, of:
(i) any communication received by such party from, or given by such
party to, any Governmental Entity in connection with any of the
transactions contemplated hereby;
(ii) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(iii) the existence of any event, circumstances or fact which would
be reasonably likely to (x) cause any representation or warranty contained
in this Agreement to be inaccurate or untrue in any material respect, (y)
cause any condition to Closing contained in this Agreement to be incapable
of being satisfied, or (z) result in a Material Adverse Effect on such
party;
(iv) any material failure of such party to comply with or satisfy
any covenant or agreement to be complied with or satisfied by such party
pursuant to this Agreement; and
(v) any actions, suits, claims, investigations or proceedings
commenced or, to its best knowledge, threatened against, relating to or
involving or otherwise affecting such party or any of its Subsidiaries
that, if pending on the date of this Agreement, would have been required
to have been disclosed on Section 4.16 of the Company Disclosure Schedule,
or that relate to the consummation of the transactions contemplated by
this Agreement;
provided, however, that the delivery of any notice pursuant to this Section
7.5(b) shall not modify the representations, warranties, Disclosure Schedules,
covenants, agreements or conditions set forth herein or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 7.6 Certain Matters. Parent agrees that, without the prior written
consent of the Company, from the date hereof until the Effective Time, (i)
Parent will not purchase any shares of Company Common Stock and (ii) Parent will
not otherwise become the "beneficial owner" (within the meaning of Section
180.1130 of the WBCL) of any shares of Company Common Stock.
Section 7.7 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on behalf
of the Company, any other actions and things to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of the Company
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
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ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.1 Conditions to the Obligations of Each Party. The obligations
of each party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) the Company Shareholder Approval shall have been obtained;
(b) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been earlier terminated; and
(c) no Governmental Entity of competent authority or jurisdiction shall
have issued any order, injunction or decree, or taken any other action, that is
in effect and restrains, enjoins or otherwise prohibits the consummation of the
Merger, and there shall be no pending or threatened suit, action or proceeding
by any such Governmental Entity that seeks to restrain, enjoin or otherwise
prohibit consummation of the Merger.
Section 8.2 Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) each of Parent and MergerSub shall have performed in all material
respects all of its obligations hereunder required to be performed by it at or
prior to the Effective Time, (ii) the representations and warranties of Parent
contained in this Agreement that are qualified as to materiality or Material
Adverse Effect shall have been true and correct, and those that are not so
qualified shall have been true and correct in all material respects, in each
case, when made and at and as of the Effective Time as if made at and as of the
Effective Time (except (x) to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case it shall be true and
correct, or true and correct in all material respects, as the case may be, as of
such date and (y) for such inaccuracies that would not be reasonably likely to
prevent or materially impair the ability of Parent or MergerSub to consummate
the Merger), and (iii) the Company shall have received a certificate, dated the
date of the Closing, signed by the Chief Executive Officer or Chief Financial
Officer of Parent on behalf of Parent to the foregoing effect; and
(b) the parties shall have obtained or made all consent, approvals,
actions, orders, authorizations, registrations, declarations, announcements and
filings contemplated by Section 4.3 and Section 5.3 which if not obtained or
made (i) would render consummation of the Merger illegal or (ii) would be
reasonably likely to prevent or materially impair the consummation of the
Merger.
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Section 8.3 Conditions to the Obligations of Parent and MergerSub. The
obligations of Parent and MergerSub to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) The Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company contained
in this Agreement that are qualified as to materiality or Material Adverse
Effect shall have been true and correct, and those that are not so qualified
shall have been true and correct in all material respects, in each case, when
made and at and as of the Effective Time as if made at and as of the Effective
Time (except to the extent any such representation or warranty expressly speaks
as of an earlier date, in which case it shall be true and correct, or true and
correct in all material respects, as the case may be, as of such date), and
(iii) Parent shall have received a certificate, dated the date of the Closing,
signed by the Chief Executive Officer or Chief Financial Officer of the Company
on behalf of the Company to the foregoing effect;
(b) the parties shall have obtained or made all consent, approvals,
actions, orders, authorizations, registrations, declarations, announcements and
filings contemplated by Section 4.3 and Section 5.3 which if not obtained or
made (i) would render consummation of the Merger illegal or (ii) would be
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect;
(c) (i) except as disclosed in the Company Disclosure Schedule, since
December 31, 2000, there shall not have occurred any change in the financial
condition, business or results of operations of the Company and its
Subsidiaries, taken as a whole, that has had or would be reasonably likely to
have, individually or in the aggregate, a Company Material Adverse Effect, and
(ii) Parent shall have received a certificate, dated the date of the Closing,
signed by the Chief Executive Officer or Chief Financial Officer of the Company
on behalf of the Company to the foregoing effect;
(d) there shall be no suit, action or proceeding pending or threatened by
a Governmental Entity seeking to restrain, enjoin, prohibit or restrict the
Merger or which would materially and adversely affect the benefits which Parent
could reasonably expect to derive from the Merger;
(e) no action or proceeding before any court or regulatory authority
instituted by any Person other than a Governmental Entity which seeks to prevent
or delay the consummation of the Merger or which would materially and adversely
affect the benefits which Parent could reasonably expect to derive from the
Merger shall be pending;
(f) all consent, approvals, actions, orders, authorizations,
registrations, declarations, announcements and filings contemplated by Section
4.3 and Section 5.3 shall have been obtained, made or given and shall be in full
force and effect, without the imposition upon the Parent, the Company or its
Subsidiaries, or any of their respective Affiliates, of any material condition,
restriction or required undertaking or any conditions or restrictions which,
individually or in the aggregate, would be reasonably likely to (i)
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materially impair or interfere with the ability of the Company and its
Subsidiaries, taken as a whole, to conduct their respective businesses
substantially in the manner as such businesses are now being conducted, (ii)
cause Parent or Merger Subsidiary to incur any material additional costs, or
(iii) impair or interfere with the ability of any Affiliate of the Parent to
conduct its business substantially in the manner as such business is now being
conducted if such impairment or interference, individually or in the aggregate,
is material to the business of the Parent and its Subsidiaries taken as a whole;
(g) (i) all consents and approvals shall have been obtained except for
consents and approvals the failure of which to be obtained would not be
reasonably likely, individually or in the aggregate, to materially impair or
interfere with the ability of the Company and its Subsidiaries, taken as a
whole, to conduct their respective businesses substantially in the manner as
such businesses are now being conducted or otherwise have a Company Material
Adverse Effect, and (ii) to the extent that consents are required to be obtained
pursuant to clause (i), Parent shall have received written evidence reasonably
satisfactory to Parent that all such consents and approvals have been obtained;
(h) Parent and MergerSub shall have received an opinion letter from Xxxxx
& Xxxxxxx, special counsel to the Company, dated the Closing Date, which opinion
shall be reasonably satisfactory in form and substance to Parent and MergerSub
and shall address the matters set forth on Exhibit E attached hereto;
(i) as of the Closing Date, each of the Company Insurance Subsidiaries
shall hold the same rating from A.M. Best Company, Inc. and the same financial
strength rating by Standard & Poor's Ratings Group held on the date hereof (the
"Original Ratings"); as of the Closing Date, neither Rating Agency shall have
downgraded or modified downward the Original Rating held by any of the Company
Insurance Subsidiaries; with regard to the ratings assigned by A.M. Best
Company, Inc., none of the Original Ratings held by the Company Insurance
Subsidiaries shall have been assigned a negative outlook which assignment of
negative outlook remains in effect as of the Closing Date; with regard to the
ratings assigned by Standard & Poor's Ratings Group, none of the Original
Ratings held by any of the Company Insurance Subsidiaries shall have been placed
on CreditWatch with developing or negative implications or assigned a negative
outlook which CreditWatch with developing or negative implications or assignment
of negative outlook remains in effect as of the Closing Date; and neither the
Company nor any of the Company Insurance Subsidiaries shall have received any
notice from a Rating Agency that a downgrade of any rating held by any of the
Company Insurance Subsidiaries is being contemplated which notice has not been
withdrawn prior to the Closing Date; provided, however, that the obligation of
Parent and MergerSub to consummate the Merger shall not be affected by a failure
of the condition set forth in this Section 8.3(i) to the extent that (x) A.M.
Best Company, Inc. and/or Standard & Poor's Ratings Group shall have reversed a
downgrade or downward modification of an Original Rating and restored the
Original Rating prior to the Closing Date or (y) A.M. Best Company, Inc. and/or
Standard & Poor's Ratings Group advise that the downgrade would be reversed and
the Original Ratings would be restored, or that the action regarding a possible
or contemplated downgrade would be terminated, or the CreditWatch with
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developing or negative implications or assignment of a negative outlook would be
terminated, upon a contribution by Parent after the Effective Time to the
capital of the affected Company Insurance Subsidiaries in an amount not
exceeding $6,200,000 in the aggregate;
(j) the holders of at least 90% of the outstanding Company Options listed
in Section 3.3(b) of the Company Disclosure Schedule shall have consented to the
amendment of the terms of the agreements pursuant to which such Company Options
were granted as contemplated by Section 3.3(b); and
(k) the Employment Agreement shall be in full force and effect; provided,
however, that the obligation of Parent and MergerSub to consummate the Merger
shall not be affected by a failure of the condition set forth in this Section
8.3(k) to the extent that the Employment Agreement is not in full force and
effect as a result of the death or disability of the Executive.
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time by written notice by the terminating party to the
other party (except if such termination is pursuant to Section 9.1(a)), whether
before or after the Company Shareholder Approval shall have been obtained:
(a) by mutual written agreement of Parent and the Company;
(b) by either Parent or the Company, if
(i) the Merger shall not have been consummated by January 21, 2002
(the "End Date"); provided, however, that the right to terminate this
Agreement under this Section 9.1(b)(i) shall not be available to any party
whose breach of any provision of or whose failure to perform any
obligation under this Agreement has been the cause of, or has resulted in,
the failure of the Merger to occur on or before the End Date;
(ii) there shall be any Law that makes consummation of the Merger
illegal or otherwise prohibited or any judgment, injunction, order or
decree of any Governmental Entity having competent jurisdiction enjoining
the Company, Parent or MergerSub from consummating the Merger is entered
and such judgment, injunction, order or decree shall have become final and
nonappealable and, prior to such termination, the parties shall have used
their respective reasonable best efforts to resist, resolve or lift, as
applicable, such Law, judgment, injunction, order or decree; provided,
however, that the right to terminate this Agreement under this Section
9.1(b)(ii) shall not be available to any party whose breach of any
provision of or whose failure to perform any obligation under this
Agreement has been the cause of such Law, judgment, injunction, order or
decree; or
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(iii) at the Company Shareholders Meeting (including any adjournment
or postponement thereof), the Company Shareholder Approval shall not have
been obtained.
(c) by the Company, (i) if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Parent or
MergerSub set forth in this Agreement shall have occurred which would cause the
condition set forth in Section 8.2(a) not to be satisfied, and such condition
shall be incapable of being satisfied by the End Date or (ii) as contemplated by
Section 6.3(d); or
(d) by Parent, (i) if the Company's Board of Directors shall have (A)
amended, modified, withdrawn, conditioned or qualified the Company
Recommendation in a manner materially adverse to Parent, (B) recommended any
Acquisition Proposal to the Company's shareholders, and/or (C) failed to make
the Company Recommendation; (ii) if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement shall have occurred which would cause the condition set
forth in Section 8.3(a) not to be satisfied, and such condition is incapable of
being satisfied by the End Date or (iii) if the Company terminates this
Agreement pursuant to Section 9.1(c)(ii) of this Agreement.
Section 9.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1 (including any such termination by way of Section
9.1(c)(ii)), there shall be no liability or obligation on the part of Parent or
the Company, or any of their respective officers, directors, shareholders,
agents or Affiliates under this Agreement, except (a) as set forth in Section
9.3, (b) the provisions of Section 9.2, Section 9.3 and Article X of this
Agreement and the provisions of the Confidentiality Agreement shall remain in
full force and effect and survive any termination of this Agreement, and (c)
notwithstanding anything to the contrary contained in this Agreement, neither
the Company nor Parent shall be relieved of or released from any liabilities or
damages arising out of its willful and material breach of its representations,
warranties, covenants or agreements set forth in this Agreement prior to
termination of this Agreement.
Section 9.3 Termination Fee and Expenses.
(a) Whether or not the Merger is consummated, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except as set forth
in this Section 9.3.
(b) The Company shall pay Parent the Termination Fee (as hereinafter
defined) if this Agreement is terminated as follows:
(i) if (w) this Agreement is terminated pursuant to Section
9.1(b)(iii) (provided that, prior to the relevant Company Shareholder
Meeting, an Acquisition Proposal shall have been publicly announced) or
Section 9.1(d)(ii) (provided that the breach or failure to perform giving
rise to the termination of the Agreement by Parent is a willful and
material breach or failure to perform by the Company), (x) at any time
after the date of this Agreement and prior to the date
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this Agreement is terminated, an Acquisition Proposal shall have been
publicly announced, and (y) within twelve months of the termination of
this Agreement, the Company enters into a definitive agreement with any
third party with respect to a transaction similar to an Acquisition
Proposal or any such transaction with respect to the Company is
consummated; or
(ii) if this Agreement is terminated pursuant to Section 9.1(c)(ii),
Section 9.1(d)(i) or Section 9.1(d)(iii).
(c) "Termination Fee" means a non-refundable fee equal to the sum of (i)
$4.5 million and (ii) all actual and documented expenses (not to exceed $1.5
million) incurred by or on behalf of Parent and MergerSub in connection with the
proposed Merger, this Agreement and the transactions contemplated hereby
(including, without limitation, the reasonable fees and expenses of their
counsel, accountants, and financial advisers).
(d) The Termination Fee required to be paid pursuant to Section 9.3(b)
shall be paid prior to, and shall be a pre-condition to the effectiveness of,
termination of this Agreement pursuant to Section 9.1(c)(ii). Any other payment
of the Termination Fee required to be made pursuant to Section 9.3(b) shall be
made not later than two Business Days after (i) the consummation of a Business
Combination with the Company, in the case of a termination of this Agreement
pursuant to Section 9.1(b)(i), Section 9.1(b)(iii) or Section 9.1(d)(ii), or
(ii) the termination of this Agreement pursuant to Section 9.1(d)(i) or (iii).
(e) Notwithstanding anything herein to the contrary, the Company shall not
be required to pay a Termination Fee to Parent if Parent is in material breach
of this Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices. Except as otherwise expressly set forth in Section
6.3(c), all notices, requests and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be given,
if to Parent, to:
Alleghany Corporation
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxx, Esq.
Senior Vice President, General
Counsel and Secretary
Facsimile: (000) 000-0000
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with a copy to:
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
if to the Company, to:
Capitol Transamerica Corporation
0000 Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxx Xxxx
Chairman and President
Facsimile: (000) 000-0000
with a copy to:
Xxxxx & Lardner
Firstar Center
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Quick, Esq.
Facsimile: (000) 000-0000
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other party hereto. Each such notice, request
or other communication shall be effective upon receipt.
Section 10.2 Survival of Representations, Warranties and Covenants after
the Effective Time. The representations and warranties contained herein and in
any certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement. The covenants contained in
Articles II and III and Sections 7.1, 7.6, 10.2, 10.4, 10.5, 10.6, 10.7, 10.8,
10.9 and 10.10 shall survive the Effective Time.
Section 10.3 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company, Parent and MergerSub or in
the case of a waiver, by the party against whom the waiver is to be effective;
provided, however, that after the Company Shareholder Approval, no such
amendment or waiver shall, without the further approval of such shareholders, be
made that would require such approval under any applicable Law.
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(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
Section 10.4 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other party hereto. Any purported assignment in
violation hereof shall be null and void.
Section 10.5 Governing Law. This Agreement shall be construed in
accordance with and governed by the internal Laws of the State of Delaware
without reference to its principles of conflicts of laws, except to the extent
that the laws of the State of Wisconsin are mandatorily applicable hereto.
Section 10.6 Counterparts; Effectiveness; Third Party Beneficiaries. This
Agreement may be signed in counterparts, each of which shall be an original,
with the same effect as if the signatures on each counterpart were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by the other party hereto. Except as
set forth in Section 7.1, no provision of this Agreement is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
Section 10.7 Jurisdiction. Except as otherwise expressly provided in this
Agreement, the parties hereto agree that 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 hereby shall be
brought in the United States District Court for the District of Delaware or any
other Delaware State court (and in the appropriate appellate courts), and each
of the parties hereby (i) consents to the exclusive jurisdiction of such courts
in any such suit, action or proceeding, (ii) irrevocably waives, to the fullest
extent permitted by Law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum, and (iii) agrees not to bring any action
related to this Agreement or the transactions contemplated hereby in any other
court (except to enforce the judgment of such courts). Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in Section 10.1 shall be deemed effective service of process on such party.
Section 10.8 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
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Section 10.9 Enforcement. 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. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
Section 10.10 Entire Agreement. This Agreement (together with the
Disclosure Schedules, exhibits, agreements and other documents delivered in
connection herewith) and the Confidentiality Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof. Any fact or item
disclosed by the Company or Parent, as applicable, on any Schedule to this
Agreement shall be deemed disclosed on all other Schedules to this Agreement to
which such fact or item may reasonably apply so long as such disclosure is in
sufficient detail to enable a party hereto to identify the facts or items to
which it applies. Any fact or item disclosed on any Schedule hereto shall not by
reason only of such inclusion be deemed to be material and shall not be employed
as a point of reference in determining any standard of materiality under this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
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ALLEGHANY CORPORATION
Attest:
/s/ Xxxxxx X. Xxxx By /s/ Xxxx Xxxxx
-------------------------------- ---------------------------------
Name: Xxxx Xxxxx
Title: President & CEO
ABC ACQUISITION CORP.
Attest:
/s/ Xxxxxx X. Xxxx By /s/ Xxxxx X. Xxxxxx
-------------------------------- ---------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
Attest: CAPITOL TRANSAMERICA CORPORATION
/s/ Xxxx X. Xxxxxx By /s/ Xxxxxx X. Xxxx
-------------------------------- --------------------------------
Name: Xxxxxx X. Xxxx
Title: President
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