UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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Philadelphia Consolidated Holding Corp.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Common Stock, no par value per share
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(2)
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Aggregate number of securities to which transaction applies:
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(i) 71,783,619 shares of
common stock (including 562,672 restricted
shares), (ii) 5,780,805 options to purchase shares of common stock,
and (iii) 1,893,867 stock appreciation rights related to common stock.
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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The maximum aggregate value was determined based upon the sum of: (i)
71,783,619 shares of common stock multiplied by $61.50 per share, (ii)
5,780,805 options to purchase shares of common stock multiplied by
$46.44
(
which is the difference between $61.50 and the weighted average
exercise price of $15.06 per share), and (iii) 1,893,867 stock appreciation
rights related to common stock multiplied by $24.62 (which is the difference between $61.50 and the weighted average reference price of $36.88 per share). In accordance with
Section 14(g) of the Securities Exchange Act of 1934, as amended, the
filing fee was determined by multiplying 0.00003930 by the sum of the
preceding sentence.
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(4)
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Proposed maximum aggregate value of transaction:
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$4,729,762,993
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(5)
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Total fee paid:
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$185,879.69
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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$185,827.30
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(2)
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Form, Schedule or Registration Statement No.:
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Schedule 14A
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(3)
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Filing Party:
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Philadelphia Consolidated Holding Corp.
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(4)
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Date Filed:
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August 22, 2008
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PHILADELPHIA
CONSOLIDATED HOLDING CORP.
One
Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
September 26,
2008
Dear Shareholder:
On behalf of the Board of Directors of Philadelphia Consolidated
Holding Corp. (the Company), I am pleased to invite
you to a special meeting of the shareholders of the Company to
be held on October 23, 2008 at 2:00 p.m., Philadelphia
time. The special meeting will take place at the Hilton
Philadelphia City Avenue, 4200 City Avenue, Philadelphia,
Pennsylvania.
At the special meeting, we will ask you (i) to adopt the
Agreement and Plan of Merger, dated as of July 22, 2008,
among the Company, Tokio Marine Holdings, Inc. (Tokio
Marine) and Tokio Marine Investment (Pennsylvania) Inc.
(an indirect wholly owned subsidiary of Tokio Marine);
(ii) to approve the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are not sufficient votes
present, in person or by proxy, at the time of the special
meeting to adopt the Agreement and Plan of Merger; and
(iii) to consider such other business as may properly come
before the meeting. If the merger is completed, each share of
Company common stock issued and outstanding immediately prior to
the merger will be converted into the right to receive $61.50 in
cash, without interest and less any applicable withholding
taxes, as more fully described in the accompanying proxy
statement.
The Companys Board of Directors has approved the merger,
the Agreement and Plan of Merger and the other transactions
contemplated by the Agreement and Plan of Merger, and has
determined that the merger, the Agreement and Plan of Merger and
the other transactions contemplated by the Agreement and Plan of
Merger are advisable and in the best interests of the Company
and our shareholders.
The Board of Directors recommends that
you vote FOR the proposal to adopt the Agreement and
Plan of Merger and FOR the proposal to approve the
adjournment or postponement of the special meeting, if necessary
or appropriate, to solicit additional proxies in the event there
are not sufficient votes present, in person or by proxy, at the
time of the special meeting to adopt the Agreement and Plan of
Merger.
The approval of the Agreement and Plan of Merger requires the
affirmative vote of the holders of a majority of the issued and
outstanding shares of Company common stock entitled to vote on
the matter and present, in person or by proxy, at the special
meeting. The proxy statement accompanying this letter provides
you with more specific information concerning the special
meeting, the Agreement and Plan of Merger and the other
transactions contemplated by the Agreement and Plan of Merger.
We encourage you to carefully read the accompanying proxy
statement.
Your vote is very important regardless of the number of
shares of Company common stock that you own.
The enclosed proxy card contains instructions regarding
voting. Whether or not you plan to attend the special meeting,
please take the time to vote by completing and mailing to us the
enclosed proxy card or by granting your proxy electronically
over the Internet or by telephone as soon as possible. If your
shares are held in an account at a brokerage firm, bank or other
nominee, you should instruct your broker, bank or nominee how to
vote your shares using the separate voting instruction form
furnished by your broker, bank or nominee.
For your convenience, the enclosed proxy statement is also
available on the Internet at
http://materials.proxyvote.com/717528.
Sincerely,
James J. Maguire, Jr.
President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state
securities regulatory agency has approved or disapproved the
merger, passed upon the merits or fairness of the merger or
passed upon the adequacy or accuracy of the disclosure in the
proxy statement. Any representation to the contrary is a
criminal offense.
This proxy statement is dated September 26, 2008, and is
first being mailed to our shareholders on or about
October 1, 2008.
PHILADELPHIA
CONSOLIDATED HOLDING CORP.
One
Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
To the Holders of Common Stock:
The special meeting of the shareholders of Philadelphia
Consolidated Holding Corp. (the Company) will be
held on October 23, 2008 at 2:00 p.m., Philadelphia
time, at the Hilton Philadelphia City Avenue, 4200 City Avenue,
Philadelphia, Pennsylvania for the following purposes:
1. To adopt the Agreement and Plan of Merger, dated as of
July 22, 2008, among the Company, Tokio Marine Holdings,
Inc. and Tokio Marine Investment (Pennsylvania) Inc. (an
indirect wholly owned subsidiary of Tokio Marine Holdings, Inc.);
2. To approve the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are not sufficient votes
present, in person or by proxy, at the time of the special
meeting to adopt the Agreement and Plan of Merger; and
3. To consider such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
Only those persons who were holders of record of the
Companys common stock at the close of business on
September 25, 2008 will be entitled to notice of, to attend
and to vote at, the special meeting and any adjournment or
postponement thereof. As of the record date, there were
71,783,619 shares of Company common stock outstanding. Each
shareholder is entitled to one vote for each common share owned
on the record date. If you own shares through a broker or other
nominee and you want to have your vote counted, you must
instruct your broker or nominee to vote. The affirmative vote of
a majority of the shares of the Companys common stock
entitled to vote and present, in person or by proxy, at the
special meeting is required to adopt the Agreement and Plan of
Merger and to approve the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are not sufficient votes
present, in person or by proxy, at the time of the special
meeting to adopt the Agreement and Plan of Merger.
Pursuant to section 1923(a) of the Pennsylvania Business
Corporation Law, a copy of the by-laws of Tokio Marine
Investment (Pennsylvania) Inc. as they will be in effect
immediately following the effective time of the merger, which
will be the by-laws of the Company as the surviving entity after
the effective time of the merger, will be furnished to any
shareholder on request and without cost.
Our Board of Directors has approved the Agreement and Plan of
Merger and the transactions contemplated by the Agreement and
Plan of Merger, determined that the transactions contemplated by
the Agreement and Plan of Merger are in the best interests of
the Company and its shareholders and resolved to recommend that
the Companys shareholders vote in favor of the adoption of
the Agreement and Plan of Merger.
The Board of Directors recommends that you vote
FOR the proposal to adopt the Agreement and Plan of
Merger and FOR the proposal to approve the
adjournment or postponement of the special meeting, if necessary
or appropriate, to solicit additional proxies in the event there
are not sufficient votes present, in person or by proxy, at the
time of the special meeting to adopt the Agreement and Plan of
Merger.
By Order of the Board of Directors
Craig P. Keller
Secretary
September 26, 2008
TABLE
OF CONTENTS
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SUMMARY TERM SHEET
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1
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The Parties to the Merger
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1
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The Merger
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1
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Structure of the Merger
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1
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Merger Consideration
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1
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Conditions to the Merger
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2
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Reasons for the Merger; Recommendation of the Board of Directors
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2
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Background of the Merger
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2
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The Special Meeting
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3
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Date, Time and Place
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3
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Matters to be Considered
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3
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Record Date and Quorum
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3
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Required Vote
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3
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Voting by Proxy
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3
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Revocability of Proxy
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3
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Adjournment and Postponement
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4
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Shares Owned by Directors and Executive Officers
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4
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Opinion of Merrill Lynch
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4
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Material United States Federal Income Tax Consequences
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4
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Effects on the Company and Our Shareholders If the Merger is Not
Completed
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Governmental and Regulatory Approvals
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Interests of Our Directors and Executive Officers in the Merger
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5
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No Dissenters Rights
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5
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No Solicitation by the Company
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6
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Termination of the Merger Agreement
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6
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Termination Fees If the Merger Is Not Completed
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6
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Market Price of Company Common Stock and Dividend Data
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6
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
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7
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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12
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THE SPECIAL MEETING
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13
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General; Date, Time and Place
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13
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Matters to Be Considered
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13
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Record Date and Quorum
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13
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Required Vote
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13
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Voting by Proxy; Revocability of Proxy
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14
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Effect of Abstentions and Broker Non-Votes
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15
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Solicitation of Proxies
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15
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Adjournments and Postponements
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15
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Shares Owned by Company Directors and Executive Officers
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16
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THE MERGER
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16
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Introduction
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16
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The Companies
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16
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Philadelphia Consolidated Holding Corp.
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16
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Tokio Marine Holdings, Inc.
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17
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Merger Sub
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17
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Background of the Merger
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17
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Reasons for the Merger
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23
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Recommendation of the Board of Directors
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25
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Opinion of Merrill Lynch
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25
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Historical Trading Analysis
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27
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Analysis of Selected Comparable Publicly Traded Companies
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27
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Precedent Transaction Analysis
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28
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Discounted Cash Flow Analysis
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29
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General
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29
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Material United States Federal Income Tax Consequences
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30
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Certain Effects of the Merger
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32
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Effects on the Company and Our Shareholders If the Merger Is Not
Completed
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32
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Governmental and Regulatory Approvals
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32
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United States Antitrust Filing
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32
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Insurance Laws and Regulations
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33
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Interests of Our Directors and Executive Officers in the Merger
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33
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Stock Options
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33
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Stock Appreciation Rights
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34
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Restricted Shares
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35
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Insurance and Indemnification
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35
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Addenda to Employment Agreements
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36
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Voting and Support Agreements
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37
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Share Purchase Agreements
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38
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No Dissenters Rights
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38
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THE MERGER AGREEMENT
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38
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Structure of the Merger
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38
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Closing of the Merger
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39
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Merger Consideration and Conversion of the Company Common Stock
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39
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Treatment of Company Equity Awards
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39
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Options
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39
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Stock Appreciation Rights
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39
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Restricted Shares
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39
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Performance Awards
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39
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Treatment of the Companys Employee Stock Purchase Plans
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40
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Exchange of Share Certificates
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40
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Representations and Warranties
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40
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Covenants Relating to Conduct of Business
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42
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Regulatory Approvals
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45
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No Solicitations by the Company
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45
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Changes in the Companys Recommendation
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46
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Employee Benefits and Plans
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47
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Indemnification and Insurance
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47
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Other Covenants and Agreements
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47
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Conditions to the Closing of the Merger
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48
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Transaction Fees and Expenses
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48
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Termination of the Merger Agreement
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49
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Termination Fee
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50
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Governing Law
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51
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Amendments, Extensions and Waivers of the Merger Agreement
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51
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MARKET PRICE OF THE COMMON STOCK AND DIVIDEND DATA
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51
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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52
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PROPOSALS OF SHAREHOLDERS
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53
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HOUSEHOLDING ISSUES
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54
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OTHER MATTERS
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54
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WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
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54
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ii
SUMMARY
TERM SHEET
Except as otherwise specifically noted, Company,
we, our, us and similar
words in this proxy statement refer to Philadelphia Consolidated
Holding Corp. In addition, we refer to Tokio Marine Holdings,
Inc. as Tokio Marine and to Tokio Marine Investment
(Pennsylvania) Inc. as Merger Sub. We refer to the
Agreement and Plan of Merger, dated as of July 22, 2008,
among the Company, Tokio Marine, and Merger Sub, as it may be
amended from time to time, as the merger agreement,
and the merger contemplated by the merger agreement as the
merger.
This summary term sheet highlights only selected information
from this proxy statement and may not contain all of the
information that is important to you as a shareholder. We
encourage you to carefully read this entire document and the
documents to which we have referred you, including the
appendices to this proxy statement, for a more complete
understanding of the matters being considered at the special
meeting. The information contained in this summary is qualified
in its entirety by the more detailed information contained in
this proxy statement. Page references are included in
parentheses to direct you to a more complete discussion of the
topics presented in this summary.
The
Parties to the Merger (page 16)
The Company, Philadelphia Consolidated Holding Corp., a
Pennsylvania corporation headquartered in Bala Cynwyd,
Pennsylvania, through its subsidiaries, designs, markets, and
underwrites specialty commercial and personal property and
casualty and insurance products for select markets or niches by
offering differentiated products through multiple distribution
channels. We operate solely within the United States through our
13 regional and 34 field offices. The organization has 47
offices strategically located across the United States. We
generate most of our revenues through the sale of commercial
property and casualty insurance policies.
Tokio Marine, Tokio Marine Holdings, Inc., a Japanese
corporation headquartered in Tokyo, Japan, is engaged through
its subsidiaries in the business of underwriting, marketing, and
distributing property and casualty insurance (including
voluntary automobile and compulsory automobile liability, fire
and allied lines, personal accident, cargo and transit and hull
insurance), life insurance and third sector
insurance lines, which do not fall within the traditional life
and property and casualty insurance lines, in Japan and
overseas. Its main subsidiaries include Tokio Marine &
Nichido Life Insurance Co., Ltd. and Tokio Marine &
Nichido Fire Insurance Co., Ltd., which is the immediate parent
company of Merger Sub.
Merger Sub, Tokio Marine Investment (Pennsylvania) Inc., is a
Pennsylvania corporation that was formed solely for the purpose
of entering into the merger agreement and consummating the
transactions contemplated by the merger agreement. It is an
indirect wholly owned subsidiary of Tokio Marine. It has not
conducted any activities to date other than activities
incidental to its formation and in connection with the
transactions contemplated by the merger agreement.
The
Merger (page 16)
Structure
of the Merger (page 38)
Upon the terms and subject to the conditions of the merger
agreement, Merger Sub will be merged with and into the Company.
As a result of the merger, we will become an indirect wholly
owned subsidiary of Tokio Marine.
Merger
Consideration (page 39)
In the merger, for each share of Company common stock you hold
immediately prior to the merger, you will receive $61.50 in
cash, without interest. In addition, equity based awards will be
treated as follows in the merger:
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At the effective time of the merger, all outstanding stock
options, whether or not fully vested, will be cancelled and the
holders of such options will be paid an amount equal to the
product of (x) the excess, if any, of $61.50 over the
exercise price of the applicable options times (y) the
number of shares for which the options are exercisable.
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At the effective time of the merger, each outstanding stock
appreciation right, referred to as SARs, whether or not fully
vested, will be paid an amount equal to the product of
(x) the excess, if any, of $61.50 over the reference price
per share for the SARs times (y) the number of shares
subject to the SARs.
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Immediately prior to the effective time of the merger, the
Company will waive all restrictions and vesting conditions
applicable to restricted shares, whether or not fully vested,
and the holders of any outstanding restricted shares will be
paid $61.50 per restricted share.
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At the effective time of the merger, outstanding performance
shares granted by the Company will be cancelled, whether vested
or unvested, and the holders will be paid $61.50 in cash for
each performance share held.
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Immediately prior to the effective time of the merger, the
Company will waive any vesting or holding conditions or
restrictions applicable to any shares issued under any of our
four employee stock purchase plans, which we refer to as the
ESPP Shares, and the holders of the ESPP Shares will
be paid $61.50 in cash for each ESPP Share. All loans that are
outstanding in respect of the ESPP Shares will be immediately
due and payable and may be paid from the consideration received
for the ESPP Shares.
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In the case of the conversion and cancellation of equity based
awards, applicable withholding taxes will be subtracted from the
amounts payable.
Conditions
to the Merger (page 47)
Before the merger can be completed, a number of conditions must
be satisfied or waived. These include:
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adoption of the merger agreement by a majority of the issued and
outstanding shares of Company common stock entitled to vote on
the matter and present, in person or by proxy, at the special
meeting;
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termination or expiration of any applicable waiting period (or
any extension) under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, which we refer to as the
HSR Act;
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the absence of any legal prohibitions against the merger;
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approval of the merger by the Financial Services Agency of Japan
and the insurance departments of the Commonwealth of
Pennsylvania and the State of Florida; and
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material compliance by both the Company and Tokio Marine with
their representations, warranties and covenants under the merger
agreement.
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We expect to complete the merger shortly after all conditions to
the merger have been satisfied or waived. We anticipate the
completion of the merger in the fourth quarter of 2008, but we
cannot be certain when or if the conditions to the closing of
the merger will be satisfied or, to the extent permitted, waived.
Reasons
for the Merger; Recommendation of the Board of Directors (page
23)
Our Board of Directors has approved the merger agreement and
determined that the merger is fair to and in the best interests
of the Company and its shareholders. Our Board of Directors
recommends that shareholders vote FOR the adoption
of the merger agreement at the special meeting. Our Board of
Directors also recommends that you vote FOR the
approval of the adjournment or postponement of the special
meeting, if necessary or appropriate, to solicit additional
proxies in the event there are not sufficient votes present, in
person or by proxy, at the time of the special meeting to adopt
the merger agreement.
Background
of the Merger (page 17)
A description of the process we undertook, which led to the
proposed merger, including our discussions with Tokio Marine, is
included in the proxy statement under The
Merger Background of the Merger.
2
The
Special Meeting (page 13)
Date,
Time and Place (page 13)
The special meeting will be held on October 23, 2008 at
2:00 p.m., Philadelphia time, at the Hilton
Philadelphia City Avenue, 4200 City Avenue, Philadelphia,
Pennsylvania.
Matters
to be Considered (page 13)
You will be asked to consider and vote upon (a) a proposal
to adopt the merger agreement, (b) a proposal to approve
the adjournment or postponement of the special meeting, if
necessary or appropriate, to solicit additional proxies in the
event there are not sufficient votes present, in person or by
proxy, at the time of the special meeting to adopt the merger
agreement and (c) the transaction of such other business as
may properly come before the special meeting. If any other
matters are properly presented at the special meeting for
action, the persons named in the enclosed proxy will have
discretion to vote on such matters in accordance with their best
judgment.
Record
Date and Quorum (page 13)
If you own shares of Company common stock at the close of
business on September 25, 2008, the record date for the
special meeting, you will be entitled to vote at the special
meeting. You have one vote for each share of Company common
stock owned on the record date. As of September 25, 2008,
there were 71,783,619 shares of Company common stock
outstanding.
Required
Vote (page 13)
Adoption of the merger agreement and approval of the adjournment
or postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies in the event there
are not sufficient votes present, in person or by proxy, at the
time of the special meeting to adopt the merger agreement,
require the affirmative vote of a majority of the issued and
outstanding shares of Company common stock entitled to vote on
the matter and present, in person or by proxy, at the special
meeting. If you do not submit your proxy, we may not have a
quorum at the special meeting and, consequently, we may have to
adjourn or postpone the special meeting until a quorum is
present in person or by proxy. Abstentions and broker non-votes
will be counted only for the purpose of determining whether a
quorum is present. If your proxy card is signed and returned
without specifying a vote or abstention on any proposal, it will
be voted in accordance with the Board of Directors
recommendations on each proposal.
The Board of Directors urges you to complete, date, sign and
return the accompanying proxy card, or to submit your proxy by
telephone or through the Internet by following the instructions
included with your proxy card, or, in the event you hold your
shares through a broker or other nominee, by following the
separate voting instructions received from your broker or
nominee. If you intend to submit your proxy by telephone or
through the Internet, you must do so no later than
2:00 p.m., Philadelphia time on October 23, 2008, and
if you intend to submit your proxy by mail, it must be received
by the Company prior to the commencement of voting at the
special meeting.
Voting
by Proxy (page 14)
If you are a record holder of shares of Company common stock,
that is, if you hold your shares of Company common stock in your
name, the enclosed proxy represents the number of shares held of
record by you.
You may submit your proxy by mail, by telephone or through the
Internet. Instructions for submitting your proxy are included on
the proxy card.
If you hold your shares through a broker or other nominee, you
should follow the separate voting instructions, if any, provided
by your broker or other nominee. Your broker or nominee may
provide for proxy submission through the Internet or by
telephone. Please contact your broker or nominee to determine
the process for voting your shares held through a broker or
other nominee.
Revocability
of Proxy (page 14)
You may revoke your proxy at any time before it is voted, except
as otherwise described below.
3
If you are a record holder of our common stock, you may revoke
your proxy before it is voted by:
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submitting a later-dated proxy by mail, over the telephone or
through the Internet;
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sending a written notice of revocation of your proxy to the
Secretary of the Company so that it is delivered before the
taking of the vote at the special meeting to:
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Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
Attention: Craig P. Keller; or
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attending the special meeting and voting in person.
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If your shares are held in the name of a bank, broker or other
holder of record, you must obtain a proxy, executed in your
favor, from the institution that holds your shares to be able to
vote in person at the special meeting and you must follow
instructions provided by them for revoking your proxy.
Adjournment
and Postponement (page 15)
Although it is not currently expected, the special meeting may
be adjourned or postponed if a quorum is not present or for the
purpose of soliciting additional proxies if there are
insufficient votes present, in person or by proxy, at the time
of the special meeting to approve the merger agreement. If the
special meeting is adjourned or postponed, no notice of the
adjourned or postponed meeting is required to be given to
shareholders, other than an announcement at the special meeting
of the place, date and time to which the special meeting is
adjourned or postponed. The record date will not change due to
an adjournment or postponement unless the Board of Directors, in
its discretion, establishes a new record date.
Shares
Owned by Directors and Executive Officers
(page 16)
As of September 25, 2008, our directors and executive
officers beneficially owned approximately 20.3% of the
outstanding shares of Company common stock (including options
exercisable within 60 days).
Opinion
of Merrill Lynch (page 25 and Appendix B)
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
which we refer to as Merrill Lynch, has delivered
its opinion, dated July 22, 2008, to the Board of Directors
that, as of such date, the consideration to be received by the
holders of shares of Company common stock in the merger was
fair, from a financial point of view, to the holders of such
shares of Company common stock.
The full text of the Merrill Lynch opinion is attached to this
proxy statement as Appendix B. Shareholders are urged to
read the Merrill Lynch opinion in its entirety. Merrill Lynch
provided its opinion for the information and assistance of the
Board of Directors in connection with its consideration of the
proposed merger. The Merrill Lynch opinion addresses only the
fairness, from a financial point of view, as of the date of the
opinion, of the consideration to be received by the holders of
the Company common stock in the proposed merger, and does not
address any other aspect of the merger nor any other matter. The
Merrill Lynch opinion is not intended to be and does not
constitute a recommendation to any shareholder as to how to vote
on the merger or any other matter and should not be relied upon
by any shareholder as a recommendation.
Material
United States Federal Income Tax Consequences
(page 30)
The merger will be a taxable transaction for United States
federal income tax purposes to United States holders of shares
of Company common stock. For United States federal income tax
purposes, you generally will recognize gain or loss from the
merger in an amount equal to the difference between the amount
of cash you receive in the merger and the aggregate adjusted tax
basis of your shares of Company common stock.
4
Effects
on the Company and Our Shareholders If the Merger is Not
Completed (page 32)
If the merger is not approved by our shareholders, or if the
merger is not completed for any other reason, our shareholders
will not receive any payment for their shares in connection with
the merger. Instead, the Company will remain an independent
public company. In addition, if the merger agreement is
terminated under certain circumstances, the Company will be
obligated to pay a $141,000,000 termination fee to Tokio Marine
and be required to pay up to $15,000,000 of Tokio Marines
expenses in connection with the proposed merger.
Governmental
and Regulatory Approvals (page 32)
Under the provisions of the HSR Act, the merger may not be
completed until we and Tokio Marine have made certain filings
with the United States Federal Trade Commission and the United
States Department of Justice and the applicable waiting period
has expired or been terminated. On August 18, 2008, we and
Tokio Marine filed notification reports under the HSR Act with
the Federal Trade Commission and the Department of Justice. On
September 2, 2008, the United States Federal Trade
Commission and the United States Department of Justice granted
early termination of the waiting period under the HSR Act.
The insurance laws and regulations of Pennsylvania and Florida
generally require that, prior to the acquisition of an insurance
company domiciled in those respective jurisdictions, the
acquiring company must obtain the approval of the insurance
departments of those jurisdictions. On August 12, 2008,
Tokio Marine made the filings requesting such approval with the
insurance regulator of the Commonwealth of Pennsylvania and on
August 14, 2008 with the insurance regulator of the State
of Florida, the jurisdictions in which the Companys
insurance subsidiaries are domiciled.
The Insurance Business Act of Japan requires Tokio Marine to
file a prior notification with, and Tokio Marine &
Nichido Fire Insurance Co., Ltd. to obtain the prior approval
of, the Financial Services Agency of Japan, which we refer to as
the JFSA, in connection with the merger. Each of
Tokio Marine and Tokio Marine & Nichido Fire Insurance
Co., Ltd. intends to file the necessary notification or
application, as applicable, with the JFSA promptly after all
other necessary regulatory approvals are obtained.
Although the Company and Tokio Marine do not expect these
regulatory authorities to disapprove of the merger, there is no
assurance that the Company and Tokio Marine will obtain all
required regulatory approvals, or that those approvals will not
include terms, conditions or restrictions that may have an
adverse effect on the Company or Tokio Marine.
Interests
of Our Directors and Executive Officers in the Merger
(page 33)
Our directors and executive officers have interests in the
merger that are different from, or in addition to, their
interests as Company shareholders. These interests include:
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vesting and cash-out of all stock options and stock appreciation
rights, whether vested or unvested, held by our executive
officers and directors;
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vesting and cash-out of all restricted stock grants held by our
executive officers and directors;
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continued indemnification and insurance coverage for our
executive officers and directors; and
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agreements with our executive officers that, among other things,
provide for periodic retention bonuses in the event the
executive officers remain employees of the surviving corporation
for certain periods of time, 280G reimbursements and extensions
of the term of employment agreements.
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In addition, the Companys named executive officers and
certain entities controlled by them have entered into voting
agreements to approve the merger, and named executive officers
have entered into agreements to purchase shares of Tokio Marine
with a portion of their proceeds from the merger.
No
Dissenters Rights (page 38)
Pursuant to Section 1571 of the Pennsylvania Business
Corporation Law, no dissenters rights will apply in
connection with the merger.
5
No
Solicitation by the Company (page 45)
The merger agreement restricts our ability to solicit or engage
in discussions or negotiations with third parties regarding
specified transactions involving the Company or our
subsidiaries. However, under certain circumstances and subject
to certain conditions, our Board of Directors may, prior to the
approval of the merger by our shareholders, respond to a
superior proposal, change its recommendation concerning the
merger and enter into an agreement with respect to a superior
proposal after paying Tokio Marine the applicable termination
fee and expense reimbursement specified in the merger agreement.
Termination
of the Merger Agreement (page 49)
The merger agreement may be terminated and the transactions
contemplated by the merger agreement abandoned at any time prior
to the closing of the merger under certain circumstances,
including by mutual written consent of the Company and Tokio
Marine, or by either the Company or Tokio Marine if specified
conditions have not been met. Please see the section of this
proxy statement entitled The Merger Agreement
Termination of the Merger Agreement for additional
information.
Termination
Fees If the Merger Is Not Completed (page 50)
If the merger agreement is terminated under certain
circumstances, we must pay Tokio Marine a termination fee of
$141,000,000 and pay up to $15,000,000 of Tokio Marines
expenses in connection with the proposed merger. For more
information on the termination fee, please see the section of
this proxy statement entitled The Merger
Agreement Termination Fee.
Market
Price of Company Common Stock and Dividend Data
(page 51)
Our common stock is listed on The NASDAQ Stock Market, which we
refer to as NASDAQ, under the trading symbol
PHLY. On July 22, 2008, which was the last
trading day before the Company announced the signing of the
merger agreement, our common stock closed at $35.55 per share.
On September 25, 2008, which was the last trading day
before the printing of this proxy statement, our common stock
closed at $59.75 per share. On June 23, 2008 and
April 22, 2008, which were the trading days one month and
three months prior to the announcement of the signing of the
merger agreement, respectively, our common stock closed at
$34.73 and $31.79, respectively.
6
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to briefly
address some commonly asked questions regarding the special
meeting and the proposed merger. These questions and answers may
not address all questions that may be important to you as a
shareholder. You should read the more detailed information
contained elsewhere in this proxy statement, the appendices to
this proxy statement and the documents referred to in this proxy
statement.
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Q.
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What is the proposed transaction?
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A.
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The proposed transaction is the merger of Merger Sub with and
into the Company, with the Company being the surviving entity.
The Merger Sub is currently an indirect wholly owned subsidiary
of Tokio Marine. As a result of the merger, the Company will
become an indirect wholly owned subsidiary of Tokio Marine,
Company common stock will cease to be listed on NASDAQ, we will
not be publicly traded and Company common stock will be
deregistered under the Securities Exchange Act of 1934, as
amended, which we refer to as the Exchange Act.
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Q.
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What is the purpose of the special meeting and on what am I
being asked to vote?
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A.
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At the special meeting, you are being asked to vote on a
proposal to adopt the merger agreement. A copy of the merger
agreement is attached to this proxy statement as
Appendix A. Under the terms and conditions of the merger
agreement, Merger Sub will merge with and into the Company, with
the Company continuing as the surviving entity. Each outstanding
share of Company common stock will be converted into the right
to receive $61.50 in cash. As a result of the merger, we will
become an indirect wholly owned subsidiary of Tokio Marine,
Company common stock will cease to be listed on NASDAQ, we will
not be publicly traded and Company common stock will be
deregistered under the Exchange Act.
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In addition, you are being asked to vote on a proposal to
approve the adjournment or postponement of the special meeting,
if necessary or appropriate, to solicit additional proxies in
the event there are not sufficient votes present, in person or
by proxy, at the time of the special meeting to adopt the merger
agreement.
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Q.
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Who sent me this proxy statement?
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A.
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Our Board of Directors sent you this proxy statement and proxy
card. We began mailing this proxy statement and proxy card on or
about October 1, 2008. We will pay for this solicitation.
Officers, directors or employees of the Company or our
subsidiaries may solicit proxies, for no additional
compensation, by telephone, facsimile, electronic mail or in
person. We may request that brokerage houses and other
custodians, nominees and fiduciaries forward soliciting material
to the beneficial owners of Company common stock, and we will
reimburse them for their related expenses. In addition, we have
retained Georgeson Inc., a professional soliciting organization,
to assist in soliciting proxies from brokerage houses,
custodians and nominees. We expect to pay Georgeson Inc. a base
fee of $8,000, subject to adjustment if we request Georgeson
Inc. provide telephonic solicitation and voting services, and to
reimburse Georgeson Inc. for its reasonable out-of-pocket costs
and expenses incurred in connection with the solicitation.
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Q.
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If the merger is completed, what will I receive for my
Company common stock?
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A.
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You will be paid $61.50 in cash, without interest, for each
share of Company common stock that you own.
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Q.
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If the merger is completed and I am a holder of options,
stock appreciation rights, or restricted shares, what will I
receive for my options?
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A.
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If the merger is completed and you hold options, stock
appreciation rights, or restricted shares, you will be paid
$61.50 in cash, without interest, for each share represented by
your rights and awards, less any amounts you owe to the Company,
such as the exercise price or reference price of those rights
and awards, and less any applicable withholding taxes.
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Q.
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How do the Companys directors and executive officers
intend to vote?
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A.
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Each of our directors and executive officers has informed us
that he or she currently intends to vote all of his or her
shares of Company common stock FOR the proposal to
approve the merger agreement and FOR the
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proposal to adjourn or postpone the special meeting, if
necessary or appropriate, to solicit additional proxies in the
event there are not sufficient votes present, in person or by
proxy, at the time of the special meeting to adopt the merger
agreement.
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Each of James J. Maguire, James J. Maguire, Jr., Christopher J.
Maguire, Sean S. Sweeney and Craig P. Keller, whom we refer to
as the named executive officers, some of whom are
also directors, as well as each of certain trusts and entities
controlled by various named executive officers, has entered into
a voting agreement with Tokio Marine in which each committed to
vote in favor of the merger and against any competing proposal.
The shareholders who entered into voting agreements collectively
own, as of September 25, 2008, approximately 20.4% of the
outstanding shares of Company common stock entitled to vote at
the special meeting. The voting agreements will terminate on the
earlier of (1) the date and time at which the shareholders
vote on the adoption of the merger agreement or (2) the
termination of the merger agreement in accordance with its
terms. For a more complete description of the voting agreement,
please see the section of this proxy statement entitled
The Merger Interests of Our Directors and
Executive Officers in the Merger Voting and Support
Agreements.
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Our directors and executive officers who were not asked to enter
into the voting agreement with Tokio Marine have the right to
vote approximately 0.2% of the shares of Company common stock
entitled to vote at the special meeting.
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Q.
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Why did I receive this proxy statement and proxy card?
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A.
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You received this proxy statement and proxy card because you are
being asked to attend the special meeting and because you owned
our common stock as of September 25, 2008, which we refer
to as the record date.
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You should carefully read this proxy statement, including its
appendices and the other documents we refer to in this proxy
statement, because they contain important information about the
merger, the merger agreement and the special meeting. The
enclosed voting materials allow you to vote your stock without
attending the special meeting.
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Your vote is very important. We encourage you to vote as soon as
possible.
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Q.
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What does it mean if I receive more than one proxy card?
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A.
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It means that you have multiple accounts at the transfer agent
and/or with stockbrokers. Please sign and return all proxy cards
to ensure that all of your shares of Company common stock are
voted. You may also be able to submit your proxy related to each
proxy card through the Internet or by telephone. Details are
outlined in the enclosed proxy card.
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Q.
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When and where is the special meeting?
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A.
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The special meeting will be held at 2:00 p.m., Philadelphia
time, on October 23, 2008 at the Hilton Philadelphia City
Avenue, 4200 City Avenue, Philadelphia, Pennsylvania.
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Q.
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What vote is required to adopt the merger agreement and
approve the merger?
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A.
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In order for the merger agreement to be adopted and for the
special meeting to be adjourned or postponed, if necessary or
appropriate, to solicit additional proxies in the event there
are not sufficient votes present, in person or by proxy, at the
time of the special meeting to adopt the merger agreement, a
majority of the issued and outstanding common stock entitled to
vote and present, in person and by proxy, at the special meeting
must vote FOR the approval and adoption of each
proposal. Each share of Company common stock outstanding on the
record date is entitled to one vote. On the record date, there
were 71,783,619 shares of Company common stock, no par
value, outstanding.
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Q.
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What do I need to do now?
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A.
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After reading and considering the information contained in this
proxy statement, please sign, date and submit your proxy as soon
as possible. You may submit your proxy by signing, dating and
returning the enclosed proxy card. You may also submit your
proxy through the Internet or by telephone. If you intend to
submit your proxy by telephone or the Internet you must do so no
later than 2:00 p.m., Philadelphia time, on
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October 23, 2008, and if you intend to submit your
proxy by mail it must be received by the Company before
commencement of voting at the special meeting. Details are
outlined in the enclosed proxy card. In addition, if you hold
your shares through a broker or other nominee, you may be able
to submit your proxy through the Internet or by telephone in
accordance with instructions provided by your broker or nominee.
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Q.
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How does the Board of Directors recommend that I vote?
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A.
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The Board of Directors recommends that you vote FOR
the adoption of the merger agreement because the Board of
Directors believes that the merger agreement is fair to and in
the best interests of the Company and its shareholders, and
FOR the approval of the adjournment or postponement
of the special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are not sufficient votes
present, in person or by proxy, at the time of the special
meeting to adopt the merger agreement. For a more complete
description of the Board of Directors reasons for
recommending the adoption of the merger agreement, please see
the section of this proxy statement entitled The
Merger Reasons for the Merger.
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Q.
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Do any of the Companys executive officers or directors
have any interests in the merger that may differ from, or be in
addition to, my interests as a shareholder?
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A.
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Yes.
In considering the recommendation of the Board
of Directors to vote for the adoption of the merger agreement,
you should be aware that some of the Companys directors
and executive officers have interests in the merger that are
different from, or in addition to, the interests of our
shareholders generally. For descriptions of these interests,
please see the section of this proxy statement entitled
The Merger Interests of Our Directors and
Executive Officers in the Merger.
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Q.
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How do I submit my proxy?
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A.
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If you are a record holder of our common stock, you have four
voting options:
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Internet:
You can submit your proxy over the
Internet at the Internet address shown on your proxy card.
Internet voting is available 24 hours a day. If you have
access to the Internet, we encourage you to vote this way.
If
you vote over the Internet, do not return your proxy card.
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Telephone:
You can submit your proxy by calling the
toll-free telephone number on your proxy card. Telephone voting
is available 24 hours a day. Easy-to-follow voice prompts
allow you to vote your shares and confirm that your instructions
have been properly recorded.
If you vote by telephone, do not
return your proxy card.
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Proxy Card:
You can submit your proxy by signing,
dating and mailing your proxy card in the postage-paid envelope
provided.
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Vote in Person:
You can attend the special meeting
and vote at the meeting.
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If you hold your shares through a broker or other nominee, you
should follow the separate voting instructions, if any, provided
by the broker or other nominee. Your broker or nominee may
provide for proxy submission through the Internet or by
telephone. Please contact your broker or nominee for additional
information on the procedure for voting those shares of the
Companys common stock.
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If a proxy is properly submitted by any of these methods, and is
not subsequently revoked, your shares will be voted in
accordance with the instructions you provide.
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Q.
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What happens if I do not return my proxy card, submit my
proxy via the Internet or telephone or attend the special
meeting and vote in person?
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A.
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Because the affirmative vote of a majority of the issued and
outstanding common stock entitled to vote and present, in person
and by proxy, at the special meeting is needed to adopt the
merger agreement and to approve the adjournment or postponement
of the special meeting, if necessary or appropriate, to permit
further solicitation of proxies, the failure to submit your
proxy or to vote may result in us not having a quorum at the
special meeting and, consequently, we may have to adjourn or
postpone the special meeting until a quorum is present in person
or by proxy.
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The Board of Directors urges you to complete, date, sign and
return the accompanying proxy card, or to submit a proxy by
telephone or through the Internet by following the instructions
included with your proxy card, or, in the event you hold your
stock through a broker or other nominee, by following the
separate voting procedure provided by your broker or nominee.
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Q.
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What if I sign and return my proxy card without specifying a
vote or an abstention?
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A.
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If you sign and return a proxy card without specifying a vote or
an abstention, your shares will be voted in accordance with the
Board of Directors recommendations, which are
FOR the adoption of the merger agreement, and
FOR approving the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are not sufficient votes
present, in person or by proxy, at the time of the special
meeting to adopt the merger agreement.
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Q.
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May I change my vote after I have voted?
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A.
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Yes. If you are a record holder, you may revoke your proxy at
any time before it is voted at the special meeting using any of
the following methods:
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Submitting a later-dated proxy by mail, over the telephone or
through the Internet. If you submit your later-dated proxy by
telephone or through the Internet, you must do so no later than
2:00 p.m., Philadelphia time, on October 23, 2008 and if
you submit your later-dated proxy by mail, it must be received
by the Company before the commencement of voting at the special
meeting.
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Sending a written notice of revocation to the Secretary of the
Company that is delivered before the taking of the vote at the
special meeting to:
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Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
Attention: Craig P. Keller, Secretary
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Attending the special meeting and voting in person.
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If your shares are held in the name of a bank, broker or other
holder of record, you must obtain a proxy, executed in your
favor, from the institution that holds your shares to be able to
vote at the special meeting and, if you wish to revoke your
proxy, you must follow instructions provided by them for
revoking your proxy.
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Q.
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If my broker or bank holds my shares in street
name, will my broker or bank vote my shares for me?
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A.
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No. Your broker or bank will not be able to vote your
shares without instructions from you. You should instruct your
bank or broker to vote your shares following the procedure
provided by your bank or broker.
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Q.
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When is the merger expected to be completed?
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A.
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We are working toward completing the merger as promptly as
possible. We expect to complete the merger in the fourth quarter
of 2008, but we cannot be certain when or if the conditions to
the merger will be satisfied or, to the extent permitted,
waived. The merger cannot be completed until a number of
conditions are satisfied, including the adoption of the merger
agreement by the Companys shareholders at the special
meeting, approval of the merger by the insurance departments of
the Commonwealth of Pennsylvania and the State of Florida,
approval of the merger by the JFSA and the early termination of
the waiting period under the HSR Act.
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Q.
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Should I send in my stock certificates now?
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A.
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No. Shortly after the merger is completed, you will receive
a letter of transmittal with instructions informing you how to
send in your stock certificates to the paying agent in order to
receive your cash payment. You should use the letter of
transmittal to exchange your stock certificates for the cash
payment to which you are entitled as a result of the merger.
Please do not send in any stock certificates with your proxy
card.
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Q.
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What happens if the merger is not completed?
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A.
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If the merger agreement is not adopted by the Companys
shareholders or if the merger is not completed for any other
reason, shareholders will not receive any payment for their
shares in connection with the merger. Instead, the Company will
remain a public company and the Companys common stock will
continue to be listed and traded on NASDAQ. Under specified
circumstances, the Company will be required to pay Tokio Marine
a termination fee in the amount of $141,000,000 and reimburse
Tokio Marine for up to $15,000,000 of its out-of-pocket expenses
in connection with the merger, as described under The
Merger Agreement Termination of the Merger
Agreement and Termination Fee.
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Q.
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Will I owe taxes as a result of the merger?
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A.
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Yes, if you recognize taxable gain. The merger will be a taxable
transaction for United States federal income tax purposes to
United States holders of Company common stock, including holders
of options to purchase Company common stock. As a result, to the
extent you recognize income or taxable gain, the cash you
receive in the merger in exchange for your Company common stock
or in exchange for your options or warrants to purchase Company
common stock will be subject to United States federal income tax
and also may be taxed under applicable state, local and foreign
income and other tax laws. In general, you will recognize gain
or loss equal to the difference between the amount of cash you
receive in the merger and the aggregate adjusted tax basis of
your Company common stock. Please see the section of this proxy
statement entitled The Merger Material United
States Federal Income Tax Consequences for a more detailed
explanation of the tax consequences of the merger. You are urged
to consult your own tax advisor to determine the particular tax
consequences to you upon the receipt of cash in exchange for
Company common stock pursuant to the merger, including the
application and effect of any state, local or foreign income and
other tax laws.
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Q.
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Who can help answer my other questions?
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A.
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If you need assistance in submitting your proxy or voting your
shares or need additional copies of the proxy statement or the
enclosed proxy card, you should contact Joseph Barnholt,
Assistant Vice President, Finance and Tax Reporting, Investor
Relations at
(610) 617-7626.
If your broker holds your shares, you should also call your
broker for additional information.
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Q.
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Where can I find more information about the Company?
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A.
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We file reports, proxy statements and other information with the
Securities and Exchange Commission, which we refer to as the
SEC. These filings are available to the public at
the SECs website,
http://www.sec.gov.
Our website,
http://www.phly.com,
has copies of these filings as well. Our common stock is listed
on NASDAQ under the symbol PHLY and you may inspect
our filings at the SECs public reference facilities. For a
more detailed description of the information available, please
see the section of this proxy statement entitled Where You
Can Obtain Additional Information.
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11
CAUTIONARY
STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
Information both included and incorporated by reference in this
proxy statement may contain statements that are considered
forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are identified by their use of terms such as:
expect(s), intend(s), may,
plan(s), should, believe(s),
anticipate(s), will,
project(s), estimate(s),
continue, potential,
opportunity, on track, or similar terms.
We or our representatives may also make similar forward-looking
statements from time to time orally or in writing. We cannot
guarantee that we will achieve these plans, intentions or
expectations, including completing the merger on the terms
summarized in this proxy statement. All statements regarding our
expected financial position and business are forward-looking
statements. The reader is cautioned that these forward-looking
statements are subject to a number of risks, uncertainties, or
other factors that may cause (and in some cases have caused)
actual results to differ materially from those described in the
forward-looking statements. These risks and uncertainties
include, but are not limited to, the following:
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the risk that the merger may not be consummated in a timely
manner, if at all;
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the occurrence of events, changes or other circumstances that
could give rise to the termination of the merger agreement,
including under circumstances which would require us to pay
Tokio Marine a termination fee of $141,000,000 and documented
out-of-pocket expenses of up to $15,000,000;
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we may be unable to obtain the shareholder approval required for
the merger;
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conditions to the closing of the merger may not be satisfied or
waived, or the merger agreement may be terminated before closing;
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our businesses may suffer as a result of uncertainty surrounding
the merger;
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the announcement of the merger could have a negative effect on
our business relationships, operating results and business
generally;
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the amount of the costs, fees, expenses and charges related to
the merger;
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risks regarding employee retention;
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diversion of managements attention from our ongoing
business operations;
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our industry may be subject to future regulatory or legislative
actions that could adversely affect us and our business;
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we may be adversely affected by other economic, business
and/or
competitive factors; and
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other risks detailed in our current filings with the SEC,
including our most recent filings on
Form 10-K
and
Form 10-Q,
which discuss these and other important risk factors concerning
our operations.
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These factors may not constitute all factors that could cause
actual results to differ materially from those discussed in any
forward-looking statement. The Company operates in a continually
changing business environment and new factors emerge from time
to time. We cannot predict such factors nor can we assess the
impact, if any, of such factors on our financial position or our
results of operations. Accordingly, forward-looking statements
should not be relied upon as a predictor of actual results.
Additional factors that may affect the future results of the
Company are provided in our filings with the SEC, which are
available at
http://www.sec.gov/
or at
http://www.phly.com/.
The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
All forward-looking statements included in this proxy statement
speak only as of the date of this proxy statement and all
forward-looking statements incorporated by reference into this
proxy statement speak only as of the date of the document in
which they were included. We expressly disclaim any obligation
to release publicly any revision or updates to any
forward-looking statements, except to the extent required by
law. All subsequent written
12
and oral forward-looking statements attributable to us or any
person acting on our behalf are qualified by the cautionary
statements in this section.
All information contained in this proxy statement concerning
Tokio Marine, Merger Sub and their affiliates has been supplied
by Tokio Marine and has not been independently verified by us.
THE
SPECIAL MEETING
General;
Date, Time and Place
This proxy statement is being furnished to our shareholders as
part of the solicitation of proxies by the Companys Board
of Directors for use at the special meeting to be held at 2:00
p.m., Philadelphia time, on October 23, 2008 at the Hilton
Philadelphia City Avenue, 4200 City Avenue, Philadelphia,
Pennsylvania.
Matters
to Be Considered
The purpose of the special meeting will be to consider and vote
upon a proposal to adopt the merger agreement. In addition, we
are also asking for you to approve the adjournment or
postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies in the event there
are not sufficient votes present, in person or by proxy, at the
time of the special meeting to adopt the merger agreement. If
any other matters are properly presented at the special meeting
for action, the persons named in the enclosed proxy will have
discretion to vote on such matters in accordance with their best
judgment.
Record
Date and Quorum
The holders of record of Company common stock as of the close of
business on September 25, 2008, the record date, will be
entitled to receive notice of, and to vote at, the special
meeting or any adjournment or postponement thereof. As of the
record date, there were 71,783,619 shares of Company common
stock outstanding.
A quorum of shareholders is necessary to take action at the
special meeting. The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes
that all shareholders are entitled to cast on the particular
matter constitutes a quorum. Votes cast in person or by proxy at
the special meeting will be tabulated by the judge of election
appointed for the special meeting. The judge of election will
determine whether a quorum is present at the special meeting. In
the event that a quorum is not present at the special meeting,
we expect that the meeting will be adjourned or postponed to
solicit additional proxies.
Abstentions and broker non-votes will be treated as
present for purposes of determining the presence of a quorum.
Once a share is represented at the special meeting, it will be
counted for the purpose of determining a quorum at the special
meeting and any adjournment or postponement of the special
meeting, unless the holder is present solely to object at the
beginning of the special meeting to the transaction of any
business because the meeting is not lawfully called or convened.
However, if a new record date is set for the adjourned or
postponed special meeting, then a new quorum will have to be
established.
The record date of the special meeting is earlier than the date
of the special meeting and the date that the merger is expected
to be completed. If you transfer your Company common stock after
the record date but before the special meeting, you will retain
the right to vote at the special meeting, but you will have
transferred the right to receive the merger consideration. To
receive the merger consideration, you must beneficially own your
common stock through the completion of the merger.
Required
Vote
Each outstanding share of Company common stock on the record
date entitles the holder to one vote at the special meeting.
Completion of the merger requires, among other conditions, the
adoption of the merger agreement by the affirmative vote of a
majority of the issued and outstanding shares of Company common
stock entitled to vote and present, in person or by proxy, at
the special meeting. In the event the special meeting will need
to be adjourned or postponed, if necessary or appropriate, to
solicit additional proxies in the event there are not sufficient
votes
13
present, in person or by proxy, at the time of the special
meeting to adopt the merger agreement, the affirmative vote of a
majority of the issued and outstanding shares of Company common
stock entitled to vote and present, in person or by proxy, at
the special meeting will be required.
Voting by
Proxy; Revocability of Proxy
Each copy of this proxy statement mailed to shareholders of the
Company is accompanied by a form of proxy and a return envelope.
Instead of attending the special meeting and voting your shares
in person, you may choose to submit your proxies by any of the
following methods:
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Internet:
You can submit your proxy over the
Internet at the Internet address shown on your proxy card.
Internet voting is available 24 hours a day. If you have
access to the Internet, we encourage you to vote this way.
If
you vote over the Internet, do not return your proxy card.
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Telephone:
You can submit your proxy by calling the
toll-free telephone number on your proxy card. Telephone voting
is available 24 hours a day. Easy-to-follow voice prompts
allow you to vote your shares and confirm that your instructions
have been properly recorded.
If you vote by telephone, do not
return your proxy card.
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Proxy Card:
You can vote by signing, dating and
mailing your proxy card in the postage-paid envelope provided.
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Vote in Person:
You can attend the special meeting
and vote at the meeting.
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If you hold your shares through a broker or other nominee, you
should follow the separate voting instructions, if any, provided
by the broker or other nominee with the proxy statement. Your
broker or nominee may provide proxy submission through the
Internet or by telephone. Please contact your broker or nominee
to determine the process for voting your shares held through a
broker or other nominee.
You can revoke your proxy at any time before the vote is taken
at the special meeting, except as otherwise described below. If
you do not hold your shares of Company common stock through a
broker or other nominee, you may revoke your proxy before the
proxy is voted by:
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Submitting a later-dated proxy by mail, over the telephone or
through the Internet.
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Sending a written notice to the Secretary of the Company. You
must send any written notice of a revocation of a proxy so as to
be delivered before the taking of the vote at the special
meeting to:
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Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
Attention: Craig P. Keller, Secretary
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Attending the special meeting and voting in person. Your
attendance at the special meeting will not in and of itself
revoke your proxy. You must also vote your shares of Company
common stock at the special meeting. If your shares are held in
the name of a bank, broker, nominee or other holder of record,
you must obtain a proxy, executed in your favor, from the
institution that holds your shares to be able to vote at the
special meeting.
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If your shares of Company common stock are held in street name,
you should follow the instructions of your broker or nominee
regarding the revocation of proxies. If your broker or nominee
allows you to submit a proxy by telephone or the Internet, you
may be able to change your vote by submitting a new proxy by
telephone or through the Internet.
All shares represented by valid, unrevoked proxies we receive
through this solicitation will be voted in accordance with your
instructions on the proxy card, or if you do not include such
instructions, your shares will be voted in accordance with the
recommendations of our Board of Directors, FOR the
proposal to adopt the merger agreement and FOR the
proposal to approve the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are not sufficient votes
present, in person or
14
by proxy, at the time of the special meeting to adopt the merger
agreement. If you vote your shares of Company common stock by
telephone or through the Internet, your shares will be voted at
the special meeting as instructed.
If other matters do properly come before the special meeting, or
at any adjournment or postponement thereof, we intend that
shares represented by properly submitted proxies will be voted,
or not voted, by and at the discretion of the persons named as
proxies on the proxy card. In addition, the grant of a proxy
will confer discretionary authority on the persons named as
proxies on the proxy card to vote in accordance with their best
judgment on procedural matters incidental to the conduct of the
special meeting, such as a motion to adjourn or postpone in the
absence of a quorum or a motion to adjourn or postpone for other
reasons, including to solicit additional votes in favor of
adoption of the merger agreement. However, proxies that indicate
a vote against the adoption of the merger agreement or against
any adjournment or postponement of the special meeting will not
be voted in favor of any adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are not sufficient votes
present, in person or by proxy, at the time of the special
meeting to adopt the merger agreement.
Please do NOT send stock certificates with your proxy card.
If the merger is completed, record holders of our common stock
will receive a letter of transmittal with instructions informing
them how to send in any stock certificates to the paying agent
in order to receive the shareholders cash payment.
Shareholders should use the letter of transmittal to exchange
stock certificates for the cash payment to which they are
entitled as a result of the merger.
Effect of
Abstentions and Broker Non-Votes
Absent specific instructions from the beneficial owner of
shares, brokers may not vote Company common stock with respect
to the adoption of the merger agreement or to approve the
adjournment or postponement of the special meeting, if necessary
or appropriate, to solicit additional proxies in the event there
are not sufficient votes present, in person or by proxy, at the
time of the special meeting to adopt the merger agreement.
Abstentions and broker non-votes will be counted for purposes of
determining a quorum.
Accordingly, the Board of Directors urges you to complete, date,
sign and return the accompanying proxy card, or to submit a
proxy through the Internet or by telephone by following the
instructions included with your proxy card, or, in the event you
hold your shares through a broker or other nominee, by following
the separate voting instructions received from your broker or
nominee.
Solicitation
of Proxies
The expense of soliciting proxies will be borne by the Company.
Proxies will be solicited by mail and may be solicited, for no
additional compensation, by officers, directors or employees of
the Company or its subsidiaries, by telephone, facsimile,
electronic mail or in person. Brokerage houses and other
custodians, nominees and fiduciaries may be requested to forward
soliciting material to the beneficial owners of Company common
stock, and will be reimbursed for their related expenses. In
addition, the Company has retained Georgeson Inc., a
professional soliciting organization, to assist in soliciting
proxies from brokerage houses, custodians and nominees. The
Company expects to pay Georgeson Inc. a base fee of $8,000,
subject to adjustment if the Company requests Georgeson Inc.
provide telephonic solicitation and voting services, and to
reimburse Georgeson Inc. for its reasonable out-of-pocket costs
and expenses incurred in connection with the solicitation.
Adjournments
and Postponements
Although it is not currently expected, the special meeting may
be adjourned or postponed for the purpose of soliciting
additional proxies. Any adjournment or postponement may be made
without notice, other than by an announcement made at the
special meeting, and the record date will not change due to an
adjournment or postponement unless the directors of the Company,
in their discretion, establish a new record date. In order for
the special meeting to be adjourned or postponed, if necessary
or appropriate, to solicit additional proxies on the proposal to
adopt the merger agreement, the affirmative votes of a majority
of the outstanding Company common stock represented at the
special meeting, whether in person or by proxy, is required. The
officer of the Company presiding at the special meeting or a
majority of Company common stock present, in person or by proxy,
at the
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special meeting may adjourn or postpone the special meeting,
whether or not a quorum is present. Any signed proxies received
by the Company will be voted in accordance with the instructions
provided by the shareholder on the proxy card. If you make no
specification on your proxy card as to how you want your shares
to be voted before signing and returning it, your proxy will be
voted FOR the approval of the adjournment or
postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies in the event there
are not sufficient votes present, in person or by proxy, at the
time of the special meeting to adopt the merger agreement.
Any adjournment or postponement of the special meeting for the
purpose of soliciting additional proxies will allow Company
shareholders who have already sent in their proxies to revoke
them at any time prior to their use at the special meeting as
adjourned or postponed, provided that, such revocation is in
compliance with the instructions (including as to timing)
provided in the section of this proxy statement entitled
The Special Meeting Voting by Proxy;
Revocability of Proxy.
Shares
Owned by Company Directors and Executive Officers
As of September 25, 2008, directors and executive officers
of the Company beneficially owned, in the aggregate,
15,013,103 shares of Company common stock (including
options exercisable within 60 days), or approximately 20.3%
of the voting power of the issued and outstanding shares of
Company common stock. Please see the sections of this proxy
statement entitled The Merger Interests
of Our Directors and Executive Officers in the
Merger Voting and Support Agreements and
Security Ownership of Certain Beneficial Owners and
Management for additional information.
THE
MERGER
Introduction
The Company is seeking adoption by its shareholders of the
merger agreement among the Company, Tokio Marine and Merger Sub.
In connection with the merger, Company shareholders will receive
$61.50 in cash, without interest, for each share of Company
common stock that they own.
The
Companies
Philadelphia
Consolidated Holding Corp.
Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
Telephone:
(610) 617-7900
The Company is a Pennsylvania corporation that, through its
subsidiaries, designs, markets, and underwrites specialty
commercial and personal property and casualty insurance products
for select markets or niches by offering differentiated products
through multiple distribution channels. Our operations are
classified into: (1) our commercial lines underwriting
group, which has underwriting responsibility for our commercial
multi-peril package, commercial automobile, specialty property
and inland marine and the antique/collector car insurance
products; (2) our specialty lines underwriting group, which
has underwriting responsibility for our professional and
management liability insurance products; and (3) our
run-off (previously the personal lines group) business segment,
which, pursuant to approval received in February 2008 from the
Florida Office of Insurance Regulation, is currently in the
process of non-renewing all personal lines policies, other than
policies issued pursuant to the National Flood Insurance
Program, beginning with policies expiring on July 23, 2008.
We operate solely within the United States through our 13
regional and 34 field offices. The organization has 47 offices
strategically located across the United States to provide
superior service. We generate most of our revenues through the
sale of commercial property and casualty insurance policies.
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Tokio
Marine Holdings, Inc.
Tokio Marine Holdings, Inc.
Tokio Kaijo Nichido Building Shinkan
1-2-1 Marunouchi, Chiyoda-Ku
Tokyo
100-0005
Japan
81-3-6212-3333
Tokio Marine is engaged through its subsidiaries in the business
of underwriting, marketing, and distributing property and
casualty insurance (including voluntary automobile and
compulsory automobile liability, fire and allied lines, personal
accident, cargo and transit and hull insurance), life insurance
and third sector insurance lines, which do not fall
within the traditional life and property and casualty insurance
lines, in Japan and overseas. Its main subsidiaries include
Tokio Marine & Nichido Fire Insurance Co., Ltd., which
is the immediate parent company of Merger Sub, and Tokio
Marine & Nichido Life Insurance Co., Ltd.
Tokio Marine was formed on April 2, 2002 as a joint stock
corporation
(kabushiki kaisha)
organized under the laws
of Japan. It was incorporated under the name Millea Holdings,
Inc., which was subsequently changed to Tokio Marine Holdings,
Inc. in July 2008. It was, at the time of formation,
Japans first publicly owned holding company that
integrated life and non-life insurance operations. In 2004,
Tokio Marines two subsidiaries, The Tokio Marine and Fire
Insurance Company, Limited and The Nichido Fire and Marine
Insurance Company, Limited merged to form Tokio
Marine & Nichido Fire Insurance Co., Ltd.
Merger
Sub
Tokio Marine Investment (Pennsylvania) Inc.
c/o Tokio
Marine Holdings, Inc.
Tokio Kaijo Nichido Building Shinkan
1-2-1 Marunouchi, Chiyoda-Ku
Tokyo
100-0005
Japan
81-3-6212-3333
Merger Sub is a Pennsylvania corporation that was formed solely
for the purpose of entering into the merger agreement and
consummating the transactions contemplated by the merger
agreement. It is an indirect wholly owned subsidiary of Tokio
Marine. It has not conducted any activities to date other than
activities incidental to its formation and in connection with
the transactions contemplated by the merger agreement.
Background
of the Merger
The following is a description of the material aspects of the
background and history behind the merger. This description may
not contain all of the information that is important to you. The
Company encourages you to carefully read the entire proxy
statement, including the merger agreement attached here to as
Appendix A, for a more complete understanding of the
merger.
As part of our ongoing evaluation of the Companys
business, our Board of Directors and senior management regularly
review and assess opportunities to achieve our long-term goals
and to maximize shareholder value, including strategic
opportunities and opportunities for organic growth. From time to
time, our Board of Directors and our executive management have
evaluated a variety of strategic options in light of the
business trends and regulatory conditions impacting us or
expected to impact us and the insurance industry.
From September 2007 to January 2008, executive management had
in-person and telephonic discussions with Daniel Luckshire of
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
which we refer to as Merrill Lynch, regarding the
possibility of a strategic transaction that might result in the
sale of the Company. During these discussions, a variety of
possible United States-based and international strategic
initiatives and alternatives for the Company were discussed.
Among the strategic initiatives presented by Merrill Lynch was
the possibility of a sale of the Company through a merger.
Specifically, Merrill Lynch discussed the option of a strategic
cross-border opportunity in the form of an international merger,
indicating that a merger with a foreign insurance holding
company would be a very good opportunity to maximize shareholder
value since international insurers were
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strategically focused on aggressively expanding in the United
States markets and because international insurers in many cases
had valuations and resources that were generally better than
those of the potential United States-based merger partners.
Based on these discussions, Merrill Lynch and management agreed
on a list of potential international merger candidates to be
approached.
In late January 2008, Merrill Lynch contacted a targeted group
of international insurers regarding the possibility of a
strategic merger with the Company. On February 8, 2008, the
Companys executive management met with representatives of
Merrill Lynch to review Merrill Lynchs progress. At the
meeting, Merrill Lynch reported that two of the companies in the
targeted group had expressed an interest in meeting the
Companys executive management regarding a potential
strategic transaction. The two interested parties were: Tokio
Marine and another international insurance holding company,
which we refer to as Party B. Based on a review of
the businesses, financial metrics and market statistics of the
prospective merger partners, executive management of the Company
agreed to in-person meetings with both interested parties in
order to explore further the possibility of a strategic
transaction.
In March 2008, executive management of the Company and a
representative from Merrill Lynch met with the chief executive
officer and other senior managers of Party B in Bala Cynwyd,
Pennsylvania. Prior to the meeting, Party B signed a
confidentiality agreement with the Company. Meeting attendees
from the Company included: James J. Maguire, the Chairman; James
J. Maguire, Jr., Chief Executive Officer; Sean Sweeney,
Executive Vice President Marketing; and Christopher
J. Maguire, Executive Vice President Chief Operating
Officer. During the meeting, the executives from the Company
presented and answered questions regarding the operations and
strategy of the Company. At the end of the meeting, both parties
indicated a desire to discuss further a potential transaction
and the chief executive officer of Party B stated that he would
discuss the possibility of a transaction with the board of
directors of Party B.
On April 10, 2008, the Companys executive management
and representatives from Merrill Lynch met with senior managers
of Tokio Marine and their representative from Fox-Pitt, Kelton
in Bala Cynwyd, Pennsylvania. Prior to the meeting, Tokio Marine
signed a confidentiality agreement with the Company. Meeting
attendees from the Company included the Chairman,
Mr. Maguire, Jr., Mr. Sweeney,
Mr. Christopher Maguire, and Craig Keller, Executive Vice
President and Chief Financial Officer (which we collectively
refer to in this section as the Companys executive
management). Meeting attendees from Tokio Marine included:
Shin-Ichiro Okada, Kunihiko Fujii, Kichiichiro Yamamoto, Hayato
Isogai and Makoto Yoda. Ian Brimecome attended the meeting from
Fox-Pitt, Kelton. During the meeting, the Companys
executive management presented and answered questions regarding
the operations and strategy of the Company. At the end of the
meeting, both parties indicated a desire to discuss further a
potential transaction. Subsequent to the meeting, Fox-Pitt,
Kelton contacted Merrill Lynch and requested a
follow-up
meeting with the Company, in which the Companys marketing
strategies and its growth opportunities would be reviewed and
discussed in detail. A meeting date of May 15, 2008 was set.
On April 15, 2008, the chief executive officer of Party B
contacted Mr. Maguire, Jr. to schedule a
follow-up
meeting for June 2, 2008.
On April 24, 2008 Mr. Maguire, Jr. communicated
to the Board of Directors that the Companys executive
management had discussions with Merrill Lynch regarding the
possibility of a strategic transaction that might result in the
sale of the Company. Mr. Maguire, Jr. indicated that
Merrill Lynch had presented a short list of potential candidates
to the executive management team and that two companies on this
list expressed interest in meeting the Companys executive
management. Mr. Maguire, Jr. also indicated that the
Chairman, Mr. Sweeney, Mr. Christopher Maguire and he
had met with the chief executive officer and other senior
members of one of the candidates, Party B, in March 2008 and
that all of the Companys executive management had met with
the other candidate, Tokio Marine, in April 2008.
Mr. Maguire, Jr. indicated that future dates were
being arranged for further discussions with both of the
candidates.
Prior to the May 15 meeting with Tokio Marine, Merrill Lynch
communicated to Fox-Pitt, Kelton various conceptual
considerations that the Company viewed as being relevant to the
pricing of a merger. As part of this discussion, Merrill Lynch
communicated to Fox-Pitt, Kelton that executive management of
the Company and Merrill Lynch both believed that the
Companys historical financial performance and its growth
prospects warranted a valuation of $65 per share, or
approximately three times book value as of March 31, 2008.
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On May 15, 2008, the Companys executive management
and representatives from Merrill Lynch met with senior managers
of Tokio Marine and their representatives from Fox-Pitt, Kelton
for a
follow-up
meeting to the April 10, 2008 meeting. The meeting was in
Bala Cynwyd, Pennsylvania. Attendees from Tokio Marine included:
Shin-Ichiro Okada, Kunihiko Fujii, Kichiichiro Yamamoto, Hayato
Isogai and Makoto Yoda. Attendees from Fox-Pitt, Kelton
included: Ian Brimecome and John Waller. During the meeting, the
Companys executive management presented and answered
questions regarding the Companys product development,
sales process, growth expectations and growth opportunities.
Also, both parties discussed and reviewed ways that the Company
and Tokio Marine could work together to create international
growth opportunities. At the end of this meeting, both parties
agreed to schedule a meeting in Tokyo so that the Companys
executive management team could meet with the chief executive
officer, chief financial officer and chief operating officer of
Tokio Marine. It was also agreed that Tokio Marine would provide
an indication of value shortly after the meeting in Tokyo.
On May 16, 2008, after adjournment of the Companys
annual shareholders meeting, the Chairman met with the
Board of Directors and briefed the Directors on the May 15,
2008 meeting with Tokio Marine. The Chairman indicated that the
Companys executive management had been invited to attend a
meeting in Tokyo with the chief executive officer and senior
managers of Tokio Marine on May 22, 2008. The Chairman also
informed the Board of Directors that Tokio Marine would give an
indication of value shortly after the meeting in Tokyo.
Mr. Christopher Maguire and Mr. Keller were also
present during the briefing which occurred in Philadelphia,
Pennsylvania at the site of the Companys annual
shareholders meeting.
Also, on May 16, 2008, in anticipation of the June 6
meeting with the chief executive officer of Party B, Merrill
Lynch called a senior manager at Party B to discuss various
conceptual considerations that the Company viewed as being
relevant to the pricing of a merger. As part of this discussion,
Merrill Lynch communicated that executive management of the
Company and Merrill Lynch both believed that the Companys
historical financial performance and its growth prospects
warranted a valuation of $65 per share, or approximately three
times book value as of March 31, 2008. Merrill Lynch also
communicated to the senior manager of Party B that the Company
was already discussing a potential transaction with another
party, and that Merrill Lynch expected the other party to be a
competitive bidder. The senior manager responded that he
believed Party B would be a good partner and it would bid a
competitive price.
On May 22, 2008, the Companys executive management
and a representative from Merrill Lynch met with the chief
executive officer and senior managers of Tokio Marine and their
representative from Fox-Pitt, Kelton in Tokyo, Japan at the
corporate headquarters of Tokio Marine. Attendees from Tokio
Marine included: Shuzo Sumi, Toshihiro Yagi, Daisaku Honda,
Shin-Ichiro Okada, Takaaki Tamai, Kunihiko Fujii, Kichiichiro
Yamamoto, and Hideki Matsukura. Ian Brimecome attended from
Fox-Pitt, Kelton. During the meeting, the Companys
executive management presented and answered questions regarding
the operations and strategy of the Company, with a specific
focus on product development, sales process, growth expectations
and growth opportunities.
On May 27, 2008, Mr. Maguire, Jr.
e-mailed
the
Board of Directors a status update on the discussions with Tokio
Marine and Party B.
On May 28, 2008, the Companys executive management
and representatives from Merrill Lynch met with senior managers
of Tokio Marine and representatives from Fox-Pitt, Kelton in
Bala Cynwyd, Pennsylvania. Attendees from Tokio Marine included:
Edward Creasy, Chief Executive Officer of Tokio Marines
subsidiary, Kiln Ltd., and Kunihiko Fujii. Ian Brimecome
attended from Fox-Pitt, Kelton. During the meeting,
Mr. Creasy reviewed and discussed with the Companys
executive management the benefits and key strategic
considerations of the recent Tokio Marine acquisition of Kiln,
Ltd. At the end of the meeting involving Company management and
management of Tokio Marine, a representative of Merrill Lynch
separately met with a representative of Fox-Pitt, Kelton to
discuss valuation. Fox-Pitt, Kelton verbally communicated to
Merrill Lynch that Tokio Marine was willing to pursue a 100%
cash transaction that valued the Company at $55 per share. The
representative of Fox-Pitt, Kelton indicated that $55 per share
should be considered very attractive when viewed in comparison
to the current trading levels of the Company, in comparison to
the prospective value of future cash flows of the Company and in
comparison to precedent transactions. Also, the Fox-Pitt, Kelton
representative indicated that it would be very difficult for
Tokio Marine to pay more than $55 per share because of the
significant amount of goodwill that would be created. The
Merrill Lynch representative noted that the $55 per share
proposal was a step in the right direction,
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but lower than the $65 per share valuation that was communicated
in May. The meeting ended with Merrill Lynch indicating to
Fox-Pitt, Kelton that the Company would review the offer with
its advisors and would respond expeditiously.
On May 30, 2008, Merrill Lynch called Fox-Pitt, Kelton to
communicate that the Company had reviewed Tokio Marines
proposal and was not interested in pursuing a transaction with
Tokio Marine at a value of $55 per share, but the Company was
willing to continue financial and operational due diligence with
the expectation that Tokio Marine would work toward a valuation
of $65 per share. Subsequent to the call, Fox-Pitt, Kelton
indicated that Tokio Marine would continue due diligence.
On June 2, 2008, the Companys executive management
met with the chief executive officer of Party B in
Bala Cynwyd, Pennsylvania. During the meeting, the parties
discussed Party Bs operations in the United States and
potential ways that the Company and Party B could work together
to realize incremental synergies in Party Bs operations in
the United States. At the meeting, the Chairman communicated to
the chief executive officer of Party B that the Company is in
advanced stages of discussions regarding a potential strategic
transaction with another party. The Chairman also communicated
to the chief executive officer of Party B that the Company had
received an initial indication of value from this party. The
chief executive officer of Party B indicated that he was
interested in pursuing a potential transaction with the Company
and would be communicating his indication of value within a week.
In the morning of June 6, 2008, Mr. Maguire, Jr.
e-mailed
another status update to the Board of Directors regarding the
strategic discussions with Tokio Marine and Party B.
In the afternoon of June 6, 2008, the chief executive
officer of Party B sent a letter to the Company stating that
Party B preliminarily valued the Company at approximately
$4 billion, or approximately $52.50 per share. It was
understood by Mr. Maguire, Jr. that the transaction
consideration would have been all cash.
During the week of June 9, 2008, Mr. Maguire, Jr.
e-mailed
the
chief executive officer of Party B to communicate that the
Company was not interested in pursuing a transaction in the
value range that was outlined in his letter dated June 6,
2008, which we refer to as the June 6 Letter. The
chief executive officer of Party B responded that he believed
the Companys valuation could be increased if incremental
synergies were identified in a
follow-up
meeting. The chief executive officer of Party B stated in an
e-mail
that
the valuation could be increased by $10 per share pending the
outcome of further due diligence if additional synergies (beyond
the initial assessment) of at least a specified amount could be
identified by Party B. Mr. Maguire, Jr. and the chief
executive officer of Party B agreed to schedule a
follow-up
due diligence meeting. The meeting was scheduled for
June 25, 2008.
On June 16, 2008, the Companys executive management
and representatives from Merrill Lynch met with representatives
from Fox-Pitt, Kelton in Bala Cynwyd, Pennsylvania. At this
meeting, Fox-Pitt, Kelton, on behalf of Tokio Marine, proposed
on a non-binding basis a cash merger with the Company at $60 per
share, subject to the Company entering into an exclusive
negotiating agreement with Tokio Marine. The benefits of the
proposal noted by Tokio Marine included: the proposal had a high
degree of certainty, since it was based on extensive due
diligence conducted by Tokio Marine for more than two months;
there was no financing contingency; Tokio Marine was prepared to
move expeditiously and efficiently to sign and close a
transaction; and the valuation was based on growth synergies
that are not readily available to other parties. The
Companys executive management responded that management
did not want to pursue a merger at $60 per share. The
Companys executive management agreed that they would
recommend to the Companys Board of Directors a price of
$63.50 per share. Tokio Marine stated that the $63.50 per share
purchase price was unacceptable to Tokio Marine.
On June 17, 2008, Merrill Lynch called Fox-Pitt, Kelton.
Fox-Pitt, Kelton indicated that Tokio Marine would be willing to
increase their proposal by a maximum of $1.50 per share, to
$61.50 per share, only if the Company would sign an exclusive
negotiating agreement within the following two to three days.
Merrill Lynch reported the updated proposal to executive
management of the Company, and the Companys executive
management reviewed the updated proposal with Merrill Lynch. Key
elements of the review were that: Tokio Marines enhanced
offer was subject to a near-term deadline and required an
extremely prompt response from the Company; Tokio Marines
offer represented low execution risk, since it reflected more
than two months of due diligence and extensive conversations
between the management teams; and Party Bs indicated value
range had a high degree of uncertainty, since
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it did not reflect detailed due diligence and was subject to the
identification of specified synergies. Based on the review,
executive management of the Company instructed Merrill Lynch to
communicate to Fox-Pitt, Kelton that Company management would
support a transaction at $61.50 per share, and that management
would schedule a Board of Directors meeting for June 23,
2008 in order to update the Board of Directors on the proposed
transaction. Merrill Lynch also communicated that Company
management wanted to limit the exclusive negotiation period to
30 days.
On June 19, 2008, the Company received a letter from Tokio
Marines Managing Director, Shin-Ichiro Okada, which we
refer to as the Tokio Marine Letter, which included
a non-binding offer of $61.50 per share. The Tokio Marine
Letter was open for acceptance until June 23, 2008 and
indicated, among other things, that the transaction contemplated
by Tokio Marine would be structured as a reverse triangular
merger and that Tokio Marine would be interested in obtaining a
commitment from various Maguire family members to vote in favor
of the merger with Tokio Marine. The Tokio Marine Letter stated
there would be no financing contingency and that Tokio Marine
would desire to retain the Companys senior management by
providing an attractive management retention bonus pool with
multi-year compensation plans. Tokio Marine indicated that any
merger would be subject to insurance regulatory approvals and
filings under the
Hart-Scott-Rodino
Act and with the Financial Services Agency of Japan. Tokio
Marine also indicated a definitive proposal to acquire
Philadelphia Consolidated would be subject to final approval by
its Board of Directors, but it expected the Board of Directors
to support a transaction recommended by Tokio Marine management.
Tokio Marine indicated it could undertake to conclude its due
diligence on the Company quickly and with minimal disruption to
the Companys business. In addition, Tokio Marine requested
that the Company sign an exclusivity agreement granting Tokio
Marine exclusive negotiation rights with the Company for a
period of 30 days. During that time, Tokio Marine would
conclude its due diligence on the Company.
On June 23, 2008, at 9:00 a.m., the Companys
Board of Directors, with all Directors in attendance either in
person or by conference call, held a Board meeting at the
Companys offices. Craig P. Keller, the Companys
Executive Vice President, Chief Financial Officer and Secretary,
Christopher J. Maguire, the Companys Chief Operating
Officer and Executive Vice President, and Michael M. Sherman of
WolfBlock LLP, the Companys outside counsel, which we
refer to as WolfBlock, were also present by
invitation. At that meeting, the Chairman summarized the
discussions the Companys management had with Tokio Marine
over the past weeks, including the terms of the Tokio Marine
Letter. The Chairman reported that Tokio Marine had indicated
that it did not have significant presence in the United States
and would view the acquisition of the Company as a platform for,
among other things, expanding its operations in the United
States as well as expansion internationally. The Chairman also
announced that Tokio Marine was very interested in retaining the
Companys senior management (approximately 45 people)
through the use of retention agreements with retention bonuses
potentially aggregating up to $40,000,000, which bonuses would
be payable in installments over a three-year time period
following the closing of the merger.
At this meeting, the Chairman also reviewed the Companys
discussions with Party B, including the June 6 Letter discussed
above. The Chairman informed the Board of Directors that he,
other executive management at the Company and Merrill Lynch
agreed that Tokio Marines transaction proposal reflected a
higher level of interest and transaction certainty than was
shown by Party Bs June 6 Letter and that Tokio
Marines proposal reflected extensive, time-consuming due
diligence that had not been performed by Party B.
After the Chairmans comments, representatives from Merrill
Lynch joined the Board meeting and made a presentation to the
Directors, which was distributed to the Directors prior to the
meeting. The presentation included: an analysis and discussion
of strategic buyers in the property and casualty insurance
sector, especially international buyers with a potential
interest in the United States insurance market; a review of
various financial analyses comparing the proposed transaction
price of $61.50 per share to the Companys current and
historical trading statistics, trading statistics of comparable
companies and pricing metrics of precedent merger and
acquisition transactions; an analysis of the transaction terms
proposed by Tokio Marine and a comparison of the Tokio Marine
proposal to the June 6 Letter from Party B; a review of the
financial resources and business strategy of Tokio Marine; and,
a timeline update on the sale process. Merrill Lynch also
discussed the benefits and risks of entering into an exclusive
negotiating agreement with Tokio Marine, noting that Tokio
Marines proposal reflected extensive due diligence and was
likely to remain intact through the remaining due diligence
process.
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Mr. Sherman then reviewed with the Board of Directors its
fiduciary duties under Pennsylvania law.
After considering the discussions held on Tokio Marine and Party
B, the presentation by Merrill Lynch, and the guidance of
Mr. Sherman regarding fiduciary duties, the Board of
Directors decided to authorize the
30-day
exclusivity agreement with Tokio Marine. On June 23, 2008,
the Company entered into an exclusivity agreement with Tokio
Marine.
Once the Company entered into the exclusivity agreement with
Tokio Marine, Mr. Maguire, Jr. called Party B to
inform them that the meeting scheduled for June 25, 2008
would need to be canceled and that the Company would need to
discontinue conversations with Party B, since the Company had
entered an exclusive negotiating agreement with another party.
On July 1, 2008, WolfBlock received a draft of the
Agreement and Plan of Merger from Sullivan & Cromwell
LLP, Tokio Marines outside counsel, which we refer to as
S&C. After reviewing the draft merger agreement
provided by S&C with the senior executives at the Company,
WolfBlock sent a revised draft of the merger agreement back to
S&C on July 8, 2008.
During the two-week period after July 8, 2008,
representatives of WolfBlock and S&C exchanged drafts of
the various transaction documents, including the merger
agreement, the form of voting agreement, the addenda to the
named executive officers employment agreements and the
share purchase agreement. Several conference calls were held
between the parties to discuss and negotiate certain provisions
of the latest drafts of the merger agreement and the other
transaction documents. The parties discussed, among other
provisions in the merger agreement: (1) the provisions
surrounding the Companys ability to review and accept a
superior proposal from another potential purchaser;
(2) the terms of the Companys ability to terminate
the merger agreement
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(3) the amount of the
termination fee (Tokio Marine originally asked for a
$225,000,000 termination fee) and expense reimbursement (Tokio
Marine originally asked for an expense reimbursement of up to an
aggregate of $20,000,000, which would be payable only if a
termination fee were payable) if the merger does not close for
various reasons; (4) the list of events and circumstances
excluded from the definition of material adverse effect; and
(5) the date on which the merger agreement would terminate
if the merger had not yet closed by that date.
On July 18, 2008, a meeting of the Companys Board of
Directors was held, with all Directors in attendance either in
person or by conference call. Mr. Keller,
Mr. Christopher J. Maguire, and Mr. Sherman of
WolfBlock were in attendance by invitation. At this meeting of
the Board of Directors, Mr. Sherman reviewed the terms of
the July 13, 2008 draft of the merger agreement and a
summary thereof (which had been posted to the Board of Directors
website on July 16, 2008) with the Board of Directors.
The Directors were given the opportunity to review the draft
merger agreement and discuss the terms and conditions of the
merger and any questions they had about the merger agreement or
the other transactions related to the merger. Mr. Sherman
also reviewed with the Board of Directors the significant terms
of proposed addenda required by Tokio Marine to employment
agreements with the Companys executive management,
proposed voting agreements with some of the Companys
executive management and various entities and trusts controlled
by them, and a purchase agreement whereby the Chairman would
purchase in the open market stock of Tokio Marine after the
closing of the merger. The merger agreement was not in final
form and the Board of Directors did not take a vote on whether
to approve the merger and the merger agreement at that time.
During the next few days, the Company and Tokio Marine, with
their respective counsel, worked together to finalize the merger
agreement, the associated disclosure schedules and the other
transaction documents.
On July 22, 2008, the Companys Board of Directors,
with all Directors in attendance either in person or by
conference call, met at the Companys offices.
Mr. Keller, Mr. Christopher J. Maguire,
Mr. Sherman of WolfBlock, and representatives of Merrill
Lynch were in attendance by invitation. At this meeting,
Mr. Sherman of WolfBlock reviewed with the Directors the
terms of the merger agreement and their fiduciary duties under
Pennsylvania law. Representatives of Merrill Lynch made a
presentation regarding their financial analyses and delivered an
oral opinion (subsequently confirmed in a written opinion
delivered at such meeting of the Board of Directors) that as of
July 22, 2008, subject to the limitations in its opinion,
the merger consideration to be received by the shareholders of
the Companys common stock (other than any common stock
owned by Tokio Marine or any of its wholly owned subsidiaries)
was fair, from a financial point of view, to such shareholders.
See The Merger Opinion of
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Merrill Lynch for additional information on the
fairness opinion given by Merrill Lynch. During their
presentation, representatives of Merrill Lynch noted that a
$61.50 per share merger price would result in a premium, based
on the most recent stock price, of approximately 85%, and would
be 28.7% higher than the Companys all time high stock
price. After consideration of the factors described under
Reasons for the Merger below, the
Companys Board of Directors unanimously determined that
the merger is in the best interests of the Company and its
shareholders, approved and declared advisable the merger
agreement, the merger and the other transactions contemplated by
the merger agreement, resolved to recommend the adoption of the
merger agreement to the shareholders, directed that the merger
agreement be submitted to the shareholders for their adoption
and approved the entry by the Company into addenda to certain
employment agreements. See The Merger
Interests of our Directors and Executive Officers in the
Merger Addenda to Employment Agreements for
additional information on the addenda to the employment
agreements. The Board of Directors also recognized that certain
members of the Companys executive management and other
shareholders of the Company would be entering into the voting
agreements and share purchase agreements with Tokio Marine.
On July 22, 2008 (July 23 Tokyo time), the board meetings
of Tokio Marine and its subsidiary, Tokio Marine &
Nichido Fire Insurance Co., Ltd. were held in Tokyo, Japan. Each
board reviewed the proposed merger agreement and approved the
merger agreement in the form provided to them. The meetings of
the boards of directors of Tokio Marine and Tokio
Marine & Nichido Fire Insurance Co., Ltd. ended at
approximately 11:00 p.m., Philadelphia time, on
July 22, 2008.
In the early morning hours of July 23, 2008, Philadelphia
time, after both Tokio Marines and the Companys
Board of Directors had approved the merger agreement,
counterpart signature pages to the merger agreement, executed by
Mr. Sumi for Tokio Marine and Mr. Maguire, Jr.
for the Company, were exchanged. On July 23, 2008, the
Company and Tokio Marine made a joint press release announcing
the signing of the merger agreement in both Japan and the United
States and the Company filed a
Form 8-K
with the SEC describing the transaction.
Reasons
for the Merger
The Companys Board of Directors has consulted with legal
and financial advisors and considered and evaluated a number of
factors, including:
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The current and historical financial condition and results of
operations of the Company and the fact that the $61.50 per share
price was an historic high price for shares of the
Companys common stock and a 28.7% premium over the
Companys highest price per share.
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The financial projections of the Company.
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The fact that $61.50 per share exceeded the valuation in
connection with other possible strategic alternatives to the
merger, including the offer from Party B.
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The fact that the price finally agreed to was the result of
increases by Tokio Marine from its original proposed purchase
price of $55.00 per share.
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The fact that the $61.50 per share cash merger consideration
represents a 80% premium over the closing price of the
Companys common shares on July 21, 2008, the most
recent trading day prior to execution of the merger agreement,
and a 82% and 71% premium over the average closing price for the
one-month and three-month periods preceding that date,
respectively.
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The fact that the Companys financial advisor believed it
was unlikely that another buyer would be prepared to pay more
than the price being offered by Tokio Marine.
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The absence of any financing condition to the merger.
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The high likelihood that Tokio Marine would proceed to closing
the merger without significant delay, given its financial
resources and high credit ratings and the absence of any
apparent regulatory barriers to the merger.
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The view of the Board of Directors, after consultation with its
legal advisors and Merrill Lynch, that as a percentage of the
merger consideration to be paid in the merger, the termination
fee was within the range of termination fees provided for in
recent large acquisition transactions.
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The fact that the consideration to be received by the
Companys shareholders in the merger will consist entirely
of cash, which will provide liquidity and certainty of value to
the Companys shareholders.
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The experience and expertise of Merrill Lynch for quantitative
analysis of the financial terms of the merger agreement,
including the presentations by Merrill Lynch on July 22,
2008 and the valuation analyses contained therein.
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The opinion of Merrill Lynch that, as of July 22, 2008, the
merger consideration to be received by the Companys
shareholders (other than any common stock owned by Tokio Marine
or any of its wholly owned subsidiaries) was fair, from a
financial point of view, to such shareholders.
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The terms and conditions of the merger agreement (which the
Board of Directors believes would not preclude a superior
proposal), and the course of negotiation thereof, including:
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the Companys right, prior to the approval of the merger
agreement by shareholders, to engage in negotiations with, and
provide information to, a third party that makes an unsolicited
acquisition proposal if the Board of Directors determines in
good faith, after consultation with its financial and legal
advisors, that such proposal could reasonably be expected to
lead to a transaction that is more favorable to the
Companys shareholders than the merger;
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the termination fee of $141,000,000, which is approximately 3.0%
of the equity value of the transaction, if a termination fee
became payable in connection with a takeover proposal made by a
third party;
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the closing conditions to the merger, including the fact that
the obligations of Tokio Marine and Merger Sub under the
agreement are not subject to a financing condition;
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the structure of the transaction as a merger which will result
in detailed public disclosure and a protracted period of time
prior to consummation of the merger during which an unsolicited
superior proposal could materialize; and
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the Companys right to terminate the merger agreement in
order to accept a superior proposal, subject to certain
conditions (including matching rights) and upon the payment to
Tokio Marine of a termination fee of $141,000,000 and
reimbursement of expenses up to $15,000,000.
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The Board of Directors has also considered a variety of risks
and other potentially negative factors concerning the merger.
These factors included the following:
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The fact that, following the merger, the Companys public
shareholders will cease to participate in any future earnings
growth of the Company or benefit from any future increase in its
value.
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The possibility that not all closing conditions to the merger,
including shareholder approval and regulatory approvals, may be
satisfied or waived such that the merger may not be consummated.
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The fact that, for United States federal income tax purposes,
the cash merger consideration will be taxable to the
shareholders of the Company entitled to receive such
consideration.
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The amount of time it could take to complete the merger,
including the risk that the Company and Tokio Marine might not
receive the necessary regulatory approvals or clearances to
complete the merger or the governmental authorities could
attempt to condition their approvals or clearances of the merger
on one or more parties compliance with certain conditions,
which may be burdensome.
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The restrictions on the conduct of our business prior to
completion of the merger which could delay or prevent the
Company from undertaking business opportunities that may arise
pending completion of the merger.
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This discussion summarizes the material factors considered by
the Board of Directors in their consideration of the merger.
After considering these factors, the Board of Directors
concluded that the positive factors relating to the merger
agreement and the merger outweighed the potential negative
factors. In view of the wide variety of factors considered by
the Board of Directors, and the complexity of these matters, the
Board did not find it practicable to quantify or otherwise
assign relative weights to the foregoing factors. In addition,
individual members of the Board may have assigned different
weights to various factors. The Board of Directors approved and
recommended the merger agreement and the merger based upon the
totality of the information presented to and considered by them.
Recommendation
of the Board of Directors
The Companys Board of Directors determined that the merger
agreement is advisable, fair to, and in the best interests of,
the Company and its shareholders and approved the merger
agreement. Accordingly, the Companys Board of Directors
recommends that you vote FOR the adoption of the
merger agreement at the special meeting. The Companys
Board of Directors also recommends that you vote FOR
the approval of the adjournment or postponement of the special
meeting, if necessary or appropriate, to solicit additional
proxies if there are not sufficient votes present, in person or
by proxy, at the time of the special meeting to adopt the merger
agreement.
Opinion
of Merrill Lynch
Our Board of Directors engaged Merrill Lynch to act as its
financial advisor in connection with the proposed merger and to
render an opinion as to whether the merger consideration of
$61.50 per share to be received by the holders of Company common
stock pursuant to the merger was fair, from a financial point of
view, to the holders of such shares.
On July 22, 2008, Merrill Lynch delivered its written
opinion to our Board of Directors that, as of that date, and
based upon and subject to the assumptions made, matters
considered, qualifications and limitations set forth in the
written opinion (which are described below), the merger
consideration of $61.50 per share in cash to be received by the
holders of Company common stock pursuant to the merger was fair,
from a financial point of view, to the holders of such shares.
The full text of the written opinion of Merrill Lynch dated as
of July 22, 2008, which sets forth assumptions made,
matters considered and, qualifications and limitations on the
review undertaken by Merrill Lynch, is attached to this proxy
statement as Appendix B and is incorporated into this proxy
statement by reference. The following summary of Merrill
Lynchs opinion is qualified by reference to the full text
of the opinion. Shareholders are urged to read and should read
the entire opinion carefully.
Merrill Lynchs opinion is addressed to, and was for the
use and benefit of, our Board of Directors and addresses only
the fairness, from a financial point of view, of the
consideration to be received by the holders of Company common
stock pursuant to the merger. The opinion does not address the
merits of the underlying decision by us to engage in the merger
and does not constitute, nor should it be construed as, a
recommendation to any shareholder as to how the shareholder
should vote with respect to the proposed merger or any other
matter. In addition, Merrill Lynch was not asked to address, and
its opinion does not address, the fairness to, or any other
consideration of, the holders of any class of securities,
creditors or other constituencies of the Company, other than the
holders of Company common stock. In rendering its opinion,
Merrill Lynch expressed no view or opinion with respect to the
fairness (financial or otherwise) of the amount or nature or any
other aspect of any compensation payable to or to be received by
any officers, directors or employees of any parties to the
merger, or any class of such persons, relative to the
consideration to be received by the holders of Company common
stock pursuant to the merger. Merrill Lynchs opinion was
authorized for issuance by the United States fairness (and
valuation letter) committee of Merrill Lynch. Although Merrill
Lynch participated in negotiations among the parties, the
consideration to be received by such holders pursuant to the
merger was determined by our Board of Directors, and was
approved by our Board of Directors.
In arriving at its opinion, Merrill Lynch, among other things:
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reviewed certain publicly available business and financial
information relating to us that Merrill Lynch deemed to be
relevant;
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reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company furnished to Merrill
Lynch by us;
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conducted discussions with members of senior management of the
Company concerning the matters described in the two prior bullet
points;
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reviewed the market prices and valuation multiples for our
shares and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant;
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reviewed the results of operations of the Company and compared
them with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant;
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compared the proposed financial terms of the merger with the
financial terms of certain other transactions that Merrill Lynch
deemed to be relevant;
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participated in certain discussions and negotiations among
representatives of the Company and the Parent and their
financial and legal advisors;
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reviewed a draft dated July 19, 2008 of the merger
agreement; and
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reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynchs assessment of general economic,
market and monetary conditions.
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In preparing its opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or
otherwise made available to it, discussed with or reviewed by or
for it, or that was publicly available. Merrill Lynch did not
assume any responsibility for independently verifying such
information and did not undertake and was not furnished with any
independent evaluation or appraisal of any of our assets or
liabilities, nor did it evaluate our solvency or fair value
under any state or federal laws relating to bankruptcy,
insolvency or similar matters. Merrill Lynch is not an expert in
the evaluation of reserves for property and casualty insurance
losses and loss adjustment expenses, and did not make an
independent evaluation of the adequacy of our reserves. In that
regard, Merrill Lynch made no analysis of, and expressed no
opinion as to, the adequacy of our losses and loss adjustment
expense reserves, including any of our asbestos related reserves
and outstanding claim obligations. In addition, Merrill Lynch
did not assume any obligation to conduct any physical inspection
of our properties or facilities. With respect to the financial
forecast information furnished to or discussed with Merrill
Lynch by us, Merrill Lynch assumed that such information had
been reasonably prepared and reflected the best currently
available estimates and judgment of our management as to our
expected future financial performance. Merrill Lynch also
assumed that the final form of the merger agreement would be
substantially similar to the last draft reviewed by it.
Merrill Lynchs opinion was necessarily based upon market,
economic and other conditions as they existed and could be
evaluated on, and on the information made available to Merrill
Lynch as of, the date of its opinion. Any estimates contained in
the analyses performed by Merrill Lynch are not necessarily
indicative of actual values or future results, which may be
significantly more or less favorable than suggested by Merrill
Lynchs analyses. Additionally, estimates of the value of
businesses or securities do not purport to be appraisals or to
reflect the prices at which those businesses or securities might
actually be sold. Accordingly, the analyses and estimates are
inherently subject to substantial uncertainty. Merrill
Lynchs opinion was among a number of factors taken into
consideration by our Board of Directors in making its
determination to approve the merger agreement. In addition, our
Board of Directors did not rely on any single analysis in making
its determination. Consequently, the analyses described below
should not be viewed as determinative of the decision of our
Board of Directors or management with respect to the fairness of
the consideration to be paid pursuant to the merger.
At the July 22, 2008 meeting of our Board of Directors,
Merrill Lynch made a presentation of certain financial analyses
of the merger. Merrill Lynch performed each of the financial
analyses summarized below. The summary below does not purport to
be a complete description of the analyses performed by Merrill
Lynch and underlying its opinion. The preparation of a fairness
opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to
the particular circumstances. Therefore, a fairness opinion is
not readily susceptible to partial analysis or summary
description.
In arriving at its opinion, Merrill Lynch considered the results
of all of its analyses and did not attribute any particular
weight to any analysis or factor that it considered. The
financial analyses summarized below include information
presented in tabular format. Merrill Lynch believes that its
analyses and the summary of its analyses
26
must be considered as a whole and that selecting portions of its
analyses and factors or focusing on the information presented
below in tabular format, without considering all analyses and
factors or the full narrative description of the financial
analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of
the process underlying its analyses and opinion. The tables
alone do not constitute a complete description of the financial
analyses.
Historical
Trading Analysis
Merrill Lynch reviewed the historical trading performance of
Company common stock as reported by FactSet, an online
investment research and database service used by financial
institutions, and compared the merger consideration of $61.50
per share to the closing price of the Companys common
stock on July 16, 2008 of $33.27, and to the average daily
closing price of the Companys common stock for the
following periods ending on July 16, 2008, and noted the
following premiums based upon the merger consideration of $61.50
per share:
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Time Period
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Implied Premium:
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1 day
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84.9
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%
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1 week average
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84.9
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%
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1 month average
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77.8
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%
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6 month average
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77.4
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%
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1 year average
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66.1
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%
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52 week high
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31.6
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%
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All time high
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28.7
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%
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Analysis
of Selected Comparable Publicly Traded Companies
Merrill Lynch compared selected financial data for us with
similar data for the following publicly traded specialty
property and casualty insurance companies to estimate implied
equity value ranges per share of Company common stock:
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W.R. Berkley Corporation;
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Markel Corporation;
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HCC Insurance Holdings, Inc.;
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ProAssurance Corporation;
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RLI Corp.;
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Navigators Group, Inc.;
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AmTrust Financial Services, Inc.;
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Darwin Professional Underwriters, Inc.;
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CNA Surety Corporation;
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United America Indemnity, Ltd.;
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Tower Group, Inc.;
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FPIC Insurance Group, Inc.;
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National Interstate Corporation;
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First Mercury Financial Corporation;
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Baldwin & Lyons, Inc.;
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Meadowbrook Insurance Group, Inc.; and
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American Safety Insurance Holdings, Ltd.
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27
Merrill Lynch selected these companies because their businesses
and operating profiles are reasonably similar to ours. None of
the comparable companies identified above is identical to us. A
complete analysis involves complex considerations and judgments
concerning differences in financial and operating
characteristics of the comparable companies and other factors
that could affect public trading values of such comparable
companies. Mathematical analysis (such as determining the mean
and median) is not by itself a meaningful method of using the
selected comparable companies data.
As part of its analysis, Merrill Lynch examined publicly
available information and calculated for each of the selected
comparable companies the following multiples:
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the multiple of market price per share to estimated
June 30, 2008 diluted book value per share; and
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the multiple of market price per share to estimated 2009
earnings per share (which we refer to as EPS)
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Merrill Lynch observed the multiples of share price to estimated
June 30, 2008 diluted book value of the comparable
companies, using book value estimates obtained from Wall Street
research and closing trading prices of the equity securities of
each identified company on July 16, 2008. Based on its
observations, Merrill Lynch applied book value multiples of
1.50x to 2.00x to our diluted book value per share as of
June 30, 2008 and derived an equity value per share of our
common stock of $31.28 to $41.71.
Merrill Lynch observed the multiples of share price to estimated
2009 EPS of the comparable companies, using estimated 2009 EPS
projections obtained from Wall Street research and closing
trading prices of the equity securities of each identified
company on July 16, 2009. Based on its observations,
Merrill Lynch applied multiples of 9.0x to 12.0x to our
managements estimates of our 2009 earnings, and derived an
equity value of Company common stock of $33.57 to $44.76.
Merrill Lynch observed that the $61.50 per share value of the
merger consideration to be received by our holders of Company
common stock was above the implied equity value ranges derived
from these multiples.
Precedent
Transaction Analysis
Merrill Lynch analyzed certain information relating to selected
precedent transactions announced during the 10 years prior
to July 22, 2008 in the specialty property and casualty
insurance sector. The selected comparable transactions were:
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Acquiror
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Target
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Allied World Assurance Holdings, Ltd.
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Darwin Professional Underwriters, Inc.
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Münchener Rückversicherungs-Gesellschaft
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The Midland Company
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D. E. Shaw & Co., L.P.
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James River Group, Inc.
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QBE Insurance Group Ltd.
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Praetorian Financial Group, Inc.
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Alleghany Corporation
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Royal Specialty Underwriting
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American International Group, Inc.
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HSB Group, Inc.
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Travelers Property Casualty Corp.
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Reliance Surety Group, Inc.
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Farmers Group, Inc
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Foremost Corporation of America
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Royal & Sun Alliance Insurance Group plc
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Orion Capital Corporation
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The Chubb Corporation
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Executive Risk Inc.
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Fairfax Financial Holdings Limited
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TIG Holdings, Inc.
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Associates First Capital Corporation
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Jupiter Holdings, LLC
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Hannover Rückversicherung AG
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Clarendon Insurance Group, Inc.
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28
In addition, Merrill Lynch compiled a list of transactions since
January 1, 2007 in the property and casualty insurance
sector. The transactions, which include some transactions in the
prior table, selected for the list were:
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Acquiror
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Target
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Allied World Assurance Holdings, Ltd.
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Darwin Professional Underwriters, Inc.
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Liberty Mutual Insurance Company
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Safeco Corporation
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Mapfre S.A.
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The Commerce Group, Inc.
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Münchener Rückversicherungs-Gesellschaft
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The Midland Company
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Alfa Mutual Group
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Alfa Corporation
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D. E. Shaw & Co., L.P.
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James River Group, Inc.
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Liberty Mutual Insurance Company
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Ohio Casualty Corporation
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Farmers Group, Inc
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Bristol West Holdings, Inc.
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American International Group, Inc.
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21st Century Insurance Company
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QBE Insurance Group Ltd.
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Winterthur U.S. Holdings, Inc.
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For each of the selected transactions, Merrill Lynch calculated
offer values as multiples of (a) estimated diluted book
value and (b) estimated forward operating income, using
book value estimates and forward operating income estimates
obtained from Wall Street research. Based upon these
calculations, Merrill Lynch (a) applied book value
multiples of 2.00x to 2.35x to our diluted book value per share
as of June 30, 2008, and derived an equity value per share
of Company common stock of $41.71 to $49.01 and (b) applied
multiples of 13.0x to 16.5x to our managements estimate of
our 2009 earnings, and derived an equity value per share of
Company common stock of $48.49 to $61.55.
Merrill Lynch observed that the $61.50 per share merger
consideration to be received by our holders of Company common
stock was above the implied equity value range derived from the
book value multiples and was within the implied equity value
range derived from the forward P/E multiple analysis.
Discounted
Cash Flow Analysis
Merrill Lynch performed a discounted cash flow analysis for the
Company using financial forecasts provided by our management to
estimate a range of present values, as of June 30, 2008,
for our unlevered, after-tax free cash flows for the period from
June 30, 2008 through December 31, 2012. The cash
flows were modeled assuming that we continued to operate as an
independent entity. The valuation range was determined based on
the sum of (a) the present value of cash available for
dividends during the time period June 30, 2008 to
December 31, 2012 and (b) the present value of the
terminal value of Company common stock. In
calculating the terminal value of Company common stock, Merrill
Lynch used multiples ranging from 10.0x to 14.0x estimated 2013
earnings. The dividend stream and the terminal value were
discounted using discount rates ranging from 9% to 11%, which
are rates Merrill Lynch viewed as the appropriate range for a
company with our risk characteristics. Based on the above
assumptions, Merrill Lynch derived a range of equity value for
our common stock of $43.88 to $64.33.
Merrill Lynch observed that the $61.50 per share value of the
merger consideration to be received by our holders of Company
common stock was within the range of implied equity value
derived by the discounted cash flow analysis.
General
The summary set forth above is a summary of the material
financial analyses furnished by Merrill Lynch to our Board of
Directors but it does not purport to be a complete description
of the analyses performed by Merrill Lynch. The preparation of a
fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Merrill
Lynch believes that selecting any portion of its analyses or of
the summary set forth above, without considering the analyses as
a whole, would create an incomplete view of the process
underlying Merrill Lynchs opinion. In arriving at its
opinion, Merrill Lynch considered the results of all its
analyses. The analyses performed by Merrill Lynch include
analyses based upon forecasts of future results, which results
may be significantly more or less favorable than those suggested
by Merrill Lynchs analyses. The analyses do not purport
29
to be appraisals or to reflect the prices at which our common
stock may trade at any time after announcement of the proposed
merger. Because the analyses are inherently subject to
uncertainty, being based upon numerous factors and events,
including, without limitation, factors relating to general
economic and competitive conditions beyond the control of the
parties or their respective advisors, neither Merrill Lynch nor
any other person assumes responsibility if future results or
actual values are materially different from those forecasted.
Our Board of Directors selected Merrill Lynch as its financial
adviser because of Merrill Lynchs reputation as an
internationally recognized investment banking and advisory firm
with experience in transactions similar to the proposed merger
and Merrill Lynchs familiarity with us and our business.
Merrill Lynch has, in the past, provided financial advisory and
financing services to us and may continue to do so and has
received, and may receive, fees for the rendering of such
services. In the ordinary course of its business, Merrill Lynch
or its affiliates may actively trade shares of our common stock
and other of our securities for its own account and for the
accounts of its customers and, accordingly, may at any time hold
a long or short position in such securities.
Under the terms of a letter agreement dated June 23, 2008,
pursuant to which our Board of Directors engaged Merrill Lynch
as its financial advisor, we agreed to pay Merrill Lynch for its
services a success fee of 0.55% of the merger consideration upon
the closing of the merger. In addition to any fees payable to
Merrill Lynch under the letter agreement, we have agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket
expenses incurred in connection with providing its services,
including the reasonable fees of its legal counsel. We have also
agreed to indemnify Merrill Lynch and related parties against
various liabilities, including liabilities arising under United
States federal securities laws or relating to or arising out of
the merger, the engagement of Merrill Lynch, and the performance
by Merrill Lynch of its services pursuant to the engagement.
Material
United States Federal Income Tax Consequences
The following is a general discussion of certain material United
States federal income tax consequences to United States
holders (as defined below) of shares of Company common
stock of the receipt of cash in exchange for such shares
pursuant to the merger. This summary is based upon the
provisions of the Internal Revenue Code of 1986, as amended,
which we refer to as the Code, applicable current
and proposed United States Treasury Regulations promulgated
thereunder, which we refer to as the Treasury
Regulations, judicial authorities, and administrative
rulings and practice, all as in effect as of the date of this
proxy statement and all of which are subject to change, possibly
on a retroactive basis.
For purposes of this discussion, the term United States
holder means a beneficial owner of Company common stock
that, for United States federal income tax purposes, is:
(1) an individual citizen or resident of the United States;
(2) a corporation, or other entity treated as a corporation
for United States federal income tax purposes, created or
organized in or under the laws of the United States or any State
thereof or the District of Columbia; (3) a trust
(a) the administration of which is subject to the primary
supervision of a court within the United States and for which
one or more United States persons have the authority to control
all substantial decisions of the trust or (b) for which a
valid election is in effect under applicable Treasury
Regulations to be treated as a United States person; or
(4) an estate the income of which is subject to United
States federal income tax regardless of its source.
Holders of Company common stock who are not United States
holders may have different tax consequences from those described
below and are urged to consult their own tax advisors regarding
the tax treatment to them under United States and
non-United
States tax laws.
If a partnership (including any entity treated as a partnership
for United States federal income tax purposes) holds Company
common stock, the United States federal income tax treatment of
a partner in such partnership generally will depend upon the
status of the partner and the activities of the partnership. A
holder of Company common stock that is a partnership, and
partners in such partnership, should consult their own tax
advisors regarding the tax consequences of the receipt of cash
in exchange for Company common stock pursuant to the merger.
This discussion assumes that a United States holder holds
Company common stock as a capital asset within the meaning of
Section 1221 of the Code (generally, property held for
investment). This discussion does not address all aspects of
United States federal income taxation that may be relevant to a
United States holder in light of the United
30
States holders particular circumstances, or those United
States holders subject to special treatment under the Code
(including, without limitation, insurance companies, dealers or
brokers in securities or currencies, traders in securities who
elect to apply a mark-to-market method of accounting, tax-exempt
organizations, financial institutions, mutual funds, United
States expatriates and shareholders subject to the alternative
minimum tax), United States holders who hold Company common
stock as part of a hedging, straddle,
conversion or other integrated transaction for
United States federal income tax purposes or United States
holders who acquired their Company common stock through the
exercise of employee stock options or other compensation
arrangements. In addition, this discussion does not address any
aspect of foreign, state, local, estate or gift taxation that
may be applicable to a United States holder. United States
holders are urged to consult their own tax advisors to determine
the particular tax consequences to them (including the
application and effect of any state, local or foreign income and
other tax laws) of the receipt of cash in exchange for Company
common stock pursuant to the merger.
The receipt of cash in exchange for Company common stock
pursuant to the merger will be a taxable transaction for United
States federal income tax purposes (and also may be a taxable
transaction under applicable state, local and foreign income and
other tax laws). In general, for United States federal income
tax purposes, a United States holder will recognize capital gain
or loss equal to the difference between the amount of cash
received and the United States holders aggregate adjusted
tax basis in the Company common stock converted to cash in the
merger. Gain or loss will be calculated separately for each
block of Company common stock (i.e., shares acquired at the same
cost in a single transaction) converted to cash in the merger.
If, at the effective time of the merger, the United States
holders Company common stock were held for more than one
year, the gain or loss will be long-term capital gain or loss,
and any such long-term capital gain generally will be subject
(in the case of United States holders who are individuals) to
tax at a maximum United States federal income tax rate of 15%.
If, however, at the effective time of the merger, the United
States holders Company common stock were held for one year
or less, the gain or loss will be short-term capital gain or
loss. The deductibility of capital losses by United States
holders is subject to limitations under the Code.
Under the United States federal income tax backup withholding
rules, unless an exemption applies, the exchange agent or Tokio
Marine generally is required to and will withhold and remit to
the United States Treasury 28% of all payments to which a
Company shareholder or other payee is entitled pursuant to the
merger, unless the Company shareholder or other payee
(1) is a corporation or comes within other exempt
categories and, when required, demonstrates this fact and
otherwise complies with the applicable requirements of the
backup withholding rules or (2) provides such
shareholders correct taxpayer identification number (i.e.,
the shareholders social security number, in the case of an
individual shareholder, or the shareholders employer
identification number, in the case of other shareholders) and
certifies, under penalties of perjury, that the number is
correct (or properly certifies that the shareholder is awaiting
a taxpayer identification number) and certifies that such
shareholder is exempt from backup withholding and otherwise
complies with the applicable requirements of the backup
withholding rules. Each Company shareholder and, if applicable,
each other payee should complete and sign the substitute
Form W-9
that will be part of the letter of transmittal to be returned to
the exchange agent in order to provide the information and
certification necessary to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner
satisfactory to the exchange agent. Company shareholders who are
neither United States citizens nor United States resident
aliens should complete, sign and submit a
Form W-8BEN,
Certificate of Foreign Status of Beneficial Owner for
United States Tax Withholding. Backup withholding is not
an additional tax. Generally, any amounts withheld under the
backup withholding rules described above will be refunded or
credited against a Company shareholders United States
federal income tax liability, if any, provided that the required
information is furnished to the United States Internal Revenue
Service in a timely manner.
The discussion above of certain material United States federal
income tax consequences is included for general information
purposes only. Company shareholders are urged to consult their
own tax advisors to determine the particular tax consequences to
them (including the application and effect of any state, local
or foreign income and other tax laws) of the receipt of cash in
exchange for Company common stock pursuant to the merger.
31
Certain
Effects of the Merger
If the merger agreement is approved by the Companys
shareholders and certain other conditions to the closing of the
merger are either satisfied or waived, Merger Sub will be merged
with and into the Company, with the Company as the surviving
entity. As a result of the merger, the separate corporate
existence of Merger Sub will cease, the Company will continue as
the surviving entity and will be an indirect wholly owned
subsidiary of Tokio Marine.
Following the merger, all outstanding shares of Company common
stock will be owned by a wholly owned subsidiary of Tokio
Marine. When the merger is completed, each share of Company
common stock (other than shares of common stock owned by Tokio
Marine and its subsidiaries) issued and outstanding immediately
prior to the effective time of the merger will be converted into
the right to receive $61.50 in cash, without interest. At the
effective time of the merger, the Companys shareholders
will cease to have ownership interests in the Company or rights
as shareholders of the Company. Therefore, the current
shareholders of the Company will not participate in any future
earnings or growth of the Company and will not benefit from any
appreciation in value of the Company.
The Companys common stock is currently registered under
the Exchange Act and is listed on NASDAQ under the symbol
PHLY. As a result of the merger, the Companys
common stock will cease to be listed on NASDAQ and there will be
no public market for the Companys common stock. In
addition, the registration of the Company common stock under the
Exchange Act will be terminated, and the Company will no longer
be required to file periodic and other reports with the SEC.
The benefit of the merger to our shareholders is the right to
receive $61.50 in cash, without interest, for each share of
Company common stock owned by such shareholder. This represents
a premium of approximately 73% over the closing price of $35.55
per Company common share on July 22, 2008, the last trading
day prior to the announcement of the merger. The principal
detriments of the merger to our shareholders are that our
shareholders will cease to participate in our future earnings
and growth, if any, and that their receipt of payment for their
shares generally will be a taxable transaction for federal
income tax purposes. Please see the section of this proxy
statement entitled The Merger Material United
States Federal Income Tax Consequences for additional
information.
Effects
on the Company and Our Shareholders If the Merger Is Not
Completed
In the event that the merger agreement is not approved by the
Companys shareholders or if the merger is not completed
for any other reason, the Companys shareholders will not
receive any payment for their shares in connection with the
merger. Instead, the Company will remain an independent public
company, and the Companys common stock will continue to be
listed and traded on NASDAQ and registered under the Exchange
Act. In that event, we anticipate that management will continue
to operate the business in a manner similar to that in which it
is being operated today and that the Companys shareholders
will continue to be subject to the same general risks and
opportunities as they currently are, including, among other
things, those arising from economic and market conditions.
In addition, if the merger agreement is terminated under certain
circumstances, the Company would be obligated to pay a
$141,000,000 termination fee to Tokio Marine and up to
$15,000,000 of Tokio Marines reasonable and documented
out-of-pocket expenses in connection with the merger. For a
description of the circumstances obligating payment of the
termination fee and expenses, please see the section of this
proxy statement entitled The Merger Agreement
Termination Fee.
Governmental
and Regulatory Approvals
United
States Antitrust Filing
Transactions such as the merger frequently are reviewed and
scrutinized by the United States Department of Justice and the
United States Federal Trade Commission to determine whether they
comply with applicable antitrust laws. Under the provisions of
the HSR Act, the merger may not be completed until the
expiration of a
30-day
waiting period following the filing of completed notification
reports with the Department of Justice and the Federal Trade
Commission by the Company and Tokio Marine, unless a request for
additional information or documentary material is received from
the Federal Trade Commission or the Department of Justice, or
unless early termination of
32
the waiting period is granted by the reviewing agencies. The
Company and Tokio Marine filed notification reports with the
Department of Justice and Federal Trade Commission under the HSR
Act on August 18, 2008. On September 2, 2008, the
United States Federal Trade Commission and the United States
Department of Justice granted early termination of the waiting
period under the HSR Act.
At any time before or after the merger, the Department of
Justice or the Federal Trade Commission could take action under
the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the merger or
seeking divestiture of substantial assets of the Company or
Tokio Marine or their subsidiaries. Private parties, foreign
competition authorities, and state attorneys general also may
bring an action under the antitrust laws under certain
circumstances. There can be no assurance that a challenge to the
merger on antitrust grounds will not be made or, if a challenge
is made, of the result.
Insurance
Laws and Regulations
The insurance laws and regulations of Pennsylvania and Florida,
the jurisdictions where our insurance company subsidiaries are
domiciled, generally require that, prior to the acquisition of
an insurance company domiciled in those respective
jurisdictions, the acquiring company must obtain the approval of
the insurance commissioner of that jurisdiction. In connection
with this state approval process, the necessary applications
were filed by Tokio Marine with the insurance regulator of
Pennsylvania on August 12, 2008, and with the insurance
regulator of Florida on August 14, 2008.
The Insurance Business Act of Japan requires Tokio Marine to
file a prior notification with, and Tokio Marine &
Nichido Fire Insurance Co., Ltd. to obtain the prior approval
of, the JFSA in connection with the merger. Each of Tokio Marine
and Tokio Marine & Nichido Fire Insurance Co., Ltd.
intends to file the necessary notification or application, as
applicable, with the JFSA promptly after all other necessary
regulatory approvals are obtained.
Although the Company and Tokio Marine do not expect these
regulatory authorities to disapprove of the merger, there is no
assurance that the Company and Tokio Marine will obtain all
required regulatory approvals, or that those approvals will not
include terms, conditions or restrictions that may have an
adverse effect on the Company or Tokio Marine.
Other than the filings described above, neither the Company nor
Tokio Marine is aware of any regulatory approvals required to be
obtained, or waiting periods to expire, to complete the merger.
If the parties discover that other approvals or waiting periods
are necessary, they will seek to obtain or comply with them. If
any additional approval or action is needed, however, the
Company or Tokio Marine may not be able to obtain it, as is the
case with respect to the other necessary approvals. Even if the
Company or Tokio Marine obtain all necessary approvals, and the
merger agreement is adopted by the Companys shareholders,
conditions may be placed on any such approval that could cause
either the Company or Tokio Marine to abandon the merger.
Interests
of Our Directors and Executive Officers in the Merger
Our directors and executive officers may be deemed to have
financial interests in the merger that are in addition to, or
different from, their interests as shareholders of the Company.
Our Board of Directors was aware of these interests and
considered them, among other matters, in approving the merger
and the merger agreement. We collectively refer to James J.
Maguire, Chairman of our Board of Directors, James J.
Maguire, Jr., President and Chief Executive Officer, Craig
P. Keller, Executive Vice President and Chief Financial Officer,
Sean S. Sweeney, Executive Vice President, and Christopher J.
Maguire, Executive Vice President and Chief Operating Officer,
as the named executive officers. The named executive
officers, along with T. Bruce Meyer, and William Benecke, are
collectively referred to in this proxy statement as the
executive officers. Mr. Maguire, Jr. is
the son of Mr. James J. Maguire, the brother of
Mr. Christopher J. Maguire and a first cousin of
Mr. Sweeney.
Stock
Options
Under the terms of the merger agreement, each stock option to
purchase shares of Company common stock issued pursuant to the
Companys employee benefit plans, whether or not fully
vested, will be cancelled at the effective time of the merger
and, upon the closing of the merger, the holders of such options
will be paid an amount
33
equal to the product of (x) the excess, if any, of $61.50
over the exercise price of the applicable options times
(y) the number of shares for which the options are
exercisable, less applicable withholding taxes.
The following table identifies, for our current directors and
executive officers, the aggregate number of shares of Company
common stock subject to outstanding vested and unvested stock
options as of September 25, 2008 that will become fully
vested in connection with the merger, and the cash-out value of
such options.
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Aggregate
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Number of
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Aggregate
|
|
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Cash-Out
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Aggregate
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Shares
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Cash-Out
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Value of
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Number of
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Underlying
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Value of
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Vested and
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Shares Subject
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Unvested
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Unvested
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Unvested
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to Options
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Options
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Options(1)
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Options(2)
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James J. Maguire, Jr.
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1,200,000
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300,000
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$
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12,396,495
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$
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60,190,080
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Craig P. Keller
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315,000
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180,000
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$
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7,437,897
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$
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14,223,902
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James J. Maguire
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Sean S. Sweeney
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305,000
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180,000
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$
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7,437,897
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$
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13,506,265
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Christopher J. Maguire
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971,448
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180,000
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$
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7,437,897
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$
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48,331,624
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T. Bruce Meyer
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67,500
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67,500
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$
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2,412,838
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$
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2,412,838
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William Benecke
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161,000
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90,000
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$
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3,792,099
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$
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7,263,435
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All Outside Directors as a Group
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(1)
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This column represents the intrinsic value of all unvested
options that will become fully vested and cashed-out in
connection with the merger, which is calculated for each
individual by multiplying the number of shares of common stock
underlying unvested options by the excess, if any, of $61.50
over the exercise price of the unvested options.
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(2)
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This column represents the intrinsic value of all options to be
cancelled and cashed-out in connection with the merger, which is
calculated for each individual by multiplying the aggregate
number of shares of common stock subject to options by the
excess, if any, between $61.50 and the exercise price of all
such options.
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Stock
Appreciation Rights (SARs)
Under the terms of the merger agreement, holders of SARs granted
by the Company under our employee benefit plans and outstanding
at the effective time of the merger, whether or not fully
vested, will be paid upon the closing of the merger an amount
equal to the product of (x) the excess, if any, of $61.50
over the reference price per share for the SARs times
(y) the number of shares subject to the SARs less
applicable withholding taxes.
The following table identifies, for our current directors and
executive officers, the aggregate number of shares of Company
common stock subject to outstanding vested and unvested SARs as
of September 25, 2008 that will become fully vested in
connection with the merger, and the cash-out value of such SARs.
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|
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Aggregate
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|
|
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|
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Number of
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Aggregate
|
|
|
Cash-Out
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Aggregate
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Shares
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Cash-Out
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Value of
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Number of
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Underlying
|
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Value of
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Vested and
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Shares Subject
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Unvested
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Unvested
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Unvested
|
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to SARs
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SARs
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SARs(1)
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SARs(2)
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James J. Maguire, Jr.
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171,027
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171,027
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$
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4,251,001
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$
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4,251,001
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Craig P. Keller
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125,459
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125,459
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$
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3,113,400
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$
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3,113,400
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James J. Maguire
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|
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|
|
|
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Sean S. Sweeney
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|
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125,459
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|
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125,459
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$
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3,113,400
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$
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3,113,400
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Christopher J. Maguire
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|
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125,459
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125,459
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$
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3,113,400
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$
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3,113,400
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T. Bruce Meyer
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17,107
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|
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17,107
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$
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425,094
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|
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$
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425,094
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William Benecke
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|
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58,713
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|
|
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58,713
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$
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1,438,316
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|
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$
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1,438,316
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All Outside Directors as a Group
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|
|
|
|
|
|
|
|
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34
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(1)
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This column represents the intrinsic value of all unvested SARs
that will become fully vested and cashed-out in connection with
the merger, which is calculated for each individual by
multiplying the number of shares of common stock underlying
unvested SARs by the excess, if any, of $61.50 over the exercise
price of the unvested SARs.
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(2)
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This column represents the intrinsic value of all SARs to be
cancelled and cashed-out in connection with the merger, which is
calculated for each individual by multiplying the aggregate
number of shares of common stock subject to SARs by the excess,
if any, of $61.50 over the exercise price of all such SARs.
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Restricted
Shares and Performance Shares
Immediately prior to the effective time of the merger, the
Company will waive all restrictions and vesting conditions
applicable to restricted shares granted under our employee
benefit plans to employees and directors, including performance
shares granted to our executive officers, whether or not fully
vested. Upon the closing of the merger, the holders of
outstanding restricted shares, including performance shares,
will be paid an amount equal to the product of (x) $61.50
times (y) the number of such shares, less applicable
withholding taxes.
The following table identifies, for our current directors and
executive officers, the aggregate number of restricted shares,
including performance shares, as of September 25, 2008 and
the cash-out value of such shares that will become fully vested
in connection with the merger.
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Aggregate
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Aggregate Cash-
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Number of
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Out Value of
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Restricted Shares
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Restricted Shares(1)
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James J. Maguire, Jr.
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19,880
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$
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1,222,620
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Craig P. Keller
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13,218
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$
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812,907
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James J. Maguire
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Sean S. Sweeney
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13,218
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$
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812,907
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Christopher J. Maguire
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13,218
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$
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812,907
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T. Bruce Meyer
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1,987
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$
|
122,201
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William Benecke
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|
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5,466
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$
|
336,159
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All Outside Directors as a Group
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|
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18,447
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|
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$
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1,134,491
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|
|
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(1)
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This column represents the value of all restricted shares,
including performance shares, that will become fully vested and
cashed out in connection with the merger, which is calculated
for each individual by multiplying the aggregate number of such
shares by $61.50.
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ESPP
Shares
Immediately prior to the effective time of the merger, the
Company will waive any vesting or holding restrictions
applicable to any ESPP Shares, including the ESPP Shares
acquired by our executive officers. Upon the closing of the
merger, the holders of ESPP Shares will be paid $61.50 for each
ESPP Share, the same as all other shares of the Company.
Insurance
and Indemnification
In the merger agreement, Tokio Marine and the Company agreed
that from and after the effective time of the merger, Tokio
Marine will cause the Company, as the surviving corporation in
the merger, to indemnify and hold harmless, to the fullest
extent permitted by law, all past and present directors and
officers of the Company and our subsidiaries against any costs
or expenses (including attorneys fees), judgments, fines,
losses, claims, damages or liabilities incurred in connection
with any claim, action or suit arising out of or pertaining to
matters existing or occurring at or prior to the effective time
of the merger, provided the person to whom expenses are advanced
provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to
indemnification.
35
Prior to the effective time of the merger, the Company will
(with funds from Tokio Marine) fully pay the premium for a
tail insurance policy for the extension of
directors and officers liability insurance for the
Companys existing directors and officers for a period of
at least six years from the effective time of the merger. Such
tail insurance policy will have terms and conditions
that are at least as favorable as the Companys existing
policies with respect to any matter claimed against a director
or officer of the Company or any of our subsidiaries by reason
of service at or prior to the effective time of the merger.
Tokio Marine and the Company will not be required to spend an
annual premium in excess of 300% of the annual premiums paid by
the Company at the date of the merger agreement for such
insurance.
Addenda
to Employment Agreements
Concurrently with the execution of the merger agreement, at the
request of Tokio Marine, each of the Companys named
executive officers entered into an addendum to his employment
agreement with the Company and Tokio Marine.
Except as otherwise stated below, each named executive
officers addendum provides that:
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It will be effective immediately as of the effective time of the
merger, except for certain covenants that are effective
immediately upon signing the addendum. The covenants that are
effective immediately include requirements that (1) the
named executive officer not terminate his employment on or prior
to the effective time and (2) the Company not take any
action that would constitute Good Reason for the
named executive officer to terminate his employment, and not
otherwise terminate the named executive officers
employment for any reason, on or prior to the effective time of
the merger, other than for unlawful activity related to
employment, demonstrable fraud or material malfeasance against
the Company.
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After the merger, each named executive officer will continue his
employment under the terms of his employment agreement as
amended by his addendum. James J. Maguire will continue his
employment as Chairman of the Board of the Company and will also
serve as a Senior International Advisor to the Company and Tokio
Marine.
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The term of the Chairmans employment agreement will be
extended under his addendum to the second anniversary of the
effective time of the merger, and the surviving company may, at
its option, elect to extend the term for an additional year
thereafter. The terms of the other named executive
officers employment agreements will be extended under
addenda and will expire on the fifth anniversary of the
effective time of the merger.
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The named executive officers would be entitled to a
gross-up
payment for excise taxes imposed under Section 4999 of the
Code on amounts treated as excess parachute payments
under Code Section 280G arising form the acceleration of their
equity awards. If, however, a 10% reduction to the parachute
payments that would otherwise be made to a named executive
officer (other than the Chairman of the Board, whose parachute
payments are not subject to such a reduction) would be
sufficient to avoid the liability for this excise tax, then the
parachute payments to that executive officer will be reduced to
an amount that does not result in the imposition of the excise
tax. Of the named executive officers other than the Chairman of
the Board, only Christopher J. Maguire is expected to receive a
gross-up
payment for excise taxes on excess parachute payments. None of
the named executive officers is expected to be subject to a
reduction in parachute payments to avoid the excise tax on
excess parachute payments arising from the acceleration of their
equity awards.
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Each named executive officer other than the Chairman who remains
employed through the first three anniversaries of the effective
time of the merger will be paid a retention bonus in the
aggregate amount of $1,800,000 in the case of James J.
Maguire, Jr., and $1,500,000 in the case of each of
Messrs. Keller, Sweeney and Christopher J. Maguire. The
Chairman will not receive a retention bonus. Retention bonuses
will be paid in three equal installments on each of the first
three anniversaries of the closing of the merger. If, during
that three-year period, the named executive officers
employment is terminated by Company for Cause (as
defined in the named executive officers employment
agreement) or by the named executive officer, or as a result of
the named executive officers death or disability, any
unearned installments of the
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36
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|
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|
|
retention bonus will not be paid. If, during such period, the
Company terminates the named executive officer without
Cause, or in the event of any reduction in or
failure to timely pay the named executive officers base
salary, the assignment to the named executive officer of duties
that are not of a senior executive level or not consistent with
his experience and training, or failure to pay any installment
of the retention bonus when due, then any unpaid amount of the
full retention bonus will be immediately due and payable in a
lump sum.
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|
|
|
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As of the effective time, the employer will provide each named
executive officer, other than the Chairman, with compensation
opportunities comparable in the aggregate to those provided to
the named executive officer immediately prior to the merger.
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As of the effective time of the merger, the base salary of the
Chairman will increase from $1,000,000 per year to $2,000,000
per year, and the employer will provide him with compensation
opportunities comparable in the aggregate to those provided to
him immediately prior to the merger, taking into account the
increase in base salary described above, on a risk-adjusted
basis.
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Each named executive officers addendum also amends and
broadens the scope of the restrictive covenants and
confidentiality provisions of his unamended employment agreement.
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The Chairmans addendum provides that he will be subject to
the terms of a non-competition provision during his employment
and for two years thereafter.
|
Prior to the closing of the merger, the Company anticipates
William Benecke, an executive officer who is not a named
executive officer, will enter into an addendum to his employment
agreement with terms substantially similar to the terms of the
addenda entered into by Messrs. Keller, Sweeney and
Christopher J. Maguire. In addition, the Company anticipates
that up to 39 additional employees will enter into addenda to
their employment agreements (or if they do not currently have an
employment agreement, will enter into a retention agreement) on
terms and conditions similar to the executive officers (in
general, with lower retention bonuses). The aggregate amount of
all retention bonuses, including the named executive
officers, to be paid by Tokio Marine will not exceed
$40,000,000.
Voting
and Support Agreements
In connection with the execution of the merger agreement and
after the approval of the merger agreement by the Board of
Directors, certain shareholders, consisting of each of the named
executive officers, Maguire family members Frances M. Maguire
and Timothy J. Maguire, The Maguire Foundation (of which the
Chairman and his wife, Frances M. Maguire are
co-directors),
and several trusts for the benefit of certain Maguire family
members, have each entered into a Voting and Support Agreement
with Tokio Marine, each of which we refer to as a voting
agreement. The shareholders who entered into voting
agreements collectively own, as of September 25, 2008,
20.4% of the outstanding shares of the Company common stock
entitled to vote at the special meeting.
Except as otherwise stated below, each shareholder that is a
party to a voting agreement has generally agreed, among other
things, to vote or cause to be voted or deliver or cause to be
delivered a written consent covering all of the shares of the
Company common stock that the shareholder has the power to vote
as of the record date:
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in favor of adoption of the merger agreement and any other
action of the Companys shareholders requested by the
Company in furtherance thereof;
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against any action, agreement or transaction submitted for
approval of the shareholders of the Company that would
reasonably be expected to result in a breach of any covenant,
representation or warranty or any other obligation or agreement
of the shareholder contained in the voting agreement; and
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against any acquisition proposal or any other action, agreement
or transaction submitted for approval to the shareholders of the
Company that could reasonably be expected to materially impede
or interfere with, delay, postpone or materially and adversely
affect the merger, the merger agreement or the voting agreement
to which the shareholder is a party.
|
Furthermore, each shareholder that is a party to a voting
agreement has agreed that the shareholder will not enter into
any other voting agreement or voting trust with respect to the
shareholders shares (other than to vote in accordance with
the provisions of the voting agreement). In addition, each
shareholder has agreed, if requested, to
37
grant to Tokio Marine an irrevocable proxy to vote the
shareholders shares in accordance with the voting
agreement if the shareholder fails to do so. Furthermore,
subject to certain exceptions, each shareholder that is a party
to a voting agreement has agreed not to dispose of the
shareholders shares or options or rights to acquire shares.
The voting agreements terminate on the earlier of (1) the
date and time at which the shareholders vote on the adoption of
the merger agreement and (2) the date and time of
termination of the merger agreement. In addition, subject to
certain notice provisions, each shareholder that is a party to a
voting agreement may terminate such shareholders voting
agreement if the merger consideration is reduced below $61.50
per share of Company common stock.
Share
Purchase Agreements
In connection with the execution of the merger agreement, each
of the named executive officers has entered into a share
purchase agreement with Tokio Marine, each of which we refer to
as a share purchase agreement.
Pursuant to each share purchase agreement, if the merger closes
and the named executive officer receives the merger
consideration for his shares of the Company common stock, the
named executive officer is required to acquire on the open
market, within a prescribed period of time following the closing
of the merger, shares of Tokio Marine common stock with an
aggregate purchase price of at least $100,000,000 in the case of
the Chairman, $5,000,000 in the case of
Mr. Maguire, Jr., and $1,000,000 in the case of each
of the other named executive officers.
Each named executive officer, other than the Chairman, is
required to maintain beneficial ownership of the minimum number
of shares of Tokio Marine common stock he is required to
purchase under his share purchase agreement, as described above,
until at least the third anniversary of the effective date of
the merger. The Chairman is required to maintain beneficial
ownership of the minimum number of shares of Tokio Marine common
stock he is required to purchase under his stock purchase
agreement until the first anniversary of the effective date of
the merger and at least 15% of such minimum number of shares
until at least the third anniversary of the effective date of
the merger.
Each share purchase agreement will terminate upon the earlier of
the termination of the merger agreement or the death of the
named executive officer that is party to the share purchase
agreement.
No
Dissenters Rights
Pursuant to Section 1571 of the Pennsylvania Business
Corporation Law and the merger agreement, no dissenters
rights will apply in connection with the merger.
THE
MERGER AGREEMENT
The following summary describes the material provisions of
the merger agreement, and is qualified in its entirety by
reference to the complete text of the merger agreement, a copy
of which is attached as Appendix A to this proxy statement.
The provisions of the merger agreement are extensive and not
easily summarized. Accordingly, this summary may not contain all
of the information about the merger agreement that is important
to you. The merger agreement is incorporated by reference in
this proxy statement. We encourage you to read the merger
agreement carefully and in its entirety for a more complete
understanding of the terms of the merger.
Additional information about the Company and Tokio Marine may
be found elsewhere in this proxy statement and in the other
public filings that the Company and Tokio Marine make with the
SEC. Please see the section of this proxy statement entitled
Where You Can Obtain Additional Information
beginning on page 54.
Structure
of the Merger
Under the merger agreement, on the date of the closing, Merger
Sub will merge with and into the Company, with the Company
continuing as the surviving entity. The directors of Merger Sub
immediately prior to the merger will be the directors of the
surviving entity.
The by-laws of Merger Sub in effect immediately prior to the
effective time will be the by-laws of the surviving corporation
until thereafter amended as provided therein or by applicable
law. The articles of incorporation of the
38
Company in effect immediately prior to the effective time shall
be the articles of incorporation of the surviving corporation
except that the number of authorized shares, classes of shares
and par value of shares shall be amended to be 1,000 shares
of common stock with a par value of $1.00 per share. Such
articles of incorporation, as so amended, shall be the articles
of incorporation of the surviving corporation, until thereafter
amended as provided therein or by applicable law.
Closing
of the Merger
The closing of the merger will take place on the second business
day following the satisfaction or waiver of the conditions to
closing set forth in the merger agreement (other than those
conditions that by their terms are to be satisfied at closing,
but subject to the satisfaction or waiver of those conditions at
such time). The parties will file a certificate of merger with
the Secretary of State of the Commonwealth of Pennsylvania on
the closing date of the merger. The merger will become effective
when the articles of merger are filed or at such later time as
we and Tokio Marine may agree upon and specify in the
certificate of merger. Subject to the receipt of all necessary
regulatory approvals, we anticipate the closing will occur in
the fourth quarter of 2008.
Merger
Consideration and Conversion of the Company Common
Stock
At the effective time of the merger, each share of Company
common stock issued and outstanding immediately prior to the
effective time of the merger (other than shares of common stock
owned by the Company and its subsidiaries and Tokio Marine and
its subsidiaries) will be converted into the right to receive
$61.50 in cash.
Treatment
of Company Equity Awards
At the effective time of the merger, the awards discussed below
will be converted into the right to receive cash in the manner
and amounts described. In each case, applicable withholding
taxes will be withheld from the total payment.
Options
All outstanding stock options to purchase shares of Company
common stock issued pursuant to the Companys Amended and
Restated Employees Stock Incentive and Performance Based
Compensation Plan and its predecessor plan, whether or not fully
vested, will be cancelled at the effective time of the merger
and the holders of such options will be paid an amount equal to
the product of (x) the excess, if any, of $61.50 over the
exercise price of the applicable options times (y) the
number of shares for which the options are exercisable.
Stock
Appreciation Rights
Each outstanding stock appreciation right, which we refer to as
a SAR, granted pursuant to our employee benefit
plans, whether or not fully vested, will be cancelled at the
effective time of the merger and the holders of SARs will be
paid an amount equal to the product of (x) the excess, if
any, of $61.50 over the reference price per share for the SARs
times (y) the number of shares subject to the SARs.
Restricted
Shares
Immediately prior to the effective time of the merger, the
Company will waive all restrictions and vesting or holding
conditions applicable to restricted shares granted by us
pursuant to our employee benefit plans, whether or not fully
vested. At the effective time, the holders of any outstanding
restricted shares will be paid an amount equal to the product of
(x) $61.50 times (y) the number of restricted shares
held by them.
Performance
Awards
Immediately prior to the effective time of the merger, the
Company will waive all conditions applicable to performance
shares granted by the Company, which we refer to as
performance awards, the performance awards will be
cancelled and the holders of performance awards will be paid
$61.50 in cash for each share subject to the performance award
held.
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Treatment
of the Companys Employee Stock Purchase Plans
Immediately prior to the effective time of the merger, the
Company will waive any vesting or holding conditions or
restrictions applicable to any ESPP Shares, and such ESPP Shares
will be treated the same as all other shares of the Company at
the effective time of the merger. At the effective time of the
merger, the holders of ESPP Shares will be paid $61.50 for each
ESPP Share. All loans that are outstanding in respect of the
ESPP Shares will be immediately due and payable and may be paid
from the consideration to be received for the ESPP Shares.
Exchange
of Share Certificates
Prior to the closing of the merger, Tokio Marine will engage a
paying agent to handle the exchange of shares of Company common
stock for cash. Promptly following the effective time, the
paying agent will send a letter of transmittal and instructions
to each former Company shareholder explaining the procedure for
surrendering stock certificates representing shares of Company
common stock for the applicable cash payment and will provide
special instructions if any of the Companys shares are
uncertificated.
Shareholders should not return their stock certificates with
the enclosed proxy card, and should not forward stock
certificates to the paying agent without a letter of
transmittal.
After the effective time, each stock certificate that previously
represented shares of Company common stock will only represent
the right to receive payment in the amount that the holder is
entitled to receive pursuant to the merger agreement, less any
required withholdings under tax or other applicable laws. After
the effective time of the merger, there will be no further
registration or transfer of the Companys shares.
No consideration will be paid to a shareholder until the
shareholders shares of Company common stock are
surrendered to the paying agent, together with a duly completed
and validly executed letter of transmittal and any other
documents the paying agent may reasonably require. No interest
will be paid or will accrue on the cash payable upon surrender
of any stock certificate. The consideration may be paid to a
person other than the person in whose name the corresponding
stock certificate is registered if the stock certificate is
properly endorsed or is otherwise in the proper form for
transfer and is accompanied by reasonable evidence that any
applicable stock transfer taxes have been paid, are not
applicable or will be paid by such transferee. Shareholders no
longer in possession of their stock certificates because the
stock certificates have been lost, stolen or destroyed may, in
exchange for the merger consideration of $61.50 per share,
deliver an affidavit and, if required, place a bond against
potential claims with respect to the missing certificates in a
reasonable amount as Tokio Marine may direct.
None of the Company, Tokio Marine, Merger Sub, the surviving
entity or the paying agent will be liable to any shareholder for
any amounts delivered to a public official pursuant to any
applicable abandoned property, escheat or similar laws. All
funds held by the paying agent for payment to the holders of
shares that are not disbursed within 365 calendar days after the
effective time of the merger will be delivered to the surviving
entity. Thereafter, each holder of a stock certificate formerly
representing shares in the Company entitled to the merger
consideration who has not received the merger consideration must
look only to the surviving entity for payment of the merger
consideration that may be payable upon due surrender of the
stock certificates held by them, without interest.
Representations
and Warranties
The merger agreement contains representations and warranties
that the parties to the merger agreement made to and solely for
the benefit of one another. The assertions embodied in those
representations and warranties are subject, in some cases, to
specified exceptions, qualifications, limitations and
supplemental information, including knowledge qualifiers and
contractual standards of materiality (such as materiality
qualifiers and the occurrence of a material adverse
effect, as described above), that are different from those
generally applicable under federal securities law, as well as
detailed information provided in a disclosure letter provided by
us in connection with signing the merger agreement. While the
Company does not believe that the disclosure letter contains
non-public information that the securities laws require to be
publicly disclosed, the disclosure letter does contain detailed
information that modifies, qualifies and creates exceptions to
our representations and warranties provided in the merger
agreement. The merger agreement is described in this proxy
statement, and included as Appendix A to this proxy
statement, only to provide you with information regarding its
terms and conditions, and not to provide any
40
factual information regarding the Company, Tokio Marine or their
respective businesses. Accordingly, you should not rely on the
representations and warranties as characterizations of the
actual state of facts, since (1) they were only made as of
the date of the merger agreement or a prior, specified date,
(2) in some cases they are subject to knowledge,
materiality and material adverse effect qualifiers, and
(3) they are modified in important part by detailed
information included in the disclosure letter. Finally,
information concerning the subject matter of the representations
and warranties may have changed since the date of the merger
agreement, which subsequent information may or may not be fully
reflected in the Companys public disclosures.
These representations and warranties of the Company include the
following:
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due organization, valid existence, good standing, corporate
structure, qualification and corporate power licenses and
permits to conduct the Companys business;
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the capital structure of the Company;
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corporate authority to enter into and perform the merger
agreement, enforceability of the merger agreement and approval
and recommendation to the shareholders of the merger agreement
by our Board of Directors;
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required governmental filings or approvals;
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absence of conflicts of the merger agreement and the
transactions contemplated by the merger agreement with
organizational documents, material contracts, permits or
applicable law;
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financial statements and filings with the SEC;
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absence of certain changes or events and conduct of business
since December 31, 2007;
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absence of litigation likely to materially adversely impact the
Company or materially delay the merger;
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employee benefit plan matters, post-employment compensation and
deferred compensation matters;
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compliance with applicable laws, including insurance laws;
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material contracts;
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leases for real property;
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inapplicability to the merger of certain anti-takeover laws and
absence of anti-takeover provisions in the Companys
articles of incorporation;
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environmental matters;
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tax matters, including payment of taxes and filing of returns;
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employees and labor matters;
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intellectual property rights;
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insurance policies;
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conduct of and matters related to insurance agents and producers
of the Company and its subsidiaries, certain reinsurance
accounting matters and actuarial analyses;
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conduct of insurance operations through, and insurance licenses
and authorizations of, subsidiaries;
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reinsurance and coinsurance issues;
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disclaimer of investment advisor status; and
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broker and finders fees due in connection with the merger.
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The representations and warranties of Tokio Marine and Merger
Sub are more limited and relate to, among other things, the
following:
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due organization, valid existence, good standing, corporate
structure, qualification and corporate power, and licenses and
permits to conduct business;
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corporate authority to enter into and perform under the merger
agreement;
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required governmental filings or consents;
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absence of conflicts of the merger agreement and the
transactions contemplated by the merger agreement with its
organizational documents, material contracts, permits or
applicable law;
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absence of litigation that would materially delay the merger or
materially adversely impact performance under the merger
agreement;
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availability of funds to make all required payments in
connection with the merger;
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capitalization, ownership and operations of Merger Sub;
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accuracy of information supplied by Tokio Marine or Merger Sub
for inclusion in this proxy statement;
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finders fees due in connection with the merger; and
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absence of status as an interested shareholder of the Company
under Pennsylvania law prior to July 22, 2008.
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Certain of the representations and warranties of the Company and
of Tokio Marine and Merger Sub are qualified as to
materiality or material adverse effect.
For purposes of the merger agreement, material adverse
effect means, with respect to the Company or Tokio Marine,
as the case may be, a material adverse effect on the financial
condition, properties, assets, liabilities, business or results
of operations of the party and its subsidiaries, taken as a
whole. In determining whether a material adverse effect on the
Company has occurred, there are specified exceptions, including
(a) changes in the economy or financial markets generally
in the United States, (b) changes that are the result of
factors generally affecting the property-casualty insurance
industry in the geographic areas where the Company or any of our
subsidiaries operate, (c) certain events arising from the
announcement or pendency of the merger, (d) changes in
generally accepted accounting principles in the United States or
Japan, statutory accounting principles, the rules or policies of
the Public Company Accounting Oversight Board and other
accounting rules, (e) any failure by the Company to meet
any estimates of revenues or earnings for any period ending
after the date of the merger agreement and prior to the closing
date, (f) the suspension of trading in securities on NASDAQ
or a decline in the price of the Companys common stock on
NASDAQ, (g) changes or proposed changes in the
Companys credit rating, (h) changes resulting from
the entering into of the merger agreement or compliance by the
Company with its terms, and (i) the disposition of any
interim motion related to pending litigation disclosed in the
disclosure letter; provided that with respect to (a) and
(b) above, such change, event, circumstance or development
does not (x) primarily relate to the Company and its
subsidiaries or (y) disproportionately adversely affect the
Company and its subsidiaries compared to other companies of
similar size operating in the property and casualty insurance
industry in similar geographic areas in which the Company and
its subsidiaries operate.
The representations and warranties in the merger agreement do
not survive the closing of the merger.
Covenants
Relating to Conduct of Business
The Company has agreed to covenants in the merger agreement that
affect the conduct of its business between the date the merger
agreement was signed and the closing date of the merger. Prior
to the closing date of the merger, subject to specified
exceptions, the Company and each of its subsidiaries are
required to conduct business in the ordinary course and
consistent with past practices and, to the extent consistent
therewith, use commercially reasonable efforts to preserve their
business organization and good will and relationships with
customers, agents, third party payors and others having business
dealings with them, and to keep available the services of their
officers and key employees. In addition, absent the written
consent of Tokio Marine and subject to specified exceptions, the
Company will not, and will not permit any of its subsidiaries to:
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adopt or propose any change in articles of incorporation or
by-laws or other applicable governing instruments;
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merge or consolidate with any other person, except for any such
transactions among wholly owned subsidiaries of the Company, or
restructure, reorganize or completely or partially liquidate or
otherwise
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enter into any agreements or arrangements imposing material
changes or restrictions on the Companys assets, operations
or businesses;
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acquire assets outside of the ordinary course of business from
any other person with a value or purchase price in the aggregate
in excess of $5,000,000 in any transaction or series of related
transactions, other than acquisitions pursuant to contracts in
effect as of the date of the merger agreement;
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issue, sell, pledge, dispose of, grant, transfer, encumber, or
authorize the issuance, sale, pledge, disposition, grant,
transfer, lease, license, guarantee or encumbrance of, any
shares of capital stock of the Company or any of our
subsidiaries (other than the issuance of shares by a wholly
owned subsidiary of the Company to the Company or another wholly
owned subsidiary), or securities convertible or exchangeable
into or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any
shares of such capital stock or such convertible or exchangeable
securities, other than (a) issuances to the Companys
directors required under the directors stock purchase plan in
connection with such directors service as directors, and
(b) issuances in connection with the exercise of stock
awards outstanding as of the date of the merger agreement;
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create or incur any lien material to the Company or any of our
subsidiaries on any assets of the Company or any of our
subsidiaries having a value in excess of $1,000,000, other than
liens granted to the Federal Home Loan Board of Pittsburgh to
secure borrowings by Philadelphia Indemnity Insurance Company
and used by it for arbitrage investment purposes;
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make any loans, advances, guarantees or capital contributions to
or investments in any person (other than the Company or any
direct or indirect wholly owned subsidiary of the Company) in
excess of $5,000,000 in the aggregate;
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declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock (except for dividends
paid by any direct or indirect wholly owned subsidiary to the
Company or to any other direct or indirect wholly owned
subsidiary) or enter into any agreement with respect to the
voting of our capital stock;
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reclassify, split, combine, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of our capital
stock or securities convertible or exchangeable into or
exercisable for any shares of our capital stock;
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incur any indebtedness for borrowed money or guarantee such
indebtedness of another person, or issue or sell any debt
securities or warrants or other rights to acquire any debt
security of the Company or any of our subsidiaries, except for
(a) indebtedness for borrowed money incurred in the
ordinary course of business (x) not to exceed $5,000,000 in
the aggregate, (y) in replacement of existing indebtedness
for borrowed money on terms substantially consistent with or
more beneficial than the indebtedness being replaced, or
(z) guarantees incurred by the Company of indebtedness of
our wholly owned subsidiaries and (b) the liens granted to
the Federal Home Loan Board of Pittsburgh to secure borrowings
by Philadelphia Indemnity Insurance Company and used by it for
arbitrage investment purposes;
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except as provided in our disclosure letter, make or authorize
any capital expenditures in excess of $5,000,000 in the
aggregate;
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(a) enter into any contract that would have been a
Restricted Contract (as defined in the merger
agreement) had it been entered into prior to the merger
agreement, or (b) other than in the ordinary course of
business, enter into any contract that would have been a
Material Contract (as defined in the merger
agreement) had it been entered into prior to the merger
agreement;
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make any changes with respect to accounting policies or
procedures, except as required by changes in generally accepted
accounting principals or statutory accounting principals;
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settle any litigation or other proceedings before a governmental
entity for an amount in excess of $2,500,000 individually or
$5,000,000 in the aggregate or any obligation or liability of
the Company in excess of such amount, other than
(a) ordinary course policy claim matters for amounts that
are within policy limits, (b) the
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payment, discharge or satisfaction of obligations or liabilities
in accordance with the terms of contracts in effect as of the
date of the merger agreement or (c) settlement of any
liability for which reserves have been made on the
Companys financial statements;
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(a) amend, modify or terminate any Restricted
Contract (as defined in the merger agreement),
(b) except in the ordinary course of business, amend,
modify or terminate any Material Contract (as
defined in the merger agreement), or (c) cancel, modify or
waive any debts or claims held by it or waive any rights having
in each case a value in excess of $1,000,000;
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make any material tax election;
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transfer, sell, lease, license, mortgage, pledge, surrender,
encumber, divest, cancel, abandon or allow to lapse or expire or
otherwise dispose of (a) except in the ordinary course of
business, any material assets, licenses, operations, rights,
product lines, businesses or interests therein of the Company or
our subsidiaries, other than pursuant to contracts in effect
prior to the date of the merger agreement or (b) any
capital stock of any of our subsidiaries;
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except as required pursuant to our agreements in effect prior to
the date of the merger agreement or provided in our disclosure
letter, or as otherwise required by applicable law
(a) grant or provide any severance, retention, termination
or similar payments or benefits to any director or employee,
(b) increase the compensation (except for routine base
salary increases for employees who are no more senior than
Assistant Vice Presidents in the ordinary course of business
consistent with past practice), bonus or pension, welfare,
severance or other benefits of, pay any bonus to, or make any
new equity awards to any director or employee, other than
(x) issuances to our directors required under the directors
stock purchase plan in connection with the directors
service as directors, and (y) issuances in connection with
the exercise of stock awards outstanding as of the date of the
merger agreement (c) establish, adopt, amend or terminate
any benefit plan, amend the terms of any outstanding options,
SARs, performance awards, restricted shares, or other awards or
grant any new awards of compensation or benefits,
(d) except as otherwise provided in the merger agreement,
take any action to accelerate the vesting or payment, or fund or
in any way secure the payment, of compensation or benefits under
any benefit plan, (e) change any actuarial or other
assumptions used to calculate funding obligations with respect
to any benefit plan, or change the manner in which contributions
to such plans are made or the basis on which such contributions
are determined; or (f) forgive or promise to forgive any
loans to directors or employees;
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(a) grant, extend, amend (except as required in the
diligent prosecution of the Companys intellectual
property) waive or modify any material rights in or to, nor
sell, assign, lease, transfer, license, let lapse, abandon,
cancel, or otherwise dispose of, or extend or exercise any
option to sell, assign, lease, transfer, license, or otherwise
dispose of, any material intellectual property, other than in
the ordinary course of business, (b) fail to diligently
prosecute the Companys and our subsidiaries material
patent applications, if any, or (c) fail to exercise a
right of renewal or extension under any material intellectual
property contract;
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except in the ordinary course of business or as may already be
in existence, enter into any new quota share or other
reinsurance transaction;
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enter into or engage in (through acquisition, product extension
or otherwise) the business of selling any products or services
other than property and casualty insurance materially different
from existing products or services of the Company and our
subsidiaries or enter into or engage in new lines of business
(as such term is defined in the National Association of
Insurance Commissioners instructions for the preparation of the
annual statement form) without Tokio Marines prior written
approval;
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adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of
any of our insurance subsidiaries;
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except in the ordinary course of business, alter or amend in any
material respect any existing underwriting, claim handling, loss
control, investment, actuarial practice guideline or policy or
any material assumption underlying an actuarial practice or
policy, except as may be required by (or, in the reasonable good
faith
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judgment of the Company, advisable under) generally accepted
accounting principals, applicable statutory accounting
principals, any governmental entity or applicable law; or
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agree, authorize or commit to do any of the foregoing.
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Regulatory
Approvals
The merger agreement provides that Tokio Marine and the Company
will use reasonable best efforts to take all actions and do all
things advisable, proper or necessary under the merger agreement
and applicable laws to consummate the merger and the other
transactions contemplated by the merger agreement as soon as
reasonably practicable. Without limitation, this includes taking
the appropriate actions to obtain the required approvals under
the HSR Act and to give notices to and obtain approvals from
state insurance departments in Florida and Pennsylvania and the
JFSA. Tokio Marine and the Company are each required to
cooperate with the other in obtaining, and to use reasonable
best efforts to take all lawful steps as are necessary or
appropriate to secure, regulatory approvals. More information on
the required regulatory approvals and notices is available under
the heading The Merger Governmental and
Regulatory Approvals on page 32 of this proxy
statement.
No
Solicitations by the Company
Under the terms of the merger agreement, subject to certain
exceptions described below, the Company has agreed that we will
not, and will not permit our subsidiaries, subsidiaries
employees, investment bankers, attorneys, accountants and other
advisors or representatives to:
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initiate, solicit or knowingly encourage any inquiries or the
making of any proposal or offer that constitutes, or could
reasonably be expected to lead to, any acquisition
proposal; or
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engage in or otherwise participate in any discussions or
negotiations regarding an acquisition proposal, or provide any
non-public information or data to any person that has made, or
to the knowledge of the Company is reasonably likely to make or
is considering (in each case whether alone or as part of a
group), an acquisition proposal, except to notify such person of
the restrictions in the merger agreement.
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Under the merger agreement, an acquisition proposal
is any proposal or offer with respect to:
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a merger, joint venture, partnership, consolidation,
dissolution, liquidation, tender offer, recapitalization,
reorganization, share exchange, business combination or similar
transaction involving the Company or any of our significant
subsidiaries with any person other than the Company or any of
our subsidiaries, Tokio Marine, Merger Sub or any controlled
affiliate thereof, or
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any acquisition by any third party or proposal or offer by any
third party, which if consummated would result in any person
becoming the beneficial owner of, directly or indirectly, in one
or a series of related transactions, 20% or more of the total
voting power or of any class of equity securities of the Company
or those of any of our subsidiaries, or 20% or more of the
consolidated total assets of the Company and our subsidiaries,
in each case other than the transactions contemplated by the
merger agreement.
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If, prior to approval of the merger by the Companys
shareholders, the Company receives a written and unsolicited
acquisition proposal and the Board of Directors determines in
good faith and after consultation with outside legal and
financial advisors that the acquisition proposal is, or could
reasonably be expected to lead to, a superior proposal, then the
Company may:
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provide information in response to a request by a person who has
made an unsolicited written acquisition proposal, that our Board
of Directors reasonably believes to be credible providing for
the acquisition of more than 50% of the assets (on a
consolidated basis) or total voting power of the equity
securities of the Company if the Company receives from the
person so requesting such information an executed
confidentiality agreement on terms relating to confidentiality
not significantly less restrictive to the other party than those
contained in the confidentiality agreement between Tokio Marine
and the Company; and promptly discloses any such information to
Tokio Marine to the extent not previously provided to Tokio
Marine;
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engage or participate in any discussions or negotiations with
any Person who has made an unsolicited written acquisition
proposal; or
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after having complied with certain requirements, approve,
recommend, or otherwise declare advisable or propose to approve,
recommend or declare advisable (publicly or otherwise) an
acquisition proposal, if and only to the extent that,
(x) prior to taking any of these actions, our Board of
Directors determines in good faith after consultation with
outside legal counsel that such action is necessary in order for
such directors to comply with the directors fiduciary
duties under applicable law, (y) in each such case referred
to in the first two bullet points above, our Board of Directors
has determined in good faith based on the information then
available and after consultation with its financial advisor that
an acquisition proposal either constitutes a superior proposal
or would reasonably be expected to result in a superior
proposal, and (z) in the case referred to in the third
bullet above, our Board of Directors determines in good faith
(after consultation with its financial advisor and outside legal
counsel) that such acquisition proposal is a superior proposal.
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A superior proposal is an unsolicited acquisition
proposal that would result in any person becoming the beneficial
owner, directly or indirectly, of more than 50% of the assets
(on a consolidated basis) or more than 50% of the total voting
power of the equity securities of the Company that our Board of
Directors has determined in its good faith judgment
(x) would result in a transaction that, if consummated,
would be more favorable to the shareholders of the Company than
the merger, taking into account all of the terms and conditions
of such proposal and of the merger agreement (including any
proposal by Tokio Marine to amend the terms of the merger
agreement) and the time likely to be required to consummate such
acquisition proposal, and (y) is reasonably capable of
being consummated on the terms so proposed, taking into account
all financial, regulatory, legal and other aspects of such
proposal, including the likelihood of termination and the
existence of a financing contingency.
Changes
in the Companys Recommendation
Our Board of Directors and each committee of our Board of
Directors has agreed not to withhold, withdraw, qualify or
modify (or publicly propose or resolve to withhold, withdraw,
qualify or modify) its recommendation with respect to the
merger, or fail to reaffirm its approval or recommendation of
the merger within three business days after receiving a written
request to do so from Tokio Marine, or approve, recommend or
otherwise declare advisable (or publicly propose to approve or
recommend) any acquisition proposal (any of the foregoing a
change in Company recommendation).
The Company and our Board of Directors have agreed not to cause
or permit the Company or any of our subsidiaries to enter into
any letter of intent, memorandum of understanding, agreement in
principle, acquisition agreement, merger agreement or other
agreement, with the exception of confidentiality agreements),
relating to any acquisition proposal.
Our Board of Directors may, prior to but not after shareholder
approval has been obtained, make a change in its recommendation
to the shareholders in connection with an acquisition proposal
if our Board of Directors has determined in good faith, after
consulting with its outside legal counsel, that the failure to
take such action would be inconsistent with the directors
fiduciary duties under applicable law. However, our Board of
Directors may not take any such action in connection with an
acquisition proposal unless (1) the acquisition proposal
constitutes a superior proposal, (2) the Company provides
written notice to Tokio Marine at least five business days prior
to making such change in recommendation, which notice must
specify all material terms and conditions of the superior
proposal (including the identity of the party making such
superior proposal and copies of any documents evidencing such
superior proposal), (3) during the change in recommendation
notice period the Company will, and will cause our financial
advisors and outside counsel to, negotiate with Tokio Marine in
good faith should Tokio Marine propose to make adjustments in
the terms and conditions of the merger agreement so that the new
acquisition proposal ceases to constitute (in the good faith
judgment of the Board of Directors) a superior proposal and
(4) such acquisition proposal continues to constitute (in
the good faith judgment of the Board of Directors) a superior
proposal after taking into account any amendments that Tokio
Marine agrees to make prior to the end of the change in
recommendation notice period. Any material amendment to any
acquisition proposal will be deemed to be a new acquisition
proposal for purposes of the change in recommendation notice
period.
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Employee
Benefits and Plans
Tokio Marine and the Company have agreed that for 18 months
following the effective time of the merger, Tokio Marine will
provide or will cause to be provided to employees of the Company
and our subsidiaries who continue to be employed by Tokio
Marine, the Company or any of their subsidiaries following the
closing of the merger, employee benefits that are no less
favorable in the aggregate than those in effect immediately
prior to the date of the merger agreement, provided that Tokio
Marine will not be obligated to provide any equity-based
arrangements.
To the extent applicable, Tokio Marine has agreed to cause any
employee benefit plans which the employees of the Company and
its subsidiaries are entitled to participate in after the
effective time of the merger to take into account for purposes
of eligibility, vesting, and level of benefits for purposes of
vacation, paid time off and severance plans, except for purposes
of qualifying for subsidized early retirement benefits or to the
extent it would result in a duplication of benefits, service
with the Company and our subsidiaries as if such service were
with the surviving corporation, to the same extent service was
credited under a comparable plan of the Company. With respect to
any welfare benefit plan adopted by the surviving corporation,
after the effective time of the merger, Tokio Marine will waive
any restrictions with respect to any pre-existing condition,
actively at work requirements and waiting periods (except to the
extent such restrictions were preexisting), and any eligible
expenses incurred by any employees of the Company and our
subsidiaries and any respective covered dependents during the
portion of the plan year prior to adoption of the new plan will
be taken into account for purposes of satisfying all deductible,
coinsurance and maximum out-of-pocket requirements applicable to
a person for the applicable plan year as if such amounts had
been paid in accordance with the plan.
Indemnification
and Insurance
In the merger agreement, Tokio Marine and the Company agreed
that from and after the effective time of the merger, Tokio
Marine will cause the Company, as the surviving corporation in
the merger, to indemnify and hold harmless, to the fullest
extent permitted by law, all past and present directors and
officers of the Company and our subsidiaries against any costs
or expenses (including attorneys fees), judgments, fines,
losses, claims, damages or liabilities incurred in connection
with any claim, action or suit arising out of or pertaining to
matters existing or occurring at or prior to the effective time
of the merger, provided the person to whom expenses are advanced
provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to
indemnification.
Prior to the effective time of the merger, the Company will
purchase (with funds advanced by Tokio Marine) and maintain a
tail insurance policy for the extension of
directors and officers liability insurance for the
Companys existing directors and officers for a period of
at least six years from the effective time of the merger. Such
tail insurance policy will have terms and conditions
that are at least as favorable as the Companys existing
policies with respect to any matter claimed against a director
or officer of the Company or any of our subsidiaries by reason
of service at or prior to the effective time of the merger.
Tokio Marine and the Company will not be required to spend an
annual premium in excess of 300% of the annual premiums paid by
the Company at the date of the merger agreement for such
insurance.
Other
Covenants and Agreements
The merger agreement contains other covenants and agreements,
including covenants and agreements relating to cooperation
between Tokio Marine and the Company in the preparation of this
proxy statement, public announcements regarding the merger,
holding the special meeting to adopt the merger agreement,
taking certain actions with respect to dormant subsidiaries and
efforts to render anti-takeover laws inapplicable.
47
Conditions
to the Closing of the Merger
The obligations of Tokio Marine, Merger Sub and the Company to
complete the merger are subject to the satisfaction or waiver of
the following conditions:
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the affirmative vote of the holders of a majority of the votes
cast to adopt the merger agreement and approve the merger at the
special meeting;
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the expiration or termination of applicable waiting periods,
including those under the HSR Act, and the receipt of the
approvals required to be obtained from the Pennsylvania and
Florida insurance departments and the JFSA, none of which
contains any condition that would constitute a negative
regulatory action as that term is defined in the merger
agreement; and
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no laws having been adopted and no temporary restraining order,
injunction, order, judgment, decision, opinion or decree having
been issued by a court or other governmental entity that has the
effect of making the merger illegal or otherwise prohibiting the
completion of the merger.
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Tokio Marines and Merger Subs obligation to close is
also conditioned on the satisfaction or waiver of the following
conditions:
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the representations and warranties of the Company are true and
correct on July 22, 2008 and as of the closing date of the
merger as though made on and as of such date (except that those
representations and warranties which address matters only as of
a particular date shall have been true and correct only as of
such date), except for any failure to be so true and correct
that, individually or in the aggregate has not had and would not
reasonably be expected to have a Company material adverse
effect, except for certain representations, including those
relating to the Companys organizational documents, capital
structure, authority and material contracts, which must be true
in all material respects as of July 22, 2008 and as of the
closing date of the merger as though made on and as of that
date, and absence of certain changes which must be true and
correct in all respects as of July 22, 2008 and as of the
closing date of the merger as though made on and as of that
date, and the Company shall have provided an officers
certificate to Tokio Marine to that effect; and
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the Companys performance in all material respects of all
agreements and covenants required to be performed by the Company
under the merger agreement.
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The Companys obligation to close is also conditioned on
the satisfaction or waiver of the following conditions:
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the representations and warranties of Tokio Marine and Merger
Sub are true and correct as of the closing date (without regard
to materiality for each individual representation and warranty),
except where the failure to be true and correct do not,
individually or in the aggregate, have a material adverse effect
on Tokio Marine; and
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Tokio Marines and Merger Subs performance in all
material respects of all agreements and covenants required to be
performed by Tokio Marine and Merger Sub under the merger
agreement.
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Before the closing of the merger, the Company or Tokio Marine
may each waive any of the conditions to closing of the other
party and complete the merger even though one or more of these
conditions has not been met. However, under Pennsylvania law and
the Companys governing documents, the approval of the
majority of the issued and outstanding shares of the
Companys stock entitled to vote on the matter and present,
in person or by proxy, at the special meeting is necessary to
close the merger.
Transaction
Fees and Expenses
Tokio Marine and the Company have agreed that, whether or not
the merger is closed, all expenses incurred in connection with
the merger agreement and the transactions contemplated by the
merger agreement will be paid by the party incurring the
expenses. However, in certain limited instances discussed in the
section of this proxy statement entitled The Merger
Agreement Termination Fee, the Company
may be obligated to reimburse Tokio Marine up to $15,000,000 in
expenses.
48
Termination
of the Merger Agreement
The merger agreement may be terminated and the transactions
contemplated by the merger agreement abandoned at any time prior
to the closing of the merger under the following circumstances:
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by mutual written consent of the Company and Tokio Marine;
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by either the Company or Tokio Marine (absent willful or
intentional breach by the terminating party that contributed to
the failure of any of the following conditions) if:
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the merger has not been consummated on or before
January 23, 2009, unless the only outstanding conditions to
the merger not satisfied are the receipt of governmental
approvals, in which case the deadline is extended to
April 23, 2009;
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the shareholders do not approve the merger at the special
meeting; or
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any order permanently restraining, enjoining or otherwise
prohibiting consummation of the merger shall become final and
non-appealable.
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there has been a material uncured breach of any representation,
warranty or agreement made by Tokio Marine or Merger Sub in the
merger agreement; or
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at any time prior to the shareholders approval of the
merger, our Board of Directors changes its recommendation to the
shareholders or authorizes the Company to enter into an
alternative acquisition agreement, subject to certain notice and
negotiation rights of Tokio Marine (if the merger agreement were
terminated pursuant to this section, the Company would be
required to pay Tokio Marine a termination fee equal to
$141,000,000 and reimburse up to $15,000,000 in expenses).
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our Board of Directors changes its recommendation to the
Companys shareholders or authorizes acceptance of a
superior proposal, the Company fails to hold a shareholder
meeting prior to January 23, 2009 (or April 23, 2009,
if applicable) or if our Board of Directors fails to recommend
rejection of a tender offer by another party;
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(a) shareholder approval is not obtained at the special
meeting, (b) the merger does not take place by
January 23, 2009 (or April 23, 2009, if applicable),
(c) after July 22, 2008, a third party publicly
announces or makes an acquisition proposal which is not
withdrawn within ten days and the merger agreement is terminated
by Tokio Marine because of a material uncured breach by the
Company. If the merger agreement is terminated as a result of
any of these matters, the Company would have to pay Tokio Marine
the $141,000,000 termination fee and reimburse up to $15,000,000
in expenses if an agreement to acquire the Company were entered
into within 18 months of the termination. However, with
respect to a termination as a result of failure to obtain
shareholder approval, the termination fee would be payable
regardless of whether an acquisition agreement were entered
into, if Tokio Marine otherwise had a right to terminate the
merger agreement;
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there has been a material uncured breach of any representation,
warranty or agreement made by the Company in the merger
agreement.
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Upon termination, all of the provisions of the Agreement will
terminate, except certain provisions relating to such things as
confidentiality. However, all remedies a party has against
another party for a willful or intentional breach of the merger
agreement by the other party will survive termination.
49
Termination
Fee
The Company will pay Tokio Marine the $141,000,000 termination
fee and reimburse up to $15,000,000 of expenses if the merger
agreement is terminated under the following circumstances:
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The Company terminates the merger agreement because our Board of
Directors has authorized the Company to enter into an agreement
with respect to a superior proposal, and Tokio Marine does not
make, within the time period specified in the merger agreement,
an offer that the Board of Directors of the Company determines
is at least as favorable, from a financial point of view, to the
Companys shareholders;
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The Company terminates the merger agreement because our Board of
Directors made a change in recommendation;
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Tokio Marine terminates the merger agreement because our Board
of Directors makes a change of recommendation to the
Companys shareholders;
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Tokio Marine terminates the merger agreement because the Company
fails to hold a meeting of it shareholders for the purpose of
voting on the merger at which a quorum is present and a vote is
taken prior to January 23, 2009 (or April 23, 2009, if
applicable);
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Tokio Marine terminates the merger agreement because our Board
of Directors has failed to recommend that the Companys
shareholders reject a tender offer or exchange offer from a
third party within the time period specified in the merger
agreement;
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the merger agreement is terminated by either Tokio Marine or the
Company because the merger is not consummated on or before
January 23, 2009 (or April 23, 2009, if applicable)
and (a) after July 22, 2008, any person publicly makes
or publicly announces an intention to make (whether or not
conditional) an acquisition proposal and that acquisition
proposal is not publicly withdrawn without qualification at
least ten days prior to April 23, 2009 and (b) neither
Tokio Marine nor Merger Sub has willfully or intentionally
breached in any material respect their obligations under the
merger agreement in any manner that has proximately contributed
to the occurrence of the failure of a condition to the
consummation of the merger,
provided
, the termination fee
will not be payable to Tokio Marine unless and until within
12 months of such termination the Company or any of our
subsidiaries enters into a binding alternative acquisition
agreement pursuant to which the Company or any of our
subsidiaries has agreed to undertake, solicit shareholder
approval for or engage in, or shall have consummated, or shall
have approved or recommended to the Companys shareholders
or otherwise not opposed, an acquisition proposal to acquire at
least 50% of the total voting power or of any class of equity
securities of the Company or any of its subsidiaries or 50% or
more of the consolidated assets of the Company;
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the merger agreement is terminated by either Tokio Marine or the
Company because the shareholders do not approve the merger at
the special meeting and after July 22, 2008, any person
publicly makes or publicly announces an intention to make
(whether or not conditional) an acquisition proposal prior to
the Company obtaining shareholder approval of the merger and
such acquisition proposal or publicly announced intention shall
not have been publicly withdrawn without qualification at least
five business days prior to the vote of the Companys
shareholders with respect to the merger,
provided
, the
termination fee will not be payable to Tokio Marine unless and
until within 12 months of such termination the Company or
any of our subsidiaries enters into a binding alternative
acquisition agreement pursuant to which the Company or any of
our subsidiaries has agreed to undertake, solicit shareholder
approval for or engage in, or shall have consummated, or shall
have approved or recommended to the Companys shareholders
or otherwise not opposed, an acquisition proposal of at least
50% of the total voting power or of any class of equity
securities of the Company or any of its subsidiaries or 50% or
more of the consolidated assets of the Company; or
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the merger agreement is terminated by Tokio Marine because there
has been a breach of any representation, warranty, covenant or
agreement made by the Company in the merger agreement, or any
representation and warranty shall have become untrue after
July 22, 2008, such that the conditions under which Tokio
Marine is required to close the merger would not be satisfied
and such breach or condition is either not curable or is not
cured within the earlier of (a) thirty days after written
notice thereof is given by Tokio Marine to the Company and
(b) January 23, 2009 (or April 23, 2009, if
applicable) and after July 22, 2008, any person
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50
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publicly makes or publicly announces an intention to make
(whether or not conditional) an acquisition proposal and such
acquisition proposal or publicly announced intention is not
publicly withdrawn without qualification at least ten days prior
to the date when the relevant breach commenced or the relevant
representation and warranty became untrue,
provided
, the
termination fee will not be payable to Tokio Marine unless and
until within 12 months of such termination the Company or
any of our subsidiaries enters into a binding alternative
acquisition agreement pursuant to which the Company or any of
our subsidiaries has agreed to undertake, solicit shareholder
approval for or engage in, or shall have consummated, or shall
have approved or recommended to the Companys shareholders
or otherwise not opposed, an acquisition proposal of at least
50% of the total voting power or of any class of equity
securities of the Company or any of its subsidiaries or 50% or
more of the consolidated assets of the Company.
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Governing
Law
The merger agreement is governed by the laws of the Commonwealth
of Pennsylvania and provides that any litigation relating to the
merger agreement or the transactions contemplated by the merger
agreement will be maintained in the Commerce Program of the
Court of Common Pleas of Philadelphia County, Pennsylvania or,
if such court does not have jurisdiction over a matter, the
United States District Court for the Eastern District of
Pennsylvania.
Amendments,
Extensions and Waivers of the Merger Agreement
Tokio Marine and the Company have agreed that the merger
agreement may be amended by the parties, as authorized by their
respective boards of directors, at any time before adoption of
the merger agreement by the Companys shareholders. After
adoption of the merger agreement by the Companys
shareholders, no amendment may be made to the merger agreement
without shareholder approval, if such approval is required by
law or under rules of any relevant stock exchange.
The parties have also agreed that, prior to the closing of the
merger, with the authorization of their respective boards of
directors, the parties will be allowed to extend the time for
the performance of any of the obligations or other acts of the
other parties, waive any inaccuracies in the representations and
warranties contained in the merger agreement or in any document
delivered pursuant to the merger agreement and waive compliance
with any of the agreements or conditions contained in the merger
agreement.
MARKET
PRICE OF THE COMMON STOCK AND DIVIDEND DATA
The Companys common stock is traded on NASDAQ under the
symbol PHLY. The following table shows the high and
low sales prices for the Companys common stock for each
quarterly period within the Companys last two recent
fiscal years, the first and second quarters of 2008, and through
September 25, 2008:
High/Low
Market Price Per Share (in United States Dollars)
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Quarter
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1st
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2nd
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3rd
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4th
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2008 High
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39.28
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38.64
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60.40
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Low
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29.62
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31.22
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31.80
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2007 High
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48.00
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46.94
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42.47
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46.72
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Low
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42.25
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39.90
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30.30
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36.64
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2006 High
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36.81
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34.26
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40.09
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45.99
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Low
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31.53
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29.82
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30.42
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38.41
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On September 25, 2008, the Companys common stock was
held by 1,453 shareholders of record.
The Company did not declare cash dividends on its common stock
in 2008, 2007 or 2006.
As a holding company, the Company is dependent upon dividends
and other permitted payments from its subsidiaries to pay any
cash dividends to its shareholders. The ability of the
Companys subsidiaries to pay dividends to the Company is
subject to regulatory limitations.
51
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Companys common stock as of
September 25, 2008 by: (a) each person known to the
Company to own beneficially more than 5% of the outstanding
common stock; (b) each of the Companys directors and
executive officers; and (c) all of the directors and
executive officers as a group. As used in this table,
beneficially owned means the sole or shared power to
vote or dispose of, or to direct the voting or disposition of,
the shares, or the right to acquire such power within
60 days after September 25, 2008 with respect to any
shares.
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Shares
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Percent
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Beneficially
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Beneficially
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Name(1)
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Owned(2)
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Owned
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James J. Maguire
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10,907,907
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(3)
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15.2
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%
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James J. Maguire, Jr.
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1,734,511
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(4)
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2.4
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%
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Frances M. Maguire
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8,457,530
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(5)
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11.8
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%
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Aminta Hawkins Breaux
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4,014
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*
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Michael J. Cascio
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15,443
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*
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Elizabeth H. Gemmill
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22,565
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*
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Paul R. Hertel, Jr.
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54,270
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(6)
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*
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Michael J. Morris
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18,152
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*
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Shaun F. OMalley
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5,543
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*
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Donald A. Pizer
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5,302
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*
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Ronald R. Rock
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5,780
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*
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Sean S. Sweeney
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409,227
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(7)
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*
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Craig P. Keller
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160,440
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(8)
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*
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Christopher J. Maguire
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1,577,788
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(9)
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2.1
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%
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William J. Benecke
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81,552
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*
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T. Bruce Meyer
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10,609
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*
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EARNEST Partners, LLC
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5,048,167
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(10)
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7.0
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%
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FMR Corp.
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4,342,420
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(11)
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6.0
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%
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All Directors and Executive Officers as a Group (15 persons)
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15,013,103
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20.3
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%
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*
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Less than 1%
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(1)
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The named shareholders business address is One Bala Plaza,
Suite 100, Bala Cynwyd, PA 19004, except that the business
address of EARNEST Partners, LLC is 1180 Peachtree Street, NE,
Suite 2300, Atlanta, GA 30309; and the business
address of FMR Corp. is 82 Devonshire Street, Boston, MA 02109.
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(2)
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To the Companys knowledge, the persons named in the table
have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them, unless
otherwise noted in the footnotes to this table.
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(3)
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Of these shares, 5,251,500 are owned jointly by Mr. Maguire
and his wife Frances M. Maguire, as to which Mr. Maguire
shares the voting and investment power with his wife;
824,798 shares are owned by The Maguire Foundation, of
which Mr. Maguire is
co-director
with his wife and shares voting and investment power with his
wife for such shares; and 588,000 are owned of record by his
wife. Mr. Maguire disclaims beneficial ownership of the
588,000 shares owned of record by his wife.
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As of September 25, 2008, 887,718 shares were pledged
in connection with margin loans made by a broker.
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(4)
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Of these shares, 332,448 shares are owned by a trust for
the benefit of Mr. James J. Maguire, Jr.; and
900,000 shares are subject to currently outstanding options
exercisable on or before 60 days from September 25,
2008.
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As of September 25, 2008, 179,325 shares were pledged
in connection with margin loans made by a broker.
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(5)
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Of these shares, 1,189,836 are held by trusts established by
Mr. James J. Maguire of which the children of
Ms. Maguire and Mr. James J. Maguire are the
beneficiaries and of which Ms. Maguire is sole trustee and
possesses sole voting and investment power with respect to such
shares; 603,396 shares are in trusts for the
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52
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children of Mr. and Mrs. James J. Maguire, as to which
Ms. Maguire is deemed to be beneficial owner of such shares
because she has shared voting and investment power of such
shares as co-trustee of these trusts; 5,251,500 shares are
owned jointly by Ms. Maguire and her husband James J.
Maguire, as to which Ms. Maguire shares the voting and
investment power with her husband; and 824,798 shares are
owned by The Maguire Foundation, of which Ms. Maguire is
co-director
with her husband, and shares voting and investment power with
her husband for such shares.
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As of September 25, 2008, 751,196 shares were pledged
in connection with margin loans made by a broker.
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(6)
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Of these shares, 50,000 are owned by P&E Limited
Partnership, a family limited partnership, in which
Mr. Hertel, Jr. and his wife own the stock of the corporate
general partner and are also limited partners.
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(7)
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Shares beneficially owned include 125,000 shares subject to
currently outstanding options exercisable on or before
60 days from September 25, 2008.
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(8)
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Shares beneficially owned include 135,000 shares subject to
currently outstanding options exercisable on or before
60 days from September 25, 2008.
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(9)
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Shares beneficially owned include 791,448 shares subject to
currently outstanding options exercisable on or before
60 days from September 25, 2008 and
299,448 shares held by a trust for Mr. Maguire as to
which he has shared voting and investment power. These
299,448 shares are pledged to an investment banking firm to
secure the obligations to such firm of a trust for
Mr. Maguire, of which he is a co-trustee, in connection
with a forward transaction entered into in 2006 by the trust
with such firm.
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As of September 25, 2008, 111,379 shares were pledged
in connection with margin loans made by a broker.
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(10)
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According to the Schedule 13G filed in February 2008 with
the SEC by EARNEST Partners, LLC: EARNEST Partners, LLC has sole
voting power with respect to 1,689,447 of such shares, shared
voting power with respect to 1,596,538 of such shares and sole
investment power with respect to 5,048,167 of such shares; and
all of its shares were acquired in the ordinary course of
business and were not acquired and are not held for the purpose
of or with the effect of changing or influencing the control of
the Company and were not acquired and are not held in connection
with or as a participant in any transaction having that purpose
or effect.
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(11)
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According to the Schedule 13G filed in February 2008 with
the SEC by FMR Corp.: FMR Corp. has sole voting power with
respect to 109,620 of such shares and sole investment power with
respect to 4,342,420 of such shares; and all of its shares were
acquired in the ordinary course of business and were not
acquired for the purpose of and do not have the effect of
changing or influencing the control of the Company and were not
acquired in connection with or as a participant in any
transaction having such purpose or effect.
|
PROPOSALS OF
SHAREHOLDERS
If the merger is completed, we will have no public shareholders
and no public participation in any of our future shareholder
meetings. If the merger is not completed, you will continue to
be entitled to attend and participate in our shareholder
meetings and we will hold an Annual Meeting of Shareholders in
2009, in which case shareholder proposals will be eligible for
consideration for inclusion in the proxy statement and form of
proxy for our 2009 Annual Meeting of Shareholders in accordance
with
Rule 14a-8
under the Exchange Act. Proposals of shareholders intended to be
presented at the 2009 Annual Meeting of Shareholders must be
received by the Company no later than December 19, 2008 for
inclusion in the Companys proxy statement and form of
proxy relating to that meeting. Shareholder proposals should be
directed to the President of the Company at the address of the
Company provided on the first page of this proxy statement. A
proposal that does not comply with the applicable requirements
of
Rule 14a-8
under the Exchange Act will not be included in the
Companys proxy soliciting material for the 2009 Annual
Meeting of Shareholders.
A shareholder of the Company may wish to have a proposal
presented at the 2009 Annual Meeting of Shareholders but not to
have the proposal included in the Companys proxy statement
and form of proxy relating to that meeting. If notice of any
such proposal (addressed to the President of the Company at the
address of the Company provided on the first page of this proxy
statement) is not received by the Company by March 3, 2009,
then such proposal shall be deemed untimely for
purposes of
Rule 14a-4(c)
promulgated under the 1934 Act and, therefore, the
individuals named in the proxies solicited on behalf of the
Board of Directors for use at the Companys 2009 Annual
Meeting of Shareholders will have the right to exercise
discretionary voting authority as to that proposal.
53
A shareholder may recommend a person as a nominee for director
by writing to the President of the Company at the address of the
Company provided on the first page of this proxy statement.
Recommendations must be received by February 14, 2009, but
not before January 15, 2009, in order for a candidate to be
considered by the Companys Governance and Nominating
Committee for election at the 2009 Annual Meeting. As provided
in the Companys by-laws, each notice of nomination should
contain the following information: (a) the name and address
of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) the address and
principal occupation for the past five years of each nominee;
and (d) the written consent of each nominee to serve as a
director of the Company if so elected.
HOUSEHOLDING
ISSUES
The SEC permits companies and intermediaries (such as brokers
and banks) to satisfy delivery requirements for proxy statements
and annual reports with respect to two or more shareholders
sharing the same address by delivering a single proxy statement
to those shareholders. This process, which is commonly referred
to as householding, is intended to reduce the volume
of duplicate information shareholders receive and also reduce
expenses for companies. While the Company does not utilize
householding, we understand that one or more intermediaries will
be householding the Companys proxy materials.
If you hold your shares of the Companys stock through one
of these intermediaries, a single proxy statement may have been
sent to multiple shareholders in your household. We will
promptly deliver a separate copy of the proxy statement to you
if you send a written request to us at One Bala Plaza,
Suite 100, Bala Cynwyd, PA 19004, Attention: Craig P.
Keller, Secretary or if you telephone us at
(610) 617-7626.
If you hold your shares of the Companys stock through an
intermediary and you wish to receive separate copies of our
proxy statement and annual report in the future, you should
contact your bank, broker or other nominee record holder. If you
currently receive multiple copies of the proxy statement or you
would like to receive only one copy for your household in the
future, you should contact your broker, bank or other nominee
record holder, or you may write to us at the address above.
OTHER
MATTERS
The Board of Directors knows of no other matters that are likely
to be brought before the meeting, but if other matters do
properly come before the meeting which we did not have notice of
prior to September 25, 2008, or that applicable laws
otherwise permit proxies to vote on a discretionary basis, it is
intended that the person authorized under solicited proxies will
vote or act thereon in accordance with their own judgment.
WHERE YOU
CAN OBTAIN ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange
Act. The Company files reports, proxy statements and other
information with the SEC. The filings are available to the
public at the SECs website,
http://www.sec.gov
.
The Companys website,
http://www.phly.com/
has copies of these filings as well. Our common stock is listed
on NASDAQ under the symbol PHLY and you may read and
copy these reports, proxy statements and other information at
the SECs Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
If you have questions about the special meeting or the merger
after reading this proxy statement, or if you would like
additional copies of this proxy statement or the proxy card, you
should contact the Company and the Companys proxy
solicitors, Georgeson Inc., at (866) 828-4297.
We have not authorized anyone to give you any information or to
make any representation about the proposed merger or our Company
that differs from or adds to the information contained in this
document or in the documents we have publicly filed with the
SEC. Therefore, if anyone should give you any different or
additional information, you should not rely on it.
54
Appendix A
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
Among
PHILADELPHIA CONSOLIDATED HOLDING CORP.,
TOKIO MARINE HOLDINGS, INC.
and
MERGER SUB
(as herein defined)
Dated as of July 22, 2008
TABLE OF
CONTENTS
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Page
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AGREEMENT AND PLAN OF MERGER
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ARTICLE I
The Merger; Closing; Effective Time
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1.1.
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The Merger
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A-1
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1.2.
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Closing
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A-1
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1.3.
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Effective Time
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A-1
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ARTICLE II
Articles of Incorporation and By-Laws of the Surviving
Corporation
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2.1.
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The Articles of Incorporation
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A-2
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2.2.
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The By-Laws
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A-2
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ARTICLE III
Directors of the Surviving Corporation
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3.1.
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Directors
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A-2
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ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates
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4.1.
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Effect on Capital Stock
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A-2
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4.2.
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Exchange of Certificates
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A-2
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4.3.
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Treatment of Stock Plans
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A-4
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4.4.
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Adjustments to Prevent Dilution
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A-5
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ARTICLE V
Representations and Warranties
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5.1.
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Representations and Warranties of the Company
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A-5
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5.2.
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Representations and Warranties of Parent and Merger Sub
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A-18
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ARTICLE VI
Covenants
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6.1.
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Interim Operations
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A-20
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6.2.
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Acquisition Proposals
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A-22
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6.3.
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Proxy Filing; Information Supplied
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A-24
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6.4.
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Shareholders Meeting
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A-25
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6.5.
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Filings; Other Actions; Notification
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A-25
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6.6.
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Access and Reports
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A-26
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6.7.
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Stock Exchange Delisting
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A-26
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6.8.
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Publicity
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A-26
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6.9.
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Employee Benefits
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A-27
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6.10.
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Expenses
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A-27
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6.11.
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Director and Officer Indemnification and Liability Insurance
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A-28
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6.12.
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Other Actions by the Company
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A-28
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6.13.
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Parent Vote
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A-29
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6.14.
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Formation of Merger Sub; Accession
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A-29
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6.15.
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Ownership of Directors Qualifying Shares
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A-29
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6.16.
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Pre-Closing Restructuring
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A-29
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A-i
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Page
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ARTICLE VII
Conditions
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7.1.
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Conditions to Each Partys Obligation to Effect the Merger
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A-30
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7.2.
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Conditions to Obligations of Parent and Merger Sub
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A-30
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7.3.
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Conditions to Obligation of the Company
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A-30
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ARTICLE VIII
Termination
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8.1.
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Termination by Mutual Consent
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A-31
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8.2.
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Termination by Either Parent or the Company
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A-31
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8.3.
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Termination by the Company
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A-31
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8.4.
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Termination by Parent
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A-32
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8.5.
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Effect of Termination and Abandonment
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A-32
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ARTICLE IX
Miscellaneous and General
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9.1.
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Survival
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A-34
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9.2.
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Modification or Amendment
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A-34
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9.3.
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Waiver of Conditions
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A-34
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9.4.
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Counterparts
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A-34
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9.5.
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GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL; SPECIFIC
PERFORMANCE
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A-34
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9.6.
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Notices
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A-35
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9.7.
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Entire Agreement
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A-36
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9.8.
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No Third Party Beneficiaries
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A-36
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9.9.
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Obligations of Parent and of the Company
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A-36
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9.10.
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Transfer Taxes
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A-37
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9.11.
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Definitions
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A-37
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9.12.
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Severability
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A-37
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9.13.
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Interpretation; Construction
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A-37
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9.14.
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Assignment
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A-37
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9.15.
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Dates and Dollar Amounts
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A-37
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A-ii
AGREEMENT
AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this
Agreement
), dated as of July 22,
2008, among Philadelphia Consolidated Holding Corp., a
Pennsylvania corporation (the
Company
), Tokio Marine Holdings, Inc.,
a Japanese corporation (
Parent
) and,
from and after its accession to this Agreement in accordance
with Section 6.14, Merger Sub (as that term is defined in
Section 6.14 of this Agreement), a Pennsylvania
corporation; the Company and Merger Sub sometimes being
hereinafter collectively referred to as the
Constituent Corporations
).
RECITALS
WHEREAS, the Boards of Directors of each of the parties hereto
has determined that it is in the best interests of such party
and its shareholders and other constituencies to enter into this
Agreement, and has approved the execution, delivery and
performance of this Agreement and the Voting Agreements.
WHEREAS, the Company, Parent and Merger Sub desire to make
certain representations, warranties, covenants and agreements in
connection with this Agreement.
WHEREAS, this Agreement is intended to constitute the plan of
merger required by Section 1924 of the Pennsylvania
Business Corporation Law of 1988, as amended (the
PBCL
) for the Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1.
The Merger
. Upon the terms
and subject to the conditions set forth in this Agreement, at
the Effective Time, Merger Sub shall be merged with and into the
Company, and the separate corporate existence of Merger Sub
shall thereupon cease (the
Merger
).
The Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the
Surviving Corporation
), and the
separate corporate existence of the Company, with all its
rights, privileges, immunities, powers and franchises, shall
continue unaffected by the Merger, except as set forth in
Article II. The Merger shall have the effects specified in
the PBCL.
1.2.
Closing
. Unless otherwise
mutually agreed in writing between the Company and Parent, the
closing for the Merger (the
Closing
)
shall take place at the offices of Sullivan & Cromwell
LLP, 125 Broad Street, New York, New York, at
9:00 A.M. on the second Business Day (the
Closing Date
) following the day on
which the last to be satisfied or waived of the conditions set
forth in Article VII (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to
the fulfillment or waiver of those conditions) shall be
satisfied or waived in accordance with this Agreement. For
purposes of this Agreement, the term
Business
Day
shall mean any day ending at 11:59 p.m.
(Eastern U.S. Time) other than a Saturday or Sunday or a
day on which banks are required or authorized to close in the
City of New York or Tokyo.
1.3.
Effective Time
. Immediately
after the Closing, the Company, Merger Sub and Parent will cause
the Articles of Merger (the
Pennsylvania Articles of
Merger
) to be executed, acknowledged and filed in
the Department of State of the Commonwealth of Pennsylvania as
provided in Section 1927 of the PBCL. The Merger shall
become effective at the time when the Pennsylvania Articles of
Merger have been duly filed in the Department of State of the
Commonwealth of Pennsylvania or at such other later date and
time as is agreed between the parties and specified in the
Articles of Merger in accordance with the relevant provisions of
the PBCL (the
Effective Time
).
A-1
ARTICLE II
Articles of Incorporation and By-Laws of the Surviving
Corporation
2.1.
The Articles of
Incorporation
. The articles of incorporation of
the Company as in effect immediately prior to the Effective Time
shall be the articles of incorporation of the Surviving
Corporation (the
Charter
),
except that the articles of incorporation of the Company shall
be amended as follows: The sentence The aggregate number
of shares which the corporation shall have authority to issue is
125,000,000 shares of Common Stock no par value, and
10,000,000 shares of Preferred Stock with a par value of
$.01 per share. shall be deleted in its entirety and
replaced with The aggregate number of shares, classes of
shares and par value of shares which the corporation shall have
authority to issue is 1000 shares of Common Stock with a
par value of $1.00 per share.
2.2.
The By-Laws
. The by-laws of
Merger Sub as in effect immediately prior to the Effective Time
shall be the by-laws of the Surviving Corporation (the
By-Laws
), until thereafter amended as
provided therein or by applicable law.
ARTICLE III
Directors of the Surviving Corporation
3.1.
Directors
. The Board of
Directors of Merger Sub at the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death,
resignation or removal in accordance with the Charter and the
By-Laws.
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of
Certificates
4.1.
Effect on Capital Stock
. At
the Effective Time, as a result of the Merger and without any
action on the part of the holder of any capital stock of the
Company:
(a)
Merger Consideration
. Each share of
the Common Stock, no par value per share, of the Company
(a
Share
or, collectively, the
Shares
) issued and outstanding
immediately prior to the Effective Time, other than Shares owned
by Parent, Merger Sub or any other direct or indirect wholly
owned Subsidiary of Parent and Shares owned by the Company or
any direct or indirect wholly owned Subsidiary of the Company,
and in each case not held on behalf of third parties (each, an
Excluded Share
,
and collectively,
Excluded Shares
) shall be converted
into the right to receive $61.50 per Share (the
Per
Share Merger Consideration,
together with the
amounts payable under this Agreement pursuant to the provisions
of Section 4.3 to the holders of the Stock Awards, the
Merger Consideration
). At the
Effective Time, all of the Shares shall cease to be outstanding,
shall be cancelled and shall cease to exist, and each
certificate (a
Certificate
) formerly
representing any of the Shares (other than Excluded Shares)
shall thereafter represent only the right to receive the Per
Share Merger Consideration, without interest.
(b)
Cancellation of Excluded Shares
. Each
Excluded Share shall, by virtue of the Merger and without any
action on the part of the holder of the Excluded Share, cease to
be outstanding, be cancelled without payment of any
consideration therefor and shall cease to exist.
(c)
Merger Sub
. At the Effective Time,
each share of Common Stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into
one share of common stock, $1.00 par value per share, of
the Surviving Corporation.
4.2.
Exchange of Certificates
.
(a)
Paying Agent
. Immediately prior to
the Effective Time, Parent shall make available or cause to be
made available to a paying agent which is a U.S. based
commercial bank or trust company selected by Parent at least
five (5) Business Days prior to the Effective Time with the
Companys prior approval (such approval not to be
unreasonably withheld or delayed) (the
Paying
Agent
) in an account for the benefit of the
holders of the Shares
A-2
(other than the Excluded Shares) and the Options, SARs,
Performance Awards, Restricted Shares, Stock Purchase Plan
Awards or Other Company Awards (collectively, the
Stock Awards
), amounts sufficient in
the aggregate to provide all funds necessary for the Paying
Agent to make payments of the Merger Consideration (such cash
being hereinafter referred to as the
Exchange
Fund
). The Paying Agent shall invest the Exchange
Fund as directed by Parent;
provided
that any and all
such investments shall be in obligations of or guaranteed by the
United States of America or in commercial paper obligations
rated
A-1
or
P-1
or
better by Standard & Poors or Moodys
Investors Service, respectively or a combination of the
foregoing or in certificates of deposit, bank repurchase
agreements or bankers acceptances of commercial banks with
capital exceeding $1,000,000,000 and, in any such case, no such
instrument shall have a maturity exceeding three months. To the
extent that there are losses with respect to such investments,
or the Exchange Fund diminishes for other reasons below the
level required to make prompt cash payment of the aggregate
Merger Consideration as contemplated hereby, Parent shall
promptly replace or restore the cash in the Exchange Fund lost
through such investments or other events so as to ensure that
the Exchange Fund is at all times maintained at a level
sufficient to make such cash payments. Any interest and other
income resulting from such investment shall become a part of the
Exchange Fund, and any amounts in excess of the amounts payable
under Section 4.1(a) shall be promptly returned to Parent.
(b)
Exchange Procedures
. Promptly after
the Effective Time (and in any event within three Business
Days), the Surviving Corporation shall cause the Paying Agent
(x) to mail to each holder of record of Shares (other than
holders of Excluded Shares) (i) a letter of transmittal in
customary form specifying that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates (or affidavits of loss in lieu of
the Certificates as provided in Section 4.2(e)) to the
Paying Agent, such letter of transmittal to be in such form and
have such other provisions as Parent and the Company may
reasonably agree, and (ii) instructions for use in
effecting the surrender of the Certificates (or affidavits of
loss in lieu of the Certificates as provided in
Section 4.2(e)) in exchange for the Per Share Merger
Consideration, and (y) to mail to each holder of a Stock
Award, a check in an amount due and payable to such holder
pursuant to the provisions of Section 4.3. Upon surrender
of a Certificate (or affidavit of loss in lieu of the
Certificate as provided in Section 4.2(e)) to the Paying
Agent in accordance with the terms of such letter of
transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor a cash amount in
immediately available funds (after giving effect to any required
tax withholdings as provided in Section 4.2(g)) equal to
(x) the number of Shares represented by such Certificate
(or affidavit of loss in lieu of the Certificate as provided in
Section 4.2(e)) multiplied by (y) the Per Share Merger
Consideration, and the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on
any amount payable upon due surrender of the Certificates. In
the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a check for
any cash to be exchanged upon due surrender of the Certificate
may be issued to such transferee if the Certificate formerly
representing such Shares is presented to the Paying Agent,
accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer
taxes have been paid or are not applicable.
(c)
Transfers
. From and after the
Effective Time, there shall be no transfers on the stock
transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time. If, after
the Effective Time, any Certificate is presented to the
Surviving Corporation, Parent or the Paying Agent for transfer,
it shall be cancelled and exchanged for the cash amount in
immediately available funds to which the holder of the
Certificate is entitled pursuant to this Article IV.
(d)
Termination of Exchange Fund
. Any
portion of the Exchange Fund (including the proceeds of any
investments of the Exchange Fund) that remains unclaimed by the
shareholders of the Company for 365 calendar days after the
Effective Time shall be delivered to the Surviving Corporation.
Any holder of Shares (other than Excluded Shares) who has not
theretofore complied with this Article IV shall thereafter
look only to the Surviving Corporation for payment of the Per
Share Merger Consideration (after giving effect to any required
tax withholdings as provided in Section 4.2(g)) upon due
surrender of its Certificates (or affidavits of loss in lieu of
the Certificates), without any interest thereon. Notwithstanding
the foregoing, none of the Surviving Corporation, Parent, the
Paying Agent or any other Person shall be liable to any former
holder of Shares for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or
similar Laws. For the purposes of this Agreement, the term
Person
shall mean any individual,
corporation (including not-for-profit), general or limited
A-3
partnership, limited liability company, joint venture, estate,
trust, association, organization, Governmental Entity or other
entity of any kind or nature.
(e)
Lost, Stolen or Destroyed
Certificates
. In the event 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 Parent, the
posting by such Person of a bond in a reasonable amount the
Paying Agent will issue a check in the amount (after giving
effect to any required tax withholdings) equal to the number of
Shares represented by such lost, stolen or destroyed Certificate
multiplied by the Per Share Merger Consideration.
(f)
No Dissenters Rights
. Pursuant
to Section 1571 of the PBCL, no dissenters rights or
rights of appraisal will apply in connection with the Merger.
(g)
Withholding Rights
. Each of Parent
and the Surviving Corporation shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of Shares such amounts as it is
required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended
(the
Code
), or any other
applicable state, local or foreign Tax Law. To the extent that
amounts are so withheld by the Surviving Corporation or Parent,
as the case may be, such withheld amounts (i) shall be
remitted by Parent or the Surviving Corporation, as applicable,
to the applicable Governmental Entity, and (ii) shall be
treated for all purposes of this Agreement as having been paid
to the holder of Shares in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as
the case may be.
4.3.
Treatment of Stock Plans
.
(a)
Treatment of Options
. At the
Effective Time, each outstanding option to purchase Shares (an
Option
), under the Company Amended and
Restated Employees Stock Incentive and Performance Based
Compensation Plan (the
Amended and Restated
Plan
), as well as the Companys prior Stock
Option Plan which was amended and restated by the Amended and
Restated Plan, vested or unvested, shall be cancelled and shall
only entitle the holder of such Option to receive an amount in
cash equal to the product of (x) the total number of Shares
subject to the Option times (y) the excess, if any, of the
Per Share Merger Consideration over the exercise price per Share
under such Option.
(b)
Stock Appreciation Rights
. At the
Effective Time, each outstanding Stock Appreciation Right to
receive a payment based on the increase in the value of a Share
(a
SAR
) granted pursuant to the Stock
Plans, vested or unvested, shall be cancelled and shall only
entitle the holder of such SAR to receive an amount in cash
equal to the product of (x) the total number of Shares
subject to the SAR times (y) the excess, if any, of the Per
Share Merger Consideration over the reference price per Share
under such SAR.
(c)
Performance Awards
. At the Effective
Time, each outstanding performance share (a
Performance Award
) under the Stock
Plans, vested or unvested, shall be cancelled and shall only
entitle the holder of such Performance Award to receive an
amount in cash equal to the product of (x) the number of
Performance Awards outstanding immediately prior to the
Effective Time, times (y) the Per Share Merger
Consideration.
(d)
Restricted Shares
. Immediately prior
to the Effective Time, the Company shall waive any vesting or
holding conditions or restrictions applicable to any Shares of
restricted stock (
Restricted Shares
)
granted pursuant to the Stock Plans, and such Restricted Shares
shall be treated the same as all other Shares in accordance with
Section 4.1 of this Agreement.
(e)
Shares Issued Under Stock
Plans
. Immediately prior to the Effective Time,
the Company shall waive any vesting or holding conditions or
restrictions applicable to any Shares that have been issued to
any Person by reason of such Persons participation in the
Company Employee Stock Purchase Plan, the Company Directors
Stock Purchase Plan, the Company Nonqualified Employee Stock
Purchase Plan and the Company Stock Purchase Plan for Preferred
Agents (such Plans, together with the Amended and Restated Plan,
are referred to herein collectively as the
Stock
Plans
, and the Shares which have been so issued
are referred to herein collectively as the
Stock
Purchase Plan Awards
), and such Shares shall be
treated the same as all other Shares in accordance with
Section 4.1 of this Agreement
provided
,
however
, that all loans that are outstanding and payable
by any Person on account of or in respect of such Shares shall
be immediately due and payable by such Person to the Company and
may be paid from the consideration received by such Person under
Section 4.1 of this Agreement.
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(f)
Other Company Awards
. At the
Effective Time, each right of any kind, contingent or accrued,
to acquire or receive Shares or benefits measured by the value
of Shares, and each award of any kind consisting of Shares that
may be held, awarded, outstanding, payable or reserved for
issuance under the Stock Plans and any other Benefit Plans,
other than Options, SARs, Performance Awards, Stock Purchase
Plan Awards and Restricted Shares, if any (the
Other
Company Awards
), shall be converted and shall only
entitle the holder of such Other Company Award (if any) to
receive an amount in cash equal to (x) the number of Shares
subject to such Other Company Award immediately prior to the
Effective Time times (y) the Per Share Merger Consideration
(or, if the Other Company Award provides for payments to the
extent the value of the Shares exceed a specified reference
price, the amount, if any, by which the Per Share Merger
Consideration exceeds such reference price), less applicable
Taxes required to be withheld with respect to such payment. The
time and form of payment in respect of such Other Company
Awards, if any, will be in accordance with the applicable Stock
Plan or Benefit Plan.
(g)
Corporate Actions
. At or prior to the
Effective Time, the Company, the Board of Directors of the
Company and the compensation committee of the Board of Directors
of the Company, as applicable, shall adopt any resolutions and
take any actions which are necessary to effectuate the
provisions of Sections 4.3(a) through 4.3(g). The Company
shall take all actions necessary to ensure that (i) from
and after the Effective Time, neither Parent nor the Surviving
Corporation will be required to deliver Shares, other capital
stock of the Company, or other compensation of any kind (other
than amounts required to be paid pursuant to
Sections 4.3(a) through 4.3(g)) to any Person pursuant to
or in settlement of the Stock Awards and the Stock Plans will
thereupon terminate, and (ii) neither the Merger nor any
other transaction contemplated by this Agreement shall be deemed
to result in a Hostile Change of Control or similar
event under any employment agreement with any employee of the
Company. It is acknowledged, however, that the Merger will be
deemed to be a Change of Control for the purposes of
the Stock Awards.
4.4.
Adjustments to Prevent
Dilution
. In the event that the Company changes
the number of Shares or securities convertible or exchangeable
into or exercisable for Shares issued and outstanding prior to
the Effective Time as a result of a reclassification, stock
split (including a reverse stock split), stock dividend or
distribution, recapitalization, merger, issuer tender or
exchange offer, or other similar transaction, the Per Share
Merger Consideration shall be equitably adjusted.
ARTICLE V
Representations and Warranties
5.1.
Representations and Warranties of the
Company
. Except as set forth in the Company SEC
Documents filed on or after January 1, 2007 and prior to
the date of this Agreement (excluding any disclosure set forth
in the sections titled risk factors and
forward-looking statements or in any other section
to the extent the disclosure is a forward-looking statement or
cautionary, predictive or forward-looking in nature) or
otherwise disclosed to Parent in the corresponding sections or
subsections of the letter (the
Company
Disclosure Letter
) delivered to it by the Company
prior to the execution of this Agreement (it being agreed that
disclosure of any item in any section or subsection of the
Company Disclosure Letter (i) shall be deemed disclosure
with respect to any other section or subsection to which the
relevance of such disclosure to the applicable representation
and warranty is reasonably apparent and (ii) with respect
to any disclosure of an item relating to a representation or
warranty in which the phrase Material Adverse Effect
appears shall not be deemed to be an admission that such item
constitutes or may reasonably be expected to result in, a
Material Adverse Effect), the Company hereby represents and
warrants to Parent and Merger Sub that:
(a)
Organization, Good Standing and
Qualification
. Each of the Company and its
Subsidiaries is a legal entity duly organized, validly existing
and in good standing (or, with respect to any such entity which
is a Pennsylvania corporation, is subsisting) under the Laws of
its respective jurisdiction of organization and has all
requisite corporate or similar power and authority to own, lease
and operate its properties and assets and to carry on its
business as presently conducted and is qualified to do business
and is in good standing as a foreign corporation or other legal
entity in each jurisdiction where the ownership, leasing or
operation of its assets or properties or conduct of its business
requires such qualification, except where the failure to be so
organized, qualified or in good standing, or to have such power
or authority, would not, individually or in the aggregate,
reasonably be expected to result in a
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Material Adverse Effect or to prevent, materially delay or
materially impair the consummation of the transactions
contemplated by this Agreement. The Company has made available
to Parent complete and correct copies of the Companys and
its Subsidiaries articles of incorporation and by-laws or
comparable governing documents, each as amended to the date of
this Agreement, and each as so delivered is in full force and
effect. Section 5.1(a)(i) of the Company Disclosure Letter
contains a correct and complete list of each jurisdiction where
the Company and its Subsidiaries are organized.
As of the date hereof, the Company conducts its insurance
operations solely through the Subsidiaries set forth in
Section 5.1(a)(ii) of the Company Disclosure Letter
(collectively, the
Company Insurance
Subsidiaries
). Each of the Company Insurance
Subsidiaries is (i) duly licensed or authorized as an
insurance company in its jurisdiction of incorporation,
(ii) duly licensed or authorized as an insurance company in
each other jurisdiction where it is required to be so licensed
or authorized, and (iii) duly authorized in its
jurisdiction of incorporation and each other applicable
jurisdiction to write each line of business reported as being
written in the Company SAP Statements, and the Company has made
all required filings under applicable insurance holding company
statutes, except where the failure to be so licensed or
authorized, or to make any such filings, would not, individually
or in the aggregate, reasonably be expected to result in a
Material Adverse Effect or to prevent, materially delay or
materially impair the consummation of the transactions
contemplated by this Agreement. No insurance regulator in any
state has notified the Company or any Company Insurance
Subsidiary, orally or in writing, that any Company Insurance
Subsidiary is commercially domiciled in any jurisdiction and, to
the knowledge of the Company, there are no facts that would
result in any Company Insurance Subsidiary being commercially
domiciled in any state. For the purposes of this Agreement, the
term knowledge of the Company means the actual
knowledge of the individuals serving as of January 1, 2008
as the Companys Chairman, Chief Executive Officer or Chief
Financial Officer or as any Executive Vice President of the
Company.
As used in this Agreement, the term
(i)
Subsidiary
or
Company Subsidiary
means, with respect
to any Person, any other Person of which at least a majority of
the securities or ownership interests having by their terms
ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions is
directly or indirectly owned or controlled by such Person
and/or
by
one or more of its Subsidiaries, (ii)
Significant
Subsidiary
is as defined in Rule 1.02(w) of
Regulation S-X
promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the
Exchange Act
) and
(iii)
Material Adverse Effect
with respect to the Company means a material adverse effect on
the financial condition, properties, assets, liabilities,
business or results of operations of the Company and its
Subsidiaries taken as a whole,
provided
, that none of the
following shall constitute a Material Adverse Effect;
(A) changes in the economy or financial markets generally
in the United States;
(B) changes that are the result of factors generally
affecting the property-casualty insurance industry in the
geographic areas in which the Company and the Company
Subsidiaries operate;
(C) any loss of, or adverse change in, the relationship of
the Company or any of the Company Subsidiaries with its
customers, employees, agents or suppliers caused by the pendency
or the announcement of the transactions contemplated by this
Agreement, in each case to the extent that the Company
reasonably demonstrates that a causal relationship exists
between such pendency or announcement, on the one hand, and such
change, on the other hand;
(D) changes in generally accepted accounting principles
(
GAAP
) in the United States or Japan,
SAP, the rules or policies of the Public Company Accounting
Oversight Board, or any statute, rule or regulation unrelated to
the Merger and of general applicability, or interpretation of
any of the foregoing, after the date of this Agreement;
(E) any failure by the Company to meet any estimates of
revenues or earnings for any period ending on or after the date
of this Agreement and prior to the Closing,
provided
that
the exception in this clause shall not preclude a determination
that any change, effect, circumstance or development underlying
such failure has resulted in, or contributed to, a Material
Adverse Effect on the Company;
(F) the suspension of trading in securities on the New York
Stock Exchange or Nasdaq or a decline in the price of the
Company Common Stock on Nasdaq,
provided
that the
exception in this clause shall not preclude
A-6
a determination that any change, effect, circumstance or
development underlying such decline has resulted in, or
contributed to a Material Adverse Effect on the Company;
(G) any change or announcement of a potential change in the
credit rating or A.M. Best rating of the Company or any of
the Company Subsidiaries or any of their securities;
provided
that the exception in this clause shall not
preclude a determination that any change, effect, circumstance
or development underlying such failure has resulted in, or
contributed to a Material Adverse Effect on the Company;
(H) the entry into or announcement of the execution of this
Agreement or compliance by the Company with the terms of this
Agreement; and
(I) the disposition of any interim motion relating to the
action described in Schedule 5.1(g) of the Company
Disclosure Letter;
provided
that, with respect to clauses (A) and (B),
such change, event, circumstance or development does not
(i) primarily relate to (or have the effect of primarily
relating to) the Company and the Company Subsidiaries or
(ii) disproportionately adversely affect the Company and
the Company Subsidiaries compared to other companies of similar
size operating in the property and casualty insurance industry
in similar geographic areas in which the Company and the Company
Subsidiaries operate.
Liberty American Premium Finance Company is duly licensed by the
State of Florida to conduct a premium finance business, is in
compliance with all Laws relating to premium finance (except to
the extent any such non-compliance, individually or in the
aggregate, would not reasonably be expected to result in a
Material Adverse Effect) and has never been and is not engaged
in nor has it ever participated in, shared profits or revenue
from, promoted or solicited any life settlement or viatical
settlement transaction.
(b)
Capital Structure
.
(i) The authorized capital stock of the Company consists of
125,000,000 Shares, of which 71,503,346 Shares were
outstanding as of the close of business on June 30, 2008,
and 10,000,000 shares of Preferred Stock, par value $.01
per share, none of which are outstanding. All of the outstanding
Shares have been duly authorized and are validly issued, fully
paid (it being acknowledged that part of the consideration for
certain Shares issued under the Stock Plans consisted of
promissory notes from the individuals to whom such shares were
issued which are not fully paid) and nonassessable. Other than
6,098,688 Shares reserved for issuance as of July 18,
2008 under the Stock Awards, the Company has no Shares reserved
for issuance. Section 5.1(b)(i) of the Company Disclosure
Letter contains a correct and complete list as of June 30,
2008 of Options, Restricted Shares, Performance Awards, SARs and
Other Company Awards, including the holder, date of grant,
number of Shares and, where applicable, exercise or reference
price and vesting schedule. All vesting thereunder will be
accelerated by the consummation of the Merger. Each of the
outstanding shares of capital stock or other securities of each
of the Companys Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and owned by the Company,
or by a direct or indirect wholly owned Subsidiary of the
Company, free and clear of any lien, charge, pledge, security
interest, claim or other encumbrance, other than a lien, charge,
pledge, security interest, claim or other encumbrance for Taxes
not yet due (each, a
Lien
); it
being understood that, and the Company represents and warrants
that, certain shares of the Company Subsidiaries originally
issued as directors qualifying shares are beneficially
owned by the Company or a Company Subsidiary and no other Person
has any rights as a result of such directors qualifying
shares. Except as set forth above and except for securities
issued pursuant to the Stock Plans since June 30, 2008, as
of the date hereof, there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation
rights, redemption rights, repurchase rights, agreements,
arrangements, calls, commitments or rights of any kind that
obligate the Company or any of its Subsidiaries to issue or sell
any shares of capital stock or other securities of the Company
or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving
any Person a right to subscribe for or acquire, any securities
of the Company or any of its Subsidiaries, and no securities or
obligations evidencing such rights are authorized, issued or
outstanding. Upon any issuance of any Shares in accordance with
the terms of the Stock Plans, such Shares will be duly
authorized, validly issued, fully paid (it being acknowledged
that part of the consideration for certain Shares issued under
the Stock Plans consisted of promissory notes from the
individuals to whom
A-7
such shares were issued which are not fully paid) and
nonassessable, and free and clear of any Liens. The Company does
not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right
to vote) with the shareholders of the Company on any matter.
(ii) Section 5.1(b)(ii) of the Company Disclosure
Letter sets forth (x) each of the Companys
Subsidiaries and the ownership interest of the Company in each
such Subsidiary, as well as the ownership interest of any other
Person or Persons in each such Subsidiary and (y) the
Companys or its Subsidiaries capital stock, equity
interest or other direct or indirect ownership interest in any
other Person, other than securities in a Person held for
investment by the Company or any of its Subsidiaries, with a
fair market value, market price and acquisition price of less
than $63,100,000 as of June 30, 2008 and consisting of less
than 5% of the outstanding equity interests (or securities
convertible into or exercisable for equity interests) of such
Person.
(c)
Corporate Authority; Approval and Fairness
.
(i) The Company has all requisite corporate power and
authority and has taken all corporate action necessary in order
to execute, deliver and perform its obligations under this
Agreement and to consummate the Merger, subject only to adoption
of this Agreement by the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote on such matter
at a shareholders meeting duly called and held for such
purpose (the
Requisite Company Vote
).
This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar Laws of general
applicability relating to or affecting creditors rights
and to general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law
(the
Bankruptcy and Equity
Exception
).
(ii) The Board of Directors of the Company has
(A) unanimously determined that the Merger is in the best
interests of the Company and its shareholders, approved and
declared advisable this Agreement, the Merger and the other
transactions contemplated hereby and thereby and resolved to
recommend adoption of this Agreement to the holders of Shares
(the
Company Recommendation
),
(B) directed that this Agreement be submitted to the
holders of Shares for their adoption and (C) received the
opinion of its financial advisor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated (
Merrill
Lynch
), to the effect that, as of the date of such
opinion, the Per Share Merger Consideration is fair from a
financial point of view to such holders of Shares. It is agreed
and understood that such opinion is for the benefit of the
Companys Board of Directors and may not be relied upon by
Parent or Merger Sub.
(d)
Governmental Filings; No Violations; Certain
Contracts
.
(i) Other than (A) the filings
and/or
notices pursuant to Section 1.3 and under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR Act
) (the
Company
Approvals
), and (B) the filings required to
be made by the Company with the Securities and Exchange
Commission under the Exchange Act, no notices, reports or other
filings are required to be made by the Company with, nor are any
consents, registrations, approvals, permits or authorizations
required to be obtained by the Company from, any federal, state,
local or foreign governmental or regulatory authority, agency,
commission, department, body, court or other legislative,
executive or judicial governmental entity (each a
Governmental Entity
), in connection
with the execution, delivery and performance of this Agreement
by the Company and the consummation of the Merger and the other
transactions contemplated hereby, except those that the failure
to make or obtain would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect or
to prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement,
and except for any such notices, reports or filings which may
have to be made by the Company with any Japanese Governmental
Entity, as to which the Company is not making any representation
or warranty.
(ii) The execution, delivery and performance of this
Agreement by the Company do not, and the consummation of the
Merger and the other transactions contemplated hereby will not,
constitute or result in (A) a breach or violation of, or a
default under, the articles of incorporation or by-laws of the
Company or the
A-8
comparable governing documents of any of its Subsidiaries,
(B) with or without notice, lapse of time or both, a breach
or violation of, a termination (or right of termination) or
default under, the creation or acceleration of any obligations
under or the creation of a Lien on any of the assets of the
Company or any of its Subsidiaries pursuant to any agreement,
lease, license, contract, note, mortgage, indenture, arrangement
or other obligation (each, a
Contract
) binding upon the
Company or any of its Subsidiaries or, assuming (solely with
respect to performance of this Agreement and consummation of the
Merger and the other transactions contemplated hereby),
compliance with the matters referred to in
Section 5.1(d)(i) under any Law to which the Company or any
of its Subsidiaries is subject, or (C) any change in the
rights or obligations of any party under any Contract binding
upon the Company or any of its Subsidiaries, except, in the case
of clause (B) or (C) above, for any such breach,
violation, termination, default, creation, acceleration or
change that would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect or
to prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement.
(iii) The Company and its Subsidiaries are not creditors or
claimants with respect to any debtors or
debtor-in-possession
subject to proceedings under chapter 11 of title 11 of
the United States Code with respect to claims that, in the
aggregate, constitute more than 25% of the gross assets of the
Company and its Subsidiaries (excluding cash and cash
equivalents).
(e)
Company Reports; Financial Statements
.
(i) The Company has filed all forms, statements,
certifications, reports and documents required to be filed by it
with the SEC pursuant to the Exchange Act or the Securities Act
since December 31, 2005 (the
Applicable
Date
) (the forms, statements, reports and
documents filed since the Applicable Date and those filed
subsequent to the date of this Agreement, including any
amendments thereto, the
Company
Reports
). As of their respective filing dates (or,
if amended prior to the date of this Agreement, as of the date
of such amendment), the Company Reports did not, and any Company
Reports filed with or furnished to the SEC subsequent to the
date of this Agreement will not, contain any untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not
misleading.
(ii) The Company maintains disclosure controls and
procedures required by
Rule 13a-15(e)
or
15d-15(e)
under the Exchange Act. Such disclosure controls and procedures
are effective to ensure that material information required to be
disclosed by the Company in the reports that it files under the
Exchange Act is recorded and reported on a timely basis to the
individuals responsible for the preparation of the
Companys filings with the SEC and other public disclosure
documents. The Company maintains internal control over financial
reporting (as defined in
Rule 13a-15
or
15d-15,
as applicable, under the Exchange Act). Such disclosure controls
and procedures are sufficient to ensure that material
information required to be disclosed by the Company in the
reports that it files or furnishes under the Exchange Act is
recorded and reported on a timely basis to the Companys
management to allow the principal executive officer and the
principal financial officer of the Company, or persons
performing similar functions, to make decisions regarding
required disclosure. The Company has disclosed, based on the
most recent evaluation of its chief executive officer and its
chief financial officer prior to the date of this Agreement, to
the Companys auditors and the audit committee of the
Companys Board of Directors (A) any significant
deficiencies in the design or operation of its internal controls
over financial reporting that are reasonably likely to adversely
affect the Companys ability to record, process, summarize
and report financial information and has identified for the
Companys auditors and audit committee of the
Companys Board of Directors any material weaknesses in
internal control over financial reporting and (B) any
fraud, whether or not material, that involves management or
other employees who have a significant role in the
Companys internal control over financial reporting and
(B) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Companys internal control over financial reporting. The
Company has made available to Parent any such disclosure made by
management to the Companys independent auditors and the
Audit Committee of the Companys Board of Directors.
(iii) Each of the consolidated balance sheets included in
or incorporated by reference into the Company Reports (including
the related notes and schedules) fairly presents in all material
respects, or, in the case of
A-9
Company Reports filed after the date of this Agreement, will
fairly present in all material respects, the consolidated
financial position of the Company and its consolidated
Subsidiaries as of its date and each of the consolidated
statements of operations and comprehensive income, consolidated
statements of the changes in shareholders equity and
consolidated statements of cash flows included in or
incorporated by reference into the Company Reports (including
any related notes and schedules) fairly presents in all material
respects, or, in the case of Company Reports filed after the
date of this Agreement, will fairly present in all material
respects, the results of operations, retained earnings (loss)
and changes in financial position, as the case may be, of such
companies for the periods set forth therein (subject, in the
case of unaudited statements, to notes and normal year-end
adjustments that will not be material in amount or effect), in
each case in accordance with GAAP consistently applied during
the periods involved, except as may be noted therein.
(iv) The Company has previously furnished or made available
to Parent true and complete copies of the annual statutory
statements for each of the years ended December 31, 2005,
December 31, 2006 and December 31, 2007, and quarterly
statutory statements for the quarter ended March 31, 2008
together with all exhibits and schedules thereto (collectively,
the
Company SAP Statements
), with
respect to each of the Company Insurance Subsidiaries, in each
case as filed with the Governmental Entity charged with
supervision of insurance companies of such Company Insurance
Subsidiarys jurisdiction of domicile. The Company SAP
Statements were prepared in all material respects in conformity
with applicable statutory accounting practices prescribed or
permitted by such Governmental Entity
(
SAP
) applied on a consistent basis,
except as may have been noted therein and present fairly, in all
material respects, to the extent required by and in conformity
with SAP, the statutory financial condition of such Company
Insurance Subsidiary at the respective dates and the results of
operations, changes in capital and surplus and cash flow of such
Company Insurance Subsidiary for each of the periods then ended.
The Company SAP Statements were filed with the applicable
Governmental Entity in a timely fashion on forms prescribed or
permitted by such Governmental Entity. No deficiencies or
violations material to the financial condition of any of the
Company Insurance Subsidiaries, individually, whether or not
material in the aggregate, have been asserted in writing by any
Governmental Entity which have not been cured or otherwise
resolved to the satisfaction of such Governmental Entity (unless
not currently pending). The quarterly and annual statements of
each Company Insurance Subsidiary filed on or after the date
hereof and prior to the Closing (
Interim SAP
Statements
), when filed with the applicable
Governmental Entities, including insurance regulatory
authorities, of the applicable jurisdictions, will present
fairly in all material respects, to the extent required by and
in conformity with SAP, except as may be noted therein, the
statutory financial condition of such Company Insurance
Subsidiary at the respective dates indicated and the results of
operations, changes in capital and surplus and cash flow of such
Company Insurance Subsidiary for each of the periods therein
specified (subject to normal year-end adjustments) and will be
filed in a timely fashion on forms prescribed or permitted by
the relevant Governmental Entity. The Company will deliver to
Parent true, correct and complete copies of the Interim SAP
Statements promptly after they are filed with the applicable
Governmental Entity in the domiciliary states. Since the year
ended December 31, 2006, the annual balance sheets and
statements of operations included in the Company SAP Statements
have been audited by PricewaterhouseCoopers LLP. True, correct,
and complete copies of the audit opinions relating to such
balance sheets and statements of operations have been furnished
to Parent prior to the date of this Agreement.
(v) There are no off-balance sheet transactions,
arrangements, obligations or relationships to which the Company
or any Subsidiary of the Company is a party.
(vi) The aggregate reserves for claims, losses (including,
without limitation, incurred but not reported losses), loss
adjustment expenses (whether allocated or unallocated), as
reflected in each of the Company Reports and Company SAP
Statements, (A) were determined in all material respects in
accordance with generally accepted actuarial standards
consistently applied (except as otherwise noted in the financial
statements and notes thereto included in such financial
statements); and (B) were computed on the basis of
methodologies consistent in all material respects with those
used in computing the corresponding reserves in the prior fiscal
years (except as otherwise noted in the financial statements and
notes thereto included in such financial statements).
A-10
(f)
Absence of Certain Changes
. Since
December 31, 2007, (i) except as required pursuant to
this Agreement, the business of the Company and the Company
Subsidiaries has been conducted in the ordinary course of
business consistent with past practice, and (ii) there has
not been any event, occurrence, development or circumstance that
has had or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect with respect to the Company.
(g)
Litigation and Liabilities
. There are
no (i) civil, criminal or administrative actions, suits,
claims, hearings, arbitrations, investigations or other
proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries or
(ii) except as reflected or reserved against in the
Companys consolidated balance sheets (and the notes
thereto) included in the Company Reports filed prior to the date
of this Agreement, obligations or liabilities of the Company or
any of its Subsidiaries, whether or not accrued, contingent or
otherwise, and whether or not required to be disclosed, or any
other facts or circumstances to the knowledge of the Company
that could reasonably be expected to result in any claims
against, or obligations or liabilities of, the Company or any of
its Subsidiaries, including those relating to matters involving
any Environmental Law, except for those that would not,
individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect or to prevent, materially
delay or materially impair the consummation of the transactions
contemplated by this Agreement. Neither the Company nor any of
its Subsidiaries is a party to or subject to the provisions of
any judgment, order, writ, injunction, decree or award of any
Governmental Entity which would, individually or in the
aggregate, reasonably be expected to result in a Material
Adverse Effect or to prevent, materially delay or materially
impair the consummation of the transactions contemplated by this
Agreement.
(h)
Employee Benefits
.
(i) All benefit and compensation plans, contracts,
policies, arrangements or understandings covering current or
former officers, employees, agents or consultants and
independent contractors of the Company and its Subsidiaries (the
Employees
) and current or former
directors of the Company, including, but not limited to,
employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (
ERISA
), and
deferred compensation, severance, stock option, stock purchase,
stock appreciation rights, stock based, incentive and bonus,
phantom stock, vacation, disability, death benefit,
hospitalization, medical insurance, life insurance, welfare, or
other employee benefit plan, agreement, policy, arrangement or
understanding, and any employment, consulting, change in
control, termination retention or similar or other agreements,
arrangements or understandings (the
Benefit
Plans
are listed on Section 5.1(h)(i) of the
Company Disclosure Letter. True and complete copies of all
Benefit Plans listed on Section 5.1(h)(i) of the Company
Disclosure Letter, including, but not limited to, any trust
instruments, insurance contracts and, with respect to any
employee stock ownership plan, loan agreements forming a part of
any Benefit Plans, and all amendments thereto have been provided
or made available to Parent (provided, however, that
(i) with respect to such insurance contracts and loan
agreements and subscription agreements relating to the Stock
Purchase Plan, there has been provided a representative
insurance contract, form of loan agreement and subscription
agreement; the other insurance contracts, loan agreements and
subscription agreements are substantially similar thereto, and
(ii) with respect to the 2008 bonus plans for employees,
there has been provided a summary of the bonuses which may be
payable pursuant thereto), along with, to the extent applicable:
(A) any related funding instrument; (B) the most
recent determination letter or applicable opinion letter;
(C) the most recent summary plan description; and
(iv) the two most recent (A) Form 5500 and
attached schedules, (B) audited financial statements, and
(C) actuarial valuation reports. Each Benefit Plan which
has received or submitted an application for a favorable opinion
letter from the Internal Revenue Service National Office,
including any master or prototype plan, has been separately
identified. None of the Benefit Plans is a multiemployer
plan within the meaning of Section 3(37) of ERISA (a
Multiemployer Plan
).
(ii) All Benefit Plans are in substantial compliance with,
and have been maintained, operated and administered in
accordance and substantial compliance with, their terms and with
applicable Law, including but not limited to ERISA and the Code.
Each Benefit Plan which is subject to ERISA (an ERISA
Plan
) that is an employee pension
benefit plan within the meaning of Section 3(2) of
ERISA (a
Pension Plan
), and which is
intended to be qualified under Section 401(a) of the Code,
is so qualified and has received a favorable determination
letter from the Internal Revenue Service (the IRS)
covering all Tax Law changes prior to the Economic Growth and
Tax Relief Reconciliation Act of 2001
(
EGTRRA
) and, if the applicable
remedial
A-11
amendment period under Revenue Procedure
2007-44
for
such Benefit Plan has ended prior to the date of this Agreement,
has applied to the IRS for such letter covering all Tax Law and
other changes through EGTRRA or is operated using a volume
submitter or prototype plan document that is the subject of an
IRS opinion letter regarding the form of such plan document, and
the Company is not aware of any circumstances that could result
in the loss of the qualification of such Plan under
Section 401(a) of the Code. Any voluntary employees
beneficiary association within the meaning of
Section 501(c)(9) of the Code which provides benefits under
a U.S. Benefit Plan has (i) received an opinion letter
from the IRS recognizing its exempt status under
Section 501(c)(9) of the Code and (ii) filed a timely
notice with the IRS pursuant to Section 505(c) of the Code,
and the Company is not aware of circumstances likely to result
in the loss of such exempt status under Section 501(c)(9)
of the Code. Neither the Company nor any of its Subsidiaries has
engaged in a transaction with respect to any ERISA Plan that
could subject the Company or any Subsidiary to a Tax or penalty
imposed by either Section 4975 of the Code or
Section 502(i) of ERISA. Neither the Company nor any of its
Subsidiaries has incurred or reasonably expects to incur a Tax
or penalty imposed by Section 4980F of the Code or
Section 502 of ERISA.
(iii) Neither the Company, any or its Subsidiaries nor any
entity which is considered one employer with the Company under
Section 4001 of ERISA or Section 414 of the Code (an
ERISA Affiliate
) (x) maintains or
contributes to or has within the past six years maintained or
contributed to a Pension Plan that is subject to Subtitles C or
D of Title IV of ERISA or (y) maintains or has an
obligation to contribute to or has within the past six years
maintained or had an obligation to contribute to a Multiemployer
Plan or a multiple employer plan, within the meaning
of Sections 210(a), 4063 or 4064 of ERISA. All
contributions required to be made under each Benefit Plan, as of
the date hereof, have been timely made and all obligations in
respect of each Benefit Plan have been properly accrued and
reflected in the Company Reports.
(iv) As of the date of this Agreement, there is no pending
or, to the knowledge of the Company threatened, litigation or
other action or claim relating to any of the Benefit Plans,
other than routine claims for routine benefits in the ordinary
course of business. No Benefit Plan is under, and neither the
Company nor any of its Subsidiaries has received a notice of,
any audit or investigation by any Governmental Entity with
respect to a Benefit Plan. Neither the Company nor any of its
Subsidiaries has any obligations for retiree health and life
benefits, except as required to avoid an excise tax under
Section 4980B of the Code. The Company or its Subsidiaries
may amend or terminate any Benefit Plan at any time without
incurring any liability thereunder other than in respect of
claims incurred prior to such amendment or termination.
(v) There has been no amendment to, announcement by the
Company or any of its Subsidiaries relating to, or change in
participation or coverage under, any Benefit Plan which would
increase the expense of maintaining such plan above the level of
the expense incurred therefor for the most recent fiscal year.
Except as listed on Section 5.1(h)(v) of the Company
Disclosure Letter or as expressly provided in this Agreement,
neither the execution of this Agreement, shareholder or other
approval of this Agreement nor the consummation of the
transactions contemplated hereby will (w) entitle any
Person to severance or other pay or any increase in such pay
upon any termination of employment or services after the date of
this Agreement, (x) accelerate the time of payment or
vesting or result in any payment or funding (through a grantor
trust or otherwise) of compensation or benefits under, increase
the amount payable or result in any other material obligation
pursuant to, any of the Benefit Plans, (y) limit or
restrict the right of the Company or, after the consummation of
the transactions contemplated hereby, Parent or any Affiliate to
merge, amend or terminate any of the Benefit Plans or
(z) result in payments under any of the Benefit Plans, or
payments to any Employees or other Person, which would not be
deductible under Section 162(m) or Section 280G of the
Code.
(vi) None of the Benefit Plans are maintained outside of
the United States, or are otherwise primarily for the benefit of
Employees or other Persons working outside of the United States.
(i)
Compliance with Laws; Licenses
. The
businesses of each of the Company and its Subsidiaries
(including the appointment of Agents) have not been, and are not
being, conducted in violation of any federal, state, local or
foreign law, statute or ordinance, common law, or any rule,
regulation, judgment, order, writ, injunction, decree,
arbitration award, agency requirement or published
interpretation of any Governmental Entity (collectively,
Laws
), except for violations that
would not, individually or in the aggregate, reasonably be
expected to result
A-12
in a Material Adverse Effect. Without limiting the generality of
the foregoing (i) each Company Insurance Subsidiary and, to
the knowledge of the Company, its Agents, have marketed, sold
and issued insurance products in compliance with insurance Laws
applicable to the business of such Company Insurance Subsidiary
and in the respective jurisdictions in which such products have
been sold, except for such non-compliance that would not,
individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. To the knowledge of the
Company, the Company has not received since December 31,
2004 any written notice or communication of any material
noncompliance with any such Laws (which non-compliance would
not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect) that has not been cured as
of the date of this Agreement. Each of the Company and its
Subsidiaries has obtained and is in compliance with all permits,
certifications, approvals, registrations, consents,
authorizations, franchises, variances, exemptions and orders
issued or granted by a Governmental Entity
(
Licenses
) necessary to conduct its
business as presently conducted, except those the absence of
which would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. The Company has
made available to Parent a true, correct and complete list of
all pending market conduct examinations as of the date hereof by
any Governmental Entity relating to any Company Insurance
Subsidiary.
(j)
Material Contracts
.
(i) All of the material contracts of the Company and each
Company Subsidiary that are filed as exhibits to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007 or described in the
Company SAP Statements for the year ended December 31, 2007
(the
Material Contracts
) are in full
force and effect, except for those for which the failure to be
in full force and effect would not, individually or in the
aggregate, reasonably be expected to result in a Material
Adverse Effect. True and complete copies of all Material
Contracts have been made available by the Company to Parent.
Neither the Company nor any Company Subsidiary nor, to the
knowledge of the Company, any other party to the Material
Contracts is in breach of or in default under any Material
Contracts, and, to the knowledge of the Company, no event has
occurred which, with the passage of time
and/or
the
giving of notice, would constitute a default thereunder by the
Company or the Company Subsidiary party thereto or by any other
party thereto, except for such breaches and defaults (i) as
are not, individually or in the aggregate, reasonably likely to
be materially adverse to the business, assets (including
intangible assets), liabilities, financial condition or results
of operations of the Company and the Company Subsidiaries taken
as a whole or (ii) that result from the consummation of the
transactions contemplated by this Agreement. Neither the Company
nor any Company Subsidiary is party to any contract, agreement
or arrangement, whether written or oral, containing any
provision or covenant limiting in any material respect the
ability of the Company or any Company Subsidiary or any
Affiliate of the Company (including, after the Effective Time,
Parent and its Affiliates) (A) to (i) sell any
products or services of or to any other Person or
(ii) write, bind, renew or otherwise solicit insurance
business, (B) to (i) engage in any line of business,
(ii) do any business in any geographic location or
(iii) compete with or to obtain products or services from
any Person or limiting the ability of any Person to provide
products or services to the Company or any Company Subsidiary or
(C) acquiring assets or securities of any other Person,
other than the option of the Company to reacquire shares of
the Companys common stock issued under the Stock Plans,
under the circumstance set forth in such Plans and the
Subscription Agreements therefor (any such contract, together
with any contract between the Company or any of its
Subsidiaries, on the one hand, and any director or officer of
the Company or any of its Subsidiaries, on the other hand, a
Restricted Contract
).
(ii) Each Material Contract is (assuming due power and
authority of, and due execution and delivery by, the other party
or parties thereto) valid and binding upon the Company or the
Company Subsidiary party thereto and, to the knowledge of the
Company, each other party thereto (except as may be limited by
the Bankruptcy and Equity Exception).
(k)
Real Property
.
(i) Neither the Company nor any of its Subsidiaries owns
any real property.
(ii) With respect to the real property leased or subleased
to the Company or its Subsidiaries for which the annual base
rent is over $200,000 (the
Leased Real
Property
), the lease or sublease for such property
is valid, legally binding, enforceable and in full force and
effect, and none of the Company or any of its
A-13
Subsidiaries is in breach of or default under such lease or
sublease, and no event has occurred which, with notice, lapse of
time or both, would constitute a breach or default by any of the
Company or its Subsidiaries or permit termination, modification
or acceleration by any third party thereunder, or prevent,
materially delay or materially impair the consummation of the
transactions contemplated by this Agreement except in each case,
for such invalidity, failure to be binding, unenforceability,
ineffectiveness, breaches, defaults, terminations,
modifications, accelerations or repudiations that would not,
individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
(l)
Takeover Statutes
. No fair
price, moratorium, or other similar
Pennsylvania anti-takeover statute or regulation (each, a
Takeover Statute
) or any anti-takeover
provision in the Companys articles of incorporation or
by-laws is applicable to the Company, the Shares, the Merger or
the other transactions contemplated by this Agreement or the
Voting Agreements dated as of the date hereof, between Parent,
on the one hand, and certain shareholders of the Company, on the
other hand (the
Voting Agreements
),
except for Subchapter F of Chapter 25 of the PBCL.
(m)
Environmental Matters
. Except for
such matters that would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect:
(i) the Company and its Subsidiaries have complied at all
times with all applicable Environmental Laws; (ii) to the
knowledge of the Company, no property currently owned or
operated by the Company or any of its Subsidiaries (including
soils, groundwater, surface water, buildings or other
structures) is contaminated with any Hazardous Substance;
(iii) to the knowledge of the Company, no property formerly
owned or operated by the Company or any of its Subsidiaries was
contaminated with any Hazardous Substance during or prior to
such period of ownership or operation; (iv) neither the
Company nor any of its Subsidiaries is subject to liability for
any Hazardous Substance disposal or contamination on any third
party property; (v) neither the Company nor any of its
Subsidiaries has been associated with any release or threat of
release of any Hazardous Substance; (vi) neither the
Company nor any of its Subsidiaries has received since
January 1, 2005, any written notice, demand, letter, claim
or request for information alleging that the Company or any of
its Subsidiaries may be in violation of or subject to liability
under any Environmental Law; (vii) neither the Company nor
any of its Subsidiaries is subject to any order, decree,
injunction or other arrangement with any Governmental Entity or
any indemnity or other agreement with any third party relating
to liability under any Environmental Law or relating to
Hazardous Substances; (viii) there are no other
circumstances or conditions involving the Company or any of its
Subsidiaries that could reasonably be expected to result in any
claim, liability, investigation, cost or restriction on the
ownership, use, or transfer of any property pursuant to any
Environmental Law; and (ix) the Company has delivered to
Parent copies of all environmental reports, studies,
assessments, sampling data and other environmental information
in its possession relating to Company or its Subsidiaries or
their respective current and former properties or operations.
As used herein, the term
Environmental
Law
means any federal, state, local or foreign
statute, law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to:
(A) the protection, investigation or restoration of the
environment, health, safety, or natural resources, (B) the
handling, use, presence, disposal, release or threatened release
of any Hazardous Substance or (C) noise, odor, indoor air,
employee exposure, wetlands, pollution, contamination or any
injury or threat of injury to persons or property relating to
any Hazardous Substance.
As used herein, the term
Hazardous
Substance
means any substance that is:
(A) listed, classified or regulated pursuant to any
Environmental Law; (B) any petroleum product or by product,
asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive material or radon; or
(C) any other substance which may be the subject of
regulatory action by any Government Entity in connection with
any Environmental Law.
(n)
Taxes
. The Company and each of its
Subsidiaries (i) have been prepared in good faith and duly
and timely filed (taking into account any extension of time
within which to file) all material Tax Returns required to be
filed by any of them and all such filed Tax Returns are complete
and accurate in all material respects; (ii) have paid or
withheld all Taxes that are shown as due on such filed Tax
Returns or that the Company or any of its Subsidiaries are
obligated to pay or withhold from amounts owing to any employee,
creditor or third party, except with respect to matters
contested in good faith; and (iii) have not waived any
statute of limitations with respect to Taxes or agreed to
A-14
any extension of time with respect to a Tax assessment or
deficiency. As of the date of this Agreement, there are not
pending or, to the knowledge of the Company, threatened in
writing, any audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters. The Company has
made available to Purchaser true and correct copies of the
United States federal income Tax Returns filed by the Company
and its Subsidiaries for each of the fiscal years ended
December 31, 2006, 2005 and 2004. The Company and each of
its Subsidiaries has complied with all applicable information
and other reporting, withholding and disclosure requirements
under the Code or any other applicable foreign, state and local
Law, except to the extent that any such failure to comply would
not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
As used in this Agreement, (i) the term
Tax
(including, with correlative
meaning, the term
Taxes
) includes all
federal, state, local and foreign income, profits, franchise,
gross receipts, environmental, customs duty, capital stock,
severances, stamp, payroll, sales, employment, unemployment,
disability, use, property, withholding, excise, production,
value added, occupancy and other taxes, duties or assessments of
any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts and any interest
in respect of such penalties and additions, and (ii) the
term
Tax Return
includes all returns
and reports (including elections, declarations, disclosures,
schedules, estimates and information returns) required to be
supplied to a Tax authority relating to Taxes.
With respect to any reinsurance contracts to which the Company
or any of its Subsidiaries is a party, to the knowledge of the
Company or any of its Subsidiaries no facts, circumstances or
basis exists under which the IRS could make any reallocation,
recharacterization or other adjustment under Section 845(a)
of the Code, or make any adjustment arising from a determination
that any reinsurance contract had or has a significant tax
avoidance effect under Section 845(b) of the Code. Neither
the Company nor any of its Subsidiaries has issued, assumed,
modified, exchanged, marketed, sold or administered any life
insurance contract or annuity contract.
(o)
Labor Matters
. Neither the Company
nor any of its Subsidiaries is a party to or otherwise bound by
any collective bargaining agreement or other Contract with a
labor union or labor organization, nor is the Company or any of
its Subsidiaries the subject of any material proceeding that
asserts that the Company or any of its Subsidiaries has
committed an unfair labor practice or that seeks to compel it to
bargain with any labor union or labor organization nor is there
pending or, to the knowledge of the Company, threatened, nor has
there been for the past five years, any labor strike, dispute,
walk-out, work stoppage, slow-down or lockout involving the
Company or any of its Subsidiaries. To the knowledge of the
Company, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made
involving employees of the Company or any of its Subsidiaries.
The Company has previously made available to Parent correct and
complete copies of all labor and collective bargaining
agreements, Contracts or other agreements or understandings with
a labor union or labor organization to which the Company or any
of its Subsidiaries is party or by which any of them are
otherwise bound (collectively, the
Company Labor
Agreements
). The consummation of the Merger and
the other transactions contemplated by this Agreement will not
entitle any third party (including any labor union or labor
organization) to any payments under any of the Company Labor
Agreements. The Company and its Subsidiaries have complied in
all material respects with the reporting requirements of the
Labor Management Reporting and Disclosure Act.
(p)
Intellectual Property
.
(i) Section 5.1(p)(i) of the Company Disclosure Letter
contains a true and complete list of (a) all Intellectual
Property owned or held exclusively by the Company or its
Subsidiaries (
Owned Intellectual
Property
) that is registered or subject to an
application for registration, indicating for each item the
registration or application number and the applicable filing
jurisdiction, and (b) all material unregistered Trademarks
and Copyrights. The Company exclusively owns (beneficially, and
of record where applicable) all Owned Intellectual Property,
free and clear of all encumbrances, exclusive licenses and
non-exclusive licenses not granted in the ordinary course of
business, except where the failure to so own such Property in
such manner would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(ii) Except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on
the Company: (A) the Company
and/or
each
Company Subsidiary owns, or is licensed or otherwise possesses
sufficient rights to use all Intellectual Property used in the
business of the Company and the Company Subsidiaries as
currently conducted, all of which rights shall survive unchanged
the
A-15
consummation of the transactions contemplated by this Agreement,
and (B) to the knowledge of the Company, all Intellectual
Property owned by the Company
and/or
the
Company Subsidiaries is valid and subsisting, (C) there are
no written claims, nor any litigation, opposition, cancellation,
proceeding or objection, with respect to the Intellectual
Property owned by the Company or any Company Subsidiary (the
Company Intellectual Property
Rights
) currently pending or, to the knowledge of
the Company, threatened in writing by any Person, and
(D) to the knowledge of the Company, the registered Company
Intellectual Property Rights do not infringe or misappropriate
the Intellectual Property of any Person. To the knowledge of the
Company, no Person is infringing or misappropriating any
material Owned Intellectual Property right.
(iii) The Company and its Subsidiaries have taken all
reasonable measures to protect the material Intellectual
Property they own and to protect the confidentiality and value
of all material Trade Secrets that are owned, used or held by
the Company and its Subsidiaries, it being acknowledged,
however, that not all of the Companys trademarks and
service marks are registered with the U.S. Patent and
Trademark Office.
(iv) For purposes of this Agreement, the following terms
have the following meanings:
Intellectual Property
means all
(i) trademarks, service marks, brand names, certification
marks, collective marks, d/b/as, Internet domain names,
logos, symbols, trade dress, trade names, and other indicia of
origin, all applications and registrations for the foregoing,
and all goodwill associated therewith and symbolized thereby,
including all renewals of same (collectively,
Trademarks
); (ii) inventions and
discoveries, whether patentable or not, and all patents,
registrations, invention disclosures and applications therefor,
including divisions, revisions, supplementary protection
certificates, continuations,
continuations-in-part
and renewal applications, and including renewals, extensions,
re-examinations and reissues; (iii) confidential
information, trade secrets and know-how, including processes,
schematics, business methods, formulae, drawings, prototypes,
models, designs, customer lists and supplier lists
(collectively,
Trade Secrets
);
(iv) published and unpublished works of authorship, whether
copyrightable or not (including, without limitation, databases
and other compilations of information, mask works and software,
both source code and object code), copyrights therein and
thereto, and registrations and applications therefor, and all
renewals, extensions, restorations and reversions thereof
(collectively,
Copyrights
); and
(v) all other intellectual property or proprietary rights,
and the rights to sue for and remedies against past, present and
future infringements of, any or all of the foregoing, and rights
of priority and protection of interests therein under the laws
of any jurisdiction worldwide.
(q)
Insurance Policies
. All material fire
and casualty, general liability, business interruption, product
liability, and sprinkler and water damage insurance policies
maintained by the Company or any of its Subsidiaries
(
Insurance Policies
) are with
reputable insurance carriers, provide adequate coverage for all
normal risks incident to the business of the Company and its
Subsidiaries and their respective properties and assets which
are typically insured against by Persons engaged in similar
business, and are in character and amount at least equivalent to
that carried by Persons engaged in similar businesses and
subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that would not,
individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. Each Insurance Policy is in
full force and effect and all premiums due with respect to all
Insurance Policies have been paid, with such exceptions that
would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(r)
Insurance Matters
.
(i) To the knowledge of the Company, since January 1,
2007 at the time each agent, representative, distributor,
broker, employee or other Person authorized to sell or
administer products on behalf of any Company Insurance
Subsidiary (
Agent
) wrote, sold or
procured business for a Company Insurance Subsidiary, such Agent
was at the time the Agent wrote or sold business, duly licensed
for the type of activity and business written, sold or produced.
Each of the Contracts between the Company and any Agent who has
sold, underwritten, or issued business for or on behalf of the
Company since January 1, 2006, is valid, binding and in
full force and effect in accordance with its terms, except such
as would not, individually or in the aggregate, reasonably be
expected to result in Material Adverse Effect. As of the date of
this Agreement, except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect, no Agent individually accounting for 1% or more of the
total gross premiums of all Company Insurance
A-16
Subsidiaries for the year ended December 31, 2007 has
indicated to the Company or any Company Insurance Subsidiary
that such Agent will be unable or unwilling to continue its
relationship as an Agent with the Company or any Company
Insurance Subsidiary within twelve months after the date hereof.
To the knowledge of the Company, as of the date of this
Agreement, no Agent has been since January 1, 2006, or is
currently, in violation (or with or without notice or lapse of
time or both, would be in violation) of any term or provision of
any Law applicable to the writing, sale or production of
insurance or other business for the Company or any Company
Insurance Subsidiary, except as would not, individually or in
the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(ii) Prior to the date hereof, the Company has delivered or
made available to Parent a true and complete copy of any
material actuarial reports prepared by actuaries, independent or
otherwise, with respect to any Company Insurance Subsidiary
since January 1, 2007, and all attachments, addenda,
supplements and modifications thereto (the
Company
Actuarial Analyses
). To the knowledge of the
Company, each Company Actuarial Analysis was based, in all
material respects, upon an accurate inventory of policies in
force for the Company Insurance Subsidiaries at the relevant
time of preparation.
(iii) The Company and the Company Insurance Subsidiaries
have filed all reports, statements, documents, registrations,
filings or submissions (including without limitation any sales
material) required to be filed with any Governmental Entity
which regulates insurance matters since January 1, 2007 in
the manner prescribed by applicable Laws and Licenses, and all
such reports, registrations, filings and submissions were in
compliance in all material respects with applicable Law and
Licenses when filed or as amended or supplemented, and no
deficiencies have been asserted in writing by any such
Governmental Entity with respect to such reports, registrations,
filings or submissions that have not been remedied, except where
such failure to file or non-compliance would not, individually
or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(iv) Neither the Company nor any Subsidiary of the Company
is a party to any written agreement, consent decree or
memorandum of understanding with, or a party to any commitment
letter or similar undertaking to, or is subject to any
cease-and-desist
or other order or directive by, or has adopted any policies,
procedures or board resolutions at the request of, any
Governmental Entity which restricts materially the conduct of
the business of the Company or any of its Subsidiaries, or to
the knowledge of the Company relates to any Company Insurance
Subsidiarys capital adequacy or risk management policies,
nor has the Company or any Subsidiary of the Company been
advised in writing by any Governmental Entity since
January 1, 2005 that it is contemplating any such
undertakings.
(s)
Reinsurance and Coinsurance
. To the
knowledge of the Company, all reinsurance or coinsurance
treaties or agreements, including retrocessional agreements,
with respect to insurance policies written by the Company, to
which any Company Insurance Subsidiary is a party or under which
any Company Insurance Subsidiary has any existing rights,
obligations or liabilities (
Reinsurance
Agreements
) are, as of the date of this Agreement,
in full force and effect. Copies of all Reinsurance Agreements
renewed since January 1, 2008 have been made available to
Parent. Neither the Company Insurance Subsidiaries nor, to the
knowledge of the Company, any other party to a reinsurance or
coinsurance treaty or agreement with the Company or any of its
Subsidiaries is in default in any material respect as to any
provision thereof, and no such agreement contains any provision
providing that the other party thereto may terminate such
agreement by reason of the transactions contemplated by this
Agreement. In those instances in which a Company Insurance
Subsidiary is a cedent, the Company has not received any written
notice that the financial condition of any other party to any
Reinsurance Agreement is impaired with the result that a
material default thereunder may be reasonably anticipated,
except in those instances in which such default would not,
individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
(t)
Certain Reinsurance Agreement
Issues
. With respect to any such Reinsurance
Agreement for which the Company or any Company Insurance
Subsidiary is taking credit on its most recent Company SAP
Statements or has taken credit on any Company SAP Statements
from and after January 1, 2007, (i) there has been no
separate written or oral agreements between any of the Company
or any Company Insurance Subsidiary and the assuming reinsurer
that would under any circumstances reduce, limit, mitigate or
otherwise affect any actual or potential loss to the parties
under any such reinsurance agreement, other than inuring to
reinsurance contracts that are specifically
A-17
defined in any such Reinsurance Agreement, (ii) for each
such reinsurance agreement entered into, renewed, or amended on
or after January 1, 2007, for which risk transfer is not
reasonably considered to be self-evident, documentation
concerning the economic intent of the transaction and the risk
transfer analysis evidencing the proper accounting treatment, as
required by SSAP No. 62, is available for review by the
domiciliary state insurance departments for each of the Company
and the Company Insurance Subsidiaries, (iii) the Company
and each Company Insurance Subsidiary complies and has complied
from and after January 1, 2007 in all material respects
with all of the requirements set forth in SSAP No. 62 and
(iv) the Company and each Company Insurance Subsidiary has
and has had from January 1, 2007 appropriate controls in
place to monitor the use of reinsurance and comply with the
provisions of SSAP No. 62.
(u)
Investment Advisor
. Neither the
Company nor any of its Subsidiaries conducts activities of or is
otherwise deemed under applicable Law to be an investment
advisor as such term is defined in Section 2(a)(20)
of the Investment Company Act of 1940. Neither the Company nor
any of its Subsidiaries is an investment company as
defined under the Investment Company Act of 1940.
(v)
Brokers and Finders
. Neither the
Company nor any of its officers, directors or employees has
employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with
the Merger or the other transactions contemplated in this
Agreement except that the Company has employed Merrill Lynch as
its financial advisor, and in that connection has agreed to pay
Merrill Lynch a fee upon closing of the Merger pursuant to an
engagement letter (a true and complete copy of which has been
provided to Parent prior to the date hereof). The Company has
made available to Parent a complete and accurate copy of all
agreements pursuant to which Merrill Lynch is entitled to any
fees and expenses in connection with any of the transactions
contemplated by this Agreement.
5.2.
Representations and Warranties of Parent and
Merger Sub
. Parent and Merger Sub (subject to
Section 6.14) hereby jointly and severally represent and
warrant to the Company that:
(a)
Organization, Good Standing and
Qualification
. Each of Parent and Merger Sub is a
legal entity duly organized, validly existing and in good
standing under the Laws of its respective jurisdiction of
organization and has all requisite corporate or similar power
and authority to own, lease and operate its properties and
assets and to carry on its business as presently conducted and
is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership, leasing or
operation of its assets or properties or conduct of its business
requires such qualification, except where the failure to be so
organized, qualified or in such good standing, or to have such
power or authority, would not, individually or in the aggregate,
reasonably be expected to prevent, materially delay or impair
the ability of Parent and Merger Sub to consummate the Merger
and the other transactions contemplated by this Agreement.
Parent has made available to the Company a complete and correct
copy of the articles of incorporation and by-laws of Parent and
Merger Sub, each as in effect on the date of this Agreement.
(b)
Corporate Authority
. No vote of
holders of capital stock of Parent is necessary to approve this
Agreement and the Merger and the other transactions contemplated
hereby. Each of Parent and Merger Sub has all requisite
corporate power and authority and has taken, and has caused its
Subsidiaries to take, all corporate action necessary in order to
execute, deliver and perform its obligations under this
Agreement, subject only to the adoption of this Agreement by
Parents wholly owned Subsidiary that will be the direct
shareholder of Merger Sub as the sole shareholder of Merger Sub
(the
Requisite Parent Vote
), and to
consummate the Merger. This Agreement has been duly executed and
delivered by each of Parent and Merger Sub and is a valid and
binding agreement of, Parent and Merger Sub, enforceable against
each of Parent and Merger Sub in accordance with its terms,
subject to the Bankruptcy and Equity Exception.
(c)
Governmental Filings; No Violations; Etc
.
(i) Other than (A) the filings
and/or
notices pursuant to Section 1.3, (B) a filing under
the HSR Act and expiration of the related waiting period,
(C) an application to the Commonwealth of Pennsylvania
Insurance Department and approval of the Pennsylvania insurance
commissioner, (D) an application to the Florida Office of
Insurance Regulation and approval of such Office and (E) an
approval application to and a notification filing with the Japan
Financial Services Agency (the
JFSA
)
by Parent and its Affiliates and of JFSA approval
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(collectively, the
Parent Approvals
),
no notices, reports or other filings are required to be made by
Parent (or its wholly owned Subsidiary that will be the direct
shareholder of Merger Sub) or Merger Sub with, nor are any
consents, registrations, approvals, permits or authorizations
required to be obtained by Parent (or its wholly owned
Subsidiary that will be the direct shareholder of Merger Sub) or
Merger Sub from, any Governmental Entity in connection with the
execution, delivery and performance of this Agreement by Parent
and Merger Sub and the consummation by Parent and Merger Sub of
the Merger and the other transactions contemplated hereby,
except those that the failure to make or obtain would not,
individually or in the aggregate, reasonably be expected to
prevent or materially delay the ability of Parent or Merger Sub
to consummate the Merger and the other transactions contemplated
by this Agreement. As of the date hereof, Parent has a
reasonable basis to believe that the Parent Approvals will be
obtained prior to the Termination Date.
(ii) The execution, delivery and performance of this
Agreement by Parent and Merger Sub do not, and the consummation
by Parent and Merger Sub of the Merger and the other
transactions contemplated hereby will not, constitute or result
in (A) a breach or violation of, or a default under, the
articles of incorporation or by-laws or comparable governing
instruments of Parent or Merger Sub or the comparable governing
instruments of any of its Subsidiaries, (B) with or without
notice, lapse of time or both, a breach or violation of, a
termination (or right of termination) or a default under, the
creation or acceleration of any obligations under or the
creation of a Lien on any of the assets of Parent or any of its
Subsidiaries pursuant to, any Contracts binding upon Parent or
any of its Subsidiaries or any Laws or governmental or
non-governmental permit or license to which Parent or any of its
Subsidiaries is subject; or (C) any change in the rights or
obligations of any party under any of such Contracts, except, in
the case of clause (B) or (C) above, for any breach,
violation, termination, default, creation, acceleration or
change that would not, individually or in the aggregate,
reasonably be expected to prevent or materially delay the
ability of Parent or Merger Sub to consummate the Merger and the
other transactions contemplated by this Agreement.
(d)
Litigation
. As of the date of this
Agreement, there are no civil, criminal or administrative
actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the officers of Parent,
threatened against Parent or Merger Sub that seek to enjoin, or
would reasonably be expected to have the effect of preventing,
making illegal, or otherwise interfering with, any of the
transactions contemplated by this Agreement, except as would
not, individually or in the aggregate, reasonably be expected to
prevent or materially delay the ability of Parent and Merger Sub
to consummate the Merger and the other transactions contemplated
by this Agreement. As of the date of this Agreement, no Order of
any Governmental Entity that would reasonably be expected to
prevent, materially delay or materially impair the consummation
of the transactions contemplated by this Agreement is
outstanding against Parent or Merger Sub.
(e)
Available Funds
. Parent has available
to it, or as of the Closing will have available to it, all funds
necessary for the payment to the Paying Agent of the Merger
Consideration and to satisfy all of the obligations of Parent
and Merger Sub under this Agreement.
(f)
Capitalization of Merger Sub
. All of
the issued and outstanding capital stock of Merger Sub is, and
at the Effective Time will be, owned by Parent or a direct or
indirect wholly owned Subsidiary of Parent. Merger Sub has not
conducted any business prior to the date of this Agreement and
has no, and prior to the Effective Time will have no, assets,
liabilities or obligations of any nature other than those
incident to its formation and pursuant to this Agreement and the
Merger and the other transactions contemplated by this Agreement.
(g)
Proxy Statement
. None of the
information supplied or to be supplied by Parent or Merger Sub
in writing for inclusion or incorporation by reference in the
Proxy Statement will, at the date the Proxy Statement is mailed
to shareholders of the Company and at the time of the Company
Shareholder Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading.
(h)
Finders Fees
. Except for
Fox-Pitt Kelton Cochran Caronia Waller, there is no investment
banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of Parent or any
of its Subsidiaries who might be entitled to any fee or
commission from Parent or any of its Affiliates in connection
with the transactions contemplated by this Agreement.
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(i)
Interested Shareholder
. At the time
immediately preceding the date of this Agreement and the Voting
Agreements, neither Parent nor any of its Affiliates was, with
respect to the Company, an interested shareholder,
as such term is defined in Section 2553 of the PBCL.
ARTICLE VI
Covenants
6.1.
Interim Operations
.
(a) The Company covenants and agrees as to itself and its
Subsidiaries that, after the date of this Agreement and prior to
the Effective Time (unless Parent shall otherwise approve in
writing, and except as otherwise expressly contemplated by this
Agreement) and except as required by applicable Laws, the
business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent
therewith, it and its Subsidiaries shall use their respective
commercially reasonable efforts to preserve their business
organizations intact and maintain existing relations and
goodwill with Governmental Entities, customers, suppliers,
third-party payors, agents, distributors, creditors, lessors,
employees, reinsurers, Agents, rating agencies and business
associates and use commercially reasonable efforts to keep
available the services of its and its Subsidiaries present
employees, reinsurers, Agents, rating agencies and agents.
Without limiting the generality of, and in furtherance of, the
foregoing, from the date of this Agreement until the Effective
Time, except (A) as required by applicable Law or a
Governmental Entity as otherwise expressly required by this
Agreement, (B) as Parent may approve in writing (such
approval not to be unreasonably withheld, delayed or
conditioned) or (C) as set forth in Section 6.1 of the
Company Disclosure Letter, the Company will not and will not
permit its Subsidiaries to:
(i) adopt or propose any change in its articles of
incorporation or by-laws or other applicable governing
instruments;
(ii) merge or consolidate the Company or any of its
Subsidiaries with any other Person, except for any such
transactions among wholly owned Subsidiaries of the Company, or
restructure, reorganize or completely or partially liquidate or
otherwise enter into any agreements or arrangements imposing
material changes or restrictions on its assets, operations or
businesses;
(iii) acquire assets outside of the ordinary course of
business from any other Person with a value or purchase price in
the aggregate in excess of $5,000,000 in any transaction or
series of related transactions, other than acquisitions pursuant
to Contracts in effect as of the date of this Agreement;
(iv) issue, sell, pledge, dispose of, grant, transfer,
encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of,
any shares of capital stock of the Company or any of its
Subsidiaries (other than the issuance of shares by a wholly
owned Subsidiary of the Company to the Company or another wholly
owned Subsidiary), or securities convertible or exchangeable
into or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any
shares of such capital stock or such convertible or exchangeable
securities, other than (A) issuances to the Companys
directors required under the Directors Stock Purchase Plan in
connection with such directors service as directors, and
(B) issuances in connection with the exercise of Stock
Awards outstanding as of the date of this Agreement;
(v) create or incur any Lien material to the Company or any
of its Subsidiaries on any assets of the Company or any of its
Subsidiaries having a value in excess of $1,000,000, other than
Liens granted to the Federal Home Loan Board of Pittsburgh to
secure borrowings by Philadelphia Indemnity Insurance Company
and used by it for arbitrage investment purposes (the
Specified Borrowings
).
(vi) make any loans, advances, guarantees or capital
contributions to or investments in any Person (other than the
Company or any direct or indirect wholly owned Subsidiary of the
Company) in excess of $5,000,000 in the aggregate;
(vii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock (except for dividends
paid by any direct or indirect wholly
A-20
owned Subsidiary to the Company or to any other direct or
indirect wholly owned Subsidiary) or enter into any agreement
with respect to the voting of its capital stock;
(viii) reclassify, split, combine, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of
its capital stock or securities convertible or exchangeable into
or exercisable for any shares of its capital stock;
(ix) incur any indebtedness for borrowed money or guarantee
such indebtedness of another Person, or issue or sell any debt
securities or warrants or other rights to acquire any debt
security of the Company or any of its Subsidiaries, except for
(x) indebtedness for borrowed money incurred in the
ordinary course of business (A) not to exceed $5,000,000 in
the aggregate, (B) in replacement of existing indebtedness
for borrowed money on terms substantially consistent with or
more beneficial than the indebtedness being replaced, or
(C) guarantees incurred by the Company of indebtedness of
wholly owned Subsidiaries of the Company and (y) the
Specified Borrowings (for the purposes of this Agreement,
Philadelphia Insurance Company and Philadelphia Indemnity
Insurance Company shall be deemed to be wholly owned
Subsidiaries of the Company);
(x) except as set forth in the capital budgets set forth in
Section 6.1(i)(x) of the Company Disclosure Letter and
consistent therewith, make or authorize any capital expenditures
in excess of $5,000,000 in the aggregate;
(xi) (A) enter into any Contract that would have been
a Restricted Contract had it been entered into prior to this
Agreement, or (B) other than in the ordinary course of
business, enter into any Contract that would have been a
Material Contract had it been entered into prior to this
Agreement;
(xii) make any changes with respect to accounting policies
or procedures, except as required by changes in GAAP or SAP;
(xiii) settle any litigation or other proceedings before a
Governmental Entity for an amount in excess of $2,500,000
individually or $5,000,000 in the aggregate or any obligation or
liability of the Company in excess of such amount, other than
(A) ordinary course policy claim matters for amounts that
are within policy limits, (B) the payment, discharge or
satisfaction of obligations or liabilities in accordance with
the terms of Contracts in effect as of the date hereof or
(C) settlement of any liability for which reserves have
been made on the Companys financial statements included in
the Company Reports;
(xiv) (A) amend, modify or terminate any Restricted
Contract, (B) except in the ordinary course of business,
amend, modify or terminate any Material Contract, or
(C) cancel, modify or waive any debts or claims held by it
or waive any rights having in each case a value in excess of
$1,000,000;
(xv) make any material Tax election;
(xvi) transfer, sell, lease, license, mortgage, pledge,
surrender, encumber, divest, cancel, abandon or allow to lapse
or expire or otherwise dispose of (A) except in the
ordinary course of business, any material assets, licenses,
operations, rights, product lines, businesses or interests
therein of the Company or its Subsidiaries, other than pursuant
to Contracts in effect prior to the date of this Agreement or
(B) any capital stock of any of its Subsidiaries;
(xvii) Except as required pursuant to existing written,
binding agreements in effect prior to the date of this Agreement
or set forth in Section 5.1(h)(i) of the Company Disclosure
Letter, or as otherwise required by applicable Law
(A) grant, provide or promise to grant or provide any
severance, retention, termination or similar payments or
benefits to any director or Employee (except in the ordinary
course of business to employees who are not a party to
employment agreements with the Company, in amounts not to exceed
$50,000 in the aggregate for all such employees),
(B) increase or promise to increase the compensation
(except for routine base salary increases for Employees who are
no more senior than Assistant Vice Presidents in the ordinary
course of business consistent with past practice), bonus or
pension, welfare, severance or other benefits of, pay any bonus
to, or make any new equity awards to any director or Employee,
other than (x) issuances to the Companys directors
required under the Directors Stock Purchase Plan in connection
with such directors service as directors, and
(y) issuances in connection with the exercise of Stock
Awards outstanding as of the date of this Agreement
(C) establish, adopt, amend or terminate any Benefit Plan,
amend
A-21
the terms of any outstanding Options, SARs, Performance Awards,
Restricted Shares, or Other Company Awards, or other awards or
grant any new awards of compensation or benefits,
(D) except as set forth in Section 4.3 hereof, take
any action to accelerate the vesting or payment, or fund or in
any way secure the payment, of compensation or benefits under
any Benefit Plan, (E) change any actuarial or other
assumptions used to calculate funding obligations with respect
to any Benefit Plan, or change the manner in which contributions
to such plans are made or the basis on which such contributions
are determined; or (F) forgive or promise to forgive any
loans to directors or Employees;
(xviii) grant, extend, amend (except as required in the
diligent prosecution of the Owned Intellectual Property) waive
or modify any material rights in or to, nor sell, assign, lease,
transfer, license, let lapse, abandon, cancel, or otherwise
dispose of, or extend or exercise any option to sell, assign,
lease, transfer, license, or otherwise dispose of, any material
Owned Intellectual Property, other than in the ordinary course
of business (ii) fail to diligently prosecute the
Companys and its Subsidiaries material patent
applications, if any, or (iii) fail to exercise a right of
renewal or extension under any material Intellectual Property
Contract;
(xix) except in the ordinary course of business, enter into
any new quota share or other reinsurance transaction; it being
understood that nothing in this subsection (xix) shall
restrict or prohibit the Company or any of its Subsidiaries from
modifying, terminating or extending, in the ordinary course of
business, any quota share or other reinsurance agreement that is
in effect as of the date of this Agreement;
(xx) enter into or engage in (through acquisition, product
extension or otherwise) the business of selling any products or
services other than property and casualty insurance materially
different from existing products or services of the Company and
its Subsidiaries or enter into or engage in new lines of
business (as such term is defined in the National Association of
Insurance Commissioners instructions for the preparation of the
annual statement form) without Parents prior written
approval);
(xxi) adopt a plan of complete or partial liquidation,
dissolution, restructuring, recapitalization or other
reorganization of a Company Insurance Subsidiary;
(xxii) except in the ordinary course of business, alter or
amend in any material respect any existing underwriting, claim
handling, loss control, investment, actuarial practice guideline
or policy or any material assumption underlying an actuarial
practice or policy, except as may be required by (or, in the
reasonable good faith judgment of the Company, advisable under)
GAAP, applicable SAP, any Governmental Entity or applicable
Law; or
(xxiii) agree, authorize or commit to do any of the
foregoing.
(b) Parent shall not knowingly take or permit any of its
Subsidiaries to take any action that is reasonably likely to
prevent the consummation of the Merger.
6.2.
Acquisition Proposals
.
(a)
No Solicitation or Negotiation
. The
Company agrees that, except as expressly permitted by this
Section 6.2, neither it nor any of its Subsidiaries shall,
and the Company shall use its commercially reasonable efforts to
instruct and cause its and its Subsidiaries employees,
investment bankers, attorneys, accountants and other advisors or
representatives (such directors, officers, employees, investment
bankers, attorneys, accountants and other advisors or
representatives, collectively,
Representatives
) not to, directly or
indirectly, nor shall it authorize any of the officers and
directors of it or its Subsidiaries, to:
(i) initiate, solicit or knowingly encourage any inquiries
or the making of any proposal or offer that constitutes, or
could reasonably be expected to lead to, any Acquisition
Proposal; or
(ii) engage in or otherwise participate in any discussions
or negotiations regarding an Acquisition Proposal, or provide
any non-public information or data to any Person that has made,
or to the knowledge of the Company is reasonably likely to make
or is considering (in each case whether alone or as part of a
group), an Acquisition Proposal, except to notify such Person of
the existence of the provisions of this Section 6.2;
Notwithstanding anything in this Agreement to the contrary,
prior to the time, but not after, the Requisite Company Vote is
obtained, the Company may (A) provide information in
response to a request therefor by a Person
A-22
who has made an unsolicited written Acquisition Proposal that
the Board of Directors of the Company reasonably believes to be
credible providing for the acquisition of more than 50% of the
assets (on a consolidated basis) or total voting power of the
equity securities of the Company if the Company receives from
the Person so requesting such information an executed
confidentiality agreement on terms relating to confidentiality
not significantly less restrictive to the other party than those
contained in the Confidentiality Agreement (
provided
that
such executed confidentiality agreement need not prohibit the
making, or amendment, of any Acquisition Proposal to the
Company); and promptly discloses (and, if applicable, provides
copies of) any such information to Parent to the extent not
previously provided to Parent; (B) engage or participate in
any discussions or negotiations with any Person who has made
such an unsolicited written Acquisition Proposal; or
(C) after having complied with Section 6.2(c),
approve, recommend, or otherwise declare advisable or propose to
approve, recommend or declare advisable (publicly or otherwise)
such an Acquisition Proposal, if and only to the extent that,
(x) prior to taking any action described in clause (A),
(B) or (C) above, the Board of Directors of the
Company determines in good faith after consultation with outside
legal counsel that such action is necessary in order for such
directors to comply with the directors fiduciary duties
under applicable Law, (y) in each such case referred to in
clause (A) or (B) above, the Board of Directors of the
Company has determined in good faith based on the information
then available and after consultation with its financial advisor
that such Acquisition Proposal either constitutes a Superior
Proposal or would reasonably be expected to result in a Superior
Proposal, and (z) in the case referred to in
clause (C) above, the Board of Directors of the Company
determines in good faith (after consultation with its financial
advisor and outside legal counsel) that such Acquisition
Proposal is a Superior Proposal.
(b)
Definitions
. For purposes of this
Agreement:
Acquisition Proposal
means
(i) any proposal or offer with respect to a merger, joint
venture, partnership, consolidation, dissolution, liquidation,
tender offer, recapitalization, reorganization, share exchange,
business combination or similar transaction involving the
Company or any of its Significant Subsidiaries with any Person
other than the Company or any of its Subsidiaries, Parent,
Merger Sub or any controlled Affiliate thereof (a
Third Party
), or (ii) any
acquisition by any Third Party or proposal or offer by any Third
Party, which if consummated would result in any Person becoming
the beneficial owner of, directly or indirectly, in one or a
series of related transactions, 20% or more of the total voting
power or of any class of equity securities of the Company or
those of any of its Subsidiaries, or 20% or more of the
consolidated total assets of the Company and the Company
Subsidiaries, in each case other than the transactions
contemplated by this Agreement.
Superior Proposal
means an unsolicited
Acquisition Proposal that would result in any person becoming
the beneficial owner, directly or indirectly, of more than 50%
of the assets (on a consolidated basis) or more than 50% of the
total voting power of the equity securities of the Company that
the Board of Directors of the Company has determined in its good
faith judgment (x) would result in a transaction that if
consummated, would be more favorable to the shareholders of the
Company than the Merger, taking into account all of the terms
and conditions of such proposal and of this Agreement (including
any proposal by Parent to amend the terms of this Agreement) and
the time likely to be required to consummate such Acquisition
Proposal, and (y) is reasonably capable of being
consummated on the terms so proposed, taking into account all
financial, regulatory, legal and other aspects of such Proposal,
including the likelihood of termination and the existence of a
financing contingency.
(c)
No Change in Recommendation or Alternative
Acquisition Agreement
.
(i) The Board of Directors of the Company and each
committee of the Board of Directors shall not withhold,
withdraw, qualify or modify (or publicly propose or resolve to
withhold, withdraw, qualify or modify), in a manner adverse to
Parent, the Company Recommendation with respect to the Merger,
or fail to reaffirm its approval or recommendation of this
Agreement and the Merger within three Business Days after
receiving a written request to do so from Parent, or approve,
recommend or otherwise declare advisable (or publicly propose to
approve or recommend) any Acquisition Proposal (any of the
foregoing a
Change in Company
Recommendation
).
(ii) The Company shall not, and the Board of Directors
shall not cause or permit the Company to, and the Company shall
not cause or permit any Company Subsidiary to, enter into any
letter of intent, memorandum of understanding, agreement in
principle, acquisition agreement, merger agreement or other
agreement (except
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for confidentiality agreements permitted under
Section 6.2(a)) relating to any Acquisition Proposal (an
Alternative Acquisition Agreement
).
(d)
Change in Company
Recommendation
. Notwithstanding anything to the
contrary set forth in this Agreement, the Board of Directors of
the Company may, prior to but not after the time the Company
Shareholder Approval is obtained, make a Change in Company
Recommendation in connection with an Acquisition Proposal if the
Board of Directors of the Company has determined in good faith,
after consulting with its outside legal counsel, that the
failure to take such action would be inconsistent with the
directors fiduciary duties under applicable Law;
provided
that the Board of Directors may not take any
such action in connection with an Acquisition Proposal unless
(1) such Acquisition Proposal constitutes a Superior
Proposal, (2) prior to making such Change in
Recommendation, the Company provides prior written notice to
Parent at least five (5) Business Days in advance (the
Change in Recommendation Notice
Period
) of its intention to take such action,
which notice shall specify all material terms and conditions of
such Superior Proposal (including the identity of the party
making such Superior Proposal and copies of any documents
evidencing such Superior Proposal), and any material
modifications to any of the foregoing, (3) during the
Change in Recommendation Notice Period the Company shall, and
shall cause its financial advisors and outside counsel to,
negotiate with Parent in good faith should Parent propose to
make such adjustments in the terms and conditions of this
Agreement so that such Acquisition Proposal ceases to constitute
(in the good faith judgment of the Board of Directors) a
Superior Proposal and (4) such Acquisition Proposal
continues to constitute (in the good faith judgment of the Board
of Directors) a Superior Proposal after taking into account any
such amendments that Parent shall have agreed to make prior to
the end of the Change in Recommendation Notice Period;
it
being understood
that any material amendment to any
Acquisition Proposal will be deemed to be a new Acquisition
Proposal for purposes of the Change in Recommendation Notice
Period.
(e)
Certain Permitted Disclosure
. Nothing
contained in this Section 6.2 shall be deemed to prohibit
the Company from (i) complying with its disclosure
obligations under U.S. federal or state law with regard to
an Acquisition Proposal, (ii) making any disclosure to the
Companys shareholders if, after consultation with its
outside legal counsel, the Company determines that such
disclosure would be required under applicable Law or
(iii) informing any Person of the existence of the
provisions contained in this Section 6.2.
(f)
Existing Discussions
. The Company
agrees that it will immediately cease and cause to be terminated
any existing activities, solicitations, discussions or
negotiations with any parties conducted heretofore by the
Company, its Subsidiaries or any representatives of the Company
or its Subsidiaries with respect to any Acquisition Proposal.
The Company also agrees that it will promptly request each
Person that has heretofore executed a confidentiality agreement
in connection with its consideration of acquiring it or any of
its Subsidiaries to return or destroy all confidential
information heretofore furnished to such Person by or on behalf
of it or any of its Subsidiaries.
(g)
Notice
. The Company agrees that it
will promptly (and, in any event, within two Business Days)
notify Parent if any inquiries, proposals or offers with respect
to an Acquisition Proposal are received by, any such information
is requested from, or any such discussions or negotiation are
sought to be initiated or continued with, it or any of its
Representatives indicating, in connection with such notice, the
name of such Person and the material terms and conditions of any
proposals or offers (including, if applicable, copies of any
written requests, proposals or offers, including proposed
agreements) and thereafter shall keep Parent informed, on a
current basis, of the status and terms of any such proposals or
offers (including any amendments thereto) and the status of any
such discussions or negotiations, including any change in the
Companys intentions as previously notified.
6.3.
Proxy Filing; Information
Supplied
. The Company shall prepare and file with
the SEC, as promptly as practicable after the date of this
Agreement, a proxy statement in preliminary form relating to the
Shareholders Meeting (such proxy statement, including any
amendment or supplement thereto, the
Proxy
Statement
). The Company agrees, as to it and its
Subsidiaries, that (i) the form of the Proxy Statement will
comply in all material respects with the applicable provisions
of the Exchange Act and the rules and regulations thereunder and
(ii) none of the information supplied by it or any of its
Subsidiaries for inclusion or incorporation by reference in the
Proxy Statement (which, for this purpose, excludes any
information supplied by or on behalf of Parent or Merger Sub)
will, at the date of mailing to shareholders of the Company or
at the time of the Shareholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
A-24
6.4.
Shareholders Meeting
. The
Company will take, in accordance with applicable Law and its
articles of incorporation and by-laws, all action necessary to
convene a meeting of holders of Shares (the
Shareholders Meeting
) as promptly as
practicable after the execution of this Agreement, to consider
and vote upon the adoption of this Agreement, and shall not
postpone or adjourn such meeting except to the extent required
by law or as approved in writing by Parent. Subject to
Section 6.2 hereof, the Board of Directors of the Company
shall recommend such adoption and shall take all commercially
reasonable lawful action to solicit such adoption of this
Agreement.
6.5.
Filings; Other Actions; Notification
.
(a)
Proxy Statement
. The Company shall
promptly notify Parent of the receipt of all comments of the SEC
with respect to the Proxy Statement and of any request by the
SEC for any amendment or supplement thereto or for additional
information and shall promptly provide to Parent copies of all
correspondence between the Company
and/or
any
of its Representatives and the SEC with respect to the Proxy
Statement. The Company and Parent shall each use its reasonable
best efforts to promptly provide responses to the SEC with
respect to all comments received on the Proxy Statement by the
SEC and the Company shall cause the definitive Proxy Statement
to be mailed as promptly as practicable after the date the SEC
staff advises that it has no further comments thereon or that
the Company may commence mailing the Proxy Statement.
(b)
Cooperation
. Subject to the terms and
conditions set forth in this Agreement, the Company and Parent
shall cooperate with each other and use (and shall cause their
respective Subsidiaries to use) their respective reasonable best
efforts to take or cause to be taken all actions, and do or
cause to be done all things, reasonably necessary, proper or
advisable on its part under this Agreement and applicable Laws
to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as
reasonably practicable, including preparing and filing as
promptly as reasonably practicable all documentation to effect
all necessary notices, reports and other filings (and in any
event no later than the time required by applicable Law) and to
obtain as promptly as practicable all consents, registrations,
approvals, permits and authorizations necessary or advisable to
be obtained from any third party
and/or
any
Governmental Entity in order to consummate the Merger or any of
the other transactions contemplated by this Agreement. Subject
to applicable Laws relating to the exchange of information,
Parent shall have the right to direct all matters with any
Governmental Entity relating to the Parent Approvals consistent
with its obligations hereunder;
provided
that Parent and
the Company shall have the right to review in advance and, to
the extent practicable, each will consult with the other on and
consider in good faith the views of the other in connection
with, all of the material information relating to Parent or the
Company, as the case may be, and any of their respective
Subsidiaries, that appears in any filing made with, or written
materials submitted to, any Third Party
and/or
any
Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement (including the Proxy
Statement). In exercising the foregoing rights, each of the
Company and Parent shall act reasonably and as promptly as
reasonably practicable.
(c)
Information
. The Company and Parent
each shall, upon request by the other, furnish the other with
all information concerning itself, its Subsidiaries, directors,
officers and shareholders and such other matters as may be
reasonably necessary or advisable in connection with the Proxy
Statement or any other statement, filing, notice or application
made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any third party
and/or
any
Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement.
(d)
Status
. Subject to applicable Laws
and as required by any Governmental Entity, the Company and
Parent each shall keep the other apprised of the status of
matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of
notices or other communications received by Parent or the
Company, as the case may be, or any of its Subsidiaries, from
any third party
and/or
any
Governmental Entity with respect to the Merger and the other
transactions contemplated by this Agreement. The Company and
Parent shall give prompt notice to the other party of any
change, fact or condition that would, individually or in the
aggregate, reasonably be expected to result in a Material
Adverse Effect or of any failure of any condition to the other
partys obligations to effect the Merger. Neither the
Company nor Parent shall permit any of its officers or any other
representatives or agents to participate in any live or
telephonic meeting with any U.S. Governmental Entity in
respect of any filings, investigation or other inquiry (other
than for routine or ministerial matters) relating to the
A-25
transactions contemplated hereby unless it consults with the
other party in advance and, to the extent permitted by Law or by
such Governmental Entity, gives the other party the opportunity
to attend and participate thereat.
(e)
Resolution of Objections
. If any
objections are asserted with respect to the transactions
contemplated hereby under any applicable Law or if any suit is
instituted by any Governmental Entity or any private party
challenging any of the transactions contemplated hereby as
violative of any applicable Law, each of the Company, Merger Sub
and Parent shall use its reasonable best efforts to resolve any
such objections or challenge as such Governmental Entity or
private party may have to such transactions under such
applicable Law so as to permit consummation of the transactions
contemplated by this Agreement on the terms and conditions set
forth in this Agreement;
provided
,
however
, that,
notwithstanding the foregoing or anything else to the contrary
in this Agreement, nothing in this Agreement shall require, or
be construed to require Parent or the Company or any of their
respective Affiliates, in order to obtain any Company Approval
or Parent Approval (other than any approval from the JFSA) or
otherwise, to (i)(A) sell, lease, license, transfer, dispose of,
divest or otherwise encumber, or hold separate pending any such
action, or (B) propose, negotiate or offer to effect, or
consent or commit to, any such sale, leasing, licensing,
transfer, disposal, divestiture or other encumbrance, or holding
separate, before or after the Effective Time, of any assets,
licenses, operations, rights, product lines, businesses or
interest therein of Parent, the Company or the Surviving
Corporation (or any of their respective Affiliates), or
(ii) take or agree to take any other action or agree or
consent to any limitations or restrictions on freedom of actions
with respect to, or its ability to retain, or make changes in,
any such assets, licenses, operations, rights, product lines,
businesses or interest therein of Parent, the Company or the
Surviving Corporation (or any of their respective Affiliates) if
the actions of the type described in clauses (i) and (ii),
individually or in the aggregate, would have a Material Adverse
Effect (a
Negative Regulatory Action
);
provided
that any actions of the type described in
clauses (i) and (ii) above imposed on Parent or its
Affiliates shall constitute a Negative Regulatory Action if such
action would or would reasonably be expected to, individually or
when taken together with any other actions of the type described
in clauses (i) and (ii) above imposed on the Company,
Parent or any of their respective Affiliates, have constituted a
Material Adverse Effect by reference to the business, financial
condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
6.6.
Access and Reports
. Subject to
applicable Law, upon reasonable notice, the Company shall (and
shall cause its Subsidiaries to) afford Parents
and/or
its
Subsidiaries officers and other authorized Representatives
reasonable access, during normal business hours throughout the
period prior to the Effective Time, to its employees,
properties, books, contracts and records and, during such
period, the Company shall (and shall cause its Subsidiaries to)
furnish promptly to Parent all information concerning its
business, properties and personnel as may reasonably be
requested,
provided
that no investigation pursuant to
this Section 6.6 shall affect or be deemed to modify any
representation or warranty made by the Company herein, and
provided
,
further
, that the foregoing shall not
require the Company (i) to permit any inspection, or to
disclose any information, that in the reasonable judgment of the
Company would result in the disclosure of any trade secrets of
third parties or violate any of its obligations with respect to
confidentiality if the Company shall have used reasonable best
efforts to obtain the consent of such third party to such
inspection or disclosure or (ii) to disclose any privileged
information of the Company or any of its Subsidiaries. All
requests for information made pursuant to this Section 6.6
shall be directed to the executive officer or other Person
designated by the Company. All such information shall be
governed by the terms of the Confidentiality Agreement.
6.7.
Stock Exchange Delisting
. The
Surviving Corporation shall use its reasonable best efforts to
cause the Shares to no longer be listed on the NASDAQ and
deregistered under the Exchange Act as soon as practicable
following the Effective Time.
6.8.
Publicity
. The initial press
release regarding the Merger shall be a joint press release and
thereafter the Company and Parent each shall consult with each
other prior to issuing any press releases or otherwise making
public announcements with respect to the Merger and the other
transactions contemplated by this Agreement and prior to making
any filings with any third party
and/or
any
Governmental Entity (including any national securities exchange
or interdealer quotation service) with respect thereto, except
as may be required by Law or by obligations pursuant to any
listing agreement with or rules of any national securities
exchange or interdealer quotation service or by the request of
any Government Entity.
A-26
6.9.
Employee Benefits
.
(a) Parent agrees that, during the period commencing at the
Effective Time and ending on the eighteen (18) month
anniversary of the Effective Time, the employees of the Company
and its Subsidiaries will continue to be provided with pension
and welfare benefits under employee benefit plans that are no
less favorable in the aggregate than those currently provided by
the Company and its Subsidiaries to such employees. To the
extent applicable, Parent will cause any employee benefit plans
which the employees of the Surviving Corporation and its
Subsidiaries are entitled to participate in after the Effective
Time to take into account for purposes of eligibility, vesting,
and level of benefits only for purposes of vacation, paid time
off and severance plans, thereunder, except for purposes of
qualifying for subsidized early retirement benefits or to the
extent it would result in a duplication of benefits, service
with the Company and its Subsidiaries as if such service were
with the Surviving Corporation, to the same extent such service
was credited under a comparable plan of the Company. With
respect to any plan that is a welfare benefit plan
(as defined in Section 3(1) of ERISA) adopted by the
Surviving Corporation after the Effective Time, Parent shall
cause there to be waived any restrictions with respect to any
pre-existing condition, actively at work requirements and
waiting periods (except to the extent such restrictions were
applicable as of the Effective Time under the Companys or
any of its Subsidiaries then current welfare benefit
plan), and any eligible expenses incurred by any employees of
the Company and their Subsidiaries and their respective covered
dependents during the portion of the plan year prior to adoption
of such plan shall be taken into account for purposes of
satisfying all deductible, coinsurance and maximum out-of-pocket
requirements applicable to such Person for the applicable plan
year as if such amounts had been paid in accordance with such
plan.
(b) Prior to the Effective Time, if requested by Parent in
writing, to the extent permitted by applicable Law and the terms
of the applicable plan or arrangement, the Company shall cause
to be amended the Benefit Plans to the extent necessary to
provide that no employees of Parent, the Surviving Corporation
and their Subsidiaries shall commence participation therein
following the Effective Time, unless the Parent explicitly
authorizes such participation. In addition, prior to the
Effective Time, the Company shall cause to be amended the
Benefit Plans providing for deferred compensation if and to the
extent necessary to fully comply with the applicable
requirements of Section 409A of the Code and the applicable
final regulations issued thereunder.
(c) The Company agrees to cause each of its officers and
directors to repay any outstanding promissory notes to the
Company or its Subsidiaries prior to the Effective Time, and,
with respect to the promissory notes in connection with the
Stock Purchase Plan Awards referenced in Section 4.3(e),
such notes shall be repaid to the Company pursuant to the
provisions of Section 4.3(e).
(d) Prior to making any written or oral communications to
the directors, officers or employees of the Company or any of
its Subsidiaries pertaining to compensation or benefit matters
that are affected by the transactions contemplated by this
Agreement, the Company shall provide Parent with a copy of the
intended communication, Parent shall have a reasonable period of
time to review and comment on the communication, and Parent and
the Company shall cooperate in providing any such mutually
agreeable communication.
(e) Parent, the Company and its Affiliates agree that the
Persons listed in Schedule 6.9(e) of the Company Disclosure
Letter shall be offered retention bonus agreements by the
Company between the date of this Agreement and Closing Date, on
the terms and conditions set forth in Section 6.9(e) of the
Company Disclosure Letter.
(f) Notwithstanding the foregoing, nothing contained herein
shall (i) be treated as an amendment of any particular
Benefit Plan, (ii) give any third party any right to
enforce the provisions of this Section 6.9 or
(iii) obligate Parent, the Surviving Corporation or any of
their Affiliates to (x) maintain any Benefit Plan or any
other particular compensation or benefit plan, program,
arrangement, policy or understanding, or (y) retain the
employment of any particular Employee.
6.10.
Expenses
. Except as otherwise
provided in Section 8.5, whether or not the Merger is
consummated, all costs and expenses incurred in connection with
this Agreement and the Merger and the other transactions
contemplated by this Agreement shall be paid by the party
incurring such expense.
A-27
6.11.
Director and Officer Indemnification and
Liability Insurance
.
(a) From and after the Effective Time, each of Parent and
the Surviving Corporation shall jointly and severally, and
Parent shall cause the Surviving Corporation to, indemnify and
hold harmless, to the fullest extent permitted under applicable
Law (and Parent and the Surviving Corporation shall also advance
expenses as incurred to the fullest extent permitted under
applicable law;
provided
the Person to whom expenses are
advanced provides an undertaking to repay such advances if it is
ultimately determined that such Person is not entitled to
indemnification), each then present and former director and
officer of the Company
and/or
any
of the Company Subsidiaries (collectively, the
Indemnified Parties
) against any costs
or expenses (including attorneys fees), judgments, fines,
losses, claims, damages or liabilities (collectively,
Costs
) incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the
Effective Time, including the transactions contemplated by this
Agreement, and pertaining to the fact that the Indemnified Party
is or was a director or officer of the Company or its
Subsidiaries, whether asserted or claimed prior to, at or after
the Effective Time.
(b) As of the Effective Time, the Company shall have
purchased (
provided
that the Company shall not be
required to pay any amounts in respect of such coverage prior to
the Closing, other than any such amounts advanced by Parent to
the Company prior to the due date for the payment of such
amounts), and, following the Effective Time, the Surviving
Corporation shall maintain, a tail policy to the current policy
of directors and officers liability insurance
maintained on the date hereof by the Company (the
Current Policy
) from an insurance
carrier rated at least A+ by A.M. Best with
respect to directors and officers liability
insurance and fiduciary liability insurance (collectively,
D&O Insurance
) with terms,
conditions, retentions and limits of liability that are at least
as favorable as the Companys existing policies with
respect to any matter claimed against a director or officer of
the Company or any of the Company Subsidiaries by reason of him
or her serving in such capacity that existed or occurred at or
prior to the Effective Time (including in connection with this
Agreement or the transactions or actions contemplated hereby)
which tail policy shall be effective for a period from the
Effective Time through and including the date six years after
the Closing Date with respect to claims arising from facts or
events that existed or occurred prior to or at the Effective
Time, and which tail policy shall contain substantially the same
coverage and amount as, and contain terms and conditions no less
advantageous to the covered persons, in the aggregate, than the
coverage currently provided by the Current Policy;
provided
,
however
, that in no event shall the
Company expend an aggregate amount to purchase such tail policy
that would be in excess of an amount equal to 300% of the annual
premium currently paid by the Company under the Current Policy
(the
Insurance Amount
);
provided
,
however
, that if the cost of such tail
policy would exceed the Insurance Amount, the Company shall be
obligated to purchase, and the Surviving Corporation shall be
obligated to maintain, a tail policy with the greatest coverage
available for a cost not exceeding the Insurance Amount.
(c) In the event that the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges
into any other Person and is not the continuing or surviving
corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its
properties and assets to any person (including by dissolution),
then, and in each such case, Parent shall cause proper provision
to be made so that the successors and assigns of the Surviving
Corporation assume and honor the obligations set forth in this
Section 6.11. The agreements and covenants contained herein
shall not be deemed to be exclusive of any other rights to which
any such present or former director or officer is entitled,
whether pursuant to Pennsylvania law, contract or otherwise.
Nothing in this Agreement is intended to, shall be construed to
or shall release, waive or impair any rights to directors
and officers insurance claims under any policy that is or
has been in existence with respect to the Company or any of its
Subsidiaries or their respective officers, directors and
employees, it being understood and agreed that the
indemnification provided for in this Section 6.11 is not
prior to or in substitution for any such claims under any such
policies.
6.12.
Other Actions by the Company
.
(a)
Takeover Statutes
. If any Takeover
Statute (including, without limitation, Subchapter F of
Chapter 25 of the PBCL) is or may become applicable to the
Merger or the other transactions contemplated by this Agreement
or the Voting Agreements, the Company and its Board of Directors
shall grant such approvals and use commercially reasonable
efforts to take such actions as are necessary so that such
transactions may be consummated as promptly
A-28
as practicable on the terms contemplated by this Agreement (as
long as prior to the Effective Time neither Parent, Merger Sub
nor any Affiliate thereof becomes, without the Companys
consent, an interested shareholder under
Section 2553 of the PBCL except as a result of the
execution of the Voting Agreements), and otherwise use
commercially reasonable efforts to attempt to eliminate or
minimize the effects of such Takeover Statute on such
transactions.
(b)
Section 16 Matters
. Prior to the
Effective Time, the Company will take all such steps as may be
required to cause to be exempt under
Rule 16b-3
promulgated under the Exchange Act any dispositions of Shares
(including derivative securities with respect to Shares) that
are treated as dispositions under such rule and result from the
transactions contemplated by this Agreement by each director or
officer of the Company who is subject to the reporting
requirements of Section 16(a) of the Exchange Act with
respect to the Company.
6.13.
Parent Vote
. Parent shall
vote (or consent with respect to) or cause to be voted (or a
consent to be given with respect to) any Shares and any shares
of common stock of Merger Sub beneficially owned by it or any of
its Subsidiaries or with respect to which it or any of its
Subsidiaries has the power (by agreement, proxy or otherwise) to
cause to be voted (or to provide a consent), in favor of the
adoption and approval of this Agreement at any meeting of
shareholders of the Company or Merger Sub, respectively, at
which this Agreement shall be submitted for adoption and
approval and at all adjournments or postponements thereof (or,
if applicable, by any action of shareholders of either the
Company or Merger Sub by consent in lieu of a meeting).
6.14.
Formation of Merger Sub;
Accession
. As promptly as reasonably practicable
after the date hereof, and in any event within twenty
(20) calendar days after the date hereof, Parent shall form
a Pennsylvania corporation as an indirect wholly owned
Subsidiary of Parent (
Merger Sub
).
Promptly after incorporating Merger Sub, and in any event within
twenty five (25) calendar days after the date hereof,
(x) Parent shall cause the sole shareholder of Merger Sub,
in its capacity as such, to approve and adopt this Agreement and
(y) Parent shall cause Merger Sub to accede to this
Agreement by executing a signature page to this Agreement, after
which time Merger Sub shall be a party hereto for all purposes
set forth herein. Notwithstanding any provision herein to the
contrary, (i) the obligations of Merger Sub to perform its
covenants hereunder shall commence only at the time of its
incorporation and (ii) the representations and warranties
of Merger Sub set forth in Section 5.2 shall be deemed to
have been made as though Merger Sub had been a party to this
Agreement as of the date hereof. Prior to the Effective Time,
Parent shall take such actions as are reasonably necessary to
cause the Board of Directors of Merger Sub to unanimously
approve this Agreement and declare it advisable for Merger Sub
to enter into this Agreement. Notwithstanding anything to the
contrary in this Agreement, Parent and its Affiliates may amend,
or cause to be amended, the by-laws of Merger Sub at any time
prior to the Effective Time so long as such amendment would not
impair, delay or prevent the Closing.
6.15.
Ownership of Directors Qualifying
Shares
. Prior to the Effective Time, the Company
will take all such steps as may be reasonably necessary to cause
(i) the 10 shares of common stock of Philadelphia
Insurance Company (
PIC
) owned of
record by natural persons who were directors of PIC at or after
the time of its formation and are currently officers or
directors of the Company or a Company Subsidiary and
(ii) the 12 shares of common stock of Philadelphia
Indemnity Insurance Company (
PIIC
)
owned of record by natural persons who were directors of PIIC at
or after the time of its formation and are currently officers or
directors of the Company or a Company Subsidiary to be owned
beneficially and of record by the Company.
6.16.
Pre-Closing
Restructuring
. Section 6.16 of the Company
Disclosure Letter lists Company Subsidiaries that are no longer
doing business (each, a
Dormant
Subsidiary
). Prior to the Effective Time, if
Parent provides a written request, the Company will cause each
of the Dormant Subsidiaries identified in Parents request
to be merged with and into a Company Subsidiary other than a
Company Insurance Subsidiary, or liquidated or dissolved (as
specified in Parents request),
provided
that in no
event shall the Company be required to effect any such merger,
liquidation or dissolution if (a) such action would
reasonably be expected to prevent or materially impair or delay
the Merger or (b) Parent fails to deliver its written
request therefor sufficiently in advance of the Effective Time
such that it is reasonably practicable for such merger,
liquidation or dissolution to be effective prior to the
Effective Time, taking into account any filing
and/or
approval requirements under applicable Law, reasonable
preparation and documentation time and such other factors as the
Company reasonably determines are relevant.
A-29
ARTICLE VII
Conditions
7.1.
Conditions to Each Partys Obligation to
Effect the Merger
. The respective obligation of
each party to effect the Merger is subject to the satisfaction
or waiver at or prior to the Effective Time of each of the
following conditions:
(a)
Shareholder Approval
. This Agreement
shall have been duly adopted by holders of Shares constituting
the Requisite Company Vote in accordance with applicable Law and
the articles of incorporation and by-laws of the Company.
(b)
Regulatory Consents
. The waiting
period applicable to the consummation of the Merger under the
HSR Act shall have expired or been earlier terminated.
(c)
Litigation
. No court or other
Governmental Entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any Law
(whether temporary, preliminary or permanent) that is in effect
and restrains, enjoins or otherwise prohibits consummation of
the Merger (collectively, an
Order
).
(d)
Approvals
. The Parent Approvals
referred to in clauses (C), (D) and (E) of
Section 5.2(c)(i) shall have been obtained without the
imposition of any conditions that, individually or in the
aggregate, would be reasonably likely to constitute a Negative
Regulatory Action.
7.2.
Conditions to Obligations of Parent and
Merger Sub
. The obligations of Parent and Merger
Sub to effect the Merger are also subject to the satisfaction or
waiver by Parent at or prior to the Effective Time of the
following conditions:
(a)
Representations and
Warranties
. (i) The representations and
warranties of the Company set forth in this Agreement that are
qualified by reference to Material Adverse Effect shall be true
and correct as of the date of this Agreement and as of the
Closing Date as though made on and as of such date and time
(except to the extent that any such representation and warranty
expressly speaks as of an earlier date, in which case such
representation and warranty shall be true and correct as of such
earlier date); (ii) the representations and warranties of
the Company set forth in this Agreement that are not qualified
by reference to Material Adverse Effect shall be true and
correct as of the date of this Agreement and as of the Closing
Date as though made on and as of such date and time (except to
the extent that any such representation and warranty expressly
speaks as of an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier date);
provided
,
however
, that, notwithstanding anything
herein to the contrary, the condition set forth in this
Section 7.2(a)(ii) shall be deemed to have been satisfied
even if any representations and warranties of the Company (other
than Sections 5.1(b), 5.1(c) and 5.1(j), which must be true
and correct in all material respects and other than
Section 5.1(f)(ii) hereof, which must be true and correct
in all respects) are not so true and correct except to the
extent that the failure of such representations and warranties
of the Company to be so true and correct, individually or in the
aggregate, has resulted in or would reasonably be expected to
result in a Material Adverse Effect; and (iii) Parent shall
have received at the Closing a certificate signed on behalf of
the Company by an executive officer of the Company to such
effect.
(b)
Performance of Obligations of the
Company
. The Company shall have performed in all
material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the
Company by an executive officer of the Company to such effect.
7.3.
Conditions to Obligation of the
Company
. The obligation of the Company to effect
the Merger is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following
conditions:
(a)
Representations and
Warranties
. (i) The representations and
warranties of Parent and Merger Sub set forth in this Agreement
shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made
on and as of such date and time (except to the extent that any
such representation and warranty expressly speaks as of an
earlier date, in which case such representation and warranty
shall be true and correct as of such earlier date), and
(ii) the Company shall have received at the Closing a
certificate signed on behalf of Parent by an executive officer
of Parent to such effect.
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(b)
Performance of Obligations of Parent and Merger
Sub
. Each of Parent and Merger Sub shall have
performed in all material respects (other than with respect to
its obligations to make available or cause to be made available
the Exchange Fund to the Paying Agent pursuant to the first
sentence of Section 4.2(a), which shall be required to be
performed in all respects), all obligations required to be
performed by it under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed
on behalf of each of Parent and Merger Sub by an executive
officer of Parent and Merger Sub to such effect.
ARTICLE VIII
Termination
8.1.
Termination by Mutual
Consent
. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time,
whether before or after the adoption of this Agreement by the
shareholders of the Company referred to in Section 7.1(a),
by mutual written consent of the Company and Parent by action of
their respective boards of directors.
8.2.
Termination by Either Parent or the
Company
. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
by action of the Board of Directors of either Parent or the
Company if:
(a) the Merger shall not have been consummated on or before
January 23, 2009 (the
Termination
Date
);
provided
,
however
, that if on
such date the condition to Closing set forth in
Section 7.1(b) or Section 7.1(d) shall not have been
satisfied but all other conditions to Closing shall have been
satisfied (or in the case of conditions that by their terms are
to be satisfied at the Closing, shall be capable of being
satisfied on such date), then the Termination Date shall
automatically be extended to April 23, 2009;
(b) the approval of this Agreement by the shareholders of
the Company referred to in Section 7.1(a) shall not have
been obtained at the Shareholders Meeting scheduled for the
consideration of this Agreement or at any subsequent
Shareholders Meeting held following the adjournment or
postponement of such scheduled meeting; or
(c) any Order permanently restraining, enjoining or
otherwise prohibiting consummation of the Merger shall become
final and non-appealable (whether before or after the adoption
of this Agreement by the shareholders of the Company referred to
in Section 7.1(a));
provided
that the right to
terminate this Agreement pursuant to this Section 8.2 shall
not be available to any party that has willfully or
intentionally breached in any material respect its obligations
under this Agreement in any manner that has proximately
contributed to the occurrence of the failure of a condition to
the consummation of the Merger.
8.3.
Termination by the
Company
. This Agreement may be terminated by the
Company and the Merger may be abandoned if:
(a) there has been a breach of any representation,
warranty, covenant or agreement made by Parent or Merger Sub in
this Agreement, or any such representation and warranty shall
have become untrue after the date of this Agreement, such that
Section 7.3(a) or 7.3(b) would not be satisfied and such
breach or condition is not curable or, if curable, is not cured
within the earlier of (x) thirty (30) days after
written notice thereof is given by the Company to Parent and
(y) the Termination Date;
(b) at any time prior to the time the Requisite Company
Vote is obtained, if (i) the Board of Directors of the
Company authorizes the Company to enter into an Alternative
Acquisition Agreement with respect to a Superior Proposal,
(ii) the Company notifies Parent in writing that it intends
to enter into such Alternative Acquisition Agreement, attaching
the most current version of such Alternative Acquisition
Agreement to such notice, (iii) Parent does not make,
within five Business Days of receipt of such written
notification (the
Termination Notice
Period
) an offer that the Board of Directors of
the Company determines, in good faith after consultation with
its financial advisors, is at least as favorable to the
shareholders of the Company as the Superior Proposal, and
(iv) the Company, prior to such termination, pays to Parent
the Termination Fee and the Parent Expenses in immediately
available funds; it
being understood that
the Company
agrees (x) that it will not enter into the Alternative
Acquisition Agreement referred to in clause (i) above until
at least the sixth Business Day after it has provided the notice
to Parent required thereby, (y) to notify Parent promptly
if its intention to enter into the Alternative Acquisition
A-31
Agreement changes and (z) during the Termination Notice
Period, to, and to cause its financial advisors and outside
counsel to, negotiate with Parent in good faith should Parent
propose to make such adjustments in the terms and conditions of
this Agreement so that such Alternative Acquisition Agreement
ceases to constitute (in the good faith judgment of the Board of
Directors) a Superior Proposal;
it being further
understood
that any material amendment to any Acquisition
Proposal will be deemed to be a new Acquisition Proposal for
purposes of the Termination Notice Period; or
(c) if the Board of Directors of the Company shall have
made a Change in the Company Recommendation pursuant to
Section 6.2(d) in connection with an Acquisition Proposal
and the Company, prior to such termination, pays to Parent the
Termination Fee in immediately available funds.
8.4.
Termination by Parent
. This
Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time by action of the Board of
Directors of Parent if:
(a) the Board of Directors of the Company shall have made a
Change of Recommendation;
(b) the Company shall have failed to hold a Shareholders
Meeting for the purpose of voting on the Merger at which a
quorum is present and a vote is taken prior to the Termination
Date;
(c) the Board of Directors of the Company shall have, if a
tender offer or exchange offer for outstanding shares of Company
Common Stock shall have been publicly disclosed by a Third
Party, failed to recommend unequivocally that the Companys
shareholders reject such tender offer or exchange offer prior to
the earlier of (i) the date of the Shareholders Meeting (if
it is reasonably practicable to make such recommendation prior
to the Shareholders Meeting, taking into account the amount of
time between the disclosure of such offer and the Shareholders
Meeting and the Companys ability to adjourn the
Shareholders Meeting to facilitate such recommendation) and
(ii) eleven Business Days after the commencement of such
tender offer or exchange offer pursuant to
Rule 14d-2
under the Exchange Act; or
(d) there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this
Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, such that
Section 7.2(a) or 7.2(b) would not be satisfied and such
breach or condition is not curable or, if curable, is not cured
within the earlier of (x) thirty (30) days after
written notice thereof is given by Parent to the Company and
(y) the Termination Date.
8.5.
Effect of Termination and Abandonment
.
(a) Except as provided in paragraph (b) below, in the
event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article VIII, this Agreement
shall become void and of no effect with no liability to any
Person on the part of any party hereto (or of any of its
Representatives or Affiliates);
provided
,
however
,
and notwithstanding anything in the foregoing to the contrary,
that (i) no such termination shall relieve any party hereto
of any liability or damages to the other party hereto resulting
from any willful or intentional material breach of this
Agreement and (ii) the provisions set forth in this
Section 8.5 and the second sentence of Section 9.1
shall survive the termination of this Agreement.
(b) If this Agreement is terminated pursuant to any of the
following provisions, the Company shall pay to Parent a fee
equal to $141,000,000 (the
Termination
Fee
):
(i) Section 8.3(b); or
(ii) Section 8.3(c); or
(iii) Section 8.4(a); or
(iv) (Subject to the provisions of the second sentence of
Section 8.5(c)), Section 8.4(b); or
(v) Section 8.4(c); or
(vi) (Subject to the provisions of the second sentence of
Section 8.5(c)), Section 8.2(a) if (A) after the
date of this Agreement, any Person or group (within
the meaning of Section 13(d)(3) of the Exchange Act)
publicly makes or publicly announces an intention to make
(whether or not conditional) an Acquisition Proposal and such
A-32
Acquisition Proposal or publicly announced intention shall not
have been publicly withdrawn without qualification at least ten
(10) days prior to the Outside Date, (B) this
Agreement is terminated thereafter by either Parent or the
Company pursuant to Section 8.2(a) and (C) neither
Parent nor Merger Sub has willfully or intentionally breached in
any material respect its obligations under this Agreement in any
manner that has proximately contributed to the occurrence of the
failure of a condition to the consummation of the Merger; or
(vii) (Subject to the provisions of the second sentence of
Section 8.5(c)), Section 8.2(b) if (A) after the
date of this Agreement, any Person or group (within
the meaning of Section 13(d)(3) of the Exchange Act)
publicly makes or publicly announces an intention to make
(whether or not conditional) an Acquisition Proposal prior to
the Company obtaining the Company Shareholder Approval and such
Acquisition Proposal or publicly announced intention shall not
have been publicly withdrawn without qualification at least five
(5) Business Days prior to the vote of the Companys
shareholders with respect to the Merger, and (B) this
Agreement is terminated thereafter by either Parent or the
Company pursuant to Section 8.2(b); or
(viii) (Subject to the provisions of the second sentence of
Section 8.5(c)), Section 8.4(d) if (A) after the
date of this Agreement, any Person or group (within
the meaning of Section 13(d)(3) of the Exchange Act)
publicly makes or publicly announces an intention to make
(whether or not conditional) an Acquisition Proposal and such
Acquisition Proposal or publicly announced intention shall not
have been publicly withdrawn without qualification at least ten
(10) days prior to the date when the relevant breach
commenced or the relevant representation and warranty shall have
become untrue, and (B) this Agreement is terminated
thereafter by Parent pursuant to Section 8.4(d).
(c) If the Company is required to pay Parent a Termination
Fee, such Termination Fee shall be payable not later than two
Business Days after termination of this Agreement (except with
respect to Section 8.3(b) or 8.3(c), which shall be paid as
set forth in Section 8.3(b) or 8.3(c)), in each case by
wire transfer of immediately available funds to an account
designated by Parent. Notwithstanding the foregoing, the
Termination Fee shall not be payable to Parent pursuant to
Sections 8.5(b)(iv), 8.5(b)(vi), 8.5(b)(vii) or
8.5(b)(viii) unless and until within 12 months of such
termination the Company or any of its Subsidiaries shall have
entered into a binding Alternative Acquisition Agreement
pursuant to which the Company or any of its Subsidiaries has
agreed to undertake, solicit shareholder approval for or engage
in, or shall have consummated, or shall have approved or
recommended to the Companys shareholders or otherwise not
opposed, a transaction of the type referred to in the definition
of Acquisition Proposal (substituting
50% for 20% in the definition of
Acquisition Proposal);
provided
that for
purposes of this Section 8.5, an Acquisition Proposal shall
not be deemed to have been publicly withdrawn by any
Person if, within 12 months of such termination, the
Company or any of its Subsidiaries shall have entered into an
Alternative Acquisition Agreement with respect to, or shall have
consummated, or shall have approved or recommended to the
Companys shareholders or otherwise not opposed, an
Acquisition Proposal made by or on behalf of such Person or any
of its Affiliates. If this Agreement is terminated under any
circumstances in connection with which the Company is required
to pay a Termination Fee the Company shall reimburse Parent and
Merger Sub for all of their reasonable and documented
out-of-pocket Expenses relating to the proposed Merger, up to a
maximum amount of $15,000,000 (the
Parent
Expenses
), contemporaneously with the payment of
the Termination Fee if Parent has theretofore provided written
notice requesting payment and, in the event Parent has not
theretofore provided such written notice, within three Business
Days of receipt of written notice from Parent requesting payment
thereof.
(d) The parties each agree that the agreements contained in
this Section 8.5 are an integral part of the transactions
contemplated by this Agreement, and that, without these
agreements, the parties hereto would not have entered into this
Agreement. Accordingly, if the Company fails promptly to pay any
amounts due under this Section 8.5 and, in order to obtain
such payment, Parent commences a suit that results in a judgment
against the Company for such amounts, the Company shall pay
interest on such amounts from the date payment of such amounts
were due to the date of actual payment at the rate of interest
published from time to time in The Wall Street Journal, Eastern
Edition (or any successor publication thereto), designated
therein as the prime rate on the date such payment was due,
together with the costs and expenses of Parent (including
reasonable legal fees and expenses) in connection with such
suit. Notwithstanding anything to the contrary in this
Agreement, the parties hereby acknowledge that in the event that
the Termination Fee becomes payable and is paid by the Company
pursuant to this Section 8.5, the Termination Fee shall be
Parents and Merger Subs sole and exclusive remedy
for monetary damages under this Agreement.
A-33
ARTICLE IX
Miscellaneous
and General
9.1.
Survival
. This Article IX
and the agreements of the Company, Parent and Merger Sub
contained in Article IV, and Sections 6.10 (Expenses),
6.11 (Director and Officer Liability), together with all other
agreements contained in this Agreement or in any document
delivered pursuant to this Agreement which by their terms apply
or are to be performed in whole or in part after the Effective
Time, shall survive the consummation of the Merger. This
Article IX and the agreements of the Company, Parent and
Merger Sub contained in Section 6.10 (Expenses) and
Section 8.5 (Effect of Termination and Abandonment) and the
Confidentiality Agreement shall survive the termination of this
Agreement. Neither any other covenants and agreements in this
Agreement, nor any representation or warranty contained in this
Agreement shall survive the Effective Time or the termination of
this Agreement.
9.2.
Modification or
Amendment
. Subject to the provisions of the
applicable Laws, at any time prior to the Effective Time, the
parties hereto may modify or amend this Agreement, by written
agreement executed and delivered by duly authorized officers of
the respective parties.
9.3.
Waiver of Conditions
. The
conditions to each of the parties obligations to
consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent
permitted by applicable Laws.
9.4.
Counterparts
. This Agreement
may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all
such counterparts shall together constitute the same agreement.
9.5.
GOVERNING LAW AND VENUE; WAIVER OF JURY
TRIAL; SPECIFIC PERFORMANCE
.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO AGREEMENTS MADE AND WHOLLY TO BE PERFORMED IN THE
COMMONWEALTH OF PENNSYLVANIA. EXCEPT AS SET OUT BELOW IN THIS
PARAGRAPH, EACH OF THE COMPANY, PARENT AND MERGER SUB HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE SOLE
AND EXCLUSIVE JURISDICTION OF THE COMMERCE PROGRAM OF THE COURT
OF COMMON PLEAS OF PHILADELPHIA COUNTY, PENNSYLVANIA (OR, IF
SUCH COURT DOES NOT HAVE SUBJECT MATTER JURISDICTION OVER SUCH
MATTER, IN THE U.S. DISTRICT COURT FOR THE EASTERN DISTRICT
OF PENNSYLVANIA) (THE
PENNSYLVANIA
COURTS
) FOR ANY LITIGATION ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE NEGOTIATION, VALIDITY OR
PERFORMANCE OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED
HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING
THERETO EXCEPT IN SUCH COURTS), WAIVES ANY OBJECTION TO THE
LAYING OF VENUE OF ANY SUCH LITIGATION IN THE PENNSYLVANIA
COURTS AND AGREES NOT TO PLEAD OR CLAIM IN ANY PENNSYLVANIA
COURT THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREES THAT
SERVICE OF PROCESS MAY BE MADE ON THE COMPANY BY
U.S. REGISTERED MAIL TO THE COMPANYS ADDRESS SET
FORTH IN SECTION 9.6 OR OTHER MEANS PERMITTED BY LAW. EACH
OF THE PARTIES HERETO AGREES THAT SERVICE OF PROCESS MAY BE MADE
ON PARENT OR MERGER SUB BY U.S. REGISTERED MAIL TO THE
FOLLOWING ADDRESS:
Tokio Marine Americas Corporation
230 Park Avenue
New York, New York 10160
U.S.A.
A-34
OR OTHER MEANS PERMITTED BY LAW. SERVICE MADE PURSUANT TO THE
IMMEDIATELY PRECEDING SENTENCES SHALL HAVE THE SAME LEGAL FORCE
AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE
COMMONWEALTH OF PENNSYLVANIA. IN THE EVENT ANY PARTY HERETO
FAILS TO NOTIFY ANY OTHER PARTY HERETO OF ITS AGENT FOR SERVICE
OF PROCESS IN THE COMMONWEALTH OF PENNSYLVANIA, NOTHING HEREIN
CONTAINED SHALL BE DEEMED TO AFFECT THE RIGHT OF ANY PARTY
HERETO TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY
OTHER PARTY HERETO IN ANY OTHER JURISDICTION TO ENFORCE
JUDGMENTS OBTAINED IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
PURSUANT TO THIS SECTION 9.5.
(b)
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH
SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
(i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 9.5.
(c) The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms
and provisions of this Agreement in the Commerce Program of the
Court of Common Pleas of Philadelphia County, Pennsylvania (or,
if such court does not have subject matter jurisdiction over
such matter, in the U.S. District Court for the Eastern
District of Pennsylvania), this being in addition to any other
remedy to which such party is entitled at law or in equity;
provided
,
however
, that after any termination of
this Agreement, the provisions of this Section 9.5(c) shall
survive only with respect to those provisions of this Agreement
which survive the termination of this Agreement pursuant to the
provisions of the second sentence of Section 9.1.
9.6.
Notices
. Any notice, request,
instruction or other document to be given hereunder by any party
to the others shall be in writing in the English language and
delivered personally or sent by registered or certified mail,
postage prepaid, by facsimile or overnight courier:
If to Parent or Merger Sub:
Tokio Marine Holdings, Inc.
Tokio Kaijo Nichido Building Shinkan
1-2-1 Marunouchi, Chiyoda-Ku
Tokyo
100-0005
Japan
|
|
|
|
Attention:
|
Kichiichiro Yamamoto
Group Leader, Strategic Planning Group
|
fax: +81 3 3285 0270
with a copy to
Sullivan & Cromwell LLP
125 Broad Street, New York, NY 10004
Attention: Robert G. DeLaMater
fax: +1
(212) 558-3588
A-35
If to the Company:
Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
Attention: Chief Executive Officer
fax: +1
(610) 617-7600
with a copy to
WolfBlock LLP
1650 Arch Street, 22nd Floor
Philadelphia, PA
19103-2097
Attention: Michael M. Sherman
fax: +1
(215) 405-3836
or to such other persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
Any notice, request, instruction or other document given as
provided above shall be deemed given to the receiving party upon
actual receipt, if delivered personally; three (3) Business
Days after deposit in the mail, if sent by registered or
certified mail; upon confirmation of successful transmission if
sent by facsimile or email (provided that if given by facsimile
or email receipt of such notice, request, instruction or other
document is confirmed by telephone); or on the next Business Day
after deposit with an overnight courier, if sent by an overnight
courier.
9.7.
Entire Agreement
. This
Agreement (including any exhibits hereto), the Company
Disclosure Letter and the Confidentiality Agreement, dated
April 7, 2008, between Parent and the Company (the
Confidentiality Agreement
) constitute
the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and
oral, among the parties, with respect to the subject matter
hereof.
9.8.
No Third Party
Beneficiaries
. Except for the directors and
officers referred to in Section 6.11 with respect to the
covenants in their favor referred to therein, the Parent and the
Company hereby agree that their respective representations,
warranties and covenants set forth herein are solely for the
benefit of the other party hereto, in accordance with and
subject to the terms of this Agreement, and this Agreement is
not intended to, and does not, confer upon any Person other than
the parties hereto any rights or remedies hereunder, including,
without limitation, the right to rely upon the representations
and warranties set forth herein. The parties hereto further
agree that the rights of third party beneficiaries under
Section 6.11 shall not arise unless and until the Effective
Time occurs. Notwithstanding the foregoing, the Company shall
have the right to recover, solely through an action brought by
the Company, damages from Parent in the event of a willful or
intentional breach of this Agreement by Parent, in which event
the damages recoverable by the Company for itself and on behalf
of the Companys shareholders and the holders of the Stock
Awards shall be determined by reference to the total amount that
would have been recoverable by such shareholders and holders if
all such shareholders and holders brought an action against
Parent and were recognized as third party beneficiaries
hereunder. The representations and warranties in this Agreement
are the product of negotiations among the parties hereto and are
for the sole benefit of the parties hereto. Any inaccuracies in
such representations and warranties are subject to waiver by the
parties hereto in accordance with Section 9.3 without
notice or liability to any other Person. In some instances, the
representations and warranties in this Agreement may represent
an allocation among the parties hereto of risks associated with
particular matters regardless of the knowledge of any of the
parties hereto. Consequently, Persons other than the parties
hereto may not rely upon the representations and warranties in
this Agreement as characterizations of actual facts or
circumstances as of the date of this Agreement or as of any
other date.
9.9.
Obligations of Parent and of the
Company
. Whenever this Agreement requires the
Merger Sub to take any action, such requirement shall be deemed
to include an undertaking on the part of Parent to cause Merger
Sub to take such action. Whenever this Agreement requires a
Subsidiary of the Company to take any action, such requirement
shall be deemed to include an undertaking on the part of the
Company to cause such Subsidiary to take such action and, after
the Effective Time, on the part of the Surviving Corporation to
cause such Subsidiary to take such action.
A-36
9.10.
Transfer Taxes
. All transfer,
documentary, sales, use, stamp, registration and other such
Taxes and fees (including penalties and interest) incurred in
connection with the Merger shall be paid by the Person that has
the primary legal liability for such Taxes.
9.11.
Definitions
. Each of the
terms set forth in Annex A is defined in the Section of
this Agreement set forth opposite such term.
9.12.
Severability
. The provisions
of this Agreement shall be deemed severable and the invalidity
or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof. If
any provision of this Agreement, or the application of such
provision to any Person or any circumstance, is invalid or
unenforceable, (a) a suitable and equitable provision shall
be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other Persons
or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the
application of such provision, in any other jurisdiction.
9.13.
Interpretation; Construction
.
(a) The table of contents and headings herein are for
convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect
any of the provisions hereof. Where a reference in this
Agreement is made to a Section or Exhibit, such reference shall
be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words include,
includes or including are used in this
Agreement, they shall be deemed to be followed by the words
without limitation.
(b) The parties have participated jointly in negotiating
and drafting this Agreement. In the event that an ambiguity or a
question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any
provision of this Agreement.
(c) Each party to this Agreement has or may have set forth
information in its respective Disclosure Letter in a section of
such Disclosure Letter that corresponds to the section of this
Agreement to which it relates. The fact that any item of
information is disclosed in a Disclosure Letter to this
Agreement shall not be construed to mean that such information
is required to be disclosed by this Agreement.
9.14.
Assignment
. This Agreement
shall not be assignable by operation of law or otherwise;
provided
,
however
, that Parent may designate, by
written notice to the Company, another wholly owned direct or
indirect Subsidiary which is a Pennsylvania corporation to be a
Constituent Corporation in lieu of Merger Sub, in which event
all references herein to Merger Sub shall be deemed references
to such other Subsidiary, except that all representations and
warranties made herein with respect to Merger Sub as of the date
of this Agreement shall be deemed representations and warranties
made with respect to such other Subsidiary as of the date of
such designation;
provided
that any such designation
shall not impede or delay the consummation of the transactions
contemplated by this Agreement or otherwise impede the rights of
the shareholders of the Company under this Agreement. Any
purported assignment in violation of this Agreement is void.
9.15.
Dates and Dollar Amounts
. All
references to dates in this Agreement shall be deemed to be
references to dates in the United States, and all references to
$ or dollars shall be references to
United States dollars.
[
Signatures
appear on following pages
]
A-37
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto
as of the date first written above.
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
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By:
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/s/ James
J. Maguire, Jr.
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Name: James J. Maguire, Jr.
TOKIO MARINE HOLDINGS, INC.
Name: Shuzo Sumi
Acceded to as of August 12, 2008
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TOKIO MARINE INVESTMENT
(PENNSYLVANIA) INC.
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Name: Hayato
Isogai
[
Signature
Page to Merger Agreement
]
A-38
ANNEX A
DEFINED
TERMS
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Terms
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Section
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Acquisition Proposal
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6.2(b)
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Agent
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5.1(r)(i)
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Agreement
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Preamble
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Alternative Acquisition Agreement
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6.2(c)(i)
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Applicable Date
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5.1(e)(i)
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Bankruptcy and Equity Exception
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5.1(c)(i)
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Benefit Plans
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5.1(h)(i)
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business day
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1.2
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By-Laws
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2.2
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Certificate
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4.1(a)
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Change in Company Recommendation
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6.2(c)(i)
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Charter
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2.1
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Closing
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1.2
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Closing Date
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1.2
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Code
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4.2(g)
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Company
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Preamble
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Company Actuarial Analyses
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5.1(r)(ii)
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Company Approvals
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5.1(d)(i)
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Company Disclosure Letter
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5.1
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Company Insurance Subsidiaries
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5.1(a)
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Company Labor Agreements
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5.1(o)
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Company Recommendation
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5.1(c)(ii)
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Company Reports
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5.1(e)(i)
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Company SAP Statements
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5.1(e)(iv)
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Company Subsidiary
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5.1(a)
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Confidentiality Agreement
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9.7
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Constituent Corporations
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Preamble
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Contract
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5.1(d)(ii)
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Copyrights
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5.1(p)(iv)
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Costs
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6.11(a)
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Current Policy
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6.11(b)
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D&O Insurance
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6.11(b)
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Dormant Subsidiary
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6.16
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Effective Time
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1.3
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EGTRRA
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5.1(h)(ii)
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Employees
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5.1(h)(i)
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Environmental Law
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5.1(m)
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ERISA
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5.1(h)(i)
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ERISA Affiliate
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5.1(h)(iii)
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ERISA Plan
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5.1(h)(ii)
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Exchange Act
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5.1(a)
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Exchange Fund
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4.2(a)
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A-39
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Terms
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Section
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Excluded Share
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4.1(a)
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Excluded Shares
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4.1(a)
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GAAP
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5.1(a)(D)
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Governmental Entity
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5.1(d)(i)
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Hazardous Substance
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5.1(m)
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HSR Act
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5.1(d)(i)9.7
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Indemnified Parties
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6.11(a)
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Insurance Amount
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6.11(b)
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Insurance Policies
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5.1(q)
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Intellectual Property
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5.1(p)(iv)
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Interim SAP Statements
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5.1(e)(iv)
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IRS
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5.1(h)(ii)
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JFSA
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5.2(c)(i)
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Laws
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5.1(i)
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Leased Real Property
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5.1(k)(ii)
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Licenses
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5.1(i)
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Lien
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5.1(b)(i)
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Material Adverse Effect
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5.1(a)
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Material Contracts
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5.1(j)(i)
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Merger
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1.1
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Merger Consideration
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4.1(a)
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Merger Sub
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6.14
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Merrill Lynch
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5.1(c)(ii)
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Multiemployer Plan
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5.1(h)(i)
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Negative Regulatory Action
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6.5(e)
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Notice Period
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6.2(d)
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Option
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4.3(a)
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Order
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7.1(c)
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Other Company Awards
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4.3(f)
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Owned Intellectual Property
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5.1(p)(i)
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Parent
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Preamble
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Parent Approvals
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5.2(c)(i)
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Parent Expenses
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8.5(c)
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Paying Agent
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4.2(a)
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PBCL
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Preamble
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Pennsylvania Articles of Merger
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1.3
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Pennsylvania Courts
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9.5(a)
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Pension Plan
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5.1(h)(ii)
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Per Share Merger Consideration
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4.1(a)
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Performance Award
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4.3(c)
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Person
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4.2(d)
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PIC
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6.15
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PIIC
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6.15
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Proxy Statement
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6.3
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A-40
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Terms
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Section
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Reinsurance Agreements
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5.1(s)
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Representatives
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6.2(a)
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Requisite Company Vote
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5.1(c)(i)
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Requisite Parent Vote
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5.2(b)
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Restricted Contract
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5.1(j)(i)
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Restricted Shares
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4.3(d)
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SAP
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5.1(e)(iv)
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SAR
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4.3(b)
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Share
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4.1(a)
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Shareholders Meeting
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6.4
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Shares
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4.2(a)4.1(a)
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Significant Subsidiary
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5.1(a)
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Specified Borrowings
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6.1(a)(v)
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Stock Awards
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4.1(a)4.2(a)
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Stock Purchase Plan Awards
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4.3(e)
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Subsidiary
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5.1(a)
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Superior Proposal
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6.1(b)
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Surviving Corporation
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1.1
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Takeover Statute
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5.1(l)
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Tax
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5.1(n)
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Tax Return
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5.1(n)
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Taxes
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5.1(m)
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Termination Date
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8.2(a)
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Termination Fee
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8.5(b)
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Termination Notice Period
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8.3(b)
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Third Party
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6.2(b)
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Trade Secrets
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5.1(p)(iv)
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Trademarks
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5.1(p)(iv)
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Voting Agreements
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5.1(l)
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A-41
Appendix
B
July 22,
2008
Board of Directors
Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
Members of the Board of Directors:
Philadelphia Consolidated Holding Corp. (the
Company), Tokio Marine Holdings, Inc. (the
Parent) and a wholly owned subsidiary of the Parent
(the Merger Sub), to be formed promptly after
entering into the Agreement (as defined below), but no later
than twenty (20) calendar days thereof, propose to enter
into an Agreement and Plan of Merger (the Agreement)
pursuant to which Merger Sub would be merged with and into the
Company in a merger (the Merger) in which each share
of Common Stock, no par value per share, of the Company (the
Company Shares), other than Company Shares owned by
Parent, Merger Sub or any other direct or indirect wholly owned
subsidiary of Parent and Company Shares owned by the Company or
any direct or indirect wholly owned subsidiary of the Company,
and in each case not held on behalf of third parties would be
converted into the right to receive $61.50 per share in cash
(the Merger Consideration).
You have asked us whether, in our opinion, the Merger
Consideration to be received by the holders of the Company
Shares pursuant to the Merger is fair from a financial point of
view to such holders.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and
financial information relating to the Company that we deemed to
be relevant;
(2) Reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of the Company furnished to us
by the Company;
(3) Conducted discussions with members of senior management
of the Company concerning the matters described in
clauses 1 and 2 above;
(4) Reviewed the market prices and valuation multiples for
the Company Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
4 World Financial Center FL 25
New York, NY 10080
(5) Reviewed the results of operations of the Company and
compared them with those of certain publicly traded companies
that we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger
with the financial terms of certain other transactions that we
deemed to be relevant;
(7) Participated in certain discussions and negotiations
among representatives of the Company and the Parent and their
financial and legal advisors;
(8) Reviewed a draft dated July 19, 2008 of the
Agreement; and
(9) Reviewed such other financial studies and analyses and
took into account such other matters as we deemed necessary,
including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have assumed and relied on the
accuracy and completeness of all information supplied or
otherwise made available to us, discussed with or reviewed by or
for us, or publicly available, and we have not assumed any
responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the
assets or liabilities of the Company or been furnished with any
such evaluation or appraisal, nor have we evaluated the solvency
or fair value of the Company under any state or federal laws
relating to bankruptcy, insolvency or similar matters. We are
not experts in the evaluation of reserves for property and
casualty insurance losses and loss adjustment expenses and we
have not made an independent evaluation of the adequacy of the
reserves of the Company. In that regard, we have made no
analysis of, and express no opinion as to, the adequacy of the
losses and loss adjustment expense reserves of the Company,
including any asbestos related reserves and outstanding claim
obligations of the Company. In addition, we have not assumed any
obligation to conduct any physical inspection of the properties
or facilities of the Company. With respect to the financial
forecast information furnished to or discussed with us by the
Company, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment
of the Companys management as to the expected future
financial performance of the Company. We have also assumed that
the final form of the Agreement will be substantially similar to
the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the
information made available to us as of, the date hereof.
We are acting as financial advisor to the Company in connection
with the Merger and will receive a fee from the Company for our
services, which is contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for
certain liabilities arising out of our engagement.
We have, in the past, provided financial advisory and financing
services to the Company and may continue to do so and have
received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of our business,
we or our affiliates may actively trade the Company Shares and
other securities of the Company, as well as securities of the
Parent for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position
in such securities.
This opinion is for the use and benefit of the Board of
Directors of the Company. Our opinion does not address the
merits of the underlying decision by the Company to engage in
the Merger and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the
proposed Merger or any matter related thereto. In addition, you
have not asked us to address, and this opinion does not address,
the fairness to, or any other consideration of, the holders of
any class of securities, creditors or other constituencies of
the Company, other than the holders of the Company Shares. In
rendering this opinion, we express no view or opinion with
respect to the fairness (financial or otherwise) of the amount
or nature or any other aspect of any compensation payable to or
to be received by any officers, directors, or employees of any
parties to the Transaction, or any class of such persons,
2
relative to the Merger Consideration. Our opinion has been
authorized for issuance by the U.S. Fairness Opinion (and
Valuation Letter) Committee of Merrill Lynch.
On the basis of and subject to the foregoing, we are of the
opinion that, as of the date hereof, the Merger Consideration to
be received by the holders of the Company Shares pursuant to the
Merger is fair from a financial point of view to the holders of
such shares.
Very truly yours,
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/s/ Merrill Lynch, Pierce, Fenner & Smith, Inc.
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MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
3
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
PHILADELPHIA CONSOLIDATED HOLDING CORP.
The undersigned
shareholder hereby appoints James J. Maguire, Jr. and Craig P. Keller, or either one of them,
the proxies of the undersigned, with full power of substitution, to vote all the shares of common
stock of Philadelphia Consolidated Holding Corp. (the
Company) which the undersigned would be entitled to vote
if personally present at the Special Meeting of Shareholders of the
Company to be held on October 23, 2008 at 2:00 p.m.
Philadelphia time and at any and all adjournments thereof, with all the powers the undersigned would possess if the undersigned were present.
The undersigned shareholder
instructs the proxies to vote as specified on this proxy on the
matters described in the Companys Proxy Statement dated
September 26, 2008. Proxies will be voted as instructed.
If no choice is specified, this proxy will be voted for the adoption of the Agreement and Plan of Merger, dated as of July 22, 2008, among the Company, Tokio Marine Holdings, Inc. and Tokio Marine Investment (Pennsylvania) Inc.; and for the approval of the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes present, in person or by proxy, at the time of the special meeting to adopt the Agreement and Plan of Merger.
By execution of this proxy, the undersigned shareholder confers upon the above-appointed proxies the discretionary authority to vote upon any other matters which may properly come before the meeting.
The undersigned acknowledges receipt of the Proxy
Statement and Notice of said meeting, both dated September 26, 2008.
(Continued and to
be signed on the reverse side.)
SPECIAL MEETING OF SHAREHOLDERS OF
PHILADELPHIA CONSOLIDATED HOLDING CORP.
October 23, 2008
Please
sign, date
and mail
your proxy card in the
envelope provided as soon
as possible.
â
Please detach along perforated line and mail in the envelope provided.
â
n
00030300000000000000 8
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
x
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FOR
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AGAINST
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ABSTAIN
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1.
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Adoption of the Agreement and Plan of Merger,
dated as of July 22, 2008, among the Company, Tokio Marine Holdings,
Inc. and Tokio Marine Investment (Pennsylvania) Inc.
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2.
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Approval of the adjournment or postponement of the special
meeting, if necessary or appropriate, to solicit additional proxies
in the event there are not sufficient votes present, in person or
by proxy, at the time of the special meeting to adopt the
Agreement and Plan of Merger.
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THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT THIS PROXY SHALL BE VALID AND MAY BE VOTED WHETHER OR NOT THE SHAREHOLDERS NAME IS SET FORTH BELOW OR A SEAL IS AFFIXED OR THE DESCRIPTION, AUTHORITY OR CAPACITY OF THE PERSON SIGNING IS GIVEN OR OTHER DEFECT OF SIGNATURE EXISTS.
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INSTRUCTION:
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To change the address on your account, please check the
box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not
be submitted via this method.
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Signature of
Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized
person.
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n
n
SPECIAL MEETING OF SHAREHOLDERS OF
PHILADELPHIA CONSOLIDATED HOLDING CORP.
October 23, 2008
PROXY
VOTING
INSTRUCTIONS
MAIL
-
Sign, date and mail your proxy card in the envelope provided as soon as possible.
- OR -
TELEPHONE
-
Call toll-free
1-800-PROXIES
(1-800-776-9437) in the United States or
1-718-921-8500
from foreign countries and follow the instructions. Have your proxy card available when you call.
- OR -
INTERNET
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Access
www.voteproxy.com
and follow the on-screen instructions. Have your proxy card available when you access the web page.
- OR -
IN PERSON
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You may vote your shares in person by attending the Special Meeting.
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COMPANY
NUMBER
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ACCOUNT
NUMBER
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You may enter your voting instructions at 1-800-PROXIES in the United States or 1-718-921-8500 from foreign countries or www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or meeting date.
ê
Please detach along perforated line and mail in the envelope provided
IF
you are not voting via telephone or the Internet.
ê
n
00030300000000000000 8
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
x
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FOR
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AGAINST
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ABSTAIN
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1.
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Adoption of the Agreement and Plan of Merger,
dated as of July 22, 2008, among the Company, Tokio Marine Holdings,
Inc. and Tokio Marine Investment (Pennsylvania) Inc.
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2.
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Approval of the adjournment or postponement of the special
meeting, if necessary or appropriate, to solicit additional proxies
in the event there are not sufficient votes present, in person or
by proxy, at the time of the special meeting to adopt the
Agreement and Plan of Merger.
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THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT THIS PROXY SHALL BE VALID AND MAY BE VOTED WHETHER OR NOT THE SHAREHOLDERS NAME IS SET FORTH BELOW OR A SEAL IS AFFIXED OR THE DESCRIPTION, AUTHORITY OR CAPACITY OF THE PERSON SIGNING IS GIVEN OR OTHER DEFECT OF SIGNATURE EXISTS.
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INSTRUCTION:
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To change the address on your account, please check the
box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not
be submitted via this method.
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o
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Signature of
Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as
such. If signer is a
partnership, please sign in partnership name by authorized
person.
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Philadelphia Consolidated (NASDAQ:PHLY)
Historical Stock Chart
From Jul 2024 to Jul 2024
Philadelphia Consolidated (NASDAQ:PHLY)
Historical Stock Chart
From Jul 2023 to Jul 2024