1
EXHIBIT 1. AGREEMENT AND PLAN OF REORGANIZATION
- 4 -
2
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
FEBRUARY 28, 1997
BY AND AMONG
HCC INSURANCE HOLDINGS, INC.,
MERGER SUB #4, INC.,
AND
AVEMCO CORPORATION
================================================================================
3
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS....................................................................
Section 1.1 Definitions...........................................................
ARTICLE II THE MERGER....................................................................
Section 2.1 The Closing...........................................................
Section 2.2 The Merger............................................................
Section 2.3 Conversion of Shares..................................................
Section 2.4 Exchange of Certificates..............................................
Section 2.5 Stock Options.........................................................
ARTICLE III THE SURVIVING CORPORATION....................................................
Section 3.1 Certificate of Incorporation..........................................
Section 3.2 Bylaws................................................................
Section 3.3 Directors and Officers................................................
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AVEMCO......................................
Section 4.1 Corporate Existence, Power and Documentation..........................
Section 4.2 Reciprocal Exchange...................................................
Section 4.3 Corporate Authorization...............................................
Section 4.4 Governmental Authorization............................................
Section 4.5 Non-Contravention.....................................................
Section 4.6 Capitalization........................................................
Section 4.7 Subsidiaries and Joint Ventures.......................................
Section 4.8 SEC and NYSE Filings..................................................
Section 4.9 AVEMCO Financial Statements...........................................
Section 4.10 No Undisclosed Liabilities............................................
Section 4.11 SAP Statements........................................................
Section 4.12 Absence of Certain Changes............................................
Section 4.13 Litigation............................................................
Section 4.14 Accounting Matters....................................................
Section 4.15 Taxes.................................................................
Section 4.16 Employee Benefit Plans, ERISA.........................................
Section 4.17 Material Agreements...................................................
Section 4.18 Properties and Leases.................................................
Section 4.19 Condition of AVEMCO's Assets..........................................
Section 4.20 Voting Requirements...................................................
Section 4.21 Suppliers and Customers...............................................
Section 4.22 Employee Matters......................................................
Section 4.23 Environmental Matters.................................................
Section 4.24 Compliance With Law; Permits..........................................
Section 4.25 Interests in Clients, Suppliers, Etc..................................
Section 4.26 Transactions With Related Parties.....................................
Section 4.27 Statements are True and Correct.......................................
Section 4.28 Broker's and Other Fees...............................................
Section 4.29 Trademarks, Tradenames, Etc...........................................
Section 4.30 Disclosure............................................................
Section 4.31 Opinion of Financial Advisor..........................................
Section 4.32 Insurance Issued by AVEMCO Insurer Subsidiaries.......................
Section 4.33 Examination Reports...................................................
ARTICLE V REPRESENTATIONS AND WARRANTIES OF HCCH AND
MERGER SUB................................................................
Section 5.1 Corporate Existence, Power and Documentation..........................
Section 5.2 Corporate Authorization...............................................
Section 5.3 Governmental Authorization............................................
i
4
Section 5.4 Non-Contravention.....................................................
Section 5.5 Capitalization of HCCH................................................
Section 5.6 Organization and Capitalization of Merger Sub.........................
Section 5.7 Subsidiaries and Joint Ventures.......................................
Section 5.8 SEC and NYSE Filings..................................................
Section 5.9 Financial Statements..................................................
Section 5.10 No Undisclosed Liabilities............................................
Section 5.11 SAP Statements........................................................
Section 5.12 Absence of Certain Changes............................................
Section 5.13 Litigation............................................................
Section 5.14 Accounting Matters....................................................
Section 5.15 Taxes.................................................................
Section 5.16 Employee Benefit Plans; ERISA.........................................
Section 5.17 Material Agreements...................................................
Section 5.18 Properties and Leases.................................................
Section 5.19 Voting Requirements...................................................
Section 5.20 Environmental Matters.................................................
Section 5.21 Statements are True and Correct.......................................
Section 5.22 Disclosure............................................................
Section 5.23 Labor Matters.........................................................
Section 5.24 Compliance with Laws..................................................
Section 5.25 Trademarks, Tradenames, Etc...........................................
Section 5.26 Broker's Fees.........................................................
Section 5.27 Opinion of Financial Advisor..........................................
Section 5.28 Insurance Issued by HCCH Insurer Subsidiaries.........................
Section 5.29 Examination Reports...................................................
ARTICLE VI PRE-CLOSING COVENANTS.........................................................
Section 6.1 Cooperation and Commercially Reasonable Efforts.......................
Section 6.2 Registration Statement and Joint Proxy Statement; Special Meetings....
Section 6.3 Conduct of Business By Both Parties Prior to the Closing Date.........
Section 6.4 Conduct of Business of Merger Sub.....................................
Section 6.5 Conduct of Business By AVEMCO Prior to the Closing Date...............
Section 6.6 No Solicitations......................................................
Section 6.7 Press Releases........................................................
Section 6.8 Access to Information and Confidentiality.............................
Section 6.9 Consultation and Reporting............................................
Section 6.10 Notice and Cure.......................................................
Section 6.11 Update Schedules......................................................
Section 6.12 Merger Sub Shareholder Approval.......................................
Section 6.13 Affiliates' Agreement.................................................
Section 6.14 Necessary Consents....................................................
Section 6.15 Regulatory Approval...................................................
Section 6.16 Actions Contrary to Stated Intent.....................................
Section 6.17 Satisfaction of Conditions Precedent..................................
Section 6.18 Tax Cooperation.......................................................
Section 6.19 Standstill............................................................
Section 6.20 Stock Exchange Listing................................................
Section 6.21 Exercise of Stock Options.............................................
ARTICLE VII CLOSING CONDITIONS...........................................................
Section 7.1 Conditions to Obligations of HCCH and Merger Sub......................
Section 7.2 Conditions to Obligations of AVEMCO...................................
Section 7.3 Conditions Applicable to All Parties..................................
ARTICLE VIII POST-CLOSING COVENANTS......................................................
Section 8.1 Use of AVEMCO Name....................................................
Section 8.2 Indemnification and Insurance Coverage of Directors and Officers of
the AVEMCO Group......................................................
ii
5
Section 8.3 Publication of Post-Merger Results....................................
Section 8.4 Employee Benefits.....................................................
Section 8.5 Stock Offerings.......................................................
Section 8.6 Registration Rights...................................................
ARTICLE IX TERMINATION OF AGREEMENT......................................................
Section 9.1 Termination...........................................................
Section 9.2 Effect of Termination.................................................
ARTICLE X MISCELLANEOUS..................................................................
Section 10.1 Further Assurances....................................................
Section 10.2 Fees and Expenses.....................................................
Section 10.3 Notices...............................................................
Section 10.4 Governing Law.........................................................
Section 10.5 Binding upon Successors and Assigns, Assignment.......................
Section 10.6 Severability..........................................................
Section 10.7 Entire Agreement......................................................
Section 10.8 Amendment and Modification............................................
Section 10.9 Extension; Waiver.....................................................
Section 10.10 Construction of Agreement.............................................
Section 10.11 Counterparts..........................................................
Section 10.12 Gender and Certain Definitions........................................
Section 10.13 Survival of Representations and Warranties............................
Section 10.14 Effect of Due Diligence...............................................
Schedules to Agreement
AVEMCO Disclosure Schedule
HCCH Disclosure Schedule
Appendices to Agreement
Appendix A -- Form of Certificate of Merger
Appendix B -- Form of Affiliates' Agreement
Appendix C -- Form of HCCH Affiliates' Agreement
Appendix D -- Form of Opinion of Piper & Marbury L.L.P.
Appendix E -- Form of Opinion of Xxxxxx X. Xxxxx
Appendix F -- Form of Opinion of Xxxxxxxx Xxxxxxxx & Xxxxxx P.C.
iii
6
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of the 28th day of February, 1997 by and among HCC Insurance Holdings,
Inc., a Delaware corporation ("HCCH"), Merger Sub #4, Inc., a Delaware
corporation and a wholly owned subsidiary of HCCH ("Merger Sub"), and AVEMCO
Corporation ("AVEMCO"), a Delaware corporation.
RECITALS:
A. The Boards of Directors of each of HCCH, Merger Sub and AVEMCO deem it
desirable to merge Merger Sub into AVEMCO (the "Merger") with the result that
AVEMCO shall become a wholly owned subsidiary of HCCH pursuant to the terms and
conditions hereof and have approved the Merger in accordance with the General
Corporation Law of the State of Delaware, as amended (the "DGCL").
B. It is the parties' mutual intent that the Merger constitute a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code") and that this Agreement constitute a plan of reorganization
thereunder.
C. For accounting purposes, the Merger shall be accounted for as a
pooling-of-interests.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms
when capitalized have the meanings indicated, except as otherwise provided
herein:
"Affiliate" shall have the meaning ascribed by Rule 12b-2 promulgated under
the Exchange Act.
"Agreement" shall mean this Agreement and Plan of Reorganization, including
the Schedules and Appendices hereto, all as amended or otherwise modified from
time-to-time.
"AVEMCO Audited Financial Statements" shall mean the audited consolidated
balance sheets and related statements of income, stockholders' equity and cash
flows, and the related notes thereto of AVEMCO as of and for the years ended
December 31, 1993, 1994 and 1995.
"AVEMCO Common Stock" means the shares of AVEMCO common stock, $.10 par
value per share.
"AVEMCO Financial Statements" shall mean the AVEMCO Audited Financial
Statements and the AVEMCO Interim Financial Statements, if any, collectively.
"AVEMCO Group" shall mean AVEMCO and any entity in which AVEMCO directly or
indirectly owns at least 20% of its equity interest.
"AVEMCO Incentive Stock Options" shall mean any and all outstanding
qualified options granted to employees, officers and directors under the AVEMCO
Incentive Stock Option Plan.
"AVEMCO Insurer Subsidiaries" shall mean AVEMCO Insurance Company, U.S.
Specialty Insurance Company and National Insurance Underwriters and any other
Insurer Subsidiary of the AVEMCO Group.
"AVEMCO Interim Financial Statement" shall mean the unaudited balance sheet
and the related unaudited statements of income and cash flows of AVEMCO as of
and for the nine-month period ended September 30, 1996.
"AVEMCO Latest Balance Sheet" shall mean the most current balance sheet of
AVEMCO included in the AVEMCO Financial Statements.
7
"AVEMCO Nonstatutory Stock Options" shall mean any and all outstanding
non-qualified options granted to employees, officers, directors and others under
the AVEMCO Stock Option Plans.
"AVEMCO Stock Options" shall mean the AVEMCO Nonstatutory Stock Options and
the AVEMCO Incentive Stock Options.
"AVEMCO Stock Option Plans" shall mean collectively AVEMCO's Nonstatutory
Stock Option Plan adopted in 1990, AVEMCO's Incentive Stock Option Plan, which
expired in December 1992 with respect to new grants, and any other AVEMCO stock
option plan.
"Average Market Price" shall mean the average of the daily closing prices
of a share of HCCH Common Stock or AVEMCO Common Stock, as the case may be, on
the NYSE as reported in The Wall Street Journal for any ten consecutive trading
days (with respect to the right of termination described in Section 7.2(h)).
"Benefit Arrangement" means any employment, severance or similar contract,
or any other contract, plan, policy or arrangement (whether or not written)
providing for compensation, bonus, profit-sharing, stock option or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, insurance coverage (including any self-insured arrangement), health or
medical benefits, Code Section cafeteria plan benefits, disability benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits), other than
the Employee Plans.
"Business Day" shall mean a day other than a Saturday, a Sunday or a day on
which national banks or the NYSE is closed.
"Closing Date" shall have the meaning ascribed to it in Section 2.1(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"DGCL" shall mean the General Corporation Law of the State of Delaware, as
amended.
"Effective Date" shall have the meaning ascribed to it in Section 2.1(b)
hereof.
"Effective Time" shall have the meaning ascribed to it in Section 2.1(b)
hereof.
"Employee Plan" means a plan or arrangement as defined in Section 3(3) of
ERISA, that (A) is subject to any provision of ERISA, (B) is maintained,
administered or contributed to by any member of the AVEMCO Group or HCCH ERISA
Affiliate, as the case may be, and (C) covers any employee or former employee of
any such member.
"Environmental Laws" shall have the meaning ascribed to it in Section 4.23
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
and the rules and regulations promulgated thereunder.
"Exchange Ratio" shall mean one-to-one (i.e., one share of HCCH Common
Stock for each share of AVEMCO Common Stock).
"HCCH Audited Financial Statements" shall mean the audited balance sheets,
and the related statements of earnings, stockholders' equity and cash flows, and
the related notes thereto of HCCH as of and for the years ended December 31,
1993, 1994 and 1995.
"HCCH Balance Sheet" shall mean the most current balance sheet of HCCH
included in the HCCH Financial Statements.
"HCCH Common Stock" shall mean shares of the common stock of HCCH, $1.00
par value per share.
"HCCH ERISA Affiliate" shall mean HCCH and any person treated, together
with HCCH, as a single employer under Sections 414(b), (c), (m) or (o) of the
Code or Section 4001(b) of ERISA.
2
8
"HCCH Financial Statements" shall mean the HCCH Audited Financial
Statements and the HCCH Interim Financial Statements, if any, collectively.
"HCCH Group" shall mean HCCH, Merger Sub and any entity in which HCCH
directly or indirectly owns at least 20% of its equity interest.
"HCCH Insurer Subsidiaries" shall mean Houston Casualty Company, Trafalgar
Insurance Company, IMG Insurance Company Ltd., Houston Reinsurance Company Ltd.
and any other Insurer Subsidiary of the HCCH Group.
"HCCH Interim Financial Statements" shall mean the unaudited balance sheet,
and the related unaudited statements of earnings and cash flows of HCCH as of
and for the nine-month period ended September 30, 1996.
"HCCH Stock Option Plans" shall mean HCCH's 1992 Incentive Stock Option
Plan, HCCH's 1995 Flexible Incentive Plan, HCCH's 1994 and 1996 Non-Employee
Director Stock Option Plans, and any other HCCH stock option plan.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"HSR Report" shall mean the premerger notification and report form to be
filed under the HSR Act.
"Insurer Subsidiary" shall mean any subsidiary organized as a domestic
insurer under the laws of the state or other jurisdiction of the United States.
"IRS" shall mean the Internal Revenue Service.
"Joint Proxy Statement" shall mean the proxy statement of AVEMCO to be
included in the Registration Statement for the purpose of obtaining approval by
the shareholders of AVEMCO of this Agreement and the proxy statement/prospectus
of HCCH to be included in the Registration Statement for the purposes of
obtaining approval by the shareholders of HCCH of this Agreement and offering
the HCCH Common Stock to the AVEMCO shareholders upon consummation of the
Merger.
"Liens" shall mean pledges, liens, defects, leases, licenses, equities,
conditional sales contracts, charges, claims, encumbrances, security interests,
easements, restrictions, chattel mortgages, mortgages or deeds of trust, of any
kind or nature whatsoever.
"Material Adverse Effect" shall mean a quantifiable loss, cost or expense
to or impact on the financial condition, results of operations, business or
prospects of, with respect to the HCCH Group, at least $14,000,000 and, with
respect to the AVEMCO Group, at least $4,000,000; provided, however, that a
general economic decline or a decline experienced by the United States insurance
industry generally (excluding catastrophic losses resulting from natural
disasters) shall not constitute a Material Adverse Effect; and provided further
that those acts, events or occurrences the effects or reasonably likely effects
of which are not susceptible to being measured or reduced to a quantifiable
loss, cost or expense, but which can nonetheless be demonstrated to have had or
be reasonably likely to have a material negative impact on or to have caused or
be reasonably likely to cause a material deterioration of the financial
condition, results of operations, business or prospects of the party and its
subsidiaries taken as a whole may nevertheless constitute a Material Adverse
Effect with respect to such party and the absence of a quantifiable loss, cost
or expense shall not preclude HCCH or AVEMCO from asserting that such acts or
events or occurrences, individually or in the aggregate, have caused or resulted
in or are reasonably likely to cause or result in such a Material Adverse
Effect.
"Multiemployer Plan" means a plan or arrangement as defined in Section
4001(a)(3) and 3(37) of ERISA.
"NYSE" means the New York Stock Exchange.
"Permitted Liens" shall mean any mechanic's, worker's, materialmen's,
operator's, or other liens arising as a matter of law in the ordinary course of
business.
3
9
"Person" shall mean an individual, firm, corporation, general or limited
partnership, limited liability company, limited liability partnership, joint
venture, trust, governmental authority or body, association, unincorporated
organization or other entity.
"Pre-Closing Periods" shall mean all Tax periods ending at or before the
Effective Time and, with respect to any Tax period that includes but does not
end at the Effective Time, the portion of such period that ends at and includes
the Effective Time.
"Registration Statement" shall mean the registration statement on Form S-4
to be filed by HCCH with the SEC for the purpose, among other things, of
registering the HCCH Common Stock which will be issued to the holders of AVEMCO
Common Stock upon consummation of the Merger.
"Returns" shall mean all returns, reports, estimates, declarations and
statements of any nature regarding Taxes for any Pre-Closing Period required to
be filed by the taxpayer relating to its income, properties or operations.
"SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance regulatory
authority in the state in which each Insurer Subsidiary is domiciled, as the
case may be, consistently applied throughout the specified period and in the
immediately prior comparable period.
"SAP Statements" shall mean any annual statements, quarterly statements and
other financial statements and presentations of any Insurer Subsidiary prepared
in accordance with SAP and filed with or submitted to the insurance regulatory
authority in the state in which such Insurer Subsidiary is domiciled on forms
prescribed or permitted by such authority.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean all reports, schedules, forms, statements and
other documents filed with the SEC since January 1, 1994.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Special Meeting" shall have the meaning ascribed in Section 6.2 hereof.
"Surviving Corporation" shall mean AVEMCO following the Effective Time.
"Taxes" shall mean any federal, state, local, foreign or other taxes
(including, without limitation, income, alternative minimum, franchise,
property, sales, use, lease, excise, premium, payroll, wage, employment or
withholding taxes), fees, duties, assessments, withholdings or governmental
charges of any kind whatsoever (including interest, penalties and additions to
tax).
"Title IV Plan" means an Employee Plan, other than any Multiemployer Plan,
subject to Title IV of ERISA.
ARTICLE II
THE MERGER
SECTION 2.1 THE CLOSING. (a) The closing of the transactions contemplated
herein (the "Closing") will take place, assuming satisfaction or waiver of each
of the conditions set forth in Article VII hereof, at the offices of Xxxxxxxx
Xxxxxxxx & Xxxxxx P.C., 000 Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx at 9:00 A.M.
(Houston time) on a date (the "Closing Date") to be mutually agreed upon between
the parties, or if no date has been agreed to, on the fifth business day after
the last to occur of the conditions set forth in Article VII hereof (other than
the delivery of officer's certificates or closing opinions). At the option of
the parties, documents to be delivered at Closing may be delivered by facsimile
transmission, and the delivery of the original documents shall be made on the
first business day following the Closing Date.
4
10
(b) At the Closing, the parties shall (i) deliver the documents,
certificates and opinions required to be delivered by Article VII hereof, (ii)
provide proof or indication of the satisfaction or waiver of each of the
conditions set forth in Article VII hereof, (iii) cause the appropriate officers
of AVEMCO and Merger Sub to execute and deliver the Certificate of Merger (in
substantially the form attached as Appendix "A," the "Certificate of Merger")
and (iv) consummate the Merger by causing to be filed the properly executed
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the provisions of the DGCL. The Merger shall be effective upon
the filing of the Certificate of Merger with the Secretary of State of Delaware
(such date and time being hereinafter referred to respectively as the "Effective
Date" and the "Effective Time").
SECTION 2.2 THE MERGER. Subject to the terms and conditions of this
Agreement, Merger Sub shall be merged with and into AVEMCO at the Effective
Time. Following the Merger, the separate corporate existence of Merger Sub shall
cease and AVEMCO shall be the Surviving Corporation and shall succeed to and
assume all the rights and obligations of Merger Sub in accordance with the DGCL.
The Merger shall have the effects set forth in Section 259 of the DGCL.
SECTION 2.3 CONVERSION OF SHARES. (a) At the Effective Time, by virtue of
the Merger and without any further action on the part of HCCH, Merger Sub,
AVEMCO or the Surviving Corporation, or any holder of any of the following
securities:
(i) each share of common stock of Merger Sub issued and outstanding at
the Effective Time shall be converted into one share of the common
stock, $.10 par value per share, of the Surviving Corporation;
(ii) each issued share of AVEMCO Common Stock that is held in treasury by
AVEMCO or held by any subsidiary of AVEMCO shall be cancelled and no
stock of HCCH or other consideration shall be delivered in exchange
therefor;
(iii) each share of AVEMCO Common Stock issued and outstanding at the
Effective Time shall be converted into the right to receive the
Exchange Ratio of a fully paid and nonassessable share of HCCH Common
Stock;
As used herein, the "Merger Consideration" shall mean the rights of holders
of AVEMCO Common Stock to receive HCCH Common Stock, or, in certain
circumstances as set forth in Section 2.4 hereof, cash.
(b) Upon conversion of the shares of AVEMCO Common Stock into the Merger
Consideration in the manner described in Section 2.3(a)(iii) above, each record
holder of issued and outstanding AVEMCO Common Stock immediately prior to the
Effective Time shall have the right to receive a certificate representing such
number of shares of HCCH Common Stock (rounded down to the nearest whole share)
equal to the product of (A) the Exchange Ratio, and (B) the number of issued and
outstanding shares of AVEMCO Common Stock of which such Person is the record
holder immediately prior to the Effective Time.
SECTION 2.4 EXCHANGE OF CERTIFICATES. (a) As of the Effective Date, HCCH
shall deposit with KeyCorp Shareholder Services, Inc., or such company as may be
designated by HCCH and reasonably acceptable to AVEMCO (the "Exchange Agent"),
for the benefit of the holders of shares of AVEMCO Common Stock, for exchange in
accordance with this Article II, through the Exchange Agent, certificates
representing the shares of HCCH Common Stock (such shares of HCCH Common Stock
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.3 in exchange for outstanding shares of AVEMCO Common Stock. Except as
contemplated by Section 2.3, the Exchange Fund shall not be used for any other
purpose. HCCH agrees to make available to the Exchange Agent, from time-to-time
as needed, cash sufficient to pay cash in lieu of fractional shares.
(b) As soon as reasonably practicable after the Effective Time, HCCH shall
cause 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 AVEMCO Common Stock (the "Certificates") whose shares were
converted into the right to receive shares of HCCH Common Stock pursuant to
Section 2.3, (i) a letter of
5
11
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent, and which shall be in such form and have
such other provisions as HCCH may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of HCCH Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to promptly
receive in exchange therefor a certificate representing that number of shares of
HCCH Common Stock (rounded down to the nearest whole share) which such holder
has the right to receive pursuant to the provisions of this Article II after
taking into account all the shares of AVEMCO Common Stock then held by such
holder under all such Certificates so surrendered and/or cash in lieu of
fractional shares of HCCH Common Stock to which such holder is entitled pursuant
to Section 2.3, and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of AVEMCO Common Stock which is not
registered in the transfer records of AVEMCO, a certificate representing the
proper number of shares of HCCH Common Stock may be issued to a person other
than the person in whose name the Certificate so surrendered is registered, if,
upon presentation to the Exchange Agent, such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such transfer shall pay any transfer or other taxes required by reason of the
issuance of shares of HCCH Common Stock to a person other than the registered
holder of such Certificate or establish to the reasonable satisfaction of HCCH
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.4(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of HCCH Common Stock and cash in
lieu of any fractional shares of HCCH Common Stock as contemplated by this
Section 2.4. No interest will be paid or will accrue on any cash payable
pursuant to this Article II.
(c) No dividends or other distributions with respect to HCCH Common Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of HCCH Common Stock
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.4(e) until the holder of record of
such Certificate shall surrender such Certificate. Following surrender of any
such Certificate, there shall be paid to the record holder of the certificate
representing whole shares of HCCH Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of HCCH Common Stock to which such holder
is entitled pursuant to Section 2.4(e) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of HCCH Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole shares of HCCH
Common Stock.
(d) All shares of HCCH Common Stock issued upon the surrender for exchange
of shares of AVEMCO Common Stock in accordance with the terms hereof (including
any cash paid pursuant to Section 2.4(c) or 2.4(e)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of AVEMCO
Common Stock, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of AVEMCO Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II.
(e) (i) No certificates or scrip representing fractional shares of HCCH
Common Stock shall be issued upon the surrender for exchange of Certificates,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a shareholder of HCCH.
(ii) In lieu of the issuance of fractional shares of HCCH Common Stock,
each holder of record of issued and outstanding shares of AVEMCO Common Stock,
as of the Effective Time shall be entitled to receive a cash payment (without
interest) (each a "Fractional Payment" and, collectively, the "Fractional
Payments") equal to the fair market value of the fractional share of HCCH Common
Stock to which such holder would be entitled but for this provision. For
purposes of calculating such cash payment, the fair market
6
12
value of a fraction of a share of HCCH Common Stock shall be such fraction
multiplied by the Average Market Price.
(f) Any portion of the Exchange Fund which remains undistributed to the
holders of the Certificates for six (6) months after the Effective Time shall be
delivered to HCCH, upon demand, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look only to HCCH for
payment of their claim for HCCH Common Stock, any cash in lieu of fractional
shares of HCCH Common Stock, and any dividends or distributions with respect to
HCCH Common Stock.
(g) None of HCCH, Merger Sub, AVEMCO or the Exchange Agent shall be liable
to any person in respect of any shares of HCCH Common Stock (or dividends or
distributions with respect thereto) or cash that the Exchange Agent delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) 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 or
HCCH, the posting by such person of a bond in such reasonable amount as the
Surviving Corporation or HCCH 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 shares of
HCCH Common Stock and any cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of HCCH Common Stock deliverable in
respect thereof, pursuant to this Agreement.
SECTION 2.5 STOCK OPTIONS. (a) As soon as practicable following the date
of this Agreement, the Board of Directors of AVEMCO (or, if appropriate, any
committee administering the AVEMCO Stock Option Plans) shall adopt such
resolutions or take such other actions as may be required to effect the
following with respect to all options to purchase shares of AVEMCO Common Stock
granted under the AVEMCO Stock Option Plans or otherwise ("Options") not
exercised prior to the Closing Date:
(i) adjust the terms of all such Options to purchase shares of AVEMCO
Common Stock to provide that, at the Effective Time, each Option
outstanding immediately prior to the Effective Time shall be deemed to
constitute an option to acquire, on substantially the same terms and
conditions, as were applicable to such Option under the terms of such
Option and the applicable AVEMCO Stock Option Plans, the same number of
shares of HCCH Common Stock (rounded down to the nearest whole share) as
the holder of such Option would have been entitled to receive pursuant to
the Merger had such holder exercised such Option in full immediately prior
to the Effective Time, at a price per share equal to (y) the aggregate
exercise price for the shares of AVEMCO Common Stock otherwise purchasable
pursuant to such Option divided by (z) the number of shares of HCCH Common
Stock deemed purchasable pursuant to such Option; provided, however, that
(i) no certificate or scrip representing fractional shares of HCCH Common
Stock shall be issued in respect of any Option as adjusted pursuant to this
Section 2.5 and (ii) any such fractional share will not entitle the owner
thereof to vote or to any rights of a shareholder of HCCH; provided,
further, that in the case of any option to which Section 421 of the Code
applies by reason of its qualification under any of Section 422 of the Code
("qualified stock options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with Section
424(a) of the Code; and
(ii) make such other changes to the AVEMCO Stock Option Plans as it
deems appropriate to give effect to the Merger (subject to the approval of
HCCH, which shall not be unreasonably withheld).
(b) Any provisions in the AVEMCO Stock Option Plans providing for the
issuance, transfer or grant of any capital stock of AVEMCO or any interest in
respect of any capital stock of AVEMCO shall be deleted as of the Effective
Time, and AVEMCO shall use commercially reasonable efforts to ensure that
following the Effective Time no holder of an Option or any participant in any
AVEMCO Stock Option Plan shall have any right thereunder to acquire any capital
stock of AVEMCO, HCCH or the Surviving Corporation, except as contemplated in
this Section 2.5.
7
13
(c) As soon as practicable after the Effective Time, HCCH shall deliver to
the holders of Options appropriate notices setting forth such holder's rights
pursuant to the respective AVEMCO Stock Option Plans and the agreements
evidencing the grants of such Options shall continue in effect on substantially
the same terms and conditions (subject to the adjustments required by this
Section 2.5 after giving effect to the Merger). Except as otherwise provided in
this Section 2.5, HCCH shall comply with the terms of the AVEMCO Stock Option
Plans and ensure, to the extent required by, and subject to the provisions of
such AVEMCO Stock Option Plans, that the Options which qualified as incentive
stock options prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time.
(d) HCCH agrees to use commercially reasonable efforts to take such actions
as are necessary for the conversion of the Options in accordance with this
Section 2.5, including:
(i) the reservation, issuance and listing of HCCH Common Stock as is
necessary to effectuate the transactions contemplated by Section 2.5;
(ii) entering into such agreements as are necessary to assume such
Options; and
(iii) the filing of a registration statement or statements pursuant to
Section 8.6 hereof, to facilitate the public sale of stock issuable upon
the exercise of such Options.
(e) A holder of an Option adjusted in accordance with this Section 2.5 may
exercise such adjusted Option in whole or in part in accordance with its terms
by delivering a properly executed notice of exercise to HCCH, together with the
consideration therefor and the federal withholding tax amount, if any, required
in accordance with the related AVEMCO Stock Option Plans.
ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1 CERTIFICATE OF INCORPORATION. At the Effective Time, the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by the
DGCL.
SECTION 3.2 BYLAWS. At the Effective Time, the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by the DGCL.
SECTION 3.3 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, the directors and officers of Merger Sub at the Effective Time
shall become directors and the officers of the Surviving Corporation. Nothing in
this Section 3.3 shall be construed to terminate or otherwise affect the status
of any such officer or director as an employee of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AVEMCO
Except as disclosed in the disclosure schedule heretofore delivered by
AVEMCO to HCCH which makes reference to this Agreement or in a document, exhibit
or appendix filed with the SEC which has been filed on or before the date hereof
and which has been delivered to HCCH on or before the date hereof (collectively
referred to herein as the "AVEMCO Disclosure Schedule"), AVEMCO represents and
warrants to HCCH as set forth below (it being agreed that the disclosure on the
AVEMCO Disclosure Schedule of the existence of any document or fact or
circumstance or situation relating to any representations, warranties, covenants
or agreements in any section of this Agreement shall be automatically deemed to
be disclosure of such document
8
14
or fact or circumstance or situation for purposes of all other representations,
warranties, covenants and agreements in this Agreement):
SECTION 4.1 CORPORATE EXISTENCE, POWER AND DOCUMENTATION. Each member of
the AVEMCO Group is a corporation duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its incorporation, and
has all corporate powers and all material governmental licenses, authorizations,
consents and approvals (collectively, "Governmental Authorizations") required to
carry on its business as now conducted, except such Governmental Authorizations
the failure of which to have obtained would not have a Material Adverse Effect
on AVEMCO. Each member of the AVEMCO Group is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not have a Material Adverse Effect on AVEMCO. AVEMCO has delivered to HCCH
true and complete copies of the Certificate of Incorporation or Articles of
Incorporation, as the case may be, and Bylaws as currently in effect of AVEMCO
and each other member of the AVEMCO Group. The minute books of each member of
the AVEMCO Group contain, in all material respects, complete and accurate
records of all corporate actions of the equity owners of the various entities
and of the boards of directors or other governing bodies thereof, including
committees of such boards or governing bodies. To the knowledge of AVEMCO, the
stock transfer records of AVEMCO are maintained by its transfer agent and
registrar and contain complete and accurate records of all issuances and
redemptions of stock by AVEMCO. Except for outstanding AVEMCO Stock Options,
neither AVEMCO nor any of its Affiliates' is a party to any agreement with
respect to the capital stock of AVEMCO other than this Agreement.
SECTION 4.2 RECIPROCAL EXCHANGE. Specialty Insurance Underwriters, Inc., a
subsidiary of AVEMCO and a Missouri corporation, is the duly authorized
attorney-in-fact of National Insurance Underwriters, a reciprocal insurance
exchange organized under the laws of the State of Missouri. National Insurance
Underwriters is under the control of the AVEMCO Group, but is not owned by the
AVEMCO Group.
SECTION 4.3 CORPORATE AUTHORIZATION. Subject to obtaining approval of the
holders of not less than a majority of the outstanding AVEMCO Common Stock with
respect to the Merger, AVEMCO has the requisite corporate power and authority to
enter into this Agreement and the documents contemplated hereby and to
consummate the transactions described herein and therein. The execution and
delivery by AVEMCO of this Agreement and the documents contemplated hereby and
the consummation by AVEMCO of the transactions described herein and therein have
been duly authorized by all necessary corporate action on the part of AVEMCO,
except for the affirmative vote of the holders of not less than a majority of
the outstanding AVEMCO Common Stock with respect to the Merger. This Agreement
and the documents contemplated hereby have been duly executed and delivered by
AVEMCO and constitute, or upon execution and delivery will constitute, valid and
binding obligations of AVEMCO, enforceable in accordance with their respective
terms, except as such enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally or
by general principles of equity and except that the Merger may not be effected
without the affirmative vote of the holders of not less than a majority of the
outstanding AVEMCO Common Stock.
SECTION 4.4 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by AVEMCO of this Agreement and the documents contemplated hereby
and the consummation of the Merger by AVEMCO require no action by or in respect
of, or filing with, any governmental body, agency, official or authority other
than:
(a) the filing of a Certificate of Merger in accordance with the DGCL;
(b) compliance with any applicable requirements of the HSR Act;
(c) compliance with any applicable requirements of the Exchange Act;
(d) compliance with any applicable foreign or state securities or
"blue sky" laws and the rules and regulations of The NYSE;
9
15
(e) compliance with any applicable requirements of the Missouri,
California and Maryland or other insurance regulatory agency having
authority over any member of the AVEMCO Group or the transactions described
herein;
(f) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not have a
Material Adverse Effect on AVEMCO or the Surviving Corporation or (ii)
would not materially adversely affect the ability of AVEMCO, HCCH or Merger
Sub to consummate the transactions contemplated hereby and operate their
businesses as heretofore operated.
SECTION 4.5 NON-CONTRAVENTION. The execution, delivery and performance by
AVEMCO of this Agreement and the documents contemplated hereby and the
consummation by AVEMCO of the transactions contemplated hereby and thereby do
not and will not:
(a) contravene or conflict with the certificate or articles of
incorporation or Bylaws of any member of the AVEMCO Group;
(b) assuming compliance with the matters referred to in Section 4.4
and assuming the requisite approval by the holders of AVEMCO Common Stock
of the Merger and effectiveness of the Registration Statement, contravene
or conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or
applicable to any member of the AVEMCO Group;
(c) conflict with or result in a breach or violation of, or constitute
a default under, or result in a contractual right to cause the termination
or cancellation of or loss of a material benefit under, or right to
accelerate, any material agreement, contract or other instrument binding
upon any member of the AVEMCO Group or any material license, franchise,
permit or other similar authorization held by any member of the AVEMCO
Group; or
(d) result in the creation or imposition of any Lien on any material
asset of any member of the AVEMCO Group.
except with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses, that in
the aggregate would not reasonably be expected to have a Material Adverse Effect
on AVEMCO.
SECTION 4.6 CAPITALIZATION. The authorized, issued and outstanding capital
stock of each member of the AVEMCO Group as of December 31, 1996 is set forth in
the AVEMCO Disclosure Schedule. All outstanding shares of each member of the
AVEMCO Group have been duly authorized and validly issued and are fully paid and
nonassessable and free from any preemptive rights. Except for changes since
December 31, 1996 resulting from the exercise of employee and director stock
options and stock repurchases by AVEMCO, with respect to AVEMCO and each member
of the AVEMCO Group, there are outstanding (i) no shares of capital stock or
other voting securities, (ii) no securities convertible into or exchangeable for
shares of its capital stock or voting securities, (iii) no options or other
rights to acquire, and no obligation to issue, any capital stock, voting
securities or securities convertible into or exchangeable for its capital stock
or other voting securities, (iv) no obligations to repurchase, redeem or
otherwise acquire any of its outstanding securities and (v) no contractual
rights of any person or entity to include any such securities in any
registration statement proposed to be filed under the Securities Act.
SECTION 4.7 SUBSIDIARIES AND JOINT VENTURES.
(a) For purposes of this Agreement, (i) "Subsidiary" means, with respect to
any entity, any corporation of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned by
such entity, and (ii) "Joint Venture" means, with respect to any entity, any
corporation or organization (other than such entity and any Subsidiary thereof)
of which such entity or any Subsidiary thereof is, directly or indirectly, the
beneficial owner of 20% or more of any class of equity securities or equivalent
profit participation interests.
10
16
(b) The only Subsidiaries of AVEMCO are the members, other than AVEMCO, of
the AVEMCO Group, and their respective jurisdictions of incorporation or
organization and the ownership interest of AVEMCO or a Subsidiary of AVEMCO
therein are identified in the schedules and filings that comprise the AVEMCO
Disclosure Schedule. Other than such investments and investments in AVEMCO's
investment portfolio reflected in the AVEMCO Latest Balance Sheet or arising
thereafter in the ordinary course of business, neither AVEMCO nor any other
member of the AVEMCO Group owns, directly or indirectly, any outstanding capital
stock or equity interest in any corporation, partnership, Joint Venture, other
Person or other entity.
(c) All of the outstanding capital stock of, or other ownership interests
in, each Subsidiary that is or may be owned, directly or indirectly, by a member
of the AVEMCO Group on the Effective Date and all of the outstanding stock of
each member of the AVEMCO Group other than AVEMCO is owned, directly or
indirectly by AVEMCO, free and clear of any material Lien and free of any other
material limitation or restriction on its rights as owner thereof (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests), other than those imposed by applicable law
or this Agreement.
SECTION 4.8 SEC AND NYSE FILINGS.
(a) AVEMCO has since January 1, 1991 filed all forms, proxy statements,
schedules, reports and other documents required to be filed by it with the SEC
pursuant to the Exchange Act and with the NYSE pursuant to its rules and
regulations.
(b) AVEMCO has delivered, and will promptly deliver in the case of any of
the following (collectively the "AVEMCO SEC Documents") filed with the SEC on or
after the date hereof and prior to the Effective Date, to HCCH:
(i) its annual reports on Form 10-K for its fiscal years ended
December 31, 1995 and 1994;
(ii) its quarterly reports on Form 10-Q for its fiscal quarters ending
March 31, June 30, and September 30, 1996;
(iii) any current reports on Form 8-K since January 1, 1995 and its
proxy or information statements relating to meetings of, or actions taken
without a meeting by, the shareholders of AVEMCO held since January 1,
1996; and
(iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 1995. No other member of
the AVEMCO Group is required to file any forms, reports or other documents
with the SEC.
(c) As of its filing date, no such report or statement filed pursuant to
the Exchange Act contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) No registration statement, or amendment thereto, filed pursuant to the
Securities Act, if declared effective by the SEC, as of the date such statement
or amendment became effective or on the date such statement or amendment was
supplemented, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 4.9 AVEMCO FINANCIAL STATEMENTS. The AVEMCO Financial Statements
included in the AVEMCO SEC Documents have been prepared in accordance with
United States generally accepted accounting principles applied on a basis
consistent with prior periods (except as may be indicated in the notes thereto),
and present fairly the consolidated financial position of AVEMCO and its
consolidated subsidiaries and the consolidated results of operations and cash
flows for the periods then ended (subject to normal year-end adjustments in the
case of any interim financial statements). To the knowledge of AVEMCO, the
statements of income included in the AVEMCO Financial Statements do not contain
any income or revenue realized from services that the Surviving Corporation
would be prohibited or restricted from offering after the
11
17
Effective Time pursuant to any covenant or provision in any contract to which
any member of the AVEMCO Group is a party.
SECTION 4.10 NO UNDISCLOSED LIABILITIES. There are no liabilities of any
member of the AVEMCO Group of any kind whatsoever that are, individually or in
the aggregate, material to AVEMCO, other than:
(a) liabilities disclosed or provided for in the AVEMCO Balance Sheet
(including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent with
past practice since September 30, 1996 (the "AVEMCO Balance Sheet Date"); and
(c) liabilities under this Agreement or as indicated in the schedules and
filings that comprise the AVEMCO Disclosure Schedule.
SECTION 4.11 SAP STATEMENTS. AVEMCO has delivered to HCCH true and
complete copies of the following SAP Statements for the AVEMCO Insurer
Subsidiaries: SAP Statements for each AVEMCO Insurer Subsidiary for the years
ended December 31, 1993, 1994 and 1995, and for the third quarter ended
September 30, 1996, and the notes related thereto ("SAP Financial Statements").
Each of the SAP Financial Statements complied in all material respects with all
applicable laws when so filed, all material deficiencies known to AVEMCO and
each AVEMCO Insurer Subsidiary with respect to any such SAP Financial Statements
have been cured or corrected. Each such SAP Financial Statement (and the notes
related thereto) including without limitation each balance sheet and each of the
statements of income, capital and surplus account, and cash flow contained in
the respective SAP Financial Statement, was prepared in accordance with SAP, is
true and complete in all material respects, and fairly presents the financial
condition, assets and properties and liabilities of each AVEMCO Insurer
Subsidiary as of the respective dates thereof, and the results of operations and
changes in capital and surplus and in the cash flow of each such AVEMCO Insurer
Subsidiary for and during the respective periods covered thereby. All reserves
with respect to insurance written or assumed by each AVEMCO Insurer Subsidiary
as established or reflected on such SAP Financial Statements were determined in
accordance with generally accepted actuarial principles and practices and are in
all material respects in accordance with the related insurance, coinsurance and
reinsurance contracts of the AVEMCO Insurer Subsidiaries, and meet in all
material respects the requirements of the insurance laws of the jurisdictions in
which such contracts were issued or delivered.
SECTION 4.12 ABSENCE OF CERTAIN CHANGES. Since the date of the AVEMCO
Latest Balance Sheet, AVEMCO has, in all material respects, conducted its
business in the ordinary course and there has not been:
(a) any event or circumstance resulting in a Material Adverse Effect
with respect to AVEMCO, or any event, occurrence or development of a state
of circumstances or facts known to any member of the AVEMCO Group, which as
of the date hereof could reasonably be expected to have a Material Adverse
Effect on AVEMCO;
(b) any action by any member of the AVEMCO Group which, if taken after
the date hereof, would constitute a breach of any provision of Sections 6.3
or 6.5;
(c) any damage, destruction or other property or casualty loss
(whether or not covered by insurance) affecting the business, assets,
liabilities, earnings or prospects of AVEMCO or any other member of the
AVEMCO Group which, individually or in the aggregate, has had or would have
a Material Adverse Effect on AVEMCO or any other member of the AVEMCO
Group;
(d) any amendment, termination or waiver by AVEMCO or any other member
of the AVEMCO Group of any material right under any agreement, contract or
other written commitment to which it is a party or by which it is bound and
which is required to be disclosed in the schedule delivered pursuant to
Section 4.17;
(e) any material reduction in the amounts of coverage provided by
existing casualty and liability insurance policies with respect to the
business or properties of AVEMCO or any other member of the AVEMCO Group;
12
18
(f) any (i) grant of any severance or termination pay to any director,
officer or, other than in the ordinary course of business consistent with
past practice, any employee of AVEMCO or any other member of the AVEMCO
Group or (ii) increase in benefits payable to any director, officer or,
other than in the ordinary course of business consistent with past
practice, any employee under any existing severance or termination pay
policies or employment agreements;
(g) any new or amendment to or alteration of any existing bonus,
incentive, compensation, severance, stock option, stock appreciation right,
pension, matching gift, profit-sharing, employee stock ownership,
retirement, pension group insurance, death benefit, or other fringe benefit
plan, arrangement or trust agreement adopted or implemented by AVEMCO or
any other member of the AVEMCO Group, excluding individual actions with
respect to non-officer employees in the ordinary course of business
consistent with past practice;
(h) other than in the ordinary course of business consistent with past
practice, the cancellation, waiver, release or other compromise of any
material debt, claim or right;
(i) any change in any accounting principle or practice or method or
application thereof;
(j) the termination, lapse, suspension, revocation of, amendment of,
limitation upon, disposal of or failure to renew any license or permit
necessary for the operation of the business of AVEMCO or any other member
of the AVEMCO Group which would be material to AVEMCO and the other members
of the AVEMCO Group as a whole;
(k) any transaction other than on an arm's-length basis;
(l) other than in the ordinary course of business consistent with past
practice, any change in any underwriting, actuarial, investment, or
financial reporting practice or policy followed by AVEMCO or any AVEMCO
Insurer Subsidiary or method or application thereof, or any assumption
underlying such principle, practice or policy;
(m) other than in the ordinary course of business consistent with past
practice, any termination, amendment, or execution by any Insurer
Subsidiary of any reinsurance, coinsurance or similar contract or treaty,
as ceding or assuming insurer;
(n) any sale, transfer, or conveyance of Assets or Properties of any
AVEMCO Insurer Subsidiary (other than investment securities) with an
individual book value or with any aggregate book value in excess of
$250,000;
(o) any purchase of any investment securities by any AVEMCO Insurer
Subsidiary other than purchases of investment grade, tax exempt fixed
income securities, commercial paper or cash equivalents since the date of
this Agreement.
SECTION 4.13 LITIGATION. There is no action, suit, proceeding, claim or
investigation pending or, to the knowledge of AVEMCO, overtly threatened against
AVEMCO or any other member of the AVEMCO Group or any of their assets or against
or involving any of their officers, directors or employees in connection with
the business or affairs of AVEMCO or any other member of the AVEMCO Group,
including, without limitation, any such claims for indemnification arising under
any agreement to which AVEMCO or any other member of the AVEMCO Group is a
party, other than claims in the ordinary course of business with respect to
which an AVEMCO Insurer Subsidiary provides or has provided indemnification,
which could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on AVEMCO. Neither AVEMCO nor any other member of the
AVEMCO Group is subject, or in default with respect, to any writ, order,
judgment, injunction or decree which could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on AVEMCO.
SECTION 4.14 ACCOUNTING MATTERS. Neither AVEMCO nor any other member of
the AVEMCO Group or an Affiliate thereof has taken or agreed to take any action
that (without giving effect to any action taken or agreed to be taken by HCCH or
any of its Affiliates') would prevent HCCH from accounting for the business
combination to be effected by the Merger as a pooling-of-interests.
13
19
SECTION 4.15 TAXES.
(a) Each member of the AVEMCO Group (i) has filed when due (taking into
account extensions) with the appropriate federal, state, local, foreign and
other governmental agencies, all tax returns, estimates and reports required to
be filed by it, (ii) either paid when due and payable or established adequate
reserves or otherwise, accrued on the AVEMCO Financial Statements, all Taxes,
and there are no material tax deficiencies claimed in writing by any Taxing
authority and received by a member of the AVEMCO Group that, in the aggregate,
would result in any tax liability in excess of the amount of the reserves or
accruals and (iii) has or will establish in accordance with its normal
accounting practices and procedures accruals and reserves that, in the
aggregate, are adequate for the payment of all Taxes not yet due and payable and
attributable to any period preceding the Effective Time. The AVEMCO Disclosure
Schedule sets forth those tax returns of each member of the AVEMCO Group (or any
predecessor entities) for all periods that currently are the subject of audit by
any federal, state, local or foreign taxing authority.
(b) There are no material Taxes, interest, penalties, assessments or
deficiencies claimed in writing by any Taxing authority and received by any
member of the AVEMCO Group to be due in respect of any tax returns filed by any
member of the AVEMCO Group (or any predecessor corporations). Neither any member
of the AVEMCO Group nor any predecessor corporation, has executed or filed with
the IRS or any other Taxing authority any agreement or other document extending,
or having the effect of extending, the period of assessment or collection of any
Taxes.
(c) (i) No member of the AVEMCO Group is a party to any agreement, plan,
contract or arrangement that could result in the payment of any amount of
compensation the deduction of which would be prohibited pursuant to Section
162(m) of the Code.
(ii) No member of the AVEMCO Group is a party to any agreement, plan,
contract or arrangement that could result in the payment of any amount of
compensation the deduction of which would be prohibited pursuant to Section 280G
of the Code.
(iii) There are no Tax liens (other than for current Taxes not yet due
and payable) upon the assets of any member of the AVEMCO Group.
(iv) All material Taxes that the AVEMCO Group is required by law to
withhold or collect have been duly withheld or collected, and have been timely
paid over to the appropriate governmental authorities to the extent due and
payable.
(v) The AVEMCO Disclosure Schedule sets forth (A) the taxable years of
each member of the AVEMCO Group as to which the respective statutes of
limitations (as defined in Code Section 6501(a) without application of
exceptions contained in other provisions of Code Section 6501) with respect to
Taxes (limited, however, to Taxes imposed by the Code) have not expired, and (B)
with respect to such taxable years, those years for which examinations have not
been completed, those years for which examinations are currently being
conducted, those years for which examinations have not been initiated, and those
years for which required Returns have not yet been filed. The AVEMCO Disclosure
Schedule lists each state in which any member of the AVEMCO Group has, at any
time within the three-year period ending on the date hereof, filed a Return.
(vi) All Tax deficiencies which have been claimed, proposed or asserted
against any member of the AVEMCO Group have been fully paid or finally settled,
and no issue has been raised in any examination which, by application of similar
principles to the same or a similar factual situation or practice, can be
expected to result in the proposal or assertion of a material Tax deficiency for
any other year not so examined.
(vii) Since 1990, no member of the AVEMCO Group has ever been a member
of an affiliated group (used herein as defined in Section 1504 of the Code)
other than an affiliated group of which AVEMCO is the parent corporation.
(viii) No member of the AVEMCO Group has taken any action or has any
knowledge of any fact or circumstance that is reasonably likely to prevent the
Merger from qualifying as a tax-free reorganization within the meaning of
Section 368(a) of the Code.
14
20
(ix) Since 1990, no member of the AVEMCO Group is (or has ever been) a
party to any tax sharing agreement that includes a party other than AVEMCO and
its subsidiaries nor has any such member assumed the tax liability of any other
person under contract.
SECTION 4.16 EMPLOYEE BENEFIT PLANS, ERISA.
(a) To the knowledge of AVEMCO, neither AVEMCO nor any other member of the
AVEMCO Group is a party to any oral or written (i) employment, severance,
collective bargaining or consulting agreement not terminable on 90 days' or less
notice, (ii) agreement with any executive officer or other key employee of
AVEMCO or any other member of the AVEMCO Group (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving AVEMCO or any other member of the AVEMCO Group of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation guarantee extending for a period longer
than one year, or (C) providing severance benefits or other benefits after the
termination of employment of such executive officer or key employee regardless
of the reason for such termination of employment, (iii) agreement, plan or
arrangement under which any person may receive payments subject to the tax
imposed by Section 4999 of the Code, or (iv) agreement or plan, including,
without limitation, any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, the benefits of which would be
increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated, other than pursuant to
Section 2.5 above, on the basis of any of the transactions contemplated by this
Agreement.
(b) The AVEMCO Disclosure Schedule lists each Employee Plan that each
member of the AVEMCO Group maintains, administers, contributes to, or has any
contingent liability with respect thereto. AVEMCO has provided a true and
complete copy to HCCH of each such Employee Plan, current summary plan
description, (and, if applicable, related trust documents) and all amendments
thereto, together with (i) the three most recent annual reports, if any,
prepared in connection with each such Employee Plan (Form 5500 including, if
applicable, Schedule B thereto); (ii) the most recent actuarial report, if any,
and trust financial statement prepared in connection with each Employee Plan;
(iii) to the knowledge of AVEMCO, all material communications concerning each
Employee Plan received from or sent to the IRS or the Department of Labor
("DOL") within the last two years (including a written description of any
material oral communications relating to the IRS Voluntary Compliance Resolution
or Closing Agreement Programs); (iv) the most recent IRS determination letter
with respect to each Employee Plan and the most recent application for a
determination letter, both as applicable; (v) all insurance contracts or other
funding arrangements, currently in force; and (vi) an actuarial study of any
post-employment life or medical benefits provided, if any. Each Employee Plan
has been maintained and administered in material compliance with its terms and
with the requirements (including reporting requirements if any) prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Employee Plan.
(c) The AVEMCO Disclosure Schedule identifies each Benefit Arrangement that
each member of the AVEMCO Group maintains, administers, contributes to, or to
the knowledge of AVEMCO has any contingent liability with respect thereto.
AVEMCO has furnished to HCCH copies or descriptions of each Benefit Arrangement
and any of the information set forth in Section 4.16(b) applicable to any such
Benefit Arrangement.
(d) Benefits under any Employee Plan or Benefit Arrangement are as
represented in said documents and have not been increased or modified (whether
written or not written) subsequent to the dates of such documents. Each Benefit
Arrangement has been maintained and administered in material compliance with its
terms and with the requirements (including reporting requirements, if any)
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement. To the knowledge of AVEMCO, no member of
the AVEMCO Group has communicated to any employee or former employee any
intention or commitment to modify any Employee Plan or Benefit Arrangement or to
establish or implement any other employee or retiree benefit or compensation
arrangement.
15
21
(e) To the knowledge of AVEMCO, no Employee Plan or Benefit Arrangement is
currently subject to an audit or other investigation by the IRS, the DOL, the
Pension Benefit Guaranty Corporation or any other governmental agency or office
nor is any such Employee Plan or Benefit Arrangement subject to any lawsuits or
legal proceedings of any kind or to any pending disputed material claims by
employees or beneficiaries covered under any such Employee Plan or Benefit
Arrangement or by any other parties.
(f) To the knowledge of AVEMCO, no "prohibited transaction," as defined in
Section 406 of ERISA or Section 4975 of the Code, resulting in liability to
AVEMCO, or any other member of the AVEMCO Group has occurred with respect to any
Employee Plan.
(g) No current or former member of the AVEMCO Group, since January 1, 1986,
has maintained or contributed to, or been obligated or required to contribute
to, a "Multiemployer Plan."
(h) No member of the AVEMCO Group has any knowledge that the qualified
status of any Employee Plan listed on the AVEMCO Disclosure Schedule or the tax
exempt status of each trust created thereunder is jeopardized.
(i) To the knowledge of AVEMCO, full payment has been made of all amounts
which any member of the AVEMCO Group is or has been required to have made as
contributions to or benefits due under any Employee Plan or Benefit Arrangement
under applicable law or under the terms of any such plan or any arrangement.
(j) To the knowledge of AVEMCO, no member of the AVEMCO Group has any
current or projected liability in respect of post-retirement or post-employment
welfare benefits for retired, current or former employees, except as required to
avoid excise tax under Section 4980B of the Code or to avoid a violation of
Section 601 of ERISA, relating to the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA").
(k) To the knowledge of AVEMCO, all group health plans (as defined in Code
Section 5000(b)(1)) of any member of the AVEMCO Group have at all times
materially complied with all applicable notification and continuation coverage
requirements of Section 4980B(f) of the Code and Section 601 of ERISA, and the
regulations promulgated thereunder. Further, no Employee Plan provides health,
medical, death or survivor benefits to any shareholders or directors who are not
employees, former employees or beneficiaries thereof, except to the extent
otherwise required by the continuation requirements of Section 4980B(f) of the
Code and Section 601 of ERISA, and there are no claims by terminated employees
with respect thereto.
(l) To the knowledge of AVEMCO, no employee or former employee, officer or
director of any member of the AVEMCO Group is or will, on or after the date of
this Agreement, become entitled to receive any award under discretionary or
other bonus plans of any member of the AVEMCO Group.
SECTION 4.17 MATERIAL AGREEMENTS.
(a) The AVEMCO Disclosure Schedule includes a complete and accurate list of
all contracts, agreements, leases (other than AVEMCO Property Leases, as
hereinafter defined), and instruments to which any member of the AVEMCO Group is
a party or by which it or its properties or assets are bound which individually
involve net payments or receipts in excess of $250,000 per annum, inclusive of
contracts entered into with customers and suppliers in the ordinary course of
business, or that pertain to employment or severance benefits for any officer,
director or employee of any member of the AVEMCO Group, whether written or oral,
but exclusive of contracts, agreements, leases and instruments (i) terminable
without penalty upon 90 days' or less prior written notice to the other party or
parties thereto or (ii) relating to insurance or reinsurance policies issued or
investments made in the ordinary course of business (the "Material AVEMCO
Agreements").
(b) No member of the AVEMCO Group nor, to the knowledge of AVEMCO, any
other party is in default under any Material AVEMCO Agreement and no event has
occurred which (after notice or lapse of time or both) would become a breach or
default under, or would permit modification, cancellation, acceleration or
termination of any Material AVEMCO Agreement or result in the creation of any
security interest upon, or any person obtaining any right to acquire, any
properties, assets or rights of any member of
16
22
the AVEMCO Group which, in any such case, has had or would reasonably be
expected to have a Material Adverse Effect on AVEMCO.
(c) To the knowledge of AVEMCO, each such Material AVEMCO Agreement is in
full force and effect and is valid and legally binding and there are no material
unresolved disputes involving or with respect to any Material AVEMCO Agreement.
No party to a Material AVEMCO Agreement has advised any member of the AVEMCO
Group that it intends either to terminate a Material AVEMCO Agreement or to
refuse to renew a Material AVEMCO Agreement upon the expiration of the term
thereof.
(d) No member of the AVEMCO Group is, to its knowledge, in violation of, or
in default with respect to, any term of its Articles or Certificate of
Incorporation, as the case may be, or Bylaws.
SECTION 4.18 PROPERTIES AND LEASES. (a) All of the properties and assets
which are owned by any member of the AVEMCO Group are owned by each of them,
respectively, free and clear of any material Lien. Each member of the AVEMCO
Group has good and indefeasible title with respect to such owned properties and
assets subject to no material Liens, other than those permitted under this
Section 4.18, to all of the properties and assets necessary for the conduct of
their business other than to the extent that the failure to have such title
would not have a Material Adverse Effect on AVEMCO.
(b) With respect to each lease of any real property, or a material amount
of other personal property, to which a member of the AVEMCO Group is a party
(the "AVEMCO Property Leases"), to AVEMCO's knowledge, (i) such member of the
AVEMCO Group has a valid leasehold interest in such real property or personal
property; (ii) such lease is in full force and effect in accordance with its
terms; (iii) all rents and other monetary amounts that have become due and
payable thereunder have been paid in full; (iv) no waiver, indulgence or
postponement of the obligations thereunder has been granted by the other party
thereto; (v) there exists no material default (or an event that with notice or
lapse of time or both would constitute a material default) under such lease;
(vi) such member of the AVEMCO Group has not violated any of the material terms
or conditions under any such lease and there has been no (A) material condition
or covenant to be observed or performed by any other party under any such lease
that has not been fully observed and performed and (B) in the case of each lease
concerning demised premises subleased to any member of the AVEMCO Group,
material condition or covenant to be observed or performed by any other party
thereto that has not been fully observed and performed and there does not exist
any event of default or event, occurrence, condition or act that, with the
giving of notice, the lapse of time or the happening of any further event or
condition, would become a default under any such lease; and (vii) the
transactions described in this Agreement will not constitute a default under or
cause for termination or modification of any such lease.
(c) The AVEMCO Disclosure Schedule contains a list of all real property
owned by members of the AVEMCO Group and a list of all leases to which the
members of the AVEMCO Group are parties.
SECTION 4.19 CONDITION OF AVEMCO'S ASSETS. All of the tangible assets of
the AVEMCO Group which are being used in the business of the AVEMCO Group are
currently in good and usable condition, ordinary wear and tear excepted. There
are no defects in such assets or other conditions that have or would be
reasonably likely to have a Material Adverse Effect on AVEMCO.
SECTION 4.20 VOTING REQUIREMENTS. The affirmative vote of a majority of
the outstanding shares of AVEMCO Common Stock entitled to vote on the Merger is
the only vote of the holders of any class or series of AVEMCO's capital stock
necessary to approve this Agreement and the transactions described herein.
SECTION 4.21 SUPPLIERS AND CUSTOMERS. To the knowledge of AVEMCO except as
would not have a Material Adverse Effect on AVEMCO, (a) no supplier providing
products, materials or services to any member of the AVEMCO Group intends to
cease providing such products, materials or services to any member of the AVEMCO
Group or to limit or reduce such sales to any member of the AVEMCO Group or
alter the terms or conditions of any such sales and (b) no customer of any
member of the AVEMCO Group intends to terminate, limit or reduce its or their
business relations with any member of the AVEMCO Group. Gross written premiums
by the AVEMCO Insurer Subsidiaries have not declined, in the aggregate, by more
than 5% in any fiscal quarter of 1997 when compared to the same fiscal quarter
of 1996, nor have the gross
17
23
written premiums by any member of the AVEMCO Group producing insurance premiums
declined, in the aggregate, by more than 5% over any such comparative period.
SECTION 4.22 EMPLOYEE MATTERS. (a) The AVEMCO Disclosure Schedule sets
forth the name, title, current annual compensation rate (including bonus and
commissions), current base salary rate, accrued bonus, accrued sick leave,
accrued severance pay and accrued vacation benefits of each officer of each
member of the AVEMCO Group as of January 1, 1997. Copies of organizational
charts, any employee handbook(s), and any reports and/or plans prepared or
adopted pursuant to the Equal Employment Opportunity Act of 1972, as amended,
have been provided to HCCH.
(b) Each of the following is true with respect to the AVEMCO Group:
(i) each such member is in material compliance with all applicable
laws respecting employment and employment practices, terms and conditions
of employment, wages and hours and occupational safety and health, and is
not engaged in any material unfair labor practice within the meaning of
Section 8 of the National Labor Relations Act, and there is no proceeding
pending or threatened or any investigation pending or threatened against it
relating to any thereof;
(ii) no member of the AVEMCO Group is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by a member of the AVEMCO Group nor does AVEMCO know of any
efforts being made to unionize any of such employees; and
(iii) to the knowledge of AVEMCO, there are no charges of, formal,
informal or internal complaints of, or proceedings involving,
discrimination or harassment (including without limitation discrimination
or harassment based upon sex, age, marital status, race, religion, color,
creed, national origin, sexual preference, handicap or veteran status)
pending or threatened, nor, to the knowledge of AVEMCO, is there any
investigation pending or threatened, including without limitation
investigations before the Equal Employment Opportunity Commission or any
federal, state or local agency or court, with respect to any such member.
SECTION 4.23 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws (including case law), regulations, ordinances,
rules, judgments, orders, decrees, codes, injunctions, permits, licenses,
agreements and governmental restrictions relating to human health, the
environment or to emissions, discharges or releases of pollutants,
contaminants, Hazardous Substances (as hereinafter defined) or wastes into
the environment or otherwise relating to the processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof or relating to the presence of asbestos or presumed
asbestos containing material in any building or other structure.
"Environmental Liabilities" shall mean all liabilities, whether
vested, or unvested, contingent or fixed, actual or potential, which (i)
arise under Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Effective Time.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics that are regulated
under the Environmental Laws, including but not limited to, asbestos.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Substances.
(b) Each member of the AVEMCO Group possesses all necessary licenses,
permits and other approvals and authorizations that are required under, and is,
and at all times in the past has been in material compliance with all
Environmental Laws.
18
24
(c) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received by any member of the AVEMCO Group
and to the knowledge of AVEMCO, no complaint has been filed, no penalty has been
assessed and no investigation or review is pending or has been threatened by any
governmental entity or other party, with respect to any (i) alleged violation of
any Environmental Law by any member of the AVEMCO Group or any person or entity
whose liability any member of the AVEMCO Group has or may have retained or
assumed, (ii) alleged failure to have any environmental permit, certificate,
license, approval, registration or authorization required under the
Environmental Laws in connection with the conduct of the business of any member
of the AVEMCO Group, or any person or entity whose liability any member of the
AVEMCO Group has or may have retained or assumed, or (iii) Regulated Activity
involving any member of the AVEMCO Group, or any person or entity whose
liability any member of the AVEMCO Group has or may have retained or assumed.
(d) To the knowledge of AVEMCO, no member of the AVEMCO Group has any
material Environmental Liabilities and there have been no material releases of
Hazardous Substances into the environment by any member of the AVEMCO Group
except in material compliance with applicable Environmental Laws, or, to
AVEMCO's knowledge, with respect to any of their respective properties which has
had, or would reasonably be expected to have, a Material Adverse Effect on
AVEMCO.
(e) To the knowledge of AVEMCO, there are no underground tanks of any type
(including tanks storing gasoline, diesel fuel, oil or other petroleum products)
or disposal sites for hazardous substances, hazardous wastes or any other waste,
located on or under the real estate currently owned, leased or used by any
member of the AVEMCO Group and, to AVEMCO's knowledge, there were no such
disposal sites located on or under the real estate previously owned, leased or
used by any member of the AVEMCO Group on the date of the sale thereof by any
member of the AVEMCO Group or during the period of lease for use by any member
of the AVEMCO Group.
(f) Except in the ordinary course of business, and in all cases in material
compliance with Environmental Laws, no member of the AVEMCO Group has engaged
any third party to handle, transport or dispose of hazardous substances or
wastes (including for this purpose, gasoline, diesel fuel, oil or other
petroleum products, or bilge waste) on its behalf.
(g) AVEMCO Group has delivered to HCCH or otherwise made available for
inspection by HCCH true, complete, and correct copies of any material reports,
studies, analyses, tests or monitoring in its possession or control pertaining
to the environmental condition of any property currently or formerly owned,
operated or leased by any member of the AVEMCO Group any other person or entity
whose liability any member of the AVEMCO Group may have retained or assumed, or
pertaining to any member of the AVEMCO Group's compliance with Environmental
Laws.
SECTION 4.24 COMPLIANCE WITH LAW; PERMITS. Other than compliance with
Environmental Laws and except for violations which do not have and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on AVEMCO, (a) the operations and activities of each member of
the AVEMCO Group comply with all applicable laws, regulations, ordinances, rules
or orders of any federal, state or local court or any governmental authority,
and (b) each member of the AVEMCO Group possesses all governmental licenses,
certificates of authority, permits and other governmental authorizations that
are (i) required under all federal, state and local laws and regulations for the
ownership, use and operation of its assets or (ii) otherwise necessary to permit
the conduct of its business without interruption, and such licenses,
certificates of authority, permits and authorizations are in full force and
effect and have been and are being fully complied with by it. No member of the
AVEMCO Group has received any notice of any violation of any of the terms and
conditions of any such license, certificate of authority, permit or
authorization and no facts or circumstances exist that would form the reasonable
basis of a revocation, claim, citation or allegation against it for a violation
of any such license, permit or authorization. To the knowledge of AVEMCO, no
such license, permit or authorization or any renewal thereof will be terminated,
revoked, suspended, modified or limited in any respect as a result of the
transactions contemplated by this Agreement.
SECTION 4.25 INTERESTS IN CLIENTS, SUPPLIERS, ETC. To AVEMCO's knowledge,
no officer or director of any member of the AVEMCO Group possesses, directly or
indirectly, any financial interest in, or is a director,
19
25
officer or employee of, any corporation or business organization that is a
supplier, customer, lessor, lessee, or competitor or potential competitor of the
AVEMCO Group or that has entered into any material contract with any member of
the AVEMCO Group. Ownership of less than 1% of any class of securities of a
company whose securities are registered under the Exchange Act will not be
deemed to be a financial interest for purposes of this Section 4.25.
SECTION 4.26 TRANSACTIONS WITH RELATED PARTIES. (a) The AVEMCO Disclosure
Schedule lists all transactions between January 1, 1995 and the date of this
Agreement involving or for the benefit of any member of the AVEMCO Group, on the
one hand, and any director or officer of any member of the AVEMCO Group or
Affiliate of such director or officer, on the other hand, including (i) any
debtor or creditor relationship, (ii) any transfer or lease of real or personal
property, (iii) agreements relating to employment currently in effect and (iv)
purchases or sales of products or services.
(b) Except with respect to claims pursuant to Employee Plans and wages,
salaries, commissions and bonuses, the AVEMCO Disclosure Schedule lists (i) all
agreements and claims of any nature that any officer or director of any member
of the AVEMCO Group or any Affiliate (other than another member of the AVEMCO
Group) of such officer or director has with or against any member of the AVEMCO
Group as of the date of this Agreement that are not identified on the AVEMCO
Latest Balance Sheet and (ii) all agreements and claims of any nature that any
member of the AVEMCO Group has with or against any officer or director of any
member of the AVEMCO Group or any Affiliate (other than another member of the
AVEMCO Group) of such officer or director as of the date of this Agreement that
are not identified on the AVEMCO Latest Balance Sheet.
SECTION 4.27 STATEMENTS ARE TRUE AND CORRECT. None of the information that
has been or will be supplied by the AVEMCO Group included in (i) the
Registration Statement to be filed by HCCH with the SEC in connection with the
HCCH Common Stock to be issued in the Merger, (ii) the Joint Proxy Statement to
be mailed to the shareholders of AVEMCO and HCCH in connection with the
shareholders meetings, and (iii) any other documents to be filed with the SEC or
any other regulatory authority in connection with the transactions contemplated
hereby will at the respective times such documents are filed, and, in the case
of the Registration Statement, when it becomes effective and, with respect to
the Joint Proxy Statement, when first mailed to the shareholders of AVEMCO and
HCCH, be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein not
misleading, or, in the case of the Joint Proxy Statement or any amendment
thereof or supplement thereto, at the time of the AVEMCO shareholders' meetings,
be false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading. All documents that
AVEMCO is responsible for filing with the SEC or any other regulatory authority
in connection with the transactions contemplated hereby, will comply in all
material respects with the provisions of applicable law.
SECTION 4.28 BROKER'S AND OTHER FEES. No agent, broker, Person or firm
acting on behalf of AVEMCO is or will be entitled to any commission or broker's
or finder's fee from any of the parties hereto or from any Affiliate of the
parties hereto, in connection with any of the transactions contemplated herein,
except fees to Alex. Xxxxx & Sons Incorporated to be paid by AVEMCO that are
disclosed in the AVEMCO Disclosure Schedule. Fees and expenses to Alex. Xxxxx &
Sons Incorporated and to AVEMCO's attorneys and accountants in connection with
the transactions contemplated hereunder will not exceed, in the aggregate
$2,700,000, including all costs and expenses.
SECTION 4.29 TRADEMARKS, TRADENAMES, ETC. Each member of the AVEMCO Group
owns or possesses, or holds a valid right or license to use, all intellectual
property, patents, trademarks, tradenames, service marks, copyrights and
licenses, and all rights with respect to the foregoing (collectively the "IP
Rights"), necessary for the conduct of its business as now conducted, without
any known conflict with the rights of others.
SECTION 4.30 DISCLOSURE. (a) No representation or warranty by AVEMCO in
this Agreement and no statement contained in the schedules or exhibits or in any
certificate to be delivered pursuant to this Agreement, or in the AVEMCO
Disclosure Schedule, contains or will contain any untrue statement of
20
26
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
(b) HCCH has been furnished with, or given access to, complete and correct
copies of all agreements, instruments and documents, together with any
amendments or supplements thereto, set forth on, or underlying a disclosure set
forth on, the AVEMCO Disclosure Schedule. The AVEMCO Disclosure Schedule is
complete and correct in all material respects.
SECTION 4.31 OPINION OF FINANCIAL ADVISOR. The financial advisor of
AVEMCO, Alex. Xxxxx & Sons Incorporated, has delivered to AVEMCO an opinion
dated within five days before the date of this Agreement to the effect that as
of such date the Exchange Ratio is fair from a financial point of view to
AVEMCO's shareholders.
SECTION 4.32 INSURANCE ISSUED BY AVEMCO INSURER SUBSIDIARIES. To AVEMCO's
knowledge:
(a) all material insurance contract benefits payable by the AVEMCO
Insurer Subsidiaries and by any other Person that is a party to or bound by
any reinsurance, coinsurance or other similar contract with such AVEMCO
Insurer Subsidiaries, have in all material respects been paid or are in the
course of settlement in accordance with the terms of the insurance,
reinsurance or coinsurance contracts under which they arose, except for
such benefits which the AVEMCO Insurer Subsidiaries reasonably believe
there is a reasonable basis to contest payment;
(b) no material outstanding insurance contract issued, reinsured,
underwritten or assumed by any AVEMCO Insurer Subsidiary entitles the
holder thereof or any other Person to receive dividends, distributions or
other benefits based upon the revenues or earnings of such AVEMCO Insurer
Subsidiary or any other Person;
(c) the underwriting standards utilized and ratings applied by the
AVEMCO Insurer Subsidiaries and by any other Person that is a party to or
bound by any insurance, reinsurance, coinsurance or other similar contract
with any of the AVEMCO Insurer Subsidiaries conform as to such contracts in
all material respects to the standards and ratings required pursuant to the
terms of the respective insurance, reinsurance, coinsurance or other
similar contracts;
(d) all amounts to which each AVEMCO Insurer Subsidiary is entitled
under reinsurance, coinsurance or similar contracts (including without
limitation amounts based on paid and unpaid losses) are fully collectible,
in accordance with the terms of such contracts; and
(e) each insurance agent, broker, producer, or representative, at the
time such Person wrote, sold, or produced business for any AVEMCO Insurer
Subsidiary, was duly licensed under state insurance laws for the type of
business written, sold or produced by such Person in the particular
jurisdiction in which such Person wrote, sold or produced such business for
the AVEMCO Insurer Subsidiary.
SECTION 4.33 EXAMINATION REPORTS. AVEMCO has delivered to HCCH copies of
the most recent examination reports, including related management letters, of
each of the AVEMCO Insurer Subsidiaries conducted by any state insurance
department examiners, and reflecting the results of the most recent examinations
of the affairs of such AVEMCO Insurer Subsidiaries, and will furnish promptly to
HCCH any additional such reports or drafts of such reports received by AVEMCO or
any AVEMCO Insurer Subsidiary prior to Closing. All material deficiencies or
violations noted in such examination reports for the periods examined have
either been resolved or are being resolved to the satisfaction of or accepted by
the insurance regulatory authorities of the states conducting such examinations,
without any enforcement action taken against any such AVEMCO Insurer Subsidiary.
There are no examinations by any state insurance department examiners in
progress at any AVEMCO Insurer Subsidiary, nor, to the knowledge of AVEMCO,
pending or scheduled with respect to any AVEMCO Insurer Subsidiary.
21
27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HCCH AND MERGER SUB
Except as disclosed in the disclosure schedule heretofore delivered by HCCH
to AVEMCO which makes reference to this Agreement or in a document, exhibit or
appendix filed with the SEC which has been filed on or before the date hereof
(collectively referred to herein as the "HCCH Disclosure Schedule") which has
been delivered to AVEMCO on or before the date hereof, each of HCCH and Merger
Sub, jointly and severally, represents and warrants to AVEMCO as set forth below
(it being agreed that the disclosure on the HCCH Disclosure Schedule of the
existence of any document or fact or circumstance or situation relating to any
representations, warranties, covenants or agreements in any section of this
Agreement shall be automatically deemed to be disclosure of such document or
fact or circumstance or situation for purposes of all other representations,
warranties, covenants and agreements in this Agreement):
SECTION 5.1 CORPORATE EXISTENCE, POWER AND DOCUMENTATION. Each member of
the HCCH Group is a corporation duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its incorporation and
has all corporate powers and all material Governmental Authorizations required
to carry on its business as now conducted, except such Governmental
Authorizations the failure of which to have obtained would not have a Material
Adverse Effect on HCCH. Each member of the HCCH Group is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect on HCCH. HCCH has delivered
to AVEMCO true and complete copies of HCCH's and Merger Sub's Certificate of
Incorporation and Bylaws, each as currently in effect.
SECTION 5.2 CORPORATE AUTHORIZATION. Subject to obtaining approval of the
holders of not less than a majority of the HCCH Common Stock present in person
or by proxy at a meeting at which holders of at least 50% of the outstanding
HCCH Common Stock entitled to vote with respect to the Merger are present in
person or by proxy (the "Required Vote"), the execution, delivery and
performance by HCCH and Merger Sub of this Agreement and the documents
contemplated hereby and the consummation by HCCH and Merger Sub of the
transactions contemplated hereby and thereby are within the corporate powers of
HCCH and Merger Sub and have been duly authorized by all necessary corporate
action, except for the Required Vote. This Agreement and the documents
contemplated hereby have been duly executed and delivered by HCCH or Merger Sub
and constitute, or upon execution and delivery will constitute, valid and
binding obligations of HCCH and Merger Sub, respectively, enforceable in each
case against each in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity and except that the Merger may not be effected without the
Required Vote.
SECTION 5.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by HCCH and Merger Sub of this Agreement and the documents
contemplated hereby and the consummation of the Merger by HCCH and Merger Sub,
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority other than:
(a) the filing of the Certificate of Merger in accordance with the
DGCL;
(b) compliance with any applicable requirements of the HSR Act;
(c) compliance with any applicable requirements of the Exchange Act;
(d) compliance with any applicable requirements of the Securities Act;
(e) compliance with any applicable foreign or state securities or
"blue sky" laws and the rules and regulations of the NYSE;
(f) compliance with any applicable requirements of the California,
Missouri, Maryland, or other insurance regulatory agency having authority
over HCCH or the transactions described herein; and
22
28
(g) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not have a
Material Adverse Effect on HCCH or (ii) would not materially adversely
affect the ability of the AVEMCO Group, HCCH or Merger Sub to consummate
the transactions contemplated hereby and operate their businesses as
heretofore operated.
SECTION 5.4 NON-CONTRAVENTION. The execution, delivery and performance by
HCCH and Merger Sub of this Agreement and the documents contemplated hereby and
the consummation by HCCH and Merger Sub of the transactions contemplated hereby
and thereby do not and will not:
(a) contravene or conflict with the Certificates of Incorporation or
Bylaws of HCCH or Merger Sub;
(b) assuming compliance with the matters referred to in Section 5.3
and assuming the requisite approval by the holders of HCCH Common Stock of
the Merger and subject to obtaining clearance under the HSR Act and
effectiveness of the Registration Statement, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to any member of the
HCCH Group;
(c) conflict with or result in a breach or violation of, or constitute
a default under, or result in a contractual right to cause the termination
or cancellation of or loss of a material benefit under, or right to
accelerate, any material agreement, contract or other instrument binding
upon any member of the HCCH Group or any material license, franchise,
permit or other similar authorization held by any member of the HCCH Group;
or
(d) result in the creation or imposition of any Lien on any material
asset of any member of the HCCH Group,
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on HCCH.
SECTION 5.5 CAPITALIZATION OF HCCH.
(a) The authorized capital stock of HCCH consists of 100,000,000 shares of
HCCH Common Stock. As of December 31, 1996, there were 35,850,832 shares of HCCH
Common Stock issued and outstanding. All outstanding shares of HCCH Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and free from any preemptive rights. Except as otherwise
contemplated by this Agreement, and except for changes since December 31, 1996
resulting from the exercise of employee and director stock options, there are
outstanding (i) no shares of capital stock or other voting securities, (ii) no
securities convertible into or exchangeable for shares of its capital stock or
voting securities (iii) no options or other rights to acquire and no obligation
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for its capital stock or other voting securities, (iv) no
obligations to repurchase, redeem or otherwise acquire any of its outstanding
securities, and (v) no contractual rights of any person or entity to include any
such securities in any registration statement proposed to be filed under the
Securities Act.
(b) All shares of HCCH Common Stock issued in the Merger and the shares
issuable upon exercise of options issued under the AVEMCO Stock Option Plans
shall, upon issuance, be duly authorized and fully paid, validly issued and
nonassessable and free from any preemptive rights. HCCH has reserved sufficient
shares of HCCH Common Stock for issuance pursuant to the Merger.
SECTION 5.6 ORGANIZATION AND CAPITALIZATION OF MERGER SUB. The authorized
capital stock of Merger Sub consists of 3,000 shares of common stock, par value
$1.00 per share, all of which are issued and outstanding. All the issued and
outstanding capital stock of Merger Sub is owned by HCCH. Merger Sub has not
conducted any business prior to the date hereof and has no assets, liabilities
or obligations of any nature other than those incident to its formation and
pursuant to this Agreement.
23
29
SECTION 5.7 SUBSIDIARIES AND JOINT VENTURES.
(a) All Subsidiaries and Joint Ventures of HCCH which constitute
significant subsidiaries under applicable SEC rules and regulations ("HCCH
Subsidiaries") and their respective jurisdictions of incorporation or
organization and HCCH's ownership interest therein are identified in the
schedules and filings that comprise the HCCH Disclosure Schedule. Other than its
investments in its Subsidiaries and Joint Ventures, and shares of stock in
publicly held companies aggregating less than 10% of such public company's
outstanding stock, HCCH does not own, directly or indirectly, any outstanding
capital stock or equity interest in any corporation, partnership, Joint Venture
or other entity.
(b) All of the outstanding capital stock of, or other ownership interests
in, each HCCH Subsidiary that is owned by any member of the HCCH Group on the
Effective Time, directly or indirectly, and all of the outstanding stock of each
member of the HCCH Group other than HCCH, is owned directly or indirectly, free
and clear of any material Lien and free of any other material limitation or
restriction on its rights as owner thereof (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests), other than those imposed by applicable law. There are no
existing options, calls or commitments of any character relating to the issued
or unissued capital stock or other securities or equity interests (collectively,
"HCCH Subsidiary Securities") of any HCCH Subsidiary.
SECTION 5.8 SEC AND NYSE FILINGS.
(a) HCCH has since October 28, 1992 filed all forms, proxy statements,
schedules, reports and other documents required to be filed by it with the SEC
pursuant to the Exchange Act and with the NYSE pursuant to its rules and
regulations.
(b) HCCH has delivered, and will promptly deliver in the case of any of the
following (collectively, the "HCCH SEC Documents") filed with the SEC on or
after the date hereof and prior to the Effective Date, to AVEMCO:
(i) its annual reports on Form 10-K for its fiscal years ended
December 31, 1995 and 1994;
(ii) its quarterly reports on Form 10-Q for its fiscal quarters ending
March 31, June 30, and September 30, 1996;
(iii) any current reports on Form 8-K since January 1, 1995 and its
proxy or information statements relating to meetings of, or actions taken
without a meeting by, the shareholders of HCCH held since January 1, 1996;
and
(iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 1995. No other member of
the HCCH Group is required to file any forms, reports or other documents
with the SEC.
(c) As of its filing date, no such report or statement filed pursuant to
the Exchange Act contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) No registration statement, or any amendment thereto, filed pursuant to
the Securities Act, if declared effective by the SEC, as of the date such
statement or amendment became effective or on the date such statement or
amendment was supplemented, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
SECTION 5.9 FINANCIAL STATEMENTS. The HCCH Financial Statements included
in the HCCH SEC Documents have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis with
prior periods (except as may be indicated in the notes thereto), and present
fairly the consolidated financial position of HCCH and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any interim financial statements).
24
30
SECTION 5.10 NO UNDISCLOSED LIABILITIES. There are no liabilities of any
member of the HCCH Group of any kind whatsoever that are, individually or in the
aggregate, material to HCCH other than:
(a) liabilities disclosed or provided for in the HCCH Balance Sheet
(including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since September 30, 1996 (the "HCCH Balance Sheet
Date"); and
(c) liabilities under this Agreement or as indicated in the schedules
and filings that comprise the HCCH Disclosure Schedule.
SECTION 5.11 SAP STATEMENTS. HCCH has delivered to AVEMCO true and
complete copies of the following SAP Statements for the HCCH Insurer
Subsidiaries: SAP Statements for each HCCH Insurer Subsidiary for the years
ended December 31, 1993, 1994 and 1995, and for the third quarter ended
September 30, 1996, and the notes related thereto ("SAP Financial Statements").
Each of the SAP Financial Statements complied in all material respects with all
applicable laws when so filed, all material deficiencies known to HCCH and each
HCCH Insurer Subsidiary with respect to any such SAP Financial Statements have
been cured or corrected. Each such SAP Financial Statement (and the notes
related thereto) including without limitation each balance sheet and each of the
statements of income, capital and surplus account, and cash flow contained in
the respective SAP Financial Statement, was prepared in accordance with SAP, is
true and complete in all material respects, and fairly presents the financial
condition, assets and properties and liabilities of each HCCH Insurer Subsidiary
as of the respective dates thereof, and the results of operations and changes in
capital and surplus and in the cash flow of each such HCCH Insurer Subsidiary
for and during the respective periods covered thereby. All reserves with respect
to insurance written or assumed by each HCCH Insurer Subsidiary as established
or reflected on such SAP Financial Statements were determined in accordance with
generally accepted actuarial principles and practices and are in all material
respects in accordance with the related insurance, coinsurance and reinsurance
contracts of the HCCH Insurer Subsidiaries, and meet in all material respects
the requirements of the insurance laws of the jurisdictions in which such
contracts were issued or delivered.
SECTION 5.12 ABSENCE OF CERTAIN CHANGES. Since the date of the HCCH
Balance Sheet, each member of the HCCH Group has in all material respects
conducted its business in the ordinary course and there has not been:
(a) any event or circumstance resulting in a Material Adverse Effect
with respect to HCCH or any event, occurrence or development of a state of
circumstances or facts known to HCCH, which as of the date hereof could
reasonably be expected to have a Material Adverse Effect on HCCH;
(b) any action by any member of the HCCH Group which, if taken after
the date hereof, would constitute a breach of any provision of Sections 6.3
or 6.4; or
(c) the entering into of any agreement by HCCH or any person on behalf
of HCCH to take any of the foregoing actions.
SECTION 5.13 LITIGATION. There is no action, suit, proceeding, claim or
investigation pending or, to the knowledge of HCCH, overtly threatened, against
HCCH or any other member of the HCCH Affiliated Group or any of their assets or
against or involving any of its officers, directors or employees in connection
with the business or affairs of HCCH or any other member of the HCCH Group,
including, without limitation, any such claims for indemnification arising under
any agreement to which HCCH or any other member of the HCCH Group is a party,
which could, individually or in the aggregate, have a Material Adverse Effect on
HCCH. No member of the HCCH Group is subject to or in default with respect to
any writ, order, judgment, injunction or decree which could, individually or in
the aggregate, have a Material Adverse Effect on HCCH.
SECTION 5.14 ACCOUNTING MATTERS. Neither HCCH nor any member of the HCCH
Group or an Affiliate thereof has taken or agreed to take any action that
(without giving effect to any action taken or agreed to be taken by AVEMCO or
any of its Affiliates') would prevent HCCH from accounting for the business
combination to be effected by the Merger as a pooling-of-interests.
25
31
SECTION 5.15 TAXES.
(a) HCCH and each of its Subsidiaries (i) has filed when due (taking into
account extensions) with the appropriate federal, state, local, foreign and
other governmental agencies, all material tax returns, estimates and reports
required to be filed by it, (ii) either paid when due and payable or established
adequate reserves or otherwise accrued on the HCCH Balance Sheet all material
Taxes, and there are no material tax deficiencies claimed in writing by any
Taxing authority and received by HCCH that, in the aggregate, would result in
any tax liability in excess of the amount of the reserves or accruals, and (iii)
has or will establish in accordance with its normal accounting practices and
procedures accruals and reserves that, in the aggregate, are adequate for the
payment of all Taxes not yet due and payable and attributable to any period
preceding the Effective Time. The HCCH Disclosure Schedule sets forth those tax
returns of HCCH (or any predecessor entities) for all periods that currently are
the subject of audit by any federal, state, local or foreign Taxing authority.
(b) There are no material Taxes, interest, penalties, assessments or
deficiencies claimed in writing by any Taxing authority and received by HCCH or
any of its Subsidiaries to be due in respect of any tax returns filed by HCCH
(or any predecessor corporations) or any of its Subsidiaries. Neither HCCH nor
any predecessor corporation, nor any of their respective Subsidiaries, has
executed or filed with the IRS or any other Taxing authority any agreement or
other document extending, or having the effect of extending, the period of
assessment or collection of any Taxes.
(c) HCCH is not a party to or bound by (or will prior to the Effective Date
become a party to or bound by) any Tax indemnity, Tax sharing or Tax allocation
agreement or other similar arrangement which includes a party other than HCCH
and its Subsidiaries. Neither HCCH nor any of its Subsidiaries has been a member
of an affiliated group other than one of which HCCH was the common parent, or
filed or been included in a combined, consolidated or unitary Tax return other
than one filed by HCCH (or a return for a group consisting solely of its
Subsidiaries and predecessors).
(d) No member of the HCCH Group has taken any action or has any knowledge
of any fact or circumstance that is reasonably likely to prevent the Merger from
qualifying as a tax-free reorganization within the meaning of Section 368(a) of
the Code.
SECTION 5.16 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Neither HCCH nor any HCCH ERISA Affiliate maintains or within the past
five years has maintained, contributed to, or been obligated to contribute to,
any Employee Plan. Each Employee Plan as disclosed in the HCCH Disclosure
Schedule (complete copies of which have been heretofore delivered to AVEMCO) has
been maintained in all material respects in compliance with their terms and all
provisions of ERISA and the Code (including rules and regulations thereunder)
applicable thereto.
(b) Neither HCCH nor any HCCH ERISA Affiliate maintains or has maintained
or contributed to any Title IV plan or any other Employee Plan that is or was
subject to Section 302 of ERISA or Section 412 of the Code. HCCH has made
available to AVEMCO, for each Employee Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Code, a copy of the most recent
determination letter issued by the IRS to the effect that each such Plan is so
qualified and that each trust created thereunder is tax exempt under Section 501
of the Code, and HCCH is unaware of any fact or circumstances that would
jeopardize the qualified status of any such Employee Plan or the tax exempt
status of any trust created thereunder.
(c) To the knowledge of HCCH, no Employee Plan is currently subject to an
audit or other investigation by the IRS, the DOL, the Pension Benefit Guaranty
Corporation or any other governmental agency or office nor is any such Employee
Plan subject to any lawsuits or legal proceedings of any kind or to any material
pending disputed claims by employees or beneficiaries covered under any such
Employee Plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to HCCH or any HCCH ERISA
Affiliate has occurred with respect to any Employee Plan. HCCH has no knowledge
of any breach of fiduciary responsibility under Part 4 of Title I of ERISA
26
32
which has resulted in liability of HCCH, any HCCH ERISA Affiliate, any trustee,
administrator or fiduciary of any Employee Plan.
(e) Neither HCCH nor any current or former HCCH ERISA Affiliate, since
January 1, 1986, has maintained or contributed to, or been obligated or required
to contribute to, a Multiemployer Plan.
(f) The HCCH Disclosure Schedule lists each Employee Plan and Benefit
Arrangement that HCCH and/or an HCCH ERISA Affiliate maintains, administers,
contributes to, or has any liability with respect thereto.
SECTION 5.17 MATERIAL AGREEMENTS.
(a) The HCCH Disclosure Schedule includes a complete and accurate list of
all contracts, agreements, leases (other than HCCH Property Leases, as
hereinafter defined) and instruments to which any member of the HCCH Group is a
party or by which it or its properties or assets are bound which individually
involve net payments or receipts in excess of $1,000,000 per annum, inclusive of
contracts that pertain to employment or severance benefits for any officer,
director or employee of HCCH, whether written or oral, but exclusive of
contracts entered into with customers and suppliers in the ordinary course of
business or contracts, agreements, leases and instruments terminable without
penalty by HCCH upon 60 days or less prior written notice to the other party or
parties thereto (the "Material HCCH Agreements").
(b) No member of the HCCH Group nor, to the knowledge of HCCH, any other
party is in default under any material HCCH Agreement and no event has occurred
which (after notice or lapse of time or both) would become a breach or default
under, or would permit modification, cancellation, acceleration or termination
of any Material HCCH Agreement or result in the creation of any security
interest upon, or any person obtaining any right to acquire, any properties,
assets or rights of HCCH which, in any such case, has had or would reasonably be
expected to have a Material Adverse Effect on HCCH.
(c) To the knowledge of HCCH, each such Material HCCH Agreement is in full
force and effect and is valid and legally binding and there are no material
unresolved disputes involving or with respect to any Material HCCH Agreement. No
party to a Material HCCH Agreement has advised any member of the HCCH Group that
it intends either to terminate a Material HCCH Agreement or to refuse to renew a
Material HCCH Agreement upon the expiration of the term thereof.
(d) No member of the HCCH Group is in violation of, or in default with
respect to, any term of its Certificate of Incorporation or Bylaws.
SECTION 5.18 PROPERTIES AND LEASES. To the knowledge of HCCH, all leases
of real property to which any member of the HCCH Group is a party or by which
any member of the HCCH Group is bound ("HCCH Property Leases") which are
material to the business of HCCH are in full force and effect. To the knowledge
of HCCH, there exists no default under such HCCH Property Leases, nor any event
which with notice or lapse of time or both would constitute a default thereunder
by any member of the HCCH Group, which default would have a Material Adverse
Effect on HCCH. All of the properties and assets which are owned by any member
of the HCCH Group are owned by each of them, respectively, free and clear of any
material Lien. Each member of the HCCH Group has good and indefeasible title
with respect to such owned properties and assets subject to no Liens, other than
those permitted under this Section 5.18, to all of the properties and assets
necessary for the conduct of their business other than to the extent that the
failure to have such title would not have a Material Adverse Effect on HCCH.
SECTION 5.19 VOTING REQUIREMENTS. The affirmative vote of a majority of
the shares of HCCH Common Stock present at a meeting at which holders of at
least 50% of the outstanding shares of HCCH Common Stock entitled to vote on the
Merger are present in person or by proxy is the only vote of the holders of any
class or series of the capital stock of HCCH necessary to approve this Agreement
and the transactions described herein.
27
33
SECTION 5.20 ENVIRONMENTAL MATTERS.
(a) Each member of the HCCH Group possesses all necessary licenses, permits
and other approvals and authorizations that are required under, and is, and at
all times in the past has been in material compliance with all Environmental
Laws.
(b) To the knowledge of HCCH, there are no underground tanks of any type
(including tanks storing gasoline, diesel fuel, oil or other petroleum products)
or disposal sites for hazardous substances, hazardous wastes or any other waste,
located on or under the real estate currently owned, leased or used by any
member of the HCCH Group and, to HCCH's knowledge, there were no such disposal
sites located on or under the real estate previously owned, leased or used by
any member of the HCCH Group on the date of the sale thereof by any member of
the HCCH Group or during the period of lease for use by any member of the HCCH
Group.
(c) Except in the ordinary course of business, and in all cases in material
compliance with Environmental Laws, no member of the HCCH Group has engaged any
third party to handle, transport or dispose of hazardous substances or wastes
(including for this purpose, gasoline, diesel fuel, oil or other petroleum
products, or bilge waste) on its behalf.
(d) HCCH Group has delivered to AVEMCO or otherwise made available for
inspection by AVEMCO true, complete, and correct copies of any material reports,
studies, analyses, tests or monitoring in its possession or control pertaining
to the environmental condition of any property currently or formerly owned,
operated or leased by any member of the HCCH Group any other person or entity
whose liability any member of the HCCH Group may have retained or assumed, or
pertaining to any member of the HCCH Group's compliance with Environmental Laws.
(e) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received by any member of the HCCH Group,
and to the knowledge of HCCH, no complaint has been filed, no penalty has been
assessed and no investigation or review is pending, or to HCCH's knowledge, has
been threatened by any governmental entity or other party with respect to any
(i) alleged violation of any Environmental Law by any member of the HCCH Group
or any person or entity whose liability any member of the HCCH Group has or may
have retained or assumed, (ii) alleged failure by any member of the HCCH Group
or any person or entity whose liability any member of the HCCH Group to have any
environmental permit, certificate, license, approval, registration or
authorization required under the Environmental Laws in connection with the
conduct of its business or (iii) Regulated Activity any member of the HCCH Group
or any person or entity whose liability any member of the HCCH Group has or may
have retained or assumed.
(f) To the knowledge of HCCH, no member of the HCCH Group has any material
Environmental Liabilities and there has been no material release of Hazardous
Substances into the environment by any member of the HCCH Group except in
material compliance with applicable Environmental Laws or, to HCCH's knowledge,
with respect to any of their respective properties which has had, or would be
reasonably expected to have, a Material Adverse Effect on HCCH.
SECTION 5.21 STATEMENTS ARE TRUE AND CORRECT. None of the information that
has been or will be supplied by the HCCH Group included in (i) the Registration
Statement to be filed by HCCH with the SEC in connection with the HCCH Common
Stock to be issued in the Merger, (ii) the Joint Proxy Statement to be mailed to
the shareholders of AVEMCO and HCCH in connection with the shareholder meetings,
and (iii) any other documents to be filed with the SEC or any other regulatory
authority in connection with the transactions contemplated hereby will, at the
respective times such documents are filed, and, in the case of the Registration
Statement, when it becomes effective and, with respect to the Joint Proxy
Statement, when first mailed to the shareholders of AVEMCO and HCCH, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading, or in the case
of the Joint Proxy Statement or any amendment thereof or supplement thereto, at
the time of the shareholders' meetings, be false or misleading with respect to
any material fact or omit to state any material fact necessary to make the
statements therein in light of the circumstances under which they were made not
misleading. All documents that HCCH is responsible for filing with the SEC or
any other regulatory authority
28
34
in connection with the transactions contemplated hereby, will comply in all
material respects with the provisions of applicable law.
SECTION 5.22 DISCLOSURE. (a) No representation or warranty by HCCH or
Merger Sub in this Agreement and no statement contained in the schedules or
exhibits or in any certificate to be delivered pursuant to this Agreement or in
the HCCH Disclosure Schedule contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
(b) AVEMCO has been furnished with complete and correct copies of all
agreements, instruments and documents, together with any amendments or
supplements thereto, set forth on, or underlying a disclosure set forth on, the
HCCH Disclosure Schedule. The HCCH Disclosure Schedule is complete and correct
in all material respects.
SECTION 5.23 LABOR MATTERS. No member of the HCCH Group is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by any member of the HCCH Group nor does HCCH know of any
activities or proceedings of any labor union to organize any such employees.
SECTION 5.24 COMPLIANCE WITH LAWS. Except for violations which do not have
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on HCCH, no member of the HCCH Group is in violation
of, or has violated, any applicable provisions of any laws, statutes, ordinances
or regulations or any term of any judgment, decree, injunction or order binding
against it.
SECTION 5.25 TRADEMARKS, TRADENAMES, ETC. Each member of the HCCH Group
owns or possesses, or holds a valid right or license to use, all intellectual
property, patents, trademarks, tradenames, service marks, copyrights and
licenses, and all rights with respect to the foregoing, necessary for the
conduct of its business as now conducted, without any known conflict with the
rights of others.
SECTION 5.26 BROKER'S FEES. Neither HCCH nor Merger Sub, nor anyone acting
on the behalf or at the request thereof has any liability to any broker, finder,
investment banker or agent, or has agreed to pay any brokerage fees, finder's
fees or commissions, or to reimburse any expenses of any broker, finder,
investment banker or agent in connection with the Merger except fees to Xxxxx
Xxxxxx Inc. to be paid by HCCH that are disclosed in the HCCH Disclosure
Schedule.
SECTION 5.27 OPINION OF FINANCIAL ADVISOR. The financial advisor of HCCH,
Xxxxx Xxxxxx Inc. has delivered to HCCH an opinion dated the date of this
Agreement to the effect that as of such date the Exchange Ratio is fair from a
financial point of view to HCCH.
SECTION 5.28 INSURANCE ISSUED BY HCCH INSURER SUBSIDIARIES. To the
knowledge of HCCH:
(a) all material insurance contract benefits payable by the HCCH
Insurer Subsidiaries and by any other Person that is a party to or bound by
any reinsurance, coinsurance or other similar contract with such HCCH
Insurer Subsidiaries, have in all material respects been paid or are in the
course of settlement in accordance with the terms of the insurance,
reinsurance or coinsurance contracts under which they arose, except for
such benefits which the HCCH Insurer Subsidiaries reasonably believe there
is a reasonable basis to contest payment;
(b) no material outstanding insurance contract issued, reinsured,
underwritten or assumed by any HCCH Insurer Subsidiary entitles the holder
thereof or any other Person to receive dividends, distributions or other
benefits based upon the revenues or earnings of such HCCH Insurer
Subsidiary or any other Person;
(c) the underwriting standards utilized and ratings applied by the
HCCH Insurer Subsidiaries and by any other Person that is a party to or
bound by any insurance, reinsurance, coinsurance or other similar contract
with any of the HCCH Insurer Subsidiaries conform as to such contracts in
all material respects to the standards and ratings required pursuant to the
terms of the respective insurance, reinsurance, coinsurance or other
similar contracts;
29
35
(d) all amounts to which each HCCH Insurer Subsidiary is entitled
under reinsurance, coinsurance or similar contracts (including without
limitation amounts based on paid and unpaid losses) are fully collectible,
in accordance with the terms of such contracts; and
(e) each insurance agent, broker, producer, or representative, at the
time such Person wrote, sold, or produced business for any HCCH Insurer
Subsidiary, was duly licensed under state insurance laws for the type of
business written, sold or produced by such Person in the particular
jurisdiction in which such Person wrote, sold or produced such business for
the HCCH Insurer Subsidiary.
SECTION 5.29 EXAMINATION REPORTS. HCCH has delivered to AVEMCO copies of
the most recent examination reports, including related management letters, of
each of the HCCH Insurer Subsidiaries conducted by any state insurance
department examiners, and reflecting the results of the most recent examinations
of the affairs of such HCCH Insurer Subsidiaries, and will furnish promptly to
HCCH any additional such reports or drafts of such reports received by HCCH or
any HCCH Insurer Subsidiary prior to Closing. All material deficiencies or
violations noted in such examination reports for the periods examined have
either been resolved or are being resolved to the satisfaction of or accepted by
the insurance regulatory authorities of the states conducting such examinations,
without any enforcement action taken against any such HCCH Insurer Subsidiary.
There are no examinations by any state insurance department examiners in
progress at any HCCH Insurer Subsidiary, nor, to the knowledge of HCCH, pending
or scheduled with respect to any HCCH Insurer Subsidiary.
ARTICLE VI
PRE-CLOSING COVENANTS
SECTION 6.1 COOPERATION AND COMMERCIALLY REASONABLE EFFORTS. (a) AVEMCO
and HCCH shall cooperate in good faith and take all actions reasonably necessary
or appropriate to file within ten days of the date hereof, and expeditiously and
diligently prosecute to a favorable conclusion, the HSR Reports required to be
filed by each of them in connection herewith with the Federal Trade Commission
(the "FTC") and the Department of Justice (the "DOJ") pursuant to the HSR Act;
provided that HCCH shall not be required to accept any conditions that may be
imposed by the FTC or the DOJ in connection with such filings that would require
the divestiture of any HCCH or AVEMCO assets or otherwise have a Material
Adverse Effect on such party.
(b) AVEMCO and HCCH agree that from the date of this Agreement through the
Effective Time, neither party shall enter into any transaction with a third
party or recapitalization that would have the effect of impeding the ability to
obtain HSR Act clearance; provided however, that the provisions of Section 6.6
hereof shall be effective notwithstanding this Section 6.1(b).
(c) Each party shall cooperate with the other and use commercially
reasonable efforts to (i) receive all necessary and appropriate consents of
third parties to the transactions contemplated hereunder, (ii) satisfy all
requirements prescribed by law for, and all conditions set forth in this
Agreement to, the consummation of the Merger, and (iii) effect the Merger in
accordance with this Agreement at the earliest practicable date.
SECTION 6.2 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT; SPECIAL
MEETINGS. (a) As promptly as practical, after the execution of this Agreement,
HCCH and AVEMCO shall prepare and file with the SEC the Joint Proxy Statement to
be sent to the shareholders of HCCH and AVEMCO in connection with the meeting of
HCCH's shareholders (the "HCCH's shareholders' meeting") and AVEMCO's
shareholders (the "AVEMCO's shareholders' meeting") to consider the Merger and
HCCH shall prepare and file with the SEC a registration statement on Form S-4
pursuant to which the shares of HCCH common stock to be issued as a result of
the Merger will be registered with the SEC (the "Registration Statement") in
which the Joint Proxy Statement will be included as a prospectus. HCCH and
AVEMCO shall use all reasonable efforts to cause the Registration Statement to
become effective as soon after such filing is practical. The Joint Proxy
Statement shall include the recommendation of the Board of Directors of AVEMCO
in favor of this Agreement and the Merger and the recommendation of the Board of
Directors of HCCH in favor of the issuance of shares of HCCH Common Stock
pursuant to the Merger, provided that the Board of Directors of AVEMCO may
30
36
withdraw such recommendation, after consultation with its outside legal counsel
and compliance with any applicable requirements of Section 6.6 hereof, if it
determines in good faith that the withdrawal of such recommendation is necessary
for the Board of Directors to comply with its fiduciary duties under applicable
law. HCCH and AVEMCO shall make all other necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder.
(b) Each of the parties will cooperate in the preparation of the
Registration Statement and the Joint Proxy Statement. Each of the parties will
as promptly as practicable after the date hereof furnish all such data and
information relating to it as the other may reasonably request for the purpose
of including such data and information in the Registration Statement and Joint
Proxy Statement. Each party shall notify the other of the receipt of any
comments of the SEC with respect to the Registration Statement or the Joint
Proxy Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information and shall provide to the other promptly
copies of all correspondence to and from the SEC with respect to the
Registration Statement or the Joint Proxy Statement. HCCH shall give AVEMCO and
its counsel the opportunity to review the Registration Statements and the Joint
Proxy Statement and all responses to requests for additional information by and
replies to comments of the SEC before their being filed with, or sent to, the
SEC. Each party agrees to use commercially reasonable efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC and to cause (x) the Registration Statement
to be declared effective by the SEC at the earliest practicable time and to be
kept effective as long as is necessary to consummate the Merger, and (y) the
Joint Proxy Statement to be mailed to the holders of HCCH Common Stock and
AVEMCO Common Stock entitled to vote at the meetings of the stockholders of HCCH
and AVEMCO at the earliest practicable time.
(c) Each of the parties shall, as soon as practicable following
effectiveness of the Registration Statement, take all action necessary under the
DGCL and its respective Certificate of Incorporation and Bylaws to convene a
special meeting of its respective shareholders (the "Special Meetings") for the
purpose of approving the transactions contemplated by this Agreement. The
parties shall coordinate and cooperate with respect to the timing of the Special
Meetings and shall use commercially reasonable efforts to cause the Special
Meetings to be held on the same day and as soon as practicable after the date
hereof.
(d) AVEMCO shall take such action as may be necessary to insure that (i)
the information to be supplied by AVEMCO for inclusion in the Registration
Statement shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading, and (ii) the
information supplied by AVEMCO for inclusion in the Joint Proxy Statement shall
not, on the date the Joint Proxy Statement is first mailed to shareholders of
AVEMCO or HCCH, at the time of the AVEMCO Shareholders' Meeting and HCCH
Shareholders' Meeting, and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the AVEMCO Shareholders' Meeting or HCCH
Shareholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to AVEMCO or any of its Affiliates',
officers, or directors is discovered by AVEMCO which should be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement, AVEMCO shall promptly so inform HCCH.
(e) HCCH shall take such action as may be necessary to insure that (i) the
information supplied by HCCH for inclusion in the Registration Statement shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading, and (ii) the
information supplied by HCCH for inclusion in the Joint Proxy Statement shall
not on the date the Joint Proxy Statement is first mailed to shareholders of
HCCH or AVEMCO, at the time of the HCCH
31
37
Shareholders' Meeting and AVEMCO Shareholders' Meeting, and at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the HCCH
Shareholders' Meeting or AVEMCO Shareholders' Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
HCCH or any of its Affiliates', officers, or directors is discovered by HCCH
which should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement, HCCH shall promptly so inform AVEMCO.
SECTION 6.3 CONDUCT OF BUSINESS BY BOTH PARTIES PRIOR TO THE CLOSING
DATE. During the period from the date of this Agreement to the Effective Time,
each member of the AVEMCO Group and the HCCH Group shall each use its
commercially reasonable efforts to preserve, in all material respects, the
goodwill of employees, suppliers, customers, landlords, contractors, bankers,
and others having business relations with it and to do nothing knowingly to
impair its ability to keep and preserve its business as it exists on the date of
this Agreement. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time of the Merger each
member of the AVEMCO Group and the HCCH Group shall not, without the prior
written consent of the other:
(a) conduct their business outside of the ordinary course consistent
with past practice;
(b) adopt a plan of complete or partial liquidation or declare, set
aside, increase or pay any dividend (including any stock dividends), or
declare or make any distribution on, or directly or indirectly combine,
redeem, reclassify, purchase, or otherwise acquire, any shares of its
capital stock or authorize the creation or issuance of, or, issue, deliver
or sell any additional shares of its capital stock or any securities or
obligations convertible into or exchangeable for its capital stock or
effect any stock split or reverse stock split or other recapitalization,
except (i) dividends consistent with past practice (except that AVEMCO
shall not declare a dividend with a record date before June 1, 1997 without
the written consent of HCCH and shall not declare a dividend with a record
date of June 1, 1997 or subsequently if on or before such date the date of
the AVEMCO Shareholders Meeting to consider the Merger has been fixed and
announced by the AVEMCO Board of Directors and the Joint Proxy Statement
has been distributed to the shareholders of AVEMCO), (ii) the issuance of
any shares upon the exercise of any stock options outstanding on the date
of this Agreement issued pursuant to any HCCH Stock Option Plan and
pursuant to its existing terms, (iii) the acceptance by HCCH of any shares
in consideration of the exercise of such stock options, HCCH Stock Option
or in satisfaction of any tax or tax withholding obligations of the holders
of such options; (iv) the issuance of any shares upon the exercise of any
AVEMCO Stock Options outstanding on the date of this Agreement; (v) the
acceptance by AVEMCO of any shares of AVEMCO Common Stock in consideration
of the exercise of AVEMCO Stock Options or in satisfaction of any tax or
tax withholding obligations of the holders of such AVEMCO Stock Options; or
(vi) HCCH may issue and deliver shares of its capital stock or any
securities or obligations convertible into or exchangeable for its capital
stock pursuant to any acquisition by HCCH subject to a determination by the
board of directors of HCCH that such acquisition is fair to its
shareholders and if such issuance requires shareholder approval, HCCH shall
obtain a fairness opinion from a nationally recognized investment banking
firm in connection therewith.
(c) amend its certificate or articles of incorporation or by-laws, or
adopt or amend any resolution or agreement concerning indemnification of
its directors, officers, employees or agents;
(d) pledge or otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, or any other voting
securities or convertible securities;
(e) commit or omit to do any act which act or omission would cause a
breach of any covenant contained in this Agreement or would cause any
representation or warranty contained in this Agreement to become untrue, as
if each such representation and warranty were continuously made from and
after the date hereof;
32
38
(f) violate any applicable law, statute, rule, governmental regulation
or order that would have a Material Adverse Effect on such party;
(g) fail to maintain its books, accounts and records in the usual
manner on a basis consistent with that heretofore employed or change any
accounting method, policy, practice or application previously employed;
(h) fail to pay, or to make adequate provision in all material
respects for the payment of, all Taxes, interest payments and penalties due
and payable (for all periods up to the Effective Date, including that
portion of its fiscal year to and including the Effective Date) to any
city, parish, state, the United States, foreign or any other taxing
authority, except those being contested in good faith by appropriate
proceedings and for which sufficient reserves have been established, or
make any elections with respect to Taxes;
(i) make any material tax election that is inconsistent with any
corresponding election made on a prior return or settle or compromise any
income tax liability for an amount materially in excess of the liability
therefor that is reflected on the AVEMCO Financial Statements or HCCH
Financial Statements, as the case may be;
(j) take any action that would prevent the accounting for the business
combination to be effected by the Merger as a pooling-of-interests;
(k) authorize any of, or agree or commit to do any of, the foregoing
actions.
SECTION 6.4 CONDUCT OF BUSINESS OF MERGER SUB. Prior to the Effective
Time, except as may be required by applicable law and subject to the other
provisions of this Agreement, HCCH shall cause Merger Sub to (a) perform its
obligations under this Agreement in accordance with its terms, (b) not incur
directly or indirectly any liabilities or obligations other than those incurred
in connection with the Merger and the other transactions contemplated hereby,
(c) not engage directly or indirectly in any business or activities of any type
or kind and not enter into any agreements or arrangements with any person, or be
subject to or bound by any obligation or undertaking, which is not contemplated
by this Agreement and (d) not create, grant or suffer to exist any Lien upon its
properties or assets which would attach to any properties or assets of the
Surviving Corporation after the Effective Time.
SECTION 6.5 CONDUCT OF BUSINESS BY AVEMCO PRIOR TO THE CLOSING
DATE. During the period from the date of this Agreement to the Effective Time,
in addition to its covenants set forth in Section 6.3, each member of the AVEMCO
Group shall use commercially reasonable efforts to preserve the possession and
control of all of its assets other than those permitted to be disposed of
pursuant to the terms of this Agreement, shall conduct its business only in the
ordinary course consistent with past practice, and, except as otherwise provided
herein, shall not, without the prior written consent of HCCH:
(a) except for normal compensation increases, hirings and promotions
in the ordinary course of business consistent with past practice, enter
into or modify any written or oral employment, severance or similar
agreement or arrangement with any director, executive officer or employee
or grant any increase in the rate of wages, salaries, bonuses or other
compensation or benefits of any such person;
(b) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that are material, individually or in the aggregate, to the AVEMCO
Group, except purchases of investments and other assets in the ordinary
course of business consistent with past practice and for a fair and
adequate consideration;
(c) other than in the ordinary course of business consistent with past
practice, and for a fair and adequate consideration, sell, lease, license,
mortgage or otherwise encumber or subject to any Lien or otherwise dispose
of any of its other properties or assets;
33
39
(d) other than in the ordinary course of business consistent with past
practice, and for a fair and adequate consideration, incur any indebtedness
for borrowed money, or guarantee any such indebtedness of another Person,
issue or sell any debt securities or warrants or other rights to acquire
any debt securities of such party or any of its subsidiaries, guarantee any
debt securities of another Person, enter into any "keep well" or other
agreement to maintain any financial condition of another Person or enter
into any arrangement having the economic effect of any of the foregoing, or
make any loans, advances or capital contributions to, or investments in,
any other Person, or alter any credit terms;
(e) make or agree to make any new capital expenditures other than
those made in the ordinary course of business and consistent with past
practices;
(f) other than in the ordinary course of business consistent with past
practice, and for a fair and adequate consideration, place or suffer to
exist on any of its assets or properties any Lien, other than Liens listed
on the AVEMCO Disclosure Schedule and Permitted Liens, or forgive any
material indebtedness owing to it or any claims which it may have
possessed, or waive any right of substantial value or discharge or satisfy
any material noncurrent liability;
(g) other than in the ordinary course of business consistent with past
practice, grant or pay to any salaried employee or former salaried
employee, officer or director of any member of the AVEMCO Group any award
under any AVEMCO discretionary or other bonus plans or under any AVEMCO
Stock Option Plans;
(h) fail to maintain in all material respects all licenses,
certificates of authority, qualifications and Governmental Authorizations
to do business in which it is so licensed, qualified or authorized;
(i) other than in the ordinary course of business consistent with past
practice, fail to maintain in full force and effect, other than those that
expire in accordance with their terms, all material contracts, including
all reinsurance, coinsurance and similar agreements of each AVEMCO Insurer
Subsidiary, and not permit or effect any material amendment thereof without
the prior written consent of HCCH;
(j) fail to cause each AVEMCO Insurer Subsidiary to properly prepare
and timely file all financial statements, reports and Tax returns required
to be filed by such AVEMCO Insurer Subsidiaries with any Governmental
Authorities with respect to the business, operations or affairs of such
AVEMCO Insurer Subsidiary, and pay duly and fully all Taxes indicated as
due on such Tax returns, and all required filing fees;
(k) fail to cause all reserves with respect to insurance contracts
issued by each AVEMCO Insurer Subsidiary to be established or reflected on
the books and records of such AVEMCO Insurer Subsidiaries on a basis
consistent with those reserves and reserving methods followed by the AVEMCO
Insurer Subsidiaries at December 31, 1996, and to continue to own
investment assets that qualify under state insurance laws and regulations
as admitted assets in an amount at least equal to all of the required
reserves of such AVEMCO Insurer Subsidiaries, established in accordance
with generally accept actuarial principles and practices consistently
applied; or
(l) authorize any of, or agree or commit to do any of, the foregoing
actions.
SECTION 6.6 NO SOLICITATIONS. (a) No member of the AVEMCO Group shall
directly or indirectly, through any officer, director, employee, representative
or agent of any member of the AVEMCO Group, solicit or encourage the initiation
or submission of any inquiries, proposals or offers regarding any acquisition,
merger, take-over bid, sale of all or substantially all of the assets or 20% or
more of the outstanding shares of capital stock of AVEMCO, whether or not in
writing and whether or not delivered to the shareholders of AVEMCO generally
(including without limitation by way of a tender offer) (any of the foregoing
inquiries or proposals being referred to herein as an "Acquisition Proposal");
provided, however, that nothing contained in this Agreement shall prevent the
Board of Directors of AVEMCO from referring any third party to this Section 6.6.
Nothing contained in this Section 6.6 or any other provision of this Agreement
shall prevent the Board of Directors of AVEMCO from considering or negotiating
an unsolicited bona fide Acquisition Proposal. If the Board of Directors of
AVEMCO, after duly considering advice, written or otherwise, of
34
40
outside counsel and financial advisors to AVEMCO, determines in good faith that
it would be inconsistent with its fiduciary responsibilities to not approve or
recommend (and in connection therewith withdraw or modify its approval or
recommendation of this Agreement, and the transactions contemplated hereby) a
Superior Proposal (as defined below), then, notwithstanding any such approval or
recommendation (x) AVEMCO shall not enter into any agreement with respect to the
Superior Proposal and (y) any other obligation of AVEMCO under this Agreement
shall not be affected, unless this Agreement is terminated pursuant to Section
9.1(h) hereof prior to or simultaneously with the grant of such approval or the
making of such recommendation and AVEMCO, within six Business Days following
such termination resulting from such Superior Proposal, pays HCCH the
Termination Fee (as defined in Section 9.1(h)). As used herein the term
"Superior Proposal" means an unsolicited bona fide proposal made by a third
party to acquire AVEMCO pursuant to a tender or exchange offer, a merger, a sale
of all or substantially all of its assets or otherwise that the AVEMCO Board of
Directors determines in its good faith judgment to be more favorable to the
holders of the AVEMCO Common Stock than the transactions contemplated by this
Agreement (after considering the advice, written or otherwise, of AVEMCO's
professional advisors).
(b) AVEMCO shall immediately notify HCCH after receipt of any formal,
informal, written or oral Acquisition Proposal or any request for nonpublic
information relating to any member of the AVEMCO Group in connection with an
Acquisition Proposal or for access to the properties, books or records of any
member of the AVEMCO Group that informs the Board of Directors or any member of
the AVEMCO Group that some other Person is considering making, or has made, an
Acquisition Proposal. To the extent not prohibited by confidentiality provisions
imposed by the offering party or by applicable law or fiduciary duty, such
notice to HCCH shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact.
(c) If AVEMCO has determined to terminate this Agreement pursuant to
subparagraph (a) above, prior to the time AVEMCO gives such notice to HCCH of
such termination, AVEMCO shall give written notice to HCCH of its intent to
terminate and, thereafter HCCH shall have five (5) business days in which to
propose additional terms to this Agreement (the "New Proposal"); provided,
however, if HCCH's New Proposal is equal to the Superior Proposal, AVEMCO shall
be obligated to reject the Superior Proposal and accept HCCH's New Proposal.
(d) If the Board of Directors of AVEMCO receives a request for material
nonpublic information by a Person who makes or who states in writing that it
intends, subject to satisfactory review of such nonpublic information, to make a
bona fide Acquisition Proposal, AVEMCO may, subject to the execution of a
confidentiality agreement substantially similar to that then in effect between
AVEMCO and HCCH, provide such Person with access to information regarding
AVEMCO.
(e) Nothing contained in this Section 6.6 shall prevent AVEMCO from
complying with Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act,
if applicable, with regard to an Acquisition Proposal made in the form of a
tender offer by a third party.
SECTION 6.7 PRESS RELEASES. HCCH and AVEMCO shall jointly prepare any
press release with respect to the transactions described in this Agreement.
Except with respect to the issuance of a press release by HCCH with respect to
its 1996 year-end earnings, each of HCCH and AVEMCO will provide to the other at
least 24 hours before issuing any press release a copy of such press release and
an opportunity to provide comments thereon. HCCH and AVEMCO, as applicable,
shall give due consideration to any such comments, but shall retain final
authority with respect to any such press release, and shall not issue any such
press releases or make any such public statement before complying with the terms
hereof, except as may be and only when required by applicable law, court process
or by obligations pursuant to a listing agreement with the NYSE.
SECTION 6.8 ACCESS TO INFORMATION AND CONFIDENTIALITY. (a) Prior to the
Closing Date, each of AVEMCO and HCCH shall afford to the other party and to the
officers, employees. accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours to their respective premises, books and records and will furnish to the
other party (i) a copy of each report, schedule, registration statement and
other documents filed by it during such period pursuant to the
35
41
requirements of federal or state securities laws, and (ii) such other
information with respect to its business and properties as such other party
reasonably requests.
(b) Each of AVEMCO and HCCH will, and will use its commercially reasonable
efforts to cause its officers, directors, employees, agents and representatives
to, (i) hold in confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of its counsel, by other requirements
of law, or unless disclosed in an action or proceeding brought by a party hereto
in pursuit of its rights or in the exercise of its remedies hereunder, all
nonpublic information concerning the other party furnished in connection with
the transactions contemplated by this Agreement until such time as such
information becomes publicly available (otherwise than through the wrongful act
of such person), (ii) not release or disclose such information to any other
person, except in connection with this Agreement to its auditors, attorneys,
financial advisors, other consultants and advisors, and (iii) not use such
information for any competitive or other purpose other than with respect to its
consideration and evaluation of the transactions contemplated by this Agreement.
No investigation pursuant to this paragraph or otherwise shall affect any
representation or warranty contained in this Agreement or any condition to the
obligations of the parties hereto. Any such information or material obtained
pursuant to this Section 6.8(b) that constitutes "Confidential Information" (as
such term is defined in the letter agreement dated as of November 14, 1996
between AVEMCO and HCCH (the "Confidentiality Agreement")) shall be governed by
the terms of the Confidentiality Agreement. In the event of termination of this
Agreement for any reason, AVEMCO and HCCH will promptly return or destroy all
documents containing nonpublic information so obtained from the other party and
any copies made of such documents and any summaries, analyses or compilations
made therefrom.
SECTION 6.9 CONSULTATION AND REPORTING. During the period from the date of
this Agreement to the Closing Date, each party will, subject to any applicable
legal or contractual restrictions, confer on a regular and frequent basis with
the other party to report material operational matters and to report on the
general status of ongoing operations including profits margin options, cost
increases and material adverse trends. Each party will notify the other party of
any unexpected emergency or other material change in the normal course of its
business or in the operation of its properties and of any material governmental
complaints, investigations, adjudicatory proceedings, or hearings (or
communications indicating that the same may be contemplated) and will keep the
other party fully informed of such events and permit representatives of the
other party prompt access to all materials prepared by or on behalf of such
party or served on of the other party, in connection therewith. Each party shall
further, upon obtaining knowledge of any of the following, promptly notify the
other party of: (a) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection with the
Merger, (b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger, and (c) any
actions, suits, claims, investigations or other judicial proceedings commenced
or threatened against any member of the AVEMCO Group or the HCCH Group which
relate to the consummation of the Merger; provided that no party shall be
required to make any disclosure to the extent such disclosure would constitute a
violation of any applicable law.
SECTION 6.10 NOTICE AND CURE. Each party will notify the other of, and
will use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance, as soon as practical after it becomes known
to such party, that causes or will cause any covenant or agreement of either
party under this Agreement to be breached or that renders or will render untrue
any representation or warranty of either party contained in this Agreement. Each
party also will notify the other in writing of, and will use all commercially
reasonable efforts to cure, before the Closing, any violation or breach, as soon
as practical after it becomes known to such party, of any representation,
warranty, covenant or agreement made by either party. No notice given pursuant
to this paragraph shall have any effect on the representations, warranties,
covenants or agreement contained in this Agreement for purposes of determining
satisfaction of any condition contained herein.
SECTION 6.11 UPDATE SCHEDULES. Each party hereto will promptly disclose to
the other any information contained in its representations and warranties and on
the related disclosure schedules that, because of an event occurring after the
date hereof, is incomplete or no longer correct; provided, however, that none of
such
36
42
disclosures will be deemed to modify, amend or supplement the representations
and warranties of such party, unless the other party consents to such
modification, amendment or supplement in writing.
SECTION 6.12 MERGER SUB SHAREHOLDER APPROVAL. HCCH, as the sole
shareholder of Merger Sub, shall take all action necessary to effect the
necessary shareholder approval by Merger Sub of this Agreement.
SECTION 6.13 AFFILIATES" AGREEMENT. The AVEMCO Disclosure Schedule sets
forth a list which in AVEMCO's judgment represents all of AVEMCO's "affiliates"
(as that term is used in paragraph (c) and (d) of Rule 145 under the Securities
Act). To facilitate the treatment of the Merger for accounting purposes as a
pooling-of-interests, AVEMCO shall, and shall cause each other member of the
AVEMCO Group to, use commercially reasonable efforts to deliver to HCCH within
ten days of the date of this Agreement a written agreement from each of its
affiliates (the "Affiliates' Agreement") in form and substance attached hereto
as Appendix "B". HCCH shall, within ten days of the date of this Agreement, use
commercially reasonable efforts to cause to be executed by each person HCCH
believes to be an "affiliate" (as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act) of HCCH, a written agreement in form and
substance attached hereto as Appendix "C" and shall deliver copies thereof to
AVEMCO.
SECTION 6.14 NECESSARY CONSENTS. Each of HCCH and AVEMCO shall, and shall
cause each other member of the HCCH Group or AVEMCO Group, as applicable, to,
use commercially reasonable efforts to obtain such written consent and take such
other actions as may be necessary or appropriate for HCCH or AVEMCO and each
other member of the HCCH Group or AVEMCO Group, as applicable, to facilitate and
allow the consummation of the transactions provided for herein and to facilitate
and allow HCCH to carry on the acquired business after the Closing Date.
SECTION 6.15 REGULATORY APPROVAL. Each of HCCH and AVEMCO shall, and shall
cause each other member of the HCCH Group and the AVEMCO Group respectively to,
where required pursuant to the HSR Act or the rules or regulations of any
regulatory agency, including all required insurance regulatory agencies, execute
and file, or join in the execution and filing, with any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign which may be
reasonably required, in connection with the consummation of the transaction
provided for in this Agreement. Each of AVEMCO and HCCH shall, and shall cause
each other member of the AVEMCO Group and HCCH Group, respectively, to use
commercially reasonable efforts to obtain or assist HCCH in obtaining all such
authorizations, approvals and consents.
SECTION 6.16 ACTIONS CONTRARY TO STATED INTENT. Subject to the terms and
conditions of this Agreement, neither AVEMCO nor HCCH shall, from or after the
date hereof and either before or after the Effective Time, take or fail to take
the extent such action or omission any action would prevent the Merger from
qualifying as a reorganization under Section 368(a) of the Code or prevent the
business combination to be effected by the Merger from being accounted for as a
pooling-of-interests under generally accepted accounting principles. Each of
HCCH and AVEMCO shall use commercially reasonable efforts to cause its
affiliates not to take any action that would preclude the ability of HCCH to
account for the business combination to be effected by the Merger as a
pooling-of-interests.
SECTION 6.17 SATISFACTION OF CONDITIONS PRECEDENT. Subject to the terms
and conditions of this Agreement, HCCH and AVEMCO will each use commercially
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent that are applicable to each of them, and to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all material consents and authorizations
of third parties and to make filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order to
effect the transactions contemplated hereby.
SECTION 6.18 TAX COOPERATION. Subject to the terms and conditions of this
Agreement, HCCH and AVEMCO shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any transfer or gains, sales, use, transfer, value added, stock transfer and
stamp taxes, any transfer, recording, registration and other fees, and any
similar taxes or fees which become payable in connection with the transactions
contemplated by this Agreement that are required or permitted to be filed
37
43
on or before the Effective Time. Each of HCCH and AVEMCO shall not take or fail
to take any action if such action or omission would cause HCCH, AVEMCO or their
respective shareholders (except to the extent that any shareholder of AVEMCO may
receive cash in lieu of fractional shares) to recognize gain or loss for federal
income tax purposes as a result of the exchange of HCCH Common Stock for AVEMCO
Common Stock in the Merger.
SECTION 6.19 STANDSTILL. If this Agreement is terminated, no member of the
AVEMCO Group or the HCCH Group nor any Affiliate (whether or not such person or
entity is an Affiliate thereof on the date hereof) of the AVEMCO Group or the
HCCH Group shall for a period of two years following such termination (i)
acquire, offer to acquire or agree to acquire directly or indirectly by purchase
or otherwise any voting securities of any member of the other group, (ii) make
or in any way participate directly or indirectly in any "solicitation" of
"proxies" to vote (as such terms are used in the proxy rules of the SEC) or seek
to advise or influence any person or entity with respect to the voting of any
voting securities of any member of the other group, (iii) form, join or in any
way participate in a "group" within the meaning of Section 13(d)(3) of the
Exchange Act with respect to any voting securities of the other party or (iv)
otherwise act alone or in concert with others to seek to control or influence
the management, board of directors or policies of any member of the other party,
provided, however, that if AVEMCO terminates this Agreement pursuant to Section
9.1(g) in connection with the receipt of a Superior Proposal, no member of the
HCCH Group shall be bound by the terms of this Section and provided further that
the terms of this Section shall not apply to any member of the AVEMCO Group if
this Agreement cannot be consummated because HCCH has willfully and
intentionally failed, on or before the Closing Date, to satisfy those conditions
to be satisfied by HCCH that are within its control to satisfy nor to any member
of the HCCH Group if this Agreement cannot be consummated because AVEMCO has
willfully and intentionally failed, on or before the Closing Date, to satisfy
the conditions to be satisfied by AVEMCO that are within its control to satisfy.
SECTION 6.20 STOCK EXCHANGE LISTING. HCCH shall use commercially
reasonable efforts to cause the shares of HCCH Common Stock to be issued in the
Merger in accordance with this Agreement to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Closing Date.
SECTION 6.21 EXERCISE OF STOCK OPTIONS. AVEMCO shall provide to HCCH a
schedule, as of a date within five days of the date hereof and the Closing Date,
setting forth the name of each person who since December 31, 1996 has exercised
an option for the purchase of shares of AVEMCO Common Stock, together with the
number of shares received pursuant to such exercise.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.1 CONDITIONS TO OBLIGATIONS OF HCCH AND MERGER SUB. The
obligations of HCCH and Merger Sub hereunder are also subject to the fulfillment
or satisfaction, on and as of the Effective Date, of each of the following
conditions (any one or more of which may be waived by HCCH, but only in a
writing signed by HCCH):
(a) The representations and warranties of AVEMCO contained in Article
IV shall be true and accurate on and as of the Effective Date with the same
force and effect as if they had been made on the Effective Date or, in the
case of representations and warranties made as of a specified date earlier
than the Effective Date, on and as of such earlier date, except as affected
by the transactions contemplated by this Agreement and except for such
failures of representations or warranties to be true and correct (without
regard to any materiality qualifiers contained therein) which, individually
or in the aggregate, are not having and are not reasonably expected to have
a Material Adverse Effect on AVEMCO, and AVEMCO shall have provided HCCH
with a certificate executed by the Chief Executive Officer or the President
and the Chief Financial Officer of AVEMCO, dated as of the Effective Date,
to such effect.
(b) AVEMCO shall have performed and complied with all of its
covenants, agreements and obligations contained herein, in all material
respects, on or before the Effective Date, and HCCH shall
38
44
receive a certificate to such effect signed by the Chief Executive Officer
or the President and Chief Financial Officer of AVEMCO.
(c) Except as set forth in the AVEMCO Disclosure Schedule, there shall
not have occurred any event or circumstance resulting in a Material Adverse
Effect with respect to AVEMCO from the date of this Agreement through the
Closing Date.
(d) HCCH shall have received from each person or entity who may be
deemed pursuant to Section 6.13 to be an affiliate of AVEMCO or any other
member of the AVEMCO Group a duly executed Affiliates' Agreement and such
agreements shall remain in full force and effect.
(e) HCCH shall have received a written opinion from Xxxxxxxx Xxxxxxxx
& Xxxxxx P.C. to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. In
preparing such opinion, counsel may rely on (and to the extent reasonably
required, the parties and their shareholders shall make) reasonable
representations related thereto.
(f) HCCH shall have received the opinions of Piper & Marbury L.L.P.,
counsel to AVEMCO and Xxxxxx X. Xxxxx, Senior Vice President of AVEMCO, in
the form and substance as attached hereto as Appendix "D" and Appendix "E"
respectively.
(g) The waiting periods (and any extensions thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired
and no condition shall have been imposed on AVEMCO or HCCH to obtain such
termination that would require the divestiture of any of either of such
party's assets or otherwise have a Material Adverse Effect on such party.
(h) Xxxxx Xxxxxx Inc. shall have confirmed as of a date within five
days before the mailing of the Joint Proxy Statement to the shareholders of
HCCH the opinion to which Section 5.27 refers, and such opinion shall not
have been withdrawn as of the date of the Closing.
(i) AVEMCO shall have filed with the SEC its annual report on Form
10-K for the fiscal year ending December 31, 1996, which shall contain an
unqualified report from its independent auditors.
(j) HCCH shall have received all regulatory approvals of insurance
regulatory authorities with respect to the acquisition of control of the
AVEMCO Insurer Subsidiaries.
(k) AVEMCO will have delivered to HCCH such other documents and
certificates as HCCH may reasonably request.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF AVEMCO. AVEMCO's obligations
hereunder are subject to the fulfillment or satisfaction, on and as of the
Effective Date, of each of the following conditions (any one or more of which
may be waived, but only in a writing signed by AVEMCO):
(a) The representations and warranties of HCCH set forth herein shall
be true and accurate on and as of the Effective Date with the same force
and effect as if they had been made on the Effective Date or, in the case
of representations and warranties made as of a specified date earlier than
the Effective Date, on and as of such earlier date, except as affected by
the transactions contemplated by this Agreement and except for such
failures of representations or warranties to be true and correct (without
regard to any materiality qualifiers contained therein) which, individually
or in the aggregate, are not having and are not reasonably expected to have
a Material Adverse Effect on HCCH, and HCCH shall have provided AVEMCO with
a certificate executed by the Chief Executive Officer or the President and
the Chief Financial Officer of HCCH, dated as of the Effective Date, to
such effect.
(b) HCCH shall have performed and complied with all of its covenants,
agreements and obligations contained herein in all material respects on or
before the Effective Date, and AVEMCO shall receive a certificate to such
effect signed by HCCH's Chief Executive Officer or President and Chief
Financial Officer.
39
45
(c) Except as set forth in the HCCH Disclosure Schedule, there shall
not have occurred any event or circumstance resulting in a Material Adverse
Effect with respect to HCCH from the date of this Agreement through the
Closing Date.
(d) AVEMCO shall have received a written opinion from Piper & Marbury
L.L.P. to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code. In preparing such
opinion, counsel may rely on (and to the extent reasonably required, AVEMCO
shall make) reasonable representations as to facts related thereto.
(e) AVEMCO shall have received from Xxxxxxxx Xxxxxxxx & Xxxxxx P.C.,
counsel to HCCH, an opinion in form and substance as attached hereto as
Appendix "F."
(f) HCCH shall have filed with the SEC its annual report on Form 10-K
for the fiscal year ending December 31, 1996, which shall contain an
unqualified report from its independent auditors.
(g) Alex. Xxxxx & Sons Incorporated shall have confirmed as of a date
within five days before the mailing of the Joint Proxy Statement to the
shareholders of AVEMCO the opinion to which Section 4.31 refers, and such
opinion shall not have been withdrawn as of the date of the Closing.
(h) The Average Market Price of HCCH Common Stock shall not be, or
have been, at any time between the date of this Agreement and the Closing
Date, below $23 per share (the "Minimum Acceptable Price"); provided,
however, if such Average Market Price is below the Minimum Acceptable Price
per share prior to the Closing Date, AVEMCO shall be required to notify
HCCH of AVEMCO's election to terminate this Agreement within 72 hours of
any time such Average Market Price is below the Minimum Acceptable Price.
Failure of AVEMCO to so notify HCCH within the time period set forth herein
shall act as a waiver of AVEMCO's right to terminate this Agreement
pursuant to this subparagraph 7.2(h) with respect to such ten-day period,
but shall not act as a waiver with respect to any subsequent ten-day
period, which period may contain days from any other such period.
SECTION 7.3 CONDITIONS APPLICABLE TO ALL PARTIES. The respective
obligations of each of the parties hereto to effect the Merger and the other
transactions contemplated by this Agreement are subject to the fulfillment or
satisfaction, on and as of the Effective Date of each of the following
conditions (any one or more of which may be waived by the other party, but only
in a writing signed by the other party).
(a) The Registration Statement shall have become effective with the SEC
(and no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted by the SEC). The Joint Proxy Statement included therein shall have
been mailed to the shareholders of HCCH and AVEMCO. The shares of HCCH Common
Stock to be issued pursuant to the Merger and the shares issuable under the
AVEMCO Option Plans shall have been approved for listing on the NYSE, subject to
official notice of issuance, and the required approval of this Agreement by the
shareholders of HCCH and AVEMCO, under applicable law and the applicable
regulations of the NYSE, as the case may be, shall have been obtained at the
Special Meetings.
(b) No action, suit, or proceeding before any court or governmental or
regulatory authority will be pending, no investigation by any governmental or
regulatory authority will have been commenced, and no action, suit or proceeding
by any governmental or regulatory authority will have been threatened, against
AVEMCO, HCCH or any of the principals, officers or directors of either of them,
seeking to restrain, prevent or change the transactions contemplated hereby or
questioning the legality or validity of any such transactions or seeking damages
in connection with any such transactions.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) HCCH and AVEMCO shall have received letters from Coopers & Xxxxxxx
L.L.P., each dated the date of the Joint Proxy Statement and confirmed in
writing at the Effective Time and addressed to HCCH and AVEMCO, respectively,
stating that the business combination to be effected by the Merger will qualify
as a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board in accordance with generally accepted accounting principles and
all published rules, regulations and policies of the SEC.
40
46
(e) HCCH and AVEMCO shall have received letters from KPMG Peat Marwick,
LLP, each dated the date of the Joint Proxy Statement and confirmed in writing
at the Effective Time and addressed to HCCH and AVEMCO, respectively, stating
that AVEMCO qualifies as an entity that may be a party to a business combination
for which the pooling-of-interests method of accounting would be available.
(f) All governmental and third party consents and approvals, if any,
necessary to permit the consummation of the transactions contemplated by this
Agreement will have been received.
(g) Neither party shall take any action that would have the effect of
preventing or materially delaying the Merger without the consent of the other
party.
ARTICLE VIII
POST-CLOSING COVENANTS
SECTION 8.1 USE OF AVEMCO NAME. HCCH shall be entitled to use the AVEMCO
name and any abbreviation thereof and any associated trade or service marks.
SECTION 8.2 INDEMNIFICATION AND INSURANCE COVERAGE OF DIRECTORS AND
OFFICERS OF THE AVEMCO GROUP.
(a) From and after the Effective Time of the Merger, HCCH and the Surviving
Corporation shall indemnify, defend and hold harmless, each person who is now or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time an officer or director of any member of the AVEMCO Group on the
date of this Agreement (an "Indemnified Person") from and against: (i) all
losses, damages, liabilities, judgments and claims (and related expenses
including, but not limited to, attorney's fees and amounts paid in settlement)
based upon or arising in whole or in part out of the fact that such Indemnified
Person is or was a director or officer of a member of the AVEMCO Group and
relates to or arises out of any action or omission occurring at or prior to the
Effective Time ("Indemnified Liabilities"), and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, or
pertaining to this Agreement or the transactions contemplated hereby, in each
case to the full extent a corporation is permitted under applicable law to
indemnify its own directors or officers, as the case may be. Subject to an
Indemnified Person's obligation to refund any advances in accordance with the
DGCL, HCCH shall advance all expenses reasonably incurred by such Indemnified
Person.
(b) The rights granted to the Indemnified Persons hereby shall be
contractual rights inuring to the benefit of all Indemnified Persons and shall
survive this Agreement and any merger, consolidation or reorganization of HCCH.
(c) The rights to indemnification granted by this Section 8.2 are subject
to the following limitations: (i) amounts otherwise required to be paid by HCCH
to an Indemnified Person pursuant to this Section 8.2 shall be reduced by any
amounts that such Indemnified Person has recovered by virtue of the claim for
which indemnification is sought and HCCH shall be reimbursed for any amounts
paid by HCCH that such Indemnified Person subsequently recovers by virtue of
such claim; (ii) any claim for indemnification pursuant to this Section 8.2 must
be submitted in writing to the Chief Executive Officer of HCCH promptly upon
such Indemnified Person becoming aware of such claim, but the failure so to
notify shall not relieve HCCH or the Surviving Corporation from any liability
under this paragraph except to the extent such failure materially prejudices
HCCH or the Surviving Corporation; and (iii) an Indemnified Person shall not
settle any claim for which indemnification is provided herein without the prior
written consent of HCCH, which consent shall not be unreasonably withheld.
(d) Except to the extent prohibited by law, HCCH will keep in effect and
guarantee performance of the provisions for indemnification of directors or
officers contained in the certificates or articles of incorporation or bylaws
(or other comparable charter documents) of the Surviving Corporation and its
Subsidiaries (which as of the Effective Time shall be those maintained by AVEMCO
and its Subsidiaries on the date hereof) in such a manner as would not adversely
affect the rights of any individual who shall have served as a director or
officer of any member of the AVEMCO Group prior to the Effective Time to be
indemnified by such corporations in respect of their serving in such capacities
prior to the Effective Time.
41
47
(e) HCCH shall, to the extent and for so long as it provides
indemnification (and insurance therefor) to officers and directors of members of
the HCCH Group, provide such indemnification (and insurance) to Indemnified
Persons who continue as officers and directors of the Surviving Corporation or
any of its subsidiaries on and after the Effective Date.
(f) HCCH and the Surviving Corporation shall, until the sixth anniversary
of the Effective Time, cause to be maintained in effect, the policies of
directors' and officers' liability insurance maintained by all members of the
AVEMCO Group as of the date hereof (or policies of at least the same coverage
and amounts containing terms that are no less advantageous to the insured
parties) with respect to claims arising from facts or events that occurred on or
prior to the Effective Time; provided, however, that the total aggregate amount
with respect to which HCCH and the Surviving Corporation shall maintain
insurance pursuant to this Section 8.2(f) shall not exceed, as to all
Indemnified Persons described herein as a group, the amount of $10 million.
(g) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each of the Indemnified Persons and his or her
heirs and legal representatives, and shall be in addition to any other rights
any Indemnified Person may have under the certificate or articles of
incorporation or bylaws of the Surviving Corporation or any of its Subsidiaries,
under the DGCL or otherwise.
SECTION 8.3 PUBLICATION OF POST-MERGER RESULTS. HCCH shall use
commercially reasonable efforts to cause financial results covering at least
thirty days of post Merger combined operations to be published in its first
report of quarterly financial statements as soon as practicable and by the date
after such information is required to be filed with the SEC.
SECTION 8.4 EMPLOYEE BENEFITS. Following the consummation of the Merger,
as soon as reasonably practicable, HCCH shall arrange to make generally
available to the employees of AVEMCO the benefits generally applicable to
employees of HCCH.
SECTION 8.5 STOCK OFFERINGS. HCCH shall not participate in a primary or
secondary offering of securities during the period in which HCCH Affiliates' are
prevented from disposing of securities pursuant to the terms of the HCCH
Affiliates' Agreements.
SECTION 8.6 REGISTRATION RIGHTS. HCCH shall use commercially reasonable
efforts to cause a Registration Statement or Registration Statements on Form S-8
or S-3 to be filed with the SEC within thirty days after Closing and covering
the shares of HCCH Common Stock to be issued upon exercise of the AVEMCO Stock
Options (provided that no representation is made by HCCH that any such Form S-8
Registration Statement will in all cases be available to permit resales of HCCH
Common Stock).
ARTICLE IX
TERMINATION OF AGREEMENT
SECTION 9.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated herein abandoned at any time before the Effective Time whether
before or after the approval by the shareholders of HCCH and AVEMCO:
(a) By the mutual written consent of the parties hereto duly
authorized by action taken by or on behalf of their respective Boards of
Directors.
(b) By either HCCH or AVEMCO upon written notification to the
non-terminating party if there has been a material breach by the other of
any representation or warranty or of any covenant contained in this
Agreement, which in either case cannot be, or has not been, cured within 15
days after written notice of such breach is given to the party committing
such breach, provided that the right to effect such cure shall not extend
beyond the date set forth in subparagraph (c) below.
(c) By either HCCH or AVEMCO upon written notification to the
non-terminating party if (i) all conditions of Closing required by Article
VII hereof have not been met or waived by August 31, 1997, or (ii) the
Merger has not occurred by such date; provided, however, that neither HCCH
nor AVEMCO,
42
48
shall be entitled to terminate this Agreement pursuant to this subparagraph
(c) if such party is in willful and material violation of any of its
representations, warranties or covenants in this Agreement.
(d) If any governmental authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable, or shall refuse to enter
an order approving the acquisition of control of any Insured Subsidiary by
HCCH.
(e) By either AVEMCO or HCCH upon written notification to the
non-terminating party, if any required approval of the shareholders of
AVEMCO or HCCH shall not have been obtained by reason of the failure to
obtain the required vote of the shareholders of either AVEMCO or HCCH at
their respective Special Meeting or at any adjournment thereof.
(f) By AVEMCO if the Average Market Price falls below the Minimum
Acceptable Price and HCCH is notified in accordance with Section 7.2(h).
(g) By AVEMCO if it has received and accepts a Superior Proposal
pursuant to Section 6.6.
(h) If this Agreement is terminated by AVEMCO's Board of Directors in
order to accept a Superior Proposal pursuant to Section 6.6, AVEMCO shall
be obligated to pay to HCCH a fee (the "Termination Fee") in cash in an
amount equal to $7.5 million, plus all reasonable expenses, including
legal, accounting and tax expenses, incurred by HCCH in connection with the
negotiation and preparation of this Agreement and the transactions
contemplated herein. If this Agreement is terminated by either party
because the other party's shareholders did not vote to approve this
Agreement at the Special Meetings, then a Termination Fee equal to $3.75
million, plus all reasonable expenses, shall be paid by the party failing
to get shareholder approval to the other party. Any party obligated to pay
a Termination Fee shall be obligated to pay the applicable Termination Fee
within six business days following such termination.
SECTION 9.2 EFFECT OF TERMINATION. Upon termination of this Agreement
pursuant to this Article IX, this Agreement shall be void and of no effect,
other than the obligation to pay the Termination Fee and expenses referred to in
Section 9.1(h), if applicable, and the obligations set forth in Article X,
Section 6.8(b), Section 6.19 and the Confidentiality Agreement (except as
modified by Section 6.19, if applicable), and shall result in no obligation of
or liability to any party or their respective directors, officers, employees,
agents or shareholders, unless such termination was the result of a willful and
intentional breach of any representation, warranty or covenant in this
Agreement, in which case, in addition to the Termination Fee, if any, to be paid
hereunder, the party who breached the representation, warranty or covenant shall
be liable to the other party for damages, and all costs and expenses incurred in
connection with the preparation, negotiation, execution and performance of this
Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
SECTION 10.2 FEES AND EXPENSES. Except as otherwise provided herein, each
party shall bear its own fees and expenses, including counsel fees and fees of
accountants, brokers and investment bankers contracted by such party, in
connection with the transaction contemplated hereby.
43
49
SECTION 10.3 NOTICES. Whenever any party hereto desires or is required to
give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States registered or certified mail,
postage prepaid, or sent by prepaid overnight courier or confirmed telecopier,
addressed as follows:
HCCH and Merger Sub:
HCC Insurance Holdings, Inc.
00000 Xxxxxxxxx Xxxxxxx
Xxxxxxx, Xxxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Way, Chairman and Chief Executive Officer
With copies to:
Xxxxxxxx Xxxxxxxx & Xxxxxx P.C.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
AVEMCO:
AVEMCO Corporation
Xxxxxxxxx Municipal Airport
000 Xxxxxxxx Xxx
Xxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx, Chairman and Chief Executive Officer
With copies to:
Piper & Marbury L.L.P.
00 X. Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telecopy: 000-000-0000
Attention: X. X. Xxxxx, Xx., Esq.
Such communications shall be effective when they are received by the
addressee thereof. Any party may change its address for such communications by
giving notice thereof to other parties in conformity with this Section.
SECTION 10.4 GOVERNING LAW. The internal laws of the State of Delaware
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
SECTION 10.5 BINDING UPON SUCCESSORS AND ASSIGNS, ASSIGNMENT. This
Agreement and the provisions hereof shall be binding upon each of the parties,
their permitted successors and assigns. Nothing in this Agreement, express or
implied, is intended to confer on any Person other than the parties hereto and
their respective successors and assigns (and to the extent provided in Section
8.2 the Indemnified Persons and their successors and assigns) any rights,
remedies, obligations or liabilities under or by reason of this Agreement. This
Agreement may not be assigned by any party without the prior consent of the
others, provided, however, that HCCH shall be permitted at any time prior to the
Effective Time to cause the assignment of Merger Sub's rights and obligations
under this Agreement to another wholly owned Subsidiary of HCCH (without in any
way relieving HCCH of its obligations under this Agreement with respect to
Merger Sub or the Merger).
SECTION 10.6 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
44
50
provision to other persons or circumstances shall continue in full force and
effect and in no way be affected, impaired or invalidated.
SECTION 10.7 ENTIRE AGREEMENT. This Agreement and the other agreements and
instruments referenced herein constitute the entire understanding and agreement
of the parties with respect to the subject matter hereof and supersede all prior
and contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between parties with respect hereto,
provided, however, that except as modified herein the terms of the
Confidentiality Agreement shall remain in effect.
SECTION 10.8 AMENDMENT AND MODIFICATION. This Agreement may be amended or
modified only by written agreement of the parties hereto. This Agreement may be
amended by the parties at any time before or after any required approval of
matters presented in connection with the Merger by the shareholders of AVEMCO
and HCCH; provided, however, that after any such approval, there shall be made
no amendment that by law requires further approval by such shareholders without
the further approval of such shareholders.
SECTION 10.9 EXTENSION; WAIVER. At any time prior to the Effective Time of
the Merger, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) waive compliance with any
of the agreements or conditions contained in this Agreement except for Sections
7.3(a) or 7.3(c). The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. No waiver of any breach of this
Agreement shall be held to constitute a waiver of any other or subsequent
breach. Any waiver must be in writing.
SECTION 10.10 CONSTRUCTION OF AGREEMENT. A reference to an Article,
Section, Paragraph, subparagraph or an Appendix shall mean an Article of, a
Section in, Paragraph, subparagraph or Appendix to, this Agreement unless
otherwise explicitly set forth. The table of contents and headings herein are
for reference purposes only and shall not in any manner limit the construction
of this Agreement which shall be considered as a whole. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation."
SECTION 10.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all the parties reflected hereon as signatories.
SECTION 10.12 GENDER AND CERTAIN DEFINITIONS. All words used herein,
regardless of the number and gender specifically used, shall be deemed and
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context requires.
SECTION 10.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No
representation, warranty, covenant or agreement shall survive the Closing Date,
except those contained in Article II, Article III, Article VIII, Article X,
Section 6.8(b), Section 6.16, Section 6.18, Section 6.20, Section 6.21 and the
agreement of "affiliates" of AVEMCO and HCCH contained in Section 6.13 or in the
respective AVEMCO and HCCH Affiliates' Agreements.
SECTION 10.14 EFFECT OF DUE DILIGENCE. No investigation by HCCH or AVEMCO
into the business, operations and conditions of the other shall affect any
representation or warranty made by either party in this Agreement or shall
relieve such party of any of its obligations under this Agreement.
45
51
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first above written.
"HCC INSURANCE HOLDINGS, INC."
By: /s/ Xxxxxxx X. Way
----------------------------------
Name: Xxxxxxx X. Way
Title: Chairman of the Board and
Chief Executive Officer
"MERGER SUB #4, INC."
By: /s/ Xxxxxxx X. Way
----------------------------------
Name: Xxxxxxx X. Way
Title: President and Chief
Executive Officer
"AVEMCO CORPORATION"
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman of the Board and
Chief Executive Officer
SIGNATURE PAGE OF AGREEMENT AND PLAN OF REORGANIZATION
46
