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EXECUTION COPY
OFFER AND RIGHTS AGREEMENT
THIS OFFER AND RIGHTS AGREEMENT (this "Agreement"), made and entered
into this 16th day of July, 1998, is by and among MCM CORPORATION (the
"Company"), a North Carolina corporation with its principal office in Raleigh,
North Carolina, and IAT REINSURANCE SYNDICATE LTD. ("Buyer"), a Bermuda
corporation with its principal office in Bermuda.
BACKGROUND STATEMENT
WHEREAS, Buyer wishes to acquire approximately 49% of the issued and
outstanding shares ("Shares") of common stock, par value $1.00 per share
("Common Stock"), of the Company through a privately-negotiated transaction with
the McMillen Trust (the "Trust"), and through a cash tender offer (the "Offer")
to acquire up to 35% of the issued and outstanding Shares of Common Stock (the
"Shares") for $3.65 per Share (such amount, or any greater amount per share paid
pursuant to the Offer, being hereinafter referred to as the "Per Share Amount")
net to the seller in cash, subject to withholding of taxes, if applicable, upon
the terms and subject to the conditions of this Agreement and the Offer.
WHEREAS, Buyer has invested $5 million in capital for the Company at a
below market interest rate of 5% per annum and plans to commit additional
capital to the Company in the future. The Company acknowledges that the
management of Buyer has expertise in the management and operation of insurance
companies and that the devotion of time and expertise by the management of Buyer
to the Company will cause Buyer to forego significant opportunities in regard to
other investments. Following the consummation of the Offer, Buyer intends to
make available to the Company the services of Peter R. Kellogg, its President
and Chief Executive Officer, in the management and direction of the Company. The
Company acknowledges that Mr. Kellogg has vast experience and background and a
proven record of success in the management and operation of insurance companies.
Mr. Kellogg will devote significant time and effort to the management of the
Company with no employment agreement and no compensation of any kind. Neither
Buyer nor Mr. Kellogg will charge the Company any management or advisory fees.
WHEREAS, in consideration of the Offer and the other benefits described
above, the Company wishes to provide Buyer with rights ("Rights") to purchase
from the Company, for a nominal sum, 60,000 shares of a new issue of preferred
stock of the Company that will have a par value of $1,000 per share, will not
have voting rights, will not pay dividends, will not be convertible into Common
Stock of the Company, and will have the other rights, preferences and
characteristics set forth in this Agreement, including but not limited to the
right to a preference in any liquidation or dissolution of the Company equal to
the par value of such preferred stock before any amount is payable or
distributable with respect to the Common Stock of the Company. The Company
acknowledges that the issuance of such preferred stock to Buyer is
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appropriate in order to properly compensate Buyer for the Offer and its capital
and management commitments to the Company.
WHEREAS, the Board of Directors of the Company (the "Board") has
unanimously approved the making of the Offer and resolved and agreed to
recommend that holders of Shares tender their Shares pursuant to the Offer. The
Board has also approved the granting of Rights following consummation of the
Offer and upon the terms and subject to the conditions set forth herein.
WHEREAS, the Wilmington Trust Company (the "Trustee") of the Trust,
which owns approximately 65% of the issued and outstanding Common Stock of the
Company, has agreed pursuant to a Trust Purchase Agreement, dated as of the date
hereof (the "Trust Purchase Agreement"), between the Buyer and the Trustee, to
privately sell to Buyer 658,900 Shares (the "Purchased Trust Shares") of the
Common Stock of the Company at $3.65 per Share and has agreed not to tender any
Shares in the Offer. After the purchase and sale of these Shares, the Trust will
own 2,428,600 shares of Common Stock of the Company (the "Retained Trust
Shares").
WHEREAS, each of the Directors of the Company has agreed, pursuant to a
Tender Agreement dated the date hereof (the "Tender Agreement") to tender the
Shares beneficially owned or hereafter acquired by them in the Offer and to
liquidate for cash pursuant to the Offer all options to purchase shares held by
such Directors.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants, and agreements contained herein, and
intending to be legally bound, the parties hereto agree as follows:
ARTICLE 1.
THE OFFER
SECTION 1.1 THE OFFER. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 7.1 and none of the events or
circumstances set forth in Annex A hereto shall have occurred or be existing,
Buyer shall commence the Offer as promptly as reasonably practicable after the
date hereof, but in no event later than five business days after the first
public announcement of the execution hereof by all of the parties hereto. The
obligation of Buyer to accept for payment and pay for Shares tendered pursuant
to the Offer shall be subject to (i) the condition (the "Minimum Condition")
that there be validly tendered and not withdrawn prior to the expiration of the
Offer, such number of Shares that would represent at least 32% of the voting
power of the Shares outstanding on a fully diluted basis (including, without
limitation, all Shares issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights), (ii) the
conditions (the "Regulatory Approval Conditions") that (A) any applicable
waiting period under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976,
as
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amended (the "HSR Act") shall have expired or been terminated, (B) the
transactions contemplated by the Trust Purchase Agreement be approved by the
Court of Chancery of the State of Delaware having jurisdiction over the Trust
and (C) the transactions contemplated by this Agreement and the Trust Purchase
Agreement be approved by the North Carolina Commissioner of Insurance, and (iii)
the satisfaction of the other conditions set forth in Annex A hereto. Buyer
expressly reserves the right to waive any such condition (other than the
Regulatory Approval Conditions), to increase the price per Share payable in the
Offer, and to make any other changes in the terms and conditions of the Offer;
provided, however, that no change may be made which decreases the Per Share
Amount payable in the Offer or which changes the form of consideration to be
paid in the Offer or which reduces the maximum number of Shares to be purchased
in the Offer or which imposes conditions to the Offer in addition to those set
forth in Annex A hereto or which reduces the Minimum Condition below 25% of the
voting power of the Shares outstanding on a fully diluted basis. The Per Share
Amount shall, subject to applicable withholding of taxes, be net to the seller
in cash, upon the terms and subject to the conditions of the Offer. Subject to
the terms and conditions of the Offer (including, without limitation, the
Minimum Condition and the Regulatory Approval Conditions), Buyer shall pay, as
promptly as practicable after expiration of the Offer, for all Shares validly
tendered and not withdrawn.
(b) Pursuant to the Offer, each holder of an outstanding option
("Option") to purchase Shares granted pursuant to the Company's 1986 Employee
Incentive Stock Option Plan and 1996 Employee Incentive Stock Option Plan (the
"Stock Option Plans") shall, in such holders' discretion, have right to elect to
cancel such Option and receive, subject to the satisfaction of the Minimum
Condition, the Regulatory Approval Conditions and the other conditions set forth
in Annex A hereto, a cash payment from Buyer in an amount, subject to applicable
withholding taxes and net to the holder in cash, equal to (x) the product of (i)
the aggregate number of Shares subject to such Option multiplied by (ii) the Per
Share Amount minus (y) the aggregate exercise price for all Shares subject to
such Option. Subject to the terms and conditions of the Offer (including,
without limitation, the Minimum Condition and the Regulatory Approval
Conditions), Buyer shall pay, as promptly as practicable after expiration of the
Offer, for all Options elected to be cancelled by Holders (which elections have
not been withdrawn).
(c) As soon as reasonably practicable on the date of commencement of
the Offer, Buyer shall file with the Securities and Exchange Commission (the
"SEC") a Tender Offer Statement on Schedule 14D-1 (together with all amendments
and supplements thereto, the "Schedule 14D-1") with respect to the Offer and the
other transactions contemplated by this Agreement ("Transactions"), which shall
have been provided to the Company. The Schedule 14D-1 shall contain or shall
incorporate by reference an offer to purchase (the "Offer to Purchase") and
forms of the related letter of transmittal and any related summary advertisement
(the Schedule 14D-1, the Offer to Purchase and such other documents, together
with all supplements and amendments thereto, being referred to herein
collectively as the "Offer Documents"). Buyer and the Company agree to correct
promptly any information provided by any of them for use in the Offer Documents
which shall have become false or misleading, and the Company and Buyer further
agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to
be filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws.
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SECTION 1.2 COMPANY ACTION. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on July 15-16, 1998, has unanimously (A) determined that this
Agreement and the Transactions, including the Offer and the issuance of the
Rights, are fair to and in the best interests of the shareholders of the
Company, (B) approved and adopted this Agreement and the Transactions,
including, without limitation, the Offer, the purchase of Shares pursuant to the
Offer and the issuance of the Rights, contemplated hereby, and (C) recommended
that the shareholders of the Company accept the Offer; (ii) PaineWebber
Incorporated ("PaineWebber") has delivered to the Board an opinion to the effect
that the consideration to be received by the holders of Shares (other than Buyer
and its affiliates) pursuant to the Offer is fair to such holders of Shares. The
Company hereby consents to the inclusion in the Offer Documents of the
recommendation of the Board described in the immediately preceding sentence.
(b) As soon as reasonably practicable on the date of commencement of
the Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") containing, subject only to the fiduciary duties
of the Board under applicable law as advised by the Company's counsel, the
recommendation of the Board described in Section 1.2(a)(i)(C) of this Agreement
and shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any other applicable federal securities laws. The Company and Buyer
agree to correct promptly any information provided by any of them for use in the
Schedule 14D-9 which shall have become false or misleading, and the Company
further agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to holders of Shares, in
each case as and to the extent required by applicable federal securities laws.
(c) The Company shall promptly furnish Buyer with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company shall furnish Buyer with such
additional information, including, without limitation, updated listings and
computer files of shareholders, mailing labels and security position listings,
and such other assistance as Buyer or its agents may reasonably request. Subject
to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Offer, Buyer shall hold in confidence the information
contained in such labels, listings and files, shall use such information only in
connection with the Offer and, if this Agreement shall be terminated in
accordance with Section 7.1, shall deliver to the Company all copies of such
information then in its possession.
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ARTICLE 2.
THE RIGHTS
SECTION 2.1 ISSUANCE OF RIGHTS. The Company hereby agrees to issue to
Buyer, immediately following the acceptance for payment and payment by Buyer for
Shares validly tendered and not withdrawn in the Offer, Rights to purchase from
the Company, at any time thereafter and prior to the close of business on June
1, 2008, at the registered office of the Company, 60,000 shares of fully paid
and nonassessable shares of Series A preferred stock, $1,000 par value (the
"Preferred Stock") of the Company at the Exercise Price referred to below. The
Rights shall be evidenced by a Rights Certificate substantially in the form of
Exhibit A attached hereto. The Election to Exercise shall be substantially in
the form of Exhibit B attached hereto.
SECTION 2.2 EXERCISE PRICE. The Exercise Price shall be $.01 per share
of Preferred Stock.
SECTION 2.3 PROVISIONS RELATING TO THE HOLDER OF RIGHTS. Buyer as
holder of Rights pursuant to this Agreement shall not be deemed for any purpose
the holder of any shares of Preferred Stock issuable on the exercise of such
Rights, nor shall anything contained herein be construed to confer upon Buyer,
as such holder of Rights, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders, or to receive dividends or subscription rights, or otherwise,
until the Rights evidenced by this Agreement shall have been exercised as
provided herein, and then only to the extent provided in the designation of
Preferred Stock attached hereto as Exhibit C.
SECTION 2.4 EXERCISE IN PART. The Rights granted pursuant to this
Agreement may be exercised in part, with the Exercise Price to be paid for each
Right exercised. In such case, the Company shall issue to Buyer a new Rights
Certificate for the number of Rights not exercised. Rights may be exercised only
for whole shares of Preferred Stock, and fractional shares of Preferred Stock
shall not be issued.
SECTION 2.5 CONDITIONS OF EXERCISE OF RIGHTS. The Rights shall become
immediately exercisable by Buyer, at any time and from time to time, in the
event that, at any time immediately following the acceptance for payment and
payment by Buyer of Shares validly tendered and not withdrawn in the Offer:
(a) The Trust sells (including, without limitation, pursuant to a
merger, consolidation or other business combination transaction involving the
Company) to any third party other than Buyer or an assignee of Buyer, any of the
Retained Trust Shares; or
(b) Any person or entity other than Buyer causes designees of Buyer to
cease to constitute a majority of the members of the board of directors of the
Company.
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Notwithstanding the foregoing, the Rights shall not become immediately
exercisable if Buyer's designees fail to constitute a majority of the members of
the board of directors of the Company due to the death, resignation or removal
upon the direction of Buyer of any such designee; provided, that the Rights
shall become exercisable following any such death, resignation or removal if,
prior to the time Buyer's designees again represent a majority of the members of
the Company's board of directors, such board takes any action opposed by a
majority of the remaining designees of Buyer or, if no such designees remain,
the then current chief executive officer of Buyer. No delay or failure by Buyer
in exercising the Rights upon the occurrence of either of the above events shall
operate as a waiver of such right to exercise, nor shall any partial exercise of
the Rights preclude other or further exercise thereof.
SECTION 2.6 CHARACTERISTICS OF SERIES A PREFERRED STOCK. The rights,
preferences, limitations, and characteristics of the Preferred Stock shall be as
set forth on Exhibit C attached hereto and hereby incorporated by reference.
SECTION 2.7 PROCEDURE FOR EXERCISE OF RIGHTS. Rights will be issued
immediately following the acceptance for payment and payment by Buyer for Shares
validly tendered and not withdrawn in the Offer and may be exercised on any
business day thereafter, and prior to the close of business on June 1, 2008, by
submitting to the Company the Rights Certificate, together with an Election to
Exercise accompanied by payment by certified or official bank check or wire
transfer of immediately available funds payable to the Company of a sum equal to
the Exercise Price multiplied by the number of Rights being exercised and a sum
sufficient to cover any transfer tax or charge that may be payable in respect of
any transfer involved in the transfer or delivery of the Rights Certificate or
the issuance or delivery of certificates for shares of Preferred Stock to a
person other than the holder of the Rights being exercised. Upon receipt of the
foregoing, the Company will thereupon promptly requisition certificates
evidencing such number of shares of Preferred Stock to be purchased (the Company
hereby irrevocably authorizing its transfer agents, indenture trustees,
subsidiaries or others, as the case may be, to comply with all such
requisitions) and, after receipt of such certificates, deliver the same to or
upon the order of the holder of the Rights exercised registered in such name or
names as may be designated by such holder.
SECTION 2.8 CERTAIN COVENANTS BY THE COMPANY. The Company covenants and
agrees that it will (i) cause the Company's Articles of Incorporation to be
amended immediately following Buyer's purchase of Shares in the Offer to include
the designation of the Preferred Stock and such other matters as may be required
by applicable law in connection with the establishment of the Preferred Stock,
(ii) take all such action as may be necessary to insure that all shares of
Preferred Stock delivered upon exercise of Rights shall, at the time of delivery
of the certificates for such shares (subject to payment of the Exercise Price),
be duly and validly authorized, executed, issued and delivered and fully paid
and nonassessable, (iii) take all such action as may be necessary to comply with
any applicable laws, rules, or regulations in connection with the issuance of
any shares upon exercise of Rights, and (iv) pay when due and payable any and
all federal and state transfer taxes and charges that may be payable in respect
of the original issuance or delivery of a Rights Certificate or of any shares of
Preferred Stock issued
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upon the exercise of Rights; provided, however, that the Company shall not be
required to pay any transfer tax or charge that may be payable in respect of any
transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for shares of Preferred Stock in a name
other than of the holder of the Rights being transferred or exercised.
SECTION 2.9 DATE ON WHICH EXERCISE IS EFFECTIVE. Each person in whose
name any certificate for shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly delivered
to the Company with payment of the Exercise Price (and any applicable taxes and
other governmental charges payable by the exercising holder hereunder);
provided, however, that if the date of such delivery and payment is a date upon
which the stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding business day on which the stock transfer
books of the Company are open.
SECTION 2.10 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES.
(a) If any mutilated Rights Certificate is surrendered to the Rights
Agent prior to June 1, 2008, the Company will execute and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.
(b) If there shall be delivered to the Company prior to June 1, 2008
(i) evidence to its satisfaction of the destruction, loss or theft of any Rights
Certificate and (ii) such security or indemnity as may be required to save the
Company harmless, then, and in the absence of notice to the Company that such
Rights Certificate has been acquired by a bona fide purchaser, the Company shall
execute and deliver, in lieu of any such destroyed, lost or stolen Rights
Certificate, a new Rights Certificate evidencing the same number of Rights as
did the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
SECTION 2.11 BUYER MAY SURRENDER RIGHTS. At any time before June 1,
2008, Buyer may surrender the Rights to the Company for cancellation and upon
such surrender the Rights shall be void and of no effect. Such surrender of the
Rights may be accomplished by delivery to the Company of the Rights Certificate
with the following legend: "The Rights evidenced by this Rights Certificate are
hereby surrendered to the Company for cancellation" with the date of surrender
and the authorized signature of the holder of the Rights.
SECTION 2.12 FRACTIONAL SHARES. No Rights shall be exercised for less
than a whole share of Preferred Stock, and the Company shall not be obligated to
issue certificates representing fractional shares upon exercise of Rights.
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SECTION 2.13 TRANSFER OF RIGHTS. The Rights and the Preferred Stock
shall be freely transferable by Buyer to the extent permitted by law, but Buyer
represents to the Company that it is acquiring the Rights for investment
purposes and not with the intent of making any distribution either of the Rights
or the Preferred Stock.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to the Company as follows:
(a) Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of Bermuda, and has full corporate power and
authority to carry on its business as now conducted.
(b) The execution, delivery and performance by Buyer of this Agreement
and the transactions contemplated hereby have been duly and validly authorized
and approved by all requisite shareholder and corporate action. Buyer has the
power, authority and capacity to enter into and perform its obligations under
this Agreement, and to consummate the transactions contemplated herein. This
Agreement has been duly and validly executed by Buyer and is the legal, valid
and binding obligation of Buyer, enforceable in accordance with its terms,
except as enforceability may be limited by equitable principles or by
bankruptcy, fraudulent conveyance or insolvency laws affecting the enforcement
of creditors' rights generally.
(c) Neither the execution and delivery of, nor the performance of its
obligations under, this Agreement by Buyer, nor the consummation of the
transactions contemplated herein, will conflict with, violate or result in a
breach of any of the terms or provisions of, or constitute a default (with the
passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any indenture, mortgage, deed of
trust, lease, note, or other agreement or instrument to which Buyer is a party,
conflict with any provision of the charter documents of Buyer, or violate any
law, order, judgment, decree, rule or regulation of any court or governmental
authority having jurisdiction over Buyer or its property.
(d) The Rights acquired by Buyer pursuant to this Agreement are being
acquired for investment purposes only and not with a view to any public
distribution thereof, and Buyer will not offer to sell or otherwise dispose of
the Rights so acquired by it in violation of any federal or state law applicable
to the sale, resale, or distribution of securities.
(e) Buyer has not retained any broker or finder in connection with the
transactions contemplated herein so as to give rise to any valid claim against
the Company for any fee, sales commissions, finders' fees, financial advisory
fee or other fees or expenses for which the Company shall be liable.
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(f) The Offer Documents will not, at the time the Offer Documents are
filed with the SEC or are first published, sent or given to shareholders of the
Company, as the case may be, 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 made therein, in the light of the circumstances
under which they are made, not misleading. The information supplied by Buyer for
inclusion in the Information Statement (as defined in Section 3.2(f) of this
Agreement) will not, on the date such document (or any amendment or supplement
thereto) is first mailed to shareholders of the Company and, with respect to the
Information Statement, at the time Shares are accepted for payment in the Offer,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading.
Notwithstanding the foregoing, Buyer makes no representation or warranty with
respect to any information supplied by the Company or any of its representatives
which is contained in any of the foregoing documents or the Offer Documents. The
Offer Documents shall comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to Buyer as follows:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of North Carolina, and has full corporate
power and authority to carry on its business as now conducted.
(b) The execution, delivery and performance by the Company of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized and approved by all requisite shareholder and corporate action. The
Company has the power, authority and capacity to enter into and perform its
obligations under this Agreement, and to consummate the transactions
contemplated herein. This Agreement has been duly and validly executed by the
Company and is the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforceability may be
limited by equitable principles or by bankruptcy, fraudulent conveyance or
insolvency laws affecting the enforcement of creditors' rights generally.
(c) Neither the execution and delivery of, nor the performance of its
obligations under, this Agreement by the Company, nor the consummation of the
transactions contemplated herein, will conflict with, violate or result in a
breach of any of the terms or provisions of, or constitute a default (with the
passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any indenture, mortgage, deed of
trust, lease, note, or other agreement or instrument to which the Company is a
party, or conflict with any provision of the charter documents of the Company,
or violate any law, order, judgment, decree, rule or regulation of any court or
governmental authority having jurisdiction over the Company or its property.
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(d) The Company has not retained any broker or finder in connection
with the transactions contemplated herein so as to give rise to any valid claim
against Buyer for any fee, sales commissions, finders' fees, financial advisory
fee or other fees or expenses for which Buyer shall be liable, except that the
Company has engaged PaineWebber as its investment banking firm and financial
advisor and may owe a fee in connection with the transactions contemplated
hereby (which fee shall be paid by the Company).
(e) Capitalization. The authorized capital stock of the Company
consists of 1,000,000 shares of preferred stock (none of which is issued and
outstanding) and 10,000,000 Shares. As of July 15, 1998, (i) 4,706,388 Shares
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no Shares are held by the subsidiaries of the Company, (iii)
3,087,500 Shares are owned of record by the Trust, (iv) 442,962 Shares are
reserved for issuance pursuant to Options granted pursuant to the Stock Option
Plans and (v) 200,000 Shares are reserved for issuance pursuant to the Company's
1996 Non-Employee Director's Stock Option Plan. The Company has terminated its
1996 Employee Stock Purchase Plan (the "Employee Purchase Plan") effective as of
July 15, 1998, the day after the last quarterly purchase date under the Employee
Purchase Plan (and the Company has no obligations or liabilities (contingent or
otherwise) with respect to such plan). Except as set forth in this Section
3.2(e), there are no options, warrants or other rights, agreements, arrangements
or commitments of any character relating to the issued or unissued capital stock
of the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company. Section 3.2(e) of the
Disclosure Schedule that has been delivered prior to the date hereof by the
Company to Buyer sets forth a list, as of the date hereof, of the names of each
person holding Options under the Stock Option Plans, the number of shares
purchasable thereunder, the exercise price of such Options, and the date such
Options were granted.
(f) Offer Documents; Schedule 14D-9. Neither the Schedule 14D-9, nor
any information supplied by the Company for inclusion in the Offer Documents,
nor the information to be filed by the Company in connection with the Offer
pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information
Statement"), other than information provided by Buyer for inclusion therein,
shall, at the respective times the Schedule 14D-9, the Offer Documents, the
Information Statement or any amendments or supplements thereto are filed with
the SEC or are first published, sent or given to shareholders of the Company, as
the case may be, 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 made therein, in the light of the circumstances under which
they are made, not misleading. Neither the Information Statement nor any
information supplied by the Company for inclusion in the Offer Documents shall,
at the date such document (or any amendment or supplement thereto) is first
mailed to shareholders of the Company, and at the time Shares are accepted for
payment in the Offer, be false or misleading with respect to any material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. The Schedule 14D-9 and the
Information Statement shall comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
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(g) SEC Filings; Financial Statements. (i) The Company has filed all
forms, reports and documents required to be filed by it with the SEC since
December 31, 1995, and has heretofore delivered to Buyer, in the form filed with
the SEC, (A) its Annual Reports on Form 10-K for the fiscal years ended December
31, 1995, 1996, and 1997, respectively, (B) its Quarterly Reports on Form 10-Q
for the period ended March 31, 1997 and March 31, 1998, (C) all proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held since December 31, 1995, and (D) all other forms, reports and other
registration statements (other than Quarterly Reports on Form 10-Q not referred
to in clause (B) above) filed by the Company with the SEC since December 31,
1995 (the forms, reports and other documents referred to in clauses (A), (B),
(C) and (D) above being referred to herein, collectively, as the "SEC Reports").
The SEC Reports (x) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act,
as the case may be, and the rules and regulations promulgated thereunder and (y)
did not, at the time they were filed (or at the effective date thereof with
respect to registration statements under the Securities Act), contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(ii) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the SEC Reports was prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis ("GAAP") throughout the periods indicated (except as may be
indicated in the notes thereto) and each fairly presents the consolidated
financial position, results of operations and changes in shareholders equity and
cash flows of the Company and its consolidated subsidiaries as at the respective
dates thereof and for the respective periods indicated therein (subject, in the
case of unaudited statements, to normal and recurring year-end adjustments which
were not and are not expected, individually or in the aggregate, to have a
material adverse effect on the business, operations, condition (financial or
otherwise), assets or liabilities (including, without limitation, contingent
liabilities) of the Company and its subsidiaries taken as a whole ("Material
Adverse Effect")).
(iii) Except as and to the extent set forth on the consolidated balance
sheet of the Company and its consolidated subsidiaries as at December 31, 1997,
including the notes thereto (the "1997 Balance Sheet"), in Section 3.2(g)(iii)
of the Disclosure Schedule, or in any SEC Report filed by the Company after
December 31, 1997, neither the Company nor any subsidiary of the Company has any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with GAAP, except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1997, which would not, individually or in the
aggregate, be material in amount.
(iv) The Company has heretofore furnished to Buyer complete and correct
copies of all amendments and modifications (if any) that have not been filed by
the Company with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.
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(h) Absence of Certain Changes or Events. (i) Since March 31, 1998,
except as set forth in Section 3.2(h)(i) of the Disclosure Schedule, or except
as contemplated by this Agreement or disclosed in any SEC Report filed since
March 31, 1998, and prior to the date of this Agreement, the Company and its
subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and there has not been (A) any change in
the business, operations, properties, condition, assets or liabilities
(including, without limitation, contingent liabilities) of the Company or any of
its subsidiaries having, individually or in the aggregate, a Material Adverse
Effect, (B) any damage, destruction or loss (whether or not covered by
insurance) with respect to any property or asset of the Company or any of its
subsidiaries and having, individually or in the aggregate, a Material Adverse
Effect, (C) any entry by the Company or any of its subsidiaries into any
commitment or transaction material to the Company and its subsidiaries taken as
a whole, (D) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any officers or key employees of
the Company or any of its subsidiaries, except in the ordinary course of
business consistent with past practice, or (E) any entering into, renewal,
modification or extension of, any contract, arrangement or agreement with any
other party having, individually or in the aggregate, a Material Adverse Effect.
(ii) Since December 31, 1997, except as set forth in Section 3.2(h)9ii)
of the Disclosure Schedule or as contemplated by this Agreement or disclosed in
any SEC Report filed since December 31, 1997, and prior to the date of this
Agreement, there has not been (A) any material change by the Company in its
accounting methods, principles or practices, (B) any material revaluation by the
Company of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable), (C) any
failure by the Company to revalue any asset in accordance with GAAP, or (D) any
declaration, setting aside or payment of any dividend or distribution in respect
of any capital stock of the Company or any redemption, purchase or other
acquisition of any of its securities.
ARTICLE 4.
CONDUCT OF BUSINESS
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY. The Company covenants
and agrees that, between the date of this Agreement and the date Buyer's
designees are appointed to the Board pursuant to Section 5.1, without the prior
written consent of Buyer, the businesses of the Company and its subsidiaries
shall be conducted only in, and the Company and its subsidiaries shall not take
any action except in, the ordinary course of business and in a manner consistent
with past practice; and the Company shall use its best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and its subsidiaries and to preserve the current
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement (including, without limitation transactions
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related to the termination of the Employee Purchase Plan), neither the Company
nor any of its subsidiaries shall, between the date of this Agreement and the
date Buyer's designees are appointed to the Board pursuant to Section 5.1
hereof, directly or indirectly do, or propose to do, any of the following
without the prior written consent of Buyer:
(a) amend or otherwise change its Articles of Incorporation or
Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance
of (i) any shares of capital stock of any class of the Company or any
subsidiary, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
interest), of the Company or any subsidiary or (ii) any assets of the
Company or any subsidiary, except for sales in the ordinary course of
business and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock except for the regular quarterly
dividend of Wilshire Insurance Company to Occidental Fire & Casualty
Company of North Carolina;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization
or any division thereof or any material amount of assets other than in
the ordinary course of business; (ii) incur any indebtedness for
borrowed money, except for routine use of the Company's existing line
of credit in the ordinary course of business, or issue any debt
securities or assume, guarantee or endorse, pledge in respect of or
otherwise as an accommodation become responsible for the obligations of
any person, or make any loans or advances, except in the ordinary
course of business and consistent with past practice; (iii) enter into
any contract or agreement other than contracts or agreements entered
into in the ordinary course of business, consistent with past practice
and which require payments by the Company or its subsidiaries in an
aggregate amount of less than U.S. $250,000; (iv) terminate, cancel or
request any material change in, or agree to any material change in, any
material contract, except in the ordinary course of business consistent
with past practice; (v) authorize any single capital expenditure
(excluding software development activity) which is in excess of U.S.
$100,000 or capital expenditures which are, in the aggregate, in excess
of U.S. $250,000 for the Company and its subsidiaries taken as a whole;
or (vi) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this Section
4.1(e);
(f) increase the compensation payable or to become payable to
its officers or employees, except for increases in accordance with past
practices in salaries or wages of
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employees of the Company or any subsidiary who are not officers of the
Company, or grant any severance or termination pay to, or enter into
any employment or severance agreement with, any director, officer or
other employee of the Company or any subsidiary, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee or circulate to any
employee any details of any proposal to adopt or amend any such plan;
(g) take any action, other than reasonable and usual actions
in the ordinary course of business and consistent with past practice,
with respect to accounting policies or procedures (including, without
limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable);
(h) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(i) pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the 1997 Balance Sheet or
subsequently incurred in the ordinary course of business and consistent
with past practice; or
(j) except for insurance claims settled in the ordinary
course, the AGA/ORRICO litigation and insurance related claims, settle
or compromise any pending or threatened suit, action or claim that is
material or which relates to any of the Transactions; or
(k) announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the foregoing
or any action that would result in any of the conditions to the Offer
not being satisfied (other than as contemplated by this Agreement).
ARTICLE 5.
COVENANTS
SECTION 5.1 COMPANY BOARD REPRESENTATION; SECTION 14(F). (a)
Immediately following the time Buyer pays for Shares validly tendered and not
withdrawn in the Offer (the "Buyer's Election Time"), and from time to time
thereafter, Buyer shall be entitled to designate up to such number of directors,
rounded up to the next whole number, on the Board as shall give Buyer majority
representation on the Board, and the Company shall, at such time, promptly take
all actions necessary to cause Buyer's designees to be elected as directors of
the Company, including increasing the size of the Board or securing the
resignations of incumbent directors or both. At such times, the Company shall
use its best efforts to cause persons designated by Buyer
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to constitute a majority of (i) each committee of the Board (some of whom may be
required to be independent as required by applicable law or the requirements of
the rules of the National Association of Securities Dealers, Inc.), (ii) each
board of directors of each subsidiary and (iii) each committee of each such
board, in each case only to the extent permitted by applicable law. If any of
Buyer's designees dies, resigns or is removed upon the direction of Buyer, the
Company shall take all action necessary to cause such vacancy to be filled by a
designee of Buyer within 10 business days after the opening of such vacancy.
Notwithstanding the foregoing, until the Buyer's Election Time, the Company
shall use its best efforts to ensure that all the members of the Board and each
committee of the Board and such boards and committees of the subsidiaries of the
Company as of the date hereof who are not employees of the Company shall remain
members of the Board and of such boards and committees.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 5.1 and shall include the
Information Statement containing such information with respect to the Company
and its officers and directors as is required under Section 14(f) and Rule 14f-1
as an annex to the Schedule 14D-9 to fulfill such obligations. Buyer shall
supply to the Company any information with respect to it and its nominees,
officers, directors and affiliates required by such Section 14(f) and Rule
14f-1.
SECTION 5.2 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the date
hereof to the Buyer's Election Time, the Company shall, and shall cause its
subsidiaries and the officers, directors, employees, auditors and agents of the
Company and its subsidiaries to, afford the officers, employees and agents of
Buyer complete access at all reasonable times to the officers, employees,
agents, properties, offices, and other facilities, books and records of the
Company and each of its subsidiaries, and shall furnish Buyer with all
financial, operating and other data and information as Buyer, through its
officers, employees or agents, may reasonably request.
(b) Except as required by law, all information obtained by Buyer
pursuant to this Section 5.2 shall be kept confidential, by Buyer and by any
other party which is to be afforded access pursuant to Section 5.2(a), in
accordance with the confidentiality agreement (the "Confidentiality Agreement"),
between Buyer and the Company.
SECTION 5.3 NO SOLICITATION OF TRANSACTIONS. Neither the Company nor
any of its subsidiaries shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in, the
Company or any of its subsidiaries or any business combination with the Company
or any of its subsidiaries or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that nothing contained in this Section 5.3 shall prohibit the
Board from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited (from the date
of this Agreement) proposal in writing by such person to acquire the Company
pursuant to a merger, consolidation, share exchange, business combination
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or other similar transaction or to acquire all or substantially all of the
assets of the Company or any of its subsidiaries, if, and only to the extent
that, (i) the Board, after consultation with independent legal counsel (which
may include its regularly engaged independent legal counsel), determines in good
faith that such action is required for the Board to comply with its fiduciary
duties to shareholders imposed by North Carolina law and (ii) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person the Company uses its reasonable best efforts to obtain from
such person an executed confidentiality agreement on terms no less favorable to
the Company than those contained in the Confidentiality Agreement (or obtained
such a confidentiality agreement prior to the date hereof). The Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Company shall notify Buyer promptly if any such proposal or
offer, or any inquiry or contact with any person with respect thereto, is made.
The Company agrees not to release any third party from, or waive any provision
of, any confidentiality or, subject to the fiduciary duties of the Board,
standstill agreement to which the Company is or may become a party.
SECTION 5.4 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a)
Following the Buyer's Election Time, and for a period of six years thereafter,
Buyer shall cause the Board to retain provisions in the Articles of
Incorporation and Bylaws of the Company no less favorable with respect to
indemnification of officers and directors than are currently set forth in such
documents, unless such modification shall be required by law. Any determinations
made pursuant to the provisions of the Articles of Incorporation or Bylaws of
the Company, with respect to the appropriateness of indemnification, shall be
made in good faith.
(b) The Company, from and after the date of this Agreement and to and
including the date six years after the Buyer's Election Time, shall use its best
efforts to maintain in effect, if available, the current directors' and
officers' liability insurance policies maintained by the Company (provided that
the Company may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less favorable) with
respect to matters occurring on or prior to the Buyer's Election Time; provided,
however, that in no event shall the Company be required to expend pursuant to
this Section 5.4(b) more than an amount per year equal to 200% of current annual
premiums paid by the Company for such insurance (which annual premiums the
Company represents to be approximately $70,000).
(c) In the event the Company or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity after such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Company, as the case may be, or at
Buyer's option, Buyer, shall assume the obligations set forth in this Section
5.4.
SECTION 5.5 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which causes any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect and (ii) any
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failure of the Company or Buyer, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.5 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 5.6. FURTHER ACTION; REASONABLE BEST EFFORTS. Upon the terms
and subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions, (ii) use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions, including, without limitation, using its reasonable best efforts
to obtain all consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and its
subsidiaries as are necessary for the consummation of the Transactions and to
fulfill the conditions to the Offer (including, without limitation, obtaining
the approval of the Chancery Court of the State of Delaware and the North
Carolina Insurance Commission), and (iii) except as contemplated by this
Agreement, use its reasonable best efforts not to take any action, or enter into
any transaction, which would cause any of its representations or warranties
contained in this Agreement to be untrue or result in a breach of any covenant
made by it in this Agreement.
SECTION 5.7 PUBLIC ANNOUNCEMENTS. Buyer and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any Transaction and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law or pursuant to the rules of the
National Association of Securities Dealers, Inc.
SECTION 5.8 EMPLOYEE PURCHASE PLAN. The Company agrees to terminate its
Employee Purchase Plan effective as of July 15, 1998.
ARTICLE 6.
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS PRECEDENT TO THE OFFER. The obligation of the
Buyer to accept for payment and pay for Shares validly tendered and not
withdrawn pursuant to the Offer and to cash out Options which holders elect to
cancel pursuant to the Offer shall be subject to the satisfaction of the
Regulatory Approval Conditions and the satisfaction or waiver of the Minimum
Condition and the other conditions set forth in Annex A hereof.
SECTION 6.2 CONDITIONS PRECEDENT TO THE ISSUANCE OF THE RIGHTS. The
obligations of the Company under this Agreement to issue the Rights is subject
to the fulfillment, at or prior to such issuance, of each of the following
conditions:
(a) Buyer and the Trust shall have executed and delivered the Trust
Purchase Agreement and such agreement and the transactions contemplated thereby
shall have been approved
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by the Court of Chancery of the State of Delaware having jurisdiction over the
Trust and by the North Carolina Commissioner of Insurance.
(b) The representations and warranties of Buyer contained herein shall
be true and correct on and as of the issuance date and on and as of the date
hereof with the same effect as though made on and as of the Closing Date.
(c) The waiting period under the HSR Act applicable to the transactions
contemplated by this Agreement and the Trust Purchase Agreement shall have
expired or terminated.
(d) Buyer shall have accepted for payment and paid for Shares validly
tendered and not withdrawn pursuant to the Offer.
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated and the Offer
and the other Transactions may be abandoned at any time prior to the Buyer's
Election Time:
(a) By mutual written consent duly authorized by the Boards of
Directors of Buyer and the Company prior to the Buyer's Election Time;
or
(b) By Buyer or the Company if (i) the Buyer's Election Time
shall not have occurred on or before the date 180 days following the
commencement of the Offer, provided, however, that the right to
terminate this Agreement under this Section 7.1(b) 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 Buyer's Election Time to occur on or before such date or (ii) any
court of competent jurisdiction in the United States or other
governmental authority shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the Offer and such order, decree, ruling or other action shall have
become final and nonappealable; or
(c) By Buyer, upon approval of its Board of Directors, if (i)
due to an occurrence or circumstance that would result in a failure to
satisfy any condition set forth in Annex A hereto, Buyer shall have (A)
failed to commence the Offer within 30 days following the date of this
Agreement, (B) terminated the Offer without having accepted any Shares
for payment thereunder or (C) failed to pay for Shares pursuant to the
Offer within 180 days following the commencement of the Offer; unless
such action or inaction under (A), (B) or (C) shall have been caused by
or resulted from the failure of Buyer to perform in any material
respect any material covenant or agreement of Buyer contained in this
Agreement or the material breach by Buyer of any material
representation or warranty contained in this Agreement or (ii) prior to
the purchase of Shares pursuant to the Offer, the Board or any
committee thereof shall have withdrawn or modified in a manner adverse
to Buyer its approval or recommendation of the Offer, this Agreement,
or any other
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Transaction or shall have recommended another merger, consolidation,
business combination with, or acquisition of, the Company or any of its
assets or another tender offer or exchange offer for Shares, or shall
have resolved to do any of the foregoing; or
(d) By the Company, upon approval of the Board, if (i) due to
an occurrence or circumstance that would result in a failure to satisfy
any of the conditions set forth in Annex A hereto, Buyer shall have (A)
failed to commence the Offer within 30 days following the date of this
Agreement, (B) terminated the Offer without having accepted any Shares
for payment thereunder or (C) failed to pay for Shares pursuant to the
Offer within 180 days following the commencement of the Offer, unless
such action or inaction under (A), (B), and (C) shall have been caused
by or resulted from the failure of the Company to perform in any
material respect any material covenant or agreement of it contained in
this Agreement or the material breach by the Company of any material
representation or warranty of it contained in this Agreement or (ii)
prior to the purchase of Shares pursuant to the Offer, the Board shall
have withdrawn or modified in a manner adverse to Buyer its approval or
recommendation of the Offer, this Agreement, or any other Transaction
in order to approve the execution by the Company of a definitive
agreement providing for the acquisition of the Company or any of its
assets by a sale, merger or other business combination or in order to
approve a tender offer or exchange offer for Shares by a third party,
in either case, as the Board determines in good faith that such action
is required for the Board to comply with its fiduciary duties to
shareholders, after consultation with its independent legal counsel and
financial advisers, and is on terms more favorable to the Company's
shareholders than the Offer; provided, however, that such termination
under this clause (ii) shall not be effective until the Company has
reimbursed Buyer for its Expenses (as defined in Section 7.3(b)).
SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void, except for Section 5.2(b), Section 7.3 and Article VIII which shall
survive termination indefinitely, and there shall be no liability on the part of
any party hereto, except as set forth in Section 7.3, and nothing herein shall
relieve any party from liability for any breach hereof.
SECTION 7.3 EXPENSES. (a) In the event that
(i) (A) on or after the date hereof and prior to
the termination of this Agreement, any person (including, without
limitation, the Company or any affiliate thereof, but excluding the
Trust, Buyer or any affiliate of Buyer), shall have become the
beneficial owner of more than 10% of the then outstanding Shares and
(B) this Agreement shall have been terminated pursuant to Section 7.1
and (C) within 12 months of such termination a Third Party Acquisition
(as defined hereinafter) shall occur; or
(ii) (A) on or after the date hereof and prior to
the termination of this Agreement, any person shall have commenced,
publicly proposed or communicated to the Company a proposal that is
publicly disclosed for a tender or exchange offer for 25% or more (or
which, assuming the maximum amount of securities that could be
purchased,
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would result in any person beneficially owning 25% or more of the then
outstanding Shares) or otherwise for the direct or indirect acquisition
of the Company or all or substantially all of its assets for per Share
consideration having a value greater than the Per Share Amount and (B)
(x) the Offer shall have remained open for at least 20 business days,
(y) the Minimum Condition shall not have been satisfied and (z) this
Agreement shall have been terminated pursuant to Section 7.1; or
(iii) this Agreement is terminated pursuant to
Section 7.1(c)(ii) or 7.1(d)(ii); or
(iv) provided that Buyer is not in material
breach of its obligations under this Agreement, this Agreement is
terminated pursuant to Section 7.1(c) due to the occurrence of the
condition set forth in either paragraph (f) or (g) of Annex A;
then, in any such event set forth in clauses (i), (ii), (iii) or (iv) above, the
Company shall promptly reimburse Buyer for all Expenses; provided, however, that
the Company shall not be obligated to reimburse Buyer for any expenses under
clauses (i) or (ii) above if (x) this Agreement is terminated solely for failure
to satisfy any Regulatory Condition and (y) the failure to satisfy such
Regulatory Condition is in no respect due to the occurrence of any event
described in clause (i)(A) or (ii)(A) above.
(b) "Expenses" means all out-of-pocket expenses and fees up to $250,000
in the aggregate (including, without limitation, fees and expenses payable to
all banks, investment banking firms, other financial institutions and other
persons and their respective agents and counsel for structuring the Transactions
and all fees of counsel, accountants, experts and consultants to Buyer, and all
printing and advertising expenses) actually incurred or accrued by Buyer or on
its behalf in connection with the transactions contemplated by this Agreement
and the Trust Purchase Agreement, and/or actually incurred or accrued by banks,
investment banking firms, other financial institutions and other persons and
assumed by Buyer in connection with the negotiation, preparation, execution and
performance of this Agreement and the Trust Purchase Agreement, the structuring
of the Transactions and any agreements relating thereto. In the event that the
Company shall fail to pay any Expenses when due, the term "Expenses" shall be
deemed to include the costs and expenses actually incurred or accrued by Buyer
(including, without limitation, fees and expenses of counsel) in connection with
the collection under and enforcement of this Section 7.3, together with interest
on such unpaid Expenses, commencing on the date that such Expenses became due,
at a per annum rate equal to the rate of interest publicly announced by First
Union National Bank, from time to time, in the City of Charlotte, North
Carolina, as such bank's prime rate plus 1.00 percentage point. In addition, in
connection with any other action or proceeding by any party hereto against any
other party hereto alleging a breach of a representation, warranty, covenant or
agreement set forth herein, the prevailing party in such action or proceeding
shall be entitled to recover costs and expenses actually incurred or accrued
(including, without limitation, fees and expenses of counsel) in connection with
the prosecution or defense (as the case may be) of such action or proceeding.
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(c) Except as set forth in this Section 7.3, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not any Transaction is
consummated.
(d) "Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger, consolidation or
other business combination transaction by any person other than Buyer or any
affiliate thereof (a "Third Party"); (ii) the acquisition by any Third Party of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole; (iii) the acquisition by a Third Party of 25% or more of the
outstanding Shares whether by tender offer, exchange offer or otherwise; (iv)
the adoption by the Company of a plan of liquidation or the declaration or
payment of an extraordinary dividend; or (v) the repurchase by the Company or
any of its subsidiaries of 25% or more of the outstanding Shares.
SECTION 7.4 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 7.5 WAIVER. At any time prior to the Buyer's Election Time, any
party hereto may (i) extend the time for the performance of any obligation or
other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein (other than the Regulatory Approval Conditions, and provided
that the Minimum Condition shall not be reduced below 25% of the voting power of
the fully diluted Shares of the Company). Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
ARTICLE 8.
MISCELLANEOUS
SECTION 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in this Agreement shall terminate at the Buyer's
Election Time or upon the termination of this Agreement pursuant to Section 7.1.
SECTION 8.2 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 8.2):
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if to Buyer:
IAT Reinsurance Syndicate Ltd.
c/o Spear Leeds & Kellogg
120 Broadway
New York, New York 10271
Attention: Marguerite Gorman
with a copy to:
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
Attention: Mr. Robin L. Hinson
if to the Company:
McM Corporation
702 Oberlin Road, Box 12317
Raleigh, North Carolina 27605
Attention: George E. King
with a copy to:
Ragsdale, Liggett & Foley, PLLC
Post Office Box 31507
Raleigh, North Carolina 27622
Attention: Mr. Frank R. Liggett III
SECTION 8.3 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 8.4 ENTIRE AGREEMENT, ASSIGNMENT. This Agreement constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes, except as set forth in Section 5.2, all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of law or otherwise, except that Buyer may assign all or any of its
rights and obligations
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hereunder to any affiliate of Buyer provided that no such assignment shall
relieve the Buyer of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 8.5 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.4 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
SECTION 8.6 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 8.7 DESCRIPTIVE HEADINGS, GENDER. Descriptive headings appear
herein for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof. As used herein, the singular shall
include the plural and the plural the singular, and the use of any gender,
including the neutral, shall be applicable to all genders.
SECTION 8.8 GOVERNING LAW. This Agreement and each Right issued
hereunder shall be deemed to be a contract made under the laws of the State of
North Carolina and for all purposes shall be governed by and construed in
accordance with the laws of such state applicable to contracts to be made and
performed entirely within such state.
SECTION 8.9 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MCM CORPORATION
By: /s/ George E. King, Chairman/CEO
--------------------------------
IAT REINSURANCE SYNDICATE LTD.
By: /s/ Peter R. Kellogg
--------------------------------
Peter R. Kellogg, President
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ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Buyer shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, or make any payment with respect to Options elected to be cancelled by
holders thereof, and may terminate or amend the Offer and may postpone the
acceptance for payment of and payment for Shares tendered or Options elected to
be canceled, if (i) the Minimum Condition shall not have been satisfied, (ii)
any applicable waiting period under the HSR Act shall not have expired or been
terminated prior to the expiration of the Offer, (iii) the transactions
contemplated by the Trust Purchase Agreement shall not have been approved by the
Court of Chancery of the State of Delaware having jurisdiction over the Trust,
(iv) the transactions contemplated by this Agreement and the Trust Purchase
Agreement shall not have been approved by the North Carolina Commissioner of
Insurance, or (v) at any time on or after the date of this Agreement, and prior
to the acceptance for payment of Shares, any of the following conditions shall
exist:
(a) there shall have been instituted or be pending any action
or proceeding brought by any governmental, administrative or regulatory
authority or agency, domestic or foreign, before any court or
governmental, administrative or regulatory authority or agency,
domestic or foreign, (i) challenging or seeking to make illegal,
materially delay or otherwise directly or indirectly restrain or
prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, or payment for, any Shares or Options by
Buyer or any other affiliate of Buyer pursuant to the Offer, or the
consummation of any other Transaction, or seeking to obtain material
damages in connection with any Transaction; (ii) seeking to prohibit or
limit materially the ownership or operation by the Company, Buyer or
any of their subsidiaries of all or any material portion of the
business or assets of the Company, Buyer or any of their subsidiaries,
or to compel the Company, Buyer or any of their subsidiaries to dispose
of or hold separate all or any material portion of the business or
assets of the Company, Buyer or any of their subsidiaries, as a result
of the Transactions; (iii) seeking to impose or confirm limitations on
the ability of Buyer or any other affiliate of Buyer to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Buyer pursuant to
the Offer, or otherwise on all matters properly presented to the
Company's shareholders, including, without limitation, the approval and
adoption of this Agreement and the transactions contemplated hereby; or
(iv) seeking to require divestiture by Buyer or any other affiliate of
Buyer of any Shares;
(b) there shall have been issued any injunction, order or
decree by any court or governmental, administrative or regulatory
authority or agency, domestic or foreign, resulting from any action or
proceeding brought by any person other than any governmental,
administrative or regulatory authority or agency, domestic or foreign,
that (i) restrains or prohibits the making of the Offer or the
consummation of any other Transaction; (ii) prohibits or limits
ownership or operation by the Company or Buyer of all or any material
portion of the business or assets of the Company, taken as a whole,
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Buyer or any of their subsidiaries, or compels the Company, Buyer or
any of their subsidiaries to dispose of or hold separate all or any
material portion of the business or assets of the Company, Buyer or any
of their subsidiaries, in each case as a result of the Transactions;
(iii) imposes limitations on the ability of Buyer to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Buyer pursuant to
the Offer, or otherwise on all matters properly presented to the
Company's shareholders, including, without limitation, the approval and
adoption of this Agreement and the Transactions; (iv) requires
divestiture by Buyer of any Shares;
(c) there shall have been any action taken, or any statute,
rule, regulation, order or injunction enacted, entered, enforced,
promulgated, amended, issued or deemed applicable to (i) Buyer, the
Company or any subsidiary or affiliate of Buyer or the Company or (ii)
any Transaction, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency,
domestic or foreign, in the case of both (i) and (ii) other than the
routine application of the waiting period provisions of the HSR Act to
the Offer, in each case that results in any of the consequences
referred to in clauses (i) through (iv) of paragraph (b) above;
(d) there shall have occurred any change, condition, event or
development that has a Material Adverse Effect with respect to the
Company;
(e) (i) the Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Buyer the approval or
recommendation of the Offer, or this Agreement or approved or
recommended any takeover proposal or any other acquisition of Shares
other than the Offer or (ii) the Board or any committee thereof shall
have resolved to do any of the foregoing;
(f) any representation or warranty of the Company in the
Agreement shall not be true and correct with the effect that such
failure of any such representation or warranty to be true and correct,
when taken together with all other such failures of such
representations and warranties to be true and correct, in the aggregate
has, or is reasonably likely to have, a Material Adverse Effect;
provided, however that, for the purpose of the foregoing condition, in
determining whether any such representation or warranty is true or
correct, any qualification as to materiality or Material Adverse Effect
contained in any such representation and warranty shall be deemed not
to apply;
(g) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect
with any material agreement or material covenant of the Company to be
performed or complied with by it under the Agreement;
(h) the Agreement shall have been terminated in accordance
with its terms; or
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(i) Buyer and the Company shall have agreed that Buyer shall
terminate the Offer or postpone the acceptance for payment of or
payment for Shares and Options thereunder; which, in the sole judgment
of Buyer, in any such case, and regardless of the circumstances
(including any action or inaction by Buyer or any of its affiliates)
giving rise to any such condition, makes it inadvisable to proceed with
such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Buyer and may be
asserted by Buyer regardless of the circumstances giving rise to any such
condition or may be waived by Buyer in whole or in part at any time and from
time to time in its sole discretion; provided, however, that Buyer may not waive
the Regulatory Approval Conditions or reduce the Minimum Condition below 25% of
the voting power of the fully diluted Shares of the Company. The failure by
Buyer at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right; the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with respect to
any other facts and circumstances; and each such right shall be deemed an
ongoing right that may be asserted at any time and from time to time.
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EXHIBIT A
[FORM OF RIGHTS CERTIFICATE]
CERTIFICATE NUMBER RIGHTS
------ ---------
RIGHTS CERTIFICATE
MCM CORPORATION
This certifies that IAT Reinsurance Syndicate Ltd., or registered
assignees, is the registered holder of the number of Rights set forth above,
each of which entitles the registered holder thereof, subject to the terms,
provisions and conditions of the Offer and Rights Agreement, dated as of July
16, 1998 (as the same may be amended or supplemented from time to time, the
"Agreement"), between McM Corporation (the "Company") and IAT Reinsurance
Syndicate Ltd., to purchase from the Company, at any time after the acceptance
for payment and payment for Shares validly tendered and not withdrawn pursuant
to the Offer, and prior to the close of business on June 1, 2008, at the
registered office of the Company, one (1) share of Series A Preferred Stock,
$1,000 par value (the "Preferred Stock") of the Company at the Exercise Price
referred to below, upon presentation and surrender of this Rights Certificate
with the form of Election to Purchase duly executed. Capitalized terms used in
this Rights Certificate without definition shall have the meanings given to them
in the Agreement. The Exercise Price shall be $.01 per Right and shall be
payable by official bank or certified check or wire transfer of immediately
available funds.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Agreement, which terms, provisions and conditions are hereby
incorporated by reference made a part hereof.
Subject to the terms of the Agreement, this Rights Certificate, with or
without other Rights Certificates, upon surrender at the registered office of
the Company may be exchanged for another Right Certificate or Rights Certificate
of like tenor evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Agreement, each Right evidenced by
this Rights Certificate may be surrendered by the holder thereof to the Company
for cancellation.
No holder of this Rights Certificate, as such, shall be deemed for any
purpose the holder of any shares of Preferred Stock issuable on the exercise
hereof, nor shall anything contained in the Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights
Exhibit A-1
29
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings, or other actions affecting shareholders, or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Agreement.
WITNESS signature of the proper offices of the Company and its
corporate seal.
Date: July ___, 1998 McM Corporation
By:
-------------------------------
Title:
-------------------------
ATTEST:
- ---------------------------
Secretary
[CORPORATE SEAL]
Exhibit A-2
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EXHIBIT B
[TO BE ATTACHED TO EACH RIGHTS CERTIFICATE]
FORM OF ELECTION TO EXERCISE
(TO BE EXECUTED IF HOLDER DESIRE TO
EXERCISE THIS RIGHTS CERTIFICATE)
MCM CORPORATION
The undersigned hereby irrevocably elects to exercise ___ whole Rights
represented by the attached Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of and delivered to:
-----------------------------
-----------------------------
-----------------------------
(Please print name and address)
Social Security or other taxpayer identification number:
---------------------------
If such number of Rights shall not be all the Rights evidenced by the
attached Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
-----------------------------
-----------------------------
-----------------------------
(Please print name and address)
Social Security or other taxpayer identification number:
---------------------------
Dated: , 19
------------ --
--------------------------------
*Signatures must be guaranteed by an eligible guarantor institution (including
banks, stockbrokers, savings and loan associations, clearing agencies and credit
unions with membership in an approved signature guarantee medallion program).
Exhibit B-1
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EXHIBIT C
MCM CORPORATION
SERIES A PREFERRED STOCK
RIGHTS, PREFERENCES, LIMITATIONS AND CHARACTERISTICS
1. Designation and Amount. The shares of this series shall be
designated as "Series A Preferred Stock, $1,000 par value per share"
(hereinafter called this "Series"). Each share of this Series shall be identical
in all respects with the other shares of this Series.
The number of shares in this Series shall initially be 60,000, which
number may from time to time be increased or decreased (but not below the number
then outstanding) by the Board of Directors of the Company. Shares of this
Series purchased or otherwise acquired by the Company shall be cancelled and
shall thereupon be restored to the status of authorized but unissued shares.
2. Dividends. The holders of shares of this Series shall not be
entitled to receive any dividends.
3. Liquidation. Upon the voluntary or involuntary liquidation,
dissolution of winding up of the Company, the holders of shares of this Series
shall be entitled to receive out of the net assets of the Company, before any
payment or distribution shall be made or set apart for payment on the Common
Stock or any other class or series of stock of the Company, the amount of $1,000
per share of this Series. After the payment to the holders of the shares of this
Series of $1,000 per share, the holders of shares of this Series, as such, shall
have no right or claim to any of the remaining net assets of the Company.
Neither the sale, lease or conveyance of all or substantially all of the
property or business of the Company, nor the merger or consolidation of the
Company into or with any other corporation or the merger or consolidation of any
other corporation into or with the Company, shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, for purposes of this
paragraph.
4. Redemption. Subject to the North Carolina Business Corporation
Act and required regulatory approvals, the shares of this Series shall at all
times be redeemable at the option of the holder thereof in cash for $1,000 per
share payable by the Company by official bank or certified check or wire
transfer of immediately available funds. Such redemption shall occur within ten
business days after receiving a written notice of redemption from the holder of
shares of this Series accompanied by a certificate or certificates for such
shares duly endorsed by the holder thereof with signature guaranteed by a
financial institution.
5. Conversion and Exchange. The holders of shares of this Series
shall not have any rights to convert such shares into or to exchange such shares
for shares of Common Stock of the Company or any other class or series of stock
(or any other security) of the Company.
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6. Voting Rights. The holders of shares of this Series shall not have a
vote on any matter except as provided to the contrary by the North Carolina
Business Corporation Act.
7. Rank. The shares of this Series shall rank, as to distribution of
assets upon liquidation, dissolution or winding up, senior to any other class or
series of preferred stock of the Company.
Exhibit C-2