EXHIBIT 99.3
CONFORMED COPY
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Option Agreement") dated as of
February 6, 1999 between The Chubb Corporation, a New Jersey corporation
("Buyer" or "Holder"), and Executive Risk Inc., a Delaware corporation (the
"Company").
RECITALS
WHEREAS, both Buyer's and the Company's Board of Directors
have approved an Agreement and Plan of Merger dated as of the date hereof
(as the same may be amended from time to time, the "Merger Agreement")
providing for the merger of a wholly owned Subsidiary of Buyer with and
into the Company; and
WHEREAS, as a condition to Buyer's entering into the Merger
Agreement, Buyer has required that the Company agree, and the Company has
agreed, to grant to Buyer the option set forth herein to purchase
authorized but unissued Company Common Shares.
NOW, THEREFORE, in consideration of the premises herein
contained, the parties agree as follows:
1. Definitions. Capitalized terms used but not defined
herein shall have the same meanings as in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions
set forth herein, the Company hereby grants to Buyer an unconditional,
irrevocable option (the "Option") to purchase up to that number of shares
which equals 19.9% of the issued and outstanding Company Common Shares (the
"Option Shares") immediately prior to the first exercise of this Option at
a price per share (the "Option Price") equal to $71.70, payable in cash as
provided in Section 4 hereof. The number of Option Shares and the Option
Price are subject to adjustment as set forth herein.
3. Exercise and Termination of Option. (a) The Holder may
exercise the Option, in whole or in part, and from time to time, after the
occurrence of a Trigger Event and prior to the day (the "Termination Date")
which is 45 days after the Trigger Event. "Trigger Event" shall mean an
event which obligates the Company to pay the Termination Fee pursuant to
Section 10.03(b) of the Merger Agreement.
(b) If the Holder is entitled to and wishes to exercise the
Option, it shall deliver to the Company a written notice (the date of
receipt of which is referred to as the "Notice Date") specifying (i) the
total number of shares it intends to purchase pursuant to such exercise and
(ii) a place and date not earlier than five business days nor later than 20
calendar days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided that if the closing of a purchase and sale
pursuant to the Option (the "Closing") cannot be consummated by reason of
any applicable judgment, decree, order, law or regulation, the period of
time that otherwise would run pursuant to this sentence shall run instead
from the date on which such restriction on consummation has expired or been
terminated; and, provided further that, without limiting the foregoing, if
prior notification to or approval of any regulatory authority is required
in connection with such purchase, Holder and, if applicable, the Company
shall promptly file the required notice or application for approval and
shall expeditiously process the same (and the Company shall cooperate with
Holder in the filing of any such notice or application and the obtaining of
any such approval), and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which, as the
case may be, (i) any required notification period has expired or been
terminated or (ii) such approval has been obtained, and in either event,
any requisite waiting period has passed. Any exercise of the Option shall
be deemed to occur on the Notice Date relating thereto.
(c) If the Holder receives official notice that an approval of
any regulatory authority required for the purchase of the Option Shares
would not be issued or granted or a Closing Date shall not have occurred
within twelve months after the related Notice Date due to the failure to
obtain any such required approval, the Holder shall be entitled to exercise
its right as set forth in Section 8 hereof or, to the extent legally
permitted, to exercise the Option in connection with the resale of Company
Common Shares or other securities pursuant to a registration statement as
provided in Section 9 hereof.
(d) It shall be a condition to the exercise of this Option that
(i) no preliminary or permanent injunction or other order, decree or ruling
against the sale or delivery of the Option Shares issued by any federal or
state court of competent jurisdiction in the United States is in effect at
such time, (ii) any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") shall have expired or
been terminated at or prior to such time, and (iii) any approval required
to be obtained prior to the delivery of the Option Shares under the laws of
any jurisdiction shall have been obtained and shall be in full force and
effect.
4. Payment and Delivery of Certificates. (a) At the
Closing referred to in Section 3 hereof, the Holder shall pay to the
Company on the Closing Date the aggregate Purchase Price for the Company
Common Shares purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated
not later than one business day prior to such Closing Date by the Company;
provided that failure or refusal of the Company to designate such a bank
account shall not preclude the Holder from exercising the Option.
(b) At such Closing, simultaneously with the delivery of cash
as provided in Section 4(a), the Company shall deliver to the Holder a
certificate or certificates representing the number of Company Common Shares
purchased by the Holder, registered in the name of the Holder or a nominee
designated in writing by the Holder (which shall be a wholly owned subsidiary),
which shares shall be fully paid and non-assessable and free and clear of
all Liens, claims, charges and encumbrances of any kind whatsoever. Any
certificates so issued shall bear a legend reflecting any resale
restrictions applicable to the shares represented thereby.
(c) At the time any Company Common Shares are issued pursuant
to any exercise of the Option, if the Company shall have issued any share
purchase rights or similar securities to holders of Company Common Shares
prior thereto, then each Company Common Share issued pursuant to an
exercise of the Option shall also represent rights with terms substantially
the same as and at least as favorable to the Holder as those issued to
other holders of Company Common Shares.
(d) When the Holder provides the written notice of exercise of
the Option provided for in Section 3(b) and the tender of the applicable
purchase price in immediately available funds, the Holder shall be deemed
to be the holder of record of the Company Common Shares issuable upon such
exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Company Common
Shares shall not then be actually delivered to the Holder.
5. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Buyer as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
execution, delivery and performance by the Company of this Agreement and
the consummation of the transactions contemplated hereby (i) are within the
Company's corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) require no action by or in respect of, or filing
with, any Governmental Entity, except for compliance with any applicable
requirements of the HSR Act and pursuant to any applicable insurance laws,
(iv) do not contravene, or conflict with the certificate of incorporation
or by-laws of the Company, (v) assuming compliance with clause (iii) above,
contravene or conflict with or constitute a violation of any provision of
any law, regulation or judgment, injunction, order or decree binding upon
the Company or any of its subsidiaries and (vi) will not require any
consent, approval or notice under and will not conflict with, or result in
the breach or termination of any provision of or constitute a default (with
or without the giving of notice or the lapse of time or both) under, or
allow the acceleration of the performance of, any material obligation of
the Company or any of its Subsidiaries under, or result in the creation of
a lien, charge or encumbrance upon, any of the properties, assets or
business of the Company or any of its Subsidiaries under any indenture,
mortgage, deed of trust, lease, licensing agreement, contract, instrument
or other agreement to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is subject or bound other than, in the case
of each of (iii), (iv), (v) or (vi), any such items that would not,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect or prevent or materially impair the ability of the
Company to consummate the transactions contemplated by this transaction.
This Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding agreement of the Company subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws, now or
hereafter in effect, relating to or affecting creditors' rights and
remedies and to general principles of equity.
(b) Except for any filings required to be made under the
HSR Act and any approvals of any Commissioners of Insurance, the Company
has taken all necessary corporate and other action to authorize and reserve
and to permit it to issue, and at all times from the date hereof until such
time as the obligation to deliver Option Shares upon the exercise of the
Option terminates, will have reserved for issuance, upon any exercise of
the Option, the number of Company Common Shares subject to the Option (less
the number of Company Common Shares previously issued upon any partial
exercise of the Option or as to which the Option may no longer be
exercised). All of the Company Common Shares to be issued pursuant to the
Option are duly authorized and, upon issuance and delivery thereof pursuant
to this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and free and clear of all claims, liens, charges,
encumbrances and security interests, and not subject to any preemptive
rights.
6. Representations and Warranties of the Purchaser. The
Buyer hereby represents and warrants to the Company as follows:
(a) The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey.
The execution, delivery and performance by the Buyer of this Agreement are
within the Buyer's corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or
filing with, any governmental body, agency or official, except for any
filings required to be made under the HSR Act and any applicable insurance
laws, and do not contravene, or constitute a default under, any provision
of applicable law or regulation or of the certificate of incorporation or
by-laws of the Buyer or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Buyer. This Agreement has been
duly executed and delivered by the Buyer and constitutes a valid and
binding agreement of the Buyer subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect,
relating to or affecting creditors' rights and remedies and to general
principles of equity.
(b) The Buyer is acquiring the Option and will acquire the
Option Shares for investment purposes only and not with a view to any
resale or distribution thereof, and will not sell any Option Shares
purchased pursuant to the Option except in compliance with the Securities
Act.
7. Adjustment upon Changes in Capitalization. (a) In the event
of any change in Company Common Shares by reason of stock dividends, stock
splits, split-ups, spin-offs, recapitalizations, recombinations,
extraordinary dividends or the like, the type and number of Option Shares,
and the Option Price, as the case may be, shall be adjusted appropriately
in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any
such transaction to provide for such adjustment and the full satisfaction
of the Company's obligations hereunder.
(b) Without limiting the parties' relative rights and
obligations under the Merger Agreement, if the Company enters into an
agreement with respect to an Acquisition Proposal involving the exchange of
Company Common Shares for shares or other securities of the Company or
another person, then the agreement governing such transaction shall make
proper provision so that the Option shall, upon the consummation of any
such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Holder would have received in respect of
Company Common Shares if the Option had been exercised immediately prior to
the consummation of such Acquisition Proposal, or the record date therefor,
as applicable; provided that nothing in this Section 7(b) shall be deemed
to affect the ability of the Holder to exercise the Option pursuant to the
terms hereof.
8. Repurchase. (a) At any time when the Option is
exercisable pursuant to Section 3(a) hereof, at the request of the Holder, the
Company (or any successor entity thereof) shall repurchase the Option (or any
portion thereof) from the Holder together with any Company Common Shares
purchased by the Holder pursuant thereto which the Holder then beneficially
owns and has requested that the Company repurchase, at a price per share equal
to the higher of (x) the highest price per share at which a tender or exchange
offer has been made for Company Common Shares following the date hereof or (y)
the highest closing price per share of Company Common Shares as reported by
the NYSE Composite Tape for any day following the date on which an Acquisition
Proposal shall have been made, less in the case of each Option Share, the
Option Price.
(b) In the event Holder exercises its rights under this
Section 8, the Company shall, within 10 business days thereafter, pay the
required amount to Holder by wire transfer of immediately available funds
to an account designated by Holder and Holder shall surrender to the
Company the Option and any certificates evidencing the Company Common
Shares purchased thereunder with respect to which Holder then has
beneficial ownership.
(c) The period for exercise of the rights provided under
this Section 8 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights, for the
expiration of all statutory waiting periods, and to the extent required to
obtain any required stockholder approval or until such stockholder approval
is no longer required pursuant to the Company's certificate of
incorporation; and (ii) to the extent necessary to avoid liability under
Section 16(b) of the Exchange Act by reason of such exercise.
(d) If within 12 months after the date the Merger Agreement
was terminated pursuant to the terms thereof, neither the Holder nor any
other person has acquired more than fifty percent of the issued and
outstanding Company Common Shares, the Company will then have the right to
purchase (the "Repurchase Right") all, but not less than all, of the
Company Common Shares acquired upon exercise of this Option of which the
Holder is the beneficial owner on the date the Company gives written notice
of its intention to exercise the Repurchase Right, at a price per share
equal to the greater of the Option Price or the average of the closing
price per Company Common Share on the NYSE Composite Tape for the five
consecutive trading days ending on and including the trading date
immediately prior to the consummation of such repurchase of Company Common
Shares.
9. Registration Rights. At any time within 2 years after a
Closing, if requested by the Holder or any affiliate of the Holder who
is a beneficial owner of Company Common Shares issued upon exercise of the
Option (each a "Shareholder"), the Company shall, as expeditiously as
possible file a registration statement on a form for general use under the
Securities Act if necessary in order to permit the sale or other disposition
of the Company Common Shares that have been acquired upon exercise of the
Option in accordance with the intended method of sale or other disposition
requested by any such Shareholder. Each such Shareholder shall provide all
information reasonably requested by the Company for inclusion in any
registration statement to be filed hereunder. The Company shall use its
reasonable best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 90
days from the day such registration statement first becomes effective as may
be reasonably necessary to effect such sales or other dispositions. The
registration effected under this Section 9 shall be at the Company's expense
except for underwriting commissions and the fees and disbursements of such
Shareholder's counsel attributable to the registration of such Company Common
Shares. In no event shall the Company be required to effect more than three
registrations hereunder. The filing of any registration statement required
hereunder may be delayed for such period of time (not to exceed 90 days) as
may reasonably be required to facilitate any public distribution by the
Company of Company Common Shares, if a special audit of the Company would
otherwise be required in connection therewith, at a time during which the
Company is in possession of material, non-public information concerning it, its
business affairs or a material transaction, in each case, the public
disclosure of which could have a material adverse effect on the Company or
significantly disrupt such material transaction or if, in the Company's
reasonable good faith judgement, such filing would require the disclosure of
material information that the Company has a bona fide business purpose for
preserving as confidential. If requested by any such Shareholder in
connection with such registration, the Company shall become a party to any
underwriting agreement relating to the sale of such shares on terms and
including obligations and indemnities that are customary for parties similarly
situated. Upon receiving any request for registration under this Section 9
from any Shareholder, the Company agrees to send a copy thereof to any other
person known to the Company to be entitled to registration rights under this
Section 9, in each case, by promptly mailing the same, postage prepaid, to the
address of record of the persons entitled to receive such copies.
10. Listing. If Company Common Shares or any other
securities to be acquired upon exercise of the Option are then-listed on
the NYSE or any other national securities exchange, upon the request of
Holder, the Company will promptly file an application to list the Company
Common Shares or other securities to be acquired upon exercise of the
Option on the NYSE or such other exchange and will use its best efforts to
obtain approval of such listings as soon as practicable.
11. Limitation on Profits. (a) Notwithstanding any other
provision contained herein or in the Merger Agreement to the contrary, in
no event shall Buyer's Total Profit (as defined below) exceed the amount of
the applicable Termination Fee and if it otherwise would exceed such
amount, the Holder shall repay the excess amounts to the Company in cash so
that the Total Profit shall not exceed the amount of the applicable
Termination Fee.
(b) Notwithstanding anything to the contrary contained
herein, the Option may not be exercised for a number of Company Common
Shares as would, as of the date of exercise, result in a Notional Total
Profit (as defined below) of more than the amount of the applicable
Termination Fee and if it otherwise would exceed such amount, the exercise
price for such shares will be increased so that the Notional Total Profit
shall not exceed the amount of the applicable Termination Fee;
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: the amount of the
Termination Fee received by the Buyer pursuant to Section 10.03 of the
Merger Agreement, the amount received by Buyer in connection with the
Company's repurchase of the Option (or any portion thereof) and/or Option
Share, as applicable, pursuant to Section 8 hereof, (x) the net cash
amounts received by Buyer pursuant to the sale of Option Shares (or any
other securities into which such Option Shares shall be converted or
exchanged) to any unaffiliated party, less (y) Buyer's Purchase Price for
such Option Shares, and any amounts received by Buyer on the transfer of
the Option (or any portion thereof) to any unaffiliated party.
(d) As used herein, the term "Notional Total Profit" with
respect to any number of shares as to which Buyer may propose to exercise
the Option shall be the Total Profit determined as of the date of such
proposed exercise assuming that the Option were exercised on such date for
such number of shares and assuming that each such share, together with each
other Option Share, held by Buyer and its affiliates as of such date, were
sold for cash at the closing market price on the NYSE Composite Tape for
one Company Common Share as of the close of business on the preceding
trading day (less customary brokerage commissions).
12. Transferability of the Option. Neither of the parties
hereto may assign any of its rights or obligations under this Option
Agreement or the Option created hereunder to any other person, without the
express written consent of the other party, except Buyer may assign, in
whole or in part, its rights and obligations hereunder to any wholly owned
subsidiary of Buyer, provided that no such assignment will relieve Buyer of
its obligations hereunder. Any purported assignment in violation hereof
shall be null and void.
13. Miscellaneous.
(a) Expenses. Each of the parties hereto shall pay all
costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses of its own
financial consultants, investment bankers, accountants and counsel.
(b) Entire Agreement. This Option Agreement, the
Confidentiality Agreement and the Merger Agreement (including the exhibits
and schedules thereto) constitute the entire agreement between the parties
with respect to the subject matter hereto and supersede all prior
agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and thereof.
(c) Successors; No Third-Party Beneficiaries. The terms
and conditions of this Option Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and
permitted transferees and assigns. Nothing in this Option Agreement is
intended to confer upon any Person, other than the parties hereto, and
their respective successors and permitted assigns, any rights or remedies
hereunder.
(d) Severability. Any term, provision, covenant or
restriction contained in this Option Agreement held by any court of
competent jurisdiction to be invalid, void or unenforceable, shall be
ineffective to the extent of such invalidity, voidness or unenforceability,
but neither the remaining terms, provisions, covenants or restrictions
contained in this Option Agreement nor the validity or enforceability
thereof in any other jurisdiction shall be affected or impaired thereby.
Any term, provision, covenant or restriction contained in this Option
Agreement that is so found to be so broad as to be unenforceable shall be
interpreted to be as broad as is enforceable.
(e) Notices. All notices or other communications that are
required or permitted hereunder shall be in writing and sufficient if
delivered in accordance with Section 11.01 of the Merger Agreement (which
is incorporated herein by reference).
(f) Counterparts. This Option Agreement may be executed in
counterparts, and each such counterpart shall be deemed to be an original
instrument, but both such counterparts together shall constitute but one
agreement.
(g) Further Assurances. In the event of any exercise of
the Option by Holder, the Company and Holder shall execute and deliver all
other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for
by such exercise.
(h) Specific Performance. The parties hereto agree that if
for any reason Holder or the Company shall have failed to perform its
obligations under this Option Agreement, then either party hereto seeking
to enforce this Option Agreement against such non-performing party shall be
entitled to specific performance and injunctive and other equitable relief,
and the parties hereto further agree to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any
such injunctive or other equitable relief. This provision is without
prejudice to any other rights that either party hereto may have against the
other party hereto for any failure to perform its obligations under this
Option Agreement.
(i) Governing Law. This Option Agreement shall be
construed in accordance with and governed by the internal laws of the State
of Delaware without reference to its principles of conflicts of laws.
(j) Consent to Jurisdiction; Venue. Section 11.07 of the
Merger Agreement is hereby incorporated herein by reference.
(k) Section 16(b). Periods of time that otherwise would
run pursuant to Section 3 or 8 hereof shall also be extended to the extent
necessary for any Holder to avoid liability under Section 16(b) of the
Exchange Act.
(l) Waiver and Amendment. Any provision of this Option
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Option Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Option Agreement as of the date first written above.
THE CHUBB CORPORATION
By: /s/ Dean R. O'Hare
--------------------------------------------
Name: Dean R. O'Hare
Title: Chairman and Chief Executive Officer
EXECUTIVE RISK INC.
By:/s/ Stephen J. Sills
--------------------------------------------
Name: Stephen J. Sills
Title: President and Chief Executive
Officer