AGREEMENT AND PLAN OF MERGER
among
USF&G CORPORATION,
UNITED STATES FIDELITY AND GUARANTY COMPANY,
and
TITAN HOLDINGS, INC.
dated as of August 7, 1997
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . .2
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . .2
1.3 Effective Time . . . . . . . . . . . . . . . . . . . .2
1.4 Effects of the Merger. . . . . . . . . . . . . . . . .2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES; WARRANTS AND OPTIONS
2.1 Effect on Capital Stock. . . . . . . . . . . . . . . .3
2.2 Company Common Stock Elections . . . . . . . . . . . .5
2.3 Proration. . . . . . . . . . . . . . . . . . . . . . .7
2.4 Tax Adjustment . . . . . . . . . . . . . . . . . . . .9
2.5 Dividends, Fractional Shares, Etc. . . . . . . . . . .9
2.6 Warrants . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Stock Options. . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. . . . 12
3.2 Representations and Warranties of Parent and USF&G . 44
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company . . . . . . . . . . . . . . 49
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Proxy Statement;
Shareholder Meeting; Comfort Letters . . . . . . . . 56
5.2 Contract and Regulatory Approvals. . . . . . . . . . 57
5.3 HSR Filings. . . . . . . . . . . . . . . . . . . . . 58
5.4 Access to Information; Confidentiality . . . . . . . 58
5.5 Fees and Expenses. . . . . . . . . . . . . . . . . . 59
5.6 Indemnification. . . . . . . . . . . . . . . . . . . 60
5.7 Reasonable Best Efforts. . . . . . . . . . . . . . . 61
5.8 Public Announcements . . . . . . . . . . . . . . . . 62
5.9 Environmental Studies. . . . . . . . . . . . . . . . 62
5.10 Affiliates . . . . . . . . . . . . . . . . . . . . . 62
5.11 Support Agreement. . . . . . . . . . . . . . . . . . 62
5.12 Cooperation. . . . . . . . . . . . . . . . . . . . . 62
5.13 NYSE Listing . . . . . . . . . . . . . . . . . . . . 63
5.14 Benefit Plans and Employee Arrangements. . . . . . . 63
5.15 Tax-Free Reorganization. . . . . . . . . . . . . . . 63
5.16 Tri-West . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect
the Merger . . . . . . . . . . . . . . . . . . . . . 63
6.2 Conditions to Obligations of Parent and USF&G. . . . 64
6.3 Conditions to Obligation of the Company. . . . . . . 65
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. . . . . . . . . . . . . . . . . . . . . 66
7.2 Effect of Termination. . . . . . . . . . . . . . . . 68
7.3 Amendment. . . . . . . . . . . . . . . . . . . . . . 68
7.4 Extension; Waiver. . . . . . . . . . . . . . . . . . 68
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . . 69
8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . 69
8.3 Interpretation . . . . . . . . . . . . . . . . . . . 70
8.4 Counterparts . . . . . . . . . . . . . . . . . . . . 70
8.5 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership. . . . . . . . . . . . . . . . . 70
8.6 Governing Law. . . . . . . . . . . . . . . . . . . . 70
8.7 Assignment . . . . . . . . . . . . . . . . . . . . . 70
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 7, 1997 (the
"Agreement"), is made and entered into by and among USF&G Corporation, a
Maryland corporation ("Parent"), United States Fidelity and Guaranty Company, a
Maryland corporation and a wholly owned subsidiary of Parent ("USF&G"), and
Titan Holdings, Inc., a Texas corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company, Parent and
USF&G have determined that the merger of the Company with and into USF&G (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement, would be fair to and in the best interests of their respective
shareholders, and such Boards of Directors have approved the Merger, pursuant to
which each share of common stock, par value $0.01 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (as defined in Section 1.3) (other than (a) shares of Company
Common Stock owned, directly or indirectly, by the Company, any Subsidiary (as
defined in Section 3.1(c)) of the Company, Parent or USF&G or any Subsidiary of
USF&G or Parent and (b) Dissenting Shares (as defined in Section 2.1(e))) will
be converted into, subject to the terms hereof, the right to receive the Merger
Consideration (as defined in Section 2.1(c));
WHEREAS, the Merger requires, for the approval thereof, the affirmative
vote of two-thirds of each of (a) the outstanding shares of the Company Common
Stock (the "Company Shareholder Approval") and (b) the outstanding shares of
USF&G's common stock, par value $2.50 per share (the "USF&G Common Stock");
WHEREAS, Parent and USF&G are unwilling to enter into this Agreement
unless, contemporaneously with the execution and delivery of this Agreement,
Mark E. Watson, Jr., in his capacity as a shareholder of the Company, enters
into a voting and support agreement with Parent and USF&G, the form of which is
attached hereto as Exhibit A (the "Support Agreement");
WHEREAS, Parent, USF&G and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that this Agreement shall constitute a "plan of
reorganization" for purposes of the Code.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Texas Business Corporation Act
("TBCA") and the Maryland General Corporation Law ("MGCL"), the Company shall be
merged with and into USF&G at the Effective Time. At the Effective Time, the
separate corporate existence of the Company shall cease and USF&G shall continue
as the surviving corporation (USF&G and the Company are sometimes hereinafter
referred to as "Constituent Corporations" and, as the context requires, USF&G is
sometimes hereinafter referred to as the "Surviving Corporation"). The name of
the Surviving Corporation shall be United States Fidelity and Guaranty Company.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., Chicago, Illinois time, on the second business day after satisfaction
and/or waiver of all of the conditions set forth in Article VI (the "Closing
Date"), at the offices of Mayer, Brown & Platt, 190 South LaSalle Street,
Chicago, Illinois 60603, unless another date, time or place is agreed to in
writing by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing articles of
merger (the "Articles of Merger") with the Secretary of State of the State of
Texas, as provided in the TBCA, and the Maryland State Department of Assessments
and Taxation, as provided in the MGCL, as soon as practicable on or after the
Closing Date. The Merger shall become effective upon the acceptance for record
of such filings or at such time thereafter as is provided in the Articles of
Merger (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects as set
forth in the applicable provisions of the TBCA and MGCL.
(a) The Articles of Incorporation of USF&G shall be the
Articles of Incorporation of the Surviving Corporation until duly amended in
accordance with the terms thereof and the MGCL.
(b) The Bylaws of USF&G (the "USF&G Bylaws") shall be the
Bylaws of the Surviving Corporation until thereafter amended as provided by
applicable law, the Surviving Corporation's Articles of Incorporation or the
Bylaws.
(c) The directors of USF&G immediately prior to the Effective
Time shall be the directors of the Surviving Corporation until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and Bylaws.
(d) The officers of USF&G at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; MERGER CONSIDERATION;
EXCHANGE OF CERTIFICATES; WARRANTS AND OPTIONS
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any further action on the part of the holder of any shares of
Company Common Stock or the holder of any shares of USF&G Common Stock:
(a) Capital Stock of USF&G. Each share of USF&G Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $2.50 per share of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Company Common Stock
owned by USF&G or Parent. Each share of Company Common Stock that is owned by
the Company, any Subsidiary of the Company, Parent or USF&G or any Subsidiary of
Parent or USF&G shall automatically be canceled and retired and shall cease to
exist, and no stock of Parent or other consideration shall be delivered or
deliverable in exchange therefor.
(c) Merger Consideration. Subject to Sections 2.1(b) and (e)
and Section 2.3, at the Effective Time each issued and outstanding share of
Company Common Stock shall be converted into, at the election of the holder
thereof, one of the following (as adjusted pursuant to this Article II), (the
"Merger Consideration"):
(i) for each such share of Company Common Stock (other
than shares as to which a Stock Election or Cash
Election (each as defined below) has been made), the
right to receive (x) 0.46516 (the "Standard Exchange
Ratio") of a share of the Common Stock, $2.50 par
value per share (including the associated Parent
Rights (as defined below), "Parent Common Stock"), of
Parent (the "Standard Stock Consideration") and (y) an
amount in cash, without interest, equal to $11.60 (the
"Standard Cash Consideration" and, together with the
Standard Stock Consideration, the "Standard
Consideration"); provided, however, that
(1) in the event the Average Stock Price is greater or
less than $24.94 but not greater than $28.68 or
less than $21.20, the allocation of the
consideration between stock and cash will be
adjusted to maintain a 50% stock, 50% cash
relationship by adjusting the Standard Cash
Consideration to an amount equal to 0.50 times the
product of (a) $23.20 times (b) 1 plus the product
of (i) 0.50 times (ii) a fraction the numerator of
which is the Average Stock Price minus $24.94 and
the denominator of which is $24.94 and adjusting
the Standard Exchange Ratio to an amount equal to
the quotient obtained by dividing the Standard
Cash Consideration as so adjusted by the Average
Stock Price; and
(2) in the event the Average Stock Price is greater
than $28.68, the Standard Cash Consideration shall
be an amount equal to $12.47 and the Standard
Exchange Ratio shall be equal to the quotient
obtained by dividing $12.47 by the Average Stock
Price; and
(3) in the event the Average Stock Price is less than
$21.20, the Standard Cash Consideration shall be
an amount equal to $10.73 and the Standard
Exchange Ratio shall be equal to the quotient
obtained by dividing $10.73 by the Average Stock
Price.
(ii) for each such share of Company Common Stock with
respect to which an election to receive solely Parent
Common Stock has been effectively made and not revoked
or lost pursuant to Sections 2.2(c), (d) or (e), the
right to receive 2.0 times the Standard Exchange Ratio
as determined by (c)(i) above (the "Stock Exchange
Ratio") of a share of Parent Common Stock (the "Stock
Consideration"); or
(iii) for each such share of Company Common Stock with
respect to which an election to receive solely cash
has been effectively made and not revoked or lost
pursuant to Section 2.2(c), (d) or (e), the right to
receive in cash, without interest, in an amount equal
to 2.0 times the Standard Cash Consideration as
determined pursuant to (i) above (the "Cash
Consideration"); provided, however, that (1) in the
event the Average Stock Price is less than $21.20, the
Cash Consideration shall be equal to $21.46 and (2) in
the event the Average Stock Price is more than $28.68,
the Cash Consideration shall be equal to $24.94.
"Average Stock Price" means the average of the Closing Market Prices
(as hereinafter defined) for the ten consecutive trading days ending on the
third trading day prior to the Effective Time; provided, however, that the
Average Stock Price used for purposes of the calculations in this Article II
shall not in any event be less than $17.46. The "Closing Market Prices" for any
trading day means the closing sales price of Parent Common Stock as reported in
the New York Stock Exchange Composite Tape for that day.
(d) Cancellation and Retirement of Company Common Stock. As a
result of the Merger and without any action on the part of the holder thereof,
at the Effective Time and except as provided in Sections 2.1(b) and (e), all
shares of Company Common Stock shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of such shares of
Company Common Stock shall thereafter cease to have any rights with respect to
such shares of Company Common Stock, except the right to receive, without
interest, the Merger Consideration and cash for fractional shares of Parent
Common Stock in accordance with Section 2.5(c) upon the surrender of a
certificate representing such shares of Company Common Stock (a "Company
Certificate").
(e) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, holders of Company Common Stock that have, as of the
Effective Time, complied with all procedures necessary to assert appraisal
rights in accordance with the TBCA, if applicable, shall have such rights, if
any, as they may have pursuant to Section 5.12 of the TBCA and such Company
Common Stock shall not be converted or be exchangeable as provided in this
Section 2.1, but such holders shall be entitled to receive such payment as may
be determined to be due to such holders pursuant to the TBCA; provided, however,
that if such holder shall have failed to perfect or shall have effectively
withdrawn or lost his right to appraisal and payment under the TBCA, such
holder's Company Common Stock shall thereupon be deemed to have been converted
and to have become exchangeable, as of the Effective Time, into the Standard
Consideration. The Company Common Stock described in this Section 2.1(e) held by
holders who exercise and perfect appraisal rights are referred to herein as
"Dissenting Shares." The Company shall give Parent prompt notice of any demands
for appraisal of shares received by the Company (and shall also give Parent
prompt notice of any withdrawals of such demands for appraisal rights) and
Parent shall have the opportunity and right to participate in and direct all
negotiations with respect to such demands. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to, settle or
otherwise negotiate or offer to settle any such demand for appraisal rights.
Parent agrees that it shall make all payments with respect to appraisal rights
and that the funds therefor shall not come, directly or indirectly, from the
Company.
2.2 Company Common Stock Elections
(a) Elections. Each person who, at the Effective Time, is a
record holder of shares of Company Common Stock (other than holders of shares of
Company Common Stock to be canceled as set forth in Section 2.1(b) or of
Dissenting Shares) shall have the right to submit an Election Form (as defined
in Section 2.2(c)) specifying that such person desires to have all of the shares
of Company Common Stock owned by such person converted into the right to receive
either (i) the Standard Consideration (a "Standard Election") (ii) the Stock
Consideration (a "Stock Election"), or (iii) the Cash Consideration (a "Cash
Election").
(b) Deposit of Exchange Fund. Promptly after the Allocation
Determination (as defined in Section 2.2(d)), Parent shall deposit (or cause to
be deposited) with a bank or trust company to be designated by Parent and
reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of
the holders of shares of Company Common Stock, for exchange in accordance with
this Article II, (i) cash in an amount sufficient to pay the aggregate cash
portion of the Merger Consideration in accordance with this Article II and (ii)
certificates representing shares of Parent Common Stock ("Parent Certificates")
for exchange in accordance with this Article II (the cash and certificates
deposited pursuant to clauses (i) and (ii) being hereinafter referred to as the
"Exchange Fund").
(c) Method of Election; Deemed Standard Election. As soon as
reasonably practicable after the Effective Time, the Exchange Agent shall mail
to each holder of record of Company Common Stock immediately prior to the
Effective Time (excluding any shares of Company Common Stock which (i) are
canceled pursuant to Section 2.1(b), or (ii) are Dissenting Shares) (A) a letter
of transmittal (the "Company Letter of Transmittal") (which shall specify that
delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon delivery of such Company Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent shall specify), (B) instructions for use in effecting the surrender of
the Company Certificates in exchange for the Merger Consideration with respect
to the shares of Company Common Stock formerly represented thereby, and (C) an
election form (the "Election Form") providing for such holders to make the
Standard Election, the Cash Election or the Stock Election. As of the Election
Deadline (as defined in Section 2.2(d)) all holders of Company Common Stock
immediately prior to the Effective Time (excluding any shares of Company Common
Stock that (i) are canceled pursuant to Section 2.1(b) or (ii) are Dissenting
Shares) that shall not have properly submitted to the Exchange Agent, or that
shall have properly revoked, an effective and properly completed Election Form
shall be deemed to have made a Standard Election (each a "Deemed Standard
Election").
(d) Election Deadline. Any Cash Election, Standard Election,
or Stock Election shall have been validly made only if the Exchange Agent shall
have received by 5:00 p.m. New York City time on a date (the "Election
Deadline") to be mutually agreed upon by Parent and the Company (which date
shall not be later than the twentieth business day after the Effective Time), an
Election Form properly completed and executed (with the signature or signatures
thereof guaranteed to the extent required by the Election Form) by such holder
accompanied by such holder's Company Certificates, or by an appropriate
guarantee of delivery of such Company Certificates from a member of any
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States as set forth in such Election Form. Any holder of Company Common Stock
that has made an election by submitting an Election Form to the Exchange Agent
may at any time prior to the Election Deadline change such holder's election by
submitting a revised Election Form, properly completed and signed that is
received by the Exchange Agent prior to the Election Deadline. Any holder of
Company Common Stock may at any time prior to the Election Deadline revoke such
holder's election and withdraw such holder's Company Certificate deposited with
the Exchange Agent by written notice to the Exchange Agent received by the close
of business on the day prior to the Election Deadline. As soon as practicable
after the Election Deadline (but in no event later than ten business days after
the Election Deadline), the Exchange Agent shall determine the allocation of the
cash portion and stock portion of the Merger Consideration and shall notify
Parent of its determined allocation (the "Allocation Determination").
(e) No Further Ownership Rights in Company. From and after the
Effective Time, each holder of a certificate that immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, shall,
upon surrender of such certificate for cancellation to the Exchange Agent,
together with the Company Letter of Transmittal, duly executed, and such other
documents as Parent or the Exchange Agent shall reasonably request, be entitled
to receive promptly after the Election Deadline in exchange therefor (A) a check
in the amount equal to the cash, if any, which such holder has the right to
receive pursuant to the provisions of this Article II (including any cash in
lieu of fractional shares of Parent Common Stock), and (B) a Parent Certificate
representing that number of shares of Parent Common Stock, if any, which such
holder has the right to receive pursuant to this Article II (in each case less
the amount of any required withholding taxes), and the Company Certificate so
surrendered shall forthwith be canceled. Until surrendered as contemplated by
this Section 2.2(e), each Company Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive the Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby. If any certificate for shares of Parent Common Stock to be
issued in the Merger is to be issued in a name other than that in which the
certificate for shares of Company Common Stock surrendered in exchange therefor
is registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other tax required by reason
of the issuance of certificates for such shares of Parent Common Stock in a name
other than that of the registered holder of the certificate surrendered, or
shall establish to the satisfaction of Parent or its agent that such tax has
been paid or is not applicable.
(f) Rules Governing Elections. Parent shall have the right to
make rules, not inconsistent with the terms of this Agreement, governing the
validity of the Election Forms, the manner and extent to which Standard
Elections, Cash Elections or Stock Elections are to be taken into account in
making the determinations prescribed by Section 2.3, the issuance and delivery
of certificates for Parent Common Stock into which shares of Company Common
Stock are converted in the Merger, and the payment of cash for shares of Company
Common Stock converted into the right to receive cash in the Merger.
2.3 Proration.
(a) As is more fully set forth below, the maximum number of
shares of Parent Common Stock issuable to holders of Company Common Stock (the
"Maximum Number of Parent Shares") shall not exceed the product of (x) the
Standard Exchange Ratio and (y) the number of Outstanding Company Shares (as
defined below).
(b) As is more fully set forth below, the aggregate amount of
cash to be paid to holders of Outstanding Company Shares (as defined below) (the
"Maximum Cash Amount") shall not exceed the product of (x) the Standard Cash
Consideration and (y) the number of Outstanding Company Shares. "Outstanding
Company Shares" shall mean those shares of Company Common Stock outstanding
immediately prior to the Effective Time.
(c) In the event that the aggregate number of shares of Parent
Common Stock issuable pursuant to the Stock Elections received by the Exchange
Agent exceeds an amount equal to the Maximum Number of Parent Shares minus the
number of shares of Parent Common Stock issuable pursuant to Standard Elections
and Deemed Standard Elections, including any fractional shares of Parent Common
Stock for which a cash adjustment shall be paid pursuant to Section 2.5(c) (such
difference, the "Remaining Parent Shares"), each holder making a Stock Election
shall receive, for each share of Company Common Stock held by such holder, (x) a
number of shares of Parent Common Stock equal to the quotient obtained by
dividing (i) the Remaining Parent Shares by (ii) the aggregate number of shares
of Company Common Stock held by holders making Stock Elections (the "Stock
Election Company Shares"), plus (y) cash in an amount equal to the quotient
obtained by dividing (iii) the Remaining Stock Election Cash Amount (as defined
below) by (iv) the Stock Election Company Shares. The "Remaining Stock Election
Cash Amount" shall be equal to the Maximum Cash Amount minus the sum of (i) the
aggregate amount of cash payable pursuant to, or with respect to, Standard
Elections, Deemed Standard Elections, Cash Elections, Dissenting Shares and
fractional shares and (ii) the aggregate amount of consideration transferred by
Parent in acquiring the Parent Shares (as defined below). "Parent Shares" means
any and all shares of Company Common Stock that are (i) owned by Parent or USF&G
and (ii) canceled and retired at the Effective Time pursuant to Section 2.1(b).
For purposes of this paragraph and the following paragraph, the aggregate amount
of cash payable with respect to Dissenting Shares shall be deemed to be the
product of (x) the number of Dissenting Shares times (y) the sum of (i) the
Standard Cash Consideration and (ii) the product of the Standard Exchange Ratio
times the Average Stock Price.
(d) In the event that the aggregate amount of cash payable
pursuant to Cash Elections received by the Exchange Agent exceeds the Maximum
Cash Amount minus the sum of (i) the aggregate amount of cash payable pursuant
to Standard Elections and Deemed Standard Elections, (ii) the aggregate amount
of cash payable with respect to the Dissenting Shares and fractional shares and
(iii) the aggregate amount of consideration transferred by Parent in acquiring
the Parent Shares (such difference, the "Remaining Cash"), each holder making a
Cash Election shall receive, for each share of Company Common Stock held by such
holder, (x) cash in an amount equal to the quotient obtained by dividing the (i)
Remaining Cash by (ii) the aggregate number of shares of Company Common Stock
held by holders making Cash Elections (the "Cash Election Company Shares"), plus
(y) a number of shares of Parent Common Stock equal to the quotient obtained by
dividing (iii) the Remaining Cash Election Parent Shares (as defined below) by
(iv) the Cash Election Company Shares. The "Remaining Cash Election Parent
Shares" shall be the Maximum Number of Parent Shares minus the number of shares
of Parent Common Stock issuable pursuant to Standard Elections, Deemed Standard
Elections and Stock Elections (including any fractional shares of Parent Common
Stock for which a cash adjustment shall be paid pursuant to Section 2.5(c) in
respect of such Standard Elections, Deemed Standard Elections and Stock
Elections).
2.4 Tax Adjustment.
In the event that the Closing Stock Price (as defined below) is less
than the Average Stock Price such that the allocation of the consideration
between stock and cash based on the Closing Stock Price is not 50% stock and 50%
cash, appropriate adjustment will be made, as determined by Parent and the
Company upon advice of counsel, to the extent if any, as may be required to
cause the Merger Consideration allocation between cash and stock to satisfy the
continuity of interest requirements for purposes of causing the transaction to
qualify as a tax-free reorganization, provided that the total value of the
Merger Consideration to be delivered by Parent, based upon the Average Stock
Price, shall not increase. For purposes of this Section 2.4, the "Closing Stock
Price" shall mean the mean between the highest and lowest quoted selling prices
of the Parent Common Stock as reported on the New York Stock Exchange Composite
Tape on the day of the Effective Time of the Merger. In the event that an
adjustment is made under this Section 2.4, any adjustments necessary or
appropriate to reflect such adjustment shall be made to the other provisions of
this Article II.
2.5 Dividends, Fractional Shares, Etc.
(a) Dividends on Parent Common Stock. Notwithstanding any
other provisions of this Agreement, no dividends or other distributions declared
after the Effective Time on Parent Common Stock shall be paid with respect to
any shares of Company Common Stock represented by a Company Certificate, until
such Company Certificate is surrendered for exchange as provided herein. Subject
to the effect of applicable laws, following surrender of any such Company
Certificate, there shall be paid to the holder of Parent Certificates issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock and not paid, less the amount of any withholding taxes that may be
required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of any
withholding taxes that may be required thereon.
(b) No Transfers; Closing of Stock Transfer Book. At or after
the Effective Time, there shall be no transfer on the stock transfer books of
the Company of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates representing any such shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration,
if any, deliverable in respect thereof pursuant to this Agreement.
(c) No Fractional Shares. No fractional shares of Parent
Common Stock shall be issued pursuant to the Merger. In lieu of the issuance of
any fractional share of Parent Common Stock pursuant to the Merger, cash
adjustments shall be paid to holders in respect of any fractional share of
Parent Common Stock that would otherwise be issuable, and the amount of such
cash adjustment shall be equal to the product of such fractional amount and the
Average Stock Price.
(d) Termination of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any investments thereof and any shares of Parent
Common Stock) that remains unclaimed by the former stockholders of the Company
two years after the Effective Time shall be delivered to Parent. Any former
stockholder of the Company who has not theretofore complied with this Article II
shall thereafter look only to the Surviving Corporation and Parent for payment
of the applicable Merger Consideration, cash in lieu of fractional shares and
unpaid dividends and distributions on Parent Common Stock deliverable in respect
of each share of Company Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case without any interest thereon.
(e) None of Parent, the Company, USF&G, the Surviving
Corporation, the Exchange Agent or any other person shall be liable to any
former holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable or unclaimed property,
escheat or similar laws.
(f) In the event that any Company Certificate shall have been
lost, stolen or destroyed upon the making of an affidavit of that fact by the
person claiming such Company 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 Company Certificate, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Company Certificate the
applicable Merger Consideration, cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Parent Common Stock, as provided in
this Section 2.5, deliverable in respect thereof pursuant to this Agreement.
(g) In the event of any change in Parent Common Stock between
the date of this Agreement and the Effective Time by reason of any stock split,
stock dividend, subdivision, reclassification, combination, exchange of Parent
Common Stock or the like, the Merger Consideration and other terms set forth in
this Agreement shall be appropriately adjusted.
(h) The pricing terms set forth herein are based on the
information disclosed in Section 3.1(b) hereof. If the number of such shares and
share equivalents outstanding is greater than the foregoing, the Merger
Consideration shall be appropriately adjusted.
2.6 Warrants.
The Company shall use its reasonable best efforts to cause holders of
all then outstanding warrants to purchase Company Common Stock (each a "Company
Warrant") whether or not then exercisable in whole or in part, to agree to
surrender and receive, in exchange for cancellation and in settlement thereof a
number of shares of Parent Common Stock for each share of Company Common Stock
subject to such Company Warrant (subject to any applicable withholding tax)
equal to the quotient of (i) the product of (1) the number of shares of Company
Common Stock which the holder would be entitled to receive if such Company
Warrant were exercised in full immediately prior to the Effective Time
multiplied by (2) the difference between (x) the Cash Consideration and (y) the
exercise price of such share of Company Common Stock under the Company Warrant,
to the extent such amount is a positive number divided by (ii) the Average
Closing Price (such amount being hereinafter referred to as the "Warrant
Consideration"); provided, however, that with respect to any person subject to
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any such amount shall be paid as soon as practicable after the first date
payment can be made without liability to such person under Section 16(b) of the
Exchange Act. Upon receipt of the Warrant Consideration, the Company Warrant
shall be canceled. The surrender of a Company Warrant to the Company in exchange
for the Warrant Consideration shall be deemed a release of any and all rights
the holder had or may have had in respect of such Company Warrant. With respect
to the Company Warrants that are not surrendered prior to the Effective Time,
after the Effective Time, the Surviving Corporation shall comply with all
applicable terms of such unsurrendered Company Warrants.
2.7 Stock Options.
Each stock option issued and outstanding under the 1993 Stock Option
Plan, as amended, of the Company (the "Stock Option Plan") is referred to herein
as an "Employee/Director Stock Option" and all such options are referred to
herein, collectively, as the "Employee/Director Stock Options." Each stock
option issued and outstanding under the 1993 Directors' Stock Option Plan (the
"Directors' Stock Option Plan") is referred to herein as a "Director's Option"
and all such options are referred to herein, collectively, as the "Directors'
Options." The Employee/Director Stock Options and the Directors' Options are
referred to herein, collectively, as the "Company Options" and, individually, as
a "Company Option." At the Effective Time, each Company Option shall become
immediately fully vested and shall be converted into an option to purchase
shares of Parent Common Stock, as provided below. Following the Effective Time,
each such Company Option shall be exercisable upon the same terms and conditions
as then are applicable to such Company Option, except that (i) each such Company
Option shall be exercisable for that number of shares of Parent Common Stock
equal to the product of (x) the number of shares of Company Common Stock for
which such Company Option was exercisable immediately prior to the Effective
Date and (y) the Stock Exchange Ratio and (ii) the exercise price of such option
shall be equal to the quotient obtained by dividing the exercise price per share
of such Company Option by the Stock Exchange Ratio. From and after the date of
this Agreement, no additional options to purchase shares of Company Common Stock
shall be granted under the Company Stock Option Plan, Directors' Stock Option
Plan or otherwise. Except as otherwise agreed to by the parties, no person shall
have any right under any stock option plan (or any option granted thereunder) or
other plan, program or arrangement of the Company with respect to, including any
right to acquire, equity securities of the Company following the Effective Time.
At or as soon as practicable after the Effective Time, Parent shall issue to
each holder of a Company Option that is canceled an agreement that accurately
reflects the terms of the Parent Option substituted therefore as contemplated by
this Section 2.7. Parent shall (i) take all corporate actions necessary to
reserve for issuance such number of shares of Parent Common Stock as will be
necessary to satisfy exercises in full of all Parent Options after the Effective
Time, (ii) use its reasonable best efforts to ensure that an effective
Registration Statement on Form S-8 is on file with the Securities and Exchange
Commission (the "SEC") with respect to such Parent Common Stock, and (iii) use
its reasonable best efforts to have such shares admitted to trading upon
exercises of Parent Options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company.
Except as disclosed in (i) the Company's Annual Report on Form 10-K fo
the fiscal year ended December 31, 1996, (ii) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1997, or (iii) the disclosure
memorandum (the "Disclosure Memorandum") delivered at or prior to the date of
this Agreement (it being understood that each section of the Disclosure
Memorandum shall list all items applicable to such section, although the
inadvertent omission of an item from one section shall not be a breach of this
Agreement if such item and an explanation of the nature of such item is clearly
disclosed in another section of the Disclosure Memorandum) the Company
represents and warrants to Parent and USF&G as follows:
(a) Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified or licensed to do business
as a foreign corporation and in good standing to conduct business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification or license necessary,
other than such jurisdictions where the failure so to qualify or become so
licensed would not individually or in the aggregate adversely affect the Company
and its Subsidiaries taken as a whole in any material respect. The Company has
heretofore made available to Parent complete and correct copies of its Amended
and Restated Articles of Incorporation, as currently in effect as of the date of
this Agreement (the "Company Articles of Incorporation"), and the Bylaws. As
used in this Agreement, a "Material Adverse Effect" shall mean, with respect to
any specified party to this Agreement, any event, change, condition, fact or
effect which has or could reasonably be expected to have a material adverse
effect on (i) the business, results of operations, or financial condition of
such party and its Subsidiaries taken as a whole or (ii) the ability of such
party to consummate the transactions contemplated by this Agreement.
(b) Capital Structure. As of the date of this Agreement, the
authorized capital stock of the Company consists of 45,000,000 shares, divided
into the following: (i) 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Company Preferred Stock"); and (ii) 40,000,000 shares of Company
Common Stock. At the close of business on August 1, 1997: (i) 10,101,915 shares
of Company Common Stock were issued and outstanding, 27,825 of which are
restricted shares; (ii) 815,902 shares of Company Common Stock were reserved for
issuance in connection with the Stock Option Plan; (iii) 122,457 shares of
Company Common Stock were reserved for issuance in connection with the
Directors' Stock Option Plan; (iv) 491,222 shares of Company Common Stock were
reserved for issuance upon exercise of outstanding Company Warrants; (v) no
shares of Company Common Stock were held in treasury; (vi) no shares of Company
Preferred Stock were issued and outstanding or held by the Company or any
Subsidiary of the Company; and (vii) no bonds, debentures, notes or other
instruments or evidence of indebtedness having the right to vote (or convertible
into, or exercisable or exchangeable for securities having the right to vote) on
any matters on which the Company shareholders may vote ("Company Voting Debt")
were issued or outstanding. All outstanding shares of Company Common Stock are
validly issued, fully paid and nonassessable and are not subject to preemptive
or other similar rights. Except as set forth in Section 3.1(b) of the Disclosure
Memorandum, there are outstanding: (i) no securities of the Company convertible
into or exchangeable or exercisable for shares of capital stock, Company Voting
Debt or other voting securities of the Company; and (ii) no stock awards,
options, warrants, calls, rights (including stock purchase or preemptive
rights), commitments or agreements to which the Company is a party or by which
it is bound, in any case obligating the Company to issue, deliver, sell,
purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of its capital stock, any Company Voting
Debt or other voting securities or securities convertible into or exchangeable
or exercisable for voting securities of the Company, or obligating the Company
to grant, extend or enter into any such option, warrant, call, right, commitment
or agreement. Except as set forth in Section 3.1(b) of the Disclosure
Memorandum, since December 31, 1996, the Company has not (i) granted any
options, warrants or rights to purchase shares of Company Common Stock or (ii)
amended or repriced, as applicable, any Company Option, any Company Warrant, the
Stock Option Plan or the Directors' Stock Option Plan. Section 3.1(b) of the
Disclosure Memorandum sets forth the following information with respect to each
Company Option and Company Warrant outstanding on the date of this Agreement:
(A) the name of the optionee or warrantholder, (B) the number of shares of
Company Common Stock subject to such Company Option or Company Warrant, and (C)
the exercise price of such Company Option or Company Warrant. None of the
Company Options are "incentive stock options" (within the meaning of Section 422
of the Code). There are not as of the date of this Agreement and there will not
be on the date of the Shareholders' Meeting any shareholder agreements, voting
trusts or other agreements or understandings to which the Company is a party or
by which it is bound relating to the voting of any shares of the capital stock
of the Company which will limit in any way the solicitation of proxies by or on
behalf of the Company from, or the casting of votes by, the shareholders of the
Company with respect to the Merger. True and correct copies of all agreements
relating to the Company Warrants and the Company Options and the issuance of any
restricted stock have previously been provided or made available to Parent.
(c) Subsidiaries; Investments. Section 3.1(c) of the
Disclosure Memorandum sets forth the name of each Subsidiary of the Company, the
jurisdiction of its incorporation or organization and whether it is an insurance
company. Each Subsidiary is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and has the power and authority and all necessary government
approvals to own, lease and operate its properties and to carry on its business
as now being conducted. Each Subsidiary of the Company is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary. The Company has
heretofore made available to USF&G complete and correct copies of the articles
of incorporation (or other organizational documents) and bylaws of each of its
Subsidiaries. Section 3.1(c) of the Disclosure Memorandum sets forth, as to each
Subsidiary of the Company, its authorized capital stock and the number of issued
and outstanding shares of capital stock (or similar information with respect to
any Subsidiary not organized as a corporate entity). All outstanding shares of
the capital stock of the Subsidiaries of the Company are validly issued, fully
paid and nonassessable and are not subject to preemptive or other similar
rights; neither the Company nor any Subsidiary of the Company has any call
obligations or similar liabilities with respect to partnerships or other
Subsidiaries not organized as corporate entities. Except as set forth in Section
3.1(c) of the Disclosure Memorandum, the Company is, directly or indirectly, the
record and beneficial owner of all of the outstanding shares of capital stock
(or other interests, with respect to Subsidiaries not organized as corporate
entities) of each of its Subsidiaries free and clear of all Liens and other
restrictions with respect to the transferability or assignability thereof (other
than restrictions on transfer imposed by federal or state securities laws) and
no capital stock (or other interests, with respect to Subsidiaries not organized
as corporate entities) of any of its Subsidiaries is or may become required to
be issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable or exercisable for, shares of capital stock (or
other interests, with respect to Subsidiaries not organized as corporate
entities) of any of its Subsidiaries and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may be bound to issue, redeem, purchase or sell shares of Subsidiary
capital stock (or other interests, with respect to Subsidiaries not organized as
corporate entities) or securities convertible into or exchangeable or
exercisable for any such shares or interests. Except for the ownership interests
set forth in Section 3.1(c) of the Disclosure Memorandum, neither the Company
nor any of its Subsidiaries owns, directly or indirectly, any capital stock or
other ownership interest in any corporation, partnership, business association,
joint venture or other entity, except for portfolio investments made in the
ordinary course of business. As used in this Agreement, the word "Subsidiary,"
with respect to any party to this Agreement, means any corporation, partnership,
joint venture or other organization, whether incorporated or unincorporated, of
which: (i) such party or any other Subsidiary of such party is a general
partner; (ii) voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation,
partnership, joint venture or other organization is held by such party or by any
one or more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries; or (iii) at least 10% of the equity, other securities or other
interests is, directly or indirectly, owned or controlled by such party or by
any one or more of its Subsidiaries or by such party and any one or more of its
Subsidiaries.
(d) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power and
authority to enter into this Agreement and,
subject to the Company Shareholder Approval, to
consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and
the consummation of the transactions contemplated
hereby have been duly authorized by all necessary
corporate action on the part of the Company,
subject, in the case of the Merger, to the
Company Shareholder Approval. This Agreement has
been duly executed and delivered by the Company
and, subject, in the case of the Merger, to the
Company Shareholder Approval, and assuming that
this Agreement constitutes the valid and binding
agreement of Parent and USF&G, constitutes a
valid and binding obligation of the Company
enforceable in accordance with its terms and
conditions except that the enforcement hereof may
be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now
or hereafter in effect relating to creditors'
rights generally and (B) general principles of
equity (regardless of whether enforceability is
considered in a proceeding at law or in equity)
and (C) any ruling or action of any Governmental
Entity as set forth in Section 3.1(d)(iii).
(ii) The execution and delivery of this Agreement
and the consummation of the transactions
contemplated hereby by the Company will not
conflict with, or result in any violation of,
or default (with or without notice or lapse
of time, or both) under, or give rise to a
right of termination, cancellation or
acceleration (including pursuant to any put
right) of any obligation or the loss of a
material benefit under, or the creation of a
Lien on assets or property, or right of first
refusal with respect to any asset or property
or change any other rights, benefits,
liabilities or obligations (any such
conflict, violation, default, right of
termination, cancellation or acceleration,
loss, creation or right of first refusal, or
change, a "Violation"), pursuant to, (A) any
provision of the Articles of Incorporation or
Bylaws of the Company or the comparable
documents of any of its Subsidiaries or (B)
except as to which requisite waivers or
consents have been obtained and specifically
identified in Section 3.1(d) of the
Disclosure Memorandum and assuming the
consents, approvals, authorizations or
permits and filings or notifications referred
to in paragraph (iii) of this Section 3.1(d)
are duly and timely obtained or made and, in
the case of the Merger, the Company
Shareholder Approval has been obtained, any
loan or credit agreement, note, mortgage,
deed of trust, indenture, lease, Company
License (as defined in Section 3.1(g)),
Company Benefit Plan (as defined in Section
3.1(n)), Company Material Contract (as
defined in Section 3.1(r)), or any other
agreement, obligation, instrument, concession
or license or any judgment, order, decree,
statute, law, ordinance, rule or regulation
applicable to the Company, any of its
Subsidiaries or any of their respective
properties or assets except for such
Violations which would not individually or in
the aggregate adversely affect the Company
and its Subsidiaries taken as a whole in any
material respect.
(iii)No consent, approval, order or authorization of,
or registration, declaration or filing with,
notice to, or permit from any court,
administrative agency or commission or other
governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity"), is
required by or with respect to the Company or any
of its Subsidiaries in connection with the
execution and delivery of this Agreement by the
Company or the consummation by the Company of the
transactions contemplated hereby, except for: (A)
any actions and approval that may be required
under the insurance laws and regulations of the
jurisdictions in which the Subsidiaries of the
Company that are insurance companies are
domiciled or licensed, each of which is listed in
Section 3.1(d)(iii)(A) of the Disclosure
Memorandum; (B) the filing of a pre-merger
notification and report form by the Company under
the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the
applicable waiting period thereunder; (C) the
filing with the SEC of (x) a proxy statement in
definitive form relating to the approval by the
holders of Company Common Stock of the Merger
(such proxy statement as amended or supplemented
from time to time being hereinafter referred to
as the "Proxy Statement"), (y) the registration
statement on Form S-4 to be filed with the SEC by
Parent pursuant to which Shares of Parent Common
Stock issuable in the Merger will be registered
with the SEC (the "Form S-4"), and (z) such
reports under and such other compliance with the
Exchange Act and the rules and regulations
thereunder as may be required in connection with
this Agreement and the transactions contemplated
hereby; (D) the filing of the Articles of Merger
with the Secretary of State of the State of Texas
and the Maryland State Department of Assessments
and Taxation; (E) such filings and approvals as
may be required by any applicable state
securities, "blue sky" or takeover laws; (F) the
Company Shareholder Approval; and (G) where the
failure to obtain consent, approval, order, or
authorization of, or registration, declaration or
filing with, notice to, or permit from a
Government Entity would not adversely effect the
Company and its Subsidiaries taken as a whole in
any material respect.
(e) Government Filings. The Company has made available to
USF&G a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by the Company with the SEC since December
31, 1994 and prior to the date of this Agreement (the "Filed Company SEC
Documents"), which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective dates, the Filed Company SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Filed Company
SEC Documents, and none of the Filed Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Filed Company SEC Documents
comply as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates therein and the consolidated results
of their operations and cash flows for the periods presented therein (subject,
in the case of unaudited interim financial statements, to normal recurring
adjustments none of which are material). Section 3.1(e) of the Disclosure
Memorandum lists with respect to the Company Common Stock for the period since
December 31, 1996 and prior to the date of this Agreement each: (i) Schedule 13D
filed with the SEC and (ii) application for change in control filed under the
insurance holding company laws of any Company has been or is required to or has
filed any documents with the SEC. Section 3.1(e) of the Disclosure Memorandum
includes the Company's reported results for the six-month period ended June 30,
1997 and such reported results fairly present in summary fashion and in
accordance with applicable requirements of GAAP the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
therein and the consolidated results of their operations for the periods
presented therein (subject to normal recurring adjustments none of which are
material).
(f) Information Supplied. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, and at any
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading, and (ii) the Proxy Statement will, on the date it is first mailed to
the holders of the Company Common Stock or at the time of the Shareholders'
Meeting, 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 as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied in writing by Parent or USF&G specifically for inclusion
therein. If, at any time prior to the Shareholders' Meeting, any event with
respect to the Company, or with respect to other information supplied by the
Company for inclusion in the Proxy Statement, shall occur which is required to
be described in an amendment of, or a supplement to, any of such documents, such
event shall be so described, and such amendment or supplement shall be promptly
filed with the SEC and, as required by law, disseminated to the shareholders of
the Company.
(g) Compliance with Applicable Laws.
(i) Except as disclosed in Section 3.1(g)(i) of the
Disclosure Memorandum, the business of the
Company and each of its Subsidiaries is being, in
all material respects, conducted in compliance
with all applicable laws, including, without
limitation, all insurance laws, ordinances, rules
and regulations, decrees and orders of any
Governmental Entity, and all notices, reports,
documents and other information required to be
filed thereunder within the last three years were
properly filed and were in compliance in all
respects with such laws.
(ii) (A) Insurance Licenses. Section 3.1(g)(ii)(A) of
the Disclosure Memorandum contains a true and
complete list of all jurisdictions in which each
of the Subsidiaries of the Company is licensed to
transact insurance business. Except as disclosed
in Section 3.1(g)(ii)(B) of the Disclosure
Memorandum, each of the Subsidiaries of the
Company has all the licenses necessary to conduct
the lines of insurance business which such
Subsidiary is currently conducting in each of the
states set forth in Section 3.1(g)(ii)(A) of the
Disclosure Memorandum, which are all of the
states in which the Company is currently
conducting business or in the process of
commencing conducting business. The Subsidiaries
of the Company own or validly hold the insurance
licenses referred to in Section 3.1(g)(ii)(A) of
the Disclosure Memorandum, all of which licenses
are valid and in full force and effect. Except as
set forth in Section 3.1(g)(ii)(A) of the
Disclosure Memorandum, there is no proceeding or
investigation pending or, to the knowledge (as
defined below) of the Company, threatened which
would reasonably be expected to lead to the
revocation, amendment, failure to renew,
limitation, suspension or restriction of any such
license to transact insurance business. As used
in this Agreement, "knowledge" means the actual
knowledge, after reasonable inquiry, of, in the
case of the Company, the management of the
Company, and, in the case of Parent, the
management of Parent.
(B) Other Licenses. The Company and each of its
Subsidiaries owns or validly holds all licenses,
franchises, permits, approvals, authorizations,
exemptions, classifications, registrations,
rights and similar documents (other than licenses
to transact insurance business) which are
necessary for it to own, lease or operate its
properties and assets and to conduct its business
as now conducted, except for such licenses the
failure to hold which would not individually or
in the aggregate adversely affect the Company and
its Subsidiaries taken as a whole in any
material respect. The business of the Company and
each of its Subsidiaries has been and is being
conducted in compliance in all material respects
with all such licenses. All such licenses are in
full force and effect, and there is no proceeding
or investigation pending or, to the knowledge of
the Company, threatened which would reasonably be
expected to lead to the revocation, amendment,
failure to renew, limitation, suspension or
restriction of any such license.
(C) The licenses referred to in subparagraphs (A)
and (B) are collectively referred to herein as
the "Company Licenses."
(iii)Each Subsidiary of the Company that is an
insurance company has filed all annual and
quarterly statements, together with all exhibits
and schedules thereto, required to be filed with
or submitted to the appropriate regulatory
authorities of the jurisdiction in which it is
domiciled and to any other jurisdiction where
required on forms prescribed or permitted by such
authority. Each Annual Statement filed by any
Subsidiary of the Company that is an
insurance company with the insurance
regulator in its state of domicile for the
three years ended December 31, 1996 (each a
"Company Annual Statement"), together with
all exhibits and schedules thereto, financial
statements relating thereto and any actuarial
opinion, affirmation or certification filed
in connection therewith and each Quarterly
Statement so filed for the quarterly periods
ended after January 1, 1997 (each a "Company
Quarterly Statement") were prepared in
conformity with the statutory accounting
practices prescribed or permitted by the
insurance regulatory authorities of the
applicable state of domicile applied on a
consistent basis ("SAP"), present fairly, in
all material respects, to the extent required
by and in conformity with SAP, the statutory
financial condition of such Subsidiary at
their respective dates and the results of
operations, changes in capital and surplus
and cash flow of such Subsidiary for each of
the periods then ended, and were correct when
filed and there were no omissions therefrom
when filed. No deficiencies or violations
have been asserted in writing (or, to the
knowledge of the Company, orally) by any
insurance regulator with respect to the
foregoing financial statements which have not
been cured or otherwise resolved to the
satisfaction of such insurance regulator and
which have not been disclosed in writing to
USF&G prior to the date of this Agreement.
Set forth in Section 3.1(g)(iii) of the
Disclosure Memorandum is a list of permitted
practices under SAP which are utilized in any
of the Company's Annual or Quarterly
Statements.
(iv) All statutory reserves as established or
reflected in the Company Annual Statements and
Company Quarterly Statements were determined in
accordance with SAP and generally accepted
actuarial assumptions and met the requirements of
the insurance laws of each applicable
jurisdiction as of the respective dates of such
statements. The statutory reserves set forth in
the Company Annual Statement and Company
Quarterly Statements meet in all material
respects the requirements of the insurance laws
of the jurisdictions in which such Subsidiaries
do business and reflect a reasonable provision
for unpaid policy losses and loss adjustment
expenses as of such date. The reserves of the
Subsidiaries of the Company including, but not
limited to, the reserves for incurred losses,
incurred loss adjustment expenses, incurred but
not reported losses and loss adjustment expenses
for incurred but not reported losses (the "Loss
Reserves") as set forth in the audited
consolidated financial statements and unaudited
interim financial statements of such Subsidiaries
included in the Filed Company SEC Documents were
determined in good faith by the Company and such
Subsidiaries in accordance with generally
accepted accounting principles and were believed
by the Company and such Subsidiaries to be
reasonable when made. The Loss Reserves
established or reflected in the Company Annual
Statements and the Company Quarterly Statements
were determined in accordance with generally
accepted actuarial standards consistently applied
and are in compliance in all material respects
with the insurance laws, rules and regulations of
their respective states of domicile as well as
those of any other applicable jurisdictions. The
Company has delivered or made available to Parent
true and complete copies of all actuarial reports
and actuarial certificates in the possession or
control of the Company, any of the Subsidiaries
or any other affiliates of the Company relating
to the adequacy of the Loss Reserves (or any
portion thereof) of the Company or any of its
Subsidiaries for any period ended on or after
December 31, 1996.
(v) Except as set forth in Section 3.1(g)(v) of the
Disclosure Memorandum, from January 1, 1997
through the date of this Agreement, none of the
Company's Subsidiaries have paid any dividend or
made any other distribution in respect of its
capital stock.
(h) Insurance Issued. Except (i) as set forth in Section
3.1(h) of the Disclosure Memorandum and (ii) where noncompliance would not
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect, with respect to all
insurance issued:
(i) All insurance policies issued, reinsured or
underwritten by the Subsidiaries of the Company are,
to the extent required by applicable law, and in all
material respects on forms approved by the insurance
regulatory authority of the jurisdiction where issued
or delivered or have been filed with and not objected
to by such authority within the period prescribed for
such objection, and utilize premium rates which if
required to be filed with or approved by insurance
regulatory authorities have been so filed or approved
and the premiums charged conform thereto.
(ii) All insurance policy benefits payable by any
Subsidiary of the Company and, to the knowledge of the
Company, by any other person that is a party to or
bound by any reinsurance, coinsurance or other similar
agreement with any Subsidiary of the Company, have in
all material respects been paid or are in the course
of settlement in accordance with the terms and within
the limits of the insurance policies and other
contracts under which they arose, except for such
benefits for which there is a reasonable basis to
contest payment and which are being or have been
contested by appropriate proceedings and in accordance
with applicable law.
(iii) The Company has not received any information
which would reasonably cause it to believe
that the financial condition of any other
party to any reinsurance, coinsurance or
other similar agreement with any of its
Subsidiaries is so impaired as to result in a
default thereunder.
(iv) All advertising, promotional, sales and solicitation
materials and product illustrations used by any
Subsidiaries of the Company or any agent of any of its
Subsidiaries have complied and are in compliance, in
all material respects, with all applicable laws.
(v) To the knowledge of the Company, each insurance agent,
at the time such agent wrote, sold or produced
business for any Subsidiary of the Company since
January 1, 1993 was duly licensed as an insurance
agent (for the type of business written, sold or
produced by such insurance agent) in the particular
jurisdiction in which such agent wrote, sold or
produced such business and was properly appointed by
such Subsidiary. All written contracts and agreements
between any such agent, on the one hand, and the
Company or any of its Subsidiaries, on the other hand,
are in material compliance with all applicable laws
and regulations. To the knowledge of the Company and
its Subsidiaries, no such agent is the subject of, or
party to, any disciplinary action or proceeding under
applicable law. As of the date hereof, to the
Company's knowledge, the Company has not been advised
that any insurance agent intends to terminate or
materially change its relationship with the Company or
its Subsidiaries as a result of the Merger or the
contemplated operations of the Company and its
Subsidiaries after the Merger is consummated.
(vi) Except as set forth in Section 3.1(h)(vi) of the
Disclosure Memorandum, neither the Company nor any of
its Subsidiaries is a party to any fronting agreement
or places or sells reinsurance whether for its own
account or for any reinsurance company.
(vii) There are (A) to the knowledge of the Company or its
Subsidiaries, no claims asserted, (B) no actions,
suits, investigations or proceedings by or before
any court or other Governmental Entity, and
(C) no investigations by or on behalf of any
of the Company or its Subsidiaries ((A), (B)
and (C) being collectively referred to as
"Actions") pending or, to the knowledge of
the Company or its Subsidiaries, threatened,
against or involving any of the Company or
its Subsidiaries, or any of their agents that
include allegations that any of the Company
or its Subsidiaries or any of the agents of
the Company or its Subsidiaries were in
violation of or failed to comply with any
law, statute, ordinance, rule, regulation,
code, writ, judgement, injunction decree,
determination or award applicable to the
Company or its Subsidiaries in the respective
jurisdictions in which their products have
been sold, and, to the knowledge of the
Company or the Subsidiary, no facts exist
which would reasonably be expected to result
in the filing or commencement of any such
Action.
(i) Rating Agencies. Except as disclosed in Section 3.1(i) of
the Disclosure Memorandum, since December 31, 1996, no rating agency has imposed
conditions (financial or otherwise) on retaining any currently held rating
assigned to any Subsidiary of the Company that is an insurance company or
indicated to the Company that it is considering the downgrade of any rating
assigned to any Subsidiary of the Company that is an insurance company. As of
the date of this Agreement, each Subsidiary of the Company that is an insurance
company has the A.M. Best rating set forth in Section 3.1(i) of the Disclosure
Memorandum. Notwithstanding anything to the contrary, the imposition of
conditions (financial or otherwise) on retaining any currently held rating
assigned to any Subsidiary of the Company that is an insurance company or
downgrade of any rating assigned to any subsidiary of the Company that is an
insurance company primarily as a result of the transactions contemplated by this
Agreement shall not be a breach of this representation and warranty.
(j) Absence of Certain Changes or Events. Since December 31,
1996, there has not been, occurred, or arisen any change, event (including
without limitation any damage, destruction, or loss whether or not covered by
insurance), condition, or state of facts of any character with respect to the
business or financial condition of the Company or any of its Subsidiaries,
except (i) as disclosed in Section 3.1(j) of the Disclosure Memorandum or in the
Filed Company SEC Documents, (ii) the imposition of conditions (financial or
otherwise) on retaining any currently held rating assigned to any Subsidiary of
the Company that is an insurance company or downgrade of any rating assigned to
any Subsidiary of the Company that is an insurance company primarily as a result
of the transactions contemplated by this Agreement, and (iii) for events in the
ordinary course of business consistent with past practice that would not,
individually or in the aggregate, result in a Material Adverse Effect on the
Company. Except as disclosed in Section 3.1(j) of the Disclosure Memorandum or
in the Filed Company SEC Documents, since December 31, 1996, the Company and
each of its Subsidiaries has operated only in the ordinary course of business
consistent with past practice and (without limiting the generality of the
foregoing) there has not been, occurred, or arisen:
(i) any declaration, setting aside, or payment of any
dividend or other distribution in respect of the
capital stock of the Company (other than as expressly
permitted by this Agreement) or any direct or (other
than any retirement of Options or Warrants
contemplated pursuant to this Agreement) indirect
redemption, purchase, or other acquisition by the
Company of any such stock or of any interest in or
right to acquire any such stock;
(ii) any split, combination or reclassification of any of
its outstanding capital stock or any issuance or the
authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for
shares of the Company's or any of its Subsidiary's
outstanding capital stock;
(iii) (A) any granting by the Company or any of its
Subsidiaries to any director, officer or other
employee of the Company or any of its Subsidiaries of
any increase in compensation (including
perquisites), except, with respect to
employees other than Key Employees (as
defined below), grants in the ordinary course
of business consistent with prior practice,
(B) any granting by the Company or any of its
Subsidiaries to any such director, officer or
other employee of any increase in severance
or termination pay, or (C) any entry into,
modification, amendment, waiver or consent by
the Company or any of its Subsidiaries with
respect to any employment, severance, change
of control, termination or similar agreement,
arrangement or plan (oral or otherwise) with
any officer, director or other employee;
(iv) any change in the method of accounting or policy used
by the Company or any of its Subsidiaries other than
as disclosed in the financial statements included in
the Filed Company SEC Documents or in the Company
Annual Statement or the Company Quarterly Statement
most recently filed and publicly available prior to
the date hereof or which were required by GAAP or SAP;
(v) made any material amendment to the insurance policies
in force of any Subsidiary of the Company or made any
change in the methodology used in the determination of
the reserve liabilities of the Subsidiaries of the
Company or any reserves contained in the financial
statements included in the Filed Company SEC Documents
or in the Company Annual Statement or the Company
Quarterly Statements;
(vi) any termination, amendment or entrance into as ceding
or assuming insurer any reinsurance, coinsurance or
other similar agreement or any trust agreement or
security agreement relating thereto, other than (A)
facultative reinsurance contracts related to the
Company's public entity business only that have been
entered into in the ordinary course of business
consistent with past practice, and (B) renewals for
periods of one year or less on substantially the same
terms, in the ordinary course of business;
(vii) any introduction of any insurance policy or
any changes made in its customary marketing,
pricing, underwriting, investing or actuarial
practices and policies, except in the
ordinary course of business consistent with
past practice;
(viii) any Lien created or assumed on any of the assets or
properties of the Company or any of its Subsidiaries;
(ix) any liability involving the borrowing of money by the
Company or any of its Subsidiaries or the incurrence
by the Company or any of its Subsidiaries of any
deferred purchase price obligation (other than trade
credit incurred in the ordinary course of business and
consistent with past practice);
(x) any cancellation of any liability owed to the Company
or any of its Subsidiaries by any other person or
entity other than immaterial amounts owed by a person
or entity who is not a Related Party (as defined in
Section 3.1(s));
(xi) any write-off or write-down of, or any determination
to write-off or write-down, the assets or properties
(other than any statutory write-down of investment
assets which is not related to a permanent impairment
of value) of the Company of any of its Subsidiaries or
any portion thereof;
(xii) any expenditure or commitment for additions
to property, plant, equipment, or other
tangible or intangible capital assets or
properties of the Company or any of its
Subsidiaries which exceeds $75,000
individually or in the aggregate;
(xiii) any material change in any marketing relationship
between the Company or any of its Subsidiaries and any
person or entity through which the Company sells
insurance Contracts; or
(xiv) any Contract to take any of the actions prohibited in
this Section 3.1(j).
(k) Absence of Undisclosed Liabilities. Except as reflected in
Section 3.1(k) of the Disclosure Memorandum, as of December 31, 1996, neither
the Company nor any of its Subsidiaries had any liabilities, absolute, accrued,
contingent or otherwise, whether due or to become due (and there was no basis
for any such liability), which were not shown or provided for in the audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 and which should have been so shown or provided
for under generally accepted accounting principles. Since December 31, 1996,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due (and
there is no basis for such liabilities) except: (i) liabilities arising in the
ordinary course of business consistent with past practice, which would not
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect; (ii) as specifically and
individually reflected in Section 3.1(k) of the Disclosure Memorandum or Filed
Company SEC Documents, or (iii) other liabilities which, individually or in the
aggregate, together with those liabilities referenced in subparagraphs (i) and
(ii), would not adversely affect the Company and its Subsidiaries taken as a
whole in any material respect. Except for regular periodic assessments in the
ordinary course of business, no claim or assessment is pending or, to the
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries by any state insurance guaranty association in connection with such
association's fund relating to insolvent insurers.
(l) Litigation. Except as set forth in Section 3.1(1) of the
Disclosure Memorandum and except for claims arising under insurance policies in
(i) an amount no greater than the limits set forth in such policies and/or (ii)
not involving punitive, extra-contractual or extraordinary damages, (A) there is
no suit, action, investigation, arbitration or proceeding pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, at law or in equity, before any person and (B) there is no
writ judgment, decree, injunction, rule or similar order of any Governmental
Entity or arbitrator outstanding against the Company or any of its Subsidiaries.
(m) Taxes. Except as set forth in Section 3.1(m) of the
Disclosure Memorandum:
(i) The Company and its Subsidiaries have (x) duly and
timely filed (or there have been filed on their
behalf) with the appropriate taxing authorities all
Tax Returns required to be filed by them, and all such
Tax Returns are true, correct and complete in all
material respects and (y) timely paid or there have
been paid on their behalf all Taxes due or claimed to
be due from them by any taxing authority.
(ii) The Company and its Subsidiaries have complied in all
material respects with all applicable laws, rules and
regulations relating to the payment and withholding of
Taxes and have, within the time and manner prescribed
by law, withheld and paid over to the proper
governmental authorities all amounts required to be
withheld and paid over under all applicable laws.
(iii) There are no liens for Taxes upon the assets or
properties of the Company or any of its Subsidiaries
except for statutory liens for current Taxes not yet
due.
(iv) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file
any Tax Return in respect of any taxable year which
has not since been filed.
(v) Based upon the Company's knowledge, no federal, state,
local or foreign audits or other administrative
proceedings or court proceedings ("Audits") exist with
regard to any Taxes or Tax Returns of the Company or
any of its Subsidiaries and there has not been
received any written notice that such an Audit is
pending or threatened with respect to any Taxes due
from or with respect to the Company or any of its
Subsidiaries or any Tax Return filed by or with
respect to the Company or any of its Subsidiaries.
(vi) Neither the Company nor any of its Subsidiaries has
requested or received a ruling from any taxing
authority or signed a closing or other agreement with
any taxing authority which would affect any taxable
period after the Closing Date.
(vii) The federal and state income Tax Returns of the
Company and its Subsidiaries have been examined
by the appropriate taxing authorities (or the
applicable statute of limitations for the
assessment of Taxes for such periods have
expired) for all periods through December 31,
1992 and a list of all Audits commenced or
completed with respect to the Company and its
Subsidiaries for all taxable periods not yet
closed by the statute of limitations is set
forth in Section 3.1(m) of the Disclosure
Memorandum.
(viii) All material Tax deficiencies which have been claimed,
proposed or asserted in writing against the Company
or any of its Subsidiaries have been fully paid
or finally settled, and no issue has been
raised in writing in any examination which,
by application of similar principles, could
be expected to result in the proposal or
assertion of a material Tax deficiency for
any other year not so examined.
(ix) Neither the Company nor any of its Subsidiaries is
required to include in income any adjustment pursuant
to Section 481(a) of the Code, for any period after
the Closing Date, by reason of any voluntary or
involuntary change in accounting method (nor has any
taxing authority proposed in writing any such
adjustment or change of accounting method).
(x) Neither the Company nor any of its Subsidiaries is a
party to, is bound by, nor has any obligation under,
any Tax sharing agreement, Tax indemnification
agreement or similar contract or arrangement.
(xi) No power of attorney has been granted by or with
respect to the Company or any of its Subsidiaries with
respect to any matter relating to Taxes, which is
currently effective.
(xii) Neither the Company nor any of its Subsidiaries has
filed a consent pursuant to Section 341(f) of the
Code (or any predecessor provision) or agreed to have
Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of
the Code) owned by the Company or any of its
Subsidiaries.
(xiii) Since the date of the December 31, 1996
consolidated financial statements of the
Company, neither the Company nor any of its
Subsidiaries has incurred any liability for
Taxes other than in the ordinary course of
business.
(xiv) Neither the Company nor any of its
Subsidiaries has or could have any liability
for Taxes of any person other than itself or
the Company or any of its Subsidiaries under
Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law).
(xv) Neither the Company nor any of its Subsidiaries has
any intercompany items or corresponding items that
have not been taken into account under Treasury
Regulation Section 1.1502-13 (or any similar provision
under state, local or foreign law).
(xvi) Neither the Company nor any of its Subsidiaries has
made any tax election that would result in deferring
any income or gain from a tax period ending on or
before the Closing Date to a tax period
ending after the Closing Date without a
corresponding receipt of cash and/or property
or would result in accelerating any loss or
deduction from a tax period ending after the
Closing Date to a tax period ending on or
before the Closing Date.
(xvii) Neither the Company nor any of its
Subsidiaries is a party to any contract,
agreement or other arrangement(s) which could
result in the payment of amounts that could
be nondeductible by reason of Section 280G or
162(m) of the Code.
For purposes of this Agreement, (i) "Taxes" (including, with correlative
meaning, the term "Tax") shall mean all taxes, charges, fees, levies, penalties
or other assessments imposed by any federal, state, local or foreign taxing
authority, including, but not limited to, income, gross receipts, excise,
property, sales, transfer, franchise, payroll, withholding, social security and
other taxes, and shall include any interest, penalties or additions attributable
thereto and (ii) "Tax Return" shall mean any return, report, information return
or other document (including any related or supporting information) required to
be prepared with respect to Taxes.
(n) Pension And Benefit Plans; ERISA.
(i) Section 3.1(n)(i) of the Disclosure Memorandum sets forth
a complete and correct list of:
(A) all "employee benefit plans," as defined in
Sections 3(3) and 4(b)(4) of ERISA, under which
Company or any of its Subsidiaries maintains or has
any obligation or liability, contingent or otherwise
("Company Benefit Plans"); and
(B) all employment or consulting agreements and all
bonus or other incentive compensation, deferred
compensation, salary continuation, severance,
perquisites or other special or fringe benefit
agreements (including mortgage financings and tuition
reimbursements), policies or arrangements which the
Company or any of its Subsidiaries maintains or has
any obligation or liability (contingent or otherwise)
in each case, written or oral, with respect to any
current or former officer, director or employee of the
Company or any of its Subsidiaries and which
individually (or in the aggregate with respect to a
single individual) has a cost to the Company or any of
its Subsidiaries in excess of $10,000 per year (the
"Company Employee Arrangements").
(ii) With respect to each Company Benefit Plan and Company
Employee Arrangement, a complete and correct copy of
each of the following documents (if applicable) has
been provided or made available to Parent: (A) the
most recent plan and related trust documents, and all
amendments thereto; (B) the most recent summary plan
description, and all related summaries of material
modifications thereto; (C) the most recent Form 5500
(including schedules and attachments); (D) the most
recent IRS determination letter or request therefor;
(E) the most recent actuarial reports (including for
purposes of Financial Accounting Standards Board
report no. 87, 106 and 112), if any; and (F) to the
extent not provided pursuant to (A) and (B) above, all
documents that set forth the terms of the Company
Employee Arrangements.
(iii) Except as set forth in Section 3.1(n)(iii) of the
Disclosure Memorandum, the Company Benefit Plans and
their related trusts intended to qualify under
Sections 401(a) and 501(a) of the Code, respectively,
have received favorable determination letters
from the Internal Revenue Service and the
Company is not aware of any event or
circumstance that could reasonably be
expected to result in the failure of such
Company Benefit Plans or their related trusts
to be so qualified.
(iv) Except as set forth in Section 3.1(n)(iv) of the
Disclosure Memorandum, all contributions or other
payments required to have been made by the Company or
any of its Subsidiaries to or under any Company
Benefit Plan or Company Employee Arrangement by
applicable law or the terms of such Company Benefit
Plan or Company Employee Arrangement (or any agreement
relating thereto) have been timely and properly made.
(v) Except as set forth in Section 3.1(n)(v) of the
Disclosure Memorandum, the Company Benefit Plans and
Company Employee Arrangements have been maintained and
administered in all respects in accordance with their
terms and applicable laws.
(vi) Except as disclosed in Section 3.1(n)(vi) of the
Disclosure Memorandum, there are no pending or, to the
knowledge of the Company, threatened actions, claims
or proceedings against or relating to any Company
Benefit Plan or Company Employee Arrangement other
than routine benefit claims by persons entitled to
benefits thereunder.
(vii) Except as set forth in Section 3.1(n)(vii) of the
Disclosure Memorandum, neither the Company nor
any of its Subsidiaries maintains or has an
obligation to contribute to retiree life or
retiree health plans which provide for
continuing benefits or coverage for current
or former officers, directors or employees of
the Company or any of its Subsidiaries except
(A) as may be required under Part 6 of Title
I of ERISA and at the sole expense of the
participant or the participant's beneficiary
or (B) a medical expense reimbursement
account plan pursuant to Section 125 of the Code.
(viii) Except as disclosed in Section 3.1(n)(viii)
of the Disclosure Memorandum, none of the
assets of any Company Benefit Plan is stock
of the Company or any of its affiliates, or
property leased to or jointly owned by the
Company or any of its affiliates.
(ix) Except as disclosed in Section 3.1(n)(ix) of the
Disclosure Memorandum and as otherwise provided in
Sections 2.6 and 2.7, neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (A) result in
any payment becoming due to any employee (current,
former or retired) of Company, (B) increase any
benefits under any Company Benefit Plan or Company
Employee Arrangement, or (C) result in the
acceleration of the time of payment of, vesting of or
other rights with respect to any such benefits.
(x) Neither the Company nor any of its Subsidiaries has
any obligation (or prior obligation) to make
contributions to any benefit plan described in
Sections 3(37), 4063 or 4064 of ERISA.
(xi) Neither the Company nor any of its Subsidiaries is
acting on behalf of an employee benefit plan subject
to ERISA, or acting on behalf of or using (A) assets
which are or which are deemed under ERISA to be assets
of an employee benefit plan subject to ERISA, (B)
assets of a foreign, church or governmental employee
benefit plan, or (C) assets of individual retirement
accounts.
(xii) No prohibited transaction under Section 406 of ERISA
or Section 4975 of the Code has occurred with respect
to a Company Benefit Plan.
(xiii) Each Company Benefit Plan (including, without
limitation, a Company Benefit Plan covering retirees
or the beneficiaries of such retirees) may be
terminated or amended by the plan sponsor at
any time without the consent of any person
covered thereunder, and may be terminated
without liability for benefits accruing after
the date of such termination.
(xiv) The Company has no knowledge of any oral or
written statement made by or on behalf of the
Company or a Subsidiary regarding a Company
Benefit Plan or Company Employee Arrangement
that was not in accordance with the Company
Benefit Plan or Company Employee Arrangement.
(xv) There are no trusts or other arrangements under any
Company Benefit Plan which are intended to qualify as
a voluntary employees' beneficiary association under
Section 501(c)(9) of the Code.
(o) Labor Matters.
(i) Except as set forth in Section 3.1(o) of the
Disclosure Memorandum, (A) neither the Company nor any
of its Subsidiaries is a party to any labor or
collective bargaining agreement and no employees of
the Company or any of its Subsidiaries are represented
by any labor organization; (B) within the preceding
three years, there have been no representation or
certification proceedings, or petitions seeking a
representation proceeding, pending or, to the
knowledge of the Company, threatened in writing to be
brought or filed with the National Labor Relations
Board or any other labor relations tribunal or
authority; and (C) within the preceding three years,
to the knowledge of the Company, there have been no
organizing activities involving the Company or any of
its Subsidiaries with respect to any group of
employees of the Company or any of its Subsidiaries.
(ii) There are no strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material grievances
or other material labor disputes pending or threatened
in writing against or involving the Company or any of
its Subsidiaries. There are no unfair labor practice
charges, grievances or complaints pending or, to the
knowledge of the Company, threatened in writing by or
on behalf of any employee or group of employees of the
Company or any of its Subsidiaries.
(iii) Except as set forth in Section 3.1(o) of the
Disclosure Memorandum, there are no complaints,
charges or claims against the Company or any of
its Subsidiaries pending or, to the knowledge
of the Company, threatened to be brought or
filed with any governmental authority,
arbitrator or court based on, arising out of,
in connection with, or otherwise relating to
the employment or termination of employment
of any individual by the Company or any of
its Subsidiaries.
(iv) The Company and each of its Subsidiaries is in
compliance with all laws, regulations and orders
relating to the employment of labor, including all
such laws, regulations and orders relating to wages,
hours, Worker Adjustment Retraining and Notification
Act of 1988, as amended ("WARN Act"), collective
bargaining, discrimination, civil rights, safety and
health, workers' compensation and the collection and
payment of withholding and/or social security taxes
and any similar tax, except where non compliance would
not individually or in the aggregate adversely affect
the Company and its Subsidiaries taken as a whole in
any material respect.
(v) Since December 31, 1993, there has been no "mass
layoff" or "plant closing" (as deemed by the WARN Act)
with respect to the Company or any of its
Subsidiaries.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Law" means any applicable law
regulating or prohibiting Releases of Hazardous
Materials into any part of the natural environment, or
pertaining to the protection of natural resources, the
environment, and public and employee health and safety
from Hazardous Materials including, without
limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") (42 U.S.C.
_ 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. _ 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. _
6901 et seq.), the Clean Water Act (33 U.S.C. _ 1251
et seq.), the Clean Air Act (33 U.S.C. _ 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. _
7401 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. _ 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. _ 651 et
seq.) ("OSHA") (to the extent OSHA regulates
occupational exposure to Hazardous Materials) and the
regulations promulgated pursuant thereto, and any such
applicable state or local statutes, and the
regulations promulgated pursuant thereto, as such laws
have been and may be amended or supplemented through
the Closing Date;
(B) "Hazardous Material" means any substance, material
or waste which is regulated as hazardous or toxic by
any public or governmental authority in the
jurisdictions in which the applicable party or its
Subsidiaries conducts business, or the United States,
including, without limitation, any material or
substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous
waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law
and shall also include, without limitation, petroleum,
petroleum products, asbestos, polychlorinated
biphenyls and radioactive materials;
(C) "Release" means any release, spill, effluence,
emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, leaching, or migration
of Hazardous Material into the environment; and
(D) "Remedial Action" means all actions, including,
without limitation, those involving any capital
expenditures, required by a governmental entity or
required under any Environmental Law, or voluntarily
undertaken to (w) clean up, remove, treat, or in any
other way mitigate the adverse effects of any
Hazardous Materials Released in the environment; (x)
prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it
does not endanger or threaten to endanger the public
health or welfare or the environment; (y) perform
preremedial studies and investigations or postremedial
monitoring and care pertaining or relating to a
Release or threat of Release; or (z) bring the
applicable party into compliance with any
Environmental Law.
(ii) Except as set forth in Section 3.1(p) of the
Disclosure Memorandum:
(A) The operations of the Company and each of its
Subsidiaries have been and, as of the Closing Date,
will be, in compliance with all Environmental Laws,
except for such noncompliance which would not
individually or in the aggregate adversely affect the
Company and its Subsidiaries taken as a whole in any
material respect;
(B) The Company and each of its Subsidiaries have
obtained and will, as of the Closing Date, maintain
all permits required under applicable Environmental
Laws for the continued operations of their respective
businesses, except where the failure to so obtain or
maintain would not individually or in the aggregate
adversely affect the Company and its Subsidiaries
taken as a whole in any material respect;
(C) Neither the Company nor any of its Subsidiaries is
subject to any outstanding orders from, or agreements
with, any Governmental Entity or other person
respecting (x) Environmental Laws, (y) Remedial Action
or (z) any Release or threatened Release of a
Hazardous Material;
(D) Neither the Company nor any of its Subsidiaries
has received any written communication alleging, with
respect to any such party, the violation of or
potential liability under any Environmental Law;
(E) Neither the Company nor any of its Subsidiaries
has contingent liability in connection with the
Release of any Hazardous Material into the environment
(whether on-site or off-site);
(F) Neither the operations of the Company nor any of
its Subsidiaries involve the generation,
transportation, treatment, storage or disposal of
hazardous waste as defined and regulated under 40
C.F.R. Parts 260-270 (in effect as of the date of this
Agreement) or any state equivalent;
(G) There is not now, nor, to the knowledge of the
Company, has there been in the past, on or in any
property of the Company or any of its Subsidiaries any
of the following: (w) any underground storage tanks;
(x) surface impoundments; (y) any polychlorinated
biphenyls; or (z) any asbestos-containing materials;
(H) No judicial or administrative proceedings or
governmental investigations are pending or, to the
knowledge of the Company, threatened against the
Company or any of its Subsidiaries alleging the
violation of or seeking to impose liability pursuant
to any Environmental Law;
(I) The Company has made available to Parent copies of
all environmental investigations, studies, audits,
tests, reviews and other analyses, including soil
and/or groundwater analyses, conducted by or on behalf
of, or that are in the possession, custody or control
of the Company or any of its Subsidiaries, in relation
to any site or facility owned, operated, leased or
used, at any time, by the Company or any of its
Subsidiaries or any of their respective predecessors;
(J) Neither the Company nor any of its Subsidiaries
has caused or suffered to occur any Release at, under,
above or within any real property, owned, operated,
used or leased by the Company or any of its
Subsidiaries;
(K) No environmental approvals, clearances or consents
are required under applicable law from any
governmental entity or authority in order to
consummate the transactions contemplated herein; and
(L) Neither the Company nor any of its Subsidiaries
has any fixed or contingent liability in connection
with environmental conditions at or associated with
any vessel or facility in which the Company or any of
its Subsidiaries owns or previously owned or holds or
previously held a mortgage or other security interest,
and neither the Company nor any of its Subsidiaries
has participated in the management of any such vessel
or facility.
(iii) This Section 3.1(p) sets forth the sole
representations and warranties of the Company with
respect to Environmental Laws.
(q) Property and Assets.
(i) Section 3.1(q)(i) of the Disclosure Memorandum sets
forth all of the real property owned in fee by the
Company and its Subsidiaries. The Company or its
Subsidiaries have good and marketable title to each
parcel of real property owned by them free and clear
of all Liens, except (A) those reflected or reserved
against in the consolidated balance sheet of the
Company dated as of December 31, 1996, (B) taxes and
general and special assessments not in default and
payable without penalty and interest for which
reasonable reserves have been established, (C)
mechanics and similar statutory liens arising or
incurred in the ordinary course of business for
amounts that are not delinquent, (D) any zoning,
building, and land use regulation imposed by any
Governmental Entity, and (E) any covenant,
restriction, or easement expressly set forth in the
title documents governing such real property filed
with the appropriate Governmental Entity. There are
no (A) zoning, building or land use regulations
imposed by any Governmental Entities or (B) any
covenant, restriction or easement filed and expressly
set forth in the title documents governing such real
property which in any case materially interfere with
the current and intended use of such property or
materially impair the value of such property as
reflected on the books of the Company.
(ii) Each lease, sublease or other agreement (collectively,
the "Real Property Leases") under which the Company or
any of its Subsidiaries uses or occupies or has the
right to use or occupy, now or in the future, any real
property is valid, binding and in full force and
effect, all rent and other sums and charges payable by
the Company or any of its Subsidiaries as a tenant
thereunder are current, and no termination event or
condition or uncured default of a material nature on
the part of the Company or any of its Subsidiaries or,
to the Company's knowledge, the landlord, exists under
any Real Property Lease. The Company and its
Subsidiaries have a good and valid leasehold interest
in each parcel of real property leased by them free
and clear of all Liens, except those reflected or
reserved against in the consolidated balance sheet of
the Company dated as of December 31, 1996.
(iii) Section 3.1(q)(iii) of the Disclosure Memorandum
contains a list of all purchases or acquisitions,
sales or dispositions of all investment assets of
the Company and its Subsidiaries since December
31, 1996 and prior to the date of this
Agreement. The Company and its Subsidiaries
have good and marketable title to such
investment assets owned by them free and
clear of all Liens.
(iv) Except as set forth in Section 3.1(q)(iv) of the
Disclosure Memorandum, the Company and its
Subsidiaries own good and indefeasible title to, or
have a valid leasehold interest in or a valid right
under contract to use, all tangible personal property
that is used in the conduct of their business, free
and clear of any Liens, except for any mechanics or
similar statutory liens arising in the ordinary course
of business. All such tangible personal property is in
good operating condition and repair (normal wear and
tear) and is suitable for its current uses.
(v) Except as set forth in Section 3.1(q)(v) of the
Disclosure Memorandum, the Company and its
Subsidiaries own or have a right to use each
trademark, trade name, patent, service mark, brand
mark, brand name, database, copyright and other
intellectual property owned or used in connection with
the operation of the business of the Company and its
Subsidiaries, including any registrations thereof, and
each license or other contract relating thereto
(collectively, the "Company Intangible Property"),
free and clear of any and all Liens. Section
3.1(q)(v) of the Disclosure Memorandum sets forth a
complete list of the Company Intangible Property. The
use of the Company Intangible Property by the Company
and its Subsidiaries does not conflict with, infringe
upon, violate or interfere with or constitute an
appropriation of any right, title, interest or
goodwill, including, without limitation, any
intellectual property right, trademark, trade name,
patent, service mark, brand mark, brand name, databas
or copyright of any other person. Except as set forth
in Section 3.1(q)(v) of the Disclosure Memorandum, the
Company and its Subsidiaries own or have valid and
enforceable licenses or other rights to use, free and
clear of any and all Liens, all software used in
connection with the operation of the business of the
Company and its Subsidiaries, the use of such software
by the Company and its Subsidiaries does not infringe
on or otherwise violate the rights of any person, and,
to the knowledge of the Company, no person is
challenging, infringing on or otherwise violating the
right of the Company or any Subsidiary with respect to
any such software used by the Company and its
Subsidiaries.
(vi) The Company and its Subsidiaries own or have the
rights to use all assets required for the conduct of
the business of the Company and its Subsidiaries as it
is now conducted.
(r) Material Contracts. Section 3.1(r) of the Disclosure
Memorandum contains a true and complete list of each of the following Contracts
in effect as of the date of this Agreement (true and complete copies of which
have been made available to Parent) to which the Company or any of its
Subsidiaries is a party or by which any of their respective assets or properties
is or may be bound (each of which is a "Company Material Contract"):
(i) all employment, agency (other than insurance agency),
consultation, or representation Contracts or other
Contracts of any type (including without limitation
loans or advances) with any present officer, director,
Key Employee (as defined below), agent (other than an
insurance agent), consultant, or other similar
representative of the Company or any of its
Subsidiaries (or former officer, director, Key
Employee, agent (other than an insurance agent),
consultant or similar representative of the Company or
any of its Subsidiaries if there exists any present or
future liability with respect to such Contract);
(ii) a specimen form insurance agent Contract (the
"Producer Agreements") and any insurance agent
Contract having terms different in any material
respect than the terms contained in the specimen form
agent Contract;
(iii) all Contracts with any person or entity containing any
any provision or covenant (A) limiting the ability
of the Company to (x) sell any products or services,
(y) engage in any line of business, or (z)
compete with or obtain products or services
from any person or entity or (B) limiting the
ability of any person or entity to compete
with or to provide products or services to
the Company;
(iv) all Contracts relating to the borrowing of money by
the Company, relating to the deferred purchase price
for property or services, or relating to the direct or
indirect guarantee by the Company or any of its
Subsidiaries of any liability;
(v) all Contracts (other than Contracts of insurance or
reinsurance entered into in the ordinary course of
business) pursuant to wh or any of its Subsidiaries
has agreed to indemnify or hold harmless any person or
entity (other than indemnifications or hold harmless
covenants in the ordinary course of business and
consistent with past practice);
(vi) all leases or subleases of real property used in the
business, operations, or affairs of the Company or any
of its Subsidiaries;
(vii) all Contracts or arrangements (including without
limitation those relating to allocations of expenses,
personnel, services, or facilities) between the
Company and any of its Subsidiaries or among the
Subsidiaries of the Company;
(viii) all leases of automobiles used in the business,
operations, or affairs of the Company or any of its
Subsidiaries;
(ix) all reinsurance (whether as assuming or ceding insurer
or otherwise), coinsurance or other similar Contracts;
(x) all other Contracts (other than insurance Contracts
issued, reinsured, or underwritten by the Company)
that involve the payment or potential payment,
pursuant to the terms of such Contracts, by or to the
Company of more than $75,000 or that are otherwise
material to the business or condition of the Company;
and
(xi) any commitments or other obligations to enter into any
of the foregoing.
Each Contract disclosed or required to be disclosed in Section 3.1(r) of the
Disclosure Memorandum is in full force and effect and constitutes a legal, valid
and binding obligation of the Company or any of its Subsidiaries to the extent
any such entity is a party thereto and, to the knowledge of Company, each other
party thereto. Neither the Company nor any of its Subsidiaries has received from
any other party to such Contract any written notice of termination or intention
to terminate or not to honor the terms of such Contract, or to the knowledge of
the Company, any oral notice of termination or intention to terminate or not to
honor the terms of such Contract. Except as set forth in Section 3.1(r) of the
Disclosure Memorandum, neither the Company nor any of its Subsidiaries nor, to
the knowledge of the Company, any other party to such Contract is in violation
or breach of or default under any such Contract (or with or without notice or
lapse of time or both, would be in violation or breach of or default under any
such Contract), which violations, breach or default would individually or in the
aggregate adversely affect the Company and its Subsidiaries taken as a whole in
any material respect. As used in this Agreement, the word "Contract" shall mean
any agreement, arrangement, undertaking, lease, sublease, license, sublicense,
promissory note, evidence of indebtedness or other binding contract, in each
case, whether or not reduced to writing. As used in this Agreement "Key
Employee" shall mean employees of the Company or Parent, as the case may be,
having a salary of $90,000 or more per year.
(s) Related Party Transactions. Except as set forth in Section
3.1(s) of the Disclosure Memorandum, no director, officer, Key Employee,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) of the Company (each a "Related Party") (i) has borrowed any
monies from or has outstanding any indebtedness, liabilities or other similar
obligations to the Company or any of its Subsidiaries; (ii) owns any direct or
indirect interest of any kind in, or is a director, officer, employee, partner,
affiliate or associate of, or consultant or lender to, or borrower from, or has
the right to participate in the management, operations or profits of, any person
or entity which is (A) a competitor, supplier, customer, distributor, lessor,
tenant, creditor or debtor of the Company or any of its Subsidiaries, (B)
engaged in a business related to the business of the Company or any of its
Subsidiaries, or (C) participating in any transaction to which the Company or
any of its Subsidiaries is a party; or (iii) is otherwise a party to any
contract, arrangement or understanding with the Company or any of its
Subsidiaries.
(t) Prepayment of Credit Facilities. The Loan Agreement, dated
July 30, 1996, among the Company, Dresdner Bank AG, New York Branch, as Agent,
and the lenders party thereto and the Loan Agreement, dated July 30, 1996 and
amended as of February 14, 1997, among Westchester Premium Acceptance
Corporation, Dresdner Bank AG, New York Branch, as Agent, and the lenders party
thereto (collectively referred to herein as the "Company Credit Facilities") are
prepayable without the payment of any premium or penalties.
(u) Liens. Except as set forth in Section 3.1(u) of the
Disclosure Memorandum, neither the Company nor any of its Subsidiaries has
granted, created, or suffered to exist with respect to any of its assets, any
mortgage, pledge, charge, hypothecation, collateral assignment, lien (statutory
or otherwise), encumbrance or security agreement of any kind or nature
whatsoever (collectively, the "Liens").
(v) Operations Insurance. Section 3.1(v) of the Disclosure
Memorandum contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability, and other
similar insurance policies or agreements that insure the business, operations,
or affairs of the Company and its Subsidiaries or affect or relate to the
ownership, use, or operations of any of the assets or properties of the Company
and its Subsidiaries. Excluding insurance policies that have expired and been
replaced in the ordinary course of business, no insurance policy has been
canceled within the last year except as disclosed in Section 3.1(v) of the
Disclosure Memorandum, and, to the knowledge of the Company or its Subsidiaries,
no threat has been made to cancel any insurance policy of any of the Company or
its Subsidiaries during such period. Except as disclosed in Section 3.1(v) of
the Disclosure Memorandum, all such insurance will remain in full force and
effect with respect to periods before the Closing without the payment of
additional premiums. No event has occurred, including, without limitation, the
failure by any of the Company or its Subsidiaries to give any notice or
information or any of the Company or its Subsidiaries giving any inaccurate or
erroneous notice or information, which limits or impairs the rights of such
Company or Subsidiary under any such insurance policies.
(w) Opinion of Financial Advisor. The Company has received the
opinion of Furman Selz LLC (the "Financial Advisor") dated August 7, 1997 (the
"FS Opinion"), to the effect that, as of the date thereof, the Merger
Consideration to be received by the holders of Company Common Stock in the
Merger is fair from a financial point of view to such holders. A signed, true
and complete copy of the FS Opinion has been delivered to Parent, and the FS
Opinion has not been withdrawn or modified. True and complete copies of all
agreements and understandings between the Company or any of its affiliates and
the Financial Advisor relating to the transactions contemplated by this
Agreement are attached hereto as Section 3.1(w) of the Disclosure Memorandum.
(x) Board Recommendation. The Board of Directors of the
Company, at a meeting duly called and held, has by the unanimous vote of those
directors present (who constituted all of the directors then in office) (i)
determined that this Agreement and the transactions contemplated hereby are fair
to and in the best interests of the shareholders of the Company and has approved
the same, (ii) resolved to recommend, subject to the board's fiduciary duties,
that the holders of the shares of Company Common Stock approve this Agreement
and the transactions contemplated herein, and (iii) resolved to call a special
meeting of the shareholders of the Company to approve the Merger.
(y) Vote Required. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of the Company's capital stock necessary
(under applicable law or otherwise) to approve the Merger and the transactions
contemplated hereby.
(z) Brokers. The Company represents, as to itself and its
affiliates, that no agent, broker, investment broker, financial advisor or other
firm or person is or will be entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement, except for E. B. Lyon, III and/or Stonegate
Securities Inc. (in either case, pursuant to the letter agreement with the
Company dated May 13, 1997) and the Financial Advisor, whose fees and expenses
shall be paid by the Company in accordance with the Company's agreements with
such individual and/or firm(s) (copies of which have been delivered by the
Company to USF&G prior to the date of this Agreement).
(aa) Bank Accounts. Section 3.1(aa) of the Disclosure
Memorandum contains (i) a true and complete list of the names and locations of
all banks, trust companies, securities brokers, and other financial institutions
at which the Company and each of its Subsidiaries has an account or safe deposit
box or maintains a banking, custodial, trading, trust, or other similar
relationship, (ii) a true and complete list and description of each such
account, box, and relationship, and (iii) a list of all signatories for each
such account and box.
(bb) Premium Balances Receivable. The premium balances
receivable of the Company and its Subsidiaries as reflected in the Company's
financial statements for the quarter ended March 31, 1997, to the extent
uncollected on the date hereof, and the premium balances receivable reflected on
the books of the Company and its Subsidiaries as of the date hereof, are valid
and existing and represent monies due, and the Company and its Subsidiaries have
made reserves reasonably considered adequate for receivables not collectible in
the ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties or affecting any material amount thereof.
(cc) Investment Portfolio and Other Assets. The Company and
its Subsidiaries own an investment portfolio acquired in the ordinary course of
business, and a true and complete list of the securities and other investments
in such investment portfolio, as of June 23, 1997 with respect to mortgage loans
and May 30, 1997 with respect to debt and equity securities and other
investments, with true and correct information included thereon as to the cost
of each such investment and the market value thereof as of such date, is listed
in Section 3.1(cc) of the Disclosure Memorandum. Except as otherwise set forth
in Section 3.1(cc) of the Disclosure Memorandum, (i) none of the investments
included in such investment portfolio is in default in the payment of principal
or interest or dividends or impaired to any extent, (ii) all investments
included in such investment portfolio comply (x) with all insurance laws and
regulations of each of the states to which the Company and its Subsidiaries is
subject relating thereto and (y) with all federal and state securities laws, and
(iii) such investments constitute all of the investments or holdings (including
loans to agencies) of the Company and its Subsidiaries other than any disclosed
in Sections 3.1(c), 3.1(q)(i) or 3.1(q)(iii) of the Disclosure Memorandum
(dd) Questionable Payments. To the knowledge of the Company,
neither the Company nor any of its Subsidiaries nor any director, officer,
agent, employee or other person associated with or acting on behalf of the
Company or any Subsidiary has used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, or made any direct or indirect unlawful payments to
government officials or employees or agents from corporate funds, or established
or maintained any unlawful or unrecorded funds.
(ee) Reinsurance Agreements. Section 3.1(ee) of the Disclosure
Memorandum is a true and complete list of all reinsurance treaties and contracts
applicable to the Company (whether as ceding insurer or assuming reinsurer) or
the Subsidiaries (individually, a "Reinsurance Agreement" and collectively, the
"Reinsurance Agreements"), copies of which have been delivered or made available
to Parent. Each of the Reinsurance Agreements is valid and binding in all
material respects in accordance with its terms and is in full force and effect.
None of the Reinsurance Agreements will terminate because of a change in control
of the Company or any of the Subsidiaries. No other party to any Reinsurance
Agreement has given notice to the Company or any of its Subsidiaries that
intends to terminate or cancel any such Reinsurance Agreement as a result of the
Merger or the contemplated operations of the Company or its Subsidiaries after
the Merger is consummated, which termination or change would have a Material
Adverse Effect on the Company. Any Subsidiary of the Company that has ceded
reinsurance pursuant to any such Reinsurance Agreement is entitled to take full
credit in its financial statements for all amounts recoverable (net of any
reserve for collectibility under such Reinsurance Agreement) with such credit
accounted for (i) pursuant to SAP, as a reduction of such Company's loss
reserves, and (ii) pursuant to GAAP, as a reinsurance recoverable asset.
(ff) Quick-Sure Auto Agency, Inc. Quick-Sure Auto Agency, Inc.
("Quick-Sure") is a Texas corporation owned 99% by Mark E. Watson, Jr.
("Watson") and 1% by Dennis Walsh ("Walsh"). There are outstanding (i) no shares
of capital stock of Quick-Sure other than those shares held by Watson and Walsh;
(ii) no securities of Quick-Sure convertible into or exchangeable for shares of
capital stock of Quick-Sure or any other voting securities of Quick Sure; and
(iii) no stock awards, options, warrants, calls, rights (including stock
purchase or preemptive rights) commitments or agreements to which Quick-Sure is
bound, in any case obligating Quick-Sure to issue, deliver, sell, purchase,
redeem or acquire or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional shares of its capital stock, any other voting securities or
securities convertible into or exchangeable or exercisable for voting securities
of Quick-Sure, or obligating Quick-Sure to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. Quick-Sure has appointed
under a Local Recording Agent Agreement (the "LRA Agreement") with Titan
Insurance Services, Inc. ("TIS"), a subsidiary of Whitehall Insurance Agency of
Texas, Inc. (a wholly owned subsidiary of the Company), to write insurance on
behalf of TIS, and a true and correct copy of the LRA Agreement, including any
amendments thereto, has been provided to the Parent. The LRA Agreement is
terminable by TIS at any time in its sole discretion without any further
liability or obligation to Quick-Sure. Except as set forth in Section 3.1(hh) of
the Disclosure Memorandum, Quick-Sure does not engage in any business other than
the writing of insurance policies on behalf of TIS and is not obligated by any
material agreement or other obligation. TIS has an exclusive right to any
renewals of policies written by Quick-Sure, and nothing in any producer
agreement or other agreement to which Quick-Sure, the Company or any of the
Company's Subsidiaries is a party provides to the contrary. The insurance
written by Quick-Sure is placed with Home State County Mutual Insurance ("Home
State") pursuant to a Managing General Agent Agreement between Home State and
TIS (the "MGA Agreement"), and a true and correct copy of the MGA Agreement,
including any amendments thereto, has been provided to the Parent. All
operations of Quick-Sure have been conducted in accordance with the terms of the
LRA Agreement and the MGA Agreement. All arrangements between Home State,
Quick-Sure, and the Company and/or any of its Subsidiaries are in compliance
with all applicable laws and have received all necessary consents, approvals and
authorizations from any required regulatory authorities or third parties.
(gg) Tri-West of New Mexico, LLC, a New Mexico limited
liability company, Tri-West of Indianapolis, LLC, an Indiana limited liability
company, and Tri-West of Florida, LLC, a Florida limited liability company
(collectively, the "Tri-West Agencies") are each owned one-third by each of E.B.
Lyon, III, Michael J. Claypool and Michael J. Bodayle. There are outstanding (i)
no membership or other equity or voting interests of Tri-West Holdings, LLC
("Tri-West") or any Tri-West Agency, other than as set forth above; (ii) no
securities of Tri-West Holdings or any Tri-West Agency convertible into or
exchangeable for membership or other equity or voting interests; and (iii) no
stock awards, options, warrants, calls, rights (including stock purchase or
preemptive rights), commitments or agreements to which Tri-West Holdings or any
Tri-West Agency is bound, in any case obligating Tri-West Holdings or any
Tri-West Agency to issue, deliver, sell, purchase, redeem or acquire or cause to
be issued, delivered, sold, purchased, redeemed or acquired additional
membership or other equity or voting interests or securities convertible into or
exchangeable or exercisable for membership, equity or other voting interests of
Tri-West Holdings or any Tri-West Agency, or obligating Tri-West Holdings or any
Tri-West Agency to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. Each of the Tri-West Agencies has entered into a
producer agreement with Titan Indemnity Company ("Indemnity") in the form set
forth in Section 3.1(gg) of the Disclosure Memorandum. Tri-West of New Mexico,
LLC has entered into a Direct Response Center Agreement dated November 30, 1996
(together with the producer agreements referenced in the immediately preceding
sentence, the "Tri-West Agreements"). To the knowledge of the Company, none of
the Tri-West Agencies engage in any business other than the writing of insurance
policies on behalf of Indemnity and none of the Tri-West Agencies is obligated
by any material agreement or other obligation other than employment agreements
entered into in connection with the acquisition of such Tri-West agency. Each of
the Tri-West Agencies has an exclusive right to any renewals of policies written
by such Tri-West Agency, and, to the knowledge of the Company, nothing in any
producer agreement nor other agreement to which Tri-West Holdings or any
Tri-West Agency is a party provides to the contrary. To the knowledge of the
Company, all operations of the Tri-West Agencies have been conducted in
accordance with the terms of the Tri-West Agreements. All arrangements between
Tri-West Holdings or any Tri-West Agency, on the one hand, and the Company
and/or any of its Subsidiaries, on the other hand, are in compliance with all
applicable laws and have received all necessary consents, approvals and
authorizations from any required regulatory authorities or third parties.
3.2 Representations and Warranties of Parent and USF&G. Except as
disclosed in (i) Parent's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (ii) Parent's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997 (collectively such Form 10-K and Form 10-Q, the
"Parent SEC Reports"), or (iii) the Disclosure Memorandum delivered at or prior
to the date of this Agreement (it being understood that each section of the
Disclosure Memorandum shall list all items applicable to such section, although
the inadvertent omission of an item from one section shall not be a breach of
this Agreement if such item and an explanation of the nature of such item is
clearly disclosed in another section of the Disclosure Memorandum), Parent and
USF&G represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and USF&G
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted and is duly qualified or licensed
to do business as a foreign corporation and in good standing to conduct business
in each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification or license
necessary, other than such jurisdictions where the failure so to qualify or
become so licensed would not, individually or in the aggregate, adversely affect
Parent and its Subsidiaries taken as a whole in any material respect. Parent has
heretofore made available to the Company complete and correct copies of its
Articles of Incorporation, as currently in effect as of the date of this
Agreement (the "Parent Articles of Incorporation"), and its Bylaws, as currently
in effect as of the date of this Agreement (the "Parent Bylaws").
(b) Capital Structure. As of June 30, 1997, the authorized
capital stock of Parent consists of 240,000,000 shares of Parent Common Stock
and 12,000,000 shares of Preferred Stock, $50.00 par value. As of the close of
business on June 30, 1997, there were 110,691,498 shares of Parent Common Stock
validly issued and outstanding (all of which are fully paid and nonassessable).
As of such date, except for (i) options to purchase or other obligations to
issue 11,531,342 shares of Parent Common Stock, (ii) $175,653,000 principal
amount at maturity of Zero Coupon Convertible Subordinated Notes due March 3,
2009 issued by Parent, and (iii) the Preferred Share Purchase Rights issued
pursuant to the Amended and Restated Rights Agreement dated March 11, 1997,
between Parent and The Bank of New York ("Parent Rights"), there are no options,
warrants, calls or other rights, agreements or commitments presently outstanding
obligating Parent to issue, deliver or sell shares of its capital stock, or
obligating Parent to grant, extend or enter into any such option, warrant, call
or other such right, agreement or commitment. Parent has not issued any
securities in violation of any preemptive or similar rights.
(c) As of June 30, 1997, the authorized capital stock of USF&G
consists of 40,000,000 shares of USF&G Common Stock, 28,231,715 shares of which
are validly issued and outstanding, fully paid and nonassessable, and 4,000,000
shares of Preference Stock, par value $50.00 per share, none of which are issued
and outstanding. USF&G has not issued any securities in violation of any
preemptive or similar rights, and there are no options, warrants, calls, rights
or other securities, agreements or commitments of any character obligating USF&G
to issue capital stock.
(d) Authority; No Violations; Consents and Approvals.
(i) Parent and USF&G have all requisite corporate power
and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate
action on the part of Parent and USF&G. This
Agreement has been duly executed and delivered by
Parent and USF&G and assuming that this Agreement
constitutes the valid and binding agreement of the
Company, constitutes a valid and binding obligation of
Parent and USF&G enforceable in accordance with its
terms and conditions except that the enforcement
hereof may be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and
(B) general principles of equity (regardless of
whether enforceability is considered in a proceeding
at law or in equity) and (c) any ruling or action of
any Governmental Entity as set forth in Section
3.2(d)(iii).
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
by Parent and USF&G will not result in a violation
pursuant to (A) any provision of the Parent Articles
of Incorporation or Parent Bylaws or the comparable
documents of any of its Subsidiaries or (B) except as
to which requisite waivers or consents have been
obtained as specifically identified in Section 3.2(d)
of the Disclosure Memorandum and assuming the
consents, approvals, authorizations or permits and
filings or notifications referred to in paragraph
(iii) of this Section 3.2(d) are duly and timely
obtained or made, any loan or credit agreement, note,
mortgage, deed of trust, indenture, lease, or any
other agreement, obligation, instrument, concession or
license or any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent,
USF&G or any of their respective properties or assets,
except for such Violations which would not,
individually or in the aggregate, adversely affect
Parent and its Subsidiaries taken as a whole in any
material respect.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to,
or permit from a Governmental Entity is required
by or with respect to Parent or USF&G or any
of their respective Subsidiaries in
connection with the execution and delivery of
this Agreement by Parent or USF&G or the
consummation by Parent or USF&G of the
transactions contemplated hereby, except for:
(A) any actions, consents, approvals, filings
and/or notices that may be required under the
insurance laws and regulations of the
jurisdictions in which the Subsidiaries of
Parent that are insurance companies are
domiciled or licensed, each of which is
listed in Section 3.2(d)(iii) of the
Disclosure Memorandum; (B) the filing of a
pre-merger notification and report form by
Parent under the HSR Act, and the expiration
or termination of the applicable waiting
period thereunder; (C) the filing with the
SEC of (x) the Proxy Statement, (y) the Form
S-4, and (z) such reports under and such
other compliance with the Exchange Act and
the rules and regulations thereunder as may
be required in connection with this Agreement
and the transactions contemplated hereby; (D)
the filing of the Articles of Merger with the
Secretary of State of the State of Texas and
the Maryland State Department of Assessments
and Taxation; and (E) such filings and
approvals as may be required by any
applicable state securities, "blue sky" or
takeover laws.
(e) Government Filings. Parent has made available to the
Company a true and complete copy of each report, schedule and definitive proxy
statement filed by Parent with the SEC pursuant to the Exchange Act and the
Rules and Regulations promulgated thereunder since December 31, 1994 and prior
to the date of this Agreement other than reports on Form 11-K relating to
employee benefit plans, which are all the documents (other than preliminary
material) that Parent was required to file with the SEC under the Exchange Act
since such date. As of their respective dates, the Parent SEC Reports complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to such Parent SEC
Reports, and none of the Parent SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Parent included in the Parent SEC Reports comply as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates therein and the consolidated results
of their operations and cash flows for the periods presented therein (subject,
in the case of unaudited interim financial statements, to normal recurring
adjustments none of which are material). Section 3.2(e) of the Disclosure
Memorandum lists with respect to the Parent Common Stock for the period since
December 31, 1996 and prior to the date of this Agreement each: (i) Schedule 13D
filed with the SEC and (ii) application for change in control filed under the
insurance holding company laws of any state or other jurisdiction.
(f) Information Supplied. None of the information supplied or
to be supplied by Parent (including information concerning USF&G) for inclusion
or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4
is filed with the SEC, and at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, and (ii) the Proxy
Statement will, on the date it is first mailed to the holders of Company Common
Stock or at the time of the Shareholders' Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 will, as
of its effective date, and the prospectus contained therein will, as of its
date, comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder, except that
no representation is made by Parent with respect to statements made or
incorporated by reference therein based on information supplied in writing by
the Company specifically for inclusion therein. If, at any time prior to the
Shareholders' Meeting, any event with respect to Parent, or with respect to
other information supplied by Parent for inclusion in the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
any of such documents, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the shareholders of Parent.
(g) Compliance with Applicable Laws.
(i) Except as disclosed in Section 3.2(g)(i) of the
Disclosure Memorandum, the business of Parent and each
of its Subsidiaries is being conducted in compliance
in all material respects with all applicable laws,
including, without limitation, all insurance laws,
ordinances, rules and regulations, decrees and orders
of any Governmental Entity, and all notices, reports,
documents and other information required to be filed
thereunder within the last three years were properly
filed and were in compliance in all respects with such
laws.
(ii) Other Licenses. Parent and each of its Subsidiaries
owns or validly holds all licenses, franchises,
permits, approvals, authorizations, exemptions,
classifications, registrations, rights and similar
documents which are necessary for it to own, lease or
operate its properties and assets and to conduct its
business as now conducted, except for such licenses
the failure to hold which would not individually or in
the aggregate adversely affect Parent and its
Subsidiaries taken as a whole in any material respect.
The business of Parent and each of its Subsidiaries
has been and is being conducted in compliance in all
material respects with all such licenses. All such
licenses are in full force and effect, and there is no
proceeding or investigation pending or, to the
knowledge of Parent, threatened which would reasonably
be expected to lead to the revocation, amendment,
failure to renew, limitation, suspension or
restriction of any such license.
(h) Absence of Undisclosed Liabilities. Since December 31,
1996, neither Parent nor any of its Subsidiaries has incurred any liabilities,
except: (i) liabilities arising in the ordinary course of business consistent
with past practice, which individually or in the aggregate would not adversely
affect Parent and its Subsidiaries taken as a whole in any material respect;
(ii) as specifically and individually reflected in Section 3.2(h) of the
Disclosure Memorandum or Parent SEC Reports; or (iii) other liabilities, which,
individually or in the aggregate, together with those liabilities referenced in
subparagraphs (i) and (ii), would not adversely affect Parent and its
Subsidiaries taken as a whole in any material respect.
(i) Litigation. Except as set forth on Section 3.2(i) of the
Disclosure Memorandum and except for claims arising in the ordinary course of
business, (A) there is no suit, action, investigation, arbitration or proceeding
pending or, to the knowledge of Parent, threatened against or affecting Parent
or any of its Subsidiaries, at law or in equity, before any person and (B) there
is no writ judgment, decree, injunction, rule or similar order of any
Governmental Entity or arbitrator outstanding against Parent or any of its
Subsidiaries, which, individually or in the aggregate, would adversely affect
Parent and its Subsidiaries taken as a whole in any material respect.
(j) Absence of Certain Changes or Events. Except as disclosed
in the Parent SEC Reports, since March 31, 1997, there has not been (i) any
transaction, commitment, dispute or other event or condition of any character
(whether or not in the ordinary course of business) which would, individually or
in the aggregate, have a Material Adverse Effect on Parent; or (ii) any damage,
destruction or loss, whether or not covered by insurance, which, insofar as
reasonably can be foreseen, in the future would, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(k) Board Recommendation. The Board of Directors of Parent and
USF&G, at a meeting duly called and held or by unanimous written consent, has by
the requisite vote of directors determined that this Agreement and the
transactions contemplated hereby are fair to and in the best interests of the
shareholders of Parent and USF&G, as the case may be and has approved the same,
and in the case of USF&G resolved to recommend that Parent approve this
Agreement and the transactions contemplated herein.
(l) Vote Required. The affirmative vote of Parent, as the sole
stockholder of USF&G, is sufficient, and no further vote or consent of any class
or series of capital stock of Parent or USF&G is necessary under applicable law
or otherwise, to approve the Merger and the other transactions contemplated
hereby on the part of Parent or USF&G.
(m) Brokers. Parent and USF&G represent, as to themselves and
their affiliates, that no agent, broker, investment broker, financial advisor or
other firm or person is or will be entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement, except for Merrill Lynch & Co., Merrill Lynch
Pierce Fenner & Smith Incorporated, whose fees and expenses shall be paid by
Parent.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the earlier of (i) the Effective Time and (ii)
the termination of this Agreement pursuant to Article VII, the Company agrees
(and has caused its Subsidiaries to agree) that (except to the extent that
Parent shall consent in writing, which consent shall not be unreasonably
withheld or delayed):
(a) Ordinary Course. The Company will (and will cause each of
its Subsidiaries to) conduct its business only in the ordinary course and
consistent with past practice. Without limiting the generality of the foregoing
and except as expressly provided herein or in Section 4.1(a) of the Disclosure
Memorandum:
(i) The Company will use (and will cause each of its
Subsidiaries to use) reasonable best efforts to (A)
maintain in full force and effect all Company Material
Contracts, except those which expire in accordance
with their terms, (B) maintain all Company Licenses,
qualifications, and authorizations of the Company to
do business in each jurisdiction in which it is so
licensed, qualified, or authorized, and (C) maintain
each rating classification assigned to the
Subsidiaries of the Company that are insurance
companies by all rating agencies as of the date of
this Agreement, except in the case of (A) and (B)
above where the Company's Board of Directors
determines in good faith that the maintenance of any
such Company Material Contract or Company License,
qualification or authorization is no longer necessary
or advisable for the conduct of the Company as
presently conducted or as proposed to be conducted
after the Effective Time, if appropriate after
consultation with USF&G pursuant to Section 5.12.
(ii) The Company will (and will cause each of its
Subsidiaries to) in all material respects (A) maintain
all its assets and properties in good working order
and condition (ordinary wear and tear excepted), and
(B) continue all current marketing and selling
activities relating to its business, operations and
affairs, except where the Company's Board of Directors
determines in good faith that such assets, properties
or marketing or selling activities are no longer
necessary or advisable for the conduct of the Company
as presently conducted or as proposed to be conducted
after the Effective Time, if appropriate after
consultation with USF&G pursuant to Section 5.12.
(iii) The Company will (and will cause each of its
Subsidiaries to) maintain its books and records in
the usual manner and consistent with past practice
and will not permit a material change in any
underwriting, investment, actuarial, financial
reporting, tax, or accounting practice or policy
or in any assumption underlying such a practice
or policy, or in any method of calculating any
bad debt, contingency, insurance, or other
reserve for financial reporting purposes or
for other accounting purposes (including any
practice, policy, assumption, or method
relating to or affecting the determination of
its insurance in force, premium or investment
income, reserves or other similar amounts, or
operating ratios with respect to expenses,
losses or lapses).
(iv) The Company will (and will cause each of its
Subsidiaries to) (A) prepare properly and to file duly
and validly all Tax Returns required to be filed prior
to the Closing Date with the appropriate taxing
authority, (B) pay duly and fully all Taxes which are
due with respect to the periods covered by such Tax
Returns or otherwise levied or assessed upon such
entity or any of its assets or properties, and to
withhold or collect and pay to the proper taxing
authorities all Taxes that such entity is required to
so withhold or collect and pay, unless such taxes are
being contested in good faith and, if appropriate,
reasonable reserves therefore have been established
and reflected in the books and records of such entity
and in accordance with SAP and (C) provide Parent with
copies of all federal income tax returns and all
material state income tax returns as soon as
practicable after the preparation, but prior to the
filing, thereof. The Company will not make (and will
prohibit its Subsidiaries from making) any tax
election or settle or compromise any income tax
liability that may reasonably be expected to be
material to the Company and its Subsidiaries taken as
a whole.
(v) The Company will (and will cause each of its
Subsidiaries to) cause all statutory reserves and
other similar amounts with respect to losses,
benefits, claims, and expenses in respect of the
Subsidiary's insurance business to be (A) determined
in accordance with SAP and generally accepted
actuarial assumptions, (B) determined in accordance
with the benefits specified in the related insurance
or reinsurance Contracts in all material respects, (C)
calculated, established and reflected on a basis
consistent in all material respects with those
reserves and other similar amounts and reserving
methods followed at December 31, 1996, (D) determined
in conformity with the requirements of the insurance
laws of each applicable jurisdiction in all material
respects and (E) adequate, in all material respects,
based upon then current information and assumptions to
cover the total amount of all matured and reasonably
anticipated unmatured benefits, dividends, losses,
claims, expenses, and other liabilities of the
Subsidiary under all insurance or reinsurance
Contracts which the Subsidiary has or will have any
liability. The Company will (and will cause each of
its Subsidiaries to) continue to own assets and
properties that qualify as legal reserve assets under
all applicable insurance laws in an amount at least
equal to all required reserves and other similar
amounts.
(vi) The Company will (and will cause each of its
Subsidiaries to) use reasonable best efforts to
maintain in full force and effect substantially the
same levels of coverage as the insurance afforded
under the insurance coverage described in Section
3.1(v) of the Disclosure Memorandum.
(vii) The Company will (and will cause each of its
Subsidiaries to) refrain from entering into
any new treaty of reinsurance, coinsurance,
or other similar Contract, whether as
reinsurer or reinsured.
(viii) The Company will (and will cause each of its
Subsidiaries to) continue to comply in all material
respects with all laws applicable to its business,
operations or affairs.
(ix) The Company shall not incur (and shall prohibit each
of its Subsidiaries from incurring) any capital
expenditure in excess of $75,000, individually or in
the aggregate.
(x) Subject to Sections 2.6 and 2.7, the Company shall not
(and shall cause each of its Subsidiaries to not): (A)
grant any increases in the compensation of any of its
directors, officers or Key Employees; (B) pay or agree
to pay any pension, retirement allowance or other
employee benefit not required to be paid prior to the
Effective Time by any of the existing Company Benefit
Plans or Company Employee Arrangements as in effect on
the date hereof to any such director, officer or
employee, whether past or present; (C) enter into any
new, or amend, modify or grant any consent or waiver
with respect to any existing, employment, retention or
severance or termination agreement with any director,
officer or employee; or (D) become obligated under any
new Benefit Plan or Employee Arrangement, which was
not in existence on the date hereof, or amend any such
plan or arrangement in existence on the date hereof if
such amendment would have the effect of enhancing any
benefits thereunder.
(xi) Other than with respect to drawdowns in the ordinary
course of business with respect to the Company Credit
Facilities, the Company shall not (and shall cause
each of its Subsidiaries to not) assume or incur
(which shall not be deemed to include entering into
credit agreements, lines of credit or similar
arrangements until borrowings are made under such
arrangements) any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire any
debt securities of the Company or any of its
Subsidiaries or guarantee any debt securities of
others or enter into any lease (whether such lease is
an operating or capital lease) or create any Liens on
the property of the Company or any of its Subsidiaries
in connection with any indebtedness thereof, or enter
into any "keep well" or other agreement or arrangement
to maintain the financial condition of another person.
(xii) The Company shall not (and shall cause each of its
Subsidiaries to not) pay, discharge, settle or satisfy
any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent
or otherwise), other than the payment,
discharge or satisfaction, in the ordinary
course of business consistent with past
practice or in accordance with their terms of
liabilities reflected or reserved against in,
or contemplated by, the consolidated
financial statements (or the notes thereto)
of the Company dated included in the Filed
Company SEC Documents, or incurred since the
date of such financial statements in the
ordinary course of business consistent with
past practice. Except in the ordinary course
of business consistent with past practice,
the Company shall not effect (and shall
prohibit each of its Subsidiaries from
effecting) any settlements of any legal
proceedings without the prior written consent
(such consent not to be unreasonably
withheld) of Parent.
The Company shall, from the date of this Agreement through the Effective Time
or earlier termination of this Agreement pursuant to Article VII, cause its
management and that of its Subsidiaries to consult on a regular basis and in
good faith with the employees and representatives of Parent concerning the
management of the Company's and its Subsidiaries' businesses.
(b) Dividends; Changes in Stock. Neither the Company nor any
of its Subsidiaries shall (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock (other than, with respect
to the Company, regular cash dividends on Company Common Stock not in excess of
$0.08 per share of Company Common Stock which shall be paid on a quarterly
basis, with identical record and payment dates as the quarterly dividends paid
by Parent on Parent Common Stock), (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iii) issue any shares of capital stock (except pursuant to and
in accordance with the terms of currently outstanding Company Options and
Company Warrants), or (iv) repurchase or otherwise acquire any shares of its
capital stock, except as required by the terms of any employee benefit plan as
in effect on the date of this Agreement.
(c) Issuance of Securities. Neither the Company nor any of its
Subsidiaries shall (i) grant any options, warrants or rights, to purchase shares
of its capital stock, (ii) amend the terms of or reprice any Company Warrant or
Company Option or amend the terms of the Stock Option Plan or the Directors'
Stock Option Plan, or (iii) issue, deliver or sell, or pledge or otherwise
encumber any shares of its capital stock, or authorize or propose to issue,
deliver or sell, any shares of its capital stock, any Company Voting Debt or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, Company Voting Debt or convertible securities, or agree to do any
of the foregoing, other than: (A) issue shares of Company Common Stock upon the
exercise of Options that are outstanding on the date of this Agreement or (B)
issue shares of Company Common Stock upon the exercise of Warrants that are
outstanding on the date of this Agreement.
(d) No Solicitation. Prior to the Effective Time, the Company
agrees (a) that neither it nor any of its affiliates or Subsidiaries shall, and
it shall not authorize or permit its officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents to,
initiate, solicit or encourage (including by way of furnishing information),
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, consolidation or other business
combination including the Company or any of its Subsidiaries or any acquisition
or similar transaction (including, without limitation, a tender or exchange
offer) involving the purchase of (i) all or any significant portion of the
assets of the Company and its Subsidiaries taken as a whole, (ii) 15% or more of
the outstanding shares of Company Common Stock or (iii) 15% or more of the
outstanding shares of the capital stock of any Subsidiary of the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal"), or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person or
group relating to an Acquisition Proposal (excluding the transactions
contemplated by this Agreement), or otherwise facilitate any effort or attempt
to make or implement an Acquisition Proposal; (b) that it will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties with respect to any of the foregoing, and it will take the
necessary steps to inform such parties of its obligations under this Section
4.1(d) and will require each such party who has signed a confidentiality
agreement to honor the restrictions therein with respect to open market
purchases of Company Common Stock and to return or destroy all confidential
information of the Company previously provided by it; and (c) that it will
notify Parent immediately (orally followed by written confirmation) if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it or any of such persons. Notwithstanding the
above, (A) the Company may provide non-public information to any person or group
if (i) such person or group has expressed a written interest in (which, unless
such person previously has been provided confidential information, need not
constitute a proposal for) making an Acquisition Proposal providing greater
aggregate value to the Company and/or the Company's shareholders than the
transactions contemplated by this Agreement; (ii) the Company reasonably
believes such person or group has the financial ability to consummate an
Acquisition Proposal; (iii) such person or group executes a confidentiality
letter no less favorable to the Company than the Parent Confidentiality Letter
(as defined below); (iv) the Board of Directors of the Company, based upon the
advice of outside counsel, determines in good faith that it is necessary, in
order to comply with the Board's fiduciary duties under applicable law, to
provide such requested information; and (v) the Company provides notice to
Parent of the identity of the person or group to whom the non-public information
is being given at or before the time such information is given and the Company
delivers to Parent a copy of all such information concurrently with its delivery
to the requesting party and (B) the Company may (I) enter into discussions or
negotiate with any person or group that makes a wholly unsolicited bona fide
Acquisition Proposal providing greater aggregate value to the Company and/or the
Company's shareholders than the transactions contemplated by this Agreement, if,
and only to the extent that, (1) the Board of Directors of the Company, based
upon the advice of outside counsel, determines in good faith that such action is
required for the Board of Directors to comply with its fiduciary duties to
stockholders imposed by law, (2) prior to entering into discussions or
negotiations with such person or group, the Company provides written notice (the
"Acquisition Proposal Notice") to Parent to the effect that it is entering into
discussions or negotiations with such person or group, and (3) the Company keeps
Parent informed of the status and all material information including the
identity of such person or group with respect to any such discussions or
negotiations to the extent such disclosure would not constitute a violation of
any applicable law or any confidentiality agreement with such person or group;
and (II) to the extent required, comply with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal.
(e) No Acquisitions; No Subsidiaries. Except as permitted by
Section 4.1(d), neither the Company nor any Subsidiary of the Company shall
merge or consolidate with, or acquire any equity interest in, any corporation,
partnership, association or other business organization, or enter into an
agreement with respect thereto. Neither the Company nor any Subsidiary of the
Company shall (i) acquire or agree to acquire any assets of any corporation,
partnership, association or other business organization or division thereof,
except for the purchase of inventory and supplies in the ordinary course of
business or (ii) create any Subsidiary.
(f) No Dispositions. Other than dispositions set forth in
Section 4.1(f) of the Disclosure Memorandum and dispositions in the ordinary
course of business consistent with past practice which are not material,
individually or in the aggregate, to such party, and neither the Company nor any
Subsidiary of the Company shall sell, lease, encumber or otherwise dispose of,
or agree to sell, lease (whether such lease is an operating or capital lease),
reinsure, mortgage or otherwise encumber or subject to any lien, encumber or
otherwise dispose of, any of its properties.
(g) No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
shall authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution of such entity.
(h) Investments. Neither the Company nor any Subsidiary of the
Company shall make any investment other than (A) money market instruments,
A-1/P-1 commercial paper, treasury bills or other cash equivalents, (B)
investment grade publicly traded debt securities or (C) exchange traded or
Nasdaq National Market System traded equity-related securities which in the
aggregate, when combined with any other equity-related securities holdings
(which shall include preferred stock), do not exceed nine percent (9%) of the
total investments (excluding cash) of the Company and its Subsidiaries, taken as
a whole, in each case which are made in accordance with the Company's Investment
Policy Guidelines (effective January 1, 1995) (the "Investment Guidelines") and
otherwise in accordance with past practice. Neither the Company nor any
Subsidiary of the Company shall make any portfolio investments except in the
ordinary course of business.
(i) Other Actions. Except as contemplated or permitted by this
Agreement, neither Parent nor the Company shall authorize, take or agree or
commit to (and shall cause each of its respective Subsidiaries to take or commit
or agree to) take any action that is reasonably likely to result in any of the
representations or warranties hereunder being untrue in any material respect or
in any of the covenants hereunder or any of the conditions to the Merger not
being satisfied in all material respects.
(j) Quick-Sure. The Company will take commercially reasonable
actions necessary to cause all of the outstanding capital stock of Quick-Sure to
be transferred to USF&G or its designee for a nominal price per share and to
take whatever other actions are reasonably necessary to ensure that upon
Closing, the material benefits of Quick-Sure's relationships with Home State,
the Company and the Company's Subsidiaries inure to the benefit of USF&G or its
designee. Without limiting the generality of the foregoing, the Company agrees
to use commercially reasonable efforts to cause Quick-Sure to assign any leases
to which Quick-Sure is a party to USF&G or its designee if so requested by the
Parent.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Proxy Statement; Shareholder Meeting;
Comfort Letters.
(a) Promptly following the date of this Agreement, the Company
shall prepare the Proxy Statement, and Parent shall prepare and file with the
SEC the Form S-4, in which the Proxy Statement will be included. Parent will
cooperate with the Company in connection with the preparation of the Proxy
Statement including, but not limited to, furnishing to the Company any and all
information regarding Parent as may be required to be disclosed therein. Parent
shall use reasonable best efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. The Company
will use reasonable best efforts to cause the Proxy Statement to be mailed to
the Company's shareholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
required to be taken under any applicable state securities laws in connection
with the issuance of Parent Common Stock following the Merger. The information
provided and to be provided by Parent and the Company, respectively, for use in
the Form S-4 shall, at the time the Form S-4 becomes effective and on the date
of the Shareholders' Meeting referred to below, be true and correct in all
material respects and shall not omit to state any material fact required to be
stated therein or necessary in order to make such information not misleading,
and the Company and Parent each agree to correct any information provided by it
for use in the Form S-4 which shall have become false or misleading.
(b) Parent will as promptly as practicable notify the Company
of (i) the effectiveness of the Form S-4, (ii) the receipt of any comments from
the SEC, and (iii) any request by the SEC for any amendment to the Form S-4 for
additional information. All filings with the SEC, including the Form S-4 and any
amendment thereto, and all mailings to the Company's shareholders in connection
with the Merger, including the Proxy Statement, shall be subject to the prior
review, comment and approval of Parent or the Company, as the case may be (such
approval not to be unreasonably withheld or delayed).
(c) The Company will, as promptly as practicable following the
date of this Agreement and in consultation with Parent, duly call and give
notice of, and, provided that this Agreement has not been terminated, convene
and hold the Shareholders' Meeting for the purpose of approving this Agreement
and the transactions contemplated by this Agreement to the extent required by
the TBCA. Except as provided below, the Company will, through its Board of
Directors, recommend to its shareholders approval of the foregoing matters, as
set forth in Section 3.1(x); provided, however, that the Board of Directors of
the Company may fail to make or may withdraw or modify such recommendation, but
only to the extent that the Board of Directors of the Company shall have
concluded in good faith after receiving the advice of outside counsel that such
action is required to prevent the Board of Directors of the Company from
breaching its fiduciary duties to the Company or the shareholders of the Company
under applicable law. Any such recommendation, together with a copy of the
opinion referred to in Section 3.1(w), shall be included in the Proxy Statement.
The Company will use reasonable best efforts to hold such meeting as soondate
hereof.
(d) Parent shall use reasonable best efforts to cause to be
delivered to the Company a letter of Ernst & Young LLP, Parent's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and a letter of Ernst & Young LLP
dated a date within two business days before the date of the Shareholders'
Meeting, addressed to the Company, in form and substance reasonably satisfactory
to the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
(e) The Company shall use reasonable best efforts to cause to
be delivered to Parent a letter of KPMG Peat Marwick LLP, the Company's
independent public accountants, dated a date within two business days before the
date on which the Form S-4 shall become effective and a letter of KPMG Peat
Marwick LLP dated a date within two business days before the Shareholders'
Meeting, addressed to Parent, in form and substance reasonably satisfactory to
Parent and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
5.2 Contract and Regulatory Approvals. USF&G, Parent and the Company
will use (and will cause each of its Subsidiaries to use) reasonable best
efforts to obtain as promptly as practicable (a) all approvals and consents
required of any person or entity under all Contracts to which the Company or any
of its Subsidiaries is a party to consummate the transactions contemplated
hereby, and (b) all approvals, authorizations, and clearances of Governmental
Entities required of the Company and each of its Subsidiaries to consummate the
transactions contemplated hereby. The Company will, and will cause each of its
Subsidiaries to, (i) provide such other information and communications to such
Governmental Entities as USF&G, Parent or such authorities may reasonably
request, and (ii) cooperate with USF&G or Parent in obtaining, as promptly as
practicable, all approvals, authorizations, and clearances of governmental or
regulatory authorities and other persons or entities required of USF&G or Parent
to consummate the transactions contemplated hereby. Each of USF&G and the Parent
will (i) provide such information and communications to such Governmental
Entities as the Company or such authorities may reasonably request, and (ii)
cooperate with the Company in obtaining, as promptly as practicable, all
approvals, authorizations, and clearances of governmental or regulatory
authorities and other persons or entities required of the Company to consummate
the transactions contemplated hereby. Parent and USF&G shall use their
reasonable best efforts to take or cause to be taken all actions necessary,
proper or advisable to obtain any consent, waiver, approval or authorization
relating to any federal, state or local statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization, lessening of competition or restraint of trade and
includes the HSR Act that is required for consummation of the transactions
contemplated by this Agreement; provided, however, that the foregoing shall not
obligate Parent or USF&G to agree to take any action which would have a material
adverse effect on the expected benefits to Parent of the transactions
contemplated hereby.
5.3 HSR Filings. The Company will (a) take all actions necessary to
make the filings required of it or its affiliates under the HSR Act with respect
to the transactions contemplated by this Agreement, (b) comply with any request
for additional information received by the Company or its affiliates from the
Federal Trade Commission or Antitrust Division of the Department of Justice
pursuant to the HSR Act, (c) cooperate with Parent in connection with Parent's
filings under the HSR Act, and (d) request early termination of the applicable
waiting period.
5.4 Access to Information; Confidentiality.
(a) Upon reasonable notice, the Company shall (and shall cause
each of its Subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of Parent or USF&G, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, employees, auditors, agents,
representatives and records and, during such period, the Company shall (and
shall cause each of its Subsidiaries to) furnish promptly to Parent, (i) each
SAP Annual Statement and SAP Quarterly Statement filed by the Company's
Subsidiaries during such period pursuant to the requirements of any applicable
law; (ii) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to SEC
requirements; (iii) all correspondence or written communication with A.M. Best
and Company or any of its Subsidiaries, Standard & Poor's Corporation, Moody's
Investor Services, Inc., and with any Governmental Entity or insurance
regulatory authorities which relates to the transactions contemplated hereby or
which is otherwise material to the financial condition or operation of the
Company and its Subsidiaries taken as a whole; and (iv) all other information
concerning its business, properties and personnel as the other party may
reasonably request.
(b) Upon reasonable notice, Parent shall (and shall cause each
of its Subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the Company, access, during normal business hours
during the period prior to the Effective Time, to the books, records, officers
and employees of Parent and its Subsidiaries reasonably necessary to perform a
"due diligence" review with respect to (i) material matters, conditions or
events arising after the date hereof or (ii) matters, conditions or events which
the Company has a reasonable basis for believing make any of the representations
or warranties of Parent contained herein not true in any material respect and,
during such period, Parent shall (and shall cause each of its Subsidiaries to)
furnish promptly to the Company, (a) each SAP Annual Statement and SAP Quarterly
Statement filed by such party's Subsidiaries during such period pursuant to the
requirements of any applicable law; (b) a copy of each report filed by Parent
with the SEC during such period pursuant to SEC requirements; and (c) all
correspondence or written communication with A.M. Best and Company or any of its
Subsidiaries, Standard & Poor's Corporation, Moody's Investor Services, Inc.,
and with any Governmental Entity or insurance regulatory authorities which
primarily relates to the transactions contemplated hereby.
(c) The Confidentiality Agreement dated June 26, 1997 (the
"Parent Confidentiality Agreement"), between Parent and the Company and the
confidentiality agreement dated July 30, 1997 (the "Company Confidentiality
Agreement"), between the Company and Parent shall apply with respect to
information furnished thereunder or hereunder and any other activities
contemplated thereby.
5.5 Fees and Expenses.
(a) Except as otherwise provided in this Section 5.5 and
except with respect to claims for damages incurred as a result of the breach of
this Agreement (it being understood that such claims by Parent, USF&G or their
affiliates shall be precluded under Section 5.5(d) by the payment of the amount
set forth in Section 5.5(b) when Section 5.5(b) is applicable), all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
(b) The Company agrees to pay Parent a fee in immediately
available funds equal to $7,500,000 if (i) this Agreement is terminated pursuant
to Section 7.1(d) hereof and any person or group of persons shall, within 90
days after the date of such termination, consummate an Acquisition Proposal or
enter into an agreement with respect to an Acquisition Proposal or (ii) this
Agreement is terminated pursuant to Section 7.1(e) hereof. Such fee shall be
paid within one business day of any termination of this Agreement pursuant to
Section 7.1(e) hereof or within one business day of the consummation of an
Acquisition Proposal or the entry into of any agreement with respect to an
Acquisition Proposal, in either case during the 90-day period after any
termination of this Agreement pursuant to Section 7.1(d) hereof.
(c) Any amounts due under this Section 5.5 that are not paid
when due shall bear interest at the rate of 9% per annum from the date due
through and including the date paid.
(d) Upon the payment of any fee pursuant to Section 5.5(b)
above (regardless of whether a transaction pursuant to an Acquisition Proposal
is consummated), such fee shall be the exclusive remedy of Parent, USF&G and
their affiliates relating to this Agreement or the transactions contemplated
thereunder, and upon payment of any such fee, Parent, USF&G and their affiliates
shall have no rights, in tort, contract or otherwise, arising under or relating
to this Agreement or the transactions contemplated thereunder, except for rights
under the second sentence of Section 5.4 hereof.
(e) The fee set forth in Section 5.5(b) shall be payable
solely under the circumstances set forth in Section 5.5(b) and shall not be
payable under any other circumstances.
5.6 Indemnification.
(a) The Company shall, and from and after the Effective Time
the Surviving Corporation shall, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer or director of the Company (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of the Company whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case to the full extent a
corporation is permitted under applicable law to indemnify its own directors or
officers as the case may be (and the Company and the Surviving Corporation, as
the case may be, will pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent permitted
by law). Without limiting the foregoing, in the event any such claim, action,
suit, proceeding or investigation is brought against any Indemnified Parties
(whether arising before or after the Effective Time), (i) the Indemnified
Parties may retain counsel satisfactory to them and the Company (or them and the
Surviving Corporation after the Effective Time) and the Company (or after the
Effective Time, the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; and (ii) the Company (or after the Effective Time, the
Surviving Corporation) will use reasonable best efforts to assist in the defense
of any such matter, provided that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its prior
written consent which consent shall not unreasonably be withheld. Any
Indemnified Party wishing to claim indemnification under this Section 5.6, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify the Company (or after the Effective Time, the Surviving Corporation) (but
the failure so to notify shall not relieve a party from any liability which it
may have under this Section 5.6 except to the extent such failure prejudices
such party). The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties. The Company
and Parent agree that the foregoing rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, existing in favor of the Indemnified Parties with respect to matters
occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities. Furthermore, the
provisions with respect to indemnification set forth in the articles of
incorporation or bylaws of the Surviving Corporation shall not be amended for a
period of six years following the Effective Time if such amendment would
materially and adversely affect the rights thereunder of individuals who at any
time prior to the Effective Time were directors or officers of the Company in
respect of actions or omissions occurring at or prior to the Effective Time.
(b) For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor (i) policies of at least
the same coverage and amounts containing terms and conditions which are no less
advantageous in any material respect to the Indemnified Parties and (ii)
coverage under Parent's directors' and officers' liability insurance coverage if
such substitution is approved by those persons, in their sole discretion, who at
the Effective Time constitute or constituted a majority of the Company's Board
of Directors) with respect to matters arising before the Effective Time,
provided that the Surviving Corporation shall not be required to pay an annual
premium for such insurance in excess of 200% of the last annual premium paid by
the Company prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount. The last annual premium paid by the
Company was $130,000.
(c) The provisions of this Section 5.6 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his heirs
and his personal representatives and shall be binding on all successors and
assigns of the Company and the Surviving Corporation.
(d) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person, then, and in each case, to the extent
necessary to effectuate the purpose of this Section 5.6, proper provision shall
be made so that the successors and assigns of the Surviving Corporation shall
succeed to the obligations set forth in this Section 5.6 and none of the actions
described in clauses (i) or (ii) shall be taken until such provision is made.
5.7 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, except as otherwise expressly contemplated hereby, each of the
parties hereto agrees to use all reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done as promptly as practicable, all
things necessary, proper or advisable, under applicable laws and regulations or
otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement, subject, as applicable, to the
Company Shareholder Approval.
5.8 Public Announcements. The parties hereto will consult with each
other regarding any press release or public announcement pertaining to the
Merger and shall not issue any such press release or make any such public
announcement prior to such consultation, except as may be required by applicable
law, court process or obligations pursuant to any listing agreement with any
national securities exchange, in which case the party proposing to issue such
press release or make such public announcement shall use reasonable efforts to
consult in good faith with the other party before issuing any such press release
or making any such public announcement. The parties hereto shall also consult
with each other before engaging in any communications with A.M. Best and Company
with respect to this Agreement or the transactions contemplated hereby.
5.9 Environmental Studies. Within thirty (30) days of this Agreement,
the Company shall deliver to Parent a report of a Phase I Environmental Site
Assessment, which shall be conducted in accordance with and presented in the
form prescribed by the most recent edition of the ASTM Standard for Phase I
environmental site assessments and a report of an environmental compliance audit
conducted in substantial accordance with the ASTM Standard for environmental
compliance audits, on the real property located at NBC Plaza, 2700 NE Loop 410,
San Antonio, TX, and the Village at NBC Plaza, 8200 Perrin Beitel Rd., San
Antonio, TX (including the undeveloped real property owned by the Company in the
vicinity thereof) ("Environmental Reports"), prepared by an environmental
consultant, engineer or environmental consulting or engineering firm reasonably
satisfactory to Parent. The cost of preparing the reports contemplated by this
Section 509 shall be borne by the Company.
5.10 Affiliates. Prior to the Closing Date, the Company shall deliver
to Parent a letter identifying all persons who are, at the time this Agreement
is submitted for approval to the shareholders of the Company, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company shall
cause each such person to deliver to Parent on or prior to the Closing Date a
written agreement substantially in the form attached as Exhibit B hereto.
5.11 Support Agreement. The Support Agreement shall be executed
contemporaneously with this Agreement.
5.12 Cooperation. From the date hereof until the Effective Time, the
parties agree to work together to coordinate all aspects of transition planning
and the integration of the Public Entity and Nonstandard Businesses of Parent
and its Subsidiaries with the businesses of the Company and its Subsidiaries
from and after the Effective Time. In this regard, the parties agree, among
other things, (i) to create a dedicated transition team, including consultation
between the parties to identify the appropriate officers and employees of each
of the Company and Parent who will be members of such team, to plan and prepare
for the integration of the business and other matters following the Merger and
preparing for the execution of any such plans, (ii) to jointly develop any
employee, agent, policyholder or other communications relating to such plans and
the Merger, (iii) to discuss and consult with respect to investment management
activities, (iv) to jointly consider information processing systems updates and
technology integration issues and to plan and prepare for an agreed-upon
resolution of such issues following the Merger and (v) to take such actions as
are necessary or appropriate to promote and implement the integration plan,
subject to applicable law.
5.13 NYSE Listing. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued in the Merger to be approved for
listing on the New York Stock Exchange (the "NYSE"), subject to official notice
of issuance, prior to the Effective Time
5.14 Benefit Plans and Employee Arrangements. For employees who are
employees of the Company as of the Effective Time and who continue to be
employed by the Company, Parent shall cause the Surviving Corporation to provide
employee benefits which are substantially comparable in the aggregate to the
benefits provided under the Company Benefit Plans until the first anniversary of
the Effective Time.
5.15 Tax-Free Reorganization. Parent and the Company shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. Parent shall own
all of the issued and outstanding shares of USF&G immediately prior to the
Merger. Parent shall not, nor shall Parent permit any of its affiliates to, take
any action which would cause the Merger to fail to qualify as a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
5.16 Tri-West. The Company will use its reasonable best efforts to
cause each of E.B. Lyon, III, Michael J. Claypool and Michael J. Bodayle to
enter into an agreement with the Company granting the Company the right to
purchase, on terms reasonably acceptable to Parent, the outstanding membership,
equity and voting interests of Tri-West of New Mexico, LLC, Tri-West of
Indianapolis, LLC, Tri-West of Florida, LLC, and any other agency owned by any
of them which has entered into a producer agreement with any Subsidiary of the
Company.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Company Shareholder Approval. The Merger shall have been
approved and adopted by the affirmative vote or written consent of the holders
of two-thirds of the outstanding shares of Company Common Stock entitled to vote
thereon.
(b) Governmental and Regulatory Consents. All actions,
consents, approvals, filings and notices listed in Sections 3.1(d)(ii)(A) and
3.2(d)(iii)(A) of the Disclosure Memorandum shall have been taken, made or
obtained; provided, however, that such consents or approvals shall be in full
force and effect at the Effective Time and shall not obligate Parent or USF&G to
agree to take any action which would have a material adverse effect on the
expected benefits to Parent of the transactions contemplated hereby.
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired, and no restrictive order or other requirements shall have been
placed on the Company, Parent or the Surviving Corporation in connection
therewith.
(d) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that prior to
invoking this condition, each party shall use reasonable best efforts to have
any such decree, ruling, injunction or order vacated.
(e) Form S-4. The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order, and any material "blue sky" and other state securities
laws applicable to the registration and qualification of the Parent Common Stock
following the Merger shall have been complied with.
(f) NYSE Listing. The shares of Parent Common Stock which
shall be issued to the stockholders of the Company upon consummation of the
Merger shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
6.2 Conditions to Obligations of Parent and USF&G. The obligations of
Parent and USF&G to effect the Merger are further subject to the satisfaction or
waiver following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
(without regard to any materiality qualifiers contained therein) in each case as
of the date of this Agreement and (except to the extent such representations and
warranties speak as of a particular date) as of the Closing as though made on
and as of the Closing, except where the failure of one or more representations
or warranties to be true and correct, individually or in the aggregate, would
not result in a Material Adverse Effect on the Company. Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect set forth
in this paragraph.
(b) Performance of Obligations of the Company. The Company
shall have performed and complied with, in all material respects, all agreements
and covenants required to be performed and complied with by the Company under
this Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. There shall not have occurred
or arisen after March 31, 1997 and prior to the Effective Time any change, event
(including without limitation any damage, destruction or loss, whether or not
covered by insurance), condition (financial or otherwise), or state of facts
with respect to the Company or any of its Subsidiaries which would constitute a
Material Adverse Effect on the Company.
(d) No Litigation. There shall not be pending or, to the
Company's or Parent's knowledge threatened, any action, suit, investigation, or
other proceeding by any Governmental Entity to restrain, enjoin, or otherwise
prevent consummation of any of the transactions contemplated by this Agreement.
(e) Affiliate Letters. A duly executed copy of each of the
agreements referred to in Section 5.10 shall have been received by Parent.
(f) Option Agreements and Warrants. The Company shall have (i)
taken all actions required to enable the consummation of the transactions
contemplated by Section 2.6 and (ii) received agreements in the form of Exhibit
C attached hereto from holders of Company Warrants representing the right to
purchase 75% of the shares of Company Common Stock underlying all outstanding
Company Warrants as of the date of this Agreement, whether or not then
exercisable in whole or in part.
(g) Tax Opinion. Parent shall have received an opinion of
Piper & Marbury L.L.P. (or another nationally recognized law firm) to the effect
that the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) and 368 (a)(2)(D) of
the Code.
(h) Authorization. The Company shall have delivered to Parent
evidence reasonably satisfactory to Parent that all requisite action on the part
of the Company necessary for the due authorization of this Agreement and the
performance and consummation of the transactions contemplated hereby has been
taken.
6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and USF&G set forth in this Agreement shall be true and
correct (without regard to any materiality qualifiers contained therein), in
each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a particular date) as of the Closing
Date as though made on and as of the Closing Date, except where the failure of
one or more representations or warranties to be true and correct, individually
or in the aggregate, would not result in a Material Adverse Effect on Parent.
The Company shall have received certificates signed on behalf of Parent by the
chief executive officer and chief financial officer of Parent to the effect set
forth in this paragraph.
(b) Performance of Obligations of USF&G. Parent and USF&G
shall have performed and complied with, in all material respects, all agreements
and covenants required to be performed and complied with by Parent and USF&G
under this Agreement at or prior to the Closing Date.
(c) Federal Tax Opinion. The Company shall have received an
opinion of Mayer, Brown & Platt (or another nationally recognized law firm) to
the effect that the Merger will be treated for federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a)(1)(A) and
368(a)(2)(D) of the Code.
(d) No Material Adverse Change. Except as publicly disclosed
in a document filed by Parent under the Exchange Act, there shall not have been
any change in the business, results of operation or financial condition of the
Parent and its Subsidiaries taken as a whole at any time between March 31, 1997
and the Effective Time which would have a Material Adverse Effect on the Parent.
(e) Authorization. Parent shall have delivered to the Company
evidence reasonably satisfactory to the Company that all requisite action on the
part of Parent necessary for the due authorization of this Agreement and the
performance and consummation of the transactions contemplated hereby has been
taken.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
shareholders of the Company or Parent:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent if any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and non-appealable;
(c) by either the Company or Parent, if the Merger shall not
have been consummated on or before December 31, 1997; provided that if the
conditions set forth in Article VI have not been satisfied as of such date, this
Agreement may not be terminated until February 28, 1998 if it can reasonably be
anticipated that such conditions can be satisfied by February 28, 1998 (such
December 31, 1997 or February 28, 1998, the "Termination Date"); and provided
further that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date;
(d) by either Parent or the Company if at the duly held
meeting of the shareholders of the Company (including any adjournment thereof)
held for the purpose of voting on the Merger, this Agreement and the
consummation of the transactions contemplated hereby, the holders of at least
two-thirds of the outstanding shares of Company Common Stock shall not have
approved the Merger, this Agreement and the consummation of the transactions
contemplated hereby;
(e) by Parent or the Company, in the event that a Trigger
Event has occurred prior to the consummation of the Merger (for purposes of this
Section 7.1(e), "Trigger Event" shall mean: (i) the Board of Directors of the
Company shall have failed to give or shall have withdrawn or adversely modified
in any material respect, or taken a public position materially inconsistent
with, its approval or recommendation of the Merger or this Agreement; or (ii) an
Acquisition Proposal shall have been recommended or accepted by the Company or
the Company shall have entered into an agreement with respect to an Acquisition
Proposal with any person or entity other than Parent or an affiliate thereof);
(f) by Parent, upon a breach of any representation or warranty
of the Company, or in the event the Company fails to comply in any respect with
any of its covenants and agreements, or if any representation or warranty of the
Company shall be or become untrue, in each case, where such breach, failure to
so comply or untruth (either individually or in the aggregate with all other
such breaches, failures to comply or untruths) would cause one or more of the
conditions set forth in Sections 6.1(a), 6.1(b), 6.2(a) or 6.2(b) to be
incapable of being satisfied as of a date within ten days after the occurrence
thereof, provided that a willful breach by the Company shall be deemed to cause
such conditions to be incapable of being satisfied by such date;
(g) by the Company, upon a breach of any representation or
warranty of Parent or USF&G, or in the event Parent or USF&G fails to comply in
any respect with any of its covenants or agreements, or if any representation or
warranty of Parent or USF&G shall be or become untrue, in each case, where such
breach, failure to so comply or untruth (either individually or in the aggregate
with all other such breaches, failures to comply or untruths) would cause one or
more of the conditions set forth in Sections 6.1(a), 6.1(b), 6.3(a) or 6.3(b) to
be incapable of being satisfied as of a date within ten days after the
occurrence thereof, provided that a willful breach by Parent or USF&G shall be
deemed to cause such conditions to be incapable of being satisfied by such date;
or
(h) by either Parent or the Company within two days of the
determination of the Average Stock Price if the Average Stock Price shall be
greater than $32.42 or less than $17.46.
7.2 Effect of Termination. If this Agreement is validly terminated by
either the Company or Parent pursuant to Section 7.1, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of either the Company or Parent (or any of their respective
Subsidiaries or affiliates), except (i) that the provisions of Section 5.4(c),
Section 5.5 and this Section 7.2 will continue to apply following any such
termination, (ii) such termination shall not in any case affect the obligations
of the Company under the Parent Confidentiality Agreement and the Company
Confidentiality Agreement and (iii) that nothing contained herein shall relieve
any party hereto from liability for willful breach of its representations,
warranties, covenants or agreements contained in this Agreement. The
effectiveness of any termination under this Agreement shall be subject to the
payments required to be made pursuant to Section 5.5 being so made, if
applicable.
7.3 Amendment. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of Parent, USF&G and
the Company at any time prior to the Effective Date of the Merger with respect
to any of the terms contained herein; provided, however, that, after this
Agreement is approved by the Company's shareholders, no such amendment or
modification shall (a) reduce the amount or change the form of consideration to
be delivered to the holders of shares of Company Common Stock, (b) change the
date by which the Merger is required to be effected, or (c) change the amounts
payable in respect of the Options or Warrants.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure of
any party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time; provided, however, that Article II, Sections 5.6 and 5.14, the Parent
Confidentiality Agreement and the Company Confidentiality Agreement (with
respect to directors, officers, advisors and representatives of Parent and the
Company) shall survive the Effective Time.
8.2 Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received upon receipt. Any such notice or
communication shall be provided to the following address or telecopy number, or
to such other address or addresses as such person may subsequently designate by
notice given hereunder:
(a) if to USF&G or Parent, to:
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209-3653
Attn: Andrew A. Stern, Mail Stop LA-0300
Telecopy: (410) 205-6802
with a copy to:
Piper & Marbury L.L.P.
35 South Charles Street
Baltimore, Maryland 21201
Attn: R.W. Smith, Jr.
Telecopy: (410) 576-5052
(b) if to the Company, to:
Titan Holdings, Inc.
2700 N.E. Loop 410, Suite 500
San Antonio, Texas 78217
Attn: Mark E. Watson, III
Telecopy: (210) 527-2936
with a copy to:
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, Illinois 60603
Attn: Edward S. Best
Telecopy: (312) 701-7711
8.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement together with the Parent Confidentiality Agreement and
the Company Confidentiality Agreement (and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings including that certain Letter Agreement, dated
July 15, 1997 between Parent and the Company, both written and oral, among the
parties with respect to the subject matter hereof and, except as provided in
Article II, Sections 5.6 and 5.14, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder. Anything to the
contrary notwithstanding, paragraph 6 of the Parent Confidentiality Agreement
and paragraph 6 of the Company Confidentiality Agreement shall terminate after
the date of this Agreement.
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to the
principles of conflicts of law thereof.
8.7 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, such consent not to be unreasonably withheld and any such assignment
that is not consented to shall be null and void; provided, however, that Parent
may assign this Agreement to an affiliate without the consent of the Company.
Any such assignment shall not affect Parent's or USF&G's liability hereunder,
including its obligations to deliver the Merger Consideration. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
USF&G:
UNITED STATES FIDELITY AND GUARANTY
COMPANY
By:
Name:
Title:
Parent:
USF&G CORPORATION
By:
Name:
Title:
Company:
TITAN HOLDINGS, INC.
By:
Name:
Title:
EXHIBIT A
TO MERGER AGREEMENT
[FORM OF VOTING AND SUPPORT AGREEMENT]
Agreement dated as of August 7, 1997 between the shareholder identified
on Exhibit A hereto (the "Shareholder") and USF&G Corporation, a Maryland
corporation ("Parent"). Capitalized terms used but not defined herein shall have
the meanings ascribed to such terms in the Merger Agreement (as defined below).
In consideration of the execution by Parent of the Agreement and Plan of
Merger dated as of August 7, 1997 (the "Merger Agreement") among Parent, United
States Fidelity and Guaranty Company, a Maryland corporation, and Titan
Holdings, Inc., a Texas corporation ("Company"), and other good and valuable
consideration, receipt of which is hereby acknowledged, the Shareholder and
Parent hereby agree as follows:
1. Representations, Warranties and Agreements of Shareholder. The
Shareholder hereby represents and warrants to, and agrees with, Parent as
follows:
(a) Title. As of the date hereof, the Shareholder is the
beneficial and registered owner of 2,579,295 shares (the "Shares") of common
stock, $.01 par value per share ("Common Stock"), of Company. As of the date
hereof, except as set forth on Exhibit A hereto, the Shareholder does not (i)
beneficially own any shares of any class or series of capital stock of Company
(other than the Shares) or any securities convertible into or exercisable for
shares of any class or series of Company's capital stock or (ii) have any
options or other rights to acquire any shares of any class or series of capital
stock of Company or any securities convertible into or exercisable for shares of
any class of Company's capital stock. Except as set forth in Exhibit B hereto,
the Shareholder owns the Shares free and clear of any lien, mortgage, pledge,
charge, security interest or any other encumbrance of any kind. The Shareholder
covenants and agrees to comply with the pledge agreements and other loan
documents relating to the pledges of certain of the Shares identified on Exhibit
B and to otherwise take any action necessary to insure that the Shareholder can
carry out the terms of this Agreement. Each pledgee of the Shares has consented
to this Agreement and to the Shareholder's fulfillment of the terms thereof.
(b) Right to Vote and to Transfer Shares. The Shareholder has
full legal power, authority and right to vote all of the Shares in favor of
approval and adoption of the Merger Agreement without the consent or approval
of, or any other action on the part of, any other person or entity. Without
limiting the generality of the foregoing, except for this Agreement, Shareholder
has not entered into any voting agreement or any other agreement with any person
or entity with respect to any of the Shares, granted any person or entity any
proxy (revocable or irrevocable) or power of attorney with respect to any of the
Shares, deposited any of the Shares in a voting trust or entered into any
arrangement or agreement with any person or entity limiting or affecting the
Shareholder's ability to enter into this Agreement or legal power, authority or
right to vote the Shares in favor of the approval and adoption of the Merger
Agreement or any of the transactions contemplated by the Merger Agreement, and
Shareholder will not take any such action after the date of this Agreement and
prior to the Company shareholders meeting to vote on approval and adoption of
the Merger Agreement, including any adjournment or postponement thereof (the
"Company Shareholders Meeting"). This Agreement has been duly executed and
delivered by the Shareholder and constitutes a valid and binding agreement of
the Shareholder.
2. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Shareholder that this Agreement (i) has been duly authorized by
all necessary corporate action, (iii) has been duly executed and delivered by
Parent and (iii) is a valid and binding agreement of Parent.
3. Restriction on Transfer. The Shareholder agrees that (other than
pursuant to the Merger Agreement) it will not, and will not agree to, sell,
assign, dispose of, encumber, mortgage, hypothecate or otherwise transfer or
encumber (collectively, "Transfer") any of the Shares to any person or entity;
provided, however, that the Shareholder may enter into pledge agreements
pledging any of the Shares as collateral security under loan agreements,
provided that (i) the lender under each such loan agreement consents to this
Agreement and fulfillment of the terms thereof and (ii) the Shareholder
covenants and agrees to comply with each pledge agreement and other loan
documents relating to pledges of Shares thereunder and to otherwise take all
action necessary to insure that the Shareholder can carry out the terms of this
Agreement.
4. Agreement to Vote of Shareholder. The Shareholder, in his individual
capacity as a shareholder of the Company only, hereby irrevocably and
unconditionally agrees to vote or to cause to be voted all of the Shares at the
Company Shareholders' Meeting and at any other annual or special meeting of
shareholders of Company where such matters arise (a) in favor of the approval
and adoption of the Merger Agreement and (b) against (i) approval of any
proposal made in opposition to or in competition with the Merger or any of the
other transactions contemplated by the Merger Agreement, (ii) any merger,
consolidation, sale of assets, business combination, share exchange,
reorganization or recapitalization of Company or any of its subsidiaries, with
or involving any party other than Parent or one of its subsidiaries, (iii) any
liquidation, dissolution or winding up of Company, (iv) any extraordinary
dividend by Company, (v) any change in the capital structure of Company (other
than pursuant to the Merger Agreement) and (vi) any other action that may
reasonably be expected to impede, interfere with, delay, postpone or attempt to
discourage the Merger or the other transactions contemplated by the Merger
Agreement or this Agreement or result in a breach of any of the covenants,
representations, warranties or other obligations or agreements of Company under
the Merger Agreement which would materially and adversely affect Company or its
ability to consummate the transactions contemplated by the Merger Agreement. The
Stockholder further agrees not to take or commit or agree to take any action
inconsistent with the foregoing.
5. Action in Shareholder Capacity Only. The Shareholder signs solely in
the Shareholder's capacity as a record and beneficial owner of the Shares, and
nothing herein shall prohibit, prevent or preclude the Shareholder from
fulfilling his fiduciary duties as a director of Company, including without
limitation, voting or consenting as a director in favor of an Acquisition
Proposal (as defined in the Merger Agreement) or negotiating with respect to an
Acquisition Proposal in his capacity as an officer or director of the Company.
6. No Shopping. The Shareholder, in his individual capacity as a
shareholder of the Company only, agrees not to, directly or indirectly, (i)
solicit, initiate or encourage (or authorize any person to solicit, initiate or
encourage) any inquiry, proposal or offer from any person to acquire the
business, property or capital stock of Company or any direct or indirect
subsidiary thereof, or any acquisition of a substantial equity interest in, or a
substantial amount of the assets of, Company or any direct or indirect
subsidiary thereof, whether by merger, purchase of assets, tender offer or other
transaction or (ii) participate in any discussion or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek any of the foregoing; provided
that, notwithstanding the foregoing, the Shareholder shall not be prohibited
from taking any such actions as are required, based upon advice of counsel, to
comply with his fiduciary duties as an officer and director of the Company to
the extent such actions are permitted under the Merger Agreement.
7. Invalid Provisions. If any provision of this Agreement shall be
invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such invalidity or unenforceability only, without
it affecting the remaining provisions of this Agreement.
8. Executed in Counterparts. This Agreement may be executed in
counterparts each of which shall be an original with the same effect as if the
signatures hereto and thereto were upon the same instrument.
9. Specific Performance. The parties hereto agree that if for any reason
the Shareholder fails to perform any of his agreements or obligations under this
Agreement irreparable harm or injury to Parent would be caused for which money
damages would not be an adequate remedy. Accordingly, the Shareholder agrees
that, in seeking to enforce this Agreement against the Shareholder, Parent shall
be entitled to specific performance and injunctive and other equitable relief in
addition and without prejudice to any other rights or remedies, whether at law
or in equity, that Parent may have against the Shareholder for any failure to
perform any of its agreements or obligations under this Agreement.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of conflicts of laws thereof.
11. Amendments; Termination.
(a) This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
(b) The provisions of this Agreement shall terminate upon the
earliest to occur of (i) the consummation of the Merger, (ii) the date which is
12 months after the date hereof, (iii) the termination of the Merger Agreement
pursuant to Section 7.1(a) or (g) thereof, or (iv) the termination of the Merger
Agreement pursuant to Section 7.1 (b) or (c) thereof if, but only if, the Merger
Agreement is terminated pursuant to such subsection (b) or (c) solely for
reasons that are not directly or indirectly related to the commencement of, or
any person's or entity's direct or indirect indication of interest in making, an
Acquisition Proposal with respect to the Company.
(c) For purposes of this Agreement, the term "Merger Agreement"
includes the Merger Agreement, as the same may be modified or amended from
time to time.
12. Additional Shares. If, after the date hereof the Shareholder acquires
beneficial ownership of any shares of the capital stock of Company (any such
shares, "Additional Shares"), including, without limitation, upon exercise of
any option, warrant or right to acquire shares of capital stock or through any
stock dividend or stock split, the provisions of this Agreement (other than
those set forth in Section 1 (a)) applicable to the Shares shall be applicable
to such Additional Shares as if such Additional Shares had been Shares as of the
date hereof. The provisions of the immediately preceding sentence shall be
effective with respect to Additional Shares without action by any person or
entity immediately upon the acquisition by the Shareholder of beneficial
ownership of such Additional Shares.
13. Action by Written Consent. If, in lieu of the Company Shareholders
Meeting, shareholder action in respect of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement is taken by written consent,
the provisions of this Agreement imposing obligations in respect of or in
connection with the Company Shareholders Meeting shall apply mutatis mutandis to
such action by written consent.
14. Shareholder Certificate. Shareholder agrees to execute and deliver a
certificate containing such representations as are reasonably necessary and
customary for tax counsel to Parent on the one hand, and Company on the other
hand, to render an opinion to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986 and that no gain or loss will be recognized by the shareholders of Company
to the extent they receive Parent Common Stock solely in exchange for shares of
Company Common Stock, such certificate to be in the form attached hereto as
Exhibit C.
15. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal successors and permitted assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of Parent (in the case of the Shareholder or any
of its permitted assigns) or the Shareholder (in the case of Parent or any of
its permitted assigns).
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile, or by registered or certified mail (postage prepaid,
return receipt requested) to such party at its address set forth on the
signature page hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Mark E. Watson, Jr.
Address:
MEW FAMILY LIMITED PARTNERSHIP
By:
Mark E. Watson, Jr., General Partner
By:
Kathleen Watson, General Partner
Address:
THE MARK AND KATHLEEN WATSON
CHARITABLE FOUNDATION
By:________________________________
Mark E. Watson, Jr., Trustee
By:________________________________
Kathleen E. Watson, Trustee
By:_________________________________
E.B. Lyon, III, Trustee
Address:____________________________
USF&G CORPORATION
By:
Address:
EXHIBIT A TO
VOTING AND SUPPORT AGREEMENT
Mark E. Watson, Jr., including 2,223,096 shares owned in his individual
capacity, 256,199 shares owned through MEW Family Limited Partnership, a limited
partnership in which he is a general partner together with his wife, Kathleen
Watson, and 100,000 shares owned through The Mark and Kathleen Watson Charitable
Foundation, of which he is a trustee together with Kathleen Watson and E.B.
Lyons, III.
EXHIBIT B TO
VOTING AND SUPPORT AGREEMENT
[Encumbrances on Shares]
EXHIBIT C TO
VOTING AND SUPPORT AGREEMENT
[Form of Tax Opinion Certificate]
This Certificate is being issued to Piper & Marbury L.L.P. in
connection with its rendering of opinions regarding certain federal income tax
consequences of a merger pursuant to the Plan and Agreement to Merge, dated as
of August 8, 1997 (the "Merger Agreement"), by and among USF&G Corporation, a
Maryland corporation ("USF&G"), United States Fidelity and Guaranty Company, a
Maryland corporation and wholly owned subsidiary of USF&G ("Subsidiary"), and
Titan Holdings, Inc. a Texas corporation ("Company"), providing, among other
things, for the merger of Company with and into Subsidiary (the "Merger"). As
used herein, "USF&G Common Stock" shall mean any one or more shares of the
USF&G's $2.50 per share par value common stock and "Company Common Stock" shall
mean any one or more shares of Company's $0.01 per share par value common stock.
After consulting with their counsel regarding the meaning of and
factual support for the following representations, the undersigned hereby
certify and represent to Piper & Marbury L.L.P. to the best of their knowledge
and belief that the following facts are now true and will continue to be true
through and as of the effective time of the Merger: There is no plan or
intention by the undersigned, acting either individually or in concert with one
another or with other persons, directly or indirectly, to sell, exchange,
transfer, transfer by gift or otherwise dispose (including by transactions which
would have the ultimate effect of a disposition including, but not limited to,
puts, short-sales and equity swap type of arrangements) (collectively, dispose)
of a number of shares of USF&G Common Stock received in the Merger that would
reduce the former Company Common Stockholders' ownership of USF&G stock to a
number of shares having, in the aggregate, a value, as of the date of the
Merger, of less than 50 percent of the fair market value of Company Common Stock
outstanding as of the same date. For purposes of the preceding sentence, all
shares of Company Common Stock exchanged for cash paid in lieu of fractional
shares of USF&G Common Stock will be considered outstanding stock of Company as
of the date of the Merger. Moreover, shares of Company Common Stock and shares
of USF&G Common Stock held by Company stockholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the Merger are taken into account for
purpose of the first sentence of this paragraph.
Each of the undersigned recognizes that the opinions of Piper & Marbury
L.L.P. will be (i) based on the representations set forth herein and on the
statements contained in the Merger Agreement and documents related thereto, and
(ii) subject to certain limitations and qualifications including that they may
not be relied upon if any such representations are not accurate in all material
respects.
Each of the undersigned recognizes that the opinions of Piper & Marbury
L.L.P. will not address any tax consequences of the Merger or any action taken
in connection therewith except as expressly set forth in such opinions.
In witness whereof, the undersigned have executed this Certificate
this __ day of ________, 1997.
-----------------------------
Mark E. Watson, Jr.
-----------------------------
Mark E. Watson, III
-----------------------------
Thomas E. Mangold
MERGER AGREEMENT
[FORM OF AFFILIATE LETTER]
________, 1997
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Titan Holdings, Inc., a Texas corporation ("Titan"), as
the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), and/or (ii) used in and for purposes of
Accounting Series, Releases 130 and 135, as amended, of the Commission. I have
been further advised that pursuant to the terms of the Agreement and Plan of
Merger dated as of August ___, 1997 (the "Agreement"), between Titan, USF&G
Corporation ("USF&G") and United States Fidelity and Guaranty Company, a
Maryland corporation (the "Subsidiary"), Titan will be merged with and into the
Subsidiary (the"Merger") and I will receive shares of Common Stock, par value
$2.50 per share, of USF&G (the "USF&G Common Stock") in exchange for shares of
Common Stock, par value $0.01 per share, of Titan owned by me.
I represent, warrant and covenant to USF&G that in the event I receive
any USF&G Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
USF&G Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the USF&G Common Stock to the
extent I believe necessary, with my counsel or counsel for Titan.
C. I have been advised that the issuance of USF&G Common Stock to me
pursuant to the Merger has been registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders of
Titan, I may be deemed to have been an affiliate of Titan and the distribution
by me of the USF&G Common Stock has not been registered under the Act, and that
I may not sell, transfer or otherwise dispose of the USF&G Common Stock issued
to me in the Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition is made
in conformity with Rule 145 promulgated by the Commission under the Act, or
(iii) in the opinion of counsel reasonably acceptable to USF&G, such sale,
transfer or other disposition is otherwise exempt from registration under the
Act.
D. I understand that USF&G is under no obligation to register the sale,
transfer or other disposition of the USF&G Common Stock by me or on my behalf
under the Act or, to take any other action necessary in order to make compliance
with an exemption from such registration available.
E. I also understand that, in the event USF&G or USF&G's transfer agent
determines that I beneficially own one percent (1%) or more of the USF&G Common
Stock outstanding, stop transfer instructions will be given to USF&G's transfer
agents with respect to the USF&G Common Stock and that there will be placed on
the certificates for the USF&G Common Stock issued to me, or any substitutions
therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE
WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION
STATEMENT UNDER SAID ACT OF AN EXEMPTION FROM SUCH REGISTRATION."
F. I also understand that, in the event USF&G or USF&G's transfer agent
determines that I beneficially own one percent (1%) or more of the USF&G Common
Stock outstanding, unless the transfer by me of my USF&G Common Stock has been
registered under the Act or is a sale made in conformity with the provisions of
Rule 145, USF&G reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legend set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this Agreement.
It is understood and agreed that such legends and the stop orders referred to
above will be removed if (i) one year shall have elapsed from the date the
undersigned acquired the USF&G Common Stock received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii) two
years shall have elapsed from the date the undersigned acquired the USF&G Common
Stock received in the Merger and the provisions of Rule 145(d)(3) are then
applicable to the undersigned, or (iii) USF&G has received either an opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to USF&G, or
a "no action" letter obtained by the undersigned from the staff of the
Commission, to the effect that the restrictions imposed by Rule 145 under the
Act no longer apply to the undersigned.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of Titan as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
[Name]
Accepted this ____ day of ______, 199___.
USF&G CORPORATION
By:
Name:
Title:
EXHIBIT C TO
MERGER AGREEMENT
[FORM OF WARRANT CANCELLATION AGREEMENT]
THIS AGREEMENT, dated as of ____________ __, 1997, by and between Titan
Holdings, Inc., a Texas corporation (the "Company"), USF&G Corporation,
a Maryland corporation ("Parent") and ____________________ (the
"Holder").
WHEREAS, the Holder is the record owner of _______ warrants (the
"Warrants") outstanding under the ________________ Warrant Agreement
(the "Warrant Agreement"); and
WHEREAS, the Company, Parent and the Holder have agreed that it is now
desirable that the Warrants be cancelled and that the Parent shall pay the
Holder the Warrant Consideration, as such term is defined in the Agreement and
Plan of Merger, dated as of August 7, 1997, by and among Parent, United States
Fidelity and Guaranty Company and the Company (the "Merger Agreement"), in
consideration for such cancellation;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, IT IS HEREBY AGREED by the parties hereto as follows:
1. The Company, Parent and the Holder hereby agree that the Warrants
will be cancelled immediately prior to the Effective Time (as such term is
defined in the Merger Agreement) and that the Holder will have no further rights
under the Warrant Agreement with respect to the Warrants; provided, however,
that such cancellations will be of no force and effect if the Merger does not
occur.
2. In consideration for the cancellation of the Warrants, Parent shall
pay to the Holder the Warrant Consideration, which amount shall be paid to the
Holder no later than ten days after the Effective Time.
3. The Holder hereby agrees to forever relinquish its rights to the
Warrants and any rights that it may have with respect to the Warrants under the
Warrant Agreement.
4. If the Merger does not occur, this Agreement shall be of no force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
USF&G CORPORATION [HOLDER]
By: By:
Title: Title:
TITAN HOLDINGS, INC.
By:
Title:
VOTING AND SUPPORT AGREEMENT
Agreement dated as of August 7, 1997 between the shareholder identified on
Exhibit A hereto (the "Shareholder") and USF&G Corporation, a Maryland
corporation ("Parent"). Capitalized terms used but not defined herein shall have
the meanings ascribed to such terms in the Merger Agreement (as defined below).
In consideration of the execution by Parent of the Agreement and Plan of
Merger dated as of August 7, 1997 (the "Merger Agreement") among Parent, United
States Fidelity and Guaranty Company, a Maryland corporation, and Titan
Holdings, Inc., a Texas corporation ("Company"), and other good and valuable
consideration, receipt of which is hereby acknowledged, the Shareholder and
Parent hereby agree as follows:
1. Representations, Warranties and Agreements of Shareholder. The
Shareholder hereby represents and warrants to, and agrees with, Parent as
follows:
(a) Title. As of the date hereof, the Shareholder is the beneficial
and registered owner of 2,579,295 shares (the "Shares") of common stock, $.01
par value per share ("Common Stock"), of Company. As of the date hereof, except
as set forth on Exhibit A hereto, the Shareholder does not (i) beneficially own
any shares of any class or series of capital stock of Company (other than the
Shares) or any securities convertible into or exercisable for shares of any
class or series of Company's capital stock or (ii) have any options or other
rights to acquire any shares of any class or series of capital stock of Company
or any securities convertible into or exercisable for shares of any class of
Company's capital stock. Except as set forth in Exhibit B hereto, the
Shareholder owns the Shares free and clear of any lien, mortgage, pledge,
charge, security interest or any other encumbrance of any kind. The Shareholder
covenants and agrees to comply with the pledge agreements and other loan
documents relating to the pledges of certain of the Shares identified on Exhibit
B and to otherwise take any action necessary to insure that the Shareholder can
carry out the terms of this Agreement. Each pledgee of the Shares has consented
to this Agreement and to the Shareholder's fulfillment of the terms thereof.
(b) Right to Vote and to Transfer Shares. The Shareholder has full
legal power, authority and right to vote all of the Shares in favor of approval
and adoption of the Merger Agreement without the consent or approval of, or any
other action on the part of, any other person or entity. Without limiting the
generality of the foregoing, except for this Agreement, Shareholder has not
entered into any voting agreement or any other agreement with any person or
entity with respect to any of the Shares, granted any person or entity any proxy
(revocable or irrevocable) or power of attorney with respect to any of the
Shares, deposited any of the Shares in a voting trust or entered into any
arrangement or agreement with any person or entity limiting or affecting the
Shareholder's ability to enter into this Agreement or legal power, authority or
right to vote the Shares in favor of the approval and adoption of the Merger
Agreement or any of the transactions contemplated by the Merger Agreement, and
Shareholder will not take any such action after the date of this Agreement and
prior to the Company shareholders meeting to vote on approval and adoption of
the Merger Agreement, including any adjournment or postponement thereof (the
"Company Shareholders Meeting"). This Agreement has been duly executed and
delivered by the Shareholder and constitutes a valid and binding agreement of
the Shareholder.
2. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Shareholder that this Agreement (i) has been duly authorized by
all necessary corporate action, (iii) has been duly executed and delivered by
Parent and (iii) is a valid and binding agreement of Parent.
3. Restriction on Transfer. The Shareholder agrees that (other than
pursuant to the Merger Agreement) it will not, and will not agree to, sell,
assign, dispose of, encumber, mortgage, hypothecate or otherwise transfer or
encumber (collectively, "Transfer") any of the Shares to any person or entity;
provided, however, that the Shareholder may enter into pledge agreements
pledging any of the Shares as collateral security under loan agreements,
provided that (i) the lender under each such loan agreement consents to this
Agreement and fulfillment of the terms thereof and (ii) the Shareholder
covenants and agrees to comply with each pledge agreement and other loan
documents relating to pledges of Shares thereunder and to otherwise take all
action necessary to insure that the Shareholder can carry out the terms of this
Agreement.
4. Agreement to Vote of Shareholder. The Shareholder, in his individual
capacity as a shareholder of the Company only, hereby irrevocably and
unconditionally agrees to vote or to cause to be voted all of the Shares at the
Company Shareholders' Meeting and at any other annual or special meeting of
shareholders of Company where such matters arise (a) in favor of the approval
and adoption of the Merger Agreement and (b) against (i) approval of any
proposal made in opposition to or in competition with the Merger or any of the
other transactions contemplated by the Merger Agreement, (ii) any merger,
consolidation, sale of assets, business combination, share exchange,
reorganization or recapitalization of Company or any of its subsidiaries, with
or involving any party other than Parent or one of its subsidiaries, (iii) any
liquidation, dissolution or winding up of Company, (iv) any extraordinary
dividend by Company, (v) any change in the capital structure of Company (other
than pursuant to the Merger Agreement) and (vi) any other action that may
reasonably be expected to impede, interfere with, delay, postpone or attempt to
discourage the Merger or the other transactions contemplated by the Merger
Agreement or this Agreement or result in a breach of any of the covenants,
representations, warranties or other obligations or agreements of Company under
the Merger Agreement which would materially and adversely affect Company or its
ability to consummate the transactions contemplated by the Merger Agreement. The
Stockholder further agrees not to take or commit or agree to take any action
inconsistent with the foregoing.
5. Action in Shareholder Capacity Only. The Shareholder signs solely in the
Shareholder's capacity as a record and beneficial owner of the Shares, and
nothing herein shall prohibit, prevent or preclude the Shareholder from
fulfilling his fiduciary duties as a director of Company, including without
limitation, voting or consenting as a director in favor of an Acquisition
Proposal (as defined in the Merger Agreement) or negotiating with respect to an
Acquisition Proposal in his capacity as an officer or director of the Company.
6. No Shopping. The Shareholder, in his individual capacity as a
shareholder of the Company only, agrees not to, directly or indirectly, (i)
solicit, initiate or encourage (or authorize any person to solicit, initiate or
encourage) any inquiry, proposal or offer from any person to acquire the
business, property or capital stock of Company or any direct or indirect
subsidiary thereof, or any acquisition of a substantial equity interest in, or a
substantial amount of the assets of, Company or any direct or indirect
subsidiary thereof, whether by merger, purchase of assets, tender offer or other
transaction or (ii) participate in any discussion or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek any of the foregoing; provided
that, notwithstanding the foregoing, the Shareholder shall not be prohibited
from taking any such actions as are required, based upon advice of counsel, to
comply with his fiduciary duties as an officer and director of the Company to
the extent such actions are permitted under the Merger Agreement.
7. Invalid Provisions. If any provision of this Agreement shall be invalid
or unenforceable under applicable law, such provision shall be ineffective to
the extent of such invalidity or unenforceability only, without it affecting the
remaining provisions of this Agreement.
8. Executed in Counterparts. This Agreement may be executed in counterparts
each of which shall be an original with the same effect as if the signatures
hereto and thereto were upon the same instrument.
9. Specific Performance. The parties hereto agree that if for any reason
the Shareholder fails to perform any of his agreements or obligations under this
Agreement irreparable harm or injury to Parent would be caused for which money
damages would not be an adequate remedy. Accordingly, the Shareholder agrees
that, in seeking to enforce this Agreement against the Shareholder, Parent shall
be entitled to specific performance and injunctive and other equitable relief in
addition and without prejudice to any other rights or remedies, whether at law
or in equity, that Parent may have against the Shareholder for any failure to
perform any of its agreements or obligations under this Agreement.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of conflicts of laws thereof
11. Amendments; Termination.
(a) This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
(b) The provisions of this Agreement shall terminate upon the earliest
to occur of (i) the consummation of the Merger, (ii) the date which is 12 months
after the date hereof, (iii) the termination of the Merger Agreement pursuant to
Section 7.1(a) or (g) thereof, or (iv) the termination of the Merger Agreement
pursuant to Section 7.1 (b) or (c) thereof if, but only if, the Merger Agreement
is terminated pursuant to such subsection (b) or (c) solely for reasons that are
not directly or indirectly related to the commencement of, or any person's or
entity's direct or indirect indication of interest in making, an Acquisition
Proposal with respect to the Company.
(c) For purposes of this Agreement, the term "Merger Agreement"
includes the Merger Agreement, as the same may be modified or amended from time
to time.
12. Additional Shares. If, after the date hereof the Shareholder acquires
beneficial ownership of any shares of the capital stock of Company (any such
shares, "Additional Shares"), including, without limitation, upon exercise of
any option, warrant or right to acquire shares of capital stock or through any
stock dividend or stock split, the provisions of this Agreement (other than
those set forth in Section 1 (a)) applicable to the Shares shall be applicable
to such Additional Shares as if such Additional Shares had been Shares as of the
date hereof. The provisions of the immediately preceding sentence shall be
effective with respect to Additional Shares without action by any person or
entity immediately upon the acquisition by the Shareholder of beneficial
ownership of such Additional Shares.
13. Action by Written Consent. If, in lieu of the Company Shareholders
Meeting, shareholder action in respect of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement is taken by written consent,
the provisions of this Agreement imposing obligations in respect of or in
connection with the Company Shareholders Meeting shall apply mutatis mutandis to
such action by written consent.
14. Shareholder Certificate. Shareholder agrees to execute and deliver a
certificate containing such representations as are reasonably necessary and
customary for tax counsel to Parent on the one hand, and Company on the other
hand, to render an opinion to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986 and that no gain or loss will be recognized by the shareholders of Company
to the extent they receive Parent Common Stock solely in exchange for shares of
Company Common Stock, such certificate to be in the form attached hereto as
Exhibit C.
15. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal successors and permitted assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of Parent (in the case of the Shareholder or any
of its permitted assigns) or the Shareholder (in the case of Parent or any of
its permitted assigns).
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile, or by registered or certified mail (postage prepaid,
return receipt requested) to such party at its address set forth on the
signature page hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Mark E. Watson, Jr.
Address:
MEW FAMILY LIMITED PARTNERSHIP
By:
------------------------------------
Mark E. Watson, Jr., General Partner
By:
----------------------------------
Kathleen Watson, General Partner
Address:
USF&G CORPORATION
By:
-----------------------------------
Address:
THE MARK AND KATHLEEN WATSON
CHARITABLE FOUNDATION
By:
----------------------------
Mark E. Watson, Jr., Trustee
By:
---------------------------
Kathleen E. Watson, Trustee
By:
-----------------------
E.B. Lyon, III, Trustee
Address:
EXHIBIT A
Mark E. Watson, Jr., including 2,223,096 shares owned in his
individual capacity, 256,199 shares owned through MEW Family
Limited Partnership, a limited partnership in which he is a
general partner together with his wife, Kathleen Watson, and
100,000 shares owned through The Mark and Kathleen Watson
Charitable Foundation, of which he is a trustee together with
Kathleen Watson and E.B. Lyons, III.
EXHIBIT B
EXHIBIT C