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Exhibit 2.1
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EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER
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Dated as of October 30, 2007
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by and among
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MAPFRE S.A.,
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MAGELLAN ACQUISITION CORP.
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and
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THE COMMERCE GROUP, INC.
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<PAGE>
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Section 1.1
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The Merger
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1
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Section 1.2
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Effective Time of the Merger
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1
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Section 1.3
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Effects of the Merger
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1
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Section 1.4
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Closing
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2
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Section 1.5
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Further Assurances
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2
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ARTICLE II
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THE SURVIVING CORPORATION
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2
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Section 2.1
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Articles of Organization
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2
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Section 2.2
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Bylaws
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2
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Section 2.3
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Directors
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2
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Section 2.4
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Officers
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2
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ARTICLE III
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EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT
CORPORATIONS; SURRENDER OF CERTIFICATES
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3
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Section 3.1
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Conversion of Company Common Stock in the Merger
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3
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Section 3.2
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Conversion of Subsidiary Shares
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3
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Section 3.3
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Surrender and Exchange of Certificates
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3
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Section 3.4
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Closing of the Company's Transfer Books
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5
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Section 3.5
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Options; Restricted Stock Units
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5
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Section 3.6
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Tax Withholding
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6
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Section 3.7
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Dissenting Shares
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6
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ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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7
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Section 4.1
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Organization and Qualification
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7
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Section 4.2
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Capitalization
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8
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Section 4.3
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Ownership Interests in Other Entities
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9
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Section 4.4
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Authority; Non-Contravention; Approvals
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10
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Section 4.5
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SEC Reports and Financial Statements
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11
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Section 4.6
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Absence of Undisclosed Liabilities
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13
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Section 4.7
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Absence of Certain Changes or Events
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14
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Section 4.8
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Litigation
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14
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Section 4.9
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Proxy Statement
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14
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Section 4.10
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Compliance with Laws; Permits.
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14
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Section 4.11
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Affiliate Transactions
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16
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Section 4.12
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Taxes
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16
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Section 4.13
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Employee Benefit Plans; ERISA
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17
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<PAGE> i
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Section 4.14
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Labor Controversies
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19
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Section 4.15
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Real Estate
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20
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Section 4.16
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Environmental Matters
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21
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Section 4.17
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Intellectual Property
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21
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Section 4.18
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Contracts
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23
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Section 4.19
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Insurance Matters
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23
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Section 4.20
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Brokers and Finders
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25
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Section 4.21
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Opinion of Company Financial Advisor
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25
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ARTICLE V
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REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
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25
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Section 5.1
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Organization
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25
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Section 5.2
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Authority; Non-Contravention; Approvals
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25
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Section 5.3
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Compliance with Applicable Laws
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26
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Section 5.4
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Litigation
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26
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Section 5.5
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Information Supplied
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26
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Section 5.6
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Financing
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26
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Section 5.7
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Subsidiary
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27
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Section 5.8
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Brokers and Finders
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27
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Section 5.9
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Massachusetts Business Combination Law
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27
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ARTICLE VI
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COVENANTS OF THE PARTIES
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27
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Section 6.1
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Conduct of the Company's Business
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27
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Section 6.2
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Reasonable Best Efforts to Consummate
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29
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Section 6.3
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Preparation of Proxy Statement; Meeting of Shareholders
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31
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Section 6.4
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Public Statements
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32
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Section 6.5
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Access to Information; Confidentiality
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32
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Section 6.6
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Acquisition Proposals
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32
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Section 6.7
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Expenses and Fees
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34
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Section 6.8
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Directors' and Officers' Indemnification and Insurance
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34
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Section 6.9
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Employee Benefits
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35
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Section 6.10
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Certain Covenants Regarding Agents
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36
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Section 6.11
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Parent Vote
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37
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Section 6.12
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Commitment
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37
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ARTICLE VII
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CONDITIONS
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37
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Section 7.1
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Conditions to Each Party's Obligation to Effect the Merger
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37
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<PAGE> ii
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Section 7.2
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Conditions to Obligations of Parent and Subsidiary
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37
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Section 7.3
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Conditions to Obligations of the Company
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38
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ARTICLE VIII
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TERMINATION
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39
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Section 8.1
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Termination
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39
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Section 8.2
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Effect of Termination
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40
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ARTICLE IX
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GENERAL PROVISIONS
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41
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Section 9.1
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Amendment
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41
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Section 9.2
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Extension; Waiver
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41
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Section 9.3
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Non-Survival
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41
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Section 9.4
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Notices
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42
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Section 9.5
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GOVERNING LAW
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43
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Section 9.6
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Jurisdiction
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43
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Section 9.7
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Third-Party Beneficiaries
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43
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Section 9.8
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Severability
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43
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Section 9.9
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Assignment
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43
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Section 9.10
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Interpretation; Certain Definitions
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43
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Section 9.11
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Enforcement
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44
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Section 9.12
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Obligations of Parent and of the Company
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44
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Section 9.13
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Counterparts
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44
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Section 9.14
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Entire Agreement
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44
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<PAGE> iii
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ACIC Options
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5
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HSR Act
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10
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Acquisition Proposal
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34
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Insurance Laws
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8
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Agency Plan
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36
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Intellectual Property Rights
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22
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Agent Option Payment
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6
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IRS
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17
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Agreement
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1
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Laws
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10
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Alternative Transaction
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40
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Leased Real Property
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20
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Antitrust Division
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30
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Licensed Intellectual Property Rights
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22
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Antitrust Filings
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10
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Lien
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9
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Business Day
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44
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Material Contract
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13
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Closing
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2
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MBCA
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1
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Closing Date
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2
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Merger
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1
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Code
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6
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Merger Filing
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1
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Commitment
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27
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New York Courts
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43
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Common Stock Consideration
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1
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Notice Period
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34
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Company
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1
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Option
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5
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Company Actuarial Analyses
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25
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Option Consideration
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5
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Company Certificate
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3
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Owned Intellectual Property Rights
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22
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Company Common Stock
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1
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Owned Real Property
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20
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Company Disclosure Schedule
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7
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Parent
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1
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Company Financial Advisor
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25
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Parent Insurance Approvals
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26
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Company Material Adverse Effect
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7
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Parent Material Adverse Effect
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26
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Company Permits
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15
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Parent Notice
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34
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Company Plan
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18
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Parent Representatives
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32
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Company Producers
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24
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Paying Agent
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3
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Company Real Property
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20
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Pension Plan
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18
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Company Regulatory Approvals
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11
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Permitted Liens
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20
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Company Reinsurance Agreements
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24
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Person
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44
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Company Representatives
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33
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Plan
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36
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Company SAP Statements
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12
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Post-Closing Tax Period
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17
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Company SEC Report
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11
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Proxy Statement
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10
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Company Shareholders' Approval
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10
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Recommendation
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32
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Company Subsidiary
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3
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Release
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21
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Confidentiality Agreement
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33
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Restricted Stock Units
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5
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Dissenting Shareholders
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1
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RSU Agreement
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5
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Dissenting Shares
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1
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RSU Consideration
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5
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Effective Date Holder
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3
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SAP
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7
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Effective Time
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1
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SEC
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10
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Environmental Law
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21
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Securities Act
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9
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Equity Awards
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5
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Shareholders Meeting
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14
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Equity Award Consideration
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5
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Subsidiary
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1
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ERISA
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17
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Subsidiary
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44
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ERISA Affiliate
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18
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Superior Proposal
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34
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ESOP
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36
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Surviving Corporation
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1
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Exchange Act
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9
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Tax Return
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16
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Exchange Rules
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32
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Taxes
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16
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Expense Reimbursement
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41
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Termination Date
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39
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FTC
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30
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Termination Fee
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40
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GAAP
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7
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To the Knowledge of the Company
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13
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Governmental Authority
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5
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Welfare Plan
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18
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Hazardous Materials
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21
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<PAGE> iv
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AGREEMENT AND PLAN OF MERGER
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THIS
AGREEMENT AND PLAN OF MERGER, dated as of October 30, 2007 (this "
Agreement "), is made and entered into by and among MAPFRE
S.A., a company organized under the laws of Spain (" Parent
"), Magellan Acquisition Corp., a Massachusetts corporation and an
indirect wholly-owned subsidiary of Parent (" Subsidiary "),
and The Commerce Group, Inc., a Massachusetts corporation (the "
Company ").
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BACKGROUND
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WHEREAS,
Parent, Subsidiary and the Company wish to provide for a merger of
Subsidiary with and into the Company (the " Merger "), upon
the terms and subject to the conditions set forth in this Agreement
and in accordance with the applicable provisions of the
Massachusetts Business Corporation Act (the " MBCA "),
whereby all of the issued and outstanding shares of common stock,
par value $0.50 per share, of the Company (the " Company Common
Stock ") issued and outstanding immediately prior to the
Effective Time (as hereinafter defined), other than (i) the
shares of Company Common Stock owned directly or indirectly by
Parent, Subsidiary or the Company and (ii) to the extent appraisal
rights are available under the MBCA, any shares of Company Common
Stock (" Dissenting Shares ") held by record holders or
beneficial owners of shares of Company Common Stock who duly
satisfy the applicable requirements of the MBCA for the exercise of
appraisal rights and to obtain payment of the fair value for their
shares (" Dissenting Shareholders "), will be converted into
the right to receive $36.70 per share in cash (the " Common
Stock Consideration ");
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WHEREAS, the
Board of Directors of Parent has unanimously approved, and the
respective Boards of Directors of each of Subsidiary and the
Company have unanimously adopted, this Agreement; and
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WHEREAS,
Parent, Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection
with the Merger;
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NOW,
THEREFORE, the parties hereto, intending to be legally bound, agree
as follows:
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ARTICLE I
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THE MERGER
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Section
1.1 The Merger . Subject to the terms and
conditions of this Agreement, at the Effective Time, in accordance
with this Agreement and the MBCA, Subsidiary shall be merged with
and into the Company. At the Effective Time, the separate existence
of Subsidiary shall cease and the Company shall continue as the
surviving corporation in the Merger (the " Surviving
Corporation ").
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Section
1.2 Effective Time of the Merger . The Merger
shall become effective at the time (such time, the " Effective
Time ") of the filing of articles of merger (in the form
required by, and executed in accordance with, the relevant
provisions of the MBCA) with the Secretary of State of the
Commonwealth of Massachusetts in accordance with the MBCA (the "
Merger Filing "). The Merger Filing shall be made
simultaneously with or as promptly as practicable following the
Closing.
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Section
1.3 Effects of the Merger . The Merger shall
have the effects set forth in the applicable provisions of the
MBCA, including Section 11.07. Without limiting the generality
of the foregoing, at the Effective Time, except as otherwise
provided in this Agreement, all the property, rights, privileges,
powers and franchises, and all and every other interest of
Subsidiary and the Company, shall
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<PAGE>
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vest in the Surviving Corporation, and all
debts, liabilities and duties of Subsidiary and the Company shall
become the debts, liabilities and duties of the Surviving
Corporation.
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Section
1.4 Closing . Subject to the satisfaction or
waiver of the conditions to the obligations of the parties to
effect the Merger set forth in this Agreement, a closing to
effectuate the consummation of the Merger (the " Closing ")
shall take place at 10:00 am local time on the fifth business day
after the satisfaction or waiver of all the conditions set forth in
Article VII (other than conditions that, by their nature, are to be
satisfied at the Closing, but subject to the satisfaction or waiver
of those conditions), at the offices of Clifford Chance US LLP, 31
West 52 nd Street, New York, New York, or at such other
time or place as Parent and the Company may agree. The date on
which the Closing occurs is sometimes referred to in this Agreement
as the " Closing Date ."
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Section
1.5 Further Assurances . At and after the
Effective Time, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the name
and on behalf of the Company or Subsidiary, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and
on behalf of the Company or Subsidiary, any other actions and
things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to
and under any of the rights, properties or assets acquired or to be
acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
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ARTICLE II
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THE SURVIVING CORPORATION
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Section
2.1 Articles of Organization . The articles of
organization of the Company as in effect immediately prior to the
Effective Time shall be amended in the Merger to be identical to
the articles of organization of Subsidiary as in effect immediately
prior to the Effective Time (except that the articles of
organization shall provide that the name of the Surviving
Corporation shall be the name of the Company) and, as so amended,
shall be the articles of organization of the Surviving Corporation
after the Effective Time until thereafter amended in accordance
with applicable law.
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Section
2.2 Bylaws . From and after the Effective Time,
the bylaws of Subsidiary as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation
after the Effective Time until thereafter amended in accordance
with applicable law.
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Section
2.3 Directors . From and after the Effective
Time, the directors of the Surviving Corporation shall be the
directors of Subsidiary immediately prior to the Effective Time and
shall serve in accordance with the articles of organization and
bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal.
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Section
2.4 Officers . Unless otherwise determined by
Parent, the officers of the Surviving Corporation shall be the
officers of the Company immediately prior to the Effective Time and
such officers shall serve in accordance with the articles of
organization and bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified
or until their earlier death, resignation or removal.
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<PAGE> 2
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ARTICLE III
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EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT
CORPORATIONS; SURRENDER OF CERTIFICATES
|
| |
|
Section
3.1 Conversion of Company Common Stock in the
Merger . At the Effective Time, by virtue of the Merger and
without any further action on the part of any holder of any capital
stock of Parent, Subsidiary or the Company:
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(a) each
previously-issued share of Company Common Stock that remains
outstanding immediately prior to the Effective Time, other than any
shares required to be canceled pursuant to Section 3.1(b) and
any Dissenting Shares, shall be converted into the right to receive
the Common Stock Consideration, payable to the holder thereof, in
each case without interest, upon surrender of the certificate
formerly representing such share of the Company Common Stock and
such other documents as reasonably may be required in accordance
with Section 3.3, and all such shares of Company Common Stock, when
so converted, no longer shall be outstanding and automatically
shall be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Company
Common Stock (a " Company Certificate ") shall cease to have
any rights with respect thereto, except the right to receive the
Common Stock Consideration per share therefor, without interest,
upon the surrender of such certificate in accordance with Section
3.3 or to perfect any rights of appraisal as a holder of Dissenting
Shares that such holder may have pursuant to the MBCA, as well as
the right to receive any unpaid dividend with respect to the
Company Common Stock with a record date occurring prior to the
Effective Time and each holder of shares of Company Common Stock
issued in uncertificated form similarly shall cease to have any
rights with respect thereto, except the right to receive the Common
Stock Consideration per share therefor, without interest, upon
compliance with the requirements of Section 3.3 or to perfect any
rights of appraisal as a holder of Dissenting Shares that such
holder may have pursuant to the MBCA, as well as the right to
receive any unpaid dividend with respect to the Company Common
Stock with a record date occurring prior to the Effective Time;
and
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(b) each
share of Company Common Stock of the Company, if any, owned of
record or beneficially, directly or indirectly, by Parent or
Subsidiary or held in treasury by the Company or any subsidiary of
the Company (each a " Company Subsidiary ") immediately
prior to the Effective Time (other than shares held in a fiduciary
capacity) automatically shall be canceled and retired and shall
cease to exist and no cash or other consideration shall be
delivered or deliverable in exchange therefor.
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Section
3.2 Conversion of Subsidiary Shares . At the
Effective Time, by virtue of the Merger and without any further
action on the part of Parent as the sole shareholder of Subsidiary,
each issued and outstanding share of common stock, par value $0.10
per share, of Subsidiary that is issued and outstanding prior to
the Effective Time shall be converted into and become one fully
paid and nonassessable share of common stock, par value $0.50 per
share, of the Surviving Corporation.
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Section
3.3 Surrender and Exchange of Certificates .
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(a) Prior
to the Effective Time, Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as paying agent
in the Merger (the " Paying Agent "), and from and after the
Effective Time Parent shall deposit or cause to be deposited with
the Paying Agent cash in an amount equal to the aggregate amounts
payable under Sections 3.1(a) and 3.5.
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(b) As
soon as reasonably practicable after the Effective Time but in no
event later than five (5) business days after the date thereof,
Parent shall cause the Paying Agent to mail to each holder of
record of Company Common Stock (each an " Effective Date
Holder ") whose shares were converted into
|
<PAGE> 3
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the right to receive the Common Stock
Consideration pursuant to Section 3.1(a), (i) a letter of
transmittal in customary form for transactions of this nature
(which shall specify that for holders of shares not issued in
uncertificated form, delivery of such holder's Company Certificates
shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon actual delivery of the Company
Certificates to the Paying Agent and shall be in such form and have
such other provisions as Parent reasonably may specify), and (ii)
instructions for use in effecting the surrender of the Company
Certificates in exchange for the Common Stock Consideration and
instructions for use by holders of shares issued in uncertificated
form. Upon delivery to the Paying Agent of a duly executed letter
of transmittal and such other documents as the Paying Agent shall
reasonably require, including where applicable delivery of Company
Certificates, each Effective Date Holder shall be entitled to
receive in exchange therefor the Common Stock Consideration for
each share of Company Common Stock covered by the letter of
transmittal, in accordance with Section 3.1(a), and the Company
Certificates so surrendered shall be canceled. If a transfer of
ownership of Company Common Stock has occurred but has not been
registered in the transfer records of the Company, a check
representing the proper amount of Common Stock Consideration may be
issued to the transferee if the Company Certificate representing
such shares of Company Common Stock is presented to the Paying
Agent accompanied by all documents and endorsements required to
evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered
as provided in this Section 3.3, each Company Certificate shall be
deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the Common Stock Consideration
for each share of Company Common Stock represented thereby. No
interest will be paid or accrue on any amounts payable upon
surrender of any Company Certificate.
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(c) Promptly
following the date that is twelve months after the Effective Time,
the Paying Agent shall deliver to Parent all cash and any documents
in its possession or control relating to the transactions described
in this Agreement, and the Paying Agent's duties shall terminate.
Thereafter, each holder of a Company Certificate may surrender such
Company Certificate to the Surviving Corporation or Parent and
(subject to applicable abandoned property, escheat or other similar
laws) receive in exchange therefor the Common Stock Consideration,
payable upon due surrender of the Company Certificate without any
interest thereon.
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(d) If
any Company Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming
such Company Certificate to be lost, stolen or destroyed, the
Paying Agent shall issue in exchange for such lost, stolen or
destroyed Company Certificate the Common Stock Consideration
deliverable in respect thereof determined in accordance with this
Article III; provided , however , that Parent or the
Paying Agent may, in its discretion, require the delivery of an
indemnity or bond in customary amount against any claim that may be
made against the Surviving Corporation with respect to such Company
Certificate or ownership thereof.
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(e) The
Paying Agent shall invest any funds held by it for purposes of this
Section 3.3 as directed by Parent, on a daily basis. Any interest
and other income resulting from such investments shall be paid to
Parent. To the extent that there are losses with respect to any
such investments, Parent shall be responsible to ensure that the
Paying Agent has access to funds sufficient to make any required
payments under this Article III promptly when due.
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(f) None
of Parent, Subsidiary, the Company, the Surviving Corporation or
the Paying Agent shall be liable to any person in respect of any
cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Company
Certificates shall not have been surrendered prior to two years
after the Effective Time (or immediately prior to such earlier date
on which any of the Common Stock Consideration would otherwise
escheat or become the property of any federal, state, local,
municipal or foreign government, whether national, regional or
local, any instrumentality, subdivision, court, self-regulatory
organization, administrative agency or commission or other
authority
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<PAGE> 4
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thereof, or any quasi-governmental or private
body exercising any regulatory, taxing or other governmental or
quasi-governmental authority (any of the foregoing, a "
Governmental Authority "), any amounts payable in respect
thereof shall, to the extent permitted by law, become the property
of the Surviving Corporation, free and clear of all claims or
interest on any person previously entitled thereto.
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Section
3.4 Closing of the Company's Transfer Books . At
the Effective Time, holders of Company Certificates shall cease to
have any rights as shareholders of the Company, and the Company
Share Certificates shall represent solely the right to receive the
Common Stock Consideration and, if applicable, any unpaid
dividends, pursuant to Section 3.1, without interest. At the
Effective Time, the stock transfer books of the Company shall be
closed and no transfer of shares of Company Common Stock that were
outstanding immediately prior to the Effective Time shall
thereafter be made. If, after the Effective Time, subject to the
terms and conditions of this Agreement, Company Certificates
formerly representing shares of Company Common Stock are presented
to the Surviving Corporation, they shall be canceled and exchanged
for the Common Stock Consideration in accordance with this Article
III.
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Section
3.5 Options; Restricted Stock Units .
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(a) At
the Effective Time, each option, warrant or other similar right
(other than Restricted Stock Units, which are addressed in
paragraph (b) of this Section 3.5) to acquire shares of Company
Common Stock (each an " Option ") that then remains
outstanding and originally was granted under any Company Plan (but
not including options (" ACIC Options ") issued under the
American Commerce Agents Plan), whether or not then vested or
exercisable, automatically shall be terminated at the Effective
Time and converted into the right of the holder thereof to receive
thereupon in full satisfaction of such Option as of the Effective
Time, an amount in cash (subject to any applicable withholding
Taxes) equal to the product of (x) the excess, if any, of the
Common Stock Consideration over the applicable exercise price of
such Option and (y) the number (determined without reference
to vesting requirements or other limitations on exercisability) of
shares of Company Common Stock issuable upon exercise of such
Option (the " Option Consideration ").
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(b) At
the Effective Time, each issued and outstanding restricted stock
unit (whether vested or unvested) granted under any Company Plan
(the " Restricted Stock Units ") pursuant to the terms of a
Restricted Stock Unit Agreement between the Company and a holder
thereof (each, an " RSU Agreement ") shall be terminated and
converted into the right to receive the Common Stock Consideration
payable with respect to the number of shares of Company Common
Stock represented by such unit (the " RSU Consideration ").
The cash payment in lieu of Company Common Stock pursuant to this
Section 3.5(b), together with any Dividend Equivalent Payment (as
defined in the RSU Agreement) that is owed as of the Effective
Time, less any required withholding Taxes on such Dividend
Equivalent Payment, shall be paid to each Participant (as defined
in the RSU Agreement) (or, if applicable, the Participant's
designated beneficiary or legal representative) in accordance with
Section 3.5(e).
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(c) The
Options and the Restricted Stock Units are collectively referred to
herein as the " Equity Awards ." The aggregate Option
Consideration and RSU Consideration payable pursuant to Sections
3.3(a) and 3.3(b) is referred to herein as the " Equity Award
Consideration. " Prior to the date of this Agreement, the
Company, the Board of Directors of the Company and the compensation
committee of the Board of Directors of the Company, as applicable,
have adopted such resolutions and taken or caused to be taken all
such other action, if any, as may be required to effectuate the
treatment of Equity Awards provided for in this Section 3.5.
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(d) At
the Effective Time, each issued and outstanding ACIC Option
automatically shall be converted into the right to acquire upon
exercise (subject to satisfaction of all vesting and other
conditions to exercise, which shall remain in full force and
effect), an amount in cash for each share of Company
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<PAGE> 5
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Common Stock otherwise issuable upon such
exercise but for the conversion provided for in this paragraph
equal to the excess of (x) the Common Stock Consideration over (y)
the exercise price per share of such ACIC Option (the " Agent
Option Payment "). Following the Effective Time, the Agent
Option Payment with respect to each ACIC Option referenced in the
immediately preceding sentence shall be paid by the Surviving
Corporation to the applicable person on the applicable Confirmation
Date (as such term is defined in the applicable Agent Option
Agreement between the Company, or any of its Subsidiaries, and the
holder thereof), provided that all terms and conditions of such
Agent Option Agreement have then been satisfied. For the avoidance
of doubt, it is the intention of Parent and the Company that (i)
any ACIC Option that is outstanding immediately prior to the
Effective Time and has an exercise price greater than the Merger
Consideration shall expire without the right to receive any Company
Common Stock or any payment in lieu thereof and (ii) no
acceleration of the exercisability of any ACIC Option shall occur
by reason of the Merger.
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(e) As
soon as reasonably practicable after the Effective Time, Parent
shall cause the Paying Agent to mail to each holder of an Equity
Award immediately prior to the Effective Time, a check in an amount
equal to the Equity Award Consideration due and payable to such
holder pursuant to Sections 3.5(a) and 3.5(b) in respect of such
Equity Award.
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Section
3.6 Tax Withholding . 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 former holder of shares of Company Common Stock, Options,
Restricted Stock Units or ACIC Options such amounts as Parent or
the Surviving Corporation 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
provision of federal, state, local or foreign tax law. To the
extent that amounts are so withheld by Parent or the Surviving
Corporation, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the former holder
of the shares of Company Common Stock, Options, Restricted Stock
Units or ACIC Options in respect of which such deduction and
withholding was made by Parent or the Surviving Corporation.
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Section
3.7 Dissenting Shares .
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(a) Notwithstanding
any provision of this Agreement to the contrary, any Dissenting
Shares held by a Dissenting Shareholder shall not be converted into
the Common Stock Consideration but shall become the right to
receive such consideration as may be determined to be due to such
Dissenting Shareholder pursuant to the MBCA; provided ,
however , that each share of Company Common Stock
outstanding immediately prior to the Effective Time and held by a
Dissenting Shareholder who, after the Effective Time, withdraws his
demand or fails to perfect or otherwise loses his right of
appraisal, pursuant to the MBCA, shall be deemed to be converted as
of the Effective Time into the right to receive the Common Stock
Consideration, without interest.
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(b) The
Company shall give Parent (i) prompt notice of any demands for
appraisal pursuant to the applicable provisions of the MBCA
received by the Company, attempted withdrawals of such demands, and
any other instruments served pursuant to the MBCA and received by
the Company relating to rights of appraisal and (ii) the
opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under the MBCA. The Company shall
not, except with the prior written consent of Parent, make any
payment with respect to any such demands for appraisal, or settle,
or offer to settle, or otherwise negotiate any such demands for
appraisal.
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<PAGE> 6
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ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
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The Company
represents and warrants to Parent and Subsidiary that, except as
set forth in the written disclosure schedule delivered by the
Company to Parent prior to the execution and delivery of this
Agreement (the " Company Disclosure Schedule "), which
identifies exceptions only by the specific section or subsection to
which each entry relates, it being acknowledged and agreed by
Parent, however, that any matter set forth in any section or
subsection of the Company Disclosure Schedule shall be deemed to be
a disclosure for all purposes of this Agreement and all other
sections or subsections of the Company Disclosure Schedule to which
it is reasonably apparent that the matters so disclosed are
applicable, but shall expressly not be deemed to constitute an
admission by the Company or any of its Subsidiaries, or otherwise
imply, that any such matter rises to the level of a Company
Material Adverse Effect (as defined below) or is otherwise material
for purposes of this Agreement or the Company Disclosure
Schedule.
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Section
4.1 Organization and Qualification . The Company
and each of the Company Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its organization and has all requisite
corporate power and authority to own, license, use, operate, lease
or otherwise hold its assets and properties and to carry on its
business as it is now being conducted. The Company has made
available to Parent complete and correct copies of its articles of
organization and bylaws and the certificate of incorporation and
bylaws (or similar organizational documents) of each Company
Subsidiary. The Company and each Company Subsidiary is duly
qualified or licensed to transact business and is in good standing
in each jurisdiction in which the assets or property owned,
licensed, used, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or
licensed and in good standing would not have a Company Material
Adverse Effect. As used in this Agreement, a " Company Material
Adverse Effect " means an event, circumstance, change or effect
that has a material adverse effect on the business, assets,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole; provided, however , that
none of the following shall constitute or be taken into account in
determining whether there has been or is a Company Material Adverse
Effect: (1) changes in the economy of, or financial or securities
markets generally in, the United States or any other country or
countries, except to the extent such changes have a
disproportionate impact on the Company and its Subsidiaries, taken
as a whole, relative to other industry participants; (2) the
consequences of natural catastrophes or acts of war or terrorism,
except to the extent such changes have an impact on the Company and
its Subsidiaries, taken as a whole, that is disproportionate to the
Company's share in any relevant market; (3) any material adverse
effects resulting from the announcement or the pendency of the
transactions contemplated by this Agreement, including any loss or
threatened loss of business from any agents, brokers or customers
of the Company or any of its Subsidiaries; (4) changes in any Law,
United States generally accepted accounting principles ("
GAAP ") or statutory accounting principles (" SAP ")
or any interpretation thereof after the date hereof; including
accounting pronouncements by the SEC, the National Association of
Insurance Commissioners and the Financial Accounting Standards
Board; (5) 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; provided, however , that the exception in
this clause (5) shall not prevent or otherwise affect a
determination that any change, effect, circumstance or development
underlying such failure has resulted in, or contributed to, a
Company Material Adverse Effect; (6) a decline in the price or
trading volume of the Company Common Stock on the New York Stock
Exchange; provided, however , that the exception in this
clause (6) shall not prevent or otherwise affect a determination
that any change, effect, circumstance or development underlying
such decline has resulted in, or contributed to, a Company Material
Adverse Effect; (7) any occurrence or condition affecting the
property and casualty insurance or reinsurance industry generally
(including without limitation any change or proposed change
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<PAGE> 7
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in applicable state Laws regulating the business
of insurance (collectively, " Insurance Laws ")), except to
the extent such occurrences or conditions have an impact on the
Company and its Subsidiaries, taken as a whole, that is
disproportionate to the Company's share in any relevant market; (8)
any increase in competition, whether from new entrants or existing
competitors in any market in which the Company or its Subsidiaries
operate and/or (9) any actual or proposed change in the prevailing
legislative or regulatory environment for insurance in
Massachusetts, including, without limitation, any change in,
development or interpretation of, or promulgation of rules or
regulations under, any Law, including any change pursuant to any
administrative order, interpretation, bulletin or other formal or
informal regulatory guidance.
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Section
4.2 Capitalization .
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(a) The
authorized capital stock of the Company consists solely of
100,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, par value $1.00 per share. As of the close of
business on October 26, 2007, 60,126,578 shares of Company Common
Stock were issued and outstanding, all of which were duly and
validly issued and are fully paid, nonassessable and free of
preemptive rights; and 21,704,968 shares of Company Common Stock
were held in the treasury of the Company. As of the execution of
this Agreement, 103,928 shares of Company Common Stock were
reserved for issuance upon exercise, conversion or exchange of
Options; 620,012 shares of Company Common Stock were reserved for
issuance pursuant to Restricted Stock Units; 4,975,350 shares of
Company Common Stock were reserved for issuance upon exercise,
conversion or exchange of ACIC Options; and no shares of preferred
stock were outstanding.
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(b)
Section 4.2(b) of the Company Disclosure Schedule contains a
complete and correct list setting forth, as of October 26, 2007,
(i) the number of shares issuable on exercise of outstanding
Options, the weighted average exercise price for all such
outstanding Options and the aggregate number of Options outstanding
at each exercise price, (ii) the number of Restricted Stock Units
and the number of shares issuable pursuant to those Restricted
Stock Units and (iii) the number of shares issuable on exercise of
outstanding ACIC options, the weighted average exercise price for
all such outstanding ACIC Options and the aggregate number of ACIC
Options outstanding at each exercise price, together in each case
described in clause (i), (ii) and (iii) with a detailed listing
showing for each holder of Options, Restricted Stock Units and ACIC
Options, the number, vesting schedule and exercise prices (as
applicable) thereof.
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(c) No
bonds, debentures, notes or other indebtedness of the Company or
any Company Subsidiary having the right to vote on any matters on
which shareholders of the Company or any Company Subsidiary may
vote are authorized, issued or outstanding.
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(d) Except
for the Options, the Restricted Stock Units and ACIC Options, there
are no outstanding (x) shares of capital stock or other voting
securities of the Company, (y) securities of the Company
convertible into or exchangeable for shares of capital stock or
other securities of the Company, or (z) subscriptions, options,
puts, calls, stock-based performance units, contracts, scrip,
claims, commitments, restrictions, agreements, understandings,
arrangements, rights, warrants, stock appreciation or other rights
(contingent or other), including phantom stock rights or preemptive
rights, or rights of conversion or exchange under any outstanding
security, instrument or other agreement, granted or entered into by
the Company obligating the Company or any Company Subsidiary
relating to the issuance, sale, repurchase or transfer of any
securities of the Company or that give any person or entity the
right to receive any economic benefit or right similar to or
derived from the economic benefits and rights of securities of the
Company or any Company Subsidiary. There are no outstanding
obligations of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any securities of the Company or any
Company Subsidiary or to vote or to dispose of any shares of the
capital stock of the Company or any Company Subsidiary, or cause to
be issued, delivered or sold or repurchased, additional shares of
the capital stock of the Company or obligating the Company or any
Company Subsidiary to
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<PAGE> 8
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grant, extend or enter into any such agreement
or commitment and there is no commitment of the Company or any
Company Subsidiary to distribute to holders of any class of its
capital stock, any dividends, distributions, evidences of
indebtedness or assets. There are no voting trusts, proxies or
other agreements or understandings to which the Company or any
Company Subsidiary is a party or is bound with respect to the
voting of any shares of capital stock of the Company and no shares
of capital stock of the Company are subject to transfer
restrictions imposed by or with the knowledge, consent or approval
of the Company, or other similar arrangements imposed by or with
the knowledge, consent or approval of the Company, except for
restrictions on transfer imposed by the Securities Act of 1933, as
amended (together with the rules and regulations thereunder, the "
Securities Act ") and state securities laws.
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(e) The
Company Common Stock constitutes the only class of equity
securities of Company or its subsidiaries registered or required to
be registered under the Securities Exchange Act of 1934, as amended
(the " Exchange Act ").
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(f) Neither
the Company nor any Company Subsidiary has agreed to register any
securities under the Securities Act or under any state securities
law or granted registration rights to any individual or entity.
Complete and correct copies of any registration rights or similar
agreements disclosed on Section 4.2(f) of the Company
Disclosure Schedule previously have been made available to
Parent.
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(g) No
consent of any holder of an Option, Restricted Stock Unit or ACIC
Option is required to effect the transactions contemplated by
Section 3.5. Following the Effective Time, no security issued or
granted, or agreement made, by the Company or any Company
Subsidiary will give any person the right to acquire any securities
(including any "phantom" stock or stock appreciation rights) of the
Surviving Corporation or any Company Subsidiary.
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Section
4.3 Ownership Interests in Other Entities .
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(a)
Section 4.3(a) of the Company Disclosure Schedule lists each
of the Company Subsidiaries and the authorized and outstanding
shares of capital stock of each Company Subsidiary. All the
outstanding shares of capital stock (or other securities having by
their terms voting power to elect a majority of directors or others
performing similar functions) of each Company Subsidiary are owned
by the Company, by another Company Subsidiary or by the Company and
another wholly-owned Company Subsidiary, free and clear of all
liens, charges, security interests, mortgages, pledges, options,
preemptive rights, rights of first refusal or first offer, proxies,
levies, voting trusts or voting agreements, or other adverse claims
or encumbrances or restrictions on title or transfer of any nature
whatsoever (any of the foregoing, a " Lien "), and are duly
authorized, validly issued, fully paid and nonassessable. There are
no (i) securities convertible into or exchangeable for shares of
capital stock or other securities of any of the Company
Subsidiaries, or (ii) subscriptions, options, warrants, puts,
calls, phantom stock rights, stock appreciation rights, stock-based
performance units, agreements, understandings, claims or other
commitments or rights of any type granted or entered into by the
Company or any Company Subsidiary relating to the issuance, sale,
repurchase or transfer of any securities of any Company Subsidiary
or that give any person or entity the right to receive any economic
benefit or right similar to or derived from the economic benefits
and rights of securities of any Company Subsidiary. Except for the
capital stock of the Company Subsidiaries and investment securities
acquired in the ordinary course of business, the Company does not
own, directly or indirectly, any capital stock or other ownership
interest in any entity. The Company is not subject to any
obligation or requirement to provide funds to or make any
investment (in the form of a loan, capital contribution or
otherwise) in any entity or any other person.
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(b) The
Company conducts all of its insurance operations through certain of
the Company Subsidiaries. Section 4.3(b) of the Company
Disclosure Schedule lists the jurisdiction of domicile of each
Company Subsidiary and all jurisdictions in which each such Company
Subsidiary is licensed to
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<PAGE> 9
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write insurance business. Neither the Company
nor any Company Subsidiary is or has been since January 1, 2005
"commercially domiciled" in any other jurisdiction or is or since
January 1, 2005 otherwise has been treated as domiciled in a
jurisdiction other than its jurisdiction of organization. Each of
the Company Subsidiaries is, where required, (i) duly licensed or
authorized as an insurance company and, where applicable, a
reinsurer in its jurisdiction of incorporation, (ii) duly licensed
or authorized as an insurance company and, where applicable, a
reinsurer 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 (as defined below), except,
in each case, where the failure to be so licensed or authorized
could not reasonably be expected to have a Company Material Adverse
Effect.
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Section
4.4 Authority; Non-Contravention; Approvals
.
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(a) The
Company has all requisite corporate power and authority to execute
and deliver this Agreement and to perform and consummate the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation by the Company
of the Merger and of the other transactions contemplated hereby
have been duly authorized by all necessary corporate action on the
part of the Company and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to
consummate such transactions, except for the approval of this
Agreement by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Company Common Stock in
accordance with the requirements of the MBCA (the " Company
Shareholders' Approval "). This Agreement has been duly
executed and delivered by the Company and, assuming due
authorization, execution and delivery by Parent and Subsidiary,
constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms,
except to the extent that enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights or by a court's application of general
equitable principles.
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(b) The
execution, delivery and performance of this Agreement by the
Company and the consummation of the Merger and the other
transactions contemplated hereby do not and will not violate,
conflict with or result in a breach of any provision of, or
constitute a default under, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any
of the properties or assets of the Company or any Company
Subsidiary under any of the terms, conditions or provisions of (i)
the Company's articles of organization or bylaws; (ii) the
organizational documents of any Company Subsidiary; (iii) any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or Governmental
Authority (individually or collectively, " Laws ")
applicable to the Company or any Company Subsidiary or any of their
respective properties or assets; or (iv) any note, bond, mortgage,
indenture, deed of trust, loan, credit agreement, license,
franchise, permit, concession, contract, lease, sales order
contract, or other instrument, understanding, obligation or
agreement of any kind, whether written or oral, to which the
Company or any Company Subsidiary is a party or by which the
Company or any Company Subsidiary or any of their respective
properties or assets may be bound or affected; other than (in the
case of clauses (ii), (iii) and (iv) above) any such violation,
conflict, breach, default, termination, acceleration or creation of
Liens as would not have a Company Material Adverse Effect.
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(c) Except
for (i) the filings by the Company required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the " HSR Act "), and any filings, notices and clearances
required under the antitrust, competition or merger clearance laws
of any non-U.S. jurisdiction (together with the filings required
under the HSR Act, the " Antitrust Filings "), (ii) the
filing with the Securities and Exchange Commission (the "
SEC ") of a proxy statement (as amended and supplemented,
the " Proxy Statement ") and related proxy materials to be
used in soliciting the Company Shareholders' Approval and
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<PAGE> 10
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the filing of such other reports under and such
other compliance with the Exchange Act and the rules and
regulations thereunder as may be required in respect of this
Agreement and the transactions contemplated hereby, (iii) the
Merger Filing, and (iv) compliance with the rules and regulations
of the New York Stock Exchange (the filings and approvals referred
to in clauses (i) through (iv) are sometimes collectively referred
to in this Agreement as the " Company Regulatory Approvals
"), no declaration, filing or registration with, or notice to, or
authorization, permit, consent, order or approval of, or other
action by or in respect of any Governmental Authority is required
to be obtained or made by the Company in connection with or as a
result of the execution and delivery of this Agreement by the
Company or the consummation by the Company of the Merger and the
other transactions contemplated hereby.
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(d) The
Board of Directors of the Company, by resolution duly adopted at a
meeting duly called and held, and at which all directors were
present, unanimously has (i) adopted this Agreement,
(ii) directed that this Agreement be submitted to the
Company's shareholders for their approval at a meeting of the
shareholders, and (iii) subject to the provisions of Section
6.3(d), resolved to recommend that the Company's shareholders
approve this Agreement. No action on the part of the Company or its
Board of Directors is required under the MBCA for the Merger to be
validly consummated as provided in this Agreement, except for such
action as has been taken. No other "fair price," "moratorium,"
"control share acquisition" or other similar anti-takeover statute
or regulation is, or at the Effective Time will be, applicable to
the Merger or the other transactions contemplated by this
Agreement.
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(e) Each
of the directors and executive officers of the Company that
beneficially owns shares of Company Common Stock has executed and
delivered to Parent a voting agreement in the form of Exhibit
4.4(e) to this Agreement.
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Section
4.5 SEC Reports and Financial Statements .
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(a) The
Company previously has made available to Parent (for this purpose,
filings that are publicly available on the SEC's EDGAR system are
deemed to have been made available) each registration statement,
report, proxy statement or information statement, including all
amendments and supplements (each a " Company SEC Report ")
filed by the Company since January 1, 2005 pursuant to the
Securities Act or the Exchange Act. Since January 1, 2005, the
Company has timely filed with the SEC all Company SEC Reports and
other documents required to be so filed under the Exchange Act, and
each such Company SEC Report complied in all material respects,
when filed, with all applicable requirements of the Exchange Act
(including the applicable rules and regulations thereunder). As of
their respective dates, the Company SEC Reports did not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading. None of the Company Subsidiaries is
required, under the Exchange Act or by contract, to make periodic
filings with the SEC.
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(b) The
financial statements of the Company included in the Company's SEC
Reports, including any related notes thereto, comply in all
material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto or as may be permitted by
the rules and regulations applicable to quarterly reports on Form
10-Q) and fairly present in all material respects the consolidated
financial position and results of operations of the Company and its
consolidated Company Subsidiaries at the dates thereof and the
consolidated results of their operations and cashflows for the
periods indicated (subject, in the case of unaudited interim
statements, to normal year end adjustments and the absence of
certain footnote disclosures). The principal executive officer of
the Company and the principal financial officer of the Company have
made the certifications required by Sections 302 and 906 of
the Sarbanes
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<PAGE> 11
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Oxley Act of 2002 and the rules and regulations
promulgated by the SEC thereunder with respect to each Company SEC
Report subject to that requirement.
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(c) As
used herein, the term " Company SAP Statements " means the
statutory statements of each of the Company Subsidiaries as filed
with the applicable insurance regulatory authorities in their
respective jurisdictions of incorporation for the years ended
December 31, 2005 and December 31, 2006 and the quarterly period
ended March 31, 2007 and any such annual and quarterly statutory
statements filed subsequent to the date hereof. The Company has
made available to Parent true and complete copies of the Company
SAP Statements filed as of the date of this Agreement with respect
to the Company Subsidiaries required to file such Company SAP
Statements. Each of the Company Subsidiaries has filed or
submitted, or will file or submit, all Company SAP Statements
required to be filed with or submitted to the appropriate insurance
regulatory authorities of the jurisdiction in which it is domiciled
or commercially domiciled on forms prescribed or permitted by such
authority. The Company SAP Statements were, and any Company SAP
Statements filed after the date hereof will be, prepared in all
material respects in conformity with SAP consistently applied for
the periods covered thereby (except as may be indicated in the
notes thereto), and the Company SAP Statements present, and any
Company SAP Statements filed after the date hereof will present, in
all material respects the statutory financial position of such
Company Subsidiaries as at the respective dates thereof and the
results of operations of such Company Subsidiaries for the
respective periods then ended. The Company SAP Statements complied,
and the Company SAP Statements filed after the date hereof will
comply, in all material respects with all applicable Insurance Laws
when filed, and no material deficiency has been asserted with
respect to any Company SAP Statements filed prior to the date
hereof by the applicable insurance regulatory body or any other
Governmental Authority. The annual statutory balance sheets and
income statements included in the Company SAP Statements as of the
date hereof have been, where required by applicable Insurance Law,
audited by an independent accounting firm of recognized national or
international reputation, and the Company has made available to
Parent true and complete copies of all audit opinions related
thereto.
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(d) The
reserves carried on the Company SAP Statements of each Company
Subsidiary (i) were, as of the respective dates of such Company SAP
Statements, in compliance in all material respects with the
requirements for reserves established by the insurance departments
of the state of domicile of such Company Subsidiary, (ii) have been
computed in all material respects in accordance with the
requirements for reserves established by the insurance departments
of the state of domicile of each Company Subsidiary, (iii) were
determined in all material respects in accordance with generally
accepted actuarial principles in effect at such time, consistently
applied and prepared in accordance with applicable SAP or GAAP, as
applicable, (iv) were computed on the basis of methodologies
consistent in all material respects with those used in prior
periods, except as otherwise noted in the Company SAP Statements,
and (v) have been computed on the basis of assumptions consistent
with those used to compute the corresponding items in such
financial statements (it being understood that no representation or
warranty is made herein to the effect that such reserves will in
fact be adequate to cover the actual amount of such liabilities
that are eventually paid after the date thereof).
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(e) Except
for regular periodic assessments in the ordinary course of business
or assessments based on developments which are publicly known
within the insurance industry, no material claim or material
assessment is pending or, to the knowledge of the Company,
threatened against any Company Subsidiary which is unique to such
Company Subsidiary.
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(f) The
Company and its subsidiaries have designed and maintain a system of
internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide
reasonable assurances regarding the reliability of financial
reporting and preparation of financial statements for external
purposes in accordance with GAAP. The Company has
(i) implemented disclosure controls and procedures (as defined
in Rule 13a 15(e) of the Exchange Act) to
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<PAGE> 12
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ensure that material information relating to the
Company, including its consolidated subsidiaries, is recorded,
processed, summarized and reported within the time periods
specified by the SEC's rules and forms and is accumulated and made
known to the management of the Company as appropriate to allow
timely decisions regarding required disclosure, and (ii) has
disclosed, based on its most recent evaluation, to the Company's
outside auditors and the audit committee of the Board of Directors
of the Company (x) any significant deficiencies and material
weaknesses in the design or operation of internal control over
financial reporting that are reasonably likely to adversely affect
the Company's ability to record, process, summarize and report
financial data and (y) any fraud, whether or not material, that
involves management or other employees who have a significant role
in the Company's internal control over financial reporting. A
summary of any of those disclosures made by management to the
Company's auditors and audit committee is set forth in Section
4.5(f) of the Company Disclosure Schedule . The Company's
internal controls and reporting systems are reasonably adequate in
light of applicable law and regulation.
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(g) As
of the date of this Agreement, except as set forth in the Company
SEC Reports filed prior to the date of this Agreement, neither the
Company nor any Company Subsidiary is a party to or bound by any
"material contract" (as defined in Item 601(b)(10) of Regulation
S-K promulgated by the SEC) (each, a " Material Contract
").
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(h) Since
January 1, 2005, to the knowledge of the Company, neither the
Company nor any director, officer, or auditor, of the Company or
any Company Subsidiary, has received or been notified of any
material complaint, allegation, assertion or claim, whether written
or oral, regarding (i) the accounting or auditing practices,
procedures, methodologies or methods of the Company or any Company
Subsidiary or their respective internal accounting controls,
including any material complaint, allegation, assertion or claim
that the Company or any Company Subsidiary has engaged in
questionable accounting or auditing practices, (ii) any material
violation of securities laws or (iii) any breach of fiduciary duty
or similar violations by the Company or any of its directors or
officers other than, in the case of this clause (iii), any
complaint, allegation, assertion or claim that may be made after
the date of this Agreement based upon or relating to the
transactions contemplated by this Agreement.
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(i) The
Company has provided Parent true and complete copies of all
management letters received from its independent auditors since
January 1, 2005, and if no such management letters have been
received, the Company has provided copies of all correspondence
from its independent auditors during such period relating to
subject matter of the same type as would be included in a
management letter.
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Section
4.6 Absence of Undisclosed Liabilities . Except
as disclosed in the audited financial statements at and for the
period ended December 31, 2006 and in the Company SEC Reports filed
after December 31, 2006 and before the date of this Agreement, the
Company and the Company Subsidiaries did not have at December 31,
2006, nor to the knowledge of the Company has it or any Company
Subsidiary incurred since that date, any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature,
except liabilities, obligations or contingencies which
(i) were incurred in the ordinary course of business,
(ii) would not have a Company Material Adverse Effect or
(iii) have been discharged or paid in full or will have been
discharged or paid in full prior to the Effective Time. Since
January 1, 2005, neither the Company nor any Company Subsidiary has
been a party to any asset securitization transaction or
"off-balance sheet arrangement" (as defined in Rule 303 of
Regulation S-K promulgated under the Exchange Act). For
purposes of this Agreement, " to the knowledge of the
Company " means to the actual knowledge of the persons named in
Section 4.6 of the Company Disclosure Schedule .
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Section
4.7 Absence of Certain Changes or Events . Since
June 30, 2007, except as disclosed in the Company SEC Reports filed
since June 30, 2007 and before the date of this Agreement, (a)
there
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<PAGE> 13
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has not been any event, circumstance, change or
effect that has had or reasonably would be expected to have a
Company Material Adverse Effect; (b) the Company and the Company
Subsidiaries have conducted their respective businesses only in the
ordinary course consistent with past practice; (c) no act or
omission has occurred that, if taken after the date of this
Agreement, would have breached clauses (i), (iv), (vi), (vii),
(ix), (x), (xi), (xii), (xvi) or (insofar as it relates to the
foregoing clauses) (xix) of Section 6.1(b); and (d) there has not
occurred (i) any declaration, setting aside or payment of any
dividend, or other distribution in cash, stock or property in
respect of the capital stock of the Company (other than regular
quarterly dividends in the amount of $0.30 per share), or any
repurchase, redemption or other acquisition by the Company of any
outstanding shares of capital stock or other securities of, or
other ownership interests in, the Company; (ii) any split,
combination, subdivision or reclassification of any of the
Company's capital stock or issuance or authorization of issuance of
any other securities in respect of, in lieu of, or in substitution
for, shares of its capital stock, except as expressly contemplated
by this Agreement; (iii) any amendment of any term of any
outstanding security of the Company; or (iv) any change by the
Company in financial accounting principles, practices or methods,
except as required by GAAP or by a change of Law.
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Section
4.8 Litigation . As of the date of this
Agreement, (i) there are no claims, suits, actions, investigations,
proceedings or arbitration proceedings pending or, to the knowledge
of the Company, threatened against the Company or any Company
Subsidiary before any Governmental Authority or arbitrator that
reasonably would be expected to have a Company Material Adverse
Effect or materially adversely affect the Company's ability to
perform its obligations under this Agreement and (ii) the Company
is not subject to any judgment, decree, injunction, rule or order
of any Governmental Authority that prohibits the consummation of
the Merger or any of the other transactions contemplated
hereby.
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Section
4.9 Proxy Statement . The definitive Proxy
Statement will not, on the date it is first mailed to the
shareholders of the Company, 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 and will not, at the time of the meeting of the
Company's shareholders to which the Proxy Statement relates (the "
Shareholders Meeting "), contain any untrue statement of a
material fact or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to
the solicitation of proxies for the Shareholders Meeting that shall
have become false or misleading in any material respect. The
definitive Proxy Statement will, when filed by the Company with the
SEC, comply as to form in all material respects with the applicable
provisions of the Securities Act and the Exchange Act and the rules
and regulations thereunder. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to any
information that may be supplied by or on behalf of Parent or
Subsidiary in writing expressly for inclusion in the Proxy
Statement.
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Section
4.10 Compliance with Laws; Permits .
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(a) Neither
the Company nor any of the Company Subsidiaries is in violation of,
nor since January 1, 2005 has it received any written notice of
violation of, any applicable Law, except for violations that would
not reasonably be expected to have a Company Material Adverse
Effect. Notwithstanding the generality of the foregoing (x) each
Company 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 Subsidiary and in the respective jurisdictions in which
such products have been sold, except for such non-compliance that
would not reasonably be expected to have a Company Material Adverse
Effect, (y) since January 1, 2005, the Company and each Company
Subsidiary have made all required notices, submissions, reports or
other filings under applicable Insurance Law, including insurance
holding company statutes, and (z) all contracts, agreements,
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<PAGE> 14
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arrangements and transactions in effect between
any Company Subsidiary and any affiliate are in compliance with the
requirements of all applicable insurance holding company statutes,
except for any such failures or instances of noncompliance that
would not reasonably be expected to have a Company Material Adverse
Effect. In addition, (i) there is no pending or, to the knowledge
of the Company, threatened proceeding to which the Company or a
Company Subsidiary is subject before any Governmental Authority
regarding whether any of the Company Subsidiaries has violated, nor
to the knowledge of the Company any pending or threatened
investigation by any Governmental Authority with respect to
possible violations of, any applicable Insurance Laws; and (ii)
since January 1, 2005, the Company Subsidiaries have filed all
reports, statements, documents, registrations, filings or
submissions required to be filed with any insurance regulatory
authority or Governmental Authority, except in each case (i) and
(ii), for proceedings, investigations or failures to file which
would not reasonably be expected to have a Company Material Adverse
Effect.
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(b) Except
as required by Insurance Laws and the Company Permits maintained by
the Company Subsidiaries, there are no written agreements, consent
agreements, memoranda of understanding, commitment letters or
similar undertakings binding on the Company Subsidiaries to which
the Company or any Company Subsidiary is a party, on the one hand,
and any Governmental Authority is a party or addressee, on the
other hand, orders or directives of a Governmental Authority
specifically with respect to the Company or any Company Subsidiary,
or resolutions adopted by the Company or a Company Subsidiary at
the request of a Governmental Authority, which (A) limit in any
material respect the ability of the Company or any of the Company
Subsidiaries to issue insurance policies, (B) in any manner impose
any requirements on the Company or any of the Company Subsidiaries
in respect of risk-based capital requirements that add to or
otherwise modify in any material respect the risk-based capital
requirements imposed under applicable Laws, (C) require the Company
or any of its affiliates to make capital contributions, purchase
surplus notes or make loans to a Company Subsidiary, or (D) in any
material manner relate to the ability of the Company or any of the
Company Subsidiaries to pay dividends or otherwise restrict the
conduct of business of the Company or any of the Company
Subsidiaries in any material respect. In addition to Insurance
Laws, the businesses of the Company and each Company Subsidiary are
and have been conducted in compliance in all material respects with
any applicable Laws, except for such violations as would not
reasonably be expected to have a Company Material Adverse Effect.
The Company and the Company Subsidiaries hold all permits,
licenses, franchises, variances, exemptions, orders and other
governmental authorizations, certificates, consents and approvals
necessary to lawfully conduct their businesses as presently
conducted and to own their assets and properties (collectively, the
" Company Permits "), except for such permits, licenses,
franchises, variances, exemptions, orders, authorizations,
certificates, consents and approvals the absence of which would not
reasonably be expected to have a Company Material Adverse Effect.
The Company and the Company Subsidiaries are not in violation of
the terms of any Company Permit, except for such violations as
would not have a Company Material Adverse Effect. The business of
the Company and the Company Subsidiaries have not been and are not
being conducted in violation of any Law except for violations that
would not reasonably be expected to have a Company Material Adverse
Effect. No investigation, review or market conduct examination by
any Governmental Authority with respect to the Company or any
Company Subsidiary is pending or, to the best knowledge of the
Company, threatened, nor has any Governmental Authority indicated
an intention to conduct any such investigation or review, other
than, in each case, where the outcome would not reasonably be
expected to have a Company Material Adverse Effect.
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Section
4.11 Affiliate Transactions .
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(a) Except
as disclosed in the Company SEC Reports filed since December 31,
2006 and before the date of this Agreement and except for
transactions for compensation of employees in the ordinary course
of business, every transaction between the Company and any of its
"affiliates" or their "associates"
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<PAGE> 15
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(as such terms are defined in the rules and
regulations of the SEC), which is currently in effect or was
consummated since January 1, 2005 and which involved the payment,
or receipt, of money, benefits or other compensation is set forth
in Section 4.11(a) of the Company Disclosure Schedule .
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(b) No
portion of the business conducted by the Company and/or any Company
Subsidiary is conducted by, with or through an affiliate of the
Company (other than its wholly-owned subsidiaries) other than in
such affiliate's capacity as an officer, director or employee of
the Company. Except as disclosed in the Company SEC Reports filed
since December 31, 2006 and before the date of this Agreement, no
director, officer, stockholder or affiliate of the Company or
affiliate of such director, officer or stockholder has since
January 1, 2005: (i) borrowed money from or loaned money to the
Company or any Company Subsidiary that remains outstanding; (ii)
any contractual or other claim, express or implied, of any kind
whatsoever against or in respect of the Company or any Company
Subsidiary; (iii) any interest in any assets used or held for use
in the business conducted by the Company and/or any Company
Subsidiary; (iv) engaged in any other transaction with or in
respect of the Company or any Company Subsidiary; or (v) owned,
directly or indirectly, any interest in (except not more than two
percent stockholdings for investment purposes in securities of
publicly-held and traded companies), or served as an officer,
director, employee or consultant of or otherwise receives
remuneration from, any person that is, or has engaged in business
as, a competitor, lessor, lessee, customer or supplier of the
Company or any Company Subsidiary.
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Section
4.12 Taxes .
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(a) Each
of the Company and the Company Subsidiaries has (i) duly filed with
the appropriate Governmental Authorities all Tax Returns (as
defined below) required to be filed by it for all periods ending on
or prior to the Effective Time, which Tax Returns were correct and
complete when filed, and (ii) duly paid in full or made adequate
provision in accordance with GAAP for the payment of all Taxes
shown as due in such Tax Returns. There is no claim, action, suit,
proceeding or investigation now pending, or to the Company's
knowledge, threatened against or with respect to the Company or its
subsidiaries with respect of any Tax. For purposes of this
Agreement, (i) " Taxes " means all taxes, including, without
limitation, income, gross receipts, excise, property (including
transfer duties), sales, withholding, social security, occupation,
use, service, license, payroll, franchise, transfer, value added
and recording taxes, fees and charges, windfall profits, severance,
customs, import, export, employment or similar taxes, charges,
fees, levies or other assessments imposed by the United States, or
any Governmental Authority, whether computed on a separate,
consolidated, unitary, combined, or any other basis, and such term
shall include any interest, fines, penalties or additional amounts
attributable or imposed or with respect to any such taxes, charges,
fees, levies or other assessments and (ii) " Tax Return "
means any return, report or other document required to be supplied
to a taxing authority in connection with Taxes, including any
schedules thereto or amendments thereof.
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(b) There
are no Liens for Taxes upon the assets of the Company or any of the
Company Subsidiaries other than (i) Liens for Taxes not yet due,
(ii) Taxes being contested in good faith or reserved against in
accordance with GAAP, or (iii) liabilities for Taxes that have been
accrued for or reflected on the financial statements included in
the Company SEC documents.
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(c) Neither
the Company nor any Company Subsidiary has any liability for the
Taxes of any other person (i) under Section 1.1502-6 of the
Treasury Regulations or similar provisions of state, local or
foreign law (excluding, however, liability pursuant to such section
of the Treasury Regulations for US federal income Taxes owed by the
members of the consolidated group of which the Company is the
common parent), (ii) as a transferee or successor, (iii) by
contract, or (iv) otherwise.
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(d) With
respect to the Company and each Company Subsidiary, there has been
(i) no adjustment that, under Section 481 of the Code (or
similar provisions of foreign, state or local Tax Law), could
reasonably be expected to have the effect of increasing the Tax
liability of Company or any Company Subsidiary in any Tax period
(or portion thereof) ending after the Effective Time ("
Post-Closing Tax Period ") and (ii) no
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