EXHIBIT 10.1
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AGREEMENT AND PLAN OF MERGER
Among
HUB INTERNATIONAL LIMITED,
416 ACQUISITION INC.
and
KAYE GROUP INC.
Dated as of January 19, 2001
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TABLE OF CONTENTS
ARTICLE I
THE MERGER
Page
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SECTION 1.01. The Merger..........................................................................................1
SECTION 1.02. Closing.............................................................................................2
SECTION 1.03. Effective Time......................................................................................2
SECTION 1.04. Effects of the Merger...............................................................................2
SECTION 1.05. Certificate of Incorporation and By-Laws of the Surviving Corporation...............................2
SECTION 1.06. Directors and Officers of the Surviving Corporation.................................................2
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Company Common Stock..................................................................3
SECTION 2.02. Dissenting Shares...................................................................................3
SECTION 2.03. Exchange of Certificates............................................................................4
SECTION 2.04. Election to Increase the Cash Component.............................................................6
SECTION 2.05. Stock Transfer Books................................................................................6
SECTION 2.06. Company Stock Options...............................................................................6
SECTION 2.07. Company Restricted Stock............................................................................7
SECTION 2.08. Interest on Merger Consideration....................................................................9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries.......................................................10
SECTION 3.02. Certificate of Incorporation and By-Laws...........................................................10
SECTION 3.03. Capitalization.....................................................................................11
SECTION 3.04. Authority Relative to This Agreement...............................................................11
SECTION 3.05. No Conflict; Required Filings and Consents.........................................................12
SECTION 3.06. Permits; Compliance................................................................................13
SECTION 3.07. SEC Filings; Financial Statements..................................................................13
SECTION 3.08. Undisclosed Liabilities............................................................................14
SECTION 3.09. Absence of Certain Changes or Events...............................................................14
SECTION 3.10. Absence of Litigation..............................................................................15
SECTION 3.11. Employee Benefit Matters...........................................................................15
SECTION 3.12. Material Contracts.................................................................................17
SECTION 3.13. Environmental Matters..............................................................................19
SECTION 3.14. Title to Properties; Absence of Liens and Encumbrances.............................................20
SECTION 3.15. Intellectual Property..............................................................................20
SECTION 3.16. Taxes..............................................................................................21
SECTION 3.17. Board Approval; Vote Required......................................................................22
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SECTION 3.18. Employment Agreements and other Affiliate Transactions.............................................22
SECTION 3.19. Insurance..........................................................................................22
SECTION 3.20. State Takeover Statutes............................................................................22
SECTION 3.21. Labor Matters......................................................................................23
SECTION 3.22. Brokers............................................................................................24
SECTION 3.23. Title to Insurance Business........................................................................24
SECTION 3.24. Absence of Restrictions on Conduct of Business.....................................................24
SECTION 3.25. Computer Systems...................................................................................24
SECTION 3.26. Insurance Companies................................................................................24
SECTION 3.27. No Downgrading of Rating...........................................................................24
SECTION 3.28. Fairness Opinion...................................................................................25
SECTION 3.29. Insurance Company Organization and Qualification; Subsidiaries.....................................25
SECTION 3.30. Insurance Company Certificate of Incorporation and By-Laws.........................................26
SECTION 3.31. Insurance Company Capitalization...................................................................26
SECTION 3.32. Insurance Company Permits; Compliance..............................................................27
SECTION 3.33. Insurance Company Financial Statements.............................................................27
SECTION 3.34. Undisclosed Liabilities of the Insurance Companies.................................................27
SECTION 3.35. Absence of Certain Changes or Events With Respect to the Insurance
Companies....................................................................................28
SECTION 3.36. Absence of Insurance Company Litigation............................................................28
SECTION 3.37. Insurance Company Material Contracts...............................................................28
SECTION 3.38. Insurance Company Taxes............................................................................30
SECTION 3.39. Absence of Restrictions on Conduct of Insurance Company Business...................................30
SECTION 3.40. Insurance Company Computer Systems.................................................................31
SECTION 3.41. No Downgrading of Rating of Insurance Companies....................................................31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.01. Organization and Qualification; Subsidiaries.......................................................31
SECTION 4.02. Articles of Incorporation and By-Laws..............................................................31
SECTION 4.03. Authority Relative to This Agreement...............................................................31
SECTION 4.04. Capitalization.....................................................................................32
SECTION 4.05. No Conflict; Required Filings and Consents.........................................................32
SECTION 4.06. Permits; Compliance................................................................................33
SECTION 4.07. Filings; Financial Statements......................................................................34
SECTION 4.08. Undisclosed Liabilities............................................................................34
SECTION 4.09. Taxes..............................................................................................35
SECTION 4.10. Operations of Merger Sub...........................................................................35
SECTION 4.11. Financing..........................................................................................35
SECTION 4.12. Brokers............................................................................................35
SECTION 4.13. Affiliate Transactions.............................................................................35
SECTION 4.14. Authorization of Parent Convertible Debentures.....................................................36
SECTION 4.15. Indebtedness of Parent.............................................................................36
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ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger..............................................37
SECTION 5.02. Notification of Certain Matters....................................................................39
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Company Proxy Statement....................................................40
SECTION 6.02. Company Stockholders' Meeting......................................................................41
SECTION 6.03. Access to Information; Confidentiality.............................................................41
SECTION 6.04. No Solicitation or Negotiation.....................................................................42
SECTION 6.05. Directors' and Officers' Indemnification and Insurance.............................................43
SECTION 6.06. Further Action; Consents; Filings..................................................................44
SECTION 6.07. Consent of Holders of Restricted Stock.............................................................44
SECTION 6.08. Public Announcements...............................................................................45
SECTION 6.09. Parent Shareholders' Meeting.......................................................................45
SECTION 6.10. Affiliates.........................................................................................45
SECTION 6.11. Board Nomination...................................................................................45
SECTION 6.12. Certain Funding of the Company.....................................................................45
SECTION 6.13. Parent Debentures..................................................................................45
SECTION 6.14. Filing With Insurance Regulatory Authorities.......................................................46
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger...........................................................................46
SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub.............................................47
SECTION 7.03. Conditions to the Obligations of the Company.......................................................48
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination........................................................................................48
SECTION 8.02. Effect of Termination..............................................................................50
SECTION 8.03. Amendment..........................................................................................51
SECTION 8.04. Waiver.............................................................................................51
SECTION 8.05. Fees and Expenses..................................................................................51
ARTICLE IX GENERAL PROVISIONS
SECTION 9.01. Notices............................................................................................52
SECTION 9.02. Non-Survival of Representations, Warranties and Agreements.........................................53
SECTION 9.03. Parties in Interest................................................................................54
SECTION 9.04. Certain Definitions................................................................................54
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SECTION 9.05. Severability.......................................................................................56
SECTION 9.06. Specific Performance...............................................................................57
SECTION 9.07. Governing Law; Forum...............................................................................57
SECTION 9.08. Headings...........................................................................................57
SECTION 9.09. Counterparts.......................................................................................57
SECTION 9.10. Entire Agreement...................................................................................57
SECTION 9.11. Waiver of Jury Trial...............................................................................58
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GLOSSARY OF DEFINED TERMS
Location of
Defined Term Definition
Acquisition Proposal......................................... section 9.04(a)
Action........................................................section 3.10
Affiliate.....................................................section 6.10
Agreement.....................................................Recitals
beneficial owner..............................................section 9.04(c)
Bermuda Co....................................................section 3.30(a)
Bermuda Co. Common Stock......................................section 3.32(b)
Blue Sky Laws.................................................section 3.05(b)
Board.........................................................Recitals
business day..................................................section 9.04(a)
Canadian GAAP.................................................section 4.07(b)
Cash Component................................................section 2.01(a)
Certificate of Merger.........................................section 1.02
Certificates..................................................section 2.03(b)
Closing.......................................................section 1.02
Closing Date..................................................section 1.02
Code..........................................................section 2.03(e)
Company.......................................................Preamble
Company Balance Sheet.........................................section 3.07(b)
Company Benefit Plans.........................................section 3.11(a)
Company Board Approval........................................section 3.17(a)
Company Common Stock..........................................Recitals
Company Disclosure Schedule...................................section 3.01(b)
Company Material Contracts....................................section 3.12(a)
Company Permits...............................................section 3.06(a)
Company Proxy Statement.......................................section 3.23
Company SEC Reports...........................................section 3.07(a)
Company Stock Option Plan.....................................section 2.05
Company Stock Options.........................................section 2.05
Company Stockholders' Approval................................section 3.04
Company Stockholders' Meeting.................................section 6.02
Company Stockholders' Vote....................................section 3.04
Company Subsidiaries..........................................section 3.01(a)
Computer Systems..............................................section 9.04(e)
Confidentiality Agreement.....................................section 6.03(b)
control.......................................................section 9.04(f)
Debenture Component...........................................section 2.01(a)
DGCL..........................................................Recitals
Dissenting Shares ............................................section 2.02
Effective Time................................................section 1.03
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Employee Termination.........................................section 2.07(c)
Environmental Laws...........................................section 3.13
Environmental Permits........................................section 3.13
ERISA........................................................section 3.11(a)
Excess Debenture Component...................................section 2.04(f)
Exchange Act.................................................section 3.05(b)
Exchange Agent...............................................section 2.03(a)
Exchange Fund................................................section 2.03(a)
Expenses.....................................................section 8.05(b)
Fee..........................................................section 8.05(a)
Governmental Entity..........................................section 3.05(b)
Hazardous Substances.........................................section 3.13
HSR Act......................................................section 3.05(b)
Insignificant Insurance Subsidiaries.........................section 3.30(d)
Insurance Companies..........................................section 3.30(a)
Insurance Company Balance Sheets.............................section 3.34
Insurance Company Material Contracts.........................section 3.38(a)
Insurance Company Permits....................................section 3.33
Insurance Company Subsidiaries...............................section 3.30(a)
Insurance Financial Statements...............................section 3.34
Intellectual Property........................................section 3.15
IRS..........................................................section 3.11(a)
Law..........................................................section 3.05(a)
Liens........................................................section 3.14(b)
Material Adverse Effect......................................section 9.04(h)
Merger.......................................................Preamble
Merger Consideration.........................................section 2.01(a)
Merger Sub...................................................Preamble
Multiemployer Plan...........................................section 3.11(b)
Multiple Employer Plan.......................................section 3.11(b)
Nasdaq.......................................................section 3.05(b)
Order........................................................section 7.01(c)
OSC..........................................................section 4.05(b)
Parent.......................................................Preamble
Parent Common Shares.........................................section 4.04
Parent Debentures............................................section 9.04(i)
Parent Preferred Shares......................................section 4.04
Parent Reports...............................................section 4.07
Parent Shareholders' Approval................................section 4.03
Parent Shareholders' Meeting.................................section 6.10
Parent Share Options.........................................section 4.04
Parent Share Option Plans....................................section 4.04
Parent Permits...............................................section 4.05
Parent Subsidiaries..........................................section 4.04
Payment Time.................................................section 2.07(d)
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Performance Stock Plan.......................................section 9.04(k)
person.......................................................section 9.04(j)
Principal Stockholders.......................................Recitals
Related Party Transactions...................................section 4.04(c)
Restricted Share.............................................section 2.07(a)
Registration Statement.......................................section 6.01(a)
Representatives..............................................section 6.03(b)
Required Consents............................................section 3.05(b)
Rhode Island Co..............................................section 3.30
Rhode Island Co. Common Stock................................section 3.32(a)
SEC..........................................................section 2.04(b)
Securities Act...............................................section 3.05(b)
Significant Insurer..........................................section 3.27
subsidiary...................................................section 9.04(l)
Superior Proposal............................................section 9.04(m)
Surviving Corporation........................................section 1.01
Taxes........................................................section 9.04(n)
TSE..........................................................section 4.05(b)
U.S. GAAP....................................................3.07(b)
Vested Share Consideration...................................section 2.07(a)
Vested Share Right...........................................section 2.07(a)
Voting Agreements............................................Recitals
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AGREEMENT AND PLAN OF MERGER dated as of January 19, 2001
(this "Agreement") among Hub International Limited, a corporation organized
under the laws of Ontario ("Parent"), 416 Acquisition Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and Kaye
Group Inc., a Delaware corporation (the "Company").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of Parent, Merger
Sub and the Company have each determined that it is in the best interests of
each corporation and its respective stockholders to merge Merger Sub with and
into the Company;
WHEREAS, the respective Boards of Directors of Parent, Merger
Sub and the Company have approved and declared advisable this Agreement and the
merger of Merger Sub with and into the Company (the "Merger") in accordance with
the Delaware General Corporation law (the "DGCL") upon the terms and subject to
the conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, par value $ .01 per share, of the Company ("Company
Common Stock"), other than shares owned by Parent, Merger Sub or the Company,
and other than Dissenting Shares (as defined in Section 2.02(a) below), will be
converted into the right to receive a combination of Parent Debentures (as
defined herein) and cash, without interest thereon, except as otherwise provided
in Section 2.08 hereof, per share of Company Common Stock, as provided for
herein;
WHEREAS, on the date hereof, and as a condition and inducement
to Parent's willingness to enter into this Agreement, Parent, Merger Sub and
certain stockholders of the Company who collectively hold a majority of the
outstanding shares of the Company (the "Principal Stockholders") have entered
into stock option and voting agreements (the "Voting Agreements") pursuant to
which such stockholders agreed (i) to vote to approve the Merger and adopt this
Agreement, (ii) to grant an option to Parent to purchase their Company Common
Stock and (iii) to take certain other actions in furtherance of the Merger upon
the terms and subject to the conditions set forth in the Voting Agreements; and
WHEREAS, Parent intends to issue and sell to Fairfax Financial
Holdings Limited certain securities to obtain financing for a portion of the
aggregate Merger Consideration (as defined herein);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement and in accordance with the DGCL, at the
Effective Time (as defined in Section 1.03 herein) Merger Sub shall be merged
with and into the Company. As a result of the
Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger (the "Surviving Corporation").
SECTION 1.02. Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. (New York time) at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022-6069 on a date to be specified by the
parties hereto (the "Closing Date"), which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Article
VII (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of such conditions), unless
another time, date or place is agreed to by the parties hereto.
SECTION 1.03. Effective Time. On the Closing Date, the parties shall file a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL and shall make all other
filings or recordings required by applicable law in connection with the Merger.
The Merger shall become effective at such time as the Certificate of Merger is
duly filed with the Secretary of State of the State of Delaware or at such later
date or time as is agreed upon by the parties and specified in the Certificate
of Merger (the time the Merger becomes effective being hereinafter referred to
as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects as
provided in this Agreement, the Certificate of Merger and the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions and duties of
the Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions and duties of the Surviving Corporation.
SECTION 1.05. Certificate of Incorporation and By-Laws of the Surviving
Corporation. (a) At the Effective Time, the Certificate of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation.
(a) Unless otherwise determined by Parent prior to the
Effective Time, and subject to Section 6.05(a), the By-Laws of the Company, as
in effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.06. Directors and Officers of the Surviving Corporation. (a) The
directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-laws of the Surviving
Corporation.
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(a) The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified or until their earlier death, resignation or approval.
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Company Common Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub or
the Company:
(a) Conversion of Company Common Stock. Subject to Sections
2.02 and 2.07, each issued and outstanding share of Company Common
Stock (other than shares to be canceled pursuant to Section 2.01(b))
shall be automatically converted into the right to receive $14 (the
"Merger Consideration") payable as follows: (A) net amount of $9.3334
in cash, without interest thereon, except as otherwise provided in
Section 2.08 hereof (the "Cash Component"), and (B) $4.6666 principal
amount of a Parent Debenture (the "Debenture Component"). Pursuant to
Section 2.04, Parent may elect to increase the Cash Component and
decrease the Debenture Component as provided therein. As of the
Effective Time, all such shares of Company Common Stock shall no longer
be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any
such shares of Company Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration,
without interest, except as otherwise provided in Section 2.08 hereof.
(b) Cancellation of Treasury Stock and Parent-Owned Stock.
Each share of Company Common Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or held in the treasury of
the Company or any Company Subsidiary shall be canceled and
extinguished without any conversion thereof and no payment or
distribution shall be made with respect thereto.
(c) Conversion of Merger Sub Common Stock. Each share of
common stock, par value $0.01 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted
into and exchanged for one validly issued, fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving
Corporation.
SECTION 2.02. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such shares in
accordance with section 262 of the DGCL (collectively, the "Dissenting Shares")
shall not be converted into, or represent the right to receive, the Merger
Consideration. Such stockholders shall be entitled to receive payment of the
appraised value of such shares held by them in accordance with the provisions of
such section 262, except that all
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Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares under such section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration, without any interest thereon, upon surrender,
in the manner provided in Section 2.03, of the certificate or certificates that
formerly evidenced such shares.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other instruments served pursuant to the DGCL and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
SECTION 2.03. Exchange of Certificates. (a) Exchange Agent. Immediately
after the Effective Time, Parent shall deposit, or shall cause to be deposited,
with a bank or trust company designated by Parent and reasonably acceptable to
the Company (the "Exchange Agent"), for the benefit of the holders of Company
Common Stock, for exchange in accordance with this Article II through the
Exchange Agent, (i) certificates evidencing the Parent Debentures issuable
pursuant to Section 2.01(a) as of the Effective Time and (ii) cash, in an
aggregate amount sufficient to pay the total cash payable to the holders of
shares of Company Common Stock pursuant to Section 2.01(a) (such cash and
certificates of Parent Debentures being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions from
Parent, deliver the Parent Debentures and cash contemplated to be issued or paid
pursuant to Section 2.01 out of the Exchange Fund. Except as contemplated by
Sections 2.03(c) and (g) hereof, the Exchange Fund shall not be used for any
other purpose.
(a) Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (other
than shares of Company Common Stock that have been cancelled pursuant to Section
2.01(b)) (the "Certificates"), and whose shares of Company Common Stock were
converted into the right to receive the Merger Consideration pursuant to Section
2.01, (i) a letter of transmittal (which shall be in customary form, shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall have such other conditions as Parent may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates pursuant to such letter of transmittal in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a Certificate for
cancellation together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and such other documents
as may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration and
the Certificate so surrendered shall forthwith be cancelled. Subject to Section
2.03(e), under no circumstances will any holder of a Certificate be entitled to
receive any part of the Merger Consideration until such holder shall have
surrendered such Certificate. In the event of a transfer of ownership of shares
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of Company Common Stock which is not registered in the transfer records of the
Company, the Merger Consideration may be paid in accordance with this Article II
to the transferee if the Certificate evidencing such shares of Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration. Except as otherwise provided in Section 2.08 hereof, no interest
shall be paid or will accrue on any cash payable to holders of Certificates
pursuant to provisions of this Article II on the Merger Consideration.
(c) No Liability. Neither Parent nor the Surviving Corporation
shall be liable to any holder of shares of Company Common Stock in respect of
any Merger Consideration that is delivered to a public official pursuant to any
abandoned property, escheat or similar Law. If any Certificate shall not have
been surrendered prior to six months after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.05(b))), any such Merger Consideration, except to the extent permitted
by applicable Law, will become the property of the Surviving Corporation, free
and clear of all claims or interest of any person previously entitled thereto.
(d) Withholding. Each of the Surviving Corporation, Parent and
the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as it is required to deduct and
withhold under the U.S. Internal Revenue Code of 1986, as amended (the "Code"),
or any provision of any state, local or foreign tax law, with respect to the
making of such payment. To the extent that amounts are so withheld by the
Surviving Corporation, Parent or the Exchange Agent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of shares of Company Common Stock in respect of which
such deduction and withholding were made by the Surviving Corporation, Parent or
the Exchange Agent, as the case may be.
(e) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration, without any interest thereon.
(f) No Fractional Debentures. Parent Debentures issued upon
the surrender for exchange of Certificates shall be issued only in principal
amounts of $1,000 and integral multiples thereof. If the aggregate principal
amount of Debenture Component due to a holder of a Certificate pursuant to
Section 2.01(a) above is less than $1,000, then such holder shall receive cash
in lieu of such Debenture Component. If the aggregate principal amount of
Debenture Component due to a holder of a Certificate pursuant to Section 2.01(a)
above exceeds $1,000,
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then, with respect to that amount of Debenture Component that exceeds $1,000 or
the nearest integral multiple thereof (the "Excess Debenture Component"), such
holder shall receive cash in lieu of the Excess Debenture Component.
(g) Investment of Exchange Fund. The Exchange Fund may be
invested by the Exchange Agent, pursuant to instructions from Parent and on
behalf of the stockholders of the Company, in securities issued or guaranteed by
the United States government or certificates of deposit of commercial banks that
have, or are members of a group of commercial banks that has, consolidated total
assets of not less than $500,000,000. Any net profit resulting from, or interest
or income produced by, such investments shall be payable to the Surviving
Corporation or Parent, as Parent directs.
(h) No Further Rights in Company Common Stock. All Parent
Debentures issued or cash paid upon conversion of the Company Common Stock in
accordance with the terms hereof shall be deemed to have been issued and paid in
full satisfaction of all rights pertaining to such Company Common Stock.
SECTION 2.04. Election to Increase the Cash Component. Notwithstanding
anything to the contrary herein, Parent may in its sole discretion, on any date
prior to the effectiveness of the Registration Statement (as defined herein)
with the Securities and Exchange Commission (the "SEC"), elect to increase the
Cash Component up to $14 and decrease the Debenture Component correspondingly.
The Parent shall evidence any such election by delivering a written notice to
the Company stating the Cash Component and Debenture Component.
SECTION 2.05. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and, thereafter, there shall be no
further registration of transfers of shares of Company Common Stock theretofore
outstanding on the records of the Company. From and after the Effective Time,
the holders of Certificates representing shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock formerly represented
thereby, except as otherwise provided in this Agreement or by Law.
SECTION 2.06. Company Stock Options. Prior to the Effective Time, all
outstanding stock options (the "Company Stock Options") issued under the
Company's Amended and Restated Stock Option Plan (the "Company Stock Option
Plan") shall become vested (i.e., such Company Stock Options shall become fully
exercisable as to all shares of Company Common Stock covered thereby and as to
which such Company Stock Options have not been previously exercised) and,
immediately prior to the Effective Time, for each Company Stock Option, the
holder of each such Company Stock Option (an "Optionee") shall be entitled to
receive, in settlement and cancellation thereof, an amount of cash equal to the
product of (A) the difference between the Merger Consideration and the exercise
price per share of Company Common Stock provided in each Company Stock Option,
and (B) the number of shares of Company Common Stock covered by such Company
Stock Option, which payment shall be made to each Optionee immediately prior to
the Effective Time by the Company. As of the
6
Effective Time, the Company shall cause the Company Stock Option Plan and each
outstanding Company Stock Option to terminate.
SECTION 2.07. Company Restricted Stock. (a) Immediately prior to the
Merger, each holder (a "Performance Stock Holder") of shares of Company Common
Stock granted pursuant to the Stock Performance Plan (as defined herein) prior
to the date hereof (each a "Performance Stock Share"), which Performance Stock
Share is (i) outstanding immediately prior to the Effective Time and (ii) either
(x) has vested pursuant to, and in accordance with, the terms of the Performance
Stock Plan or (y) will as a result of the Merger become vested pursuant to, and
in accordance with, the Performance Stock Plan, shall be cancelled and such
Performance Stock Holder shall be entitled to a right (a "Vested Share Right")
to receive in full payment therefor and settlement thereof an amount of cash
equal to $14 per Performance Stock Share without interest thereon (the "Vested
Share Consideration") less applicable withholding taxes. The Board of Directors
of the Company (the "Board") shall cause the Performance Stock Plan to terminate
as of the Effective Time and each Performance Stock Share outstanding at the
Effective Time shall be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such Performance Stock Shares shall
cease to have any rights with respect thereto except as set forth in this
Section 2.07.
(b) The aggregate amount of the Vested Share Consideration
that could become payable pursuant to Section 2.07(a), which the parties agree
is currently equal to $2,668,070, subject to adjustment in accordance with the
terms hereof (the "Escrow Fund"), shall be paid by the Parent to a mutually
agreeable escrow agent (the "Escrow Agent") as soon as practicable after the
Effective Time pursuant to an escrow agreement mutually agreeable to the Parent,
the Company and the Escrow Agent (the "Escrow Agreement"). The Escrow Agreement
shall provide that the entire Escrow Fund shall be paid promptly after the first
anniversary of the Effective Time, and, except as provided below, not before
that time, to the One-Year Qualified Holders (as defined below). Payment of the
Escrow Fund to the One-Year Qualified Holders shall be made pro rata to each
such holder according to the number of his or her Performance Stock Shares that
were cancelled pursuant to Section 2.07(a) above.
(c) A "One-Year Qualified Holder" shall mean any Performance
Stock Holder (i) who continues to be employed by the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries on the first anniversary
of the Effective Time or (ii) whose employment with the Surviving Corporation,
the Parent or any of their direct or indirect subsidiaries was terminated on or
prior to the first anniversary of the Effective Time only by reason of one of
the following: (x) by such Performance Stock Holder's death or disability (as
defined in the Company's applicable medical or disability plan), (y) by the
Surviving Corporation, the Parent or any of their direct or indirect
subsidiaries without Cause (as defined below); or (z) by the Performance Stock
Holder for Good Reason (as defined below). Upon any Performance Stock Holder's
death after the Effective Time but on or before the first anniversary thereof,
any such holder's heirs shall be entitled to receive as promptly as practicable
all payments in respect of such Vested Share Right without waiting until the
first anniversary of the Effective Time. Upon any Performance Stock Holder's
termination from employment without Cause by the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries, or
7
termination by the Performance Stock Holder for Good Reason, after the Closing
Date but on or before the first anniversary thereof, any such holder shall be
entitled to receive as promptly as practicable all payments in respect of such
Vested Share Right without waiting until the first anniversary of the Effective
Time.
(d) For purposes of Section 2.07(c):
(x) "Cause" shall mean (i) a breach by the
Performance Stock Holder of the provisions of his or her Employment
Agreement, which breach shall not have been cured by the Performance
Stock Holder within thirty (30) days following notice thereof by the
employer, the Surviving Corporation, the Parent or any of their direct
or indirect subsidiaries to the Performance Stock Holder, (ii) the
commission of gross negligence or bad faith by the Performance Stock
Holder in the course of the Performance Stock Holder's employment,
(iii) the commission by the Performance Stock Holder of a criminal act
of fraud, theft or dishonesty causing damages to the Surviving
Corporation, the Parent or any of their direct or indirect subsidiaries
or (iv) the Performance Stock Holder's conviction of (or plea of nolo
contendere to) any felony, or misdemeanor involving moral turpitude if
such misdemeanor results in financial harm to or adversely affects the
goodwill of the Surviving Corporation, the Parent or any of their
direct or indirect subsidiaries; and
(y) "Good Reason" shall mean:
(i) the assignment to the Performance Stock Holder of
any duties substantially inconsistent with the position with
the Company or its direct or indirect subsidiaries that the
Performance Stock Holder held immediately prior to the
Effective Time, or a significant adverse alteration in the
nature or status of the Performance Stock Holder's
responsibilities or the conditions of the Performance Stock
Holder's employment from those in effect immediately prior to
the Effective Time, excluding for this purpose an isolated and
inadvertent action not taken in bad faith and which is
remedied by the Surviving Corporation, the Parent or any of
their direct or indirect subsidiaries, promptly after receipt
of notice thereof given by the Performance Stock Holder;
(ii) a material reduction by the Surviving
Corporation, the Parent or any of their direct or indirect
subsidiaries in the Performance Stock Holder's annual base
salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-the-board
salary reductions similarly affecting most key personnel of
the Surviving Corporation, the Parent or any of their direct
or indirect subsidiaries and most key personnel of any person
in control of the Parent;
(iii) any failure by the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries, as
applicable, to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Surviving Corporation or the
8
Parent, as applicable, to assume expressly and agree to
perform the provisions of any employment agreement to which
the Performance Stock Holder is a party in the same manner
and to the same extent that the Surviving Corporation, the
Parent or any of their direct or indirect subsidiaries would
be required to perform if no such succession had taken
place;
(iv) the relocation of the offices at which the
Performance Stock Holder is principally employed immediately
prior to the Effective Time hereunder to a location more than
35 miles from such location, or the imposition of any
requirement by the Surviving Corporation, the Parent or any of
their direct or indirect subsidiaries that the Performance
Stock Holder be based anywhere other than the offices at which
the Performance Stock Holder is principally employed
immediately prior to the Effective Time, except for business
related travel to an extent substantially consistent with the
Performance Stock Holder's business travel obligations
immediately prior to the Effective Time; or
(v) the failure by the Parent or the Surviving
Corporation, as the case may be, to continue to provide the
Performance Stock Holder with benefits substantially similar
to those enjoyed by the Performance Stock Holder under any of
the life insurance, medical, accident, disability or other
employee benefit or compensation plans of the Company or any
of the Company Subsidiaries in which the Performance Stock
Holder was participating at the Effective Time or the failure
by the Parent or the Surviving Corporation, as the case may
be, to provide the Performance Stock Holder with the number of
paid vacation days to which the Performance Stock Holder is
entitled on the basis of years of service with the Company or
any of its subsidiaries, as the case may be, in accordance
with the normal vacation policies of the Company or any such
subsidiary, as the case may be, in effect at the Effective
Time, unless such failure or taking of action similarly
affects most key personnel of the Parent and its subsidiaries.
SECTION 2.08. Interest on Merger Consideration. If the Effective Time shall
not have occurred on or before the 180th day (the "Interest Date") following the
date on which the Company Proxy Statement (as defined herein) is filed with the
SEC, then the Merger Consideration shall be adjusted by adjusting each of the
Cash Component and the Debenture Component to reflect the accrual of interest at
a rate of 8.5% per annum for the period beginning on the day immediately
following the Interest Date and ending on the date of the Effective Time.
Notwithstanding the previous sentence, no interest shall accrue and no
adjustment to the Merger Consideration shall be made if the Company shall have
failed in any material respect to comply with Section 6.06.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to enter into this Agreement, the Company
hereby represents and warrants to Parent and Merger Sub that:
9
SECTION 3.01. Organization and Qualification; Subsidiaries. (a) Each of the
Company and each operating subsidiary of the Company with total assets in excess
of $50,000 on its balance sheet at September 30, 2000 (collectively, the
"Company Subsidiaries") is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted except where the failure to be so organized,
existing or in good standing or to have such power, authority, and governmental
approvals would not prevent or materially delay consummation of the Merger or
otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect (as defined in Section 9.04). The
Company and each of the Company Subsidiaries is duly qualified or licensed as a
foreign corporation or organization to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not prevent or materially delay consummation of the
Merger or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Section 3.01(b) of the disclosure schedule prepared by the
Company and delivered by the Company to Parent prior to the execution of this
Agreement and forming a part of this Agreement (the "Company Disclosure
Schedule") sets forth a true and complete list of all the Company Subsidiaries,
together with the jurisdiction of incorporation of each Company Subsidiary and
the percentage of the outstanding capital stock of each Company Subsidiary owned
by the Company and each Company Subsidiary, and separately identifies all
subsidiaries of the Company that are not Company Subsidiaries (collectively, the
"Insignificant Subsidiaries"). Except as set forth in Section 3.01(b) of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary
directly or indirectly owns, or has outstanding contractual obligations to
acquire, any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
(c) None of the Insignificant Subsidiaries has any liabilities
or obligation of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due), except for such liabilities and
obligations as would not prevent or materially delay consummation of the Merger
or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or any Company
Subsidiary.
SECTION 3.02. Certificate of Incorporation and By-Laws. The Company has
heretofore made available to Parent a complete and correct copy of the
Certificate of Incorporation and the By-Laws, each as amended to date, of the
Company and each Company Subsidiary. Such Certificates of Incorporation and
By-Laws are in full force and effect. Neither the Company nor any Company
Subsidiary is in violation of any of the provisions of its
10
Certificate of Incorporation or By-Laws. True and complete copies of all minute
books of the Company have been made available by the Company to Parent.
SECTION 3.03. Capitalization. (a) The authorized capital stock of the
Company consists of (a) 20,000,000 shares of Company Common Stock and (b)
1,000,000 shares of preferred stock, par value $1.00 per share, of the Company
(the "Company Preferred Stock"). As of the date hereof, (a) 8,481,471 shares of
Company Common Stock and (b) no shares of Company Preferred Stock were issued
and outstanding. All of the issued and outstanding shares of Company Common
Stock are validly issued, fully paid and nonassessable. 4,481 shares of Company
Common Stock and no shares of Company Preferred Stock, are held in the treasury
of the Company or by any Company Subsidiary and 1,350,000 shares of Company
Common Stock have been duly reserved for future issuance pursuant to the Company
Stock Option Plan. There are no issued or outstanding bonds, debentures, notes,
convertible notes or other indebtedness of the Company having the right to vote
on any matters on which stockholders of the Company may vote. Except for the
Company Stock Options granted pursuant to the Company Stock Option Plans or
pursuant to agreements or arrangements described in Section 3.03 of the Company
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company or any Company
Subsidiary is a party relating to the issued or unissued stock of the Company or
any Company Subsidiary or conditionally or absolutely obligating the Company or
any Company Subsidiary to issue or sell any shares of stock of, or other equity
interests in, the Company or any Company Subsidiary. Section 3.03(a) of the
Company Disclosure Schedule sets forth all Company Stock Options, including the
relevant vesting times and exercise periods. All shares of Company Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and non-assessable. There are no
outstanding obligations (whether conditional or absolute) of the Company or any
Company Subsidiary to repurchase, redeem or otherwise acquire any shares or
other equity interests of Company Common Stock or any shares or other equity
interests of any Company Subsidiary. Each outstanding share of stock or other
equity interest of each Company Subsidiary is duly authorized, validly issued,
fully paid and non-assessable and each such share or other equity interest owned
by the Company or another Company Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Company Subsidiary's voting rights,
charges and other encumbrances of any nature whatsoever.
(b) Restricted Stock. Section 3.03(b) of the Company
Disclosure Schedule sets forth a true and complete list of each holder of
Restricted Shares, and identifies how many Restricted Shares of each such holder
(i) are vested as of the date hereof and (ii) may be vested, whether by reason
of the Merger (assuming only for purposes of this Section 3.03(b) that the
Effective Time is at December 31, 2001) or otherwise at December 31, 2001.
SECTION 3.04. Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and perform its obligations hereunder and to consummate the Merger and the other
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the
11
consummation by the Company of the Merger and the other transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the Merger
and the other transactions contemplated by this Agreement (other than with
respect to the Merger, the approval and adoption of this Agreement and the
Merger by the affirmative vote of holders of a majority of the Company Common
Stock (the "Company Stockholders' Approval") entitled to vote on the matter (the
"Company Stockholders' Vote"), and the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware as required by the DGCL). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The Board has approved this
Agreement, the Merger and the other transactions contemplated herein and such
approvals are sufficient so that the restrictions on business combinations set
forth in Section 203(a) of the DGCL shall not apply to the Merger.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) Except as set
forth in Section 3.05 of the Company Disclosure Schedule, the execution and
delivery of this Agreement do not, and performance of this Agreement by the
Company will not, (i) conflict with or violate the Certificate of Incorporation
or By-Laws of the Company or any equivalent organizational documents of any
Company Subsidiary, (ii) conflict with or violate any federal, national, state,
provincial, municipal or local law, statute, ordinance, rule, regulation, order,
injunction, judgment or decree ("Law") applicable to the Company or any Company
Subsidiary or by which any property or asset of the Company or any Company
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any Company Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or materially delay
consummation of the Merger or otherwise prevent or materially delay the Company
from performing its obligations under this Agreement and would not, individually
or in the aggregate, have a Material Adverse Effect on the Company or the
Insurance Companies.
(b) Except as set forth in Section 3.05(b) of the Company
Disclosure Schedule, the execution and delivery of this Agreement by the Company
do not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any federal, national, state, provincial, municipal or local
government, any instrumentality, subdivision, court, administrative agency or
commission or other authority thereof, or any quasi-governmental or private body
exercising any regulatory, taxing, importing or any other governmental or
quasi-governmental authority (a "Governmental Entity"), except (i) for (A) the
pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the requirements of
other applicable competition laws, (B) the requisite approvals of insurance
12
regulatory authorities (including, without limitation, the insurance regulatory
authorities of Rhode Island), (C) applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act of 1933, as amended, and the rules and regulations thereunder (the
"Securities Act"), state securities or "blue sky" laws (the "Blue Sky Laws") and
state takeover laws, (D) the DGCL with respect to the filing of the Delaware
Certificate of Merger and (E) the rules and regulations of the Nasdaq National
Market (the "Nasdaq") (the foregoing clauses (i)(A) through (E) being referred
to collectively as the "Required Consents") and (ii) where the failure to obtain
any such consent, approval, authorization or permit, or to make any such filing
or notification, would not prevent or materially delay consummation of the
Merger, or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or the Insurance
Companies.
SECTION 3.06. Permits; Compliance. (a) Except as disclosed in Section
3.06(a) of the Company Disclosure Schedule, each of the Company and the Company
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for the Company or any
Company Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits") except where the
failure to obtain any such Company Permits would not prevent or materially delay
consummation of the Merger, or otherwise prevent or materially delay the Company
from performing its obligations under this Agreement and would not, individually
or in the aggregate, have a Material Adverse Effect. As of the date hereof, no
suspension or cancellation of any of the Company Permits is pending or, to the
knowledge of the Company, threatened.
(b) Except as disclosed in Section 3.06(b) of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary is in
conflict with, or in default or violation of, any (i) Law applicable to the
Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is bound or affected, (ii) note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any Company Subsidiary is
a party or by which the Company or any Company Subsidiary or any property or
asset of the Company or any Company Subsidiary is bound or affected or (iii)
Company Permits, except in each case for any such conflicts, defaults or
violations that would not prevent or materially delay consummation of the Merger
or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports and documents required to be filed by it with the SEC since
December 31, 1998 and has heretofore delivered or made available to Parent, in
the form filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal
years ended December 31, 1998 and 1999, (ii) its Quarterly Reports on Form 10-Q
for the periods ended March 31, 2000, June 30, 2000 and September 30, 2000,
(iii) all proxy statements relating to the Company's meetings of stockholders
(whether annual or special) held since May 1, 1998 and (iv) all other forms,
reports
13
and other registration statements (other than Quarterly Reports on Form 10-Q not
referred to in clause (ii) above) filed by the Company with the SEC since April
1, 1998 (the forms, reports and other documents referred to in clauses (i),
(ii), (iii) and (iv) above being, collectively, the "Company SEC Reports") and
(v) complete (i.e., unredacted) copies of each exhibit to the Company SEC
Reports filed with the SEC. The Company SEC Reports (i) were prepared in
accordance with either the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations promulgated thereunder,
and (ii) did not, at the time they were filed, or, if amended, as of the date of
such amendment, 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. No Company Subsidiary is required to file any form, report
or other document with the SEC.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the Company SEC Reports was
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Regulation S-X adopted by the SEC) and
each presented in all material respects, the consolidated financial position,
results of operations and cash flows of the Company and the consolidated
subsidiaries of the Company as at the respective dates thereof and for the
respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal and recurring year-end
adjustments which would not have had, individually or in the aggregate, a
Material Adverse Effect). The balance sheet of the Company contained in the
Company SEC Reports as of September 30, 2000 is hereinafter referred to as the
"Company Balance Sheet".
(c) The Company has heretofore furnished to Parent a complete
and correct copy of any amendments or modifications that have not been filed
with the SEC to all agreements, documents or other instruments that previously
had been filed by the Company with the SEC and are currently in effect.
SECTION 3.08. Undisclosed Liabilities. Except for those liabilities that
are disclosed in Section 3.08 of the Company Disclosure Schedule or are fully
reflected or reserved against on the Company Balance Sheet, neither the Company
nor any Company Subsidiary has outstanding any liability or obligation of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due), except for liabilities and obligations that have
been incurred since the date of the Company Balance Sheet in the ordinary course
of business, that would not prevent or materially delay consummation of the
Merger or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and that would not, individually or in the
aggregate, have a Material Adverse Effect. With respect to liabilities or
obligations concerning the matters addressed in Sections 3.07, 3.11, 3.13, and
3.16, the provisions of such Sections and not this Section 3.08 shall apply.
SECTION 3.09. Absence of Certain Changes or Events. From September 30, 2000
through the date hereof, except as set forth in Section 3.09 of the Company
Disclosure Schedule, (a) each of the Company and the Company Subsidiaries has
conducted its business
14
only in the ordinary course and (b) there has not been any circumstance, event,
occurrence, change or effect that would reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.10. Absence of Litigation. Except as specifically disclosed in
Section 3.10 of the Company Disclosure Schedule, there is no litigation, suit,
claim, action, proceeding or investigation (an "Action") pending or, to the
knowledge of the Company, threatened against the Company or any Company
Subsidiary, or against any property or asset of the Company or any Company
Subsidiary, before any court, arbitrator or Governmental Entity, domestic or
foreign which the Company reasonably believes, individually or in the aggregate,
could result in liability of the Company or any Company Subsidiary in amounts in
excess of $50,000. Except as specifically disclosed in Section 3.10 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary nor
any property or asset of the Company or any Company Subsidiary is subject to any
continuing order of, consent decree, settlement agreement or similar written
agreement with, or, to the knowledge of the Company, continuing investigation
by, any Governmental Entity, or any order, writ, judgment, injunction, decree,
determination or award of any Governmental Entity that would prevent or
materially delay consummation of the Merger or otherwise prevent or materially
delay the Company from performing its obligations under this Agreement or would,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.11. Employee Benefit Matters. (a) Plans and Material Documents.
Section 3.11 (a) of the Company Disclosure Schedule lists (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, consulting, termination, severance
or other contracts or agreements, whether legally enforceable or not, to which
the Company or any Company Subsidiary is a party, with respect to which the
Company or any Company Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Company Subsidiary for the
benefit of any current or former employee, consultant, officer or director of
the Company or any Company Subsidiary, (ii) each employee benefit plan for which
the Company or any Company Subsidiary could incur liability under section 4069
of ERISA in the event such plan has been or were to be terminated, (iii) any
plan in respect of which the Company or any Company Subsidiary could incur
liability under section 4212(c) of ERISA and (iv) any contracts, arrangements or
understandings between the Company or any Company Subsidiary and any employee of
the Company or any Company Subsidiary including, without limitation, any
contracts, arrangements or understandings relating to a sale of the Company or
any Company Subsidiary (collectively, the "Company Benefit Plans"). Except as
disclosed in Section 3.11(a) of the Company Disclosure Schedule, each Company
Benefit Plan is in writing and the Company has made available to Parent a true
and complete copy of each Company Benefit Plan and a true and complete copy of
each material document, if any, prepared in connection with each such Company
Benefit Plan, including, without limitation, a copy of (i) each trust or other
funding arrangement currently in effect, (ii) the current summary plan
description and any subsequent summary of material modifications, (iii) the most
recently
15
filed Internal Revenue Service (the "IRS") Form 5500, (iv) the most recently
received IRS determination letter for each such Company Benefit Plan and (v) the
most recently prepared actuarial report and financial statement in connection
with each such Company Benefit Plan. Except as disclosed in Section 3.11(a) of
the Company Disclosure Schedule, there are no other employee benefit plans,
programs, arrangements or agreements, whether formal or informal, whether in
writing or not, to which the Company or any Company Subsidiary is a party, with
respect to which the Company or any Company Subsidiary has any obligation or
which are maintained, contributed to or sponsored by the Company or any Company
Subsidiary for the benefit of any current or former employee, consultant,
officer or director of the Company or any Company Subsidiary. Neither the
Company nor any Company Subsidiary has any express or implied commitment,
whether legally enforceable or not, (i) to create, incur liability with respect
to or cause to exist any other employee benefit plan, program or arrangement,
(ii) to enter into any contract or agreement to provide compensation or benefits
to any individual or (iii) to modify, change or terminate any Company Benefit
Plan, other than with respect to a modification, change or termination required
by ERISA or the Code.
(b) Absence of Certain Types of Plans. Except as disclosed in
Section 3.11(b) of the Company Disclosure Schedule, none of the Company Benefit
Plans is a multiemployer plan (within the meaning of section 3(37) or 4001(a)(3)
of ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the
meaning of Section 4001(a)(15) of ERISA) for which the Company or any Company
Subsidiary could incur liability under Section 4063 or 4064 of ERISA (a
"Multiple Employer Plan"). Except as disclosed in Section 3.11(b) of the Company
Disclosure Schedule, none of the Company Benefit Plans (i) provides for the
payment of separation, severance, termination or similar-type benefits to any
person, (ii) obligates the Company or any Company Subsidiary to pay separation,
severance, termination or similar-type benefits solely or partially as a result
of any transaction contemplated by this Agreement, or (iii) obligates the
Company or any Company Subsidiary to make any payment or provide any benefit as
a result of a "change in control", within the meaning of such term under Section
280G of the Code. None of the Company Benefit Plans provides for or promises
retiree medical, disability or life insurance benefits to any current or former
employee, officer or director of the Company or any Company Subsidiary. Each of
the Company Benefit Plans is subject only to the Laws of the United States or a
political subdivision thereof.
(c) Compliance. Except as disclosed in Section 3.11(c) of the
Company Disclosure Schedule, to the knowledge of the Company, each Company
Benefit Plan is now and always has been operated in all respects in accordance
with its terms and the requirements of all applicable laws and regulations and
rules promulgated thereunder, including, without limitation, ERISA and the Code,
except for such non-compliance as would not result in a Material Adverse Effect
or has not or would not be reasonably likely to result in a significant expense
to the Company. The Company and all Company Subsidiaries have performed all
material obligations required to be performed by them under, are not in any
material respect in default under or in material violation of, and have no
knowledge of any such default or violation by any other party with respect to,
any Company Benefit Plan. No action, claim or proceeding is pending or, to the
knowledge of the Company, threatened with respect to any Company Benefit Plan
(other than
16
claims for benefits in the ordinary course) and, to the knowledge of the
Company, no fact or event exists that could reasonably give rise to any such
action, claim or proceeding.
(d) Qualification of Certain Plans. Each Company Benefit Plan
that is intended to be qualified under section 401(a) of the Code or section
401(k) of the Code has received a favorable determination letter from the IRS
covering all of the provisions applicable to the Company Benefit Plan, and no
fact or event has occurred since the date of such determination letter or
letters from the IRS that is likely to adversely affect the qualified status of
any such Company Benefit Plan or the exempt status of any such trust.
(e) Absence of Certain Liabilities. To the knowledge of the
Company, there has not been any nonexempt prohibited transaction (within the
meaning of Section 406 and 408 of ERISA or Section 4975 of the Code) with
respect to any Company Benefit Plan. Neither the Company nor any Company
Subsidiary has incurred any liability that has not been satisfied under, arising
out of or by operation of Title IV of ERISA, including, without limitation, any
liability in connection with (i) the termination or reorganization of any
employee benefit plan subject to Title IV of ERISA, (ii) the withdrawal from any
Multiemployer Plan within the five-year period immediately preceding the date of
this Agreement or (iii) the withdrawal from any Multiple Employer Plan, and no
fact or event exists which could give rise to any such liability.
(f) Plan Contributions and Funding. All contributions,
premiums or payments required to be made with respect to any Company Benefit
Plan have been made on or before their due dates. All such contributions have
been fully deductible for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Entity and no fact or event exists
which could give rise to any such challenge or disallowance.
(g) Severance Payments. Except as disclosed in Section 3.11(g)
of the Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not, either alone or in combination with
another event, (i) entitle any current or former employee, officer or director
of the Company or any Company Subsidiary to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, (ii) accelerate the time of payment or vesting, or increase the
amount, of compensation due any such employee, officer or director or (iii)
constitute a "change of control" under any Company Benefit Plan.
(h) There is no Company Benefit Plan that is not subject to
United States law.
SECTION 3.12. Material Contracts. (a) Subsections (i) through (xi) of
Section 3.12(a) of the Company Disclosure Schedule contain a list of the
following types of contracts and agreements to which the Company or any Company
Subsidiary is a party (such contracts, agreements and arrangements as are
required to be set forth in Section 3.12(a) of the Company Disclosure Schedule
being the "Company Material Contracts"):
(i) each contract and agreement which (A) has or is likely to
involve consideration of more than $100,000, in the aggregate, during
one or more of the calendar years ending December 31, 2000 or 2001 or
(B) is likely to involve
17
consideration of more than $100,000, in the aggregate, over the
remaining term of such contract, and which, in either case, cannot be
canceled by the Company or any Company Subsidiary without penalty or
further payment and without more than 90 days' notice;
(ii) all management contracts (excluding contracts for
employment) and contracts with other consultants which have or are
likely to involve consideration of more than $100,000, including any
contracts involving the payment of royalties or other amounts
calculated based upon the revenues or income of the Company or any
Company Subsidiary or income or revenues related to any product of the
Company or any Company Subsidiary to which the Company or any Company
Subsidiary is a party;
(iii) all contracts and agreements evidencing indebtedness
for borrowed money;
(iv) all contracts and agreements with any Governmental
Entity to which the Company or any Company Subsidiary is a party;
(v) all contracts and agreements that limit, or purport to
limit, the ability of the Company or any Company Subsidiary to compete
in any line of business or with any person or entity or in any
geographic area or during any period of time;
(vi) other than those entered into in the ordinary course of
business, all material contracts or arrangements that result in any
person or entity holding a power of attorney from the Company or any
Company Subsidiary that relates to the Company, any Company Subsidiary
or their respective businesses;
(vii) all contracts, agreements, commitments and instruments
relating to any obligation to engage in a merger, consolidation,
business combination, share exchange or business acquisition, or for
the purchase or sale of any assets of the Company or any of the Company
Subsidiaries other than in the ordinary course of business;
(viii) other than those entered into in the ordinary course of
business, all contracts, agreements, commitments and instruments that
include any indemnification, contribution or support obligations in an
amount which would reasonably be expected to exceed $100,000 or which
in the aggregate would reasonably be expected to exceed $100,000;
(ix) all contracts, agreements, commitments and instruments
that obligate capital expenditures involving total payments of more
than $100,000;
(x) all contracts, agreements, commitments and instruments
that obligate the Company or any Company Subsidiary to issue or sell
any capital stock; and
(xi) all other contracts and agreements, whether or not made
in the ordinary course of business, which are material to the Company
or any Company Subsidiary or the conduct of their respective
businesses, or the absence of which would prevent or
18
materially delay consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement or would, individually or in the aggregate, have a Material
Adverse Effect.
(b) Except as would not prevent or materially delay
consummation of the Merger or otherwise prevent or materially delay the Company
from performing its obligations under this Agreement and would not, individually
or in the aggregate, have a Material Adverse Effect, (i) each Company Material
Contract is a legal, valid and binding agreement in full force and effect, and
none of the Company Material Contracts is in default by its terms or has been
canceled by the other party and no event has occurred that with notice or lapse
of time or both would constitute a default, (ii) to the Company's knowledge, no
other party is in breach or violation of, or default (where applicable) under,
any Company Material Contract; (iii) no Company or Company Subsidiary is in
receipt of any claim of default (where applicable) under any such agreement and
(iv) neither the execution of this Agreement nor the consummation of the Merger
or any other transaction contemplated herein shall constitute default, give rise
to cancellation rights, or otherwise adversely affect any of the Company's
rights under any Company Material Contract. The Company has furnished or made
available to Parent true and complete copies of all Company Material Contracts,
including any amendments thereto.
SECTION 3.13. Environmental Matters. Except as described in Section 3.13
of the Company Disclosure Schedule and as would not, individually or in the
aggregate, have a Material Adverse Effect, (a) the Company and the Company
Subsidiaries have not violated and are not in violation of any Environmental Law
(as defined below); (b) none of the properties currently or formerly owned,
leased or operated by the Company and the Company Subsidiaries (including,
without limitation, soils and surface and ground waters) are or were
contaminated with any Hazardous Substance (as defined below); (c) neither the
Company nor the Company Subsidiaries are liable for any off-site contamination
by Hazardous Substances; (d) the Company and the Company Subsidiaries are not
liable under any Environmental Law (including, without limitation, pending or
threatened liens); (e) the Company and the Company Subsidiaries have all
permits, licenses and other authorizations required under any Environmental Law
("Environmental Permits"); (f) the Company and the Company Subsidiaries are in
compliance with their Environmental Permits; and (g) neither the execution of
this Agreement nor the consummation of the transactions contemplated herein will
require any investigation, remediation or other action with respect to Hazardous
Substances, or any notice to or consent of Governmental Entities or third
parties, pursuant to any applicable Environmental Law or Environmental Permit,
including, without limitation, the Connecticut Transfer Act.
"Environmental Law" means any applicable federal, state, local
or foreign law relating to (A) releases of Hazardous Substances or materials
containing Hazardous Substances; (B) the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Substances or materials containing
Hazardous Substances; or (C) otherwise relating to pollution or protection of
the environment, health, safety or natural resources.
"Hazardous Substances" means (i) those substances defined in
or regulated under the following federal statutes and their state counterparts,
as each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource
19
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act and the Clean Air Act; (ii) petroleum and petroleum products, including
crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any
mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; (v) any
other contaminant; and (vi) any substance, material or waste regulated by any
federal, state, local or foreign Governmental Entity pursuant to any
Environmental Law.
SECTION 3.14. Title to Properties; Absence of Liens and Encumbrances. (a)
Section 3.14(a)(i) of the Company Disclosure Schedule lists the real property
interests owned by the Company and the Company Subsidiaries. Section 3.14(a)(ii)
of the Company Disclosure Schedule lists all real property leases to which the
Company or any Company Subsidiary is a party, and each amendment thereto. Other
than the owned real property identified in Section 3.14(a)(i) of the Company
Disclosure Schedule and leaseholds created under the real property leases
identified in Section 3.14(a) of the Company Disclosure Schedule, the Company
and the Company Subsidiaries have no ownership or leasehold interest in any real
property.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, each of the Company and the Company Subsidiaries
has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all of its tangible properties and assets, real,
personal and mixed, used or held for use in its business, free and clear of any
liens, pledges, charges, claims, security interests or other encumbrances of any
sort ("Liens"), except for Liens in respect of obligations not yet due, which
are owed in respect of taxes or which otherwise are owed to landlords, carriers,
warehousepersons or laborers, except for such Liens or other imperfections of
title and encumbrances, if any, which are not material in character, amount or
extent, and which do not materially detract from the value, or materially
interfere with the present or contemplated use, of the property subject thereto
or affected thereby.
SECTION 3.15. Intellectual Property. (a) The Company and the Company
Subsidiaries own or possess adequate licenses or other valid rights to use all
material Intellectual Property (as defined below) used or held for use in
connection with the business of the Company and the Company Subsidiaries as
currently conducted.
(b) To the knowledge of the Company, no current or prior use
of any Intellectual Property by the Company or any of the Company Subsidiaries
or current or prior product sold, imported or offered for sale by the Company
and the Company Subsidiaries infringes on or otherwise violates the rights of
any person and such use, sale, importation and offer to sell is and has been in
accordance with all applicable licenses pursuant to which the Company or any of
the Company Subsidiaries acquired the right to use such Intellectual Property
other than as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(c) To the knowledge of the Company, no Intellectual Property
owned or licensed by the Company or the Company Subsidiaries is being used or
enforced in a matter that would result in the abandonment, cancellation or
unenforceability of such Intellectual Property
20
other than as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(d) To the knowledge of the Company, and except as would not,
individually or in the aggregate, have a Material Adverse Effect, (i) there has
been no misappropriation of any material trade secrets or other material
confidential Intellectual Property of the Company or any Company Subsidiary by
any person, (ii) no employee, independent contractor or agent of the Company or
any Company Subsidiary has misappropriated any trade secrets of any other person
in the course of such performance as an employee, independent contractor or
agent and (iii) no employee, independent contractor or agent of Company or any
Company Subsidiary is in default or breach of any term of any employment
agreement, non-disclosure agreement, assignment of invention agreement or
similar agreement or contract relating in any way to the protection, ownership,
development, use or transfer of the Company's and the Company Subsidiaries'
Intellectual Property.
"Intellectual Property" means all trademarks, trademark
rights, trade name, trade name rights, trade dress and other indications of
origin, brand names, certification rights, service marks, applications for
trademarks and for service marks, know-how and other proprietary rights and
information; inventions, discoveries and ideas, whether patentable or not, in
any jurisdiction; patents, patent rights and trade secrets; proprietary writings
and other works, whether copyrightable or not, in any jurisdiction; and any
similar intellectual property or proprietary rights.
SECTION 3.16. Taxes. The Company and the Company Subsidiaries have filed
all United States federal, state, local and non-United States Tax returns and
reports due and required to be filed by them and have paid and discharged all
Taxes required to be paid or discharged, other than (a) such Taxes, returns or
reports as are being contested in good faith by appropriate proceedings and (b)
such Taxes, returns or reports or other occurrences that would not, individually
or in the aggregate, have a Material Adverse Effect. No United States (federal,
state or local) or non-United States taxing authority or agency is asserting in
writing or threatening to assert in writing against the Company or any Company
Subsidiary any deficiency or claim for any Taxes or interest thereon or
penalties in connection therewith. Neither the Company nor any Company
Subsidiary has granted any waiver of any statute of limitations with respect to,
or any extension of a period for the assessment of any Tax. The accruals and
reserves for Taxes reflected in the Company Balance Sheet are adequate to cover
all Taxes accruable through such date (including interest and penalties, if any,
thereon) in accordance with U.S. GAAP. Neither the Company nor any Company
Subsidiary has made an election under Section 341(f) of the Code. There are no
Tax liens upon any property or assets of the Company or any of the Company
Subsidiaries except liens for current Taxes not yet due. Neither the Company nor
any of the Company Subsidiaries has been required to include in income any
adjustment pursuant to Section 481 of the Code by reason of a voluntary change
in accounting method initiated by the Company or any of the Company
Subsidiaries, and the IRS has not initiated or proposed any such adjustment or
change in accounting method, in either case which adjustment or change would
have a Material Adverse Effect.
21
SECTION 3.17. Board Approval; Vote Required. (a) The Board, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and not
subsequently rescinded or modified in any way on or prior to the date hereof
(the "Company Board Approval"), has duly (i) approved this Agreement and the
Merger, and determined that the execution, delivery and performance of this
Agreement is advisable and (ii) recommended that the stockholders of the Company
approve the Merger and this Agreement and directed that this Agreement and the
transactions contemplated hereby be submitted for consideration by the Company's
stockholders at the Company Stockholders' Meeting (as hereinafter defined).
(b) The Company Stockholders' Approval is the only vote of the
holders of any class or series of capital stock of the Company necessary to
approve and adopt this Agreement, the Merger and the other transactions
contemplated by this Agreement.
SECTION 3.18. Employment Agreements and other Affiliate Transactions.
Except as disclosed in Section 3.18 of the Company Disclosure Schedule and
except for the ownership of shares of Company Common Stock and Company Options
pursuant to the Company Benefit Plans, there are no material contracts,
commitments, agreements, arrangements or other transactions between the Company
or any of the Company Subsidiaries, on the one hand, and any (i) officer or
director of the Company or, (ii) officer or director of any of the Company
Subsidiaries pursuant to which the Company or any Company Subsidiary is
obligated to make payments totaling more then $100,000, (iii) record or
beneficial owner of five percent or more of the voting securities of the Company
or (iv) person or entity known to the Company that directly or indirectly
controls, is controlled by, or is under common control with any such officer,
director or beneficial owner, on the other hand.
SECTION 3.19. Insurance. Section 3.19 of the Company Disclosure Schedule
contains a true, correct and complete list of all policies of insurance to which
each of the Company and the Company Subsidiaries are a party or are a
beneficiary or named insured. The Company has provided or made available to
Parent true, correct and complete copies of all policies of insurance to which
each of the Company and the Company Subsidiaries are a party or are a
beneficiary or named insured that Parent has requested from the Company or its
representatives. The Company and the Company Subsidiaries maintain insurance
coverage with reputable insurers in such amounts and covering such risks as are
in accordance with normal industry practice for companies engaged in businesses
similar to that of the Company and the Company Subsidiaries (taking into account
the cost and availability of such insurance).
SECTION 3.20. State Takeover Statutes. (a) Except for Section 203 of the
DGCL, no "fair price", "moratorium", "control share acquisition" or other
similar anti-takeover statute or regulation is applicable, by reason of the
Company's being a party to the Merger or this Agreement or the transactions
contemplated hereby or thereby. Neither the Company nor any of the Company
Subsidiaries is a party to any "stockholder rights" plan or any similar
anti-takeover plan or device.
(b) Prior to the time this Agreement was executed, the Board
has taken all action necessary, if any, to exempt under or make not subject to
Section 203 of the DGCL (i) the execution of this Agreement, (ii) the Merger and
(iii) the other transactions contemplated hereby.
22
SECTION 3.21. Labor Matters. (a) Except as set forth in Section 3.21 of the
Company Disclosure Schedule, to the knowledge of the Company and the Company
Subsidiaries (i) there are no controversies pending or, to the knowledge of the
Company, threatened between the Company or any Company Subsidiary and any of
their respective employees, which controversies would prevent or materially
delay consummation of the Merger or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement or would,
individually or in the aggregate, have a Material Adverse Effect; (ii) neither
the Company nor any Company Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or any Company Subsidiary, nor, to the knowledge of the Company, are
there any activities or proceedings of any labor union to organize any such
employees; (iii) neither the Company nor any Company Subsidiary has breached or
otherwise failed to comply with any provision of any such agreement or contract,
and there are no grievances outstanding against the Company or any Company
Subsidiary under any such agreement or contract which have resulted, or are
reasonably likely to result, in, individually or in the aggregate, a Material
Adverse Effect; (iv) there are no unfair labor practice complaints pending
against the Company or any Company Subsidiary before the National Labor
Relations Board or any current union representation questions involving
employees of the Company or any Company Subsidiary; and (v) there is no strike,
slowdown, work stoppage or lockout, or, to the knowledge of the Company, threat
thereof, by or with respect to any employees of the Company or any Company
Subsidiary.
(b) Except as set forth in Section 3.21(b) of the Company
Disclosure Schedule, to the knowledge of the Company and the Company
Subsidiaries, the Company and the Company Subsidiaries are in compliance with
all applicable laws relating to the employment of labor, including those related
to wages, hours, collective bargaining and the payment and withholding of taxes
and other sums as required by the appropriate Governmental Entity and has
withheld and paid to the appropriate Governmental Entity or are holding for
payment not yet due to such Governmental Entity all amounts required to be
withheld from employees of the Company or any Company Subsidiary and are not
liable for any arrears of wages, taxes, penalties or other sums for failure to
comply with any of the foregoing except for any non-compliance that would not
prevent or materially delay consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement and would not, individually or in the aggregate, have a Material
Adverse Effect. The Company and the Company Subsidiaries have paid in full to
all employees or adequately accrued for in accordance with U.S. GAAP
consistently applied all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees and there is no claim
against the Company or any Company Subsidiary with respect to payment of wages,
salary or overtime pay that has been asserted or, to the Company's knowledge, is
now pending or threatened before any Governmental Entity with respect to any
persons currently or formerly employed by the Company or any Company Subsidiary
except for any such claims that would not, individually or in the aggregate,
have a Material Adverse Effect. Neither the Company nor any Company Subsidiary
is a party to, or otherwise bound by, any consent decree with, or citation by,
any Governmental Entity relating to employees or employment practices. There is
no charge or proceeding with respect to a violation of any occupational safety
or health standards that has been asserted or, to the Company's knowledge, is
now pending or threatened with
23
respect to the Company or any Company Subsidiary. To the Company's knowledge,
there is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted or is now pending or
threatened before the United States Equal Employment Opportunity Commission, or
any other Governmental Entity in any jurisdiction in which the Company or any
Company Subsidiary have employed or employ any person.
SECTION 3.22. Brokers. No broker, finder or investment banker (other than
ZS Fund L.P. ("ZS") and Fox-Pitt, Kelton Inc. ("Fox-Pitt")) is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the other transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has heretofore made available
upon request to Parent complete and correct copies of all agreements between the
Company, ZS and Fox-Pitt pursuant to which such firms would be entitled to any
payment relating to the Merger or any other transactions, which payments to ZS
and Fox-Pitt will not exceed $950,000 in the aggregate.
SECTION 3.23. Title to Insurance Business. Except as set forth in Section
3.23 of the Company Disclosure Schedule, to the knowledge of the Company, no
employee or producer of the Company or any of its subsidiaries, nor any other
person, has any agreement by which they have a claim, right, title or interest
in or to the book of insurance business serviced by the Company or any Company
Subsidiary.
SECTION 3.24. Absence of Restrictions on Conduct of Business. Other than
ordinary course regulatory restrictions, no oral or written contract, license or
permit restricts the ability of the Company or any Company Subsidiary to own,
possess or use its assets or conduct its business or operations in any
geographic area or restricts in any way the full participation of any employees,
producers or agents of the Company or any Company Subsidiary in the operation of
such business.
SECTION 3.25. Computer Systems. Other than in respect of ordinary course
maintenance and repairs, the Computer Systems of the Company and each Company
Subsidiary are operational except where a failure to be so operational would
not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.26. Insurance Companies. Listed in Section 3.26 of the Company
Disclosure Schedule are the names and addresses of the ten most significant
insurance companies (each a "Significant Insurer") to the business of the
Company and the Company Subsidiaries as a whole, as determined by the aggregate
amount of premium received by the Company and the Company Subsidiaries from such
insurance company during the fiscal year ended September 1, 2000.
SECTION 3.27. No Downgrading of Rating. As of the date hereof, and except
for any downgrading which may occur solely as a result of the Merger or the
Related Party Transactions, there has not occurred any downgrading, nor has the
Company become aware of any pending or threatened downgrading, of the Company's
or any of the Company Subsidiaries' rating by A.M. Best.
24
SECTION 3.28. Fairness Opinion. The Company has received a written opinion
from Fox-Pitt stating that the Merger Consideration is fair to the stockholders
of the Company from a financial point of view and has delivered a copy of such
written opinion to Parent.
SECTION 3.29. Insurance Company Organization and Qualification;
Subsidiaries. (a) Each of Old Lyme Insurance Company of Rhode Island, Inc.
("Rhode Island Co.") and Old Lyme Insurance Company Ltd. ("Bermuda Co.", and
together with Rhode Island Co., the "Insurance Companies") and each subsidiary
of the Insurance Companies (collectively, the "Insurance Company Subsidiaries")
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of the Insurance Companies and each of the Insurance Company
Subsidiaries is duly qualified or licensed as a foreign corporation or
organization to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Material Adverse Effect (as defined in
Section 9.04).
(b) Section 3.29(b) of the Company Disclosure Schedule sets
forth a true and complete list of all the Insurance Company Subsidiaries,
together with the jurisdiction of incorporation of each Insurance Company
Subsidiary and the percentage of the outstanding capital stock of each Insurance
Company Subsidiary owned by the Insurance Company and each Insurance Company
Subsidiary, and separately identifies all subsidiaries of each of the Insurance
Companies that are not Insurance Company Subsidiaries (collectively, the
"Insignificant Insurance Subsidiaries"). Except as set forth in Section 3.29(b)
of the Company Disclosure Schedule, neither the Insurance Company nor any
Insurance Company Subsidiary directly or indirectly owns, or has outstanding
contractual obligations to acquire, any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
(c) Each of the Insurance Companies and each of the Insurance
Company Subsidiaries is licensed as an authorized insurer in each jurisdiction
in which it presently writes insurance for the type of insurance it presently
writes in such jurisdictions and meets in all material respects all statutory
and regulatory requirements of all Governmental Entities (as hereinafter
defined) which have jurisdiction over it to be an authorized insurer. Section
3.29(c) of the Company Disclosure Schedule sets forth each state in which each
of the Insurance Companies and each of the Insurance Company Subsidiaries is an
admitted or non-admitted insurer; and for each state in which it is nonadmitted,
whether it has been approved or not disapproved.
(d) None of the Insignificant Insurance Subsidiaries have any
liabilities, except for such liabilities as would not prevent or materially
delay consummation of the Merger and would not, individually or in the
aggregate, have a Material Adverse Effect on the Insurance Companies or any
Insurance Company Subsidiaries.
25
SECTION 3.30. Insurance Company Certificate of Incorporation and By-Laws.
The Company has heretofore made available to Parent a complete and correct copy
of the Certificate of Incorporation and the By-Laws, each as amended to date, of
each of the Insurance Companies and each Insurance Company Subsidiary. Such
Certificates of Incorporation and By-Laws are in full force and effect. Neither
the Insurance Companies nor any Insurance Company Subsidiary is in violation of
any of the provisions of its Certificate of Incorporation or By-Laws. True and
complete copies of all minute books of each of the Insurance Companies have been
made available by the Company to Parent.
SECTION 3.31. Insurance Company Capitalization. (a) The authorized capital
stock of Rhode Island Co. consists of (a) 10,000,000 shares of common stock, par
value $14.50 per share ("Rhode Island Co. Common Stock") and (b) 100,000 shares
of preferred stock, par value $1.00 per share ("Rhode Island Co. Preferred
Stock"). As of the date hereof, 200,000 shares of Rhode Island Co. Common Stock
were issued and outstanding and 100,000 shares of Rhode Island Co. Preferred
Stock were issued and outstanding. All of the issued and outstanding shares of
Rhode Island Co. Common Stock are validly issued, fully paid and nonassessable
and are held by the Company, free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
Rhode Island Co.'s voting rights, charges and other encumbrances of any nature
whatsoever.
(b) The authorized capital stock of Bermuda Co. consists of
100,000 shares of common stock, par value $1.20 per share ("Bermuda Co. Common
Stock"). As of the date hereof, 100,000 shares of Bermuda Co. Common Stock were
issued and outstanding. All of the issued and outstanding shares of Bermuda Co.
Common Stock are validly issued, fully paid and nonassessable and are held by
the Company, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on the Bermuda's
voting rights, charges and other encumbrances of any nature whatsoever.
(c) There are no issued or outstanding bonds, debentures,
notes, convertible notes or other indebtedness of either Insurance Company
having the right to vote on any matters on which stockholders of such Insurance
Company may vote. There are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
stock of either of the Insurance Companies or any Insurance Company Subsidiary
or conditionally or absolutely obligating either of the Insurance Companies or
any Insurance Company Subsidiary to issue or sell any shares of stock of, or
other equity interests in, the Insurance Companies or any Insurance Company
Subsidiary. Neither of the Insurance Companies nor any Insurance Company
Subsidiary have outstanding obligations (whether conditional or absolute) to
repurchase, redeem or otherwise acquire any shares or other equity interests of
Common Stock or any shares or other equity interests of any Insurance Company
Subsidiary. Each outstanding share of stock or other equity interest of each
Insurance Company Subsidiary is duly authorized, validly issued, fully paid and
non-assessable and each such share or other equity interest owned by the
Insurance Companies or another Insurance Company Subsidiary is free and clear of
all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on such Insurance Company's or such other
Insurance Company Subsidiary's voting rights, charges and other encumbrances of
any nature whatsoever.
26
SECTION 3.32. Insurance Company Permits; Compliance. (a) Except as
disclosed in Section 3.32(a) of the Company Disclosure Schedule, each of the
Insurance Companies and the Insurance Company Subsidiaries is in possession of
all franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity necessary for each of the Insurance Companies or any Insurance Company
Subsidiary to own, lease and operate its properties or to carry on its business
as it is now being conducted (the "Insurance Company Permits") except where the
failure to obtain any such Insurance Company Permits, would not, individually or
in the aggregate, have a Material Adverse Effect. As of the date hereof, no
suspension or cancellation of any of the Insurance Company Permits is pending
or, to the knowledge of the Company, threatened.
(b) Except as disclosed in Section 3.32(b) of the Company
Disclosure Schedule, neither the Insurance Companies nor any Insurance Company
Subsidiary is in conflict with, or in default or violation of, (i) any Law
applicable to the Insurance Companies or any Insurance Company Subsidiary or by
which any property or asset of the Insurance Companies or any Insurance Company
Subsidiary is bound or affected, (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Insurance Companies or any Insurance Company Subsidiary
is a party or by which the Insurance Companies or any Insurance Company
Subsidiary or any property or asset of the Insurance Companies or any Insurance
Company Subsidiary is bound or affected or (iii) any Insurance Company Permits,
except in each case for any such conflicts, defaults or violations that would
not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.33. Insurance Company Financial Statements. True and complete
copies of the audited statutory financial statements of each of the Insurance
Companies as of December 31, 1999 and for the year ended December 31, 1999,
together with all related notes and schedules thereto and (ii) the unaudited
financial statements of the Insurance Companies as of September 30, 2000 and for
the period then ended (the "Insurance Financial Statements") are attached as
Section 3.33 of the Company Disclosure Schedule. The Insurance Financial
Statements were prepared in conformity with the statutory accounting practices
prescribed or permitted by the state or nation of domicile for each the
Insurance Companies applied on a consistent basis throughout the periods
indicated, and each presents fairly, in all material respects, the financial
position of the Insurance Company to which it relates as at the respective dates
thereof and for the respective periods indicated therein, except as otherwise
noted therein. The balance sheets of each of Rhode Island Co. and Bermuda Co.
contained in the Insurance Financial Statements as of September 30, 2000 are
hereinafter referred to as the "Insurance Company Balance Sheets".
SECTION 3.34. Undisclosed Liabilities of the Insurance Companies. Except
for those liabilities that are disclosed in Section 3.34 of the Company
Disclosure Schedule or are fully reflected or reserved against on the Insurance
Company Balance Sheets, neither the Insurance Companies nor any Insurance
Company Subsidiary has outstanding any liability or obligation of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due), except for liabilities and obligations that have been
incurred
27
since the date of the Insurance Company Balance Sheets in the ordinary course of
business and that would not, individually or in the aggregate, have a Material
Adverse Effect. With respect to liabilities or obligations concerning the
matters addressed in Section 3.38, the provisions of such Section and not this
Section 3.34 shall apply.
SECTION 3.35. Absence of Certain Changes or Events With Respect to the
Insurance Companies. From September 30, 2000 through the date hereof, except as
set forth in Section 3.35 of the Company Disclosure Schedule, (a) each of the
Insurance Companies and each of the Insurance Company Subsidiaries has conducted
its business only in the ordinary course, (b) since such date, there has not
been any circumstance, event, occurrence, change or effect that would reasonably
be expected, individually or in the aggregate, to have a Material Adverse Effect
and (c) neither the Insurance Companies nor any Insurance Company Subsidiary has
taken or permitted any action that if taken or permitted after the date hereof
would constitute a breach of any of the covenants set forth in Section 5.01.
SECTION 3.36. Absence of Insurance Company Litigation. Except as
specifically disclosed in Section 3.36 of the Company Disclosure Schedule and
except for claims under policies in the ordinary course, there is no Action
pending against the Insurance Companies or any Insurance Company Subsidiary, or
against any property or asset of the Insurance Companies or any Insurance
Company Subsidiary, before any court, arbitrator or Governmental Entity,
domestic or foreign which the Company reasonably believes, individually or in
the aggregate, would be reasonably likely to result in liability of any
Insurance Company or any Insurance Company Subsidiary in amounts in excess of
$50,000. Except as specifically disclosed in Section 3.36 of the Company
Disclosure Schedule, neither the Insurance Companies nor any Insurance Company
Subsidiary nor any property or asset of the Insurance Company or any Insurance
Company Subsidiary is subject to any continuing order of, consent decree,
settlement agreement or similar written agreement with, or, to the knowledge of
the Company, continuing investigation by, any Governmental Entity, or any order,
writ, judgment, injunction, decree, determination or award of any Governmental
Entity that would, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 3.37. Insurance Company Material Contracts. (a) Subsections (i)
through (x) of Section 3.37 of the Company Disclosure Schedule contain a list of
the following types of contracts and agreements to which either of the Insurance
Companies or any Insurance Company Subsidiary is a party (such contracts,
agreements and arrangements as are required to be set forth in Section 3.37 of
the Company Disclosure Schedule being the "Insurance Company Material
Contracts"):
(i) each contract and agreement which (A) has or is likely to
involve consideration of more than $50,000, in the aggregate, during
one or more of the calendar years ending December 31, 2000 or 2001 or
(B) is likely to involve consideration of more than $50,000, in the
aggregate, over the remaining term of such contract, and which, in
either case, cannot be canceled by either of the Insurance Companies or
any Insurance Company Subsidiary without penalty or further payment and
without more than 90 days' notice;
28
(ii) all management contracts (excluding contracts for
employment) and contracts with other consultants which has or is likely
to involve consideration of more than $50,000, including any contracts
involving the payment of royalties or other amounts calculated based
upon the revenues or income of each of the Insurance Companies or any
Insurance Company Subsidiary or income or revenues related to any
product of either of the Insurance Companies or any Insurance Company
Subsidiary to which either of the Insurance Companies or any Insurance
Company Subsidiary is a party;
(iii) all contracts and agreements evidencing indebtedness for
borrowed money;
(iv) all contracts and agreements with any Governmental Entity
to which either of the Insurance Companies or any Insurance Company
Subsidiary is a party;
(v) all contracts and agreements that limit, or purport to
limit, the ability of either of the Insurance Companies or any
Insurance Company Subsidiary to compete in any line of business or with
any person or entity or in any geographic area or during any period of
time;
(vi) other than in those entered into in the ordinary course
of business, all contracts, agreements, commitments and instruments
that obligate either of the Insurance Companies or any Insurance
Company Subsidiary to make any payments or issue or pay in excess of
$50,000 to any employee or consultant or make any payments or issue or
pay anything of value to any affiliate, director or officer;
(vii) all contracts, agreements, commitments and instruments
that include any indemnification, contribution or support obligations
in an amount which would reasonably be expected to exceed $50,000 or
which in the aggregate would reasonably be expected to exceed $50,000;
(viii) other than in those entered into in the ordinary course
of business, all contracts, agreements, commitments and instruments
that obligate capital expenditures involving total payments of more
than $50,000;
(ix) all contracts, agreements, commitments and instruments
that obligate either of the Insurance Companies or any Insurance
Company Subsidiary to issue or sell any capital stock; and
(x) all other contracts and agreements, whether or not made in
the ordinary course of business, which are material to either of the
Insurance Companies or any Insurance Company Subsidiary or the conduct
of their respective businesses, or the absence of which would,
individually or in the aggregate, have a Material Adverse Effect.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, (i) each Insurance Company Material Contract is
a legal, valid and binding
29
agreement in full force and effect, and none of the
Insurance Company Material Contracts is in default by its terms or has been
canceled by the other party and no event has occurred that with notice or lapse
of time or both would constitute a default, (ii) to the Company's knowledge, no
other party is in breach or violation of, or default (where applicable) under,
any Insurance Company Material Contract; (iii) neither of the Insurance
Companies nor any Insurance Company Subsidiary is in receipt of any claim of
default (where applicable) under any such agreement; and (iv) neither the
execution of this Agreement nor the consummation of the Merger or any other
transaction contemplated herein shall constitute default, give rise to
cancellation rights, or otherwise adversely affect any of either of the
Insurance Company's rights under any Insurance Company Material Contract. The
Company has furnished or made available to Parent true and complete copies of
all Insurance Company Material Contracts, including any amendments thereto.
SECTION 3.38. Insurance Company Taxes. The Insurance Companies and the
Insurance Company Subsidiaries have filed all United States federal, state,
local and non-United States Tax returns and reports due and required to be filed
by them and have paid and discharged all Taxes due and required to be paid or
discharged, other than (a) such Taxes, returns or reports as are being contested
in good faith by appropriate proceedings and (b) such Taxes, returns or reports
or other occurrences that would not, individually or in the aggregate, have a
Material Adverse Effect. No United States (federal, state or local) or
non-United States taxing authority or agency is asserting in writing or
threatening to assert in writing against the Insurance Companies or any
Insurance Company Subsidiary any deficiency or claim for any Taxes or interest
thereon or penalties in connection therewith. Neither the Insurance Companies
nor any Insurance Company Subsidiary has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of
any Tax. The accruals and reserves for Taxes reflected in the Company Balance
Sheet are adequate to cover all Taxes accruable through such date (including
interest and penalties, if any, thereon) in accordance with U.S. GAAP. Neither
the Insurance Company nor any Insurance Company Subsidiary has made an election
under Section 341(f) of the Code. There are no Tax liens upon any property or
assets of the Insurance Companies or any of the Insurance Company Subsidiaries
except liens for current Taxes not yet due. Neither the Insurance Companies nor
any of the Insurance Company Subsidiaries has been required to include in income
any adjustment pursuant to Section 481 of the Code by reason of a voluntary
change in accounting method initiated by the Insurance Companies or any of the
Insurance Company Subsidiaries, and the IRS has not initiated or proposed any
such adjustment or change in accounting method, in either case which adjustment
or change would have a Material Adverse Effect.
SECTION 3.39. Absence of Restrictions on Conduct of Insurance Company
Business. Other than ordinary course regulatory restrictions, no oral or written
contract, license or permit restricts the ability of the Insurance Companies or
any Insurance Company Subsidiary to own, possess or use its assets or conduct
its business or operations in any geographic area or restricts in any way the
full participation of any employees, producers or agents of the Insurance
Companies or any Insurance Company Subsidiary in the operation of such business.
30
SECTION 3.40. Insurance Company Computer Systems. Other than in respect of
ordinary course maintenance and repairs, the Computer Systems of each of the
Insurance Companies and each Insurance Company Subsidiary are operational,
except where a failure to be so operational would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.41. No Downgrading of Rating of Insurance Companies. As of the
date hereof, and except for any downgrading which may occur solely as a result
of the Merger or the Related Party Transactions, there has not occurred any
downgrading, nor has the Company become aware of any pending or overtly
threatened downgrading, of either of the Insurance Company's or any of the
Insurance Company Subsidiaries' rating by A.M. Best.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As an inducement to the Company to enter into this Agreement, Parent and
Merger Sub hereby, jointly and severally, represent and warrant to the Company
that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Parent is a
corporation duly organized and validly existing under the laws of Ontario.
Merger Sub is a corporation duly organized under the laws of the State of
Delaware, and each of Parent and Merger Sub has all requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
SECTION 4.02. Articles of Incorporation and By-Laws. Parent has heretofore
made available to the Company a complete and correct copy of the Articles of
Incorporation and By-Laws, each as amended to date, of Parent and the
Certificate of Incorporation and By-Laws of Merger Sub. Such respective
organizational documents are in full force and effect and neither Parent nor
Merger Sub is in violation of any of the provisions of its respective
organizational documents.
SECTION 4.03. Authority Relative to This Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Merger and the other transactions contemplated by this Agreement. The
execution and delivery of this Agreement by each of Parent and Merger Sub and
the consummation by each of Parent and Merger Sub of the Merger and the other
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement or
to consummate the Merger and the other transactions contemplated by this
Agreement (other than, if required, the approval and adoption of the Related
Party Transactions (as defined herein) by the requisite vote of approval of the
shareholders of Parent (the "Parent Shareholders' Approval") entitled to vote on
the matter and the filing of the Certificate of Merger with the Secretary of
State of the State of
31
Delaware as required by the DGCL). The board of directors of Parent, by
resolutions duly adopted by vote at a meeting duly called and held and not
subsequently rescinded or modified in any way on or prior to the date hereof,
has duly approved this Agreement and the Merger, and determined that the
execution, delivery and performance of this Agreement is advisable. This
Agreement has been duly and validly executed and delivered by each of Parent and
Merger Sub and, assuming the due authorization, execution and delivery by the
Company, constitutes the legal, valid and binding obligation of each of Parent
and Merger Sub, enforceable against each of Parent and Merger Sub in accordance
with its terms.
SECTION 4.04. Capitalization. (a) The authorized capital stock of Parent
consists of (a) an unlimited number of common shares of Parent (the "Parent
Common Shares") and (b) an unlimited number of preference shares of Parent (the
"Parent Preferred Shares"). As of the date hereof, (a) 18,585,654 Parent Common
Shares and (b) no Parent Preferred Shares were issued and outstanding. All of
the issued and outstanding Parent Common Shares are validly issued, fully paid
and nonassessable. No Parent Common Shares or Parent Preferred Shares are held
in the treasury of Parent or by any subsidiary of Parent (the "Parent
Subsidiaries"). There are no issued or outstanding bonds, debentures, notes,
convertible notes or other indebtedness of Parent having the right to vote on
any matters on which shareholders of Parent may vote. Except for the agreements
or arrangements described in Section 4.04 of the Parent Disclosure Schedule,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued stock of Parent
or conditionally or absolutely obligating Parent or any Subsidiary to issue or
sell any shares of stock of, or other equity interests in, Parent. Section 4.04
of Parent Disclosure Schedule sets forth details regarding the Parent Executive
Share Purchase Plan, including the relevant vesting times. All Parent Common
Shares subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and non-assessable. There
are no outstanding obligations (whether conditional or absolute) of Parent to
repurchase, redeem or otherwise acquire any shares or other equity interests of
Parent Common Shares. Each outstanding share of stock or other equity interest
of each Parent Subsidiary is duly authorized, validly issued, fully paid and
non-assessable and each such share or other equity interest owned by Parent is
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Parent's voting rights,
charges and other encumbrances of any nature whatsoever.
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by each of Parent and Merger Sub do not, and the
performance of this Agreement will not, (i) conflict with or violate the
Articles of Incorporation or By-Laws of Parent or the Certificate of
Incorporation or By-Laws of Merger Sub, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 4.05(b) have been
obtained and all filings and notifications described in Section 4.05(b) have
been made, conflict with or violate any Law applicable to Parent or Merger Sub
or by which any property or asset of Parent or Merger Sub is bound or affected
or (iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of
Parent or Merger Sub pursuant to, any
32
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation, except, with respect to clauses
(ii) and (iii) of this Section 4.05(a), for any such conflicts, violations,
breaches, defaults or other occurrences that would not prevent or materially
delay the consummation of the transactions contemplated by, or otherwise prevent
Parent and Merger Sub from performing their material obligations under, this
Agreement.
(b) The execution and delivery of this Agreement by each of
Parent and Merger Sub do not, and the performance of this Agreement by each of
Parent and Merger Sub will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
for (A) the pre-merger notification requirements of the HSR Act and the
requirements of other applicable competition laws, (B) the requisite approvals
of insurance regulatory authorities (including, without limitation, the
insurance regulatory authorities of Rhode Island), (C) applicable requirements,
if any, of the Exchange Act, the Securities Act or Blue Sky Laws and state
takeover laws, (D) the DGCL with respect to the filing of the Delaware
Certificate of Merger, (E) all filings, consents, approvals and authorizations
to be made with or received from the Toronto Stock Exchange (the "TSE") and the
Ontario Securities Commission (the "OSC") in connection with the Related Party
Transactions, (F) the approval of the TSE in connection with the issuance of the
Parent Debentures and the underlying Parent Common Shares and (G) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications would not prevent or materially delay the
consummation of the transactions contemplated by, or otherwise prevent Parent
and Merger Sub from performing their material obligations under, this Agreement.
(c) As used in this Agreement, "Related Party Transactions"
means the issuance and sale by Parent of certain convertible debentures to
Fairfax Financial Holdings Limited and the Parent Debentures and the Company
Common Stock underlying such securities and the sale of the capital stock of the
Insurance Companies by the Surviving Corporation to a subsidiary of Fairfax
Financial Holdings Limited.
SECTION 4.06. Permits; Compliance. (a) Except as disclosed in Section
4.06(a) of the Parent Disclosure Schedule, each of Parent and the Parent
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for Parent or any
Parent Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Parent Permits") except where the
failure to obtain any such Parent Permits, would not prevent or materially delay
consummation of the Merger, or otherwise prevent or materially delay Parent from
performing its obligations under this Agreement and would not, individually or
in the aggregate, have a Material Adverse Effect. As of the date hereof, no
suspension or cancellation of any of the Parent Permits is pending or, to the
knowledge of Parent, threatened.
(b) Except as disclosed in Section 4.06(b) of the Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary is in conflict
with, or in default or violation of, (i) any Law applicable to Parent or any
Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound or affected, (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or
33
any Parent Subsidiary is a party or by which Parent or any Parent Subsidiary or
any property or asset of Parent or any Parent Subsidiary is bound or affected or
(iii) any Parent Permits, except in each case for any such conflicts, defaults
or violations that would not prevent or materially delay consummation of the
Merger or otherwise prevent or materially delay Parent from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 4.07. Filings; Financial Statements. (a) Parent has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the TSE and the OSC since December 31, 1998 (collectively, including
all exhibits thereto and any registration statement filed since such date, the
"Parent Reports"). As of the respective dates they were filed, (i) the Parent
Reports complied in all material respects with the requirements of the TSE and
the OSC, as the case may be and (ii) none of the Parent Reports contained any
untrue statement of a material fact or omitted 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.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the Parent Reports was prepared in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP") applied on a consistent basis throughout the periods indicated (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Canadian GAAP) and each presented or will present fairly, in all
material respects, the consolidated financial position, results of operations
and cash flows of Parent and its consolidated subsidiaries as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which are not expected to be material,
individually or in the aggregate).
(c) Parent has heretofore furnished to the Company a complete
and correct copy of any amendments or modifications (which have not yet been
filed with the TSE or the OSC but which are required to be filed) to agreements,
documents or other instruments which previously had been filed by Parent with
the TSE or the OSC.
(d) Both before and after giving effect to the direct and
indirect liabilities and obligations of the Parent arising under this Agreement,
whether absolute or contingent, the Parent: (i) is solvent (i.e., the aggregate
fair value of its assets exceeds the sum of its liabilities); (ii) has adequate
working capital; and (iii) is able to pay its debts as they mature.
SECTION 4.08. Undisclosed Liabilities. Except for those liabilities that
are disclosed in Section 4.08 of the Parent Disclosure Schedule or are fully
reflected or reserved against on the balance sheet of Parent contained in the
Parent Reports as of September 30, 2000 (the "Parent Balance Sheet"), neither
Parent nor any Parent Subsidiary has outstanding any liability or obligation of
any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due), except for liabilities and obligations that have
been incurred since the date of the Parent Balance Sheet in the ordinary course
of business, that would not prevent or materially delay consummation of the
Merger or otherwise prevent or
34
materially delay Parent from performing its obligations under this Agreement and
that would not, individually or in the aggregate, have a Material Adverse
Effect. With respect to liabilities or obligations concerning the matters
addressed in Sections 4.07 and 4.09, the provisions of such Sections and not
this Section 4.08 shall apply.
SECTION 4.09. Taxes. Parent and the Parent Subsidiaries have filed all
United States federal, state, local and non-United States Tax returns and
reports due and required to be filed by them and have paid and discharged all
Taxes required to be paid or discharged, other than (a) such Taxes, returns or
reports as are being contested in good faith by appropriate proceedings and (b)
such Taxes, returns or reports or other occurrences that would not, individually
or in the aggregate, have a Material Adverse Effect. No United States (federal,
state or local) or non-United States taxing authority or agency is asserting in
writing or threatening in writing to assert against Parent or any Parent
Subsidiary any deficiency or claim for any Taxes or interest thereon or
penalties in connection therewith. Neither Parent nor any Parent Subsidiary has
granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of any Tax. The accruals and reserves
for Taxes reflected in the Parent Balance Sheet are adequate to cover all Taxes
accruable through such date (including interest and penalties, if any, thereon)
in accordance with Canadian GAAP. Parent and the Parent Subsidiaries have
withheld from all payments made by them, or otherwise collected, and have
remitted all amounts in respect of Taxes required to be withheld, collected or
remitted by them to the applicable governmental authorities within the required
time periods, except where the failure to so withhold or remit such amounts
would not result in a Material Adverse Effect. There are no Tax liens upon any
property or assets of Parent or any of the Parent Subsidiaries except liens for
current Taxes not yet due.
SECTION 4.10. Operations of Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
SECTION 4.11. Financing. Parent has financing arrangements that will
provide sufficient funds to pay, or cause Merger Sub to pay, the aggregate
Merger Consideration in connection with the Merger and consummate the Merger.
SECTION 4.12. Brokers. Except as disclosed in Section 4.12 of the Parent
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the other transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Parent or Merger Sub.
SECTION 4.13. Affiliate Transactions. Except as disclosed in Section 4.13
of the Parent Disclosure Schedule and except for the ownership of Parent Common
Shares and Parent Share Options pursuant to the Parent Share Option Plans, there
are no material contracts, commitments, agreements, arrangements or other
transactions between Parent or any of Parent Subsidiaries, on the one hand, and
any (i) officer or director of Parent or any of Parent Subsidiaries, (ii) record
or beneficial owner of five percent or more of the voting securities of Parent
or (iii) person or entity known to Parent that directly or indirectly controls,
is controlled
35
by, or is under common control with any such officer, director or beneficial
owner, on the other hand.
SECTION 4.14. Authorization of Parent Convertible Debentures. The Parent
Convertible Debentures have been duly authorized by Parent and, when executed,
authenticated, issued and delivered in accordance with the indenture under which
the Parent Debentures will be issued, will constitute legal, valid and binding
obligations of Parent enforceable against Parent in accordance with their terms.
The Parent Convertible Debentures will, when issued, be registered under the
Securities Act and registered or exempt from registration under the applicable
Blue Sky Laws.
SECTION 4.15. Indebtedness of Parent. Section 4.15 of the Parent Disclosure
Schedule contains a true, correct and complete list of all of the Parent's
indebtedness for borrowed money and Parent is not in default in any material
respect of any of its obligations thereunder.
SECTION 4.16. Additional Representations and Warranties of Parent. (a)
Parent is a reporting issuer in good standing under the Securities Act (Ontario)
and has been a reporting issuer for the last twelve months.
(b) The issued and outstanding Parent Common Shares in the
capital of Parent are listed and posted for trading on the TSE and Parent is not
in material default of any of the policies or by-laws of the TSE.
(c) No securities commission, stock exchange or similar
regulatory authority has issued or is threatening to issue any order preventing
or suspending trading in any securities of Parent, nor has Parent received a
notice that any such order is pending.
(d) The Parent Common Shares issuable upon conversion of the
Parent Debentures have been, or will be prior to the Effective Time, duly
reserved and authorized for issuance, and such Parent Common Shares, when issued
and delivered upon due conversion of the Parent Debentures, will be fully paid
and non-assessable shares in the capital of Parent listed and posted for trading
on the TSE.
(e) The issuance and delivery of the Parent Debentures to the
holders of Company Common Stock and of the Parent Common Shares upon the
conversion of the Parent Debentures is exempt from the prospectus and
registration requirements of the Securities Act (Ontario), and no prospectus or
other document must be filed with, proceeding taken against or approval, permit,
consent or authorization to be obtained, from the Ontario Securities Commission
under applicable securities laws, rules, regulations, notices and policies in
Ontario.
(f) Neither the Parent Debentures nor the Parent Common Shares
issuable upon the conversion of the Parent Debentures will be subject to a "hold
period" under applicable securities laws, rules, regulations, notices and
policies in Ontario, provided that:
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(i) at the time of the first trade of such security, the Parent
is a reporting issuer in Ontario and has been a reporting issuer in
Ontario for at least 12 months;
(ii) in the case of a person or company in a special relationship
with Parent, the person or company effecting the first trade of such
security has reasonable grounds to believe Parent is not in default
under the Securities Act (Ontario) and the regulations made
thereunder;
(iii) disclosure to the OSC has been made of the issuance of the
Parent Debentures and the Parent Common Shares issuable upon the
conversion of the Parent Debentures;
(iv) no unusual effort is made to prepare the market or to create
a demand for the securities and no extraordinary commission or
consideration is paid for the trade; and
(v) the trade is not a "control block distribution".
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. Except
as contemplated by this Agreement, the Company agrees that, between the date of
this Agreement and the Effective Time, unless Parent shall otherwise consent in
writing (which consent shall not be unreasonably withheld or delayed), the
businesses of the Company and the Company Subsidiaries shall be conducted only
in, and the Company and the Company Subsidiaries shall not take any action
except in, the ordinary course of business; and the Company shall use its
reasonable best efforts to preserve substantially intact the business
organization of the Company and the Company Subsidiaries, maintain their rights
and keep available the services of the current officers, employees and
consultants of the Company and the Company Subsidiaries and to preserve the
current relationships of the Company and the Company Subsidiaries with
customers, licensors, licensees and other persons with which the Company or any
Company Subsidiary has significant business relations and where the loss of any
such relationship would, either individually or in the aggregate, have a
Material Adverse Effect.
By way of amplification and not limitation, except as
contemplated by this Agreement, neither the Company nor any of its subsidiaries
shall, between the date of this Agreement and the Effective Time, directly or
indirectly, do, or propose to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation or
By-Laws or equivalent organizational documents;
(b) transfer, issue, sell, pledge, lease, license, dispose,
grant, encumber, or authorize for transfer, issuance, sale, pledge,
lease, license, disposition, grant or
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encumbrance (i) any shares of its stock of any class, or any options,
warrants, convertible securities or other rights of any kind to
acquire any shares of such stock, or any other ownership interest
(including, without limitation, any phantom interest), of the Company
or any Company Subsidiary or (ii) any assets of the Company or any
Company Subsidiary except in the ordinary course of business;
(c) authorize, declare, set aside, make or pay any dividend
payment or other distribution, payable in cash, stock, property or
otherwise, with respect to any of its stock, except for regular
quarterly dividends on Company Common Stock declared and paid in cash
at times consistent with past practice in an aggregate amount not in
excess of $0.025 per share of Company Common Stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any interest in any corporation, partnership, other
business organization or any division thereof or all or substantially
all of the assets of any such entity, except for ordinary course
organizations affiliated to a purchasing group of the Company or any
Company Subsidiary;
(f) incur any material indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse the obligations of
any person, or make any loans, advances or capital contributions to
any person or grant any security interest in any of its assets except
in the ordinary course of business if the same would not be reasonably
likely to have a Material Adverse Effect;
(g) enter into any lease for the principal location of the
Company in New York City;
(h) authorize, or make any commitment with respect to, any
capital expenditures that are, in the aggregate, in excess of $500,000
for the Company and its subsidiaries taken as a whole;
(i) other than to facilitate the consummation of the transactions
contemplated hereby, waive any stock repurchase or acceleration rights
in any material respect, amend or change the terms of any options or
restricted stock in any material respect, or reprice options granted
under any Company Stock Option Plan or authorize cash payments in
exchange for any options granted under any such plans (except to
implement the amendments to the Performance Stock Plan previously
authorized by the Board);
(j) (i) increase the compensation payable or to become payable to
its directors, officers or employees (except for increases in the
ordinary course of business and consistent and with current budgets,
as disclosed in Section 5.01(j) of the Company Disclosure Schedule, in
salaries or wages of employees of the Company or any Company
Subsidiary or directors or officers of the Company or any Company
Subsidiary who are
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employed at will by the Company or such Company Subsidiaries), (ii)
grant any rights to 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 Company Subsidiary (except in the
ordinary course of business to any employee of the Company or any
Company Subsidiary who are not directors or officers of the Company or
any Company 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 or policy for the benefit of any director,
officer or employee, (iii) take any affirmative action to accelerate
the vesting of any stock-based compensation, or (iv) hire or retain
any person other than as an employee at will if such person's
aggregate annual or annualized compensation is expected to be in
excess of $100,000;
(k) take any action with respect to accounting principles or
procedures, other than reasonable and usual actions in the ordinary
course of business or required actions pursuant to a change in
applicable statutory or generally accepted accounting principles;
(l) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise)
of more than $500,000 individually or in the aggregate, other than the
payment, discharge or satisfaction, in the ordinary course of
business, of liabilities reflected or reserved against in the Company
Balance Sheet or subsequently incurred in the ordinary course of
business;
(m) take any action that results in any of the conditions to the
Merger set forth in Article VII not being satisfied, except any action
as may be required by applicable Law; or
(n) announce an intention to authorize or enter into any
agreement or otherwise make any commitment to do any of the foregoing.
SECTION 5.02. Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause (A) any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect or (B) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied in any material respect and (ii) any failure of Parent or the
Company, 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 5.02 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Company Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) Parent and
the Company shall prepare the Company Proxy Statement and (ii) Parent and the
Company shall prepare and file with the SEC a registration statement on Form F-4
(together with all amendments thereto, the "Registration Statement") in which
the Company Proxy Statement shall be included as a prospectus, in connection
with the registration under the Securities Act of the Parent Debentures to be
issued to the stockholders of the Company pursuant to the Merger. Parent and the
Company each shall use their reasonable best efforts to cause the Registration
Statement to become effective as promptly as practicable, and, prior to the
effective date of the Registration Statement, Parent shall take all or any
action required under any applicable federal or state securities Laws in
connection with the issuance of the Parent Debentures. Each party shall furnish
all information concerning such party and its affiliates that the other party
may reasonably request in connection with such actions and the preparation of
the Registration Statement and the Company Proxy Statement. As promptly as
practicable after the Registration Statement shall have become effective, the
Company shall mail the Company Proxy Statement to its stockholders. Subject to
Section 6.04(b), the Company Proxy Statement shall include the Company Board
Approval.
(b) Parent and Merger Sub shall cooperate with the Company in
the preparation of the Company Proxy Statement. Parent and the Company each will
advise the other, promptly after they receive notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order, or of any request by the SEC
for amendment of the Company Proxy Statement or the Registration Statement or
comments thereon and responses thereto or requests by the SEC for additional
information. Each party shall give the other party and its counsel the
opportunity to review the Company Proxy Statement or Registration Statement, as
applicable, including all amendments and supplements thereto, prior to their
being filed with the SEC and shall give the other party and its counsel the
opportunity to review all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company, Parent and Merger Sub agrees to use its reasonable best efforts,
after consultation with the other parties hereto, to respond promptly to all
such comments of and requests by the SEC and to cause the Company Proxy
Statement and all required amendments and supplements thereto to be mailed to
the holders of shares of Company Common Stock entitled to vote at the Company
Stockholders' Meeting at the earliest practicable time.
(c) The information supplied by the Company for inclusion in
the Registration Statement and the Company Proxy Statement shall not, at (i) the
time the Company Proxy Statement is cleared by the SEC, (ii) the time the
Company Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of the Company, (iii) the time of the Company
Stockholders' Meeting, and (iv) the Effective Time, contain any untrue statement
of a material fact or fail to state any material fact required to be stated
therein or necessary in
40
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders' Meeting that has become false or misleading. If, at any
time prior to the Effective Time, any event or circumstance relating to the
Company or any Company Subsidiary, or any of their respective officers or
directors, that should be set forth in an amendment or a supplement to the
Registration Statement or the Company Proxy Statement should be discovered by
the Company, the Company shall promptly inform Parent. The Company Proxy
Statement and all other documents for which the Company is responsible in
connection with the Merger or the other transactions contemplated by this
Agreement will comply as to form and substance in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
(d) The information supplied by Parent for inclusion in the
Registration Statement and the Company Proxy Statement shall not, at (i) the
time the Registration Statement is declared effective, (ii) the time the Company
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to the stockholders of Parent and the Company, (iii) the time of the Company
Stockholders' Meeting and (iv) the Effective Time, contain any untrue statement
of a material fact or fail to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting that has become false or
misleading. If, at any time prior to the Effective Time, any event or
circumstance relating to Parent or Merger Sub, or their respective officers or
directors, should be discovered by Parent which should be set forth in an
amendment or a supplement to the Registration Statement and the Company Proxy
Statement, Parent shall promptly inform the Company.
SECTION 6.02. Company Stockholders' Meeting. The Company, acting through
the Board, shall, in accordance with applicable law and the Company's
Certificate of Incorporation and By-Laws, (i) duly call, give notice of, convene
and hold a meeting of the holders of Company Common Stock as promptly as
practicable after the date on which the Company Proxy Statement is cleared by
the SEC for the purpose of voting upon the approval of the Merger, this
Agreement and other transactions contemplated herein (the "Company Stockholders'
Meeting") and (ii) subject to Section 6.04 hereof, (A) include in the Company
Proxy Statement the unanimous recommendation of the Board that the stockholders
of the Company approve and adopt this Agreement, the Merger and the other
transactions contemplated by this Agreement and (B) use its best efforts to
obtain such approval and adoption.
SECTION 6.03. Access to Information; Confidentiality. (a) From the date
hereof until the Effective Time, the Company shall, and shall cause the Company
Subsidiaries and the officers, directors, employees, auditors and agents of the
Company and the Company Subsidiaries to, afford the officers, employees and
agents of Parent and Merger Sub and persons providing or proposing to provide
Parent or Merger Sub with financing for the Merger and other transactions
contemplated by this Agreement and other representatives (collectively, the
"Parent Representatives") of Parent complete access at all reasonable times to
the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and
41
each Company Subsidiary, and shall furnish Parent and Merger Sub and persons
providing or proposing to provide Parent or Merger Sub with financing for the
Merger and other transactions contemplated by this Agreement with such
financial, operating and other data and information as Parent or Merger Sub,
through its officers, employees or agents, may reasonably request.
(b) From the date hereof until the Effective Time, Parent
shall, and shall cause the Parent Subsidiaries and the officers, directors,
employees, auditors and agents of Parent and the Parent Subsidiaries to, afford
the officers, employees and agents of the Company and other representatives
(collectively, the "Company Representatives", and, together with the Parent
Representatives, the "Representatives") of the Company complete access at all
reasonable times to the officers, employees, agents, properties, offices, plants
and other facilities, books and records of Parent and each Parent Subsidiary,
and shall furnish the Company with such financial, operating and other data and
information as the Company, through its officers, employees or agents, may
reasonably request.
(c) Each party to this Agreement shall comply with, and shall
cause its Representatives to comply with, all of their obligations under the
Confidentiality Agreements listed in Section 6.03(c) of each of the Company
Disclosure Schedule and the Parent Disclosure Schedule (the "Confidentiality
Agreements"). All information obtained by a party or any of its Representatives
pursuant to (a) or (b) above shall be subject to the Confidentiality Agreements.
SECTION 6.04. No Solicitation or Negotiation. (a) Neither the Company nor
any Company Subsidiary shall, directly or indirectly, through any officer,
director, agent or otherwise, (i) solicit, initiate or encourage the submission
of, any Acquisition Proposal (as defined in Section 9.04) or (ii) except as
required by the fiduciary duties of the Board under applicable law after having
received advice from outside legal counsel and after giving prior written notice
to Parent and Merger Sub and entering into a customary confidentiality agreement
on terms no less favorable to the Company than those contained in the
Confidentiality Agreement, participate in any discussions or negotiations
regarding, or furnish to any person, any information with respect to, or
otherwise cooperate in any way with respect to, or assist or participate in,
facilitate or encourage, any unsolicited proposal that constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal.
(b) Except as set forth in this Section 6.04(b), neither the
Board nor any committee thereof shall (i) withdraw, modify or change, or propose
to withdraw, modify or change, in a manner adverse to Parent or Merger Sub, the
approval or recommendation by the Board or any such committee of this Agreement,
the Merger or any other transaction contemplated hereby, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, in the event that, prior to obtaining the Company
Stockholders' Approval, the Board determines in good faith that it is required
to do so by its fiduciary duties under applicable law after having received
advice from outside legal counsel, the Board may withdraw or modify its approval
or recommendation of the Merger, but only to terminate this Agreement in
accordance with Section 8.01(j) (and, concurrently with such termination, cause
the Company to enter into an agreement with respect to a Superior Proposal).
42
(c) The Company shall, and shall direct or cause its
directors, officers, employees, representatives and agents to, immediately cease
and cause to be terminated any discussions or negotiations with any parties that
may be ongoing with respect to any Acquisition Proposal.
(d) The Company shall promptly advise Parent orally and in
writing of (i) any Acquisition Proposal or any request for information with
respect to any Acquisition Proposal, the material terms and conditions of such
Acquisition Proposal or request and the identity of the person making such
Acquisition Proposal or request and (ii) any changes in any such Acquisition
Proposal or request.
(e) The Company agrees, except as required by the Board's
fiduciary duties under applicable law after having received advice from outside
legal counsel, not to release any third party from, or waive any provision of,
any confidentiality or standstill agreement to which the Company is a party.
SECTION 6.05. Directors' and Officers' Indemnification and Insurance. (a)
The Bylaws of the Surviving Corporation shall contain the respective provisions
that are set forth, as of the date of this Agreement, in Article Nine of the
Certificate of Incorporation of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at or at any time prior to the Effective Time were directors,
officers, employees, fiduciaries or agents of the Company (or their estates or
personal representatives), unless such modifications shall be required by law.
(b) For a period of six years after the Effective Time, the
Surviving Corporation shall maintain in effect the current directors' and
officers' liability insurance policies maintained by the Company (provided that
the Surviving Corporation may substitute therefor policies of substantially
similar coverage containing terms and conditions that are not on the whole
materially less favorable) with respect to claims arising from facts or events
that occurred prior to the Effective Time; provided, however, that in no event
shall the Surviving Corporation be required to expend pursuant to this Section
6.05(b) more than an amount per year equal to 125% of current annual premiums
paid by the Company for such insurance (which premiums the Company represents
and warrants to be approximately $278,000 per year in the aggregate) (the
"Maximum Premium") unless the directors agree to reimburse the Surviving
Corporation in full for the amount by which the annual premium exceeds the
Maximum Premium.
(c) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each case, proper provision
shall be made so that the successors and assigns of the Surviving Corporation
or, at Parent's option, Parent, shall assume the obligations set forth in this
Section 6.05.
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SECTION 6.06. Further Action; Consents; Filings. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts expeditiously to (i) take, or cause to be taken, all
appropriate action and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
Merger and the other transactions contemplated by this Agreement, (ii) obtain
from Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or the
Company or any of their respective subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated by this Agreement and (iii)
make all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement, the Merger and the other transactions
contemplated by this Agreement that are required under (A) the Exchange Act and
the Securities Act and the rules and regulations thereunder and any other
applicable federal or state securities laws, (B) the HSR Act and any other
antitrust regulations, (C) the rules and regulations of all relevant insurance
regulatory authorities and (D) any other applicable Law. The parties hereto
shall cooperate with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
party and its advisors prior to filing and, if requested, by accepting all
reasonable additions, deletions or changes suggested in connection therewith.
(b) (i) Each party to this Agreement shall give any notices to
third parties, and use its reasonable best efforts to obtain any third party
consents (without making any payments therefor), (A) necessary, proper or
advisable to consummate the transactions contemplated by this Agreement, (B)
required to be disclosed in the Company Disclosure Schedule or the Parent
Disclosure Schedule (as applicable) or (C) required to prevent a Material
Adverse Effect from occurring prior to or after the Effective Time.
(ii) From the date of this Agreement until the Effective Time,
each party to this Agreement shall promptly notify the other party in writing of
any pending or, to the knowledge of such party, threatened action, suit,
arbitration or other proceeding or investigation by any Governmental Entity or
any other person (i) challenging or seeking damages in connection with the
Merger or the conversion of Company Common Stock into the Merger Consideration
pursuant to the Merger, (ii) seeking to restrain or prohibit the consummation of
the Merger or otherwise limiting the right of Parent or its subsidiaries to own
or operate all or any portion of the businesses or assets of the Company or its
subsidiaries, or (iii) which could reasonably be expected to have a Material
Adverse Effect. Each of the parties hereto agrees to cooperate and use its
reasonable best efforts to vigorously contest and resist any such action,
including administrative or judicial actions, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) that is in effect and that restricts,
prevents or prohibits consummation of the Merger, including, without limitation,
by vigorously pursuing all available avenues of administrative and judicial
appeal.
SECTION 6.07. Consent of Holders of Restricted Stock. Prior to the
Effective Time, and in accordance with the terms and conditions of the
Performance Stock Plan, the Company shall obtain from each holder of Restricted
Shares written consent to the cancellation
44
of such Restricted Shares in consideration for the payment provided herein, and
shall take all such other actions as may be necessary so that the terms of
Section 2.07 may be carried out and so that, except for the Vested Share Rights
(as described in Section 2.07), no person will continue to have any rights with
respect to the Restricted Shares or pursuant to the Performance Stock Plan at
any time after the Effective Time.
SECTION 6.08. Public Announcements. Parent and the Company agree that no
public release or announcement concerning the Merger and other transactions
contemplated in this Agreement shall be issued by either party without the prior
consent of the other party (which consent shall not be unreasonably withheld),
except as such release or announcement may be required by Law or the rules or
regulations of the Nasdaq or the TSE, in which case the party required to make
the release or announcement shall use its best efforts to allow the other party
reasonable time to comment on such release or announcement in advance of such
issuance.
SECTION 6.09. Parent Shareholders' Meeting. If required, Parent, acting
through its Board of Directors, shall, in accordance with applicable law and the
Parent's Certificate of Incorporation and By-Laws, and no later than May 10,
2001, duly call, give notice of, convene and hold a meeting (the "Parent
Shareholders' Meeting") of holders of the Parent Common Shares for the purpose
of obtaining the Parent Shareholders' Approval.
SECTION 6.10. Affiliates. Prior to the Effective Time, the Company shall
deliver to Parent a list of names and addresses of those Persons who are, in the
Company's reasonable judgment, on such date, affiliates (within the meaning of
Rule 145 of the rules and regulations promulgated under the Securities Act (each
such Person being an "Affiliate")) of the Company. The Company shall provide
Parent with such information and documents as Parent shall reasonably request
for purposes of reviewing such list. The Company shall use its reasonable best
efforts to deliver or cause to be delivered to Parent, prior to the Effective
Time, an affiliate letter substantially in the form attached hereto as Exhibit
6.10, executed by each of the Affiliates of the Company identified in the
foregoing list and any Person who shall, to the knowledge of the Company, have
become an Affiliate of the Company subsequent to the delivery of such list.
SECTION 6.11. Board Nomination. As soon as practicable after the Effective
Time, Parent shall cause Bruce Guthart to become a member of the Board of
Directors of Parent. Prior to the Effective Time, Parent shall cause Bruce
Guthart to become a member of the board of directors of Merger Sub.
SECTION 6.12. Certain Funding of the Company. In the event the Company is
required to repay its indebtedness to Summit Bank and/or has its loan
availability reduced or terminated in order to consummate the Merger or as a
result of signing this Agreement, Parent will provide or cause to be provided a
substantially equivalent loan facility to the Company or assist in such
repayment.
SECTION 6.13. Parent Debentures. Parent shall make or cause to be made all
required filings under the Securities Act and the Trust Indenture Act of 1939,
as amended, to register the offer and sale of the Parent Debentures.
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SECTION 6.14. Filing With Insurance Regulatory Authorities. Parent shall
cause a Form A to be filed with the appropriate insurance regulatory authority
with respect to the Merger within 30 business days of the date of this
Agreement.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective obligations of the
Company, Parent and Merger Sub to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable Law:
(a) Approval. Each of the Company Stockholders' Approval and
Parent Shareholders' Approval shall have been obtained.
(b) No Order. No Governmental Entity, nor any court of
competent jurisdiction or arbitrator, shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, judgment,
decree, injunction, executive order or award (whether temporary,
preliminary or permanent) (collectively, "Order") that is then in
effect, and has the effect of making the Merger illegal or otherwise
restricting, preventing or prohibiting consummation of the Merger or
any other transactions contemplated by this Agreement.
(c) Consents. All consents, approvals and authorizations
(including, without limitation, the Required Consents which, for
greater clarity, include the consents and approvals of the Rhode Island
insurance regulatory authorities) legally required to be obtained to
consummate the Merger and the other transactions contemplated in and by
this Agreement shall have been obtained from and made with all
Governmental Entities.
(d) Antitrust Waiting Periods. Any waiting period (and any
extensions thereof) applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(e) Actions. No Action shall have been brought and remain
pending by any Governmental Entity or other person, entity or group
that seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement.
(f) Effective Registration Statement. If any Parent Debentures
are to be issued, the Registration Statement shall have been declared
effective by the SEC under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceeding for that purpose shall have
been initiated by the SEC.
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SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects as of the
date hereof and as of the Effective Time, as though made at and as of
the Effective Time, except that those representations and warranties
that address matters only as of a particular date shall remain true and
correct as of such date, and Parent shall have received a certificate
of the Chief Executive Officer or Chief Financial Officer of the
Company to that effect.
(b) Agreements and Covenants. The Company shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer
of the Company to that effect.
(c) Consents. All consents from third parties under any
Company Material Contract required as a result of the transactions
contemplated by this Agreement shall have been obtained.
(d) Regulatory Consents. All consents, approvals and
authorizations required to be made with or received from the TSE and
the OSC under applicable laws, rules and regulations regarding the
Related Party Transactions have been received.
(e) Actions. No Action shall have been brought and remain
pending by any Governmental Entity or other person, entity or group
that would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
(f) Employment Agreement. Bruce Guthart, the president of the
Company, has executed an employment agreement, together with a related
management bonus agreement and restricted stock arrangement,
substantially in the form of Exhibit A to this Agreement, and such
employment agreement shall be in full force and effect as of the
Closing Date.
(g) Waiver. Prior to the Closing Date, Schenendorf Seaman,
Inc., formerly known as Seaman, Ross & Weiner, Inc. ("SRW"), ASCO Risk
Management Corp., formerly known as Amsco Coverage Corp. ("Amsco") and
DS Risk Management Corp., formerly known as D.S.I. Associates, Inc.
("DSI"), shall have delivered a written and executed waiver (the
"Waiver") of all of their respective rights to receive securities of
the Company under the Asset Purchase Agreement among Kaye Insurance
Associates, Inc., SRW, Amsco and DSI, Douglas Schenendorf and Alex
Seaman dated as of January 1, 1999, pursuant to which SRW, Amsco and
DSI shall have agreed to accept cash in lieu of securities of the
Company and the Company shall have delivered to Parent an executed
copy of such Waiver.
47
SECTION 7.03. Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the satisfaction or
waiver (where permissible) of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Parent and Merger Sub contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and as of the Effective Time, as though made on and as
of the Effective Time, except that those representations and warranties
that address matters only as of a particular date shall remain true and
correct in all material respects as of such date, and the Company shall
have received a certificate of the Chief Executive Officer or Chief
Financial Officer of Parent to that effect.
(b) Agreements and Covenants. Each of Parent and Merger Sub
shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time (provided that
any agreement or covenant that is qualified by materiality or by
reference to a Material Adverse Effect shall have been performed or
complied with in all respects on or prior to the Effective Time) and
the Company shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of Parent to that effect.
(c) Parent Common Shares. The Parent Common Shares shall
continue to be posted for trading on the TSE and that number of Parent
Common Shares which may be issued upon the conversion of the Parent
Debentures have been reserved for issuance by Parent at the Effective
Time.
(d) Change of Control. Fairfax Financial Holdings Limited and
its affiliates shall not have sold or otherwise disposed of such number
of Parent Common Shares to cause it or they at the Closing Date to no
longer beneficially own at least 30% of the outstanding Parent Common
Shares and to no longer beneficially own more Parent Common Shares than
any other shareholder of Parent.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
and the other transactions contemplated by this Agreement may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval and
adoption of this Agreement and the transactions contemplated by this Agreement,
as follows:
(a) by mutual written consent of each of Parent, Merger Sub
and the Company duly authorized by the Boards of Directors of each of
Parent, Merger Sub and the Company;
48
(b) by either Parent, Merger Sub or the Company if the
Effective Time shall not have occurred on or before December 31, 2001;
provided, however, that the right to terminate this Agreement under
this Section 8.01(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 Effective Time to occur on or before
such date;
(c) by either Parent or the Company, if there shall be any
Order of a Governmental Entity (whether temporary, preliminary or
permanent) which is then in effect and has the effect of making
consummation of the Merger illegal or otherwise preventing or
prohibiting consummation of the Merger; provided, however, that the
provisions of this Section 8.01(c) shall not be available to any party
whose failure to fulfill its obligations hereunder shall have been the
cause of, or shall have resulted in, such Order;
(d) by Parent if the TSE or the OSC shall have indicated in
writing that it has made a final and nonappealable determination that
it will not grant a consent, approval or authorization referred to
under Section 7.02(d) of this Agreement;
(e) by Parent if (i) the Board withholds, withdraws, modifies
or changes the Company Board Approval in a manner adverse to Parent or
shall have resolved to do so, (ii) the Board shall have recommended to
the stockholders of the Company an Acquisition Proposal or shall have
resolved to do so or shall have entered into any letter of intent or
similar document or any agreement, contract or commitment accepting any
Acquisition Proposal, (iii) the Company shall have failed to include
the Company Board Approval in the Company Proxy Statement, (iv) if
management of the Company shall fail to certify that the Board has not
withdrawn, modified or changed, or resolved to do any of the foregoing
with respect to, its recommendation in favor of the approval of the
Merger and this Agreement within five business days after Parent
requests in good faith, based on its good faith belief that such
certification is desired under the circumstances, (v) a tender offer or
exchange offer for 30% or more of the outstanding shares of stock of
the Company is commenced and, within five business days after such
offer is commenced, the Board fails to recommend against acceptance of
such tender offer or exchange offer by its stockholders (including by
taking no position with respect to the acceptance of such tender offer
or exchange offer by its stockholders) or (vi) the Company
Stockholders' Meeting is not held within 45 days after the date on
which the Registration Statement shall have become effective;
(f) by either Parent or the Company if this Agreement and the
transactions contemplated herein shall fail to receive the requisite
vote for approval at the Company Stockholders' Meeting;
(g) by either Parent or the Company if this Agreement and the
transactions contemplated herein shall fail to receive the requisite
vote for approval at the Parent Shareholders' Meeting;
49
(h) by Parent upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall
have become untrue, in either case such that the conditions set forth
in either Section 7.02(a) or (b) would not be satisfied (a "Terminating
Company Breach"); provided, however, that, if such Terminating Company
Breach is curable by the Company through the exercise of all reasonable
efforts and the Company continues to exercise all reasonable efforts,
Parent may not terminate this Agreement under this Section 8.01(h) for
a period of 30 days from the date on which Parent delivers to the
Company written notice setting forth in reasonable detail the
circumstances giving rise to such Terminating Company Breach; provided
further that if, within such 30 day period, the Company does cure such
Terminating Company Breach so that the conditions set forth in either
Section 7.02(a) or (b) would no longer be breached thereby, then Parent
shall not be entitled to terminate this Agreement pursuant to this
Section 8.01(h).
(i) by the Company upon a breach of any representation,
warranty, covenant or agreement on the part of Parent or Merger Sub set
forth in this Agreement, or if any representation or warranty of Parent
or Merger Sub shall have become untrue, in either case such that the
conditions set forth either in Section 7.03(a) or (b) would not be
satisfied (a "Terminating Parent Breach"); provided, however, that, if
such Terminating Parent Breach is curable by Parent through the
exercise of all reasonable efforts and Parent continues to exercise all
reasonable efforts, Company may not terminate this Agreement under this
Section 8.01(i) for a period of 30 days from the date on which the
Company delivers to Parent written notice setting forth in reasonable
detail the circumstances giving rise to such Terminating Parent Breach;
provided further that if, within such 30 day period, Parent does cure
such Terminating Company Breach so that the conditions set forth in
either Section 7.03(a) or (b) would no longer be breached thereby, then
the Company shall not be entitled to terminate this Agreement pursuant
to this Section 8.01(i)
(j) by the Company, upon approval of the Board, if prior to
the Company Stockholders' Approval, the Board determines in good faith
that it is required to do so by its fiduciary duties under applicable
law after having received advice from outside legal counsel in order to
enter into an agreement with respect to a Superior Proposal, upon five
business days' prior written notice to Parent, setting forth in
reasonable detail the identity of the person making, and the final
terms and conditions of, the Superior Proposal and after duly
considering any proposals that may be made by Parent during such five
business day period; provided, however, that any termination of this
Agreement pursuant to this Section 8.01(j) shall not be effective until
the Company has made full payment of all amounts provided under Section
8.05; or
(k) by Parent, if the Company shall have breached its
obligations under Section 6.04.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be
50
no liability under this Agreement on the part of Parent, Merger Sub or the
Company or any of their respective officers or directors, and all rights and
obligations of each party hereto shall cease, subject to the remedies of the
parties set forth in Section 8.05; provided, however, that nothing herein shall
relieve any party from liability for the willful breach of any of its
representations, warranties, covenants or agreements set forth in this Agreement
and that the Confidentiality Agreement shall survive termination of this
Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval of the Merger and this Agreement by the stockholders of the Company, no
amendment may be made that would reduce the amount or change the type of
consideration into which each Share shall be converted upon consummation of the
Merger. This Agreement may not be amended, except by an instrument in writing
signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein of any other party hereto or in any document
delivered pursuant hereto, and (c) waive compliance with any agreement of any
other party hereto or condition contained herein. 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.
SECTION 8.05. Fees and Expenses. (a) In the event that
(i) this Agreement is terminated pursuant to Section 8.01(e),
8.01(j) or 8.01(k); or
(ii) this Agreement is terminated pursuant to Section 8.01(f)
or 8.01(h) and the Company enters into an agreement with respect to an
Acquisition Proposal, or an Acquisition Proposal is consummated, in
each case within 12 months after such termination, and the Company
shall not theretofore have been required to pay the Fee to Parent
pursuant to Section 8.05(a)(i) or 8.05(a)(ii);
then, in any such event, the Company shall pay Parent promptly
(but in no event later than 10 business days after the first of such events
shall have occurred) a fee equal to $3,855,000 (the "Fee"), which amount shall
be payable in immediately available funds, plus all Expenses (as hereinafter
defined).
(b) If Parent shall fail to receive the requisite vote for
approval at the Parent Shareholders' Meeting and as a result Parent is unable to
consummate the transaction, then, in such event, Parent shall pay the Company
promptly (but in no event later than 10 business days after the failure to
receive the requisite vote for approval) the Fee, which amount shall be payable
in immediately available funds, plus all Expenses.
51
(c) If this Agreement is terminated for any reason whatsoever
and a party hereto is in material breach of its material covenants and
agreements contained in this Agreement or is in material breach of its
representations and warranties contained in this Agreement, such party shall,
whether or not any payment is made pursuant to Section 8.05(a), reimburse the
other party hereto and their respective stockholders and affiliates (not later
than five business days after submission of statements therefor) for all
out-of-pocket expenses and fees (including, without limitation, all fees of
counsel, accountants, experts and consultants and their respective stockholders
and affiliates) incurred or accrued by either of them or on their behalf in
connection with the Merger or other transactions contemplated by this Agreement
and for which such party or its stockholders or affiliates is liable (all the
foregoing being referred to herein collectively as the "Expenses"); provided,
however, that in no event shall either party be obligated to pay Expenses
incurred by the other party in excess of $1,000,000.
(d) Except as set forth in this Section 8.05, all costs and
expenses incurred in connection with this Agreement, the Voting Agreements and
the Merger or other transactions contemplated by this Agreement shall be paid by
the party incurring such expenses, whether or not the Merger and other
transactions contemplated by this Agreement are consummated, except that the
Company and Parent each shall pay one-half of all Expenses relating to printing
and filing of the Registration Statement and the Proxy Statement, and all SEC
and other regulatory filing fees incurred in connection with the Registration
Statement and the Proxy Statement.
(e) In the event that the Company shall fail to pay the Fee or
any Expenses when due, the term "Expenses" shall be deemed to include the costs
and expenses actually incurred or accrued by Parent and Merger Sub and their
respective stockholders and affiliates (including, without limitation, fees and
expenses of counsel) in connection with the collection under and enforcement of
this Section 8.05, together with interest on such unpaid Fee and Expenses,
commencing on the date that the Fee or such Expenses became due, at a rate equal
to the rate of interest publicly announced by Citibank, N.A., from time to time,
in the City of New York, as such bank's Base Rate plus 2%.
(f) In the event that Parent 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 the Company and their respective stockholders
and affiliates (including, without limitation, fees and expenses of counsel) in
connection with the collection under and enforcement of this Section 8.05,
together with interest on such unpaid Expenses, commencing on the date that such
Expenses became due, at a rate equal to the rate of interest publicly announced
by Citibank, N.A., from time to time, in the City of New York, as such bank's
Base Rate plus 2%.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. 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 facsimile
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following
52
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.01):
if to Parent or Merger Sub:
Hub International Limited
214 King Street West, Suite 314
Toronto, Ontario
M5H 3S6
Facsimile No.: (416) 593-8717
Attention: W. Kirk James
with a copy to:
Shearman & Sterling
199 Bay Street, Suite 4405
Toronto, Ontario
Facsimile No.: (416) 360-2958
Attention: Brice T. Voran, Esq.
if to the Company:
Kaye Group Inc.
122 East 42nd Street
New York, NY 10168
Facsimile No.: (212) 986-2278
Attention: President
with a copy to:
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Facsimile No.: (212) 704-6288
Attention: James Alterbaum, Esq.
and
Ivy Fischer, Esq.
122 East 42nd Street
New York, NY 10168
Facsimile No.: (212) 338-2973
SECTION 9.02. Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement and any
certificate delivered
53
pursuant hereto by any person shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Section 8.01, as the case may be,
except that the agreements set forth in Section 6.05 shall survive the Effective
Time indefinitely and those set forth in Sections 6.03(c), 6.08, 6.11, 8.02,
8.05 and this Article IX shall survive termination of this Agreement
indefinitely unless a different period is set forth in any such Section.
SECTION 9.03. 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 6.05 (which is intended to be for the benefit of
the persons covered thereby and may be enforced by such persons).
SECTION 9.04. Certain Definitions. For purposes of this Agreement, the
term:
(a) "Acquisition Proposal" means (i) any proposal or offer
from any person relating to any direct or indirect acquisition of (A)
30% or more of the fair market value of the assets of the Company and
its subsidiaries taken as a whole or (B) over 30% of any class of
equity securities of the Company or of any Company Subsidiary; (ii) any
tender offer or exchange offer, as defined pursuant to the Exchange
Act, that, if consummated, would result in any person beneficially
owning 30% or more of any class of equity securities of the Company or
any Company Subsidiary; (iii) any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any Company Subsidiary, other than
the transactions contemplated by this Agreement; (iv) any person or
entity shall have acquired, after the date hereof, beneficial ownership
or the right to acquire beneficial ownership of, or any "group" (as
such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder; provided, however, that
any "group" formed or deemed formed by persons taking actions in
furtherance of this Agreement shall not be deemed to constitute a
group) shall have been formed that beneficially owns or has the right
to acquire beneficial ownership of, 30% or more of any class of equity
securities of the Company or any person, entity or "group" beneficially
owning, as of the date hereof, 30% or more of any class of equity
securities of the Company shall have acquired, after the date hereof,
beneficial ownership or the right to acquire beneficial ownership of an
additional 1% of such class of equity securities of the Company; (v)
the declaration or payment by the Company, of an extraordinary dividend
on any of its shares of capital stock or the effectuation by the
Company of a recapitalization or other type of transaction that would
involve either a change in the Company's outstanding capital stock or a
distribution of assets of any kind to the holders of such capital
stock; (vi) the repurchase by the Company of shares of Company Common
Stock or (vii) any other transaction the consummation of which would
reasonably be expected to impede, interfere with, prevent or materially
delay consummation of the Merger or the transactions contemplated by
this Agreement.
54
(b) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such specified person.
(c) "beneficial owner" with respect to any shares means a
person who shall be deemed to be the beneficial owner of such shares
(i) that such person or any of its affiliates or associates (as such
term is defined in Rule 12b-2 promulgated under the Exchange Act)
beneficially owns, directly or indirectly, (ii) that such person or any
of its affiliates or associates has, directly or indirectly, (A) the
right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii)
that are beneficially owned, directly or indirectly, by any other
persons with whom such person or any of its affiliates or associates or
person with whom such person or any of its affiliates or associates has
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares.
(d) "business day" means any day on which both the principal
offices of the SEC in Washington, D.C. are open to accept filings, or,
in the case of determining a date when any payment is due, any day
(other than a Saturday or a Sunday) on which banks are not required or
authorized to close in The City of New York.
(e) "Computer Systems" shall mean all computer, hardware,
software, systems, and equipment (including embedded microcontrollers
in non-computer equipment) embedded within or required to operate the
current products of the Company and the Company Subsidiaries, and/or
material to or necessary for the Company and the Company Subsidiaries
to carry on their businesses as currently conducted.
(f) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management and policies of a person, whether through the
ownership of voting securities, as trustee or executor, by contract or
credit arrangement or otherwise.
(g) "Material Adverse Effect" means (i) when used in
connection with the Company or a Company Subsidiary any circumstance,
event, occurrence, change or effect that is or will be materially
adverse to the business, operations, properties, condition (financial
or otherwise), assets (tangible or intangible), liabilities (including
contingent liabilities) or results of operations of the Company and the
Company Subsidiaries taken as a whole, (ii) when used in connection
with the Insurance Companies or Insurance Company Subsidiaries any
circumstance, event, occurrence, change or effect that is materially
adverse to the business, operations, properties, condition (financial
or otherwise), assets (tangible or intangible), liabilities (including
contingent liabilities) or results of operations of the Insurance
Companies and their subsidiaries taken as a whole, and (iii) when used
in connection with the Parent or
55
Merger Sub means any circumstance, event, occurrence, change or effect
that is or is likely to be materially adverse to the business,
operations, properties, condition (financial or otherwise), assets
(tangible or intangible), liabilities (including contingent
liabilities) or results of operations of the Parent and its
subsidiaries taken as a whole.
(h) "Parent Debentures" means the 8.5% convertible
subordinated debentures due 2006 that shall be issued pursuant to an
indenture (the form of which is attached hereto as Exhibit B) by Parent
to holders of the Company Common Stock in accordance with the
provisions of Article II hereof, as a component of the Merger
Consideration.
(i) "Performance Stock Plan" shall mean the Company's
Performance Stock Plan.
(j) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation,
a "person" as defined in section 13(d)(3) of the Exchange Act), trust,
association or entity or government, or political subdivision, agency
or instrumentality of a government.
(k) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Parent or any other person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries.
(l) "Superior Proposal: means any Acquisition Proposal on
terms which the Board determines, in its good faith judgment (after
having received the advice of a financial advisor of recognized
reputation), to be more favorable to the Company's stockholders than
the Merger and for which financing, to the extent required, is then
committed.
(m) "Taxes" shall mean any and all taxes, fees, levies,
duties, tariffs, imposts and other charges of any kind (together with
any and all interest, penalties, additions to tax and additional
amounts imposed with respect thereto) imposed by any Governmental
Entity or taxing authority, including, without limitation: taxes or
other charges on or with respect to income, franchise, windfall or
other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the
nature of excise, withholding, ad valorem, stamp, transfer, value-added
or gains taxes; license, registration and documentation fees; and
customers' duties, tariffs and similar charges.
(n) "$" or "dollar" means a United States dollar.
SECTION 9.05. 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 as long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon determination that any such
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall
56
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 contemplated by this Agreement be consummated as
originally contemplated to the fullest extent possible.
SECTION 9.06. 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 in equity.
SECTION 9.07. Governing Law; Forum. Except to the extent that the Merger is
mandatorily governed by the DGCL, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law principles. All Actions arising out of or
relating to this Agreement shall be heard and determined in the United States
District Court for the Southern District of New York. Each of the parties to
this Agreement (a) consents to submit itself to the personal jurisdiction of the
United States District Court for the Southern District of New York for the
purpose of any Action arising out of or relating to this Agreement brought by
any party hereto, and (b) irrevocably waive, and agree not to assert by way of
motion, defense, or otherwise, in any such Action, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the Action is
brought in an inconvenient forum, that the venue of the Action is improper, or
that this Agreement or the transactions contemplated herein may not be enforced
in or by any of the above-named courts. Parent agrees that it may be served with
process in the State of New York and irrevocably appoints Odyssey Reinsurance
Corporation, 1 Liberty Plaza, New York, New York 10006, as the agent of Parent
to accept service of process relating to any Action arising out of or relating
to this Agreement.
SECTION 9.08. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.09. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 9.10. Entire Agreement. This Agreement (including the Company
Disclosure Schedule and the Parent Disclosure Schedule), the Voting Agreements
and the Confidentiality Agreements constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede 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 (whether pursuant to a merger, by operation of law or otherwise),
except that Parent and Merger Sub may assign all or any of their rights and
obligations hereunder to any affiliate of Parent, provided that no such
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations.
57
SECTION 9.11. Waiver of Jury Trial. Each of the parties hereto hereby
waives to the fullest extent permitted by applicable law any right it may have
to a trial by jury with respect to any litigation directly or indirectly arising
out of, under or in connection with this Agreement or the transactions
contemplated by this Agreement. Each of the parties hereto (a) certifies that no
representative, agent or attorney of any other party has represented, expressly
or otherwise, that such other party would not, in the event of litigation, seek
to enforce that foregoing waiver and (b) acknowledges that it and the other
hereto have been induced to enter into this Agreement and the transactions
contemplated by this Agreement, as applicable, by, among other things, the
mutual waivers and certifications in this Section 9.11.
58
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
HUB INTERNATIONAL LIMITED
By: /s/ W. Kirk James
----------------------------------------
Name: W. Kirk James
Title: Vice President & General Counsel
416 ACQUISITION INC.
By: /s/ W. Kirk James
----------------------------------------
Name: W. Kirk James
Title: President
KAYE GROUP INC.
By: /s/ Michael P. Sabanos
----------------------------------------
Name: Michael P. Sabanos
Title: Executive Vice President &
Chief Financial Officer
59
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF THE COMPANY
[____________], [____]
Hub International Limited
214 King Street West, Suite 314
Toronto, Ontario
M5H 3S6
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may
be deemed to be an "affiliate" of Kaye Group Inc., a Delaware corporation (the
"Company"), as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger, dated as
of January 19, 2001 (the "Merger Agreement"), among Hub International Limited, a
corporation organized under the laws of Ontario ("Parent"), 416 Acquisition
Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Sub"), and the Company, Merger Sub will be merged with and into the Company (the
"Merger"). Capitalized terms used in this letter agreement without definition
shall have the meanings assigned to them in the Merger Agreement.
As a result of the Merger, I may receive the 8.5% Subordinated
Convertible Debentures due 2006 (the "Parent Debentures")to be issued by Parent
on the Closing Date pursuant to an indenture among Parent and o, as trustee. I
would receive such Parent Debentures in exchange for shares (or upon exercise of
options for shares) owned by me of common stock, par value $.01 per share, of
the Company (the "Company Common Stock").
1. I represent, warrant and covenant to Parent that in the event I
receive any Parent Debentures as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Parent Debentures in violation of the Act or the Rules and Regulations.
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B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Parent Debentures, to the extent I felt necessary, with my counsel or
counsel for the Company.
C. I have been advised that the issuance of the Parent Debentures to
me pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form F-4. However, I have also been
advised that, because at the time the Merger is submitted for a vote of the
stockholders of the Company, (a) I may be deemed to be an affiliate of the
Company and (b) the distribution by me of the Parent Debentures has not
been registered under the Act, I may not sell, transfer or otherwise
dispose of the Parent Debentures issued to me in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under the
Act, (ii) such sale, transfer or other disposition has been registered
under the Act, or (iii) in the opinion of counsel reasonably acceptable to
Parent, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. I understand that Parent is under no obligation to register the
sale, transfer or other disposition of the Parent Debentures by me or on my
behalf under the Act or, except as provided in paragraph 2(A) below, to
take any other action necessary in order to make compliance with an
exemption from such registration available.
E. I understand that there will be placed on the certificates for the
Parent Debentures issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
[_______ ___, ______] BETWEEN THE REGISTERED HOLDER HEREOF AND HUB
INTERNATIONAL LIMITED, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF HUB INTERNATIONAL LIMITED."
F. I understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement,
Parent reserves the right to put the following legend on the certificates
issued to my transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES
HAVE BEEN
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ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933."
G. Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of
this letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with me
as follows:
A. For so long as and to the extent necessary to permit me to sell the
Parent Debentures pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Act, Parent shall (a) use its reasonable best efforts to (i)
file, on a timely basis, all reports and data required to be filed with the
Commission by it pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and (ii) furnish to me upon request a
written statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale of the Parent
Debentures by me under Rule 145, and (b) otherwise use its reasonable
efforts to permit such sales pursuant to Rule 145 and Rule 144. Parent
hereby represents to me that it has filed all reports required to be filed
with the Commission under Section 13 of the 1934 Act during the preceding
12 months.
B. It is understood and agreed that certificates with the legends set
forth in paragraphs 1(E) and 1(F) above will be substituted by delivery of
certificates without such legends if (i) one year shall have elapsed from
the date the undersigned acquired the Parent Debentures received in the
Merger and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the
undersigned acquired the Parent Debentures received in the Merger and the
provisions of Rule 145(d)(3) are then applicable to the undersigned, or
(iii) Parent has received either an opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to Parent, or a "no action" letter
obtained by the undersigned from the staff of the Commission, to the effect
that the restrictions imposed by Rule 145 under the Act no longer apply to
the undersigned.
_________________
Name of Affiliate
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