PRIVILEGED AND CONFIDENTIAL
AGREEMENT AND
PLAN OF MERGER
BY AND AMONG
X.L. AMERICA, INC.
AND INTERCARGO CORPORATION
DATED AS OF December 1, 1998
TABLE OF CONTENTS
ARTICLE PAGE
ARTICLE I THE MERGER.............................................. 1
1.1. The Merger................................................. 1
1.2. Closing.................................................... 2
1.3. Effective Time............................................. 2
1.4. Effects of the Merger...................................... 2
1.5. Filing of Certificate of Merger............................ 2
1.6. Further Assurances......................................... 3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; MERGER CONSIDERATION;
EXCHANGE OF CERTIFICATES; OPTIONS..................... 3
2.1. Conversion of Shares....................................... 3
2.2. Stock Options.............................................. 3
2.3. Dissenting Shares.......................................... 4
2.4. Payment for Shares......................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY........ 6
3.1. Organization, Standing and Power........................... 6
3.2. Capital Structure.......................................... 6
3.3. Subsidiaries, Investments.................................. 7
3.4. No Violations; Consents and Approvals...................... 8
3.5. Government Filings; Financial Statements................... 9
3.6. Information Supplied....................................... 9
3.7. Compliance With Laws.......................................10
3.8. Insurance Issued...........................................11
3.9. Rating Agencies............................................13
3.10. Absence of Certain Changes or Events......................13
3.11. Absence of Undisclosed Liabilities........................15
3.12. Litigation................................................15
3.13. Taxes.....................................................15
3.14. Employee Benefit Plans; ERISA.............................17
3.15. Labor Matters.............................................19
3.16. Environmental Matters.....................................20
3.17. Real and Personal Property................................21
3.18. Material Contracts........................................22
3.19. Related Party Transactions................................24
3.20. Liens.....................................................24
3.21. Operations Insurance......................................24
3.22. Opinion of Financial Advisor..............................24
3.23. Board of Directors Recommendation.........................25
3.24. Stockholder Vote Required.................................25
3.25. Brokers...................................................25
3.26. Bank Accounts.............................................25
3.27. Premium Balances Receivable...............................25
3.28. Investment Portfolio and Other Assets.....................25
3.29. Payments..................................................26
3.30. Reinsurance Agreements....................................26
3.31. State Antitakeover Statutes...............................26
3.32. Certain Other Agreements..................................26
3.33. Company Cash and Cash Equivalents.........................27
3.34. Year 2000.................................................27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EMERALD.............27
4.1. Organization, Standing and Power...........................27
4.2. Authority; Consent and Approvals...........................27
4.3. Information Supplied.......................................28
4.4. Financing..................................................28
4.5. Brokers....................................................28
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS..............29
5.1. Conduct of Business by the Company Prior
to the Closing Date........................................29
5.2. Company Cash...............................................32
5.3. Additional Company Authorizations..........................32
5.4. No Solicitations...........................................32
ARTICLE VI ADDITIONAL AGREEMENTS.................................33
6.1. Preparation of Proxy Statement; Stockholder Meeting;
Comfort Letters............................................33
6.2. Contract and Regulatory Approvals..........................34
6.3. HSR Filing.................................................35
6.4. Access to Information; Confidentiality.....................35
6.5. Fees and Expenses..........................................35
6.6. Indemnification............................................36
6.7. Reasonable Best Efforts....................................37
6.8. Public Announcements.......................................38
6.9. Cooperation................................................38
6.10. Parent Guarantee..........................................38
ARTICLE VII CONDITIONS PRECEDENT.................................38
7.1. Conditions to Each Party's Obligation to Effect the Merger 38
7.2. Conditions to Obligations of Emerald.......................39
7.3. Conditions to Obligations of the Company...................40
ARTICLE VIII TERMINATION AND AMENDMENT...........................41
8.1. Termination................................................41
8.2. Effect of Termination......................................42
8.3. Amendment..................................................42
8.4. Extension; Waiver..........................................42
ARTICLE IX GENERAL PROVISIONS
9.1. Nonsurvival of Representations, Warranties and Agreements..43
9.2. Notices....................................................43
9.3. Interpretation.............................................44
9.4. Counterparts...............................................44
9.5. Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership........................................44
9.6. Governing Law..............................................45
9.7. Assignment.................................................45
EXHIBITS:
Exhibit 1 Stockholders
Agreement
Exhibit 2 Employment
Agreement with Stanley A. Galanski
Exhibit 3 Employment
Agreement with Robert M. Lynyak
Exhibit 4 Roanoke Consent
INDEX OF DEFINED TERMS
DEFINED TERM SECTION
Acquisition Proposal 5.4(a)
Actions 3.8(g)
Agreement Preamble
Audits 3.13(e)
Bylaws 1.4(b)
CERCLA 3.16(a)(i)
Certificate of Merger 1.3
Certificates 2.5(b)
Closing 1.2
Closing Date 1.2
Code 3.13(i)
Company Preamble
Company Annual Statement 3.7(c)
Company Balance Sheet 3.5
Company Benefit Plans 3.14(a)
Company Bylaws 3.1
Company Cash 3.33
Company Certificate 2.1(d)
Company Certificate of Incorporation 3.1
Company Common Stock Recitals
Company Confidentiality Agreement 6.4(c)
Company Consolidated Financial Statements 3.5
Company Employee Arrangements 3.14(a)
Company Intangible Property 3.17(d)
Company Licenses 3.7(b)(iii)
Company Material Contracts 3.18
Company Quarterly Statement 3 7(c)
Company Stock Option 2.2
Company Stock Option Plan 2.2
Company Stockholder Approval Recitals
Company Stockholders' Meeting 6.1(c)
Company Voting Debt 3.2
Constituent Corporations 1.1
Contract 3.18
DGCL 1.1
Disclosure Schedule Article III
Dissenting Shares 2.4
Effective Time 1.3
Emerald Preamble
Emerald Bylaws 4.1
Emerald Certificate of Incorporation 4.1
Emerald Common Stock Recitals
Emerald Confidentiality Agreement 6.4(c)
Employment Agreements 3.32
Environmental Law 3.16(a)(i)
Exchange Act 3.5
Exchange Agent 2.5(a)
Exchange Fund 2.5(a)
Filed Company SEC Documents 3.5
Financial Advisor 6.1(a)
FPK Opinion 3.22
Future SEC Documents 3.5
GAAP 3.5
Galanski Employment Agreement 3.32
Governmental Entity 3.4(c)
Hazardous Material 3.16(a)(ii)
HSR Act 3.4(c)
Indemnified Liabilities 6.6(a)
Indemnified Parties 6.6(a)
Key Employee 3.18
Liens 3.20
Loss Reserves 3.7(d)
Lynyak Employment Agreement 3.32
Material Adverse Effect 3.1
Merger Recitals
Merger Consideration 2.1(a)
OSHA 3.16(a)(i)
Parent Recitals
Producer Agreements 3.18(b)
Proxy Statement 6.1(a)
Real Property Leases 3.17(b)
Reinsurance Agreement 3.30
Related Party 3.19
Release 3.16(a)(iii)
Remedial Action 3.16(a)(iv)
Roanoke Consent 3.32
SAP 3.7(c)
SEC 6.1(a)
Securities Act 3.5
Share 2.1(a)
Stockholders Agreement 3.32
Subsidiary 3.3
Superior Proposal 5.4(a)
Surviving Corporation 1.1
Tax Return 3.13
Taxes 3.13
Termination Date 8.1(c)
Termination Fee 6.5(b)
Trigger Event 8.1(e)
Violation 3.4(b)
WARN Act 3.15(d)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 1, 1998 (the
"Agreement"), is made and entered into by and among X.L. America, Inc., a
Delaware corporation ("Emerald"), and Intercargo Corporation, a Delaware
corporation (the "Company").
R E C I T A L S:
WHEREAS, the respective Boards of Directors of the Company and
Emerald have determined that the merger of the Company with and into Emerald
(the "Merger"), upon the terms and subject to the conditions set forth in this
Agreement, would be fair to and in the best interests of their respective
stockholders, and such Boards of Directors have approved the Merger, pursuant
to which each share of common stock, par value $1.00 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 shares of Company
Common Stock owned, directly or indirectly, by the Company, any Subsidiary (as
defined in Section 3.3) of the Company, Emerald or any Subsidiary of Emerald
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 a majority of the outstanding shares of the Company Common
Stock (the "Company Stockholder Approval"); and
WHEREAS, Emerald 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;
WHEREAS, EXEL Limited, a Cayman Islands corporation ("Parent"),
desires to make the agreement provided in Section 6.10 of this Agreement;
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 Delaware General
Corporation Law ("DGCL"), the Company shall be merged with and into Emerald at
the Effective Time. At the Effective Time, the separate corporate existence of
the Company shall cease and Emerald shall continue as the surviving corporation
(Emerald and the Company are sometimes hereinafter referred to as "Constituent
Corporations" and, as the context requires, Emerald is sometimes hereinafter
referred to as the "Surviving Corporation"). At the election of Emerald, any
direct wholly-owned subsidiary of Emerald incorporated under the laws of the
State of Delaware may be substituted for Emerald as a Constituent Corporation
in the Merger, and such subsidiary will be the Surviving Corporation of the
Merger. Any such election by Emerald shall not relieve Emerald of its
obligations under this Agreement.
1.2. CLOSING. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VII, 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 VII
(the "Closing Date"), at the offices of Cahill Gordon & Reindel, 80 Pine
Street, New York, New York 10005, 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 a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, as provided in the DGCL, as soon as practicable on or
after the Closing Date. The Merger shall become effective upon the acceptance
for record of such filing or at such time thereafter as is provided in the
Certificate 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 DGCL:
(a) The Certificate of Incorporation of Emerald shall be the
Certificate of Incorporation of the Surviving Corporation until duly
amended in accordance with the terms thereof and the DGCL.
(b) The Bylaws of Emerald (the "Bylaws") shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by applicable
law, the Surviving Corporation's Certificate of Incorporation or the
Bylaws.
(c) The directors of Emerald 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 Certificate of Incorporation and Bylaws.
(d) The officers of the Company 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 Certificate of Incorporation and Bylaws.
1.5. FILING OF CERTIFICATE OF MERGER. At the Closing, Emerald and
the Company shall cause a Certificate of Merger to be executed and filed with
the Secretary of State of the State of Delaware as provided in <section> 251 of
the DGCL, and shall take any and all other lawful actions and do any and all
other lawful things to cause the Merger to become effective.
1.6. FURTHER ASSURANCES. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or any of the rights,
properties or assets of either of the Constituent Corporations acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the officers and directors
of the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in
the name and on behalf of each of the Constituent Corporations or otherwise,
all such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or otherwise to carry
out this Agreement.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS; MERGER
CONSIDERATION; EXCHANGE OF CERTIFICATES; OPTIONS
2.1. CONVERSION OF SHARES. (a) Each share (a "Share") of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than (i) Shares held in the Company's treasury, (ii) Shares held by
Emerald or any other subsidiary of Emerald and (iii) Dissenting Shares (as
defined in Section 2.4 hereof)) shall, at the Effective Time, by virtue of the
Merger and without any action on the part of Emerald, the Company or the holder
thereof, be cancelled and extinguished and be converted into the right to
receive, pursuant to Section 2.5, $12.00 per Share in cash (the "Merger
Consideration"), payable to the holder thereof, without interest thereon, upon
the surrender of the certificate formerly representing such Share, less any
required withholding of taxes. At the Effective Time, each outstanding share
of Emerald Common Stock shall be converted into a share of common stock of the
Surviving Corporation.
(b) Each Share held in the treasury of the Company and each Share
held by Emerald or any subsidiary of Emerald, or the Company or any Subsidiary
of the Company immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Emerald, the Company or the holder
thereof, be cancelled, retired and cease to exist and no payment shall be made
with respect thereto.
2.2. STOCK OPTIONS. (a) Prior to the consummation of the Merger,
the Board of Directors of the Company shall use its best efforts to cause the
terms of all outstanding stock options and any related stock appreciation right
heretofore granted under any stock option plan of the Company (collectively,
the "Company Stock Option Plans") which would become exercisable by the persons
listed on Schedule 2.2(a) on or before the Effective Time by its terms to be
amended to provide that, at the Effective Time, each stock option ("Company
Stock Option") outstanding immediately prior to the consummation of the Merger
held by the persons listed on Schedule 2.2(a) shall be cancelled and the holder
thereof shall be entitled to receive at the Effective Time from the Company in
consideration for such cancellation a cash payment of an amount equal to (i)
the excess, if any, of (A) the Merger Consideration over (B) the exercise price
per share of Company Common Stock subject to such stock option, multiplied by
(ii) the number of shares of Company Common Stock into which such stock option
was theretofore exercisable.
(b) All amounts payable pursuant to Section 2.2(a) shall be subject
to any required withholding of taxes and shall be paid without interest.
(c) Prior to the consummation of the Merger, the Board of Directors
of the Company (or, if appropriate, any committee administering the Company
Stock Option Plans) shall adopt such resolutions or take such actions as are
commercially reasonable, subject, if necessary, to obtaining consents of the
holders thereof, to carry out the terms of this Section 2.2.
2.3. DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance with
Section 262 of the Delaware Act ("Dissenting Shares") shall not be converted
into a right to receive the Merger Consideration, unless such holder fails to
perfect or withdraws or loses his right to appraisal, in which case such Shares
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Merger Consideration, without interest thereon. The
Company shall give Emerald prompt notice of any demands received by the Company
for appraisal of Shares and, prior to the Effective Time, Emerald shall have
the right to direct all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Company shall not, except with the
prior written consent of Emerald, make any payment with respect to, or settle
or offer to settle, any such demands.
2.4. PAYMENT FOR SHARES. (a) Prior to the Effective Time, Emerald
shall designate a bank or trust company reasonably acceptable to the Company to
act as exchange agent in connection with the Merger (the "Exchange Agent")
pursuant to an exchange agreement in form and substance reasonably satisfactory
to the Company. Prior to the Effective Time, Emerald will provide the Exchange
Agent with cash necessary to make cash payments contemplated by Section 2.1(a)
hereof (the "Exchange Fund"). Such funds shall be invested by the Exchange
Agent as directed (i) prior to the Effective Time, by Emerald or, (ii) after
the Effective Time, by the Surviving Corporation, PROVIDED that such
investments shall be in obligations of or guaranteed by the United States of
America, in commercial paper obligations rated A-1 or P-1 or better by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $500 million. Any net profit resulting
from, or interest or income produced by, such investments will be payable to
the Surviving Corporation or Emerald, as Emerald directs.
(b) Promptly after the Effective Time, the Exchange Agent shall
mail to each record holder, as of the Effective Time, of an outstanding
certificate or certificates which immediately prior to the Effective Time
represented Shares (the "Certificates") a form letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of a
Certificate, together with a duly executed letter of transmittal and any other
required documents, the holder of such Certificate shall receive in exchange
therefor (as promptly as practicable) the Merger Consideration, without any
interest thereon, less any required withholding of taxes, and such Certificate
shall forthwith be cancelled. If payment is to be made to a person other than
the person in whose name a Certificate so surrendered is registered, it shall
be a condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer, that the signatures on the
Certificate or any related stock power shall be properly guaranteed and that
the person requesting such payment shall either pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the Certificate so surrendered or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 2.5(b), each
Certificate (other than Certificates representing Shares held in the Company's
treasury or by Emerald or the Company, or by any Subsidiary of Emerald or the
Company, and other than Certificates representing Dissenting Shares) shall
represent for all purposes only the right to receive for each Share represented
thereby the Merger Consideration.
(c) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the consideration provided for, and in accordance
with the procedures set forth, in this Article II.
(d) From and after the Effective Time, the holders of Certificates
evidencing ownership of Shares outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares except as
otherwise provided herein or by applicable law. Such holders shall have no
rights, after the Effective Time, with respect to such Shares except to
surrender such Certificates in exchange for cash pursuant to this Agreement or
to perfect any rights of appraisal as holders of Dissenting Shares that such
holders may have pursuant to Section 262 of the Delaware Act.
(e) Any portion of the Exchange Fund (including the proceeds of any
investment thereof) that remains unclaimed by the stockholders of the Company
for six months after the Effective Time shall be repaid to the Surviving
Corporation. Any stockholders of the Company who have not theretofore complied
with this Article II shall thereafter look only to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors for payment of their claims for the Merger Consideration for each
Share such stockholders hold, without any interest.
(f) Notwithstanding anything to the contrary in this Section 2.5,
none of the Exchange Agent, Emerald or the Surviving Corporation shall be
liable to a holder of a Certificate formerly representing Shares for any amount
properly delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the disclosure schedule (the "Disclosure
Schedule") delivered at or prior to the date of this Agreement, the Company
represents and warrants to Emerald and EAC as follows:
3.1. 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 Emerald complete and correct copies of
its Certificate of Incorporation, as amended and currently in effect as of the
date of this Agreement (the "Company Certificate of Incorporation"), and the
Company's Amended and Restated Bylaws (the "Company Bylaws"). As used in this
Agreement, a "Material Adverse Effect" shall mean, with respect to any
specified party to this Agreement, any event, charge, 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.
3.2. CAPITAL STRUCTURE. As of the date of this Agreement, the
authorized capital stock of the Company consists of 20,000,000 shares, all of
which are shares of Company Common Stock. At the close of business on
November 20, 1998: (i) 7,699,981 shares of Company Common Stock were issued
and outstanding; (ii) 600,000 shares of Company Common Stock were reserved for
issuance in connection with the Company Stock Option Plan, of which 227,150
shares are available for the exercise of currently outstanding Company Stock
Options; Company Stock Options are vested and presently exercisable for an
aggregate of 76,850 Shares; (iii) 406,400 shares of Company Common Stock were
held in treasury; and (iv) 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 stockholders 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 3.2 of the Disclosure
Schedule: (i) no securities of the Company are 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
obligate the Company to issue, deliver, sell, purchase, redeemed 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 obligate the Company to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
Except as set forth in Section 3.2 of the Disclosure Schedule there are not, as
of the date of this Agreement, and there will not be on the date of the Company
Stockholders' Meeting, any stockholder 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 stockholders of the Company with
respect to the Merger.
3.3. SUBSIDIARIES, INVESTMENTS. Section 3.3 of the Disclosure
Schedule 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 Emerald complete and correct copies of
the certificate of incorporation (or other organizational documents) and bylaws
of each of its Subsidiaries. Section 3.3 of the Disclosure Schedule 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 3.3 of the Disclosure Schedule, 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 3.3 of
the Disclosure Schedule, 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, limited liability company,
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, limited liability company, 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.
3.4. NO VIOLATIONS; CONSENTS AND APPROVALS. (a) The Company has all
requisite corporate power and authority to enter into this Agreement and,
subject to the Company Stockholder 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 Stockholder Approval. This Agreement has
been duly executed and delivered by the Company and, subject, in the case of
the Merger, to the Company Stockholder Approval, and assuming that this
Agreement constitutes the valid and binding agreement of Emerald, 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
(i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors rights generally and (ii) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity) and
(iii) any ruling or action of any Governmental Entity as set forth in Section
3.4(c).
(b) 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 (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss, creation or right of first refusal, or
change, a "Violation"), pursuant to, (i) any provision of the Company
Certificate of Incorporation or Company Bylaws or the comparable documents of
any of its Subsidiaries or (ii) except as to which requisite waivers or
consents have been obtained and specifically identified in Section 3.4 of the
Disclosure Schedule and assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in paragraph (c)) of this
Section 3.4 are duly and timely obtained or made and, in the case of the
Merger, the Company Stockholder Approval has been obtained, any loan or credit
agreement, note, mortgage, deed of trust, indenture, lease, Company License (as
defined in Section 3.7), Company Benefit Plan (as defined in Section 3.14),
Company Material Contract (as defined in Section 3.18), 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.
(c) 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: (i) 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 3.4(c)(i) of the Disclosure Schedule; (ii) 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; (iii)
the filing with the SEC of 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"); (iv) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware; (v) such filings
and approvals as may be required by any applicable state securities, "blue sky"
or takeover laws; (vi) the Company Stockholder Approval; and (vii) 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 affect the Company and its Subsidiaries
taken as a whole in any material respect.
3.5. GOVERNMENT FILINGS; FINANCIAL STATEMENTS. The Company has made
available to Emerald 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. The Company will promptly make available to Emerald a true and
complete copy of each report, schedule, registration statement (if any) and
definitive proxy statement (the "Future SEC Documents") filed by the Company
after the date of this Agreement. As of their respective dates, the Filed
Company SEC Documents complied, and the Future SEC Documents will comply, in
all material respects with the requirements of the Securities Act of 1933), as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (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 or Future SEC Documents, as the case may be, and none of the Filed
Company SEC Documents contained, and none of the Future SEC Documents will
contain, any untrue statement of a material fact or omitted, or will omit, 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 (the
"Company Consolidated Financial Statements") included in the Filed Company SEC
Documents or Future SEC Documents comply, or will comply, as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, have been, or will be, 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, or will 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 3.5 of the Disclosure Schedule lists with respect to the Company Common
Stock for the period since December 31, 1997 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.
3.6. INFORMATION SUPPLIED. The Proxy Statement, on the date it is
first mailed to the holders of the Company Common Stock or at the time of the
Company Stockholders' Meeting, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply 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
Emerald specifically for inclusion therein. If, at any time prior to the
Company Stockholders' 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 stockholders of the Company.
3.7. COMPLIANCE WITH LAWS. (a) Except as disclosed in Section
3.7(a) of the Disclosure Schedule, 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 material respects with such laws.
(b) INSURANCE AND OTHER LICENSES.
(i) Section 3.7(b)(i)(A) of the Disclosure Schedule 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 3.7(b)(i)(B) of the Disclosure Schedule, 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 3.7(b)(i)(A) of the Disclosure Schedule, 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 3.7(b)(1)(A) of
the Disclosure Schedule, all of which licenses are valid and in full force and
effect. Except as set forth in Section 3.7(b)(1)(A) of the Disclosure
Schedule, 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 officers of the
Company, and, in the case of Emerald, the officers of Emerald and the Parent.
(ii) 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, any 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.
(iii) The licenses referred to in subparagraphs (i) and (ii) are
collectively referred to herein as the "Company Licenses."
(c) INSURANCE STATEMENTS. Each Subsidiary of the Company that is
an insurance company has filed during the three years ended December 31, 1997,
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, 1997 (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, 1998 (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. No deficiencies or violations
have been asserted in writing 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.
(d) LOSS RESERVES. 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 in all material
respects. The statutory reserves set forth in the Company Annual Statement and
Company Quarterly Statements 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 GAAP 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.
(e) NO DIVIDENDS PAID. Except as set forth in Section 3.7(e) of
the Disclosure Schedule, from September 30, 1998, none of the Company's
Subsidiaries have paid any dividend or made any other distribution in respect
of its capital stock.
3.8. INSURANCE ISSUED. Except (i) as set forth in Section 3.8 of
the Disclosure Schedule 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:
(a) 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.
(b) 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.
(c) The Company has not received any written notice 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.
(d) 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.
(e) 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.
(f) Except as set forth in Section 3.8(f) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries is a party to any fronting
agreement or places or sells coinsurance whether for its own account or
for any reinsurance company.
(g) There are to the knowledge of the Company (i) no claims asserted,
(ii) no actions, suits, investigations or proceedings by or before any
court or other Governmental Entity and (iii) no investigations by or on
behalf of any of the Company or its Subsidiaries ((i), (ii) and (iii)
being collectively referred to as "Actions") pending or threatened,
against or involving any of the Company or its Subsidiaries, that include
allegations that any of the Company or its Subsidiaries were in violation
of or failed to comply with any law, statute, ordinance, rule, regulation,
code, writ, judgment, injunction, decree, determination or award
applicable to the Company or its Subsidiaries in the respective
jurisdictions in which their products have been sold.
3.9. RATING AGENCIES. Except as disclosed in Section 3.9 of the
Disclosure Schedule, since December 31, 1997, 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 3.9 of the Disclosure
Schedule. 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.
3.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997,
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 3.10 of the Disclosure Schedule 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 3.10 of the Disclosure Schedule or
in the Filed Company SEC Documents, since December 31, 1997, 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:
(a) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of the Company or any
direct or (other than any retirement of any Company Stock Options
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;
(b) 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;
(c)(i) 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, (ii) 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, (iii) 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 or (iv) any granting by the Company or any of
its Subsidiaries of any Company Stock Option or the change or amendment of
any existing Company Stock Option or Company Stock Option Plan;
(d) 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, 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;
(e) 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, the Company Annual Statement or the
Company Quarterly Statements;
(f) 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 (i)
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 (ii) renewals for periods of
one year or less on substantially the same terms, in the ordinary course
of business;
(g) 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;
(h) any Lien created or assumed on any of the assets or properties of
the Company or any of its Subsidiaries;
(i) 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);
(j) 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 3.19);
(k) any write-off or write-down of, or any determination to write-off
or writedown, 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;
(l) 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;
(m) 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
(n) any Contract to take any of the actions prohibited in this
Section 3.10.
3.11. ABSENCE OF UNDISCLOSED LIABILITIES. Except as reflected in
Section 3.11 of the Disclosure Schedule, as of December 31, 1997, neither the
Company nor any of its Subsidiaries had any liabilities, absolute, accrued,
contingent or otherwise, whether due or to become due, 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, 1997. Since
December 31, 1997, neither the Company nor any of its Subsidiaries has incurred
any liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due except: (i) liabilities arising in the ordinary course of business
consistent with past practice, which would not individually or in the aggregate
cause a Material Adverse Effect on the Company and its Subsidiaries taken as a
whole; (ii) as specifically and individually reflected in Section 3.11 of the
Disclosure Schedule 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 correction with such association's fund relating to insolvent
insurers.
3.12. LITIGATION. Except as set forth in Section 3.12 of the
Disclosure Schedule and except for claims arising under insurance policies in
(a) an amount no greater than the limits set forth in such policies and/or (b)
not involving punitive, extra-contractual or extraordinary damages, (i) there
is no material 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
(ii) 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.
3.13. TAXES. Except as set forth in Section 3.13 of the Disclosure
Schedule:
(a) The Company and its Subsidiaries have (i) duly and timely filed
(or there have been filed on their behalf) with the appropriate taxing
authorities all Tax Returns (as defined below) required to be filed by
them, and all such Tax Returns are true, correct and complete in all
material respects and (ii) timely paid or there have been paid on their
behalf all material Taxes (as defined below) due or claimed to be due from
them by any taxing authority.
(b) The Company and its Subsidiaries have complied in all 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.
(c) There are no liens for material axes upon the assets or
properties of the Company or any of its Subsidiaries except for statutory
liens for current Taxes not yet due.
(d) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any material Tax Return in respect
of any taxable year which has not since been filed.
(e) To the Company's knowledge, no federal, state, local or foreign
audits or other administrative proceedings or court proceedings ("Audits")
exist with regard to any material Taxes or material 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 material Taxes due from or with respect to the Company or any of its
Subsidiaries or any material Tax Return filed by or with respect to the
Company or any of its Subsidiaries.
(f) 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 materially affect any
taxable period after the Closing Date.
(g) 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, 1993, 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 3.13 of the Disclosure Schedule.
(h) 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, finally settled or adequately reserved, 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.
(i) Neither the Company nor any of its Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the
Internal Revenue Code of 1986, as amended (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).
(j) 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.
(k) 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.
(l) 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.
(m) Since December 31, 1997, neither the Company nor any of its
Subsidiaries has incurred any liability for Taxes other than in the
ordinary course of business or as have been fully and adequately reserved
for in the Company Consolidated Financial Statements.
(n) Neither the Company nor any of its Subsidiaries has or could have
any liability for any material 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).
(o) 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).
(p) Neither the Company nor any of its Subsidiaries has made any tax
election that would result in deferring any material 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 material loss or deduction
from a tax period ending after the Closing Date to a tax period ending on
or before the Closing Date.
(q) 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 28OG
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.
3.14. EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 3.14(a) of the
Disclosure Schedule sets forth a complete and correct list of (i) all "employee
benefit plans," as defined in Section 3(3) of ERISA, which Company or any of
its Subsidiaries maintains or has any obligation or liability, contingent or
otherwise ("Company Benefit Plans") and (ii) all employment or consulting
agreements and all bonus or other incentive compensation, stock bonus, stock
option, restricted stock, stock appreciation right, stock purchase, bonus,
deferred compensation, salary continuation, severance, perquisites or other
special or fringe benefit agreements (including mortgage financings and tuition
reimbursements), which the Company or any of its Subsidiaries maintains or has
any obligation or liability (contingent or otherwise) in each case, with
respect to any current or former officer, director or employee of the Company
or any of its Subsidiaries (the "Company Employee Arrangements").
(b) With respect to each Company Benefit Plan, a complete and
correct copy of each of the following documents (if applicable) has been
provided or made available to Emerald: (i) the most recent plan and related
trust documents, and all amendments thereto; (ii) the most recent summary plan
description, and all related summaries of material modifications thereto; (iii)
the most recent Form 5500 (including schedules and attachments); (iv) the most
recent IRS determination letter or request therefor; and (v) the most recent
actuarial reports (including for purposes of Financial Accounting Standards
Board Report Nos. 87,106 and 112), if any. A complete and correct copy of each
Company Employee Arrangement has been provided or made available to Emerald.
(c) Any Company Benefit Plans intended to qualify under Section 401
of the Code have been determined by the Internal Revenue Service to be so
qualified and no event has occurred and no condition exists with respect to the
form or operation of such Company Benefit Plans that would cause the loss of
such qualification.
(d) Except as set forth in Section 3.14(d) of the Disclosure
Schedule, 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.
(e) Except as set forth in Section 3.14(e) of the Disclosure
Schedule, 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 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.
(f) Except as disclosed in Section 3.14(f) of the Disclosure
Schedule, 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.
(g) Except as disclosed in Section 3.14(g) of the Disclosure
Schedule and as otherwise provided in Section 2.3, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment becoming due to any employee
(current, former or retired) of the Company, (ii) increase any benefits under
any Company Benefit Plan or Company Employee Arrangement, or (iii) result in
the acceleration of the time of payment of, vesting of or other rights with
respect to any such benefits.
(h) No prohibited transaction under Section 406 of ERISA or Section
4975 of the Code has occurred with respect to a Company Benefit Plan.
(i) 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.
(j) There are (i) no investigations pending by any governmental
entity (including the Pension Benefit Guaranty Corporation ("PBGC")) involving
the Company Benefit Plans and (ii) no pending or threatened claims (other than
routine claims for benefits), suits or proceedings against any Company Benefit
Plan, against the assets of any of the trusts under any Company Benefit Plan or
against any fiduciary of any Company Benefit Plan with respect to the operation
of such plan or asserting any rights or claims to benefits under any Company
Benefit Plan or against the assets of any trust under such plan.
(k) Neither the Company nor any of its Subsidiaries maintains or
contributes to, nor have they ever maintained or contributed to, any pension
plan subject to Title IV of ERISA or Sections 412 of the Code or 302 of ERISA.
(l) Except as disclosed in Section 3.14(l) of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has incurred, or
reasonably expects to incur, any liability under Title IV or ERISA (other than
for the payment of PBGC insurance premiums or plan benefits which have been
paid when due).
(m) Except as disclosed in Section 3.14(m) of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any liability
(including any contingent liability under Section 4204 of ERISA) with respect
to any "multiemployer plan" (within the meaning of Section 3(37) of ERISA).
3.15. LABOR MATTERS. (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) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor disputes
pending or, to the knowledge of the Company, 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.
(c) Except as set forth in Section 3.15 of the Disclosure Schedule,
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.
(d) 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.
3.16. ENVIRONMENTAL MATTERS. (a) For purposes of this Agreement:
(i) "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. Section
9601 ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 ET SEQ.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 ET SEQ.), the Clean Water Act (33 U.S.C. Section 1251
ET SEQ.), the Clean Air Act (33 U.S.C. Section 7401 ET SEQ.), the Toxic
Substances Control Act (15 U.S.C. Section 7401 ET SEQ.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 ET
SEQ.), and the Occupational Safety and Health Act (29 U.S.C. Section 651
ET SEQ.) ("OSHA") (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;
(ii) "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;
(iii) "Release" means any release, spill, effluence, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching, or migration of Hazardous Material into the environment; and
(iv) "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: (A) clean up, remove, treat, or in any other
way mitigate the adverse effects of any Hazardous Materials Released in
the environment; (B) prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it does not endanger or
threaten to endanger the public health or welfare or the environment; (C)
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.
(b) Except as set forth in Section 3.16 of the Disclosure Schedule:
(i) 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;
(ii) 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;
(iii) 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 (A) Environmental Laws, (B) Remedial Action or
(C) any Release or threatened Release of a Hazardous Material;
(iv) 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;
(v) 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;
(vi) 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;
(vii) No environmental approvals, clearances or consents are
required under applicable law from any governmental entity or authority
in order to consummate the reactions contemplated herein; and
(c) This Section 3.16 sets forth the sole representations and
warranties of the Company with respect to Environmental Laws.
3.17. REAL AND PERSONAL PROPERTY. (a) There is no real property
owned in fee by the Company or any of its Subsidiaries.
(b) 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, 1997, and
Liens imposed upon the leased real property by or on account of the landlords
thereof.
(c) Except as set forth in Section 3.17(c) of the Disclosure
Schedule, 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
excepted) and is suitable for its current uses.
(d) Except as set forth in Section 3.17(d) of the Disclosure
Schedule, 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 3.17(d) of the Disclosure Schedule sets forth a complete
list of the Company Intangible Property. To the knowledge of the Company, the
use of the Company Intangible Property by the Company and its Subsidiaries does
not conflict with, infringe upon, violate or interfere with any right, title or
interest of any other person. Except as set forth in Section 3.17(d) of the
Disclosure Schedule, 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.
3.18. MATERIAL CONTRACTS. Section 3.18 of the Disclosure Schedule
contains a true and complete list of each of the following Company Material
Contracts (as defined in this Section 3.18) in effect as of the date of this
Agreement (true and complete copies of which have been made available to
Emerald) 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:
(a) all employment, agency (other than insurance agency), consulting,
or representation contracts or other contracts of any type (including,
without limitation, loans or advances) with any present officer or
director, 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);
(b) 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;
(c) all contracts with any person or entity containing any provision
or covenant limiting the ability of the Company to (A) sell any products
or services, (B) engage in any line of business or (C) compete with or
obtain products or services from any person or entity or (ii) limiting the
ability of any person or entity to compete with or to provide products or
services to the Company;
(d) 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;
(e) all contracts (other than contracts of insurance or reinsurance
entered into in the ordinary course of business) pursuant to which the
Company 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);
(f) all leases or subleases of real property used in the business,
operations, or affairs of the Company or any of its Subsidiaries;
(g) 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;
(h) all leases of automobiles used in the business, operations or
affairs of the Company or any of its Subsidiaries;
(i) all reinsurance (whether as assuming or ceding insurer or
otherwise), coinsurance or other similar contracts;
(j) 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
(k) any commitments or other obligations to enter into any of the
foregoing.
Each Company Material Contract disclosed or required to be disclosed
in Section 3.18 of the Disclosure Schedule 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 Company Material
Contract any written notice of termination or intention to terminate or not to
honor the terms of such Contract. Except as set forth in Section 3.18 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries nor, to
the knowledge of the Company, any other party to such Company Material Contract
is in violation or breach of or default under any such Company Material
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 term "Company Material Contract" shall mean any
agreement, arrangement, undertaking, lease, sublease, license, sublicense,
promissory note, evidence of indebtedness or other binding contract, in each
case, reduced to writing having a value of $100,000 or more per year. As used
in this Agreement "Key Employee" shall mean employees of the Company having a
salary of $90,000 or more per year.
3.19. RELATED PARTY TRANSACTIONS. Except as set forth in Section
3.19 of the Disclosure Schedule, no director, officer, "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.
3.20. LIENS. Except as set forth in Section 3.20 of the Disclosure
Schedule, 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").
3.21. OPERATIONS INSURANCE. Section 3.21 of the Disclosure Schedule
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 3.21 of the
Disclosure Schedule, 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 3.21 of
the Disclosure Schedule, 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.
3.22. OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of the Financial Advisor dated December 1, 1998 (the "FPK 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 FPK Opinion has been delivered to Emerald, and the FPK Opinion has not been
withdrawn or modified.
3.23. BOARD OF DIRECTORS RECOMMENDATION. The Board of Directors of
the Company, at a meeting duly called and held, has by the unanimous vote of
those directors present and voting (who constituted all of the directors then
in office) (i) approved and adopted this Agreement, the Merger and the other
transactions contemplated hereby, (ii) determined that the consideration to be
received by the holders of shares of Company Common Stock pursuant to the
Merger is fair to the holders of such shares, (iii) resolved to recommend,
subject to Sections 5.4 and 6.1 of this Agreement, that the holders of the
shares of Company Common Stock approve this Agreement and the transactions
contemplated herein and (iv) resolved to call a special meeting of the
stockholders of the Company to approve the Merger.
3.24. STOCKHOLDER VOTE REQUIRED. The affirmative vote of the holders
of a majority 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.
3.25. BROKERS. The Company represents 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 the Financial Advisor, whose fees and expenses shall be paid by the
Company in accordance with the Company's agreements with such firm dated as of
February 6, 1998, a true and correct copy of which has been furnished to
Emerald prior to the date hereof.
3.26. BANK ACCOUNTS. Section 3.26 of the Disclosure Schedule
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,
(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.
3.27. 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 September 30, 1998, 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.
3.28. 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 September 30, 1998 with respect to mortgage
loans and September 30, 1998, if any, 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 3.28 of the Disclosure Schedule. Except as
otherwise set forth in Section 3.28 of the Disclosure Schedule, (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) to the Company's knowledge,
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 3.3,
3.17(a) or 3.17(c) of the Disclosure Schedule.
3.29. 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.
3.30. REINSURANCE AGREEMENTS. Section 3.30 of the Disclosure
Schedule contains 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 Emerald. 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. 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. The
Company has no unrecoverable reinsurance balances, other than as fully reserved
on the Company's consolidated balance sheet dated September 30, 1998 and
delivered to Emerald prior to the date of execution hereof or specified on
Section 3.30(b) of the Disclosure Schedule.
3.31. STATE ANTITAKEOVER STATUTES. The Company has granted all
approvals and taken all other steps necessary to exempt the Merger and the
other transactions contemplated hereby from the requirements and provisions of
Section 203 of the DGCL and any other state antitakeover statute or regulation
such that none of the provisions of such Section 203 or any other "business
combination," "moratorium," "control share" or other state antitakeover statute
or regulation (x) prohibits or restricts the Company's ability to perform its
obligations under this Agreement or its ability to consummate the Merger and
the other transactions contemplated hereby, (y) would have the effect of
invalidating or voiding this Agreement, or (z) would subject Parent or Newco to
any material impediment or condition in connection with the exercise of any of
their respective rights under this Agreement.
3.32. CERTAIN OTHER AGREEMENTS. Security Insurance Company of
Hartford has entered into the Stockholders Agreement (the "Stockholders
Agreement") set forth as Exhibit 1 hereto. Stanley A. Galanski has entered
into the Employment Agreement (the "Galanski Employment Agreement") set forth
as Exhibit 2 hereto. Robert M. Lynyak has entered into the Employment
Agreement (the "Lynyak Employment Agreement" and, together with the Galanski
Employment Agreement, the "Employment Agreements") set forth as Exhibit 3
hereto. The Roanoke Consent (the "Roanoke Consent"), substantially in the form
of Exhibit 4 hereto, has been entered into by The Roanoke Companies.
3.33. COMPANY CASH AND CASH EQUIVALENTS. The Company has cash and
cash equivalents (the "Company Cash") of at least $24,000,000. There are no
restrictions, liens, security interests or similar encumbrances on the Company
Cash. There exist no restrictions whatsoever, by operation of law or contract
or regulation or otherwise, other than as set forth in this Agreement, that
could prevent the Company from distributing the Company Cash to its
shareholders.
3.34. YEAR 2000. The Company is in the process of reviewing its and
its Subsidiaries' software and hardware systems which perform critical or
important accounting, data processing, data storage, data transmission and
report writing functions for the purposes of evaluating the readiness of these
systems to function without material interruption on the occurrence of the year
2000 ("Y2K Readiness"). In connection with this process the Company has
retained the services of Y2K Readiness consultants to assist the Company in
these efforts and has undertaken to obtain assurances from its principal
software suppliers and service firms as to the Y2K Readiness of certain mission
critical or important systems obtained from these outside sources or utilized
by them in providing critical services to the Company. The Company reasonably
believes that all software, hardware and equipment (including microprocessors)
that are owned or utilized by the Company or any of its Subsidiaries in the
operations of its or their respective business will be capable, by December 31,
1999, of accounting for all calculations using a century and date sensitive
algorithm for the year 2000 and the fact the year 2000 is a leap year and to
otherwise continue to function without any interruption caused by the
occurrence of the year 2000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EMERALD
Emerald represents and warrants to the Company as follows:
4.1. ORGANIZATION, STANDING AND POWER. Emerald is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized, 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 Emerald and its Subsidiaries taken as a whole in any material
respect.
4.2. AUTHORITY; CONSENT AND APPROVALS. (a) Emerald has 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
Emerald, including the affirmative vote of a majority of the outstanding shares
of Emerald's common stock. This Agreement has been duly executed and delivered
by Emerald and, assuming that this Agreement constitutes the valid and binding
agreement of the Company, constitutes a valid and binding obligation of Emerald
enforceable in accordance with its terms and conditions except that the
enforcement hereof may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally, (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity) and (iii) any ruling or action of any
Governmental Entity as set forth in Section 4.2(b).
(b) 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 Emerald or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
Emerald or the consummation by Emerald of the transactions contemplated hereby,
except for: (i) 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 Emerald that are insurance companies are domiciled
or licensed, each of which is listed in Section 4.2(b)(i) of the Disclosure
Schedule; (ii) the filing of a pre-merger notification and report form by
Emerald under the HSR Act, and the expiration or termination of the applicable
waiting period thereunder; (iii) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware; and (iv) such filings and
approvals as may be required by any applicable state securities, "blue sky" or
takeover laws.
4.3. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Emerald for inclusion or incorporation by reference in the Proxy
Statement will, on the date it is first mailed to the holders of Company Common
Stock or at the time of the Company Stockholders' 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.
4.4. FINANCING. Emerald has readily available all of the funds
necessary to consummate the Merger and, at the Effective Time, Emerald shall
have readily available all of the funds necessary for the acquisition of all
shares of Company Common Stock pursuant to the Merger, and to perform its
obligations under this Agreement.
4.5. BROKERS. Emerald 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 Lehman Brothers Inc., whose fees and
expenses shall be paid by Emerald.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. CONDUCT OF BUSINESS BY THE COMPANY PRIOR TO THE CLOSING DATE.
During the period from the date of this Agreement to the Effective Time, each
of the Company and its Subsidiaries shall use its commercially reasonable
efforts to preserve, in all material respects, the goodwill of employees,
suppliers, customers, landlords, contractors, bankers, and others having
business relations with it and to do nothing knowingly to impair its ability to
keep and preserve its business as it exists on the date of this Agreement.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Effective Time of the Merger each of the Company
and its Subsidiaries shall not, without the prior written consent of Emerald:
(a) conduct its business outside of the ordinary course consistent
with past practice;
(b) adopt a plan of complete or partial liquidation or declare, set
aside, increase or pay any dividend (including any stock dividends), or
declare or make any distribution on, or directly or indirectly combine,
redeem, reclassify, purchase, or otherwise acquire, any shares of its
capital stock or authorize the creation or issuance of, or issue, deliver
or sell any additional shares of its capital stock or any securities or
obligations convertible into or exchangeable for its capital stock or
effect any stock split or reverse stock split or other recapitalization,
except (i) the issuance of any shares upon the exercise of any the Company
Stock Options outstanding on the date of this Agreement; (ii) the
acceptance by the Company of any shares of the Company Common Stock in
consideration of the exercise of the Company Stock Options or in
satisfaction of any tax or tax withholding obligations of the holders of
the Company Stock Options or (iii) the payment of the regular semi-annual
dividend not in excess of $0.09 per share on each of approximately March
15 and September 15, 1999; PROVIDED, HOWEVER, that the declaration of, and
record date for, any such dividend shall be the minimum period prior to
the payment date of such semi-annual dividend as required by law or
securities exchange; and PROVIDED, FURTHER, that no such semi-annual
dividend shall be paid if the Closing hereunder has occurred prior to the
payment date;
(c) amend its certificate or articles of incorporation or by-laws
(or similar organizational documents), or adopt or amend any resolution or
agreement concerning indemnification of its directors, officers, employees
or agents;
(d) pledge or otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares or any other voting
securities or convertible securities;
(e) commit or omit to do any act which act or omission would cause a
breach of any covenant contained in this Agreement or would cause any
representation or warranty contained in this Agreement to become untrue,
as if each such representation and warranty were continuously made from
and after the date hereof;
(f) violate any applicable law, statute, rule, governmental
regulation or order that would have a Material Adverse Effect on such
party;
(g) fail to maintain its books, accounts and records in the usual
manner on a basis consistent with that heretofore employed or change any
accounting method, policy, practice or application previously employed;
(h) release or reverse any existing reserves, other than for
resolution of claims for which such reserve was established or, in the
aggregate, any reserves for claims which are incurred but not reported, or
recognize any unrecognized gain;
(i) fail to pay, or to make adequate provision in all material
respects for the payment of, all Taxes, interest payments and penalties
due and payable (for all periods up to the Effective Time, including that
portion of its fiscal year to and including the Effective Time) to any
city, parish, state, the United States, foreign or any other taxing
authority, except those being contested in good faith by appropriate
proceedings and for which sufficient reserves have been established, or
make any elections with respect to Taxes;
(j) make any material tax election that is inconsistent with any
corresponding election made on a prior return or settle or compromise any
income tax liability for an amount materially in excess of the liability
therefor that is reflected on the Company consolidated financial
statements or Emerald consolidated financial statements, as the case may
be;
(k) except for normal compensation increases, hirings and promotions
in the ordinary course of business consistent with past practice, enter
into or modify any written or oral employment, severance or similar
agreement or arrangement with any director, executive officer or employee
or grant any increase in the rate of wages, salaries, bonuses or other
compensation or benefits of any such person;
(l) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that are material, individually or in the aggregate, to the
Company, except purchases of investments and other assets in the ordinary
course of business consistent with past practice and for a fair and
adequate consideration;
(m) except as set forth in Section 5.1(m) of the Disclosure Schedule,
other than in the ordinary course of business consistent with past
practice, and for a fair and adequate consideration, sell, lease, license,
mortgage or otherwise encumber or subject to any Lien or otherwise dispose
of any of its other properties or assets;
(n) other than in the ordinary course of business consistent with
past practice, and for a fair and adequate consideration, incur any
indebtedness for borrowed money, or guarantee any such indebtedness of
another party, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of such party or any of its
subsidiaries, guarantee any debt securities of another party, enter into
any "keep well" or other agreement to maintain any financial condition of
another party or enter into any arrangement having the economic effect of
any of the foregoing, or make any loans, advances or capital contributions
to, or investments in, any other party, or alter any credit terms;
(o) except as set forth on Section 5.1(o) of the Disclosure Schedule,
make or agree to make any new capital expenditures other than those made
in the ordinary course of business and consistent with past practice and
which amount to less than $50,000 individually;
(p) other than in the ordinary course of business consistent with
past practice, and for a fair and adequate consideration, place or suffer
to exist on any of its assets or properties any Lien, other than Liens
listed on the Company Disclosure Schedule, or forgive any material
indebtedness owing to it or any claims which it may have possessed, or
waive any right of substantial value or discharge or satisfy any material
noncurrent liability;
(q) (i) adopt, amend or change any Company Stock Option Plan or any
other benefit or stock option or stock or similar plan or arrangement,
except as otherwise contemplated by Section 2.2; or (ii) grant or pay to
any salaried employee or former salaried employee, officer or director of
any of the Company or its Subsidiaries any award under any Company
discretionary or other bonus plans or under any Company Stock Option
Plans, except with the consent of Emerald;
(r) fail to maintain in all material respects all licenses,
certificates of authority, qualifications and Governmental Authorizations
to do business in which it is so licensed, qualified or authorized;
(s) other than in the ordinary course of business consistent with
past practice, fail to maintain in full force and effect, other than those
that expire in accordance with their terms, all material contracts,
including all reinsurance, coinsurance and similar agreements of each of
the Subsidiaries of the Company, and not permit or effect any material
amendment thereof without the prior written consent of Emerald;
(t) fail to cause each of the Company's Subsidiaries to properly
prepare and timely file all financial statements, reports and Tax Returns
required to be filed by such Subsidiary with any Governmental Authorities
with respect to the business, operations or affairs of such Subsidiary,
and pay duly and fully all Taxes indicated as due on such Tax Returns, and
all required filing fees;
(u) fail to cause all reserves with respect to insurance contracts
issued by each of the Company's Subsidiaries to be established or
reflected on the books and records of such Subsidiary on a basis
consistent with those reserves and reserving methods followed by the
Company's Subsidiaries at December 31, 1997, and to continue to own
investment assets that qualify under state insurance laws and regulations
as admitted assets in an amount at least equal to all of the required
reserves of such Subsidiaries, established in accordance with generally
accept actuarial principles and practices consistently applied; or
(v) authorize any of, or agree or commit to do any of, the foregoing
actions.
5.2. COMPANY CASH. The Company will maintain the Company Cash in
(i) securities issued or directly and fully guaranteed by the United States
Government, or (ii) commercial paper rated at least P-1 by Moody's Investors
Service, Inc. ("Moody's") and at least A-1 by Standard and Poor's Ratings Group
("S&P") or (iii) senior indebtedness issued by persons with a rating of at
least AA by S&P and Aa by Moody's, in each case with a maturity of no more than
60 days from the date of acquisition. The Company Cash will at all times
remain the sole property of the Company, and the Company will not grant, or
suffer to exist, any interest whatsoever of any other person or entity in the
Company Cash.
5.3. ADDITIONAL COMPANY AUTHORIZATIONS. The Company will use its
reasonable efforts, in cooperation and at the direction of Emerald, to obtain
additional authority in each jurisdiction in which the Company is currently
licensed (as well as in the states of New Hampshire and Vermont) for property,
casualty and surety lines of insurance, to the extent that the Company does not
already possess such authorities or licenses; provided, however, that Emerald
will pay all reasonable pre-approved third party fees and expenses related to
the foregoing; and provided, further, that Emerald and the Company acknowledge
that the failure, after the use of reasonable efforts by the Company in
accordance with the terms hereof, to obtain any such additional authorities or
licenses will not constitute a breach of this Agreement.
5.4. NO SOLICITATIONS. (a) The Company shall not, directly or
indirectly, through any officer, director, employee, representative, agent or
other person, solicit or encourage the initiation or submission of any direct
or indirect inquiries, proposals or offers regarding any acquisition, merger,
takeover bid or sale of all or any of the assets (other than in the ordinary
course of business consistent with past practice) or any shares of capital
stock of the Company (other than pursuant to exercise, in accordance with the
terms thereof, by the persons listed on Schedule 2.2(a) of options outstanding
under Company Stock Option Plans as in effect on the date hereof), whether or
not in writing and whether or not delivered to the stockholders of the Company
generally (including, without limitation, by way of a tender offer) by any
party other than Emerald or its affiliates (any of the foregoing inquiries or
proposals being referred to herein as an "Acquisition Proposal"); provided,
however, that nothing contained in this Agreement shall prevent the Board of
Directors of the Company from referring any third party to this Section 5.4.
Nothing contained in this Section 5.4 or any other provision of this Agreement
shall prevent the Board of Directors of the Company from considering or
negotiating an unsolicited bona fide Acquisition Proposal. If the Board of
Directors of the Company, after duly considering written advice of outside
counsel and financial advisors to the Company, determines in good faith that it
would likely be a violation of its fiduciary responsibilities to not approve or
recommend (and in connection therewith withdraw or modify its approval or
recommendation of this Agreement, and the transactions contemplated hereby) a
Superior Proposal (as defined below), then, notwithstanding any such approval
or recommendation (i) the Company shall not enter into any agreement with
respect to the Superior Proposal and (ii) any other obligation of the Company
under this Agreement shall not be affected, unless this Agreement is terminated
pursuant to Section 8.1(e) hereof prior to or simultaneously with the grant of
such approval or the making of such recommendation and the Company, at the time
of such termination resulting from such Superior Proposal, pays Emerald the
Termination Fee. As used herein the term "Superior Proposal" means an
unsolicited bona fide proposal made by a third party to acquire the Company
pursuant to a tender or exchange offer, a merger, a sale of all or any
significant portion of its assets or otherwise that the Company Board of
Directors determines in its good faith judgment to be a proposal which, if
accepted, (x) is reasonably likely to be consummated, taking into account,
without limitation, all legal, financial and regulatory aspects of such
proposal and person or persons making such proposal and (y) would, if
consummated, result in a more favorable transaction to the holders of the
Company Common Stock than the transactions contemplated by this Agreement
(after considering the written advice of the Company's professional advisors).
(b) The Company shall immediately notify Emerald after receipt of
any Acquisition Proposal (and shall furnish Emerald a copy of any written
proposal and shall keep Emerald appropriately and timely informed as to the
status of any negotiations with the party furnishing any such proposal as well
as the material terms and conditions of any proposal, inquiry or contact) or
any request for nonpublic information relating to the Company in connection
with an Acquisition Proposal or for access to the properties, books or records
of the Company that informs the Board of Directors of the Company or any
officer, director, employee, representative or agent of the Company that some
other Person is considering making, or has made, an Acquisition Proposal.
(c) If the Company has determined to terminate this Agreement
pursuant to subparagraph (a) above, prior to the time the Company gives such
notice to Emerald of such termination, the Company shall give written notice to
Emerald of its intent to terminate and thereafter Emerald shall have five (5)
days in which to propose additional terms to this Agreement.
(d) If the Board of Directors of the Company receives a request for
material nonpublic information about the business of the Company by a party who
makes or who states in writing that it intends, subject to satisfactory review
of such nonpublic information, to make a bona fide Acquisition Proposal, the
Company may, subject to the execution of a confidentiality agreement
substantially similar to that then in effect between the Company and Emerald,
provide such party with access to information about the business of the
Company.
(e) Nothing contained in this Section 5.4 shall prevent the Company
from complying with Rule 14e2(a) or Rule l4d-9 promulgated under the Exchange
Act, if applicable, with regard to an Acquisition Proposal made in the form of
a tender offer by a third party.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. PREPARATION OF PROXY STATEMENT; STOCKHOLDER MEETING; COMFORT
LETTERS. (a) Promptly following the date of this Agreement, the Company shall
prepare the Proxy Statement (the "Proxy Statement") required to be distributed
to holders of Company Common Stock in connection with the Merger and include
therein the recommendation of the Board that the stockholders of the Company
vote in favor of the approval and adoption of this Agreement and include
therein the written opinion of Fox-Pitt, Kelton Inc. (the "Financial Adviser")
that the cash consideration to be received by the stockholders of the Company
pursuant to the Merger is fair, from a financial point of view, to such
stockholders; provided, however, that the Board of Directors of the Company may
fail to make or may withdraw or modify such recommendation, if, in accordance
with Section 5.4, the Board of Directors of the Company recommends a Superior
Proposal. The Company shall use its reasonable best efforts to obtain and
furnish the information required to be included by it in the Proxy Statement
and, after consultation with Emerald, respond promptly to any comments made by
the Securities and Exchange Commission (the "SEC") with respect to the Proxy
Statement and any preliminary version thereof. Emerald 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
Emerald as may be required to be disclosed therein. The Company will use
reasonable best efforts to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable.
(b) All filings with the SEC and all mailings to the Company's
stockholders in connection with the Merger, including the Proxy Statement,
shall be subject to the prior review, comment and approval of Emerald (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 Emerald, duly call and give notice
of, and, provided that this Agreement has not been terminated, convene and
hold, the Company Stockholders' Meeting for the purpose of approving this
Agreement and the transactions contemplated by this Agreement to the extent
required by the DGCL (the "Company Stockholders' Meeting"). The Company will
use reasonable best efforts to hold such meeting as soon as practicable after
the date hereof.
(d) Upon the request of Emerald, the Company shall use reasonable
best efforts to cause to be delivered to the Company and Emerald a letter of
Ernst & Young LLP, the Company's independent public accountants, dated a date
within two (2) business days before the date of mailing the Proxy Statement to
the stockholders of the Company and a letter of Ernst & Young LLP dated a date
within two (2) business days before the Company Stockholders' Meeting,
addressed to the Company, in each case customary in scope and substance for
letters delivered by independent public accountants in connection with proxy
statements similar to the Proxy Statement; PROVIDED, HOWEVER, that such letters
shall only be delivered to the extent permitted under accounting principles and
pronouncements applicable to the U.S. accounting profession.
6.2. CONTRACT AND REGULATORY APPROVALS. Emerald 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 Emerald or such authorities may reasonably request,
and (ii) cooperate with Emerald in obtaining, as promptly as practicable, all
approvals, authorizations and clearances of governmental or regulatory
authorities and other persons or entities required of Emerald to consummate the
transactions contemplated hereby. Emerald 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. Emerald shall use its 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 Emerald to agree to take any
action which would have a material adverse effect on the expected benefits to
Emerald of the transactions contemplated hereby.
6.3. HSR FILING. The Company and Emerald 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 each other in
connection with filings under the HSR Act and (d) request early termination of
the applicable waiting period.
6.4. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) The Company shall
(and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel and other representatives of Emerald or EAC,
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
Emerald: (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 Investors Service, 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) The Confidentiality Agreement dated June 19, 1998 (the
"Confidentiality Agreement"), between Brockbank Group plc, a subsidiary of
Parent, and the Company shall apply to Emerald and the Company with respect to
information furnished thereunder or hereunder and any other activities
contemplated thereby.
6.5. FEES AND EXPENSES. (a) Except as otherwise provided in this
Section 6.5 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
Emerald or its affiliates shall be precluded under Section 6.5(d) by the
payment of the amount set forth in Section 6.5(b) when Section 6.5(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 Emerald a fee in immediately
available funds equal to $3,100,000 plus all reasonable documented, third party
expenses incurred in connection with the transactions contemplated by this
Agreement (the "Termination Fee") if: this Agreement is terminated pursuant to
Section 8.1(d) or 8.1(e) hereof if, (A) at the time of termination, the Company
has received an Acquisition Proposal and, within 360 days of such termination,
the Company consummates an Acquisition Proposal or enters into an agreement
(including without limitation any agreement in principle or any oral agreement)
with respect to an Acquisition Proposal or (B) within 90 days of such
termination, the Company consummates a Superior Proposal or enters into an
agreement (including without limitation any agreement in principle or any oral
agreement) with respect to a Superior Proposal. The Termination Fee shall be
paid immediately prior to the earlier of the consummation of an Acquisition
Proposal or the entry into an agreement with respect to an Acquisition
Proposal.
(c) Any amounts due under this Section 6.5 that are not paid when
due shall bear interest at the rate of six percent (6%) per annum from the date
due through and including the date paid.
(d) Upon the payment of the Termination Fee pursuant to Section
6.5(b) above (regardless of whether a transaction pursuant to an Acquisition
Proposal is consummated), such fee shall be the exclusive remedy of Emerald and
its affiliates relating to this Agreement or the transactions contemplated
thereunder, and upon payment of any such fee, Emerald and its 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 Termination Fee shall be payable solely under the
circumstances set forth in Section 6.5(b) and shall not be payable under any
other circumstances.
(f) In the event that this Agreement is terminated by Emerald
pursuant to Section 8.1(f) or by the Company pursuant to Section 8.1(g), the
non-terminating party shall pay the terminating party its documented, third-
party expenses incurred in connection with the transactions contemplated by
this Agreement, such payment to be made within 5 business days of receipt of a
statement therefor.
6.6. 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 and/or its Subsidiaries (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. The Indemnified Party
wishing to claim indemnification under this Section 6.6, 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 6.6 except to the extent such failure materially 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 Emerald 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 (6)
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 (6) 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 Emerald 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 Emerald'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.
(c) The provisions of this Section 6.6 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 6.6, 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 6.6 and
none of the actions described in clauses (i) or (ii) shall be taken until such
provision is made.
6.7. 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 Stockholder Approval.
6.8. 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 any
rating agency with respect to this Agreement or the transactions contemplated
hereby.
6.9. 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 businesses of Emerald 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
Emerald 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.
6.10. PARENT GUARANTEE. Emerald agrees to cause Parent to, and
Parent hereby agrees to, guarantee the performance by Emerald of Emerald's
obligations under this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1. 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 STOCKHOLDER APPROVAL. The Merger shall have been
approved and adopted by the affirmative vote or written consent of the
holders of majority of the outstanding shares of Company Common Stock
entitled to vote thereon.
(b) 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.
(c) GOVERNMENTAL AND REGULATORY CONSENTS. All actions, consents,
approvals, filings and notices listed in Section 3.4(c)(i) of the
Disclosure Schedule 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 Emerald to agree to take any
action which would have a material adverse effect on the expected benefits
to Emerald of the transactions contemplated hereby.
(d) 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, Emerald or the Surviving Corporation in
connection therewith which would have a material adverse effect on the
expected benefits to Emerald of the transactions contemplated hereby.
(e) NO LITIGATION. There shall not be pending or, to the Company's
or Emerald'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.
7.2. CONDITIONS TO OBLIGATIONS OF EMERALD. The obligations of
Emerald to effect the Merger are further subject to the satisfaction or waiver
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. (i) The representations and
warranties of the Company set forth in this Agreement shall be true and
correct, 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;
provided, that this Section 7.2(a)(i) shall be deemed satisfied if the
failure of one or more representations or warranties to be true and
correct (without giving effect to any materiality or any similar
qualifications), individually or in the aggregate, either (x) would not
result in a Material Adverse Effect on the Company or (y) results from any
event, occurrence, development or state of circumstances or facts
affecting the property and casualty insurance industry as a whole, any
catastrophe or any change in general economic conditions (including but
not limited to a change in interest rates); and (ii) Emerald shall have
received certificates signed on behalf of the Company by the chief
executive officer and chief financial officer of the Company to the effect
set forth in Section 7.2(a)(i), (b), (c), (d) and (f).
(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 September 30, 1998, 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 (other than a change, event or state of facts disclosed on the
Disclosure Schedule).
(d) SHAREHOLDER EQUITY. As of the Closing Date, there shall be no
more than a $10 million decrease in the shareholder equity of the Company
from that set forth in the consolidated financial statements of the
Company dated September 30, 1998 and delivered to Emerald prior to
executing this Agreement, as set forth in a consolidated balance sheet of
the Company as of the last day of the month next preceding the Closing.
(e) CERTAIN AGREEMENTS. The Employment Agreements and the Roanoke
Consent shall be in full force and effect.
(f) COMPANY CASH. The Company Cash shall be at least $24,000,000.
(g) OPTION AGREEMENTS. The Company shall have taken all actions
required to enable the consummation of the transactions contemplated by
Section 2.2.
(h) FINANCIAL STATEMENTS. Emerald shall have received the audited
consolidated financial statements of the Company for the fiscal year ended
December 31, 1998, together with the Company's auditor's report thereon,
and a balance sheet of the Company (unconsolidated) as of December 31,
1998, prepared in accordance with GAAP.
(i) AUTHORIZATION. The Company shall have delivered to Emerald
evidence reasonably satisfactory to Emerald 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.
7.3. CONDITIONS TO OBLIGATIONS 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 Emerald set forth in this Agreement shall be true and
correct, 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 Emerald. The Company shall have received
certificates signed on behalf of Emerald by the chief executive officer
and chief financial officer of Emerald to the effect set forth in this
paragraph and Section 7.3(b).
(b) PERFORMANCE OF OBLIGATIONS OF EMERALD. Emerald shall have
performed and complied with, in all material respects, all agreements and
covenants required to be performed and complied with by Emerald under this
Agreement at or prior to the Closing Date.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. 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
stockholders of the Company or Emerald:
(a) by mutual written consent of the Company and Emerald;
(b) by either the Company or Emerald, 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 Emerald, if the Merger shall not have
been consummated on or before June 30, 1999; provided, however, that if
the conditions set forth in Article VII have not been satisfied as of such
date, this Agreement may not be terminated until September 30, 1999, if it
can reasonably be anticipated that such conditions can be satisfied by
September 30, 1999 (such June 30, 1999 or September 30, 1999, being
referred to herein as the "Termination Date"); and provided further that
the right to terminate this Agreement under this Section 8.1(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 Emerald or the Company, if at the duly held meeting of
the stockholders 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 a majority 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)(i) by Emerald, if, prior to the company Stockholder Meeting, 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 of the Merger or this
Agreement or (ii) by Emerald or the Company, if, prior to the Company
Stockholder Meeting the Board of Directors, in compliance with Section 5.4
hereof, shall have determined to enter in to an agreement with respect to,
or recommend, a Superior Proposal;
(f) by Emerald, upon a material breach of any material representation
or warranty of the Company, or in the event the Company fails to comply in
any respect with any of its material covenants and agreements, or if any
material 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 7.1(a), 7.2(a) or 7.2(b) to be incapable of being
satisfied as of a date within thirty (30) 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; or
(g) by the Company, upon a breach of any representation or warranty
of Emerald, or in the event Emerald fails to comply in any respect with
any of its covenants or agreements, or if any representation or warranty
of Emerald 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 7.3(a) or 7.3(b) to be
incapable of being satisfied as of a date within thirty (30) days after
the occurrence thereof, provided that a willful breach by Emerald shall be
deemed to cause such conditions to be incapable of being satisfied by such
date.
8.2. EFFECT OF TERMINATION. If this Agreement is validly terminated
by either the Company or Emerald pursuant to Section 8.1, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of either the Company or Emerald (or any of their respective
Subsidiaries or affiliates), except that (i) the provisions of Section 6.4(b),
Section 6.5, Section 6.10 and this Section 8.2 will continue to apply following
any such termination, (ii) such termination shall not in any case affect the
obligations of the Company and Emerald under the Confidentiality Agreement and
(iii) nothing contained herein shall relieve any party hereto, including
Parent, 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 6.5 being so made, if applicable.
8.3. AMENDMENT. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of Emerald and the
Company at any time prior to the Effective Time of the Merger with respect to
any of the terms contained herein; provided, however, that, after this
Agreement is approved by the Company's stockholders, 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 Company Stock Options.
8.4. 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 IX
GENERAL PROVISIONS
9.1. 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, Section 6.6, Section 6.10 and the
Confidentiality Agreement (with respect to directors, officers, advisors and
representatives of Emerald and the Company) shall survive the Effective Time.
9.2. 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 Emerald or Parent, to:
Emerald
Cumberland House, 9th Floor
One Victoria Street
Hamilton HM JX Bermuda
Attn: Paul S. Giordano, Esq.
Telephone: (441) 292-8515
Telecopy: (441) 292-5280
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attn: Immanuel Kohn, Esq.
Telephone: (212) 701-3000
Telecopy: (212) 269-5420
(b) if to the Company, to:
Diamond
1450 East American Lane, 20th Floor
Schaumburg, IL 60173
Attn: Stanley A. Galanski
Telephone: (847) 517-2510
Telecopy: (847) 706-1267
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attn: William S. Lamb, Esq.
Telephone: (212) 424-8000
Telecopy: (212) 424-8500
and
Rudnick & Wolfe
203 N. LaSalle Street
Chicago, Illinois 60601
Attn: John H. Heuberger
Telephone: (312) 368-4000
Telecopy: (312) 236-7516
9.3. 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.
9.4. 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.
9.5. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP. This Agreement together with the Confidentiality Agreement (and any
other documents and instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter hereof and,
except as provided in Article II and Section 6.6, is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
9.6. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof. Each of the parties hereto
irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in an
inconvenient forum. Each of the parties hereto hereby agrees to service of
process in any litigation arising out of or relating to this Agreement and the
transactions contemplated hereby by certified mail, return receipt requested,
postage prepaid to it at its address for notice specified in Section 9.2. The
Parent hereby irrevocably appoints Emerald to serve as its agent for service of
process in respect of any such action or proceeding.
9.7. 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, other than
the election by Emerald pursuant to Section 1.1 hereof to substitute for
Emerald a wholly owned subsidiary of Emerald incorporated in Delaware. This
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
[The remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers, hereunto duly authorized, all as of the
date first written above.
X.L. AMERICA, INC.
By: /S/ PAUL S. GIORDANO
Its: SENIOR VICE PRESIDENT AND GENERAL COUNSEL
INTERCARGO CORPORATION
By: /S/ STANLEY A. GALANSKI
Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER
As provided in Section 6.10 of this Agreement,
Parent hereby guarantees the performance by
Emerald of its obligations hereunder.
EXEL LIMITED
By: /S/ ROBERT LUSARDI
Its: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER