-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CUgcEQkPPUSz9QrrfF6ajfqaDs3iff9BIlksWGiFbxk4jYgnbjQF9GlXPm4GPH++ lwq/ZLkpsbAr/C6oqa0euQ== 0000950130-99-004070.txt : 19990719 0000950130-99-004070.hdr.sgml : 19990719 ACCESSION NUMBER: 0000950130-99-004070 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990716 GROUP MEMBERS: NTG ACQUISITION CORP. GROUP MEMBERS: ROYAL & SUN ALLIANCE INSURANCE GROUP PLC GROUP MEMBERS: ROYAL GROUP INC/ SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ORION CAPITAL CORP CENTRAL INDEX KEY: 0000074931 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 956069054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-06048 FILM NUMBER: 99665677 BUSINESS ADDRESS: STREET 1: 600 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 8606746600 MAIL ADDRESS: STREET 1: 600 FIFTH AVENUE STREET 2: 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020-2302 FORMER COMPANY: FORMER CONFORMED NAME: EQUITY FUNDING CORP OF AMERICA DATE OF NAME CHANGE: 19760518 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP OF AMERICA DATE OF NAME CHANGE: 19670330 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP DATE OF NAME CHANGE: 19661024 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL GROUP INC/ CENTRAL INDEX KEY: 0001090458 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 9300 ARROWPOINT BLVD CITY: CHARLOTTE STATE: NC ZIP: 28273-8135 BUSINESS PHONE: 7045222739 MAIL ADDRESS: STREET 1: 9300 ARROWPOINT BLVD CITY: CHARLOTTE STATE: NC ZIP: 28273-8135 SC 14D1 1 SCHEDULE 14D1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ORION CAPITAL CORPORATION (Name of Subject Company) ROYAL & SUN ALLIANCE INSURANCE GROUP PLC ROYAL GROUP, INC. NTG ACQUISITION CORP. (Bidders) Common Stock, Par Value $1.00 Per Share (Title of Class) 686268-10-3 (CUSIP Number of Class of Securities) ---------------- Joyce W. Wheeler, Esq. Royal Group, Inc. 9300 Arrowpoint Boulevard Charlotte, North Carolina 28273-8135 Telephone: (704) 522-2000, Facsimile: (704) 522-3111 With a copy to: Christopher E. Manno, Esq. Willkie Farr & Gallagher 787 Seventh Avenue, New York, New York 10019-6099 Telephone: (212) 728-8000, Facsimile: (212) 728-8111 ---------------- CALCULATION OF FILING FEE - -------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee $1,438,166,450 $287,633.29
- ------------------------------------------------------------------------------- * Estimated for purposes of calculating the amount of the filing fee only. The filing fee calculation assumes the purchase of 28,763,329 shares of common stock, $1.00 par value per share (the "Shares"), of Orion Capital Corporation, at a price of $50.00 per Share in cash, without interest. The filing fee calculation is based on the 27,355,263 Shares outstanding as of July 9, 1999 and assumes the issuance prior to the consummation of the Offer (as defined herein) of 1,408,066 Shares upon the exercise of outstanding options and other rights and securities exercisable for Shares. The amount of the filing fee calculated in accordance with Regulation 240.0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the value of the transaction. [_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount Previously Paid: Not applicable Filing Party: Not applicable Form or Registration No.: Not applicable Date Filed: Not applicable
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 14D-1 1. NAMES OF REPORTING PERSONS AND S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS NTG Acquisition Corp. 06-1551933 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) OR 2(f) [ ] 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON None 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 10. TYPE OF REPORTING PERSON CO 2 14D-1 1. NAMES OF REPORTING PERSONS AND S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Royal Group, Inc. 51-0233196 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ X ] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS WC 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) OR 2(f) [ ] 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 668,900 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 2.5% 10. TYPE OF REPORTING PERSON CO 3 14D-1 1. NAMES OF REPORTING PERSONS AND S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Royal & Sun Alliance Insurance Group plc 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ X ] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) OR 2(f) [ ] 6. CITIZENSHIP OR PLACE OF ORGANIZATION United Kingdom 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 668,900 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] 9.PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 2.5% 10. TYPE OF REPORTING PERSON CO 4 TENDER OFFER This Tender Offer Statement on Schedule 14D-1 (this "Statement") relates to the offer by NTG Acquisition Corp., a Delaware corporation ("Purchaser"), to purchase all of the outstanding shares of common stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of September 11, 1996, as amended, by and between the Company and First Chicago Trust Company of New York, as Rights Agent (the "Rights" and, together with the Common Stock, the "Shares"), of Orion Capital Corporation, a Delaware corporation (the "Company"), at $50.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase dated July 16, 1999 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal, a copy of which is attached hereto as Exhibit (a)(2) (which, as amended or supplemented from time to time, together constitute the "Offer"). Purchaser is an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales ("Royal plc") and was formed solely to effect the Offer and the transaction contemplated thereby. Item 1. Security and Subject Company. (a) The name of the subject company is Orion Capital Corporation, and the address of its principal executive offices is 9 Farm Springs Road, Farmington, Connecticut 06032. The telephone number of the Company at such location is (860) 674-6600. (b) The information set forth in the "INTRODUCTION" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in "Price Range of the Shares; Dividends" of the Offer to Purchase is incorporated herein by reference. Item 2. Identity and Background. (a)-(d), (g) This Statement is being filed by Purchaser, Purchaser's parent, Royal Group, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Royal plc ("Royal US"), and Royal plc. The information set forth in the "INTRODUCTION" and "Certain Information Concerning Purchaser, Royal US and Royal plc" of the Offer to Purchase is incorporated herein by reference. The name, business address, present principal occupation or employment, the material occupations, positions, offices or employments for the past five years and citizenship of each director and executive officer of Purchaser, Royal US and Royal plc, and the name of any corporation or other organization in which such occupations, positions, offices and employments are or were carried on are set forth in Schedule I to the Offer to Purchase and incorporated herein by reference. (e)-(f) During the last five years, none of Purchaser, Royal US or Royal plc nor, to the best knowledge of Purchaser, Royal US and Royal plc, any of the persons or entities listed in Schedule I to the Offer to Purchase (i) have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. Item 3. Past Contacts, Transactions or Negotiations with the Subject Company. (a)(1) Other than the transactions described in Item 3(b) below and except as described in "Certain Information Concerning Purchaser, Royal US and Royal plc" of the Offer to Purchase (which is incorporated herein by reference), none of Purchaser, Royal US or Royal plc nor, to the best knowledge of Purchaser, Royal US and Royal plc, any of the persons or entities listed in Schedule I to the Offer to Purchase have entered into any transaction with the Company, or any of the Company's affiliates which are corporations, since the commencement of the Company's third full fiscal year preceding the date of this Statement, the aggregate amount of which was equal to or greater than one percent of the consolidated revenues of the Company for (i) the fiscal year in which such transaction occurred or (ii) the portion of the current fiscal year which has occurred if the transaction occurred in such year. 5 (a)(2) Other than the transactions described in Item 3(b) below, none of Purchaser, Royal US or Royal plc nor, to the best knowledge of Purchaser, Royal US and Royal plc, any of the persons or entities listed in Schedule I to the Offer to Purchase have entered into any transaction since the commencement of the Company's third full fiscal year preceding the date of this Statement with the executive officers, directors or affiliates of the Company which are not corporations, in which the aggregate amount involved in such transaction or in a series of similar transactions, including all periodic installments in the case of any lease or other agreement providing for periodic payments or installments, exceeded $40,000. (b) The information set forth in the "INTRODUCTION," "Certain Information Concerning Purchaser, Royal US and Royal plc," "Background of the Offer; Purpose of the Offer and the Merger; The Merger Agreement and Certain Other Agreements" and "Plans for the Company; Other Matters" of the Offer to Purchase is incorporated herein by reference. Item 4. Source and Amount of Funds or Other Consideration. (a)-(b) The information set forth in the "INTRODUCTION" and "Sources and Amount of Funds" of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidders. (a)-(e) The information set forth in the "INTRODUCTION," "Background of the Offer; Purpose of the Offer and the Merger; The Merger Agreement and Certain Other Agreements" and "Plans for the Company; Other Matters" of the Offer to Purchase is incorporated herein by reference. (f)-(g) The information set forth in the "INTRODUCTION" and "Effect of the Offer on the Market for the Shares; Stock Listing; Exchange Act Registration; Margin Regulations" of the Offer to Purchase is incorporated herein by reference. Item 6. Interest in Securities of the Subject Company. (a)-(b) The information set forth in the "INTRODUCTION," "Certain Information Concerning Purchaser, Royal US and Royal plc" and "Background of the Offer; Purpose of the Offer and the Merger; The Merger Agreement and Certain Other Agreements" of the Offer to Purchase is incorporated herein by reference. Item 7. Contracts, Arrangements, Understandings or Relationships with Respect to the Subject Company's Securities. The information set forth in the "INTRODUCTION," "Certain Information Concerning Purchaser, Royal US and Royal plc," "Sources and Amount of Funds," "Background of the Offer; Purpose of the Offer and the Merger; The Merger Agreement and Certain Other Agreements," "Plans for the Company; Other Matters" and "Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. Item 8. Persons Retained, Employed or to be Compensated. The information set forth in "Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. Item 9. Financial Statements of Certain Bidders. The information set forth in "Certain Information Concerning Purchaser, Royal US and Royal plc" of the Offer to Purchase is incorporated herein by reference. 6 Item 10. Additional Information. (a) Except as disclosed in Items 3 and 7 above, there are no present or proposed material contracts, arrangements, understandings or relationships between Purchaser, Royal US or Royal plc, or to the best knowledge of Purchaser, Royal US and Royal plc, any of the persons or entities listed in Schedule I to the Offer to Purchase, and the Company or any of its executive officers, directors, controlling persons or subsidiaries. (b)-(c) The information set forth in the "INTRODUCTION," "Conditions to the Offer" and "Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in "Effect of the Offer on the Market for the Shares; Stock Listing; Exchange Act Registration; Margin Regulations" and "Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. (e) None. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively, to the extent not otherwise incorporated herein by reference, is incorporated herein by reference. Item 11. Materials to be Filed as Exhibits. (a)(1) Offer to Purchase, dated July 16, 1999. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Press Release of Royal plc dated July 12, 1999. (a)(8) Press Release of Royal plc dated July 16, 1999. (a)(9) Summary Advertisement. (b) None. (c)(1) Agreement and Plan of Merger, dated as of July 12, 1999, by and between Purchaser, Royal US and the Company. (c)(2) Stock Option Agreement, dated as of July 12, 1999, by and between Royal US and the Company. (c)(3) Confidentiality Agreement, dated June 18, 1999, by and between Royal & SunAlliance USA, Inc. and the Company. (d) None. (e) Not applicable. (f) None.
7 SIGNATURE After due inquiry and to the best of its knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: July 16, 1999 NTG ACQUISITION CORP. /s/ Terry Broderick By:__________________________________ Name: Terry Broderick Title:President ROYAL GROUP, INC. /s/ Terry Broderick By:__________________________________ Name: Terry Broderick Title:President ROYAL & SUN ALLIANCE INSURANCE GROUP PLC /s/ D.J. Miller By:__________________________________ Name: D.J. Miller Title:Director, Legal & Secretarial 8 INDEX TO EXHIBITS
Sequential Exhibit Page No. ------- ---------- (a)(1) Offer to Purchase, dated July 16, 1999. ................ (a)(2) Letter of Transmittal................................... (a)(3) Notice of Guaranteed Delivery........................... (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Com- panies and Other Nominees. ............................. (a)(5) Letter to Clients for use by Brokers, Dealers, Commer- cial Banks, Trust Companies and Other Nominees.......... (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9........................... (a)(7) Press Release of Royal plc dated July 12, 1999.......... (a)(8) Press Release of Royal plc dated July 16, 1999.......... (a)(9) Summary Advertisement. ................................. (b) None.................................................... (c)(1) Agreement and Plan of Merger, dated as of July 12, 1999, by and between Purchaser, Royal US and the Company...... (c)(2) Stock Option Agreement, dated as of July 12, 1999, by and between Royal US and the Company.................... (c)(3) Confidentiality Agreement, dated June 18, 1999, by and between Royal & SunAlliance USA, Inc. and the Company... (d) None.................................................... (e) Not applicable.......................................... (f) None....................................................
9 EX-99.(A)(1) 2 OFFER TO PURCHASE, DATED 07/16/1999 Exhibit (a)(1) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Orion Capital Corporation at $50.00 Net Per Share by NTG Acquisition Corp. an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER, DATED AS OF JULY 12, 1999, BY AND AMONG NTG ACQUISITION CORP. ("PURCHASER"), ROYAL GROUP, INC. ("ROYAL US") AND ORION CAPITAL CORPORATION (THE "COMPANY"). THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. ------------ THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES WHICH REPRESENTS AT LEAST A MAJORITY OF THE TOTAL NUMBER OF SHARES OUTSTANDING ON THE DATE SHARES ARE ACCEPTED FOR PAYMENT. THE OFFER ALSO IS SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE INCLUDING THE CONSENT OF CERTAIN STATE INSURANCE REGULATORY AUTHORITIES WHICH ARE NOT EXPECTED TO BE RECEIVED UNTIL THE FOURTH QUARTER OF 1999. THE PARTIES EXPECT THAT THE EXPIRATION DATE WILL BE EXTENDED IN ORDER TO PERMIT THE PARTIES TO OBTAIN SUCH CONSENTS. SEE SECTIONS 11, 14 AND 15. ---------------- IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares (as defined herein) should either (i) complete and sign the enclosed Letter of Transmittal (or a facsimile thereof) in accordance with the Instructions in the Letter of Transmittal, have such stockholder's signature thereon guaranteed (if required by Instruction 1 to the Letter of Transmittal), mail or deliver the Letter of Transmittal (or a facsimile thereof) and any other required documents to the Depositary (as defined herein) and either deliver the certificates for such Shares to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in Section 3 of this Offer to Purchase or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Any stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee to tender such Shares. Any stockholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedures for book-entry transfer on a timely basis, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3 of this Offer to Purchase. Questions and requests for assistance may be directed to the Information Agent (as defined herein) at its address and telephone number set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent or brokers, dealers, commercial banks or trust companies. ---------------- The Dealer Manager for the Offer is: Salomon Smith Barney July 16, 1999 TABLE OF CONTENTS INTRODUCTION.............................................................. 1 THE OFFER................................................................. 3 1.Terms of the Offer..................................................... 3 2.Acceptance for Payment and Payment..................................... 5 3.Procedures for Tendering Shares........................................ 6 4.Withdrawal Rights...................................................... 8 5.Certain U.S. Federal Income Tax Consequences........................... 8 6.Price Range of the Shares; Dividends................................... 9 7.Effect of the Offer on the Market for the Shares; Stock Listing; Exchange Act Registration; Margin Regulations......................... 10 8.Certain Information Concerning the Company............................. 11 9.Certain Information Concerning Purchaser, Royal US and Royal plc....... 13 10.Sources and Amount of Funds............................................ 15 11.Background of the Offer; Purpose of the Offer and the Merger; the Merger Agreement and Certain Other Agreements......................... 15 12.Plans for the Company; Other Matters................................... 27 13.Dividends and Distributions............................................ 29 14.Conditions to the Offer................................................ 29 15.Certain Legal Matters.................................................. 30 16.Fees and Expenses...................................................... 34 17.Miscellaneous.......................................................... 34
SCHEDULE I -- Information Concerning Directors And Executive Officers Of Purchaser, Royal US and Royal plc (i) To the Holders of Common Stock of Orion Capital Corporation: INTRODUCTION NTG Acquisition Corp., a Delaware corporation ("Purchaser"), hereby offers to purchase all outstanding shares of common stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement (as defined below) (the "Rights" and, together with the Common Stock, "Shares"), of Orion Capital Corporation, a Delaware corporation (the "Company"), at a price of $50.00 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended or supplemented from time to time, collectively constitute the "Offer"). Purchaser was formed in connection with the Offer and the transaction contemplated thereby. Purchaser is a direct wholly-owned subsidiary of Royal Group, Inc., a Delaware corporation ("Royal US"). Royal US is an insurance holding company. Royal US is an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales ("Royal plc"). For information concerning Royal US and Royal plc, see Section 9. Tendering stockholders of record who tender Shares directly will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. Stockholders who hold their Shares through a bank or broker should check with such institution as to whether they charge any service fees. Purchaser will pay all fees and expenses of Citibank N.A., which is acting as the Depositary (in such capacity, the "Depositary"), and MacKenzie Partners, Inc., which is acting as Information Agent (in such capacity, the "Information Agent"), incurred in connection with the Offer and in accordance with the terms of the agreements entered into between Purchaser and each such person. See Section 16. The Board of Directors of the Company (the "Company Board") has unanimously approved the Merger Agreement (as defined below) and the transactions contemplated thereby, including the Offer and the Merger, and has unanimously determined that the Offer and the Merger are fair to, and in the best interests of, the Company's stockholders and unanimously recommends that the stockholders accept the Offer and tender their Shares pursuant to the Offer. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), financial advisor to the Company, has delivered to the Company Board its written opinion, dated July 11, 1999 (the "Financial Advisor Opinion"), to the effect that, as of such date and based upon and subject to certain assumptions, matters and limitations stated therein, the consideration to be received by the holders of Shares (other than Purchaser and its affiliates) in the Offer and the Merger is fair, from a financial point of view, to such holders. A copy of the Financial Advisor Opinion is attached as an exhibit to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which has been filed by the Company with the Securities and Exchange Commission (the "SEC") in connection with the Offer and which is being mailed to holders of Shares herewith. Holders of Shares are urged to, and should, read the Financial Advisor Opinion carefully and in its entirety. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which represents at least a majority of all outstanding Shares on the date of purchase (excluding for all purposes in calculating such majority any outstanding Shares owned by Royal US or Purchaser pursuant to the exercise of Royal US's rights under the Stock Option Agreement (as defined below)) (the "Minimum Condition"). The Offer also is subject to the other conditions set forth in this Offer to Purchase including the consent of certain state insurance regulatory authorities which are not expected to be received until the fourth quarter of 1999. The parties currently expect that the expiration date of the Offer will be extended in order to permit the parties to obtain such consents. See Sections 11, 14 and 15. The Company has represented and warranted to Purchaser and Royal US that, as of July 9, 1999, there were 27,355,263 Shares issued and outstanding and 1,408,066 Shares were issuable pursuant to the exercise of options pursuant to the Company's stock option plans ("Options"). The Merger Agreement provides, among other things, that the Company will not, without the prior written consent of Royal US, issue any additional Shares (except upon the exercise of outstanding Options). See Section 11. Based on the foregoing and assuming the issuance of 1,408,066 Shares issuable upon the exercise of outstanding Options, Purchaser believes that the Minimum Condition will be satisfied if 14,381,665 Shares are validly tendered and not withdrawn prior to the Expiration Date. As a condition and inducement to Purchaser and Royal US entering into the Merger Agreement, concurrently with the execution and delivery of the Merger Agreement, Royal US and the Company have entered into a Stock Option Agreement, dated as of July 12, 1999 (the "Stock Option Agreement"), pursuant to which, among other things, the Company has granted Royal US an irrevocable option to purchase up to 5,443,697 newly issued Shares at $50.00 per share (the "Company Option"). The Company Option only can be exercised under certain circumstances described herein. See Section 11. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of July 12, 1999 (the "Merger Agreement"), by and among Purchaser, Royal US and the Company. Pursuant to the Merger Agreement and the Delaware General Corporation Law ("Delaware Law"), on the second business day after the satisfaction or waiver, if permissible, of all conditions, including the purchase of Shares pursuant to the Offer (sometimes referred to herein as the "consummation" of the Offer) and the approval and adoption of the Merger Agreement by the stockholders of the Company (if required by applicable law), Purchaser shall be merged with and into the Company (the "Merger") and the Company will be the surviving corporation in the Merger (the "Surviving Corporation"). At the effective time of the Merger (the "Effective Time"), each Share then outstanding, other than Shares held by (i) the Company or any of its subsidiaries, (ii) Purchaser or any of its subsidiaries and (iii) stockholders who properly perfect their dissenters' rights under Delaware Law, will be converted into the right to receive the Offer Price in cash payable to the holder, without interest, upon the surrender of the certificate representing such Share. The Merger Agreement is more fully described in Section 11. The Merger Agreement provides that, promptly upon the purchase by Purchaser of Shares pursuant to the Offer which represent at least a majority of all outstanding shares of Common Stock, Purchaser or Royal US shall be entitled to designate up to such number of directors, but in no event less than a majority, rounded up to the next whole number, on the Company Board so that the percentage of Purchaser's nominees on the Company Board equals the percentage of outstanding Shares beneficially owned by Royal US, Purchaser and any other subsidiary of Royal US. The Company shall, at such time, upon the request of Purchaser, promptly use its reasonable best efforts to take all action necessary to cause such persons designated by Purchaser to be elected to the Company Board, if necessary, by increasing the size of the Company Board or securing resignations of incumbent directors or both. See Section 11. Consummation of the Merger is conditioned upon, among other things, the approval and adoption by the requisite vote of stockholders of the Company of the Merger Agreement and the Merger, if required by applicable law. See Section 11. Under Delaware Law and pursuant to the Certificate of Incorporation and the Bylaws of the Company, the affirmative vote of the holders of a majority of the outstanding Shares at a meeting of the Company's stockholders is the only vote of any class or series of the Company's capital stock that would be necessary to approve the Merger Agreement and the Merger. If the Minimum Condition is satisfied and Purchaser purchases at least a majority of the outstanding Shares in the Offer, Purchaser will be able to effect the Merger without the affirmative vote of any other stockholder. Pursuant to the Merger Agreement, Purchaser has agreed to vote the Shares acquired by it pursuant to the Offer in favor of the Merger. See Section 12. Under Section 253 of Delaware Law, if a corporation owns at least 90% of the outstanding shares of each class of a subsidiary corporation, the corporation holding such stock may merge such subsidiary into itself, or itself into such subsidiary, without any action or vote on the part of the board of directors or the stockholders of 2 such other corporation (a "short-form merger"). In the event that Purchaser acquires in the aggregate at least 90% of the outstanding Shares pursuant to the Offer or otherwise, a short-form merger could be effected without any further approval of the Company Board or the stockholders of the Company. In the Merger Agreement, Purchaser and the Company have agreed that, notwithstanding that all conditions to the Offer are satisfied or waived as of the scheduled Expiration Date, Purchaser may extend the Offer for a period not to exceed ten (10) business days if the Shares tendered pursuant to the Offer are less than 90% of the outstanding Shares. Even if Purchaser does not own 90% of the outstanding Shares following consummation of the Offer, Purchaser could seek to purchase additional shares in the open market or otherwise in order to reach the 90% threshold and employ a short-form merger. The per share consideration paid for any Shares so acquired in open market purchases may be greater or less than the Offer Price. Purchaser presently intends to effect a short-form merger, if permitted to do so under Delaware Law, pursuant to which Purchaser will be merged with and into the Company. See Section 12. The Company has distributed one Right for each outstanding Share pursuant to the Rights Agreement, dated as of September 11, 1996, as amended, by and between the Company and First Chicago Trust Company of New York, as Rights Agent (the "Rights Agreement"). The Company has represented in the Merger Agreement that it has taken all action necessary under the Rights Agreement such that (i) Royal US will not be deemed an Acquiring Person (as defined in the Rights Agreement), the Distribution Date (as defined in the Rights Agreement) will not be deemed to occur, and the rights issuable pursuant to the Rights Agreement will not separate from the Shares, as a result of Royal US's entering into the Merger Agreement or the Stock Option Agreement, or consummating the Offer, the Merger and/or the other transactions contemplated thereby and (ii) the Rights shall expire upon the acceptance of the Shares for payment pursuant to the Offer. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. THE OFFER 1. Terms of the Offer. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date, and not withdrawn in accordance with Section 4. The term "Expiration Date" shall mean 12:00 Midnight, New York City time, on Thursday, August 12, 1999, unless and until Purchaser, in accordance with the terms of the Merger Agreement, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. In the Merger Agreement, Purchaser has agreed that if all conditions to Purchaser's obligation to accept for payment and pay for Shares pursuant to the Offer are not satisfied on the scheduled Expiration Date, Purchaser may, in its sole discretion, extend the Offer for additional periods of time as Purchase determines in its sole discretion, provided that following the 90th day after the date of the Merger Agreement, such extensions will be in increments of not more than ten (10) business days, and, further provided that the Expiration Date may not be extended beyond December 31, 1999. In addition, Purchaser is required under certain circumstances to extend the Offer at the request of the Company. See Section 11. The Offer is conditioned upon the satisfaction of the Minimum Condition, the expiration or termination of all waiting periods imposed by the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the consent of certain state insurance regulatory authorities (which are not expected to be received until the fourth quarter of 1999), and the other conditions set forth in Section 14. The parties currently expect that the Expiration Date will be extended in order to permit the parties to obtain such consents. If such conditions are not satisfied prior to the Expiration Date, Purchaser reserves the right, subject to the terms of the Merger Agreement and subject to complying with applicable rules and regulations of the SEC, to (i) decline to purchase any Shares tendered in the Offer and terminate the Offer and return all tendered Shares to the tendering stockholders, (ii) waive any or all conditions to the Offer and, to the extent permitted by applicable law, purchase 3 all Shares validly tendered, (iii) extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain all Shares which have been tendered during the period or periods for which the Offer is extended or (iv) subject to the next sentence, amend the Offer. The Merger Agreement provides that Purchaser will not decrease the Offer Price, change the form of consideration to be paid in the Offer, decrease the number of Shares sought in the Offer, impose additional conditions to the Offer or make any other change to the terms and conditions of the Offer in any manner materially adverse to the holders of the Shares, without the prior written consent of the Company. The Merger Agreement requires Purchaser to accept for payment and pay for all Shares validly tendered and not withdrawn pursuant to the Offer if all conditions to the Offer are satisfied on the Expiration Date. However, if immediately prior to the scheduled Expiration Date, all conditions to the Offer are satisfied but the number of Shares tendered and not withdrawn pursuant to the Offer constitutes less than 90% of the Shares outstanding, Purchaser may extend the Offer for a period not to exceed ten (10) business days, notwithstanding that all conditions to the Offer are satisfied as of such Expiration Date, provided that the Expiration Date may not be extended beyond December 31, 1999. As used in this Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any extension, amendment or termination of the Offer will be followed as promptly as practicable by public announcement thereof, the announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with Rules 14d-4(c), 14d-6(d) and 14e-l(d) under the Exchange Act. Without limiting the obligation of Purchaser under such Rules or the manner in which Purchaser may choose to make any public announcement, Purchaser currently intends to make announcements by issuing a press release to the Dow Jones News Service. Under no circumstances will interest be paid on the Offer Price to be paid by Purchaser for the Shares, regardless of any extension of the Offer or any delay in making such payment. If Purchaser extends the Offer, or if Purchaser (whether before or after its acceptance for payment of Shares) is delayed in its purchase of, or payment for, Shares or is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may retain tendered Shares on behalf of Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in Section 4. However, the ability of Purchaser to delay the payment for Shares which Purchaser has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by, or on behalf of, holders of securities promptly after the termination or withdrawal of the Offer. If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. In a public release, the SEC has stated its view that an offer must remain open for a minimum period of time following a material change in the terms of the Offer and that waiver of a material condition, such as the Minimum Condition, is a material change in the terms of the Offer. The release states that an offer should remain open for a minimum of five (5) business days from the date a material change is first published, or sent or given to security holders and that, if material changes are made with respect to information not materially less significant than the offer price and the number of shares being sought, a minimum of ten (10) business days may be required to allow adequate dissemination and investor response. The requirement to extend the Offer will not apply to the extent that the number of business days remaining between the occurrence of the change and the then-scheduled Expiration Date equals or exceeds the minimum extension period that would be required because of such amendment. If, prior to the Expiration Date, Purchaser increases the consideration offered to holders of Shares pursuant to the Offer, such increased consideration will be paid to all holders whose Shares are purchased in the Offer whether or not such Shares were tendered prior to such increase. 4 The Company has provided Purchaser with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, dealers, banks and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. Acceptance for Payment and Payment. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and will pay for, as soon as practicable after the Expiration Date, all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with Section 4. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to Purchaser and not withdrawn, if, as and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from Purchaser and transmitting payment to tendering stockholders. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a timely Book Entry confirmation (as defined below) with respect thereto), (ii) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book- entry transfer, an Agent's Message (as defined below) and (iii) any other documents required by the Letter of Transmittal. Accordingly, payment may be made to tendering stockholders at different times if delivery of the Shares and other required documents occur at different times. The per share consideration paid to any holder of Shares pursuant to the Offer will be the highest per share consideration paid to any other holder of such Shares pursuant to the Offer. Under no circumstances will interest be paid on the purchase price to be paid by Purchaser for the Shares, regardless of any extension of the Offer or any delay in making such payment. Purchaser expressly reserves the right, in its sole discretion, to delay acceptance for payment of, or payment for, Shares in order to comply in whole or in part with any applicable law. If Purchaser is delayed in its acceptance for payment of, or payment for, Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer (including such rights as are set forth in Sections 1 and 14) (but subject to compliance with Rule 14e-l(c) under the Exchange Act), the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to exercise, and duly exercise, withdrawal rights as described in Section 4. If any tendered Shares are not purchased pursuant to the Offer for any reason, or if certificates are submitted representing more Shares than are tendered, certificates evidencing Shares not tendered or not accepted for purchase will be returned to the tendering stockholder, or such other person as the tendering stockholder shall specify in the Letter of Transmittal, as promptly as practicable following the expiration, termination or withdrawal of the Offer. In the case of Shares delivered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to such account maintained at the Book-Entry Transfer Facility as the tendering stockholder shall specify in the Letter of Transmittal, as promptly as practicable following the expiration, termination or withdrawal of the Offer. If no such instructions are given with respect to Shares delivered by book- entry transfer, any such Shares not tendered or not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated in the Letter of Transmittal as the account from which such Shares were delivered. Purchaser reserves the right to transfer or assign, in whole or, from time to time, in part, to one or more of its affiliates, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 5 3. Procedures for Tendering Shares. Valid Tender. For Shares to be validly tendered pursuant to the Offer, either (i) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees, or in the case of a book-entry transfer, an Agent's Message (as defined below), and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date and either certificates evidencing tendered Shares must be received by the Depositary at one of such addresses or such Shares must be delivered to the Depositary pursuant to the procedures for book-entry transfer set forth below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (ii) the tendering stockholder must comply with the guaranteed delivery procedures described below. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two (2) business days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with such Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message, and any other required documents must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedures described below. The confirmation of a book- entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility will not constitute delivery to the Depositary. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against such participant. The method of delivery of Shares, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the election and risk of the tendering stockholder. Shares will be deemed delivered only when actually received by the Depositary (including, in the case of a Book-Entry Transfer, by book-entry confirmation). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal if (i) the Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section, includes any participant in the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered therewith and such registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (ii) such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution" and, collectively, "Eligible Institutions"). In all other cases, all signatures on Letters of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or certificates 6 for Shares not tendered or not accepted for payment are to be returned, to a person other than the registered holder of the certificates surrendered, then the tendered certificates for such Shares must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as aforesaid. See Instruction 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such stockholder's tender may be effected if all the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for (or a Book-Entry Confirmation with respect to) such Shares, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, are received by the Depositary within three (3) trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange (the "NYSE") is open for business. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mailed to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and Purchaser upon the terms and subject to the conditions of the Offer. Appointment. By executing the Letter of Transmittal as set forth above (including delivery through an Agent's Message), the tendering stockholder will irrevocably appoint designees of Purchaser as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Purchaser and with respect to any and all non-cash dividends, distributions, rights, other Shares or other securities issued or issuable in respect of such Shares on or after July 12, 1999 (collectively, "Distributions"). All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective if, as and when, and only to the extent that, Purchaser accepts for payment Shares tendered by such stockholder as provided herein. All such powers of attorney and proxies will be irrevocable and will be deemed granted in consideration of the acceptance for payment by Purchaser of Shares tendered in accordance with the terms of the Offer. Upon such appointment, all prior powers of attorney, proxies and consents given by such stockholder with respect to such Shares (and any and all Distributions) will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given by such stockholder (and, if given, will not be deemed effective). The designees of Purchaser will thereby be empowered to exercise all voting and other rights with respect to such Shares (and any and all Distributions), including, without limitation, in respect of any annual or special meeting of the Company's stockholders (and any adjournment or postponement thereof), actions by written consent in lieu of any such meeting or otherwise, as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's acceptance for payment of such Shares, Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares (and any and all Distributions), including voting at any meeting of stockholders. 7 Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser, in its sole discretion, which determination will be final and binding. Purchaser reserves the absolute right to reject any or all tenders of any Shares determined by it not to be in proper form or the acceptance for payment of which, or payment for which, may, in the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right, in its sole discretion, subject to the provisions of the Merger Agreement, to waive any defect or irregularity in any tender of Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Subject to the terms of the Merger Agreement, Purchaser's interpretation of the terms and conditions of the Offer in this regard (including the Letter of Transmittal and the instructions thereto) will be final and binding. Backup Withholding. Under the "backup withholding" provisions of federal income tax law, unless a tendering registered holder, or its assignee (in either case, the "Payee"), satisfies the conditions described in Instruction 10 of the Letter of Transmittal or is otherwise exempt, the cash payable as a result of the Offer may be subject to backup withholding tax at a rate of 31% of the gross proceeds. To prevent backup withholding, each Payee should complete and sign the Substitute Form W-9 provided in the Letter of Transmittal. See Instruction 10 to the Letter of Transmittal. 4. Withdrawal Rights. Except as otherwise provided in this Section 4 or as provided by applicable law, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by Purchaser pursuant to the Offer, may also be withdrawn at any time after September 13, 1999. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedures for book-entry transfer as set forth in Section 3, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. Withdrawals of tendered Shares may not be rescinded, and any Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, which determination will be final and binding. None of Purchaser, the Depositary, the Dealer Manager, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 5. Certain U.S. Federal Income Tax Consequences. The following is a general summary of certain U.S. federal income tax consequences of the Offer and the Merger relevant to a beneficial holder of Shares whose Shares are tendered and accepted for payment pursuant to the Offer or whose Shares are converted to cash in the Merger (a "Holder"). The discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), 8 regulations issued thereunder, judicial decisions and administrative rulings, all of which are subject to change, possibly with retroactive effect. The following does not address the U.S. federal income tax consequences to all categories of Holders that may be subject to special rules (e.g., Holders who acquired their Shares pursuant to the exercise of employee stock options or other compensation arrangements with the Company, Holders who perfect their appraisal rights under Delaware Law, foreign Holders, insurance companies, tax-exempt organizations, dealers in securities and persons who have held the Shares as part of a straddle, hedge, conversion transaction or other integrated investment), nor does it address the federal income tax consequences to persons who do not hold the Shares as "capital assets" within the meaning of Section 1221 of the Code (generally, property held for investment). Holders should consult their own tax advisors regarding the U.S. federal, state, local and foreign income and other tax consequences of the Offer and the Merger. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local and foreign income and other tax laws. In general, a Holder who sells Shares pursuant to the Offer or receives cash in exchange for Shares pursuant to the Merger will recognize gain or loss for federal income tax purposes equal to the difference, if any, between the amount of cash received and the Holder's adjusted tax basis in the Shares sold pursuant to the Offer or surrendered for cash pursuant to the Merger. Gain or loss will be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) tendered pursuant to the Offer or surrendered for cash pursuant to the Merger. Such gain or loss will be long-term capital gain or loss if the Holder has held the Shares for more than one (1) year at the time of the consummation of the Offer or the Merger. Under the Code, capital gains recognized by an individual investor (or an estate or certain trusts) upon a disposition of a Share that has been held for more than one year generally will be subject to a maximum tax rate of 20% or, in the case of a Share that has been held for one year or less, will be subject to tax at ordinary income rates. Certain limitations apply to the use of capital losses. 6. Price Range of the Shares; Dividends. The Shares are traded on the NYSE under the symbol "OC". The following table sets forth, for each of the fiscal quarters indicated, the high and low reported closing sales price per Share on the NYSE and the per Share cash dividends paid for such periods.
Common Stock ------------------------- High Low Dividends ------- ------- --------- Fiscal Year Ended December 31, 1997 First Quarter....................................... $33.875 $30.000 $.14 Second Quarter...................................... 37.625 30.813 .16 Third Quarter....................................... 45.750 36.720 .16 Fourth Quarter...................................... 51.000 42.375 .16 Fiscal Year Ended December 31, 1998 First Quarter....................................... $55.688 $43.063 $.16 Second Quarter...................................... 57.750 52.000 .18 Third Quarter....................................... 59.250 34.563 .18 Fourth Quarter...................................... 39.813 28.000 .18 Fiscal Year Ending December 31, 1999 First Quarter....................................... $39.625 $29.625 $.18 Second Quarter...................................... 35.875 27.750 .18 Third Quarter (through July 15, 1999)............... 47.750 34.500 --
On July 9, 1999, the last full trading day prior to the public announcement of the execution of the Merger Agreement by the Company, Purchaser and Royal US, the closing price for the Shares, as reported on the NYSE, was $40.750 per Share. On July 15, 1999, the last full trading day prior to the commencement of the Offer, the closing price of the Shares, as reported on the NYSE, was $47.438 per Share. Stockholders are urged to obtain a current market quotation for the Shares. 9 7. Effect of the Offer on the Market for the Shares; Stock Listing; Exchange Act Registration; Margin Regulations. Market for the Shares. The purchase of Shares by Purchaser pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and, depending upon the number of Shares so purchased, could adversely affect the liquidity and market value of the remaining Shares held by the public. Stock Listing. The Shares are listed on the NYSE. After consummation of the Offer and depending upon the aggregate market value and the per Share price of any Shares not purchased pursuant to the Offer, the Shares may no longer meet the requirements for continued listing on the NYSE. According to the NYSE's published guidelines, the NYSE may delist the Shares if, among other things: (i) the number of total stockholders falls below 400; (ii) the number of total stockholders falls below 1,200 and the average monthly trading volume is less than 100,000 shares (for the most recent 12 months); (iii) the number of publicly held Shares (exclusive of holdings of officers and directors of the Company and their immediate families and other concentrated holdings of 10% or more ("Excluded Holdings")) should fall below 600,000; or (iv) the aggregate market value of such publicly held Shares (exclusive of Excluded Holdings) should fall below $8 million. If as a result of the purchase of Shares pursuant to the Offer, Shares no longer meet the requirements of the NYSE for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected. According to the Company, as of July 9, 1999, there were approximately 1,925 holders of record of the Shares and as of July 9, 1999, there were 27,355,263 Shares outstanding. If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on other securities exchanges or in the over-the-counter market and that price quotations would be reported by such exchanges or through the Nasdaq Stock Market or other sources. The extent of the public market for the Shares and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of the publicly traded Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. The Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether it would cause future market prices to be greater or lesser than the Offer Price. Exchange Act Registration. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the SEC if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and to the SEC and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement pursuant to Section 14(a) in connection with stockholders' meetings and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 or Rule 144A promulgated under the Securities Act of 1933, as amended (the "Securities Act"), may be impaired or eliminated. Purchaser currently intends to seek termination of the listing of the Shares on the NYSE and of the registration of the Shares under the Exchange Act as soon after the completion of the Offer as the requirements for such termination are met. If the NYSE listing and the Exchange Act registration of the Shares are not terminated prior to the Merger, then the listing of the Shares on the NYSE and the registration of the Shares under the Exchange Act will be terminated following the consummation of the Merger. Margin Regulations. The Shares presently are "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which status has the effect, among 10 other things, of allowing brokers to extend credit on the collateral of such securities. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. 8. Certain Information Concerning the Company. General. The information concerning the Company contained in this Offer to Purchase, including that set forth below under the caption "Selected Financial Information," has been furnished by the Company or has been taken from or based upon publicly available documents and records on file with the SEC and other public sources. Neither Purchaser, Royal US nor the Information Agent assumes responsibility for the accuracy or completeness of the information concerning the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Purchaser, Royal US or the Information Agent. The Company is an insurance holding company. The Company is a Delaware corporation with its principal executive offices at 9 Farm Springs Road, Farmington, Connecticut 06032. The telephone number of the Company at such offices is (860) 674-6600. Selected Financial Information. Set forth below is certain consolidated financial information with respect to the Company, excerpted or derived from the Company's Annual Reports on Form 10-K for the fiscal years ended December 31, 1998 and December 31, 1997 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, each as filed with the SEC pursuant to the Exchange Act. More comprehensive financial information is included in such reports and in other documents filed by the Company with the SEC. The following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information (including any related notes) contained therein. Such reports, documents and financial information may be inspected and copies may be obtained from the SEC in the manner set forth below. 11 ORION CAPITAL CORPORATION SELECTED CONSOLIDATED FINANCIAL INFORMATION (in millions, except for per share data and ratios)
Three Months ended March 31, (Unaudited) Year ended December 31, -------------------- ---------------------------- 1999 1998 1998 1997 1996 --------- --------- -------- -------- -------- Total revenues............. $ 336.3 $ 424.8 $1,716.7 $1,590.6 $1,493.5 Operating earnings (loss).. $ (89.1) $ 23.4 $ 68.6 $ 85.7 $ 72.9 After-tax investment gains..................... 1.1 18.8 34.2 30.1 13.7 Cumulative effect of adoption of new accounting principle................. (4.6) -- -- -- -- --------- --------- -------- -------- -------- Net earnings (loss)........ $ (92.6) $ 42.2 $ 102.8 $ 115.8 $ 86.6 ========= ========= ======== ======== ======== Combined ratios (GAAP)..... 154.1% 99.3% 100.5% 99.7% 99.8% Per basic common share: Operating earnings (loss).................. $ (3.30) $ 0.85 $ 2.52 $ 3.14 $ 2.66 After-tax investment gains................... 0.04 0.69 1.26 1.10 0.50 Cumulative effect of adoption of new accounting principle.... (0.17) -- -- -- -- --------- --------- -------- -------- -------- Net earnings (loss).... $ (3.43) $ 1.54 $ 3.78 $ 4.24 $ 3.16 ========= ========= ======== ======== ======== Per diluted common share: Operating earnings (loss).................. $ (3.30) $ .83 $ 2.46 $ 3.07 $ 2.63 After-tax investment gains................... 0.04 0.67 1.23 1.08 0.49 Cumulative effect of adoption of new accounting principle.... (0.17) -- -- -- -- --------- --------- -------- -------- -------- Net earnings (loss).... $ (3.43) $ 1.50 $ 3.69 $ 4.15 $ 3.12 ========= ========= ======== ======== ======== Dividends declared per com- mon share................. $ 0.18 $ 0.16 $ 0.70 $ 0.62 $ 0.51 ========= ========= ======== ======== ======== Weighted average shares outstanding: Basic.................... 27.0 27.4 27.2 27.3 27.4 Diluted.................. 27.0 28.1 27.8 27.9 27.8 March 31, (Unaudited) December 31, -------------------- ---------------------------- 1999 1998 1998 1997 1996 --------- --------- -------- -------- -------- Total cash and invest- ments..................... $ 2,454.9 $ 2,624.6 $2,504.3 $2,553.0 $2,321.4 Total assets............... 4,205.9 4,031.1 4,164.4 3,884.1 3,464.4 Total policy liabilities... 2,730.9 2,463.1 2,599.6 2,443.8 2,304.4 Notes payable.............. 209.4 210.1 217.4 310.2 310.9 Minority interest.......... -- -- -- -- 45.2 Trust preferred securi- ties...................... 250.0 250.0 250.0 125.0 -- Stockholders' equity....... 615.6 760.8 727.3 723.1 576.7 Common shares outstanding.. 27.3 27.5 27.2 27.6 27.5 Book value per common share..................... $ 22.57 $ 27.64 $ 26.77 $ 26.19 $ 20.94 Statutory policyholders' surplus................... 637.7 835.6 732.1 789.0 670.6
Certain Company Projections. In the course of discussions giving rise to the Merger Agreement, representatives of the Company furnished representatives of Royal US with certain business and financial information that was not publicly available, including certain financial projections for fiscal years 1999 and 2000 12 (the "Company Projections"). The Company Projections were prepared solely for the Company's internal purposes and were not prepared for publication or with a view to complying with the published guidelines of the SEC regarding projections or with the American Institute of Certified Public Accountants Guide for Prospective Financial Statements, and such information is being included in this Offer to Purchase solely because it was furnished to Royal US in connection with the discussions giving rise to the Merger Agreement. The independent accountants of the Company have neither examined nor compiled the prospective financial information set forth below and, accordingly, do not express an opinion or any other form of assurance with respect thereto. The Company Projections set forth below reflect numerous assumptions, including general business and economic conditions, moderate growth in premium and underwriting profit reflecting current conditions in the property/casualty marketplace, and certain other matters, many of which are inherently uncertain or beyond the Company's, Purchaser's, Royal US's or Royal plc's control, and do not take into account any changes in the Company's operations or capital structure which may result from the Offer and the Merger. It is not possible to predict whether the assumptions made in preparing the projected financial information will be valid, and actual results may prove to be materially higher or lower than those contained in the projections. The inclusion of this information should not be regarded as an indication that the Company, Purchaser, Royal US, Royal plc or anyone else who received this information considered it a reliable predictor of future events, and this information should not be relied on as such. None of Purchaser, Royal US, Royal plc, the Company or any of their respective representatives assumes any responsibility for the validity, reasonableness, or completeness of the projected financial information, and the Company has made no representation to Purchaser, Royal US or Royal plc regarding such information.
1999 2000 ----- ----- (in millions) After-tax operating earnings....................................... $63.4 $88.8
The after-tax operating earnings for 1999 do not reflect the impact of the $164.5 million pre-tax reserve charge incurred by the Company in the first quarter of 1999 and the gain on the sale of Wm. H. McGee & Co., Inc. Available Information. The Company is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is obligated to file reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interests of such persons in transactions with the Company is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the SEC. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at Seven World Trade Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such information should be obtainable by mail, upon payment of the SEC's customary charges, by writing to the SEC's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a website on the Internet at http://www.sec.gov that contains reports, proxy statements and other information relating to the Company which have been filed via the SEC's EDGAR System. 9. Certain Information Concerning Purchaser, Royal US and Royal plc. General. Purchaser is a newly formed Delaware corporation organized solely to effect the Offer and the Merger. Purchaser has not carried on any significant activities other than in connection with the Offer and the Merger. Until immediately prior to the time Purchaser purchases Shares pursuant to the Offer, it is not anticipated that Purchaser will have any significant assets or liabilities or engage in any significant activities other than those incident to its formation and capitalization and the transactions contemplated by the Offer and the Merger. 13 Royal US is an insurance holding company. The principal offices of Purchaser and Royal US are located at 9300 Arrowpoint Blvd., Charlotte, North Carolina 28273-8135. The telephone number of Purchaser and Royal US at such location is (704) 522-2000. Royal plc is one of the world's leading global insurers. The principal offices of Royal plc are located at 30 Berkeley Square, London W1X 5HA, England. The telephone number of Royal plc at such location is 011-44-171-636- 3450. For certain information concerning the executive officers and directors of Purchaser, Royal US and Royal plc, see Schedule I. Selected Financial Information. Royal plc's net premiums written and policy fees for the years ending December 1997 and December 1998 were 9,225 millions Pounds Sterling and 9,723 millions Pounds Sterling, respectively. Using an exchange rate for Pounds Sterling into U.S. Dollars based upon the noon buying rate on December 31, 1998 for cable transfers in foreign securities as certified for customs purposes by the Federal Reserve Bank in New York City (the "Noon Buying Rate"), the net premiums and policy fees for the same period were $5,545 million and $5,844 million, respectively. The net investment income of Royal plc for the years ending December 1997 and December 1998 was 3,759 millions Pounds Sterling and 5,275 millions Pounds Sterling, respectively, and $2,259 million and $3,170 million, respectively, for the same period. The net income of Royal plc for the years ending December 1997 and December 1998 was 1,416 millions Pounds Sterling and 457 millions Pounds Sterling, respectively, and $851 million and $275 million, respectively, for the same period. The Noon Buying Rate on December 31, 1998, expressed in U.S. dollars per (Pounds)1.00 was approximately $1.66. The financial information set forth herein was prepared in accordance with uniform accounting policies using the standards of United Kingdom ("UK") accounting, which differ in certain respects from the United States generally accepted accounting principles ("US GAAP"). Such differences between the standards of UK accounting and US GAAP relate to, among other things, translation, recognition and measurement criteria. However, Royal US believes that such differences are not material to a decision by a stockholder of the Company whether to sell, transfer or hold any Shares, since such differences would not affect the ability of Royal plc to provide the necessary funds to pay for the Shares to be acquired pursuant to the Offer and the Merger. Except as set forth in the following two paragraphs and as otherwise set forth in this Offer to Purchase, neither Purchaser, Royal US, Royal plc, nor, to the best knowledge of Purchaser, Royal US or Royal plc, any of the persons listed on Schedule I, nor any associate or majority owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any Shares. Neither Purchaser, Royal US, Royal plc, nor, to the best knowledge of Purchaser, Royal US or Royal plc, any of the persons or entities referred to above, nor any of the respective executive officers, directors or subsidiaries of any of the foregoing, has effected any transaction in the Shares during the past sixty (60) days. As of the date hereof, an aggregate of 668,900 Shares were owned by the following insurance companies, each of which is a direct wholly-owned subsidiary of Royal US and an indirect wholly-owned subsidiary of Royal plc: Safeguard Insurance Company owns 64,200 Shares; Royal Insurance Company of America owns 271,200 Shares; Royal Indemnity Company owns 108,800 Shares; Globe Indemnity Company owns 166,500 Shares; and American and Foreign Insurance Company owns 58,200 Shares. The principal offices of each such entity are located at 9300 Arrowpoint Blvd, Charlotte, North Carolina 28273- 8135. Pursuant to the Stock Option Agreement, Royal plc, Royal US and Purchaser may be deemed to beneficially own 5,443,697 Shares constituting approximately 19.9% of the total currently outstanding Shares. Each of Royal US and Purchaser disclaims beneficial ownership of such shares. Except as set forth in this Offer to Purchase, none of Purchaser, Royal US, Royal plc or any of their affiliates, nor, to the best knowledge of Purchaser, Royal US or any of their respective affiliates, any of the persons listed on Schedule I, has any contract, arrangement, understanding or relationship with any other person 14 with respect to any securities of the Company, including, but not limited to, any transfer or voting of any securities of the Company, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of loans or guarantees against loss, division of profits or loss, or the giving or withholding of proxies. Except as set forth in the following paragraph, none of Purchaser, Royal US, Royal plc or any of their respective affiliates, nor, to the best knowledge of Purchaser, Royal US, any of their respective affiliates, or any of the persons listed on Schedule I, has had, since January 1, 1996, any business relationships or transactions with the Company or any of its executive officers, directors or affiliates that would require reporting under the rules or regulations of the SEC applicable to the Offer. In June 1995, Sun Alliance USA Inc. (SunAlliance Group plc merged with Royal plc in July 1996) sold Wm. H. McGee & Co., Inc. ("McGee"), an insurance agency, to the Company but continued to hold an approximate 40% participation interest in an insurance pool managed by McGee. This participation interest was reduced over time and was finally eliminated in January 1998. Royal US's only remaining obligations under such pool are through two of its subsidiaries and relate to the runoff for prior underwritten years. Except as set forth in this Offer to Purchase, since January 1, 1996, there have been no contacts, negotiations or transactions between Purchaser, Royal US, Royal plc or any of their respective affiliates, or, to the best knowledge of Purchaser, Royal US, Royal plc or any of their respective affiliates, any of the persons listed on Schedule I, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, election of directors or a sale or other transfer of a material amount of assets. Available Information. None of Purchaser, Royal US or Royal plc is subject to the information requirements of the Exchange Act and, accordingly, do not file reports or other information with the SEC under the Exchange Act relating to its business, financial position, results of operations or other matters. However, Purchaser and Royal US have filed a Schedule 14D-1 and exhibits thereto with the SEC in connection with the Offer and the Merger. 10. Sources and Amount of Funds. The Offer is not conditioned upon any financing arrangements. The total amount of funds required by Purchaser to consummate the Offer and the Merger, including the fees and expenses of the Offer and the Merger, is estimated to be approximately $1.4 billion. Purchaser will obtain all such funds through capital contributions from Royal US. Royal US will provide such funds from working capital or such alternative financing sources as it deems appropriate. 11. Background of the Offer; Purpose of the Offer and the Merger; the Merger Agreement and Certain Other Agreements. Contacts with the Company; Background of the Offer. Commencing in December 1998 and continuing until mid-May 1999, W. Marston Becker, Chairman and Chief Executive Officer of the Company, had several telephone conversations and meetings with representatives of Royal US. During this period, Mr. Becker stated that the Company was interested in selling certain businesses and expressed an interest in Royal US making a preferred equity investment in the Company, combined with a strategic marketing alliance for the cross-selling of each other's products. Royal US expressed a preference for a business combination between the two companies and elaborated on the synergies which it believed existed between the two companies. On May 26, 1999, Terry Broderick, President of Royal US, advised Mr. Becker that he believed the synergies between the two companies could only be fully realized if Royal US acquired the Company. Mr. Becker indicated that, as a result of the information he had obtained during the previous months' discussions, he thought Mr. Broderick's conclusion might well be correct, and was willing to discuss this alternative with the senior management of Royal plc in order to determine whether, in fact, a business combination transaction was in the best interests of the Company and its stockholders. 15 Accordingly, on June 4, 1999, Mr. Becker and Robert V. Mendelsohn, Royal plc's Group Chief Executive, met and agreed that Royal US would submit a proposal to acquire the Company. On June 11, 1999, Mr. Broderick telephoned Mr. Becker and communicated the broad outlines of a proposal for the acquisition by Royal US of the Company which he confirmed in a letter to Mr. Becker on June 14, 1999. The proposal contemplated a share-for-share stock exchange, using Royal plc's American Depositary Receipts, and valued the shares at $45-$50. On June 18, 1999, the Board of Directors of the Company held a meeting at which it considered the proposal of Royal US and authorized the Company's senior management to continue its discussions with Royal US. Also on June 18, the Confidentiality Agreement was executed and Royal US began its preliminary due diligence review. To that end, beginning on June 22, 1999, senior management of Royal US and the Company and their advisors met for several days. On July 1, 1999, Mr. Broderick sent Mr. Becker a letter and related term sheet setting forth the terms and conditions upon which Royal US would be willing to acquire the Company at a price of $50 per Share in cash, subject to the completion of due diligence and the negotiation of a mutually satisfactory definitive acquisition agreement. On July 2, 1999, the Board of Directors of the Company held a meeting to review and discuss the July 1 proposal and authorized the Company's senior management to negotiate a definitive merger agreement with Royal US by July 9, 1999, if possible. Beginning on July 3, 1999 and continuing through the preparation of final agreements on July 11, Royal US conducted more extensive business and legal due diligence. During the week of July 5, the parties and their respective legal and financial advisors negotiated the Merger Agreement and the Option Agreement. On July 7, 1999, the Company entered into an Exclusivity Agreement pursuant to which it agreed, subject to certain conditions, to enter into exclusive negotiations with Royal & SunAlliance USA, Inc. ("Royal USA, Inc."), the parent of Royal US and an indirect wholly-owned subsidiary of Royal plc, and its affiliates for a period of time so as to enable both parties to negotiate and conclude a definitive agreement. This agreement terminated according to its terms upon the execution of the Merger Agreement. On July 11, 1999, the Board of Directors of the Company met to consider the terms upon which Royal US would acquire the Company. After hearing presentations by the Company's senior management, legal advisors and DLJ, including DLJ's opinion that the consideration to be received by the stockholders of the Company was fair to them from a financial point of view, the Company's Board unanimously resolved that the Offer and the Merger were advisable, fair to and in the best interests of the stockholders of the Company. The Board also approved the Merger Agreement, the Option Agreement and the transactions contemplated thereby and recommended that the stockholders of the Company tender their Shares in the Offer and approve and adopt the Merger Agreement and the transactions contemplated thereby. Thereafter, Royal US, Purchaser, and the Company executed the Merger Agreement and Royal US and the Company executed the Stock Option Agreement. On July 16, 1999, Purchaser commenced the Offer. Purpose of the Offer and the Merger. The purpose of the Offer and the Merger is to enable Purchaser to acquire control of, and the entire equity interest in, the Company. The Offer is being made pursuant to the Merger Agreement and is intended to increase the likelihood that the Merger will be effected. The purpose of the Merger is to acquire all of the outstanding Shares not purchased pursuant to the Offer. Stockholders of the Company who sell their Shares in the Offer will cease to have any equity interest in the Company and any right to participate in its earnings and future growth. If the Merger is consummated, non- 16 tendering stockholders will no longer have an equity interest in the Company and instead will have only the right to receive cash consideration pursuant to the Merger Agreement or to exercise statutory appraisal rights under Section 262 of Delaware Law. See Section 12. Similarly, after selling their Shares in the Offer or the subsequent Merger, stockholders of the Company will not bear the risk of any decrease in the value of the Company. Merger Agreement. The following is a summary of certain portions of the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement, a copy of which has been filed with the SEC as an exhibit to the Schedule 14D-1. The Merger Agreement may be examined and copies may be obtained at the places and in the manner set forth in Section 9 of this Offer to Purchase. The Offer. The Merger Agreement provides that, without the written consent of the Company, Purchaser will not (i) decrease the Offer Price, (ii) change the form of consideration to be paid in the Offer, (iii) decrease the number of Shares sought in the Offer, (iv) impose additional conditions to the Offer or (v) make any other change to the terms and conditions of the Offer in any manner materially adverse to the holders of the Shares. Upon the terms and subject to the conditions of the Offer, Purchaser will accept for payment and will purchase, as soon as permitted under the terms of the Offer, all Shares validly tendered and not withdrawn prior to the expiration of the Offer. Royal US and Purchaser agree that, unless the Merger Agreement is terminated, Purchaser will not terminate or withdraw the Offer prior to the expiration date thereof. If at the expiration date of the Offer the conditions to the Offer shall not have been satisfied or earlier waived, Purchaser may extend the expiration date on one or more occasions for such additional period or periods of time as Purchaser determines in its sole discretion (provided that following the 90th day after the date of the Merger Agreement, such extensions shall be in increments of not more than ten (10) business days each) and, unless the Merger Agreement has been terminated in accordance with its terms, will extend it until a date that is not later than December 31, 1999, if requested to do so by the Company, and Royal US is otherwise going to let the Offer expire without the purchase of Shares thereunder, but shall not be required to so extend if any of the conditions not satisfied or earlier waived on the then-scheduled expiration date are one or more of the Minimum Condition or the conditions described in paragraphs (b)(ii), (b)(iii) or (b)(iv) of Section 14 of this Offer to Purchase, provided that (x) if the only condition not satisfied is the Minimum Condition, the satisfaction or waiver of all other conditions shall have been publicly disclosed at least five (5) business days before termination of the Offer and (y) if any condition described in paragraph (b)(ii), (b)(iii) or (b)(iv) of Section 14 of this Offer to Purchase has not been satisfied and the failure to so satisfy can be remedied, the Offer shall not be terminated unless the failure is not remedied within 20 days after Royal US has furnished the Company with written notice of such failure. In addition, Purchaser, at its sole option, may extend the expiration date of the Offer for an aggregate period of not more than ten (10) business days beyond the latest expiration date that would otherwise be permitted (but in no event later than the Termination Date (as defined below)) if there shall not have been tendered sufficient Shares so that the Merger could be effected without a meeting of the Company's stockholders in accordance with Section 253 of Delaware Law. The Merger. Following the consummation of the Offer, the Merger Agreement provides that at the Effective Time and subject to and upon the terms and conditions of the Merger Agreement and the Delaware Law, Purchaser shall be merged with and into the Company and, as a result of the Merger, the separate corporate existence of Purchaser shall cease and the Company shall continue as the surviving corporation (sometimes referred to as the "Surviving Corporation"). The respective obligations of Purchaser, on the one hand, and the Company, on the other hand, to effect the Merger are subject to the satisfaction on or prior to the Effective Time of each of the following conditions: (i) Purchaser shall have made, or caused to be made, the Offer and shall have purchased, or caused to be purchased, Shares pursuant to the Offer (provided that the purchase of Shares pursuant to the Offer shall not be a condition to the obligations of Purchaser or Royal US pursuant to the Merger Agreement if Purchaser fails to accept for payment and pay for the Shares in violation of the terms of the Offer or the Merger Agreement), (ii) the Merger and the Merger Agreement shall have been approved and adopted by the requisite vote of the stockholders of the 17 Company, if required by Delaware Law, (iii) no court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, statute, ordinance, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Merger and (iv) the waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated and, other than the filing of a Certificate of Merger, all notices, reports and other filings required to be made prior to the Effective Time by the Company or Royal US or any of their respective subsidiaries with, and all consents, registrations, approvals, permits and authorizations required to be obtained prior to the Effective Time by the Company or Royal US or any of their respective subsidiaries from, any governmental entity, including, but not limited to, the consent of certain insurance commissioners, directors or superintendents of the state insurance departments, in connection with the execution and delivery of the Merger Agreement and the consummation of the Merger and the other transactions contemplated hereby shall have been made or obtained (as the case may be) and shall be in full force and effect. At the Effective Time of the Merger (i) each issued and outstanding Share (other than Shares that are owned by the Company or any of its subsidiaries, any Shares owned by Royal plc or any of its subsidiaries or any Shares which are held by stockholders who properly perfect their dissenters rights under Delaware Law) will be canceled and converted into the right to receive the Offer Price paid pursuant to the Offer, without interest, upon the surrender of the certificate formerly representing such Share in accordance with the Merger Agreement and (ii) each share of the common stock, par value $.01 per share, of Purchaser issued and outstanding immediately prior to the Effective Time will be converted into that number of fully paid and nonassessable shares of common stock of the Surviving Corporation equal to (x) the number of shares of Common Stock issued and outstanding immediately prior to the Effective Time less (y) the number of those shares of Common Stock held by (A) any subsidiary of the Company or (B) Royal plc or any subsidiary thereof. The Company's Board of Directors. The Merger Agreement provides that promptly upon the purchase by Purchaser of Shares pursuant to the Offer which represent at least a majority of the outstanding shares of Common Stock, Purchaser or Royal US shall be entitled to designate up to such number of directors but in no event less than a majority, rounded up to the next whole number, on the board of directors of the Company as shall give Purchaser representation on such board of directors equal to the product of the total number of directors on such board (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by Royal US, Purchaser and any other subsidiary of Royal US bears to the total number of Shares then outstanding. At such time, the Company will promptly use its reasonable best efforts to cause Purchaser's or Royal US's designees, as the case may be, to be so elected, including either increasing the size of the board of directors or securing the resignations of incumbent directors or both. The Company will use its reasonable best efforts to cause directors designated by Purchaser to constitute the same percentage as is on the board of (i) each committee of the board of directors, (ii) each board of directors of each subsidiary of the Company and (iii) each committee of each such subsidiary board, in each case only to the extent permitted by applicable law. The Company's obligation to appoint Purchaser's designees to the Company Board is subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. From and after the time, if any, that Royal US's designees constitute a majority of the Company's board of directors, any amendment of the Merger Agreement, any termination of the Merger Agreement by the Company, any extension of time for performance of any of the obligations of Royal US or Purchaser thereunder, any waiver of any condition or any of the Company's rights thereunder or other action by the Company thereunder may be effected only by unanimous vote of the entire board of directors of the Company. Stockholders' Meeting. Pursuant to the Merger Agreement, if the approval by the holders of Shares is required under Delaware Law to consummate the Merger and is required to be given at a duly held meeting of stockholders, the Company will take, in accordance with its certificate of incorporation and bylaws, all action necessary to convene a meeting of holders of Shares as promptly as practicable upon the written request of Royal US to consider and vote upon the approval of the Merger. The Company's board of directors will recommend approval of the Merger, will not withdraw or modify such recommendation and will take all lawful action to 18 solicit such approval unless, in the good faith judgment of the board of directors of the Company, after consultation with and receipt of advice of outside legal counsel, the failure to take such actions is required under applicable law. The Merger Agreement provides that in connection with such stockholders meeting referred to above, the Company will promptly prepare and deliver to Royal US a draft of a proxy statement (the "Proxy Statement"). Thereafter, the Company and Royal US shall use their reasonable best efforts to cooperate fully to make such changes to the Proxy Statement as may be reasonably requested by Royal US or otherwise may be appropriate, file the Proxy Statement with the SEC as soon as practicable and respond promptly to any SEC comments. Upon filing the final, definitive Proxy Statement with the SEC, the Company will mail such Proxy Statement to its stockholders. If Purchaser acquires at least a majority of the outstanding Shares in the Offer, Purchaser will have sufficient voting power to approve the Merger, even if no other stockholder votes in favor of the Merger. The Company has agreed to include in the Proxy Statement the recommendation of the Company Board that stockholders of the Company vote in favor of the approval of the Merger and the adoption of the Merger Agreement unless the Company Board, after consultation with outside legal counsel to the Company, determines that to do so would likely breach the fiduciary duties of the Company Board under applicable law. Notwithstanding the foregoing, if Purchaser obtains 90 percent or more of the Shares through the Offer, Purchaser will use the short form merger provisions of Section 253 of Delaware Law. Stock Options; Restricted Stock and Performance Units. The Merger Agreement provides that at the Effective Time each outstanding option to purchase Shares issued by the Company, whether issued pursuant to any stock plan of the Company or otherwise, whether or not exercisable (a "Company Option") will be canceled and, in consideration of such cancellation, Royal US shall (or shall cause the Company to), pay to each holder of a Company Option an amount in cash equal to (x) the difference (if positive) between the Offer Price and the price per Share (the "Option Exercise Price") pursuant to which the holder of such Company Option may purchase the Shares to which such Company Option relates, multiplied by (y) the number of Shares subject to such Company Option, less (z) any withholding of taxes as may be required by applicable law with respect to any Company Option. With respect to any Company Option as to which the Option Exercise Price exceeds the Offer Price, such Company Option shall also be canceled and in consideration of such cancellation, Royal US shall (or cause the Company to) pay to each holder thereof an amount in cash equal to (x) $5, multiplied by (y) the number of Common Shares subject to such Company Option, less (z) any withholding taxes as may be required by applicable law. The Merger Agreement also provides that at the Effective Time each Share which is subject to vesting or other similar restrictions, whether issued pursuant to any stock plan of the Company or otherwise ("Restricted Stock") will become fully vested and free of such restrictions in accordance with the Company Stock Plans (as defined in the Merger Agreement), and otherwise will be treated in the same manner as the Shares, provided that amounts payable in respect of Restricted Stock shall be reduced by any withholding of taxes as may be required by applicable law and the amount of any loans or other indebtedness owing to the Company in respect of the Restricted Stock from holders thereof. The Merger Agreement also provides that at the Effective Time each outstanding performance unit (each, a "Performance Unit"), whether issued pursuant to any stock plans of the Company or otherwise shall become immediately vested and immediately thereafter shall be canceled. In exchange for such cancellation, Royal US shall (or shall cause the Company to) pay each holder of a Performance Unit an amount in cash equal to (x) the book value per Common Share, determined as of the end of the fiscal quarter immediately preceding the Effective Time, in accordance with US GAAP, multiplied by (y) the number of Performance Units then held by such holder, less (z) any withholding Taxes as may be required by applicable Law. Interim Operations; Covenants. The Company has covenanted and agreed as to itself and its subsidiaries that after the date of the Merger Agreement and prior to the Effective Time (unless Royal US shall otherwise approve in writing, and except as otherwise expressly contemplated by the Merger Agreement, the Stock Option Agreement or as disclosed pursuant to the Merger Agreement): (a) its and its subsidiaries' businesses shall be conducted only in the ordinary and usual course (it being understood and agreed that nothing contained in the Merger Agreement shall permit the Company to 19 enter into or engage in (through acquisition, product extension or otherwise) the business of selling any products or services materially different from existing products or services of the Company and its subsidiaries or to enter into or engage in new lines of business (as such term is defined in the National Association of Insurance Commissioner's instructions for the preparation of the annual statement form) without Royal US's prior written approval); (b) it and each of its subsidiaries shall use its respective reasonable best efforts to preserve its business organization intact and maintain its existing relations and goodwill with customers, suppliers, reinsurers, distributors, creditors, lessors, employees and business associates; (c) it shall not (i) amend its certificate of incorporation or bylaws or amend, modify or terminate the Rights Agreement; (ii) split, combine or reclassify its outstanding shares of capital stock; (iii) authorize, declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock other than dividends from its wholly-owned subsidiaries and other than regular quarterly dividends paid by the Company on its Shares not in excess of $0.18 per share, with usual record and payment dates and in accordance with the Company's past dividend policy; or (iv) repurchase, redeem or otherwise acquire, or permit any of its subsidiaries to purchase or otherwise acquire, any shares of its stock or any securities convertible into or exchangeable or exercisable for any shares of its stock; (d) neither it nor any of its subsidiaries shall (i) issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire any shares, of its or any subsidiary's capital stock of any class or any other property or assets (other than Shares issuable pursuant to options outstanding on the date hereof under any stock plan of the Company); (ii) other than in the ordinary and usual course of business, transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any other property or assets (including capital stock of any of its subsidiaries) or incur or modify any material indebtedness or other liability; or (iii) make or authorize or commit for any capital expenditures, including entering into capital lease obligations, other than in amounts not exceeding $1,000,000 in the aggregate or, by any means, make any acquisition of, or investment in, assets or stock of any other person or entity, including by way of assumption reinsurance, in excess of $1,000,000 individually or $5,000,000 in the aggregate (other than in connection with ordinary course investment activities); (e) neither it nor any of its subsidiaries shall terminate, establish, adopt, enter into, make any new grants or awards under, amend or otherwise modify, any Compensation and Benefit Plans (as defined in the Merger Agreement) including the Stay Bonus Plan (as defined in the Merger Agreement), or increase the salary, wage, bonus or other compensation of any employees except increases occurring in the ordinary and usual course of business (which shall include normal periodic performance reviews and related compensation and benefit increases) or promote any employee into any of bands 1, 2, 3 or 4, or from one of such bands into another of such bands; (f) neither it nor any of its subsidiaries shall pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, settlement, discharge or satisfaction of claims, liabilities or obligations legally due and payable and arising in the ordinary and usual course of business, claims arising under the terms of products, contracts or policies issued by the Company Insurance subsidiaries in the ordinary and usual course of business and such other claims, liabilities or obligations as shall not exceed $2,000,000 in the aggregate; (g) neither it nor any of its subsidiaries shall make, change or revoke any material tax election, settle or compromise any material tax liability arising in any audit, change its method of accounting if such change would have a material impact on taxes, enter into any closing or other agreement with respect to a material amount of taxes, file a request for refund of a material amount of taxes (but not including the prosecution of any refund claim pending on the date hereof), or file an amended tax return if such tax return is materially 20 different from the original return to which it relates, except, in each case, (i) in the ordinary course of business and consistent with the Company's past practice in respect of the tax at issue in the jurisdiction in question or (ii) with the consent of Royal US, such consent not to be unreasonably withheld; (h) neither it nor any of its subsidiaries shall enter into any agreement containing any provision or covenant limiting in any material respect the ability of the Company or any subsidiary or affiliate to (i) sell any products or services of or to any other person, (ii) engage in any line of business or (iii) compete with or to obtain products or services from any person or limiting the ability of any person to provide products or services to the Company or any of its subsidiaries or affiliates; (i) neither it nor any of its subsidiaries shall enter into any (A) commutations or (B) new quota share or other reinsurance transaction, in the case of clause (B), (i) which does not contain cancellation and termination provisions reasonably customary in the industry for that type of transaction, (ii) which, except in the ordinary course of business, materially increases or reduces the Company's insurance subsidiaries' consolidated ratio of net written premiums to gross written premiums or (iii) pursuant to which $5,000,000 or more in gross written premiums are ceded by the Company's insurance subsidiaries to any person other than the Company or any of its subsidiaries; (j) neither it nor any of the Company's insurance subsidiaries will alter or amend in any material respect their existing investment guidelines or policies; (k) neither it nor any of its subsidiaries shall take any action or omit to take any action that would cause any of its representations and warranties in the Merger Agreement to become untrue in any material respect; (l) neither it nor its subsidiaries shall permit a material change in any of its underwriting, investment, actuarial, financial reporting or accounting practices or policies or in any material assumption underlying an actuarial practice or policy, except as may be required by any change in generally accepted accounting principles, statutory accounting principles or applicable law; and (m) neither it nor any of its subsidiaries will authorize or enter into an agreement to do any of the foregoing. No Solicitation. Pursuant to the Merger Agreement, the Company has agreed that it will not, and will not permit or cause any of its subsidiaries or any of its or its subsidiaries' directors and officers to, and shall direct its and its subsidiaries directors, officers, employees, counsel, accountants, financial advisors and other authorized agents and representatives (collectively, "Representatives") not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, consolidation, business combination, recapitalization or similar transaction involving, or any purchase of 15% or more of the assets or any equity securities of, the Company or any of its subsidiaries (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"). The Company will not, and will not permit or cause any of its subsidiaries or any of its or its subsidiaries officers or directors to, and shall direct its and its subsidiaries' Representatives (including any investment banker, attorney or accountant retained by it or any of its subsidiaries) not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, whether made before or after the date of the Merger Agreement, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal (including, without limitation, by means of an amendment to the Rights Agreement); provided, however, that nothing contained in the Merger Agreement shall prevent the Company or its board of directors from: (i) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal or (ii) at any time prior to the approval of the Merger by the Company's stockholders (A) providing information in response to a request therefor by a person who has made an unsolicited bona fide written Acquisition Proposal if the board of directors receives from the person so requesting such information an executed confidentiality agreement on terms substantially equivalent to 21 those contained in the Confidentiality Agreement, (B) engaging in any negotiations or discussions with any person who has made an unsolicited bona fide written Acquisition Proposal or (C) recommending such an Acquisition Proposal to the stockholders of the Company, if and only to the extent that, in the case of clauses (A), (B) and (C) above, (i) the board of directors of the Company determines in good faith, after consultation with and receipt of advice of outside legal counsel, that such action is required in order for its directors to comply with their respective fiduciary duties under applicable law and (ii) the board of directors of the Company determines in good faith (after consultation with its financial advisor) that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the Person making the proposal, and would, if consummated, result in a more favorable transaction than the transaction contemplated by the Merger Agreement (any such Acquisition Proposal being referred to in the Merger Agreement as a "Superior Proposal"). The Company also has agreed to cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted prior to the execution of the Merger Agreement with respect to any of the foregoing. The Company has further agreed that it will take the necessary steps to promptly inform its officers, directors, subsidiaries and Representatives of the foregoing obligations and the obligations in the Confidentiality Agreement. The Company will also notify Royal US promptly, but in any event not later than one day following receipt, if any such inquiries, proposals or offers are received by, any such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, any of its Representatives indicating, in connection with such notice, the name of such person and the material terms and conditions of any proposals or offers and thereafter shall keep Royal US informed, on a current basis, of the status and terms of any such proposals or offers and the status of any such negotiations or discussions. The Company also will promptly request each person that has executed a confidentiality agreement in connection with its consideration of an Acquisition Proposal to return or dispose of all confidential information that had been furnished to such person by or on behalf of the Company or any of its subsidiaries. Indemnification and Insurance. Royal US has agreed that from and after the Effective Time it will indemnify and hold harmless each present and former director and officer of the Company (when acting in such capacity) against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time to the fullest extent that the Company was permitted under Delaware Law and its certificate of incorporation and bylaws to indemnify such person (and Royal US has also agreed to advance expenses as incurred to the fullest extent permitted under applicable law provided the person to whom expenses are advanced provides a written affirmation of his or her good faith belief that the standard of conduct necessary for indemnification has been met and an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). Royal US has also agreed that the Surviving Corporation shall continue to maintain the Company's existing officers' and directors' liability insurance ("D&O Insurance") or D&O Insurance that is substantially comparable to the Company's existing D&O Insurance for a period of six years after the Effective Time, subject to certain maximum required premium amounts. Representations and Warranties. Pursuant to the Merger Agreement, the Company has made customary representations and warranties to Purchaser and Royal US with respect to, among other things, its organization, capitalization, authority relative to the Merger Agreement and the Stock Option Agreement, financial statements, public filings, the absence of certain material adverse events, changes or effects, conduct of business, compliance with insurance laws and regulations and related insurance matters, liabilities and reserves, litigation, employee benefit plans, brokers' fees, compliance with laws, tax matters, intellectual property, employment matters, environmental matters, real property, material contracts, potential conflicts of interest, insurance, vote required to approve the Merger Agreement, information in the Proxy Statement, the Rights Agreement and Year 2000 compliance. 22 Termination; Fees. The Merger Agreement may be terminated: (i) at any time prior to the Effective Time, whether before or after the approval of the Merger by stockholders of the Company, by mutual written consent of the Company and Royal US; (ii) by Royal US or the Company if (x) the Offer shall have expired or been terminated in accordance with its terms without any Shares being purchased pursuant thereto or (y) Purchaser shall not have accepted for payment any Shares pursuant to the Offer by December 31, 1999 (the "Termination Date"), provided, that (A) the foregoing rights to terminate the Merger Agreement shall not be available to any party that has breached in any material respect its obligations under the Merger Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the Offer to be consummated and (B) the Company shall not receive a termination fee it would otherwise have been entitled to receive pursuant to the Merger Agreement, if it exercises the right to terminate the Merger Agreement pursuant to clause (y) on or prior to February 29, 2000; (iii) by either Royal US or the Company if any Order permanently restraining, enjoining or otherwise prohibiting consummation of the Offer or the Merger shall become final and non-appealable (whether before or after the approval of the Merger by the stockholders of the Company); (iv) by the Company if prior to the consummation of the Offer (i) the board of directors of the Company authorizes the Company, subject to complying with the terms of the Merger Agreement, to enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal and the Company notifies Royal US in writing that it intends to enter into such an agreement, (ii) Royal US does not make, prior to five business days after receipt of the Company's written notification of its intention to enter into a binding agreement for a Superior Proposal (the "Alternative Transaction Notice") an offer that the board of directors of the Company determines, in good faith after consultation with its financial advisor, is at least as favorable as the Superior Proposal, and (iii) the Company pays all termination fees required to be paid pursuant to the Merger Agreement; (v) by the Company if prior to the consummation of the Offer there has been a material breach by Royal US or Purchaser of any representation, warranty, covenant or agreement contained in the Merger Agreement that is not curable or, if curable, is not cured within 20 days after written notice of such breach is given by the Company to the party committing such breach; or (vi) by Royal US if (a) the Company enters into a binding agreement for, or recommends, a Superior Proposal or the board of directors of the Company shall have withdrawn or adversely modified its approval or recommendation of the Merger Agreement or, after the mailing of the proxy statement relating to the approval of the Merger or this Offer to Purchase, failed to reconfirm its recommendation of the Merger Agreement within ten business days after a reasonable written request by Royal US to do so or redeems any rights under, or modifies or agrees to modify, the Rights Agreement (or any replacement thereof) to facilitate, any Acquisition Proposal with any Person (other than Royal plc or any subsidiary of Royal plc), or (b) prior to consummation of the Offer there has been a material breach by the Company of any representation, warranty, covenant or agreement contained in the Merger Agreement that is not curable or, if curable, is not cured within 20 days after written notice of such breach is given by Royal US to the party committing such breach. The Merger Agreement provides that if the Merger Agreement is terminated: (a) by the Company in the manner described in clause (iv) above or by Royal US in the manner described in clause (vi)(a) above, then the Company shall, not later than immediately prior to the time of such termination or not later than immediately prior to the time of entering into an agreement concerning a transaction that constitutes an Acquisition Proposal, pay Royal US a termination fee of $45,000,000 plus an amount equal to Royal US's out-of-pocket charges and expenses incurred in connection with the transactions contemplated by the Merger Agreement up to a maximum of $5,000,000 ("Expenses"); 23 (b) by the Company or Royal US in the manner described in clause (ii)(x) above (provided that (1) on the date of expiration or termination of the Offer the Minimum Condition has not been satisfied and (2) (x) at least 5 business days prior to such date, it shall have been publicly disclosed that the conditions to the Offer described in paragraphs (a)(ii), (a)(iii), (a)(iv) and (b)(i) of Section 14 have been satisfied or on such date any of such conditions shall not have been satisfied as a result of a material breach of the Merger Agreement by the Company or (y) on such date the condition to the Offer set forth in paragraph (b)(iii) of Section 14 has not been satisfied), in circumstances where within 9 months after the termination of the Merger Agreement the Company enters into a definitive agreement in respect of, or approves or recommends an Acquisition Proposal or redeems any rights under, or modifies or agrees to modify, the Rights Agreement (or any replacement thereof) to facilitate, any Acquisition Proposal with any person (other than Royal plc or any subsidiary of Royal plc), then the Company shall make payment to Royal US by wire transfer of immediately available funds a fee in the amount of $45,000,000 plus the Expenses of Royal US, payable upon the earlier of the time of entering into such agreement or consummation of an Acquisition Proposal; (c) by the Company or Royal US in the manner described in clause (ii)(y) above (provided that (1) on the date of expiration or termination there is no condition to the Offer which has failed to be satisfied as a result of a material breach of the Merger Agreement by Royal US or Purchaser and (2) prior to such termination an Acquisition Proposal with respect to the Company shall have been publicly announced or otherwise became public) in circumstances where within 9 months after the termination of the Merger Agreement the Company enters into a definitive agreement in respect of, or approves or recommends an Acquisition Proposal or redeems any rights under, or modifies or agrees to modify, the Rights Agreement (or any replacement thereof) in order to facilitate, any Acquisition Proposal with any person (other than Royal US or any subsidiary of Royal US), then the Company shall make payment to Royal US by wire transfer of immediately available funds a fee in the amount of $45,000,000 plus the Expenses of Royal US, payable upon the earlier of the time of entering into such agreement or consummation of an Acquisition Proposal. In the event that (a) the Merger Agreement is terminated (1) by the Company and Royal US in the manner described in clause (i) above or (2) by the Company or Royal US in the manner described in clause (ii)(y) above (other than a termination resulting from a breach of the Merger Agreement by the Company) or in the manner described in clause (iii) above or (3) by the Company in the manner described in clause (v) above) and (b) as of the date of termination, a Change in Control of Royal plc shall have occurred, then Royal US shall promptly pay the Company a termination fee of $45,000,000. "Change in Control of Royal plc" shall mean, (i) offers for the entire issued ordinary share capital of Royal plc under the terms of the United Kingdom Code on Takeovers and Mergers which (x) have been recommended by the board of directors of Royal plc, (y) have been publicly announced by the offeror to have become unconditional as to acceptances or (z) when the offeror has publicly announced that acceptances have been received and not withdrawn by Shareholders representing 50 percent of the issued ordinary share capital of Royal plc; (ii) the conveyance, transfer or lease by Royal US of all or substantially all of its assets to any Person or (iii) Royal plc has entered into a binding written agreement providing for any of the foregoing. Stock Option Agreement. The following is a summary of certain portions of the Stock Option Agreement and is qualified in its entirety by reference to the Stock Option Agreement, a copy of which has been filed with the SEC as an exhibit to the Schedule 14D-1. The Stock Option Agreement may be examined and copies may be obtained at the places and in the manner set forth in Section 9 of this Offer to Purchase. As a condition and inducement to Purchaser and Royal US's entering into the Merger Agreement, concurrently with the execution and delivery of the Merger Agreement, Royal US and the Company have entered into the Stock Option Agreement, pursuant to which, among another things, the Company has granted Royal US an irrevocable option to purchase up to 5,443,697 newly issued Shares (the "Company Option") at a purchase price per Share of $50.00 (the "Exercise Price"). The Stock Option Agreement will terminate, and the Company Option will expire, on the earlier of (i) the Effective Time; (ii) 90 days after the date full payment of the 24 termination fee is made by the Company to Royal US as described in paragraphs (a), (b) and (c) under the heading Merger Agreement--Termination; Fees of this Section 11 (the date referred to in clause (ii) being hereinafter referred to as the "Option Termination Date"), or (iii) one day following the date on which it is certain that no termination fee will become payable to Royal US under the Merger Agreement; provided that, if the Option cannot be exercised or the Shares cannot be delivered to Grantee upon such exercise because (a) a preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction in the United States prohibiting the delivery of the Shares shall be in effect; (b) any applicable waiting periods under the HSR Act shall not have expired or been terminated; or (c) any approval required to be obtained prior to the delivery of the Shares under the insurance laws of any state or foreign jurisdiction shall not have been obtained and be in full force and effect, the Option Termination Date shall be extended until thirty days after such impediment to exercise or delivery has been removed but not past December 31, 2001. Royal US may exercise the Company Option, in whole or in part, if on or after the date hereof any of the events described in paragraphs (a), (b) and (c) under the heading Merger Agreement--Termination; Fees of this Section 11 shall have occured. In the event of any change in the number of issued and outstanding Shares by reason of any stock dividend, stock split, split-up, recapitalization, merger or other change in the corporate or capital structure of the Company, the number of Shares subject to the Company Option and the purchase price per Share shall be appropriately adjusted to restore Royal US to its rights under the Stock Option Agreement, including its right to purchase Shares representing 19.9% of the capital stock of the Company entitled to vote generally for the election of the directors of the Company which is issued and outstanding immediately prior to the exercise of the Company Option at an aggregate purchase price equal to the Exercise Price multiplied by 5,443,697. If at any time the Company Option is then exercisable, Royal US may elect, in lieu of exercising the option to purchase Shares, to have the Company pay to Royal US an amount in cash equal to the Spread (as defined below) multiplied by all or such portion of the Shares subject to the Company Option as Royal US shall specify, net of any taxes required to be withheld under applicable law. "Spread" shall mean the excess, if any, over the Exercise Price of the higher of (x) if applicable, the highest price per Share (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid or proposed to be paid by any person pursuant to one of the transactions described in paragraphs (a), (b) and (c) under the heading Merger Agreement--Termination; Fees of this Section 11 (the "Alternative Purchase Price") or (y) the closing price of the Shares on the NYSE on the last trading day immediately prior to the date of such election (the "Closing Price"). If, in the case of clause (x) above, the Alternative Purchase Price can be calculated by reference to an all cash amount paid or proposed to be paid for any Shares outstanding, such cash amount shall be deemed to be the Alternative Purchase Price; if, in the case of clause (x) above, no Shares will be purchased for all cash, the Alternative Purchase Price shall be the sum of (i) the fixed cash amount, if any, included in the Alternative Purchase Price plus (ii) the fair market value of such property other than cash included in the Alternative Purchase Price. If such other property consists of securities with an existing public trading market, the average of the closing prices (or the average of the closing bid and asked prices if closing prices are unavailable) for such securities in their principal public trading market on the five trading days ending five days prior to the date of the election shall be used to calculate the fair market value of such property. If such other property consists of something other than cash or securities with an existing public trading market and, as of the payment date for the Spread, agreement on the value of such other property has not been reached, the Alternative Purchase Price shall be deemed to equal the Closing Price. If by the first anniversary of the date the Merger Agreement was terminated (the "Merger Termination Date") pursuant to the terms thereof, neither Royal US nor any other person has acquired more than fifty percent (excluding the Shares subject to the Company Option) of the shares of outstanding Common Stock, then the Company has the right to purchase (the "Repurchase Right") all, but not less than all, of the Shares subject to the Company Option at the greater of (i) $50.00 per Share or (ii) the average of the last sales prices for shares of Common Stock on the five trading days ending five days prior to the date the Company gives written notice of 25 its intention to exercise the Repurchase Right. If the Company does not exercise the Repurchase Right within thirty days following the end of the one year period after the Merger Termination Date, the Repurchase Right lapses. At any time prior to the first anniversary of the Merger Termination Date, Royal US shall have the right to sell (the "Sale Right") to the Company all, but not less than all, of the Shares subject to the Company Option at the greater of (i) $50.00 per Share or (ii) the average of the last sales prices for shares of Common Stock on the five trading days ending five days prior to the date Royal US gives written notice of its intention to exercise the Sale Right. If Royal US does not exercise the Sale Right prior to the first anniversary of the Merger Termination Date, the Sale Right terminates. The Company has also granted Royal US customary registration rights with respect to the Shares issued upon exercise of the Company Option. Notwithstanding any other provision of the Stock Option Agreement, in no event shall Royal US's Total Profit (as defined below) exceed $55 million and, if it otherwise would exceed such amount, Royal US, at its sole election, shall either (a) reduce the number of Shares subject to the Company Option, (b) deliver to the Company for cancellation Shares previously purchased by Royal US, (c) reduce the cash payable to Royal US upon a cash election by Royal US, (d) pay cash to the Company, or (d) any combination thereof, so that Royal US's Total Profit shall not exceed $55 million after taking into account the foregoing actions. Notwithstanding any other provision of the Stock Option Agreement, the Company Option may not be exercised for a number of Shares as would result in a Notional Total Profit (as defined below) of more than $55 million and, if exercise of the Company Option otherwise would exceed such amount, Royal US, at its discretion, may increase the Exercise Price for that number of Shares so that the Notional Total Profit shall not exceed $55 million. As used herein, the term "Total Profit" shall mean the aggregate amount (before taxes) of the following: (i) the amount of cash received by Royal US pursuant to (x) the section of the Merger Agreement which provides for the payment of certain fees and expenses following the termination of the Merger Agreement under certain conditions and (y) the exercise of the Company Option, (ii) the amount of (x) cash received by Royal US pursuant to the Grantor's repurchase of Shares pursuant to the Stock Option Agreement, less (y) Royal US's purchase price for such Shares, and (iii) (x) the net cash amounts received by Royal US pursuant to the sale of Shares (or any other securities into which such Shares are converted or exchanged) to any unaffiliated party prior to the first anniversary of the date on which the Merger Agreement is terminated, less (y) Royal US's purchase price for such Shares. As used herein, the term "Notional Total Profit" with respect to any number of Shares as to which Royal US may propose to exercise the Company Option shall be the Total Profit assuming that the Company Option were exercised for such number of Shares and assuming that such Shares, together with all other Shares held by Royal US and its affiliates, were sold for cash at the closing market price for the Shares as of the close of business on the preceding trading day (less customary brokerage commissions). Confidentiality Agreement. The following is a summary of certain portions of the Confidentiality Agreement, dated June 18, 1999, between Royal USA, Inc. and the Company (the "Confidentiality Agreement") and is qualified in its entirety by reference to the Confidentiality Agreement, a copy of which has been filed with the SEC as an exhibit to the Schedule 14D-1. The Confidentiality Agreement may be examined and copies may be obtained at the places and in the manner set forth in Section 9 of this Offer to Purchase. As a condition to the furnishing by Royal USA, Inc. or the Company (the "Provider") of information ("Evaluation Material") to the other (the "Recipient"), each of Royal USA, Inc. and the Company, has agreed, among other things, that it will keep such Evaluation Material confidential and will use it solely for evaluating 26 the Offer and the Merger. "Evaluation Material" does not include information which (i) is already in the possession of the Recipient, provided that such information is not known by it to be subject to another confidentiality agreement with or other obligation of secrecy to the Provider or another party, (ii) becomes generally available to the public other than as a result of a disclosure by the Recipient or its directors, officers, employees, agents or advisors, or (iii) becomes available to the Recipient on a non-confidential basis from a source other than the Provider or its advisers, provided that such source is not known to be bound by a confidentiality agreement with or other obligation of secrecy to the Provider or another party. 12. Plans for the Company; Other Matters. Plans for the Company. If, as and to the extent that Purchaser acquires control of the Company, Purchaser intends to conduct a detailed review of the Company and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel and to consider and determine what, if any, changes would be desirable in light of the circumstances which then exist. Such changes could include, among other things, changes in the Company's business, corporate structure, Certificate of Incorporation, By- laws, capitalization, management or dividend policy. Assuming the Minimum Condition is satisfied and Purchaser purchases Shares pursuant to the Offer, Purchaser intends promptly to exercise its rights under the Merger Agreement to obtain majority representation on, and control of, the Company Board. The Merger Agreement provides that, upon the purchase of and payment for Shares by Purchaser pursuant to the Offer which represent at least a majority of all outstanding shares of Common Stock, Purchaser or Royal US shall be entitled to designate up to such number of directors but in no event less than a majority, rounded up to the next whole number, on the board of directors of the Company as shall give Purchaser representation on such board of directors equal to the product of the total number of directors on such board (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by Royal US, Purchaser and any other subsidiary of Royal US bears to the total number of Shares then outstanding. See Section 11. The Merger Agreement provides that from and after the Effective Time the directors of Purchaser will be the initial directors of the Surviving Corporation and that Terry Broderick, W. Marston Becker, Joseph Fisher, Joyce Wheeler and Michael Pautler will be the initial officers of the Surviving Corporation. Purchaser or an affiliate of Purchaser may, following the consummation or termination of the Offer, seek to acquire additional Shares through open market purchases, privately negotiated transactions, a tender offer or exchange offer or otherwise, upon such terms and at such prices as it shall determine, which may be more or less than the price to be paid pursuant to the Offer. Purchaser and its affiliates also reserve the right to dispose of any or all Shares acquired by them, subject to the terms of the Merger Agreement. Except as disclosed in this Offer to Purchase, and except as may be effected in connection with the integration of operations referred to above, Purchaser has no present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation, relocation of operations, or sale or transfer of a material amount of assets, involving the Company or any of its subsidiaries, or any material changes in the Company's capitalization, corporate structure, business or composition of its management or the Company Board. Stockholder Approval. Under Delaware Law, the approval of the Company Board and the affirmative vote of the holders of a majority of the outstanding Shares are required to adopt and approve the Merger Agreement and the transactions contemplated thereby. The Company has represented in the Merger Agreement that the execution and delivery of the Merger Agreement and the Stock Option Agreement by the Company and the consummation by the Company of the transactions contemplated by the Merger Agreement and the Stock Option Agreement have been duly authorized by all necessary corporate action on the part of the Company, subject to the approval of the Merger by the Company's stockholders in accordance with Delaware Law. In addition, the Company has represented that the affirmative vote of the holders of a majority of the outstanding Shares is the 27 only vote of the holders of any class or series of the Company's capital stock which is necessary to approve the Merger Agreement and the transactions contemplated thereby, including the Merger. Therefore, unless the Merger is consummated pursuant to the short-form merger provisions under Delaware Law described below (in which case no further corporate action by the stockholders of the Company will be required to complete the Merger), the only remaining required corporate action of the Company will be the approval of the Merger Agreement and the transactions contemplated thereby by the affirmative vote of the holders of a majority of the Shares. The Merger Agreement provides that Purchaser will vote, or cause to be voted, all of the Shares then owned by Purchaser or any of its subsidiaries and affiliates in favor of the approval of the Merger and the adoption of the Merger Agreement. In the event that Purchaser and its subsidiaries acquire in the aggregate at least a majority of the Shares entitled to vote on the approval of the Merger and the Merger Agreement, they would have the ability to effect the Merger without the affirmative vote of any other stockholders. Short-Form Merger. Section 253 of Delaware Law provides that, if a corporation owns at least 90% of the outstanding shares of each class of another corporation, the corporation holding such stock may merge itself into such corporation without any action or vote on the part of the board of directors or the stockholders of such other corporation (a "short-form merger"). In the event that Purchaser and its subsidiaries acquire in the aggregate at least 90% of the outstanding Shares, pursuant to the Offer or otherwise, then a short-form merger could be effected without any approval of the Company Board or the stockholders of the Company, subject to compliance with the provisions of Section 253 of Delaware Law. In the Merger Agreement, Purchaser and the Company have agreed that, notwithstanding that all conditions to the Offer are satisfied or waived as of the scheduled Expiration Date, Purchaser may extend the Offer for a period not to exceed ten (10) business days, subject to certain conditions, if the Shares tendered pursuant to the Offer are less than 90% of the outstanding Shares, provided that the Expiration Date may not be extended beyond December 31, 1999. Even if Purchaser does not own 90% of the outstanding Shares following consummation of the Offer, Purchaser could seek to purchase additional Shares in the open market or otherwise in order to reach the 90% threshold and employ a short- form merger. The per share consideration paid for any Shares so acquired may be greater or less than that paid in the Offer. Purchaser presently intends to effect a short-form merger if permitted to do so under Delaware Law. Appraisal Rights. Holders of Shares do not have appraisal rights in connection with the Offer. However, if the Merger is consummated, holders of Shares at the Effective Time will have certain rights pursuant to the provisions of Section 262 of Delaware Law including the right to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Under Section 262 of Delaware Law, dissenting stockholders of the Company who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash, together with a fair rate of interest thereon, if any. Any such judicial determination of the fair value of the Shares could be based upon factors other than, or in addition to, the price per Share to be paid in the Merger or the market value of the Shares. The value so determined could be more or less than the price per Share to be paid in the Merger. THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS UNDER DELAWARE LAW DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY APPRAISAL RIGHTS AVAILABLE UNDER DELAWARE LAW. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF DELAWARE LAW. Rule 13e-3. The SEC has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger or another business combination following the purchase of Shares pursuant to the Offer in which Purchaser seeks to acquire the remaining Shares not held by it. Purchaser believes, however, that Rule 13e-3 will not be applicable to the 28 Merger because it is anticipated that the Merger would be effected within one (1) year following consummation of the Offer and in the Merger stockholders would receive the same price per Share as paid in the Offer. If Rule 13e-3 were applicable to the Merger, it would require, among other things, that certain financial information concerning the Company, and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such a transaction, be filed with the SEC and disclosed to minority stockholders prior to consummation of the transaction. 13. Dividends and Distributions. As described above, the Merger Agreement provides that until the Effective Time, except as expressly set forth in or contemplated by the Merger Agreement, neither the Company nor any of its subsidiaries shall: (i) authorize, declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock other than dividends from its wholly- owned subsidiaries and other than regular quarterly dividends paid by the Company on its Shares not in excess of $0.18 per share, with usual record and payment dates and in accordance with the Company's past dividend policy; (ii) repurchase, redeem or otherwise acquire, or permit any of its subsidiaries to purchase or otherwise acquire, any shares of its stock or any securities convertible into or exchangeable or exercisable for any shares of its stock; or (iii) issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire any shares, of its or any subsidiary's capital stock of any class or any other property or assets (other than Shares issuable pursuant to options outstanding on the date hereof under any stock plan of the Company). 14. Conditions to the Offer. Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, or may delay the acceptance for payment of or, subject to the above restriction, payment for, any tendered Shares, or may, in its sole discretion, terminate or amend the Offer as to any Shares not then paid for if (a) prior to the Expiration Date (i) the Minimum Condition shall not have been satisfied, (ii) any waiting period applicable to the consummation of the Offer and the Merger under the HSR Act shall not have expired or been terminated, (iii) other than the filing of a certificate of merger, any notices, reports and other filings required to be made prior to the Effective Time by the Company or Royal plc or any of their respective subsidiaries with, and any consents, registrations, approvals, permits and authorizations required to be obtained prior to the Effective Time by the Company or Royal US or any of their respective subsidiaries from, any governmental entity, including but not limited to the consent of those insurance commissioners, directors or superintendents of the state insurance departments disclosed in the Merger Agreement, in connection with the execution and delivery of the Merger Agreement and the consummation of the Offer and the Merger and the other transactions contemplated by the Merger Agreement shall not have been made or obtained (as the case may be) and shall not be in full force and effect, or (iv) the Company shall not have obtained the consent or approval of the Commissioner of Insurance or similar regulatory authority in Connecticut, Colorado, Wisconsin, Oklahoma, California, North Carolina, South Carolina, Oregon and Texas or which shall be required under any contract to which the Company or any of its subsidiaries is a party, except those for which the failure to obtain such consents or approvals would not, individually or in the aggregate, have a Company Material Adverse Effect (as defined in the Merger Agreement) or is not, individually or in the aggregate, reasonably likely to prevent or materially burden or materially impair the ability of the Company to consummate the transactions contemplated by the Merger Agreement; or any such consent or approval, or any governmental consent, imposes any condition or conditions relating to, or requires changes or restrictions in, the operations of any asset or businesses of the Company, Royal plc or their respective subsidiaries which could, in the reasonable judgment of the board of directors of Royal US, individually or in the aggregate, materially and adversely impact the economic or business benefits to Royal plc and its subsidiaries of the transactions contemplated by the Merger Agreement or materially 29 impair the ability of any Royal US company (including the Company following the Effective Time) to conduct its business in the manner as such business is now being conducted; or (b) at or before the time of payment for any of such Shares (whether or not any Shares have theretofore been accepted for payment), any of the following events shall occur: (i) any court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, statute, ordinance, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Offer or the Merger, or which makes the acceptance for payment of, or payment for, any Shares in the Offer illegal; (ii) the representations and warranties of the Company set forth in the Merger Agreement shall not be true and correct both when made and at and as of the Expiration Date as though made on and as of the Expiration Date (except to the extent any such representation or warranty expressly speaks as of an earlier date) except where the failure of such representations and warranties to be so true and correct (without giving effect to any qualifications in the representations and warranties as to "Company Material Adverse Effect," "material" or similar qualifications set forth in the Merger Agreement) would not have, individually or in the aggregate, a Company Material Adverse Effect, or Royal US shall not have received a certificate on the Expiration Date signed on behalf of the Company by an executive officer of the Company to such effect; (iii) the Company shall not have performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the Expiration Date; or (iv) there shall have occurred a change, event or circumstance that has had, or would reasonably be expected to have, a Company Material Adverse Effect; or (v) the Merger Agreement shall have been terminated in accordance with its terms prior to the Expiration Date; or Royal US, Purchaser and the Company shall have otherwise agreed that Purchaser may amend, terminate or withdraw the Offer; The foregoing conditions are for the sole benefit of Royal US and Purchaser and may be asserted by Royal US or Purchaser regardless of the circumstances (including any action or inaction by Royal US or Purchaser) giving rise to such condition or may be waived by Royal US or Purchaser, by express and specific action to that effect, in whole or in part at any time and from time to time in their sole discretion. Any determination by Royal US and Purchaser concerning any event described in this Annex I shall be final and binding upon all holders of Shares. The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 15. Certain Legal Matters. General. Except as described in this Section 15, based on information provided by the Company, none of the Company, Purchaser or Royal US is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the acquisition of Shares by Purchaser pursuant to the Offer, the Merger or otherwise, or, except as set forth above, of any approval or other action by any governmental, administrative or regulatory agency or authority, domestic or foreign, that would be required prior to the acquisition of Shares by Purchaser pursuant to the Offer, the Merger or otherwise. Should any such approval or other action be required, Purchaser presently contemplates that such approval or other action will be sought, except as described below under "State Antitakeover Statutes." Except as otherwise described in this Offer to Purchase, Purchaser does not presently intend to delay the acceptance for payment of, or payment for, Shares tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business or that certain parts of the Company's business 30 might not have to be disposed of, or other substantial conditions complied with, in the event that such approvals were not obtained or such other actions were not taken or in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, Purchaser could decline to accept for payment, or pay for, any Shares tendered. See Section 14 for certain conditions to the Offer, including conditions with respect to governmental actions. State Antitakeover Statutes. Section 203 of Delaware Law, in general, prohibits a Delaware corporation, such as the Company, from engaging in a "Business Combination" (defined as a variety of transactions, including mergers) with an "Interested Stockholder" (defined generally as a person that is the beneficial owner of 15% or more of the outstanding voting stock of the subject corporation) for a period of three years following the date that such person became an Interested Stockholder unless, prior to the date such person became an Interested Stockholder, the board of directors of the corporation approved either the Business Combination or the transaction that resulted in the stockholder becoming an Interested Stockholder. The provisions of Section 203 of Delaware Law are not applicable to any of the transactions contemplated by the Merger Agreement, because the Merger Agreement and the transactions contemplated thereby were approved by the Company Board prior to the execution thereof. A number of states have adopted laws and regulations that purport to apply to attempts to acquire corporations that are incorporated in such states, or whose business operations have substantial economic effects in such states, or which have substantial assets, security holders, employees, principal executive offices or principal places of business in such states. In Edgar v. MITE Corp., the Supreme Court of the United States (the "Supreme Court") invalidated on constitutional grounds the Illinois Business Takeover statute, which, as a matter of state securities law, made certain corporate acquisitions more difficult. However, in 1987, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana may, as a matter of corporate law and, in particular, with respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining stockholders. The state law before the Supreme Court was by its terms applicable only to corporations that had a substantial number of stockholders in the state and were incorporated there. Purchaser does not believe that the antitakeover laws and regulations of any state other than the State of Delaware will by their terms apply to the Offer, and, except as set forth above with respect to Section 203 of Delaware Law, Purchaser has not attempted to comply with any state antitakeover statute or regulation. Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer and nothing in this Offer to Purchase or any action taken in connection with the Offer is intended as a waiver of such right. If it is asserted that any state antitakeover statute is applicable to the Offer and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer or may be delayed in consummating the Offer. In such case, Purchaser may not be obligated to accept for payment, or pay for, any Shares tendered pursuant to the Offer. See Section 14. Antitrust. The Offer and the Merger are subject to the HSR Act, which provides that certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC") and certain waiting period requirements have been satisfied. Pursuant to the requirements of the HSR Act, Royal plc, Royal US and Purchaser expect to file their Notification and Report Forms with respect to the Offer and Merger with the DOJ and the FTC on or about July 30, 1999. As a result, assuming such filings are made on July 30, 1999, the waiting period under the HSR Act with respect to the Offer is scheduled to expire at 11:59 p.m., New York City time, on August 14, 1999, (the fifteenth day after such filings are made), unless early termination of the waiting period is granted. However, the DOJ or the FTC may extend the waiting period by requesting additional information or documentary material from Royal plc or the Company. If such a request is made, such waiting period will expire at 11:59 p.m., New York City time, on the tenth day after substantial compliance by Royal plc and the Company with such request. 31 Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Royal plc. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the DOJ or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Purchaser will not accept for payment Shares tendered pursuant to the Offer unless and until the waiting period requirements imposed by the HSR Act with respect to the Offer have been satisfied. See Section 14. The FTC and the DOJ frequently scrutinize the legality under the Antitrust Laws (as defined below) of transactions such as Purchaser's acquisition of Shares pursuant to the Offer and the Merger. At any time before or after Purchaser's acquisition of Shares, the DOJ or the FTC could take such action under the Antitrust Laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or otherwise seeking divestiture of Shares acquired by Purchaser or divestiture of substantial assets of Purchaser or its subsidiaries. Private parties, as well as state governments, may also bring legal action under the Antitrust Laws under certain circumstances. Based upon an examination of information provided by the Company relating to the businesses in which Royal US and the Company are engaged, Purchaser and Royal US believe that the acquisition of Shares by Purchaser will not violate the Antitrust Laws. Nevertheless, there can be no assurance that a challenge to the Offer or other acquisition of Shares by Purchaser on antitrust grounds will not be made or, if such a challenge is made, of the result. See Section 14 for certain conditions to the Offer, including conditions with respect to litigation and certain government actions. As used in this Offer to Purchase, "Antitrust Laws" shall mean and include the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other Federal and state statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade. Insurance. The Offer is also subject to the receipt of necessary approvals from various state insurance regulatory authorities. Pursuant to the Merger Agreement, Royal US and Purchaser agreed to use their reasonable best efforts to file by August 1, 1999. Applications for Approval of Acquisition of Control of or Merger with a Domestic Insurer (Form A) or a comparable application (each, a "Form A") in a total of nine states where such filings are required. The insurance laws and regulations of certain of the states where such Form A filings will be made require hearings by the state insurance departments before deciding whether to grant approval of an acquisition described in a Form A filing. In certain states that do not require a hearing prior to approval, Royal plc will be entitled to a hearing in the event that the state insurance department proposed not to grant the approval. The Company and Royal US currently expect to receive all such regulatory approvals during the fourth quarter of 1999. However, there can be no assurance that the required regulatory approvals described above will be received or, if received, the timing and the terms and conditions thereof. The parties currently expect that the expiration date of the Offer will be extended in order to permit the parties to obtain all such regulatory approvals. Federal Reserve Board Regulations. Regulations U and X (the "Margin Regulations") of the Federal Reserve Board restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the Shares, if the credit is secured directly or indirectly by margin stock. Such secured credit may not be extended or maintained in an amount that exceeds the maximum loan value of all the direct and indirect collateral securing the credit, including margin stock and other collateral. The Offer will be funded by an unsecured loan. Accordingly, the Margin Regulations will not apply to the funding of the Offer. Stockholder Litigation Relating to the Offer. Ellis Investments Ltd. v. Becker et al. On July 12, 1999, Ellis Investments Ltd., individually and on behalf of all other stockholders of the Company similarly situated, filed a purported class action complaint in the Court 32 of Chancery of the State of Delaware in and for New Castle County against the Company, each of the Company's directors, Royal plc and Royal USA, Inc. The complaint alleges, among other things, that the defendants breached their fiduciary duties to the Company and its stockholders by (i) not conducting an auction or active market check designed to maximize stockholder value and (ii) agreeing to the Stock Option Agreement. The complaint further alleges that Royal plc and Royal USA, Inc. knowingly aided and abetted the alleged breaches of fiduciary duties. The plaintiff seeks as relief, among other things, (i) an order from the court (A) enjoining the Merger or (B) rescinding the Merger if it is consummated and (ii) the awarding of unspecified monetary damages and attorneys' fees and expenses. The defendants believe that the lawsuit is without merit and intend to defend themselves vigorously. William Steiner v. Becker et al. On July 13, 1999, William Steiner, individually and on behalf of all other stockholders of the Company similarly situated, filed a purported class action complaint in the Court of Chancery of the State of Delaware in and for New Castle County against the Company, each of the Company's directors, Royal plc and Royal USA, Inc. The complaint alleges, among other things, that the defendants breached their fiduciary duties to the Company and its stockholders by (i) not conducting an auction or other market check designed to maximize stockholder value, (ii) agreeing to a $45 million termination fee under certain circumstances in connection with the Merger Agreement and (iii) agreeing to the Stock Option Agreement. The complaint further alleges that Royal plc and Royal USA, Inc. knowingly aided and abetted the alleged breaches of fiduciary duties. The plaintiff seeks as relief, among other things, (i) an order from the court (A) enjoining the Merger, (B) requiring the individual defendants to place the Company up for auction and/or to conduct a market-check, and (C) rescinding the Merger if it is consummated and (ii) the awarding of unspecified monetary damages and attorneys' fees and expenses. The defendants believe that the lawsuit is without merit and intend to defend themselves vigorously. Paul Green v. Becker et al. On July 13, 1999, Paul Green, individually and on behalf of all other stockholders of the Company similarly situated, filed a purported class action complaint in the Court of Chancery of the State of Delaware in and for New Castle County against the Company, each of the Company's directors, Royal plc and Royal USA, Inc. The complaint alleges, among other things, that the defendants breached their fiduciary duties to the Company and its stockholders by (i) not conducting an auction or active market check designed to maximize stockholder value for the change of control of the Company and (ii) agreeing to the Stock Option Agreement. The complaint further alleges that Royal plc and Royal USA, Inc. knowingly aided and abetted the alleged breaches of fiduciary duties. The plaintiff seeks as relief, among other things, (i) an order from the court requiring the individual defendants to evaluate the Company's value and cooperate fully with any entity or person having a bona fide interest in proposing any transaction which would maximize stockholder value and (ii) the awarding of unspecified monetary damages and attorneys' fees and expenses. The defendants believe that the lawsuit is without merit and intend to defend themselves vigorously. Linda Walker v. Becker et al. On July 14, 1999, Linda Walker, individually and on behalf of all other stockholders of the Company similarly situated, filed a purported class action complaint in the Court of Chancery of the State of Delaware in and for New Castle County against the Company, each of the Company's directors, Royal plc and Royal USA, Inc. The complaint alleges, among other things, that the defendants breached their fiduciary duties to the Company and its stockholders by (i) not conducting an auction or active market check designed to maximize stockholder value for the change of control of the Company and (ii) agreeing to the Stock Option Agreement. The complaint further alleges that Royal plc and Royal USA, Inc. knowingly aided and abetted the alleged breaches of fiduciary duties. The plaintiff seeks as relief, among other things, (i) an order from the court (A) enjoining the Merger, and (B) rescinding the Merger if it is consummated and (ii) the awarding of unspecified monetary damages and attorneys' fees and expenses. The defendants believe that the lawsuit is without merit and intend to defend themselves vigorously. Rochelle Fishman v. Becker et al. On July 14, 1999, Rochelle Fishman, individually and on behalf of all other stockholders of the Company similarly situated, filed a purported class action complaint in the Court of Chancery of the State of Delaware in and for New Castle County against the Company, each of the Company's directors, Royal plc and Royal USA, Inc. The complaint alleges, among other things, that the defendants 33 breached their fiduciary duties to the Company and its stockholders by (i) not conducting an auction or active market check designed to maximize stockholder value for the change of control of the Company and (ii) agreeing to the Stock Option Agreement. The complaint further alleges that Royal plc and Royal USA, Inc. knowingly aided and abetted the alleged breaches of fiduciary duties. The plaintiff seeks as relief, among other things, (i) an order from the court (A) enjoining the Merger, and (B) rescinding the Merger if it is consummated and (ii) the awarding of unspecified monetary damages and attorneys' fees and expenses. The defendants believe that the lawsuit is without merit and intend to defend themselves vigorously. 16. Fees and Expenses. Salomon Smith Barney Inc. ("Salomon Smith Barney") is acting as Dealer Manager for the Offer and as exclusive financial advisor to Royal USA, Inc. and its affiliates in connection with the proposed acquisition of the Company, for which services Salomon Smith Barney will receive customary compensation. Salomon Smith Barney and certain related parties will be indemnified against certain liabilities, including liabilities under the federal securities laws, arising out of Salomon Smith Barney's engagement. In the ordinary course of business, Salomon Smith Barney and its affiliates may actively trade or hold the securities of Royal plc and the Company for their own account or for the account of customers and, accordingly, may at any time hold long or short position in such securities. Purchaser has retained Mackenzie Partners, Inc. to serve as the Information Agent and Citibank N.A. to serve as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by personal interview, mail, telephone, telex, telegraph and other methods of electronic communication and may request brokers, dealers, commercial banks, trust companies and other nominees to forward the Offer materials to beneficial holders. The Information Agent and the Depositary will each receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities in connection with their services, including certain liabilities and expenses under the federal securities laws. Except as set forth above, neither Purchaser nor Royal US will pay any fees or commissions to any broker or dealer or other person or entity in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will be reimbursed by Purchaser for customary mailing and handling expenses incurred by them in forwarding the Offer materials to their customers. 17. Miscellaneous. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, Purchaser shall make a good faith effort to comply with such statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) holders of Shares in such state. No person has been authorized to give any information or to make any representation on behalf of Purchaser or Royal US not contained herein or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. Purchaser and Royal US have filed with the SEC the Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain additional information with respect to the Offer. In addition, the Company has filed with the SEC the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, setting forth its recommendation with respect to the Offer and the reasons for its recommendation and furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the same manner set forth in Section 9 of this Offer to Purchase (except that such material will not be available at the regional offices of the SEC). NTG Acquisition Corp. July 16, 1999 34 SCHEDULE I INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER, ROYAL US AND ROYAL PLC 1. NTG Acquisition Corp. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of Purchaser. Each such person is a citizen of the United States and the business address of each such person is c/o Royal Group, Inc., 9300 Arrowpoint Boulevard, Charlotte, NC 28273. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to positions held with Purchaser.
Present Principal Occupation or Employment; Name (Age) Material Positions Held During the Past Five Years ---------- ---------------------------------------------------- Terry Broderick (54)...... Director and President 1999 to present. Director of Royal USA, Inc. February 1997 to present. President and Chief Operating Officer of Royal USA, Inc. February 1998 to present, President of Royal US, December 1997 to present. Director, Royal US, 1994 to present. Officer and Director of Royal US insurance company subsidiaries 1993 to present. Joseph Fisher (44)........ Director and Chief Financial Officer 1999 to present. Director and Chief Financial Officer of Royal USA, Inc. 1996 to present. Director and Chief Financial Officer of Royal US 1996 to present. Officer and Director of Royal US insurance and non- insurance subsidiaries 1996 to present. Partner in Coopers & Lybrand 1990 to 1995. Ernest Frohboese (58)..... Director 1999 to present. Director Royal USA, Inc. 1994 to present. Director, Senior Vice President and Chief Investment Officer of Royal US and affiliated insurance and non-insurance subsidiaries 1999 to present. 1990 to 1998 Senior Vice President, General Reinsurance Corp. Joyce Wheeler (47)........ Director 1999 to present. Director, Vice President and Secretary of Royal USA, Inc. 1998 to present. Director of Royal US from 1997 to present. General Counsel, Vice President and Secretary of Royal US 1997 to present. Director and Officer of Royal Group, Inc. insurance and non-insurance subsidiaries 1993 to present.
2. Royal Group, Inc. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of Royal Group, Inc. Each such person is a citizen of the United States. Unless otherwise indicated, the business address of each such person is c/o Royal Group, Inc. 9300 Arrowpoint Boulevard, Charlotte, NC 28273. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to positions held with Royal Group, Inc.
Present Principal Occupation or Employment; Name (Age) Material Positions Held During the Past Five Years ---------- ---------------------------------------------------- Robert Mendelsohn (52)... Chairman of the Board and Chief Executive Officer of Royal US 1994 to present. Chairman of the Board and Chief Executive Officer of Royal USA, Inc. 1996 to present. President and Chief Operating Officer of WR Berkley Corporation 1990 to 1994. Terry Broderick (54)..... Director 1994 to present. President of Royal US December 1997 to present. Director Royal USA, Inc. 1997 to present and President 1998 to present. Officer and Director of Royal Group, Inc. insurance company subsidiaries 1993 to present.
35
Present Principal Occupation or Employment; Name (Age) Material Positions Held During the Past Five Years ---------- ---------------------------------------------------- Joseph Fisher (44)....... Director and Chief Financial Officer of Royal US 1996 to present and of affiliated insurance and non- insurance subsidiaries. Director and Chief Financial Officer of Royal USA, Inc. 1996 to present. Partner in Coopers & Lybrand 1990 to 1995. Ernest Frohboese (58).... Director, Senior Vice President and Chief Investment Officer of Royal US and affiliated insurance and non-insurance subsidiaries January 1999 to present. Director of Royal USA, Inc. January 1999 to present. 1990 to 1998 Senior Vice President, General Reinsurance Corp. Larry Simmons (50)....... Director of Royal US 1995 to present. Director of Royal USA, Inc. 1997 to present. Director and Senior Vice President of Royal US insurance and non- insurance company subsidiaries 1993 to present. Paul Stewman (57)........ Director of Royal US 1995 to present. Director of Royal USA, Inc. 1997 to present. Senior Vice President and Director of Royal US insurance and non-insurance subsidiaries 1995 to present. Chairman Personal Lines Insurance Brokerage (Chubb Corp.) 1994 to 1995. Joyce Wheeler (47)....... Director of Royal US 1997 to present. Director, Vice President and Secretary of Royal USA, Inc. 1997 to present. General Counsel, Vice President and Secretary of Royal US 1997 to present. Director and Officer of Royal US insurance and non-insurance subsidiaries 1993 to present.
3. Royal & Sun Alliance Insurance Group plc The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of Royal & Sun Alliance Insurance Group plc. Unless otherwise indicated, each such person is a citizen of the United Kingdom and the business address of each such person is c/o Royal & Sun Alliance Insurance Group plc 30 Berkeley Square, London, W1X 5HA, England. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Royal & Sun Alliance Insurance Group plc.
Present Principal Occupation or Employment; Name (Age) Material Positions Held During the Past Five Years ---------- ---------------------------------------------------- Sir Patrick Gillam (66)... Chairman. Director of Royal plc March 1997 to present. Chairman of Standard Chartered plc 1993 to present. Chairman of Asda Group 1991-96. Anthony Forbes (61)....... Deputy Chairman. Director of Royal plc July 1996 to present. Director of Royal Insurance 1994 to 1997. Joint Senior Partner of Cazenove & Co. until March 1994. Director of Carlton Communications 1994 to present. Director of The Merchants Trust 1994 to present. Robert Ayling (52)........ Director Royal plc 1996 to present. Director of Sun Alliance Group plc from 1993 to 1996. Director British Airways 1991 to present. Chief Executive of British Airways 1996 to present. Group Managing Director of British Airways 1993 to 1996. Chairman of New Millennium Experience Company 1997 to present.
36
Present Principal Occupation or Employment; Name (Age) Material Positions Held During the Past Five Years ---------- ---------------------------------------------------- Carole St. Mark (56)..... Director of Royal plc September 1998 to present. President and Chief Executive Officer of Growth Management LLC from 1997 to present. President and Chief Executive Officer of Pitney Bowes Business Services 1994 to 1997. Director of Polaroid Corp. SuperValu Inc. and Gerber Scientific Inc. Ms. St. Mark is a citizen of the United States. Jens-Erik Christensen Managing Director, Europe, Middle East & Africa 1998 (49).................... to present. Managing Director Codan 1999 to present. General Manager of Codan 1993 to 1998. Mr. Christensen is a Danish citizen. Roderick P. Hoover, Jr. Royal plc Group Treasurer September 1998 to present. (44).................... Vice President and Finance Officer of various US insurance subsidiaries of Royal US 1990 to September 1998. Mr. Hoover is a citizen of the United States. Richard Owen Hudson Group Director, Worldwide Commercial Practices, (47).................... Royal plc February 1998 to present. Deputy Managing Director, Global Risks Division, Royal plc, July 1996 to February 1998. Operations Director, Royal Global October 1994 to 1996. Ewoud Kulk (53).......... Group Director, Asia Pacific 1998 to present. Managing Director Royal plc Australia 1994 to 1998. Deputy Managing Director 1992 to 1994. Mr. Kulk is a citizen of the Netherlands. David Miller (47)........ Director, Legal & Secretarial of Royal plc February 1998 to present. Group Secretary Royal plc July 1996 to February 1998. Group Secretary of Sun Alliance Group plc from July 1991 to July 1996. Jan Miller (48).......... Director Financial Control 1998 to present; Group Financial Controller of Royal plc and Royal Insurance 1993 to present. Syd Pennington (53)...... Group Director, Customers and People 1998 to present. Managing Director 1996 to 1998. Managing Director of The Insurance Service, the direct arm of Royal Insurance 1994 to 1996. John Baker (61).......... Director of Royal plc July 1996 to present. Director of Royal Insurance from 1995 to 1997. Chairman of Medeva 1998 to present. Chairman of National Power until 1997. Nicholas Barber (58)..... Director of Royal plc July 1996 to present. Director of Royal Insurance 1991 to 1997. Director of Albright & Wilson 1995 to present. Chief Executive of Ocean Group 1980 to July 1994. Governor of the London Business School 1992 to present. Robert Gunn (54)......... Director of Royal plc June 1999 to present. Chief Executive Officer and Group Director Americas, Royal & Sun Alliance Insurance Company of Canada 1998 to present. President and Chief Executive Officer of Royal Insurance Company of Canada 1990 to 1998. Mr. Gunn is a citizen of Canada. Julian Hance (43)........ Director Royal plc 1998 to present. Group Finance Director October 1998 to present. Finance Director Life and Investments and Group Chief Accountant of Sun Alliance Group plc.
37
Present Principal Occupation or Employment; Name (Age) Material Positions Held During the Past Five Years ---------- ---------------------------------------------------- Thomas Arthur Hayes Director Royal plc 1996 to present. Director of Sun (56)................... Alliance Group plc 1992 to 1996. Group Executive Director 1994 to February 1998. Group Director, Investment & Financial Services of Royal plc February 1998 to present. Director of Thistle Hotels. Henry Keswick (60)...... Director Royal plc July 1996 to present. Director of Sun Alliance Group plc 1975 to July 1996. Chairman of Jardine Matheson Holdings Limited 1984 to present. Director of Robert Fleming Holdings Limited 1975 to present. Director of Telegraph Group 1997 to present. Robert Mendelsohn (52).. Group Chief Executive and Director December 1997 to present. Chairman of the Board and Chief Executive Officer of Royal USA, Inc. 1996 to present. Chairman of the Board and Chief Executive Officer of Royal US 1994 to present. President and Chief Operating Officer of WR Berkley Corporation 1990 to 1994. Mr. Mendelsohn is a citizen of the United States. John Rowson (69)........ Director Royal plc July 1996 to present. Director of Royal Insurance 1994 to 1997. Senior Partner of Herbert Smith 1988 to 1993. Paul Spencer (49)....... Director Royal plc 1996 to present. Chief Executive UK October 1998 to present. Group Finance Director of Royal Insurance and Royal plc 1996 to 1998. Associate Director-Treasurer of Hanson 1986 to 1996.
38 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary, at the applicable address set forth below: The Depositary for the Offer is: Citibank N.A. By Overnight Courier Delivery: Citibank N.A. 915 Broadway 5th Floor New York, New York 10010 By Mail: Facsimile for Eligible By Hand: Citibank N.A. Institutions: Citibank N.A. P.O. Box 685 (212) 505-2248 Corporate Trust Window Old Chelsea Station Facsimile Confirmation Only: 111 Wall Street 5th New York, New York (800) 270-0808 Floor 10113 New York, New York 10043 Any questions or requests for assistance or additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and the other tender offer materials may be directed to the Information Agent at the address and telephone number set forth below. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll-free: (800) 322-2885 ------------ The Dealer Manager for the Offer is: Salomon Smith Barney 388 Greenwich Street New York, New York 10013 (212) 816-1057 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EX-99.(A)(2) 3 LETTER OF TRANSMITTAL Exhibit (a)(2) Letter of Transmittal To Tender Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Orion Capital Corporation Pursuant to the Offer to Purchase dated July 16, 1999 by NTG Acquisition Corp. an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: Citibank N.A. By Overnight Courier Delivery: Citibank N.A. 915 Broadway 5th Floor New York, New York 10010 By Mail: Facsimile for Eligible Institutions: By Hand: Citibank N.A. (212) 505-2248 Citibank N.A. P.O. Box 685 Facsimile Confirmation Only: Corporate Trust Old Chelsea Station (800) 270-0808 Window New York, New York 111 Wall Street 5th 10113 Floor New York, New York 10043 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used by stockholders of Orion Capital Corporation if certificates for Shares (as such term is defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in Instruction 2 below) is utilized, if delivery of Shares is to be made by book-entry transfer to an account maintained by the Depositary at the Book-Entry Transfer Facility (as defined in and pursuant to the procedures set forth in Section 3 of the Offer to Purchase). Stockholders who deliver Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other stockholders who deliver Shares are referred to herein as "Certificate Stockholders." Stockholders whose certificates for Shares are not immediately available or who cannot deliver either the certificates for, or a Book-Entry Confirmation (as defined in Section 3 of the Offer to Purchase) with respect to, their Shares and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. [_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution _______________________________________________ Account Number _____________ Transaction Code Number _______________________ [_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s) ______________________________________________ Window Ticket Number (if any) _______________________________________________ Date of Execution of Notice of Guaranteed Delivery __________________________ Name of Institution that Guaranteed Delivery ________________________________ If delivered by Book-Entry Transfer, check box: [_] Account Number ______________________________________________________________ Transaction Code Number _____________________________________________________ DESCRIPTION OF SHARES TENDERED - -------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Shares Tendered (Please fill in, if blank, as name(s) appear(s) on Share Certificate(s)) (Attach additional list if necessary) - ------------------------------------------------------------------------------------------------------------------------------ Total Number of Shares Represented by Certificate Certificate(s) Number of Shares Number(s) (1) (1) Tendered (2) --------------------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- - -------------------------------------------------- -------------------------------- Total Shares: - -----------------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by Book-Entry Stockholders. (2) Unless otherwise indicated, it will be assumed that all Shares represented by Share Certificates delivered to the Depositary are being tendered hereby. See Instruction 4. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY. Ladies and Gentlemen: The undersigned hereby tenders to NTG Acquisition Corp., a Delaware corporation ("Purchaser") and an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales, the above described shares of common stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Orion Capital Corporation, a Delaware corporation (the "Company"), pursuant to Purchaser's offer to purchase all of the outstanding Shares at a price of $50.00 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated July 16, 1999 and in this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"). The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of July 12, 1999 (the "Merger Agreement"), by and between Purchaser and the Company. The undersigned understands that Purchaser reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. Receipt of the Offer is hereby acknowledged. The Company has distributed one Right for each outstanding Share pursuant to the Rights Agreement (as defined in the Offer to Purchase). The Rights are currently evidenced by and trade with certificates evidencing the Common Stock. The Company has taken such action so as to make the Rights Agreement inapplicable to Purchaser and its affiliates and associates in connection with the transactions contemplated by the Merger Agreement. Upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms of any such extension or amendment), subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and any and all non-cash dividends, distributions, rights, other Shares or other securities issued or issuable in respect thereof on or after July 12, 1999 (collectively, "Distributions")) and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver certificates for such Shares (and any and all Distributions), or transfer ownership of such Shares (and any and all Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (ii) present such Shares (and any and all Distributions) for transfer on the books of the Company, and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any and all Distributions), all in accordance with the terms of the Offer. By executing this Letter of Transmittal, the undersigned hereby irrevocably appoints Terry Broderick and Joyce W. Wheeler in their respective capacities as officers of Purchaser, and any individual who shall thereafter succeed to any such office of Purchaser, and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof or otherwise in such manner as each such attorney-in- fact and proxy or his substitute shall in his sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, and otherwise to act as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, all of the Shares (and any and all Distributions) tendered hereby and accepted for payment by Purchaser. This appointment will be effective if and when, and only to the extent that, Purchaser accepts such Shares for payment pursuant to the Offer. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the Offer. Such acceptance for payment shall, without further action, revoke any prior powers of attorney and proxies granted by the undersigned at any time with respect to such Shares (and any and all Distributions), and no subsequent powers of attorney, proxies, consents or revocations may be given by the undersigned with respect thereto (and, if given, will not be deemed effective). Purchaser reserves the right to require that, in order for Shares or other securities to be deemed validly tendered, immediately upon Purchaser's acceptance for payment of such Shares, Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares (and any and all Distributions), including voting at any meeting of the Company's stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions, that the undersigned owns the Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that the tender of the tendered Shares complies with Rule 14e-4 under the Exchange Act, and that when the same are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby or deduct from such purchase price the amount or value of such Distribution as determined by Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that the valid tender of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms or conditions of any such extension or amendment). Without limiting the foregoing, if the price to be paid in the Offer is amended in accordance with the terms of the Merger Agreement, the price to be paid to the undersigned will be the amended price notwithstanding the fact that a different price is stated in this Letter of Transmittal. The undersigned recognizes that, under certain circumstances set forth in the Offer to Purchase, Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of all Shares purchased and/or return any certificates for Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of all Shares purchased and/or return any certificates for Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all Shares purchased and/or return any certificates evidencing Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) in the name(s) of, and deliver such check and/or return any such certificates (and any accompanying documents, as appropriate) to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder thereof if Purchaser does not accept for payment any of the Shares so tendered. [_] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 11. Number of Shares represented by lost, destroyed or stolen certificates: SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the To be completed ONLY if check for the purchase price of certificates for Shares not Shares accepted for payment is to tendered or not accepted for be issued in the name of someone payment and/or the check for the other than the undersigned, if purchase price of Shares accepted certificates for Shares not for payment is to be sent to tendered or not accepted for someone other than the payment are to be issued in the undersigned or to the undersigned name of someone other than the at an address other than that undersigned or if Shares tendered shown under "Description of hereby and delivered by book- Shares Tendered." entry transfer that are not accepted for payment are to be Mail check and/or Share certifi- returned by credit to an account cates to: maintained at a Book-Entry Transfer Facility other than the Name _____________________________ account indicated above. (Please Print) Issue check and/or Share certifi- Address __________________________ cate(s) to: __________________________________ Name _____________________________ (Include Zip Code) (Please Print) __________________________________ Address __________________________ (Taxpayer Identification or Social Security Number) __________________________________ (See Substitute Form W-9) (Include Zip Code) __________________________________ (Taxpayer Identification or Social Security Number) (See Substitute Form W-9) [_] Credit Shares delivered by book-entry transfer and not purchased to the Book-Entry Transfer Facility account. __________________________________ (Account Number) SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) ....................................................... ....................................................... (Signature(s) of Stockholder(s)) Dated: ........................................... 1999 (Must be signed by registered holder(s) exactly as name(s) appear(s) on the Share certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustee, executor, administrator, guardian, attorney- in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s)................................................ ................................................ (Please Print) Name of Firm........................................... Capacity (full title).................................. (See Instruction 5) Address................................................ ................................................ (Include Zip Code) Area Code and Telephone Number......................... Taxpayer Identification or Social Security Number................................. (See Substitute Form W-9) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature................................... Name(s)................................................ ................................................ (Please Print) Title.................................................. Name of Firm........................................... Address................................................ ................................................ (Include Zip Code) Area Code and Telephone Number......................... INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section, includes any participant in any of the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith, unless such registered holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares; Guaranteed Delivery Procedures. This Letter of Transmittal is to be completed by stockholders of the Company either if Share certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth herein and in Section 3 of the Offer to Purchase. For a stockholder validly to tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees or an Agent's Message (in connection with book-entry transfer) and any other required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date and either (i) certificates for tendered Shares must be received by the Depositary at one of such addresses prior to the Expiration Date or (ii) Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein and in Section 3 of the Offer to Purchase and a Book-Entry Confirmation must be received by the Depositary prior to the Expiration Date or (b) the tendering stockholder must comply with the guaranteed delivery procedures set forth herein and in Section 3 of the Offer to Purchase. Stockholders whose certificates for Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot comply with the book- entry transfer procedures on a timely basis may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth herein and in Section 3 of the Offer to Purchase. Pursuant to such guaranteed delivery procedures, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser, must be received by the Depositary prior to the Expiration Date and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all tendered Shares), together with a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange is open for business. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against the participant. The signatures on this Letter of Transmittal cover the Shares tendered hereby. THE METHOD OF DELIVERY OF THE SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. THE SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. All tendering stockholders, by executing this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein under "Description of Shares Tendered" is inadequate, the number of Shares tendered and the Share certificate numbers with respect to such Shares should be listed on a separate signed schedule attached hereto. 4. Partial Tenders. (Not applicable to stockholders who tender by book-entry transfer). If fewer than all the Shares evidenced by any Share certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In any such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificates will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date or the termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any Share certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of the authority of such person so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of Share certificates or separate stock powers are required unless payment or certificates for Shares not tendered or not accepted for payment are to be issued in the name of a person other than the registered holder(s). Signatures on any such Share certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares evidenced by certificates listed and transmitted hereby, the Share certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the Share certificates. Signature(s) on any such Share certificates or stock powers must be guaranteed by an Eligible Institution. 6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the transfer and sale of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or if certificates for Shares not tendered or not accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased unless evidence satisfactory to Purchaser of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Share certificates evidencing the Shares tendered hereby. 7. Special Payment and Delivery Instructions. If a check for the purchase price of any Shares accepted for payment is to be issued in the name of, and/or Share certificates for Shares not accepted for payment or not tendered are to be issued in the name of and/or returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent, and/or such certificates are to be returned, to a person other than the signer of this Letter of Transmittal, or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Any stockholder(s) delivering Shares by book-entry transfer may request that Shares not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such stockholder(s) may designate in the box entitled "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book- Entry Transfer Facility designated above as the account from which such Shares were delivered. 8. Requests for Assistance or Additional Copies. Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the Information Agent at its address and phone number set forth below, or from brokers, dealers, commercial banks or trust companies. 9. Waiver of Conditions. Subject to the Merger Agreement, Purchaser reserves the absolute right in its sole discretion to waive, at any time or from time to time, any of the specified conditions of the Offer, in whole or in part, in the case of any Shares tendered. 10. Backup Withholding. In order to avoid "backup withholding" of federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 in this Letter of Transmittal and certify, under penalties of perjury, that such TIN is correct and that such stockholder is not subject to backup withholding. Backup withholding is not an additional income tax. Rather, the amount of the backup withholding can be credited against the federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the Internal Revenue Service. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an income tax return. The stockholder is required to give the Depositary the TIN (i.e., social security number or employer identification number) of the record owner of the Shares. If the Shares are held in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. 11. Lost, Destroyed or Stolen Share Certificates. If any certificate(s) representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Shares lost. The stockholder will then be instructed as to the steps that must be taken in order to replace the Share certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Share certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. IMPORTANT TAX INFORMATION Under Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payer) with such stockholder's correct taxpayer identification number on Substitute Form W-9 below. If such stockholder is an individual, the taxpayer identification number is his social security number. If a tendering stockholder is subject to backup withholding, such stockholder must cross out item (2) of the Certification box on the Substitute Form W-9. If the Depositary is not provided with the correct taxpayer identification number, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding. Certain stockholders (including, among others, all corporations, and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Depositary. Exempt stockholders, other than foreign individuals, should furnish their TIN, write "Exempt" on the face of the Substitute Form W-9 below, and sign, date and return the Substitute Form W-9 to the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of such stockholder's correct taxpayer identification number by completing the form contained herein certifying that the taxpayer identification number provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a taxpayer identification number). WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, such stockholder should write "Applied For" in the space provided for in the TIN in Part 1, and sign and date the Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within sixty (60) days, the Depositary will withhold 31% on all payments of the purchase price until a TIN is provided to the Depositary. PAYER'S NAME: CITIBANK N.A. PART 1--PLEASE PROVIDE Social Security Number SUBSTITUTE YOUR TIN IN THE BOX AT (If awaiting TIN write Form W-9 RIGHT AND CERTIFY BY "Applied For") SIGNING AND DATING BELOW --------------------- Employer Identification Number (If awaiting TIN write "Applied For") --------------------- --------------------------------------------------------- PART 2--CERTIFICATE--Under penalties of perjury, Department of I certify that: (1) The number shown on this form Treasury is my correct Taxpayer Identification Number (or Internal I am waiting for a number to be issued for me), Revenue and (2) I am not subject to backup withholding Service because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax returns. However, if after being notified by the IRS that you are subject to backup withholding, you receive another notification from the IRS that you are no Payers Request for longer subject to backup withholding, do not Tax Identification cross out such item (2). (Also see instructions Number (TIN) in the enclosed Guidelines). Signature: __________________________ Date: ______ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal and other tender offer materials may be directed to the Information Agent at its address and telephone number set forth below: The Information Agent for the Offer is: MacKenzie Partners, Inc. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 --------------- The Dealer Manager for the Offer is: Salomon Smith Barney 388 Greenwich Street New York, New York 10013 (212) 816-1057 EX-99.(A)(3) 4 NOTICE OF GUARANTEED DELIVERY Exhibit (a)(3) Notice of Guaranteed Delivery for Tender of Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Orion Capital Corporation to NTG Acquisition Corp. an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc (Not to be used for Signature Guarantees) This Notice of Guaranteed Delivery, or a form substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates representing shares of Common Stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Orion Capital Corporation, a Delaware corporation, are not immediately available, if the procedure for book-entry transfer cannot be completed prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or if time will not permit all required documents to reach the Depositary prior to the Expiration Date. Such form may be delivered by hand, transmitted by facsimile transmission or mailed to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: Citibank N.A. By Overnight Courier Delivery: Citibank N.A. 915 Broadway 5th Floor New York, New York 10010 By Mail: Facsimile for Eligible By Hand: Citibank N.A. Institutions: Citibank N.A. P.O. Box 685 (212) 505-2248 Corporate Trust Window Old Chelsea Station Facsimile Confirmation Only: 111 Wall Street 5th New York, New York 10113 (800) 270-0808 Floor New York, New York 10043 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to NTG Acquisition Corp., a Delaware corporation ("Purchaser") and an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales ("Royal plc"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated July 16, 1999 and the related Letter of Transmittal, receipt of which is hereby acknowledged, the number of shares set forth below of the common stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Orion Capital Corporation, a Delaware corporation, pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Number of Shares: Name(s) of Record Holder(s): _____________________________________ _____________________________________ _____________________________________ _____________________________________ (Please Print) Certificate Nos. (if available): _____________________________________ Address(es): ________________________ Check box if Shares will be tendered _____________________________________ by book-entry transfer: [_] (Zip Code) Area Code and Tel. No.: _____________ Account Number: _____________________ Dated: ____________, 1999 Signature(s): _______________________ _____________________________________ GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEES) The undersigned, a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, guarantees to deliver to the Depositary either certificates representing the Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Depositary's accounts maintained at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase), in each case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message, and any other documents required by the Letter of Transmittal, within three (3) trading days (as defined in the Offer to Purchase) after the date hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. _____________________________________ _____________________________________ Name of Firm Authorized Signature _____________________________________ Name: _______________________________ Address Please Print _____________________________________ _____________________________________ Zip Code Title Area Code and Tel. No.: _____________ Dated: ____________, 1999 NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT ONLY WITH YOUR LETTER OF TRANSMITTAL. EX-99.(A)(4) 5 LETTER TO BROKERS, DEALERS ET AL Exhibit (a)(4) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Orion Capital Corporation by NTG Acquisition Corp. an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. July 16, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by NTG Acquisition Sub, Inc. ("Purchaser"), a Delaware corporation and an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales, to act as Dealer Manager in connection with Purchaser's offer to purchase all outstanding shares of common stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Orion Capital Corporation, a Delaware corporation (the "Company"), at $50.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated July 16, 1999 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer") enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE OF THE OFFER (AS DEFINED IN THE OFFER TO PURCHASE) THAT NUMBER OF SHARES WHICH REPRESENTS AT LEAST A MAJORITY OF THE TOTAL NUMBER OF SHARES OUTSTANDING ON A FULLY DILUTED BASIS ON THE DATE SHARES ARE ACCEPTED FOR PAYMENT. THE OFFER ALSO IS SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THE OFFER TO PURCHASE INCLUDING THE CONSENT OF CERTAIN STATE INSURANCE REGULATORY AUTHORITIES WHICH ARE NOT EXPECTED TO BE RECEIVED UNTIL THE FOURTH QUARTER OF 1999. THE PARTIES EXPECT THAT THE EXPIRATION DATE WILL BE EXTENDED IN ORDER TO PERMIT THE PARTIES TO OBTAIN SUCH CONSENTS. SEE SECTIONS 11, 14 AND 15 OF THE OFFER TO PURCHASE. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase dated July 16, 1999; 2. Letter of Transmittal for your use in accepting the Offer and tendering Shares and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares; 3. Notice of Guaranteed Delivery to be used to accept the Offer if certificates for Shares and all other required documents cannot be delivered to the Depositary, or if the procedures for book-entry transfer cannot be completed on a timely basis, prior to the expiration of the Offer; 4. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. A letter to stockholders of the Company from W. Marston Becker, Chief Executive Officer and Chairman of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 dated July 16, 1999, which has been filed by the Company with the Securities and Exchange Commission; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. A return envelope addressed to Citibank N.A. (the "Depositary"). Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and pay for Shares which are validly tendered prior to the Expiration Date and not theretofore properly withdrawn when, as and if Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance of such Shares for payment pursuant to the Offer. Payment for Shares purchased pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (i) certificates for such Shares, or timely confirmation of a book-entry transfer of such Shares into the Depositary's account maintained at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase), pursuant to the procedures described in Section 3 of the Offer to Purchase, (ii) a properly completed and duly executed Letter of Transmittal (or a properly completed and manually signed facsimile thereof) or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry transfer and (iii) all other documents required by the Letter of Transmittal. Purchaser will not pay any fees or commissions to any broker or dealer or other person (other than the Dealer Manager, the Depositary and the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Purchaser will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for customary mailing and handling costs incurred by them in forwarding the enclosed materials to their customers. Purchaser will pay or cause to be paid all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer of Shares, and any other required documents, should be sent to the Depositary, and certificates representing the tendered Shares should be delivered or such Shares should be tendered by book-entry transfer, all in accordance with the Instructions set forth in the Letter of Transmittal and in the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents or to complete the procedures for delivery by book-entry transfer prior to the Expiration Date of the Offer, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. 2 Any inquiries you may have with respect to the Offer should be addressed to the Information Agent or the Dealer Manager, and additional copies of the enclosed materials may be obtained from the Information Agent at the respective addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, Salomon Smith Barney Inc. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF PURCHASER, THE COMPANY, THE INFORMATION AGENT, THE DEPOSITARY, OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER, OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.(A)(5) 6 LETTER TO CLIENTS Exhibit (a)(5) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Orion Capital Corporation at $50.00 net per share by NTG Acquisition Corp. an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. July 16, 1999 To Our Clients: Enclosed for your consideration are the Offer to Purchase dated July 16, 1999 and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer") in connection with the offer by NTG Acquisition Corp. ("Purchaser"), a Delaware corporation and an indirect wholly-owned subsidiary of Royal & Sun Alliance Group plc, a public limited company organized under the laws of England and Wales, to purchase for cash all outstanding shares of common stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Orion Capital Corporation, a Delaware corporation (the "Company"). We are the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The enclosed Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is invited to the following: 1. The Offer price is $50.00 per Share, net to you in cash without interest. 2. The Offer is being made for all outstanding Shares. 3. The Board of Directors of the Company has unanimously approved the Merger Agreement (as defined in the Offer to Purchase) and the transactions contemplated thereby, including the Offer and the Merger (as defined in the Offer to Purchase), and has unanimously determined that the Offer and the Merger are fair to, and in the best interests of, the Company's stockholders and unanimously recommends that the stockholders accept the Offer and tender their Shares pursuant to the Offer. 4. The Offer and withdrawal rights expire at 12:00 Midnight, New York City time, on Thursday, August 12, 1999, unless the Offer is extended. 5. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date of the Offer (as defined in the Offer to Purchase) that number of Shares which represents at least a majority of the Shares outstanding on the date Shares are accepted for payment. The Offer is also subject to the other conditions set forth in the Offer to Purchase including the consent of certain state insurance regulatory authorities which are not expected to be received until the fourth quarter of 1999. The parties expect that the Expiration Date will be extended in order to permit the parties to obtain consents. See Sections 11, 14 and 15 of the Offer to Purchase. 6. Any stock transfer taxes applicable to the sale of Shares to Purchaser pursuant to the Offer will be paid by Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Purchaser is not aware of any state in which the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. In any jurisdiction in which the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form set forth on the reverse side of this letter. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the reverse side of this letter. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. 2 Instructions with Respect to the Offer to Purchase for Cash All of the Outstanding Shares of Common Stock of Orion Capital Corporation The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated July 16, 1999 and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer") in connection with the offer by NTG Acquisition Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales, to purchase all outstanding shares of common stock, par value $1.00 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Orion Capital Corporation, a Delaware corporation. This will instruct you to tender the number of Shares indicated below (or if no number is indicated below, all Shares) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered: _____________________________ Shares* Dated: ________________________, 1999 _____________________________________ _____________________________________ Signature(s) _____________________________________ Print name(s) _____________________________________ Address(es) _____________________________________ Area Code and telephone number _____________________________________ Tax ID or social security number - -------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.(A)(6) 7 FORM W-9 Exhibit (a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------------- Give the name and Social Security For this type of account: number of: - --------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if account) the minor is the only contributor, the minor(3) 6. Account in the name of The ward, minor, guardian or committee or incompetent for a designated ward, person(4) minor, or incompetent person 7.a. The usual revocable The grantor savings trust account trustee(3) (grantor is also trustee) b. So-called trust account The actual that is not a legal or owner(3) valid trust under State law - --------------------------------------------- - --------------------------------------------- Give the name and Employer Identification For this type of account: number of: - --------------------------------------------- 8. Sole proprietorship The owner(5) account 9. A valid trust, estate, The legal entity or pension trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(3) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account The partnership held in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public Department of entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - --------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) List first and circle the name of the legal trust, estate, or pension trust. (4) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (5) Show the name of the owner. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Obtaining a Number If you don't have a TIN or you don't know your number, obtain Internal Revenue Service Form SS-5, Application for a Social Security Number Card, or Form SS- 4, Application for Employer identification Number, at your local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on ALL payments include the following: (1) A corporation. (2) A financial institution. (3) An organization exempt from tax under section 501(a) or an individual retirement plan. (4) The United States or any agency or instrumentality thereof. (5) A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. (6) A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. (7) An international organization or any agency, or instrumentality thereof. (8) A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. (9) A real estate investment trust. (10) A common trust fund operated by a bank under section 584(a). (11) An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). (12) An entity registered at all times under the Investment Company Act of 1940. (13) A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. . Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain in foreign organizations. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. Privacy Act Notice--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Failure to Report Certain Dividend and Interest Payments.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) Civil Penalty for False Information With Respect To Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) Criminal Penalty for Falsifying Information.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 PRESS RELEASE OF ROYAL PLC 07/12/1999 Exhibit (a)(7) For Orion Capital For Royal & SunAlliance Investors: Jeanne Hotchkiss Media: Libby McLaughlin Farmington, CT Charlotte, NC 28273 860-674-6754 (704) 522-3064 Media: Dawn Dover, Kekst and Co. New York, New York 212-521-4817 FOR IMMEDIATE RELEASE ROYAL & SUN ALLIANCE INSURANCE GROUP plc to ACQUIRE ORION CAPITAL CORPORATION (July 12, 1999) -- Royal & Sun Alliance Insurance Group plc, London, and Orion Capital Corporation (NYSE:OC), Farmington, CT, today announced that Orion and a wholly-owned US subsidiary of Royal & Sun Alliance have signed a definitive agreement providing for the acquisition of Orion Capital for $50 per Orion share in cash, or approximately $1.4 billion. The $50 per share price represents a 23% premium on Orion's Friday closing price and a 65% premium from the share price one month ago. The transaction has been unanimously approved by the boards of both companies. Pursuant to the terms of the agreement, a wholly owned subsidiary of Royal & SunAlliance USA, will, within five business days, commence an offer to purchase any and all outstanding shares of Orion's common stock. Due to the need for insurance regulatory approvals, it is not expected that the tender offer will be completed until the fourth quarter of 1999. Royal & SunAlliance's tender offer will be conditioned on the tender of at least a majority of Orion's outstanding shares. Consummation of the tender offer will be subject to the expiration or termination of any applicable antitrust waiting period, the receipt of any required regulatory approvals and customary conditions. Following the tender offer the acquisition of Orion will be completed by merging it with a subsidiary of Royal & SunAlliance USA, and all of Orion's shares not owned by Royal & SunAlliance will be converted into the right to receive $50 per share in cash. The merger agreement provides for the payment to Royal & SunAlliance of a fee of $45 million if the merger agreement is terminated in certain circumstances. Orion has also granted to Royal & SunAlliance an option to purchase up to 19.9% of Orion's shares, exercisable under the same circumstances. Robert V. Mendelsohn, Group Chief Executive of Royal & Sun Alliance Insurance Group plc, said from London: "The addition of Orion's distinctive specialty franchises and the complementary nature of the respective product and skill portfolios of our companies create broad product line potential and revenue synergies. This transaction effectively doubles the size of Royal & SunAlliance USA. Together, the combined 1998 net written premium would -more- have been $3.0 billion, placing the company among the top 25 US property and casualty insurers, and the 13th largest US commercial carrier. The case for the combination of Royal & SunAlliance and Orion is a compelling one that we believe both the capital and insurance markets will immediately recognize and rightly reward." W. Marston Becker, Orion Capital's Chairman and CEO, said: "Orion Capital has built strong franchises and market leadership positions in our core specialty businesses. This merger provides our shareholders with solid value for their investments and enables our businesses to gain access to a broad range of products that will further enhance their importance to customers and agents. This is the catalyst that will take our specialty operations to a new level. Equally important, Orion's organizational skills, products and specialty expertise will support Royal & SunAlliance's course toward industry leadership." Becker will join the Royal & SunAlliance USA Strategic Leadership Team. Terry Broderick, Royal & SunAlliance USA President, added: "This is a bold and exciting move for both companies. Importantly, our cultures are very compatible and customer focused. At Royal & SunAlliance, we view industry leadership as the best people, customers, products, and financial results. Orion has excelled at identifying customer needs in specialized market segments and has responded with exciting and innovative products. The combined leadership uniquely positions the new enterprise to deliver high value to customers, making it a powerful force in the marketplace. The resulting strong core commercial, personal and specialty product platform will allow us to take full advantage of the current and future changes in our industry." Following the close of the transaction, Royal & SunAlliance will maintain the Orion brands and operate three major divisions: commercial, personal and specialty. The Commercial Insurance division will include Royal & SunAlliance's retail branches and Orion's EBI Companies. OrionAuto will join the Personal Insurance division. Becker will lead the Specialty Insurance division. Under his direction, Royal & SunAlliance will expand its existing platform of specialty products, further complementing the company's core commercial insurance business, both domestically and internationally. The Specialty Insurance division will be headquartered in Farmington, CT, and will continue to have specialty operations throughout the US. Orion Capital is a leader in the specialty property and casualty insurance business through wholly owned subsidiaries operating in three focused segments: nonstandard personal automobile insurance through OrionAuto, workers compensation through EBI Companies and specialty commercial insurance through Orion Specialty, which includes DPIC Companies. -more- -2- Royal & SunAlliance USA, Inc. is part of Royal & Sun Alliance Insurance Group plc which operates in over 55 countries worldwide and transacts business in over 130 countries. Worldwide net premium income in 1998 was $16 billion with total assets over $100 billion. The company is listed on the London Stock Exchange (RSA.L) and has a Level 1 American Depositary Receipt Program (RSAIY). Statements herein concerning the growth and strategies of Royal & SunAlliance and Orion include forward-looking statements. Royal & SunAlliance's and/or Orion's actual results may differ materially from those suggested as a result of various factors, including, without limitation, Royal & SunAlliance's and Orion's ability to recruit and retain qualified technical consultants, and, the companies' ability to consummate the transaction, successfully integrate Orion's operations and compete successfully with existing and future competitors. Interested parties should refer to the disclosure set forth in Royal & SunAlliance's and Orion's recent public filings for additional information regarding the companies' financial conditions and results of operations. Royal & SunAlliance's financial advisor was Salomon Smith Barney Inc. and Orion Capital's financial advisor was Donaldson Lufkin & Jenrette Securities Corporation. For more information about Royal & Sun Alliance or Orion Capital, visit their web sites at www.royalsunalliance.com and www.orioncapital.com. ------------------------ -------------------- #### -3- EX-99.(A)(8) 9 PRESS RELEASE OF ROYAL PLC 07/16/1999 Exhibit (a)(8) FOR IMMEDIATE RELEASE: ROYAL & SUN ALLIANCE INSURANCE GROUP plc COMMENCES TENDER OFFER FOR ORION CAPITAL CORPORATION AT $50.00 PER SHARE New York, New York, July 16, 1999 - Royal & Sun Alliance Insurance Group plc, London, announced today that it has commenced through an indirect wholly-owned subsidiary (NTG Acquisition Corp.) its previously announced US$50.00 per share cash tender offer for all the outstanding shares of common stock of Orion Capital Corporation (NYSE:OC), Farmington, CT. The tender offer is scheduled to expire at 12:00 midnight, New York City time, on Thursday, August 12, 1999, unless the tender offer is extended. Following the consummation of the tender offer, Royal & Sun Alliance intends to consummate a second step merger to acquire all shares not purchased in the tender offer at the same price paid in the tender offer. This would result in an aggregate equity purchase price on a fully diluted basis of approximately US$1.4 billion. As previously announced, the Board of Directors of Orion has unanimously approved the tender offer and the related transactions, has determined that the terms of the tender offer and merger are fair to, and in the best interests of, Orion's stockholders, and has recommended that all stockholders accept the offer. Due to the need for insurance regulatory approvals, it is not expected that the tender offer will be completed until the fourth quarter of 1999. The parties expect that the expiration date of the tender offer will be extended in order to permit the parties to obtain such approvals. The tender offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the tender offer that number of shares which represents at least a majority of the total number of shares outstanding on the date shares are accepted for payment. Consummation of the tender offer will be subject to the expiration or termination of any applicable antitrust waiting period, the receipt of any required regulatory approvals and customary conditions. Other terms and conditions of the tender offer are set forth in the definitive tender offer documents being filed with the Securities Exchange Commission and mailed to Orion stockholders. Following the tender offer, the acquisition of Orion will be completed by merging NTG into Orion, and all of Orion's shares not owned by Royal & Sun Alliance and its subsidiaries will be converted into the right to receive $50 per share in cash. The merger agreement provides for the payment to Royal & Sun Alliance of a fee of $45 million if the merger agreement is terminated in certain circumstances. Orion has also granted to Royal & Sun Alliance USA an option to purchase up to 19.9% of Orion's shares, exercisable under the same circumstances. Citibank N.A. will act as depositary for the tender offer, MacKenzie Partners, Inc. will act as information agent, and Salomon Smith Barney, Inc. will act as dealer manager. Following the close of the transaction, Royal & Sun Alliance will maintain the Orion brands and operate its three major divisions: commercial, personal and specialty. The Commercial Insurance division will include Royal & SunAlliance USA's retail branches and Orion's EBI Companies. OrionAuto will join the Personal Insurance division. Orion Capital is a leader in the specialty property and casualty insurance business through wholly owned subsidiaries operating in three focused segments: nonstandard personal automobile insurance through OrionAuto, workers compensation through EBI Companies and specialty commercial insurance through Orion Specialty, which includes DPIC Companies. Royal & SunAlliance USA, Inc. is part of Royal & SunAlliance Insurance Group plc which operates in over 55 countries worldwide and transacts business in over 130 countries. Worldwide net premium income in 1998 was $16 billion with total assets over $100 billion. The company is listed on the London Stock Exchange (RSA.L) and has a Level 1 American Depositary Receipt Program (RSAIY). Statements herein concerning the growth and strategies of Royal & Sun Alliance and Orion include forward-looking statements. Royal & Sun Alliance's and/or Orion's actual results may differ materially from those suggested as a result of various factors, including, without limitation, Royal & Sun Alliance's and Orion's ability to recruit and retain qualified technical consultants, and, the companies' ability to consummate the transaction, successfully integrate Orion's operations and compete successfully with existing and future competitors. Interested parties should refer to the disclosure set forth in Royal & Sun Alliance's and Orion's recent public filings for additional information regarding the companies' financial conditions and results of operations. For more information about Royal & Sun Alliance or Orion Capital, visit their web sites at www.royalsunalliance.com and www.orioncapital.com. ------------------------ --------------------- CONTACT: MacKenzie Partners, Inc. Daniel H. Burch, (212) 929-5748. EX-99.(A)(9) 10 SUMMARY ADVERTISEMENT Exhibit (a)(9) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase, dated July 16, 1999, and the related Letter of Transmittal, and is being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of NTG Acquisition Corp. by Salomon Smith Barney Inc. or by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Orion Capital Corporation at $50.00 Net Per Share in Cash by NTG Acquisition Corp., an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc NTG Acquisition Corp., a Delaware corporation ("Purchaser") and an indirect wholly-owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales ("Royal plc"), is offering to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of Orion Capital Corporation, a Delaware corporation (the "Company"), and the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of September 11, 1996, as amended, by and between the Company and First Chicago Trust Company of New York, as Rights Agent (as the same may be amended, the "Rights Agreement"), at a purchase price of $50.00 per Share net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated July 16, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments and supplements thereto, collectively constitute the "Offer"). Unless the context otherwise requires, all references to Shares herein and in the Offer to Purchase shall include the associated Rights. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which represents at least a majority of the total number of Shares outstanding on the date Shares are accepted for payment. The Offer also is subject to the other conditions set forth in the Offer to Purchase including the consent of certain state insurance regulatory authorities which are not expected to be received until the fourth quarter of 1999. The parties expect that the Expiration Date will be extended in order to permit the parties to obtain such consents. See Sections 11, 14 and 15 of the Offer to Purchase. 1 The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of July 12, 1999, by and between the Company, Purchaser and Purchaser's parent, Royal Group, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Royal plc ("Royal US") (the "Merger Agreement"), pursuant to which, following the consummation of the Offer and the satisfaction of certain conditions, Purchaser will be merged with and into the Company (the "Merger"), with the Company continuing as the surviving corporation. On the effective date of the Merger, each outstanding Share (other than any Shares held by Purchaser, any direct or indirect subsidiary of Purchaser, the Company or any direct or indirect subsidiary of the Company and other than Shares, if any, held by stockholders who perfect their appraisal rights under Delaware law) will, by virtue of the Merger and without any action by the holder thereof, be converted into the right to receive an amount equal to $50.00 in cash without interest thereon. As a condition and inducement to Purchaser and Royal US entering into the Merger Agreement, concurrently with the execution and delivery of the Merger Agreement, Royal US and the Company have entered into a Stock Option Agreement, dated as of July 12, 1999, pursuant to which, among other things, the Company has granted Royal US an irrevocable option to purchase up to 5,443,697 newly issued Shares at $50.00 per Share (the "Option"). The Option only can be exercised in certain circumstances as described in Section 11 of the Offer to Purchase. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not withdrawn as, if and when Purchaser gives oral or written notice to Citibank N.A., as depositary (the "Depositary"), of Purchaser's acceptance of such Shares for payment pursuant to the Offer. In all cases, upon the terms and subject to the conditions of the Offer, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from Purchaser and transmitting payment to validly tendering stockholders. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a timely Book Entry Confirmation (as defined in the Offer to Purchase) with respect thereto), (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry transfer and (iii) any other documents required by the Letter of Transmittal. The per share consideration paid to any holder of Shares pursuant to the Offer will be the highest per share consideration paid to any other holder of such Shares pursuant to the Offer. Under no circumstances will interest on the purchase price for Shares be paid by Purchaser, regardless of any extension of the Offer or any delay in making such payment. Subject to the terms and conditions of the Merger Agreement, Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, to extend the period during which the Offer is open for any reason, including the existence of any of the conditions specified in Section 14 of the Offer to Purchase, by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement thereof, and such announcement will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date (as defined in the Offer to Purchase). Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment as provided in the Offer to Purchase, may also be withdrawn at any time after September 13, 1999. In order for a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn, and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signature on the notice of withdrawal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (an "Eligible Institution"), except in the case of Shares tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for 2 book-entry transfer set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the appropriate Book-Entry Transfer Facility (as defined in the Offer to Purchase) to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in this paragraph. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, whose determination shall be final and binding. Any Shares properly withdrawn will be deemed not validly tendered for purposes of the Offer, but may be tendered at any subsequent time prior to the Expiration Date by following any of the procedures described in Section 3 of the Offer to Purchase. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase, and is incorporated herein by reference. The Company has provided Purchaser with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal and, if required, other relevant materials will be mailed to record holders of Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information which should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers listed below. Requests for copies of the Offer to Purchase, the related Letter of Transmittal and all other tender offer materials may be directed to the Information Agent or brokers, dealers, commercial banks and trust companies, and copies will be furnished promptly at Purchaser's expense. None of Purchaser, Royal US or Royal plc will pay any fees or commissions (other than to the Dealer Manager or the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: Mackenzie Partners, Inc. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or Call Toll-Free (800) 322-2885 The Dealer Manager for the Offer is: Salomon Smith Barney 388 Greenwich Street New York, New York 10013 (212) 816-1057 July 16, 1999 3 EX-99.(C)(1) 11 AGREEMENT & PLAN OF MERGER 07/12/1999 Exhibit (c)(1) ================================================================================ AGREEMENT AND PLAN OF MERGER Among ORION CAPITAL CORPORATION, ROYAL GROUP INC. and NTG ACQUISITION CORP. Dated as of July 12, 1999 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I. THE MERGER; CLOSING; EFFECTIVE TIME; TENDER OFFER 1.1. The Merger...............................................................1 1.2. Closing..................................................................2 1.3. Effective Time...........................................................2 1.4. Tender Offer.............................................................2 1.5. The Tender Offer.........................................................2 (a) Conditions; Consideration; Schedule 14D-1........................2 (b) Expiration Date..................................................3 (c) Company Action...................................................4 (d) Schedule 14D-9; Meeting of Stockholders..........................4 (e) Mailing and Content of Offer Documents and Schedule 14D-9........4 (f) Directors........................................................5 ARTICLE II. CHARTER AND BY-LAWS OF THE SURVIVING CORPORATION 2.1. The Charter..............................................................6 2.2. The By-Laws..............................................................6 ARTICLE III. OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION 3.1. Directors................................................................6 3.2. Officers.................................................................6 ARTICLE IV. EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES 4.1. Conversion of Shares; Consideration......................................6 4.2. Dissenting Stockholders..................................................7 4.3. Company Options and Restricted Stock.....................................7 (a) Company Options..................................................7 (b) Restricted Stock.................................................8 (c) Performance Units................................................8 (d) Notices..........................................................8 4.4. Exchange Procedures......................................................8 (a) Exchange Agent...................................................8 (b) Exchange Procedures..............................................8 4.5. Rights of Former Company Stockholders....................................9 4.6. Termination of Exchange Fund............................................10 4.7. Adjustments to Prevent Dilution.........................................10 (i) 4.8. Merger Without Meeting of Stockholders..................................10 ARTICLE V. REPRESENTATIONS AND WARRANTIES 5.1. Representations and Warranties of the Company...........................10 (a) Organization, Good Standing and Qualification...................10 (b) Capital Structure...............................................11 (c) Corporate Authority; Approval and Fairness......................12 (d) Governmental Filings; No Violations.............................13 (e) Company Reports; Financial Statements...........................14 (f) Absence of Certain Changes......................................15 (g) Litigation......................................................16 (h) Employee Benefits...............................................16 (i) Compliance with Laws; Permits...................................18 (j) Takeover Statutes...............................................18 (k) Environmental Matters...........................................19 (l) Taxes...........................................................19 (m) Labor Relations and Employment..................................21 (n) Intellectual Property; Year 2000................................21 (o) Material Contracts..............................................22 (p) Rights Plan.....................................................22 (q) Title to Assets; Liens..........................................23 (r) Insurance Matters...............................................23 (s) Liabilities and Reserves........................................24 (t) Brokers and Finders.............................................25 5.2. Representations and Warranties of Parent and Merger Subsidiary..........25 (a) Capitalization of Merger Subsidiary.............................25 (b) Organization, Good Standing and Qualification...................25 (c) Corporate Authority.............................................25 (d) Governmental Filings; No Violations.............................25 (e) Financing.......................................................26 (f) Share Ownership.................................................26 (g) Brokers or Finders..............................................26 ARTICLE VI. COVENANTS 6.1. Interim Operations......................................................27 6.2. Acquisition Proposals...................................................29 6.3. Information Supplied....................................................30 6.4. Stockholders Meeting....................................................30 6.5. Filings; Other Actions; Notification....................................31 6.6. Access..................................................................32 6.7. Publicity...............................................................33 6.8. Employee Benefits.......................................................33 (ii) 6.9. Expenses................................................................34 6.10. Indemnification; Directors' and Officers' Insurance....................34 6.11. Other Actions by the Company and Parent................................36 (a) Rights..........................................................36 (b) Takeover Statute................................................36 (c) NYSE De-Listing.................................................36 ARTICLE VII. CONDITIONS 7.1. Conditions to Each Party's Obligation to Effect the Merger..............36 (a) Stockholder Approval............................................36 (b) Regulatory Consents.............................................36 (c) Legal Prohibition...............................................37 (d) Purchase of Shares Pursuant to Tender Offer.....................37 ARTICLE VIII. TERMINATION 8.1. Termination by Mutual Consent...........................................37 8.2. Termination by Either Parent or the Company.............................37 8.3. Termination by the Company..............................................37 8.4. Termination by Parent...................................................38 8.5. Effect of Termination and Abandonment...................................38 ARTICLE IX. MISCELLANEOUS AND GENERAL 9.1. Survival................................................................40 9.2. Modification or Amendment...............................................40 9.3. Waiver of Conditions....................................................40 9.4. Counterparts............................................................41 9.5. Governing Law; Consent to Jurisdiction..................................41 9.6. Notices.................................................................41 9.7. Entire Agreement; No Other Representations..............................42 9.8. No Third Party Beneficiaries............................................42 9.9. Obligations of Parent and of the Company................................42 9.10. Severability...........................................................42 9.11. Interpretation.........................................................43 9.12. Assignment.............................................................43 Annex I Certain Conditions of the Tender Offer Annex II Index of Defined Terms Exhibit A Stock Option Agreement Exhibit B Officers of Surviving Corporation (iii) AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of July 12, 1999 (this "Agreement"), among ORION CAPITAL CORPORATION, a Delaware corporation (the "Company"), ROYAL GROUP INC., a Delaware corporation ("Parent"), and NTG ACQUISITION CORP., a Delaware corporation and a direct or indirect wholly owned subsidiary of Parent ("Merger Subsidiary") (the Company and Merger Subsidiary sometimes being hereinafter collectively referred to as the "Constituent Corporations"). RECITALS WHEREAS, Parent is a direct or indirect wholly owned subsidiary of Royal & Sun Alliance Insurance Group plc, a public limited company organized under the laws of England and Wales ("PLC"); WHEREAS, the respective boards of directors of each of Parent, Merger Subsidiary and the Company have determined that the Tender Offer (as defined in Section 1.4) and the merger of Merger Subsidiary with and into the Company (the "Merger") upon the terms and subject to the conditions set forth in this Agreement are advisable and have approved the Tender Offer and the Merger; WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition and inducement to Parent's willingness to enter into this Agreement, the Company and Parent have entered into that certain Stock Option Agreement dated as of the date of this Agreement and attached hereto as Exhibit A (the "Stock Option Agreement"), pursuant to which the Company has granted Parent an option to purchase shares of common stock, par value $1.00 per share, of the Company (the "Common Shares") under certain circumstances; and WHEREAS, the Company, Parent and Merger Subsidiary desire to make certain representations, warranties, covenants and agreements as set forth in this Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I. The Merger; Closing; Effective Time; Tender Offer 1.1. The Merger. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.3) Merger Subsidiary shall be merged with and into the Company and the separate corporate existence of Merger Subsidiary shall thereupon cease. The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation"), and the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger. The Merger shall have the effects specified in the Delaware General Corporation Law (the "DGCL"). 1.2. Closing. The closing of the Merger (the "Closing") shall take place (i) at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019 at 9:00 A.M. on the second business day after satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) or (ii) at such other place and time and/or on such other date as the Company and Parent may agree in writing (the "Closing Date"). 1.3. Effective Time. Subject to the provisions of this Agreement, as soon as practicable on the Closing Date, if this Agreement shall not have been terminated as provided in Article VIII, the parties shall acknowledge and cause a certificate of merger or other appropriate documents (the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL to be filed with the Secretary of State of the State of Delaware (the "Secretary") as provided in Section 251 of the DGCL. The Merger shall become effective at the time the Certificate of Merger is duly filed with the Secretary or at such later time as may be agreed by the parties and specified in the Certificate of Merger (the "Effective Time"). 1.4. Tender Offer. Parent shall, within five business days after the public announcement of the execution of this Agreement, cause Merger Subsidiary to commence (within the meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) a tender offer (the "Tender Offer") to acquire all of the outstanding Common Shares together with all associated Rights (as defined in Section 5.1(p)) issued pursuant to the Rights Agreement (as defined in Section 5.1(b)), at a purchase price per Common Share of not less than the Per Share Purchase Price (as defined in Section 4.1(c)), net to the seller in cash, without interest thereon and less any required withholding tax, with such Tender Offer being upon the terms and subject solely to the conditions set forth in Annex I to this Agreement including the Minimum Tender Condition (as defined therein) and such further customary terms as may be set forth in an Offer to Purchase and Letter of Transmittal (the "Offer Documents") to be mailed by Merger Subsidiary in connection with the Tender Offer. 1.5. The Tender Offer. (a) Conditions; Consideration; Schedule 14D-1. Parent and Merger Subsidiary shall, within five business days after the public announcement of the execution of this Agreement, file with the Securities and Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to the Tender Offer which will contain the Offer Documents as exhibits. The Schedule 14D-1, and all amendments and supplements thereto, shall comply in all material respects with the provisions of applicable federal securities laws. Parent, Merger Subsidiary and the Company each agrees promptly to correct any information provided by it for use in the Schedule 14D-1 if and to the extent that it shall have become false or misleading in any material respect or any event occurs which should be set forth in an amendment or supplement to the Schedule 14D-1. Merger Subsidiary agrees to take all steps necessary to cause the Schedule 14D-1, as so corrected if applicable, to be filed with the SEC and to be disseminated to holders of Common Shares, in each case as and to the extent required by applicable federal -2- securities laws. The Company shall cooperate fully in the preparation of the Schedule 14D-1 prior to its being filed with the SEC. The Company and its counsel shall be given the reasonable opportunity to review and comment on the Offer Documents and the Schedule 14D-1, and any amendments thereto, prior to the filing thereof with the SEC. Parent and Merger Subsidiary shall provide the Company and its counsel with a copy of any written comments or telephonic notification of any oral comments Parent or Merger Subsidiary may receive from the SEC or its staff with respect to the Offer Documents and the Schedule 14D-1 promptly after the receipt thereof. Parent and Merger Subsidiary shall provide the Company and its counsel with a reasonable opportunity to participate in all communications with the SEC and its staff, including any meetings and telephone conferences, relating to the Tender Offer or this Agreement. Without the prior written consent of the Company, Merger Subsidiary shall not decrease the Per Share Purchase Price or change the form of consideration payable in the Tender Offer, decrease the number of Common Shares sought, impose additional conditions to the Tender Offer or make any other change to the terms and conditions of the Tender Offer in any manner adverse to the holders of Common Shares. Upon the terms and subject to the conditions of the Tender Offer, unless the Agreement is terminated in accordance with Article VIII, Merger Subsidiary will accept for payment and will purchase, as soon as permitted under the terms of the Tender Offer, all Common Shares validly tendered and not withdrawn prior to the expiration of the Tender Offer. (b) Expiration Date. Parent and Merger Subsidiary agree that, unless the Agreement is terminated in accordance with Article VIII, Merger Subsidiary shall not terminate or withdraw the Tender Offer prior to the expiration date thereof, which shall be a date at least 20 business days from the date of commencement thereof (the "Expiration Date"). If, at the Expiration Date, the conditions to the Tender Offer described in Annex I hereto shall not have been satisfied or earlier waived, Merger Subsidiary may extend the Expiration Date on one or more occasions for such additional period or periods of time as Merger Subsidiary determines in its sole discretion (provided that following the 90th day after the date of this Agreement, such extensions shall be in increments of not more than ten business days each) and, unless this Agreement has been terminated in accordance with its terms, shall extend it until a date that is not later than the Termination Date (as defined in Section 8.2), if requested to do so by the Company, and Parent is otherwise going to let the Tender Offer expire without the purchase of Common Shares thereunder, but shall not be required to so extend if any of the conditions not satisfied or earlier waived on the then-scheduled expiration date are one or more of the Minimum Tender Condition or the conditions set forth in paragraphs (b)(ii), (b)(iii) or (b)(iv) of Annex I hereto, provided that (x) if the only condition not satisfied is the Minimum Tender Condition, the satisfaction or waiver of all other conditions shall have been publicly disclosed at least five business days before termination of the Tender Offer and (y) if paragraph (b)(ii), (b)(iii) or (b)(iv) of Annex I hereto has not been satisfied and the failure to so satisfy can be remedied, the Tender Offer shall not be terminated unless the failure is not remedied within 20 days after Parent has furnished the Company with written notice of such failure. In addition, Merger Subsidiary, at its sole option, may extend the Expiration Date for an aggregate period of not more than ten business days beyond the latest expiration date that would otherwise be permitted (but in no event later than the Termination Date) if there shall not have been tendered sufficient Common Shares so that the Merger could be effected without a meeting of the Company's stockholders in accordance with Section 253 of the DGCL. Parent and Merger Subsidiary shall use their reasonable best efforts to -3- consummate the Tender Offer in accordance with the terms of this Agreement and the conditions to the Tender Offer set forth in Annex I. (c) Company Action. The board of directors of the Company has received the opinion of Donaldson, Lufkin & Jenrette Securities Corporation (the "Company Financial Advisor") to the effect set forth in Section 5.1(c)(ii). The Company has been authorized by the Company Financial Advisor to permit, subject to its prior review and consent (such consent not to be unreasonably withheld), the inclusion of such opinion and appropriate references thereto in the Offer Documents and in the Schedule 14D-9 referred to below and the Proxy Statement referred to in Section 6.5(a). The Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Company's board of directors described in Section 5.1(c)(ii), unless the Company's board of directors determines in good faith, after consultation with and receipt of advice of outside legal counsel, that it is required in order for its directors to comply with their respective fiduciary duties under applicable law to withdraw, modify or qualify its recommendation in a manner adverse to Parent in response to a Superior Proposal (as defined in Section 6.2). (d) Schedule 14D-9; Meeting of Stockholders. The Company agrees that it shall, on the same day that Merger Subsidiary and Parent file with the SEC the Schedule 14D-1, file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Tender Offer (including exhibits, and as amended from time to time, the "Schedule 14D-9"), which shall reflect the actions of the board of directors of the Company referred to above and shall comply in all material respects with the provisions of applicable federal securities laws. The Company, Parent and Merger Subsidiary each agrees promptly to correct any information provided by it for use in the Schedule 14D-9 to the extent that it shall have become false or misleading in any material respect. The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of Common Shares, in each case as and to the extent required by applicable federal securities laws. Parent and Merger Subsidiary shall cooperate fully in the preparation of the Schedule 14D-9 prior to its being filed with the SEC. Parent and Merger Subsidiary, and their counsel, shall be given the reasonable opportunity to review and comment on the Schedule 14D-9 and any amendments thereto prior to the filing thereof with the SEC. The Company shall provide Parent and Merger Subsidiary, and their counsel, with a copy of any written comments or telephonic notification of any oral comments the Company may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt thereof. The Company shall provide Parent and Merger Subsidiary and their counsel with a reasonable opportunity to participate in all communications with the SEC and its staff, including any meetings and telephone conferences, relating to the Tender Offer or this Agreement. The Schedule 14D-9 shall contain the recommendation of the board of directors of the Company that the holders of Common Shares accept the Tender Offer, unless the Company's board of directors determines in good faith, after consultation with and receipt of advice of outside legal counsel, that it is required in order for its directors to comply with their respective fiduciary duties under applicable law to withdraw, modify or qualify its recommendation in a manner adverse to Parent in response to a Superior Proposal. (e) Mailing and Content of Offer Documents and Schedule 14D-9. The Company agrees that copies of the Schedule 14D-9 (excluding exhibits) shall be enclosed with the Offer -4- Documents to be mailed by Merger Subsidiary to the stockholders of the Company in connection with the Tender Offer. In connection with the Tender Offer, the Company shall promptly furnish Parent and Merger Subsidiary with such information, including lists of the names and addresses of stockholders of the Company, mailing labels and lists of security positions, each as of the most recent practicable date, and shall furnish such assistance as Parent or Merger Subsidiary or their agents may request in communicating the Tender Offer to the record and beneficial holders of the Common Shares. Subject to the requirements of applicable law and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Tender Offer, Merger Subsidiary and its affiliates will hold in confidence such listings and other information, shall use such information only in connection with the Tender Offer and, if this Agreement is terminated, shall, and shall cause its agents or other representatives to, promptly deliver to the Company or dispose of all copies of all such information (and extracts or summaries thereof) then in their possession. (f) Directors. (i) Promptly upon the purchase by Merger Subsidiary of Common Shares pursuant to the Tender Offer which represent at least a majority of the outstanding Common Shares, Merger Subsidiary or Parent shall be entitled to designate up to such number of directors but in no event less than a majority, rounded up to the next whole number, on the board of directors of the Company as shall give Merger Subsidiary representation on such board of directors equal to the product of the total number of directors on such board (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that the aggregate number of Common Shares beneficially owned by Parent, Merger Subsidiary and any other Subsidiary (as defined in Section 5.1(a)) of Parent bears to the total number of Common Shares then outstanding, and the Company shall, at such time, promptly use its reasonable best efforts to cause Merger Subsidiary's or Parent's designees, as the case may be, to be so elected, including either increasing the size of the board of directors or securing the resignations of incumbent directors or both. The Company will use its reasonable best efforts to cause directors designated by Merger Subsidiary to constitute the same percentage as is on the board of (i) each committee of the board of directors, (ii) each board of directors of each Subsidiary of the Company and (iii) each committee of each such Subsidiary board, in each case only to the extent permitted by applicable Law (as defined in Section 5.1(i)). (ii) The Company shall promptly (subject to the prompt provision of information by Parent and Merger Subsidiary) take all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder in order to fulfill its obligations under this Section 1.5(f) and shall include in the Schedule 14D-9 or a separate Rule 14f-1 information statement provided to stockholders such information with respect to the Company and its officers and directors as is required under Section 14(f) of the Exchange Act and Rule 14f-1 thereunder to fulfill its obligations under this Section 1.5(f). Parent or Merger Subsidiary will promptly supply to the Company and be solely responsible for any information with respect to either of them and their nominees, officers and directors required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. (iii) From and after the time, if any, that Parent's designees constitute a majority of the Company's board of directors, any amendment of this Agreement, any termination of this Agreement by the Company, any extension of time for performance of any of the obligations of -5- Parent or Merger Subsidiary hereunder, any waiver of any condition or any of the Company's rights hereunder or other action by the Company hereunder may be effected only by unanimous vote of the entire board of directors of the Company. ARTICLE II. Charter and By-Laws of the Surviving Corporation 2.1. The Charter. The Certificate of Incorporation of the Company as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation (the "Charter"), until duly amended or repealed as provided therein or by applicable Law. 2.2. The By-Laws. The by-laws of the Company as in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation (the "By-Laws"), until duly amended or repealed as provided therein or by applicable Law. ARTICLE III. Officers and Directors of the Surviving Corporation 3.1. Directors. The directors of Merger Subsidiary at the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and the By-Laws. 3.2. Officers. The officers of the Surviving Corporation shall, from and after the Effective Time, be as set forth on Exhibit B until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and the By-Laws. ARTICLE IV. Effect of the Merger on Capital Stock; Exchange of Certificates 4.1. Conversion of Shares; Consideration. Subject to the provisions of this Article IV, at the Effective Time, by virtue of the Merger and without any future action on the part of Parent, the Company, Merger Subsidiary or the stockholders of any of the foregoing, the shares of the Constituent Corporations shall be converted as follows: (a) Each share of Merger Subsidiary Common Stock (as defined in Section 5.2(a)) issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be converted into that number of fully paid and nonassessable shares of common stock of the Surviving Corporation equal to (x) the number of Common Shares issued and outstanding -6- immediately prior to the Effective Time less (y) the number of those Common Shares set forth in Section 4.1(b)(ii) (A) and (B). (b) (i) Each Common Share held by the Company and not held on behalf of third parties shall be canceled and retired at the Effective Time and no consideration shall be issued in exchange therefor and (ii) each Common Share held by (A) any Subsidiary of the Company or (B) PLC or any Subsidiary thereof (PLC and each of its Subsidiaries being referred to as "Parent Companies") other than Merger Subsidiary shall be converted into one fully paid and non-assessable share of common stock of Surviving Corporation (the Common Shares in this Section 4.1(b) together with the Common Shares held by Merger Subsidiary are hereinafter referred to as "Excluded Shares"). (c) Each Common Share (including any associated Rights), but excluding (i) Excluded Shares and (ii) Dissenting Shares (as defined in Section 4.2), issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be converted into and exchanged for the right to receive from Merger Subsidiary a cash payment in the amount of Fifty Dollars ($50.00) or if a higher price was paid in the Tender Offer, such higher price (the "Per Share Purchase Price"; the aggregate cash paid for all Common Shares being the "Merger Consideration"), without interest. 4.2. Dissenting Stockholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Common Shares held by a Person (as defined in Section 5.1(b)) (a "Dissenting Stockholder") who duly demands appraisal of his Common Shares pursuant to the DGCL and complies with all the provisions of the DGCL concerning the right of holders of Common Shares to demand appraisal of their Common Shares in connection with the Merger ("Dissenting Shares") shall not be converted as described in Section 4.1(c) but shall become the right to receive such cash consideration as may be determined to be due to such Dissenting Stockholder as provided in the DGCL. If, however, such Dissenting Stockholder withdraws his demand for appraisal or fails to perfect or otherwise loses his right of appraisal, in any case pursuant to the DGCL, his Common Shares shall be deemed to be converted as of the Effective Time into the right to receive the Per Share Purchase Price net of all withholding Taxes, if any, and without interest. The Company shall give Parent (i) prompt notice of any demands for appraisal of Common Shares received by the Company and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands. The Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. 4.3. Company Options and Restricted Stock. (a) Company Options. At the Effective Time, each outstanding option to purchase Common Shares issued by the Company, whether issued pursuant to any stock plan of the Company or otherwise, and whether or not exercisable (a "Company Option"), shall no longer represent the right to purchase or receive Common Shares, but in lieu thereof shall be canceled and, in consideration of such cancellation, Parent shall (or shall cause the Company to), pay to each holder of a Company Option an amount in cash equal to (x) the difference (if positive) between the Per Share Purchase Price and the price per Common Share pursuant to which the -7- holder of such Company Option (the "Exercise Price") may purchase the Common Shares to which such Company Option relates, multiplied by (y) the number of Common Shares subject to such Company Option, less (z) any withholding of Taxes as may be required by applicable Law. With respect to any Company Option as to which the Exercise Price exceeds the Per Share Purchase Price, such Company Option shall also be canceled and in consideration of such cancellation, Parent shall (or cause the Company to) pay to each holder thereof an amount in cash equal to (x) $5, multiplied by (y) the number of Common Shares subject to such Company Option, less (z) any withholding taxes as may be required by applicable Law. (b) Restricted Stock. Each Common Share which is subject to vesting or other similar restrictions, whether issued pursuant to any stock plan of the Company or otherwise ("Restricted Stock"), shall become fully vested and free of such restrictions in accordance with the Company Stock Plans (as defined in Section 5.1(b)), and otherwise shall be treated in the same manner as the Common Shares as described in Section 4.1(c), provided that amounts payable in respect of Restricted Stock shall be reduced by the amount of any loans or other indebtedness owing to the Company in respect of the Restricted Stock from holders thereof. (c) Performance Units. At the Effective Time, each outstanding performance unit (each, a "Performance Unit"), whether issued pursuant to any stock plans of the Company or otherwise shall become immediately vested and immediately thereafter shall be canceled. In exchange for such cancellation, Parent shall (or shall cause the Company to) pay each holder of a Performance Unit an amount in cash equal to (x) the book value per Common Share, determined as of the end of the fiscal quarter immediately preceding the Effective Time, in accordance with GAAP, multiplied by (y) the number of Performance Units then held by such holder, less (z) any withholding Taxes as may be required by applicable Law. (d) Notices. At or prior to the Effective Time, the Company shall take all actions necessary to provide notice of the provisions of this Section 4.3 to all holders of Company Options, Restricted Stock, and Performance Units with Parent's prior review and consent (not to be unreasonably withheld or delayed) to the form of such notice. 4.4. Exchange Procedures. (a) Exchange Agent. Promptly after the Effective Time, Parent shall deposit, or shall cause to be deposited, the Merger Consideration with an exchange agent selected by Parent and reasonably satisfactory to the Company (the "Exchange Agent"), for the benefit of the holders of Common Shares (the "Exchange Fund"). (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail to each holder of record of a certificate which represented Common Shares immediately prior to the Effective Time (the "Certificates") (i) a letter of transmittal specifying that delivery shall be effected, and risk of loss and title to such Certificates shall pass, only upon proper delivery of such Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent, such letter of transmittal to be in such form and have such other provisions as Parent shall reasonably determine, and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the consideration described in -8- Section 4.1 and 4.3(b). The Certificates so delivered shall be duly endorsed as the Exchange Agent may require. The Exchange Agent may establish such other reasonable and customary rules and procedures in connection with its duties as it may deem appropriate. After the Effective Time, each holder of Common Shares (other than Excluded Shares and Dissenting Shares) issued and outstanding at the Effective Time shall surrender the Certificates representing such Common Shares to the Exchange Agent together with the letter of transmittal and such other documents as may reasonably be required by the Exchange Agent. Upon surrender of a Certificate, such holder shall be entitled to receive in exchange therefor the consideration provided in Section 4.1 or 4.3(b), as applicable, together with all undelivered dividends or distributions in respect of such Common Shares (without interest thereon) pursuant to Section 4.5, less any withholding of Taxes as may be required by applicable Law, and the Certificate so surrendered shall forthwith be canceled. Subject to the second and third succeeding sentences, Parent shall not be obligated to deliver the consideration to which any former holder of Common Shares is entitled as a result of the Merger until such holder surrenders such holder's Certificates for exchange as provided in this Section 4.4. In the event of a transfer of ownership of Common Shares represented by Certificates that are not registered in the transfer records of the Company, the consideration provided in Section 4.1 or 4.3(b), as applicable, may be issued to a transferee if the Certificates representing such Common Shares are delivered to the Exchange Agent, accompanied by all documents required to evidence such transfer. If payment of the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the Person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. If any Certificate shall have been lost, stolen, mislaid or destroyed, upon receipt of (a) an affidavit of that fact from the holder claiming such Certificate to be lost, mislaid, stolen or destroyed, (b) such bond, security or indemnity as Parent and the Exchange Agent may reasonably require, and (c) any other documents reasonably necessary to evidence and effect the bona fide exchange thereof, the Exchange Agent shall issue to such holder the consideration into which the Common Shares represented by such lost, stolen, mislaid or destroyed Certificate shall have been converted. Any other provision of this Agreement notwithstanding, neither Parent, the Surviving Corporation nor the Exchange Agent shall be liable to a holder of Common Shares for any amounts paid or property delivered in good faith to a public official pursuant to any applicable abandoned property, escheat or similar Law. 4.5. Rights of Former Company Stockholders. At the Effective Time, the stock transfer books of the Company shall be closed as to holders of Common Shares immediately prior to the Effective Time and no transfer of Common Shares by any such holder shall thereafter be made or recognized. Until surrendered for exchange in accordance with the provisions of Section 4.4, each Certificate theretofore representing Common Shares (other than Excluded Shares or Dissenting Shares) shall from and after the Effective Time represent for all purposes only the right to receive the consideration provided in Section 4.1 or 4.3(b), as applicable, in exchange therefor, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time which have been declared or -9- made by the Company in respect of such Common Shares in accordance with the terms of this Agreement and which remain unpaid at the Effective Time. Upon surrender of such Certificate, any undelivered dividends and cash payments payable hereunder (without interest) shall be delivered and paid with respect to each Common Share represented by such Certificate. 4.6. Termination of Exchange Fund. Any holder of Common Shares who has not exchanged his Certificates for the Merger Consideration in accordance with Section 4.1(c) or 4.3(b), as applicable, within one year after the Effective Time shall have no further claim upon the Exchange Agent and shall thereafter look only to Parent for payment in respect of his Common Shares. Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains unclaimed by the stockholders of the Company for one year after the Effective Time shall be paid to Parent. The Exchange Agent shall invest the Exchange Fund, as directed by Parent, on a daily basis. Any interest and other income resulting from such investments shall be paid to Parent. 4.7. Adjustments to Prevent Dilution. Without limiting the provisions of Section 6.1, in the event that prior to the Effective Time the Company changes the number of Common Shares or securities convertible or exchangeable into or exercisable for Common Shares as a result of a reclassification, stock split (including a reverse split), stock dividend or distribution, recapitalization, merger, subdivision or other similar transaction, the Merger Consideration shall be equitably adjusted. 4.8. Merger Without Meeting of Stockholders. In the event that Merger Subsidiary, or any other direct or indirect subsidiary of PLC, shall acquire at least 90 percent of the outstanding Common Shares pursuant to the Tender Offer, the parties hereto shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Tender Offer without a vote of stockholders of the Company, in accordance with Section 253 of the DGCL. ARTICLE V. Representations and Warranties 5.1. Representations and Warranties of the Company. Except as set forth in the corresponding sections or subsections of the disclosure letter delivered to Parent by the Company on or prior to entering into this Agreement (the "Company Disclosure Letter") or in any Company Report (as defined in Section 5.1(e)(i)) filed prior to the date hereof, the Company hereby represents and warrants to Parent and Merger Subsidiary that: (a) Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of organization. Each of the Company and its Subsidiaries has all requisite corporate or similar power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership -10- or operation of its properties or conduct of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, would not have a Company Material Adverse Effect. The Company has made available to Parent a complete and correct copy of the articles or certificate of incorporation and by-laws or other similar governing documents as amended to date (collectively, "Governing Documents") of the Company and each of its Subsidiaries. The Company's and its Subsidiaries' Governing Documents as so made available are in full force and effect. As used in this Agreement, the term (i) "Subsidiary" means, with respect to the Company, PLC, Parent or Merger Subsidiary, as the case may be, any entity, whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is directly or indirectly owned or controlled by such party or by one or more of its respective Subsidiaries or by such party and any one or more of its respective Subsidiaries, and (ii) "Company Material Adverse Effect" means a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole; provided, however, that the term "Company Material Adverse Effect" shall not be deemed to include any (i) fundamental changes in the property and casualty insurance industry in general, (ii) events resulting from changes in general United States or global economic conditions, (iii) changes in GAAP or SAP, or (iv) adverse changes in the Company's financial condition or results of operations following the date hereof as set forth in Section 5.1(a) of the Company Disclosure Letter. The Company conducts its insurance operations through the Subsidiaries set forth in Section 5.1(a) of the Company Disclosure Letter which are identified as insurance companies (collectively, the "Company Insurance Subsidiaries"). Each of the Company Insurance Subsidiaries is (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 most recent Company SAP Statements (as defined in Section 5.1(e)(ii)), except where the failure to be so licensed or authorized would not, individually or in the aggregate, have a Company Material Adverse Effect. The Company has made all required filings under applicable insurance holding company statutes except where the failure to file would not, individually or in the aggregate, have a Company Material Adverse Effect. (b) Capital Structure. The authorized stock of the Company consists of 50,000,000 Common Shares, of which 30,675,300 Common Shares were issued and outstanding and 3,320,037 Common Shares were held by the Company in treasury as of the close of business on July 9, 1999, and 5,000,000 shares of preferred stock, no par value, of which 1,000,000 shares have been authorized as Series B Junior Participating Preferred Stock, none of which are outstanding. All of the outstanding Common Shares have been duly authorized and are validly issued, fully paid and nonassessable. The Company has no commitments to issue or deliver Common Shares, except that, as of July 9, 1999, there were (i) 1,408,066 Common Shares subject to issuance upon exercise of outstanding Company Options pursuant to the Company's -11- Equity Incentive Plan, the 1994 Stock Option Plan For Non-Employee Directors and the 1982 Long-Term Performance Incentive Plan, (ii) 1,546,559 Common Shares reserved for issuance upon exercise of authorized but unissued Company Options and 167,000 shares reserved for issuance as Restricted Stock under the Company Stock Plans, and (iii) 243,157 Common Shares reserved for issuance under the Company's Employee Stock Purchase Plan (the plans in clauses (i) and (iii) are hereinafter collectively referred to as the "Company Stock Plans"). The Company has no commitments to issue or deliver shares of preferred stock, except that as of the date hereof, there were 1,000,000 shares of Series B Junior Participating Preferred Stock subject to issuance pursuant to the Rights Agreement, dated as of September 11, 1996, between the Company and ChaseMellon Shareholder Services, LLC, as Rights Agent (the "Rights Agreement"). Except as set forth in Section 5.1(a) of the Company Disclosure Letter, each of the outstanding shares of capital stock or other securities of each of the Company's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and owned by the Company or a direct or indirect wholly owned Subsidiary of the Company, free and clear of any lien, pledge, security interest, claim or other encumbrance. Except as set forth above and in the Stock Option Agreement, there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements or commitments to issue, sell, repurchase, redeem or otherwise acquire any shares of capital stock or other securities of the Company or any of its Subsidiaries or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire, any securities of the Company or any of its Subsidiaries, and no securities or obligations evidencing such rights are authorized, issued or outstanding. There are no outstanding contractual obligations of the Company to vote any shares of the capital stock of any of its Subsidiaries. The Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter. For purposes of this Agreement, the term "Person" shall mean any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature. (c) Corporate Authority; Approval and Fairness. (i) The Company has the requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and the Stock Option Agreement and to consummate the Merger, subject only to approval of the Merger by the holders of at least a majority of the outstanding Common Shares, if applicable (the "Company Requisite Vote"). This Agreement and the Stock Option Agreement are the valid and binding agreements of the Company enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors' rights and to general equity principles (the "Bankruptcy and Equity Exception"). (ii) The board of directors of the Company (at a meeting duly called and held) has by the requisite vote of all directors present (A) declared that the Agreement, the Stock Option Agreement, the Tender Offer, the Merger and the other transactions contemplated hereby and thereby are advisable and fair and in the best interests of the Company and its stockholders, (B) -12- authorized, approved and adopted the Agreement, the Stock Option Agreement, the Tender Offer, the Merger and the other transactions contemplated hereby and thereby, (C) recommended that the shareholders of the Company accept the Tender Offer and tender their Common Shares, (D) recommended the approval of this Agreement and the Merger by the holders of the Common Shares and directed that the Merger be submitted for consideration by the Company's stockholders at the Stockholders Meeting (as defined in Section 6.4) (if applicable) and (E) received the opinion of the Company Financial Advisor to the effect that the Per Share Purchase Price to be received by the holders of the Common Shares in the Tender Offer and the Merger, taken together, is fair from a financial point of view to such holders. (d) Governmental Filings; No Violations. (i) Other than the filings and/or notices (A) pursuant to Section 1.3, (B) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the Exchange Act as amended, (C) required to be made with the New York Stock Exchange ("NYSE"), and (D) the filing of appropriate documents with, and approval of, the respective Commissioners of Insurance or similar regulatory authorities of the states set forth in Section 5.1(d) of the Company Disclosure Letter and such notices and consents as may be required under the antitrust notification or insurance Laws of any state or country in which the Company, Parent or any of their respective subsidiaries is domiciled or does business, no notices, reports or other filings are required to be made by the Company with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any foreign or domestic governmental or regulatory authority, agency, commission, legislature, body or other governmental entity ("Governmental Entity"), in connection with the execution and delivery of this Agreement and the Stock Option Agreement by the Company and the consummation by the Company of the Merger and the other transactions contemplated hereby and thereby, except those that the failure to make or obtain would not, individually or in the aggregate, (i) have a Company Material Adverse Effect, (ii) prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement or the Stock Option Agreement or (iii) materially impair the ability of any Parent Company, (including the Company following the Effective Time), to conduct its business in the manner as such business is now being conducted. (ii) Subject to the approval, if necessary, of the Merger by the Company's stockholders in accordance with the DGCL and assuming the consents, approvals, authorizations or permits and filings or notifications referred to in Section 5.1(d)(i) are duly and timely obtained or made, the execution, delivery and performance of this Agreement and the Stock Option Agreement by the Company do not, and the consummation by the Company of the Merger and the other transactions contemplated hereby and thereby will not, constitute or result in (A) a breach or violation of, or a default under, any Governing Document of the Company or any of its Subsidiaries, (B) a breach or violation of, a default under, the right of cancellation, termination or acceleration by another Person of, or the creation of a lien, pledge, security interest or other encumbrance on the properties or assets of the Company or any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to, any agreement, lease, contract, note, mortgage, indenture, arrangement or other obligation ("Contract") binding upon the Company or any of its Subsidiaries or (C) a violation of any Law (as defined in Section 5.1(i)) or governmental or non-governmental permit or license to which the Company or any of its Subsidiaries is subject, except, in the case, of clause (B) or (C) above, for any breach, violation, default, acceleration, creation or -13- change that, individually or in the aggregate, would not (i) have a Company Material Adverse Effect, (ii) prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement or the Stock Option Agreement or (iii) materially impair the ability of any Parent Company, (including the Company following the Effective Time), to conduct its business in the manner as such business is now being conducted. Neither the Company nor any of its Subsidiaries is a party to any contract pursuant to which consents or waivers are or may be required of any other Person in connection with the execution and delivery of this Agreement and the Stock Option Agreement by the Company or the performance by the Company of its obligations hereunder and thereunder, except where the failure to obtain any such consent or waiver would not, individually or in the aggregate, have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated hereby and thereby. (e) Company Reports; Financial Statements. (i) The Company has delivered to Parent each registration statement, report, proxy statement or information statement prepared by it since December 31, 1996 including (A) the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "Audit Date"), and (B) the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1999 in the form (including exhibits, annexes and any amendments thereto) filed with the SEC (collectively, including any such reports filed subsequent to the date hereof, the "Company Reports"). As of their respective dates, the Company Reports complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and did not, and any Company Reports filed with the SEC subsequent to the date hereof will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. The financial statements of the Company included in the Company Reports comply in all material respects as to form with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents, or will fairly present, the consolidated financial position of the Company and its Subsidiaries as of its date and each of the consolidated statements of income and of changes in financial position included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents, or will fairly present, the results of operations, retained earnings and changes in financial position, as the case may be, of the Company and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to the failure to include all required notes thereto and normal year-end audit adjustments that will not be material in amount or effect), in each case prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except as may be noted therein. (ii) Each of the Company Insurance Subsidiaries has filed all annual and quarterly statements for the periods beginning January 1, 1996, including all exhibits, interrogatories, notes, schedules and any actuarial opinions, affirmations or certifications or other supporting documents required to be filed in connection therewith, required to be filed with or submitted to the appropriate regulatory authorities of the jurisdiction in which it is domiciled or commercially domiciled on forms prescribed or permitted by such authority (collectively, including any such -14- annual or quarterly statements filed subsequent to the date hereof, the "Company SAP Statements"). The Company has delivered to Parent all Company SAP Statements for each Company Insurance Subsidiary each in the form (including exhibits, annexes and any amendments thereto) filed with the applicable domiciliary state insurance regulatory agency. All of the Company SAP Statements for the period beginning January 1, 1998 and Company SAP Statements for the periods beginning January 1, 1996 for the Company Insurance Subsidiaries set forth in Section 5.1(e)(ii) of the Company Disclosure Letter (such Company SAP Statements being collectively referred to herein as the "Company Prepared SAP Statements") were (or will be) prepared in conformity with statutory accounting practices prescribed or permitted by the applicable insurance regulatory authority ("SAP") consistently applied for the periods covered thereby, were prepared in accordance with the books and records of the Company or the Company Insurance Subsidiary, as the case may be, and present (or will present) fairly the statutory financial position of such Company Insurance Subsidiaries as at the respective dates thereof and the results of operations of such Subsidiaries for the respective periods then ended. The Company Prepared SAP Statements complied (or will comply) in all material respects with all applicable Laws, rules and regulations when filed, and no material deficiency has been asserted with respect to any Company Prepared SAP Statements by the applicable insurance regulatory body or any other governmental agency or body. Except as indicated therein, all assets that are reflected on the Company Prepared SAP Statements comply with all applicable foreign, federal, state and local statutes and regulations regulating the business and products of insurance and all applicable Insurance Laws (as defined in Section 5.1(i)) with respect to admitted assets and are in an amount at least equal to the minimum amounts required by Insurance Laws. The statutory balance sheets and income statements included in the Company Prepared SAP Statements have been audited by independent certified public accountants, and the Company has made available to Parent true and complete copies of all audit opinions related thereto. The Company has made available to Parent true and complete copies of all financial examination reports of insurance departments and any insurance regulatory agencies since January 1, 1996 relating to the Company Insurance Subsidiaries and a list of all pending market conduct examinations. (f) Absence of Certain Changes. Except as disclosed in the Company Reports filed prior to the date hereof or otherwise set forth in Section 5.1(f) of the Company Disclosure Letter, since the Audit Date and prior to the date hereof the Company and its Subsidiaries have conducted their businesses only in the ordinary and usual course of such businesses and there has not been (i) any change, event or circumstance which, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect; (ii) any material damage, destruction or other casualty loss with respect to any material tangible asset or property owned, leased or otherwise used by the Company or any of its Subsidiaries, whether or not covered by insurance; (iii) any declaration, setting aside or payment of any dividend or other distribution in respect of the stock of the Company, except for regular quarterly cash dividends on its Common Shares publicly announced prior to the date hereof; (iv) any material change by the Company in accounting principles, practices or methods other than those required by GAAP or SAP; (v) any material addition, or any development involving a prospective material addition, to the Company's aggregate reserves for future policy benefits or other policy claims and benefits; or (vi) any change in the accounting, actuarial, investment, reserving, underwriting or claims administration policies, practices, procedures, methods, assumptions or principles of any -15- Company Insurance Subsidiary that is material to the Company and its Subsidiaries, taken as a whole. Since the Audit Date, except as provided for herein, or as set forth in Section 5.1(f) of the Company Disclosure Letter, or as disclosed in the Company Reports filed prior to the date hereof, there has not been any increase in the compensation payable or that could become payable by the Company or any of its Subsidiaries to any of the top 12 most highly compensated employees or any amendment of any of the Compensation and Benefit Plans (as defined in Section 5.1(h)(i)) other than increases or amendments in the ordinary course and increases or amendments approved by Parent. (g) Litigation. Except as specifically disclosed in the Company Reports filed prior to the date hereof, there are no civil, criminal or administrative actions, suits, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, directors or officers, except for those that would not, individually or in the aggregate, have a Company Material Adverse Effect or prevent or materially burden or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement or by the Stock Option Agreement. (h) Employee Benefits. (i) Section 5.1(h) of the Company Disclosure Letter contains a partial list of the Company's material bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock, stock option, employment, termination, severance, change of control, compensation, medical, health or other plan, agreement, policy or arrangement that covers any employees, directors, former employees or former directors of the Company or any of its Subsidiaries including the principal terms of the Stay Bonus Plan approved by the board of directors of the Company. (This list, together with all other such plans, arrangements and the like, is hereinafter referred to as the "Compensation and Benefit Plans.") The Compensation and Benefit Plans or any amendments to any Compensation and Benefit Plans not delivered to Parent do not, individually or in the aggregate, have undisclosed liabilities in any material amount. (ii) All Compensation and Benefit Plans are in substantial compliance with all applicable Law, including the Internal Revenue Code of 1986, as amended (together with all regulations promulgated thereunder, the "Code"), and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Each Compensation and Benefit Plan that is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (the "IRS"), and the Company has no knowledge of any circumstances reasonably likely to result in revocation of any such favorable determination letter. There is no pending or, to the knowledge of the Company, threatened material litigation relating to the Compensation and Benefit Plans. Neither the Company nor any of its Subsidiaries has engaged in a transaction with respect to any Compensation and Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, would subject the Company or any of its Subsidiaries to a material tax or penalty imposed by either Section 4975 of the Code or Section 502 of ERISA. (iii) No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by the Company or any Subsidiary with respect to any ongoing, frozen or terminated -16- "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"). The Company and its ERISA Affiliates have not contributed, or been obligated to contribute, to a multiemployer plan under Subtitle E of Title IV of ERISA at any time since September 26, 1980. No notice of a "reportable event," within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan by the Company or any ERISA Affiliate. (iv) All contributions required to be made under the terms of any Compensation and Benefit Plan as of the date hereof have been timely made or have been reflected on the most recent consolidated balance sheet included or incorporated by reference in the Company Reports filed prior to the date hereof. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither the Company nor its Subsidiaries has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. (v) Neither the Company nor its Subsidiaries have any obligations for retiree health or life benefits under any Compensation and Benefit Plan, except as set forth in the Company Disclosure Letter. (vi) Except as described in Section 5.1(h)(vi) of the Company Disclosure Letter or as provided in this Agreement, the consummation of the Merger and the other transactions contemplated by this Agreement, either alone or in connection with a subsequent termination of employment, will not (x) entitle any employees of the Company or its Subsidiaries to severance pay, or (y) accelerate the time of payment or vesting or trigger any payment of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Compensation and Benefit Plans. (vii) All Compensation and Benefit Plans covering current or former non-U.S. employees or former employees of the Company and its Subsidiaries comply in all material respects with applicable Law. The Company and its Subsidiaries have no material unfunded liabilities with respect to any employee benefit plan that covers such non-U.S. employees. (viii) Except as provided in Section 5.1(h)(viii) of the Company Disclosure Letter, no amount that could be received (whether in cash, options or property, or as a result of the vesting of cash, options or property) by any employee, officer, director or independent contractor of the Company who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) will be treated as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code). (ix) All Compensation and Benefit Plans that are indicated as frozen in Section 5.1(h) of the Company Disclosure Letter have been properly amended to freeze participation and discontinue benefit accruals and notices, if required, were timely provided to participants. -17- (i) Compliance with Laws; Permits. (i) The business and operations of the Company, and the Company Insurance Subsidiaries, have been conducted in compliance with all applicable domestic and foreign statutes, regulations and rules regulating the business of insurance and all applicable orders and directives of insurance regulatory authorities and market conduct recommendations resulting from market conduct examinations of insurance regulatory authorities (collectively, "Insurance Laws"), except where the failure to so conduct such business and operations would not, individually or in the aggregate, have a Company Material Adverse Effect. Notwithstanding the generality of the foregoing, each Company Insurance Subsidiary has marketed, sold and issued insurance products in compliance, in all material respects, with Insurance Laws applicable to the business of such Company Insurance Subsidiary in the respective jurisdictions in which such products have been sold, including, without limitation, in compliance with all applicable prohibitions against "redlining" or withdrawal of business lines. In addition, the Company has no knowledge that its agents have not marketed, sold and issued insurance products in compliance, in all material respects, with Insurance Laws applicable to the business of the Company Insurance Subsidiaries in the respective jurisdictions in which such products have been sold, including, without limitation, in compliance with all applicable prohibitions against "redlining" or withdrawal of business lines. In addition, (i) none of the Company Insurance Subsidiaries is subject to any order or decree of any insurance regulatory authority relating specifically to such Company Insurance Subsidiary (as opposed to insurance companies generally); and (ii) each of the Company Insurance Subsidiaries has filed all reports required to be filed with any insurance regulatory authority on or before the date hereof as to which the failure to file such reports would, individually or in the aggregate, have a Company Material Adverse Effect. (ii) In addition to Insurance Laws, except as set forth in the Company Reports filed prior to the date hereof, the businesses of each of the Company and its Subsidiaries have not been, and are not being, conducted in violation of any federal, state, local or foreign law, statute, ordinance, rule, regulation judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity (collectively with Insurance Laws, "Laws"), except for violations or possible violations that would not, individually or in the aggregate, have a Company Material Adverse Effect or prevent or materially burden or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement or the Stock Option Agreement. No material change is required in the Company's or any of its Subsidiaries' processes, properties or procedures in connection with any applicable Laws, and the Company has not received any notice or communication of any material noncompliance with any such Laws that has not been cured as of the date hereof. The Company and its Subsidiaries each has all permits, licenses, trademarks, patents, trade names, copyrights, service marks, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct its business as presently conducted except those the absence of which would not, individually or in the aggregate, have a Company Material Adverse Effect. (j) Takeover Statutes. The Company has taken all actions necessary such that no restrictive provision of any "fair price," "moratorium," "control share acquisition," "interested shareholder" or other similar anti-takeover statute or regulation (including, without limitation, Section 203 of the DGCL) (each a "Takeover Statute") or restrictive provision of any applicable -18- anti-takeover provision in the Governing Documents of the Company is, or at the Effective Time will be, applicable to the Company, Parent, PLC, the Common Shares, the Tender Offer, the Merger or any other transaction contemplated by this Agreement or the Stock Option Agreement. (k) Environmental Matters. Except as disclosed in the Company Reports filed prior to the date hereof and except for such matters as are not, individually or in the aggregate, reasonably likely to have a Company Material Adverse Effect or as set forth in Section 5.1(k) to the Company Disclosure Letter: (i) to the knowledge of the Company, there are no liabilities of the Company or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined or otherwise arising or relating to any Environmental Law, and there are no facts, conditions, situations or set of circumstances that would reasonably be expected to result in or be the basis for any such liability; (ii) neither the Company nor any of its Subsidiaries has received any notice, demand, letter, claim or request for information alleging that the Company or any of its Subsidiaries may be in violation of or liable under any Environmental Law; or (iii) neither the Company nor any of its Subsidiaries is subject to any orders, decrees, injunctions or other written arrangements with any Governmental Entity relating to liability under any Environmental Law or relating to Hazardous Substances. As used herein, the term "Environmental Law" means any federal, state, local or foreign law, statute, ordinance, regulation, judgment, order, decree, arbitration award, relating to: (A) the protection, investigation or restoration of the environment, health and safety, wildlife or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (C) noise, odor, wetlands, pollution or environmental contamination. As used herein, the term "Hazardous Substance" means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law or (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint, polychlorinated biphenyls, radioactive materials or radon. (l) Taxes. Except as set forth in Section 5.1(l) of the Company Disclosure Letter or except for such matters as would not, individually or in the aggregate, have a Company Material Adverse Effect: (i) the Company and each of its Subsidiaries have (w) filed all Tax Returns (as defined below) that are required by all applicable Laws to be filed by them, and such Tax Returns are correct and complete or requests for extensions to file such Tax Returns have been properly obtained and have not expired, (x) paid (or the Company has paid on its behalf) all Taxes shown as due on such Tax Returns, (y) paid, or made adequate provision for the payment of, all Taxes payable by the Company and each of its Subsidiaries, including all estimated Taxes due, and (z) paid all other deficiencies or other claims for Taxes received to date other than those deficiencies or claims for Taxes being contested in good faith for which adequate provision has been made on the most recent balance sheet included in the Company Reports; (ii) all Taxes which the Company and its Subsidiaries are required by Law to withhold and collect have been duly withheld and collected, and have been paid over, in a timely manner, to the proper Taxing Authorities (as defined below) to the extent due and payable; -19- (iii) neither the Company nor any of its Subsidiaries have executed any written waiver to extend the applicable statute of limitations in respect of any Tax liabilities of the Company or its Subsidiaries; (iv) neither the Company nor any of its Subsidiaries is a party to any tax sharing agreement or arrangement, other than between or among the Company and its Subsidiaries; (v) all of the federal income Tax Returns filed by or on behalf of each of the Company and its Subsidiaries have been examined by and settled with the IRS or the statute of limitations with respect to the relevant Tax liability has expired, for all taxable periods through and including the period ended on December 31, 1994; (vi) all Taxes of the Company and its Subsidiaries due with respect to any completed audit, examination or deficiency litigation with any Taxing Authority have been paid in full; (vii) there is no suit, claim, dispute, audit, deficiency or refund litigation pending with respect to Taxes of the Company or any of its Subsidiaries (A) that has a reasonable possibility of being resolved in a manner adverse to the Company or any of its Subsidiaries and (B) for which adequate provision has not been made on the most recent balance sheet included in the Company Reports; (viii) none of the Company or any of its Subsidiaries is bound by any currently effective private ruling, closing agreement or similar agreement with any Taxing Authority relating to a material amount of Taxes; (ix) none of the Company or any of its Subsidiaries is a "consenting corporation" within the meaning of Section 341(f) of the Code; (x) any liability of the Company or any of its Subsidiaries for Taxes not yet due and payable have been provided for on the most recent balance sheet included in the Company Reports, in accordance with GAAP; and (xi) the Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. As used in this Agreement, (A) the term "Tax" (including, with correlative meaning, the terms "Taxes" and "Taxable") shall mean, with respect to any Person, (a) all taxes, domestic or foreign, including without limitation any income (net, gross or other, including recapture of any tax items such as investment tax credits), alternative or add-on minimum tax, gross income, gross receipts, premium, gains, sales, use, ad valorem, transfer, recording, franchise, profits, property (real or personal, tangible or intangible), fuel, license, withholding (whether on amounts paid to or by such Person), payroll, employment, unemployment, social security, excise, severance, stamp, occupation, or environmental tax, customs duties, or other assessments or governmental charges of any kind whatsoever, together with any interest, penalties, additions or additional amounts imposed with respect thereto (including, without limitation, penalties for failure to file Tax Returns, or interest on such amounts), (b) any joint or several liability of such Person with any -20- other Person for the payment of any amounts of the type described in clause (a) hereof, including as a result of being, or having been at any time, a member of an affiliated, consolidated, combined or unitary group, and (c) any liability of such Person for the payment in respect of any amounts of the type described in (a) as a result of any express or implied obligation to reimburse or indemnify any other Person, including pursuant to any tax sharing agreement or tax indemnity arrangement; (B) the term "Tax Return(s)" shall mean all reports, statements and returns, consolidated, combined, unitary or otherwise (including without limitation information returns), required to be filed with any Taxing Authority; and (C) the term "Taxing Authority" shall mean any Governmental Entity responsible for the imposition, collection or administration of any Tax. (m) Labor Relations and Employment. (i) Except as set forth in Section 5.1(m) of the Company Disclosure Letter or as would not have a Company Material Adverse Effect, (a) to the best of the Company's knowledge, the Company or its Subsidiaries are in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) the Company or its Subsidiaries have not received written notice of any investigation, charge or complaint against the Company or its Subsidiaries pending before the Equal Employment Opportunity Commission, the National Labor Relations Board, or any other governmental agency or court or other tribunal regarding an unlawful employment practice; (c) there are no complaints, lawsuits or other proceedings pending, or to the best of the Company's knowledge, threatened by or on behalf of any present or former employee of the Company, or any of its Subsidiaries alleging breach of any express or implied contract of employment; (d) the Company or its Subsidiaries have not received notice that any representation petition respecting the employees of the Company or its Subsidiaries has been filed with the National Labor Relations Board; (e) the Company or its Subsidiaries are and have been in substantial compliance with all notice and other requirements under the Worker Adjustment and Retaining Notification Act or similar state statute. The Company or its Subsidiaries are not party to any collective bargaining agreement and there is no labor strike, slowdown or stoppage actually pending or threatened against or affecting the Company and its Subsidiaries. (ii) The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company or any of its Subsidiaries, nor does the Company have a present intention to terminate the employment of any of the foregoing. (n) Intellectual Property; Year 2000. (i) The Company and/or each of its Subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, technology, know-how, computer software programs or applications, and tangible or intangible proprietary information or materials that are used in the business of the Company and its Subsidiaries as currently conducted, except for any such failures to own, be licensed or possess that would not, individually or in the aggregate, have a Company Material Adverse Effect, and to the knowledge of the Company all patents, trademarks, trade names, service marks and copyrights owned by the Company and/or its Subsidiaries are valid and subsisting. -21- (ii) All computer systems and computer software used by the Company or any of its Subsidiaries which the Company expects to be using after December 31, 1999 (A) recognize or are being adapted so that, prior to December 31, 1999, they shall recognize the advent of the year A.D. 2000 without any adverse change in operation associated with such recognition, (B) can correctly recognize or are being adapted so that they can correctly recognize and manipulate date information relating to dates before, on or after January 1, 2000, including but not limited to accepting date input, performing calculations on dates or portion of dates and providing date output, and the operation and functionality of such computer systems and such computer software will not be adversely affected by the advent of the year A.D. 2000 or any manipulation of data featuring information relating to dates before, on or after January 1, 2000, and (C) can suitably interact with other computer systems and computer software in a way that does not compromise (y) its ability to correctly recognize the advent of the year A.D. 2000 or (z) its ability to correctly recognize and manipulate date information relating to dates before, on or after January 1, 2000 (the operations of clauses (A), (B) and (C) together, "Millennium Functionality"), except in each case for such computer systems and computer software, the failure of which to achieve Millennium Functionality would not, individually or in the aggregate, have a Company Material Adverse Effect. As of the date hereof, the future costs in excess of those disclosed in the Company Reports of the adaptions necessary to achieve Millennium Functionality would not, individually or in the aggregate, have a Company Material Adverse Effect. The Company is in compliance with all applicable state insurance department requests for "Year 2000" filings. The Company reasonably believes, after due inquiry, that the suppliers, vendors, customers or other material third parties used or served by the Company and its Subsidiaries are addressing or will address Millennium Functionality in a timely manner, except to the extent that a failure to address Millennium Functionality by any supplier, vendor, customer or material third party would not, individually or in the aggregate, have a Company Material Adverse Effect. (o) Material Contracts. Other than Contracts of the Company and its Subsidiaries that are required to be filed and have been filed as exhibits to the Company Reports, there are no Contracts that are material to the business, financial position or results of operations of the Company. Each material Contract is valid, binding and enforceable against the Company in accordance with its terms and is in full force and effect. True and complete copies of all such material Contracts have been delivered or have been made available by the Company to Parent. Neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any other party is in breach of or in default under any such Contract, and to the knowledge of the Company, no event has occurred which, with due notice or lapse of time or both, would constitute such a breach or default, except for such breaches, defaults and events as would not, individually or in the aggregate, have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries is party to any agreement containing any provision or covenant limiting in any respect the ability of the Company or any of its Subsidiaries or, assuming the consummation of the transactions contemplated by this Agreement, Parent or any of its Subsidiaries, to (i) sell any products or services of or to any other person, (ii) engage in any line of business or (iii) compete with or to obtain products or services from any Person or limiting the ability of any Person to provide products or services to the Company or any of its Subsidiaries. (p) Rights Plan. (i) The Company has taken all actions necessary such that, for all purposes under the Rights Agreement, Parent shall not be deemed an Acquiring Person (as -22- defined in the Rights Agreement), the Distribution Date (as defined in the Rights Agreement) shall not be deemed to occur, and the rights issuable pursuant to the Rights Agreement (the "Rights") will not separate from the Common Shares, as a result of Parent's entering into this Agreement, or the Stock Option Agreement or consummating the Tender Offer, the Merger and/or the other transactions contemplated hereby or thereby. (ii) The Company has taken all necessary action with respect to all of the outstanding Rights so that, as of immediately prior to the Effective Time and immediately prior to the consummation of the Tender Offer, (A) neither the Company nor PLC will have any obligations under the Rights or the Rights Agreement and (B) the holders of Rights will have no rights under the Rights or the Rights Agreement. (q) Title to Assets; Liens. The Company and the Subsidiaries, have good and marketable title to all of their respective premium balances receivable, property, equipment and other assets, and such assets are free and clear of any mortgages, liens, charges, encumbrances, or title defects of any nature whatsoever, except for (i) such mortgages, liens, charges, encumbrances or title defects which would not, individually or in the aggregate, have a Company Material Adverse Effect and (ii) liens for Taxes not yet due or payable or that are being contested in good faith. The Company and the Subsidiaries have valid and enforceable leases for the material premises and the equipment, furniture and fixtures purported to be leased by them. (r) Insurance Matters. (i) Except as otherwise would not, individually or in the aggregate, have a Company Material Adverse Effect, all policies, binders, slips, certificates, annuity contracts and participation agreements and other agreements of insurance, whether individual or group, in effect as of the date hereof (including all applications, supplements, endorsements, riders and ancillary agreements in connection therewith) that are issued by the Company Insurance Subsidiaries (the "Company Insurance Contracts") and any and all marketing materials, are, to the extent required under applicable Law, on forms approved by applicable insurance regulatory authorities or which have been filed and not objected to by such authorities within the period provided for objection, and such forms comply in all material respects with all Insurance Laws applicable thereto and, as to premium rates established by the Company or any Company Insurance Subsidiary which are required to be filed with or approved by insurance regulatory authorities, the rates have been so filed or approved, the premiums charged conform thereto in all material respects, and such premiums comply in all material respects with all Insurance Laws applicable thereto. (ii) All reinsurance and coinsurance treaties or agreements, including retrocessional agreements, to which the Company or any Company Insurance Subsidiary is a party or under which the Company or any Company Insurance Subsidiary has any existing rights, obligations or liabilities are in full force and effect, except for such treaties or agreements the failure to be in full force and effect of which would not, individually or in the aggregate, have a Company Material Adverse Effect. Neither the Company nor any Company Insurance Subsidiary, nor, to the knowledge of the Company, any other insurer or reinsurer which is party to a reinsurance or coinsurance treaty or agreement to which the Company or any Company Insurance Subsidiary is a party, is in default in any material respect as to any provision thereof, and no such agreement contains any provision providing that such other party thereto may terminate such agreement by -23- reason of the transactions contemplated by this Agreement. The Company has not received any notice to the effect that the financial condition of any other insurer or reinsurer which is party to any such agreement is impaired with the result that a default thereunder may reasonably be anticipated, whether or not such default may be cured by the operation of any offset clause in such agreement. No insurer or reinsurer or group of affiliated insurers or reinsurers accounted for the direction to the Company and the Company Insurance Subsidiaries or the ceding by the Company and the Company Insurance Subsidiaries of insurance or reinsurance business in an aggregate amount equal to five percent or more of the consolidated gross premium income of the Company and the Company Insurance Subsidiaries for the year ended December 31, 1998. The Company SAP Statements accurately reflect the extent to which, pursuant to Insurance Laws, rules and regulations, the Company is entitled to take credit for such reinsurance. (iii) Prior to the date hereof, the Company has delivered or made available to Parent a true and complete copy of the actuarial reports set forth in Section 5.1(r)(iii) of the Company Disclosure Letter (the "Company Actuarial Analyses"). The information and data furnished by the Company or any Company Insurance Subsidiary to its independent actuaries in connection with the preparation of the Company Actuarial Analyses was accurate and responsive to their requests in all material respects. Furthermore, to the knowledge of the Company, each Company Actuarial Analysis was based upon an accurate inventory of policies in force for the Company and the Company Insurance Subsidiaries, as the case may be, at the relevant time of preparation. Except as set forth in Section 5.1(r)(iii) of the Company Disclosure Letter, there has not been an independent actuarial report completed on the Company since December 31, 1996. (iv) None of Standard & Poor's Corporation, Moody's Investors Service, Inc. or A.M. Best Company has announced that it presently has under surveillance or review its rating of the financial strength or claims-paying ability of any Company Insurance Subsidiary other than normal annual reviews. (s) Liabilities and Reserves. (i) The reserves for incurred losses, incurred loss adjustment expenses, incurred but not reported losses and loss adjustment expenses for incurred but not reported losses carried on the Company SAP Statements of each Company Insurance Subsidiary 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 Insurance Subsidiary, were determined in all material respects in accordance with generally accepted actuarial standards and principles consistently applied, were based on actuarial assumptions that were in accordance with or stronger than those called for in relevant policy and contract provisions and were fairly stated in all material respects in accordance with sound actuarial and statutory accounting principles. (ii) 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 claim or assessment is pending or, to the knowledge of the Company, threatened against any Company Insurance Subsidiary which is peculiar or unique to such Company Insurance Subsidiary by any state insurance guaranty association in connection with such association's fund relating to insolvent insurers which if determined adversely, would, individually or in the aggregate, have a Company Material Adverse Effect. -24- (t) Brokers and Finders. Neither the Company nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders fees in connection with the Tender Offer or the other transactions contemplated in this Agreement except that the Company has employed Donaldson, Lufkin & Jenrette Securities Corporation as its financial advisor, the arrangements with which have been disclosed to Parent prior to the date hereof. 5.2. Representations and Warranties of Parent and Merger Subsidiary. Parent and Merger Subsidiary each hereby represent and warrant to the Company that: (a) Capitalization of Merger Subsidiary. The authorized stock of Merger Subsidiary consists of 1,000 shares of common stock, par value $.01 per share ("Merger Subsidiary Common Stock"), all of which are duly authorized, validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding stock of Merger Subsidiary is, and at the Effective Time will be, owned by Parent or a wholly owned Subsidiary of Parent, and there are (i) no other shares of stock or voting securities of Merger Subsidiary, (ii) no securities of Merger Subsidiary convertible into or exchangeable for shares of stock or voting securities of Merger Subsidiary and (iii) no options or other rights to acquire from Merger Subsidiary, and no obligations of Merger Subsidiary to issue or deliver, any stock, voting securities or securities convertible into or exchangeable for stock or voting securities of Merger Subsidiary, except securities that may be delivered to Parent. Merger Subsidiary has not conducted any business prior to the date hereof and has no, and prior to the Effective Time will have no, assets, liabilities or obligations of any nature other than those incident to its formation and pursuant to this Agreement and the Merger and the other transactions contemplated by this Agreement. (b) Organization, Good Standing and Qualification. Each of Parent and Merger Subsidiary is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership or operation of its properties or conduct of its business requires such qualification, except where the failure to be so qualified or in such good standing, would not, individually or in the aggregate, have a Parent Material Adverse Effect. As used in this Agreement, the term "Parent Material Adverse Effect" means a material adverse effect that is reasonably likely to prevent, materially delay or materially impair the ability of Parent or Merger Subsidiary to consummate the transactions contemplated by this Agreement. (c) Corporate Authority. Each of Parent and Merger Subsidiary has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate the Tender Offer and the Merger. This Agreement is a valid and binding agreement of Parent and Merger Subsidiary, enforceable against each of Parent and Merger Subsidiary in accordance with its terms, subject to the Bankruptcy and Equity Exception. (d) Governmental Filings; No Violations. (i) Other than the filings and/or notices (A) pursuant to Section 1.3, (B) under the HSR Act and the Exchange Act, (C) required to be made -25- with the NYSE or the London Stock Exchange, and (D) the filing of appropriate documents with, and approval of, the respective Commissioners of Insurance or similar regulatory authorities of the states set forth in Section 5.1(d) of the Company Disclosure Letter and such notices and consents as may be required under the antitrust notification or insurance Laws of any state or country in which the Company, Parent or any of their respective subsidiaries is domiciled or does business, no notices, reports or other filings are required to be made by Parent or Merger Subsidiary with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Parent or Merger Subsidiary from, any Governmental Entity, in connection with the execution and delivery of this Agreement by Parent and Merger Subsidiary and the consummation by Parent and Merger Subsidiary of the Merger and the other transactions contemplated hereby, except those that the failure to make or obtain would not, individually or in the aggregate, have a Parent Material Adverse Effect. (ii) The execution, delivery and performance of this Agreement by Parent and Merger Subsidiary do not, and the consummation by Parent and Merger Subsidiary of the Merger and the other transactions contemplated hereby will not, constitute or result in (A) a breach or violation of, or a default under, the Governing Documents of Parent and Merger Subsidiary or the comparable governing instruments of any of its Subsidiaries, (B) a breach or violation of, a default under, the right of cancellation, termination or acceleration by another Person or the creation of a lien, pledge, security interest or other encumbrance on the assets of Parent or any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to, any Contracts binding upon Parent or any of its Subsidiaries or (C) any Law or governmental or non-governmental permit or license to which Parent or any of its Subsidiaries is subject, except, in the case of clause (B) or (C) above, for a breach, violation, default, acceleration, creation or change that would not, individually or in the aggregate, have a Parent Material Adverse Effect. (e) Financing. Parent has, or will have prior to the Closing Date, sufficient cash, available lines of credit or other sources of immediately available funds to enable it to make the aggregate cash payments required to be paid pursuant to the Tender Offer and Section 4.1 and any other amounts to be paid by it hereunder. (f) Share Ownership. PLC, Parent, Merger Subsidiary and their respective Subsidiaries beneficially do not own in the aggregate more than 3.5% of the outstanding Common Shares. (g) Brokers or Finders. Neither Parent, PLC nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders fees in connection with the Tender Offer or the other transactions contemplated in this Agreement except that Parent or an affiliate of Parent has employed Salomon Smith Barney Inc. as its financial advisor. -26- ARTICLE VI. Covenants 6.1. Interim Operations. Except as set forth in Section 6.1 of the Company Disclosure Letter, the Company covenants and agrees as to itself and its Subsidiaries that, after the date hereof and prior to the Effective Time (unless Parent shall otherwise approve in writing, and except as otherwise expressly contemplated by this Agreement or the Stock Option Agreement): (a) its and its Subsidiaries' businesses shall be conducted only in the ordinary and usual course (it being understood and agreed that nothing contained herein shall permit the Company to enter into or engage in (through acquisition, product extension or otherwise) the business of selling any products or services materially different from existing products or services of the Company and its Subsidiaries or to enter into or engage in new lines of business (as such term is defined in the National Association of Insurance Commissioner's instructions for the preparation of the annual statement form) without Parent's prior written approval); (b) to the extent consistent with (a) above, it and each of its Subsidiaries shall use its respective reasonable best efforts to preserve its business organization intact and maintain its existing relations and goodwill with customers, suppliers, reinsurers, distributors, creditors, lessors, employees and business associates; (c) it shall not (i) amend any Governing Document or amend, modify or terminate the Rights Agreement; (ii) split, combine or reclassify its outstanding shares of capital stock; (iii) authorize, declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock other than dividends from its wholly owned Subsidiaries and other than regular quarterly dividends paid by the Company on its Common Shares not in excess of $0.18 per share, with usual record and payment dates and in accordance with the Company's past dividend policy; or (iv) repurchase, redeem or otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise acquire, any shares of its stock or any securities convertible into or exchangeable or exercisable for any shares of its stock; (d) neither it nor any of its Subsidiaries shall (i) issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire any shares, of its or any Subsidiary's capital stock of any class or any other property or assets (other than Common Shares issuable pursuant to options outstanding on the date hereof under any of the Company Stock Plans); (ii) other than in the ordinary and usual course of business, transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any other property or assets (including capital stock of any of its Subsidiaries) or incur or modify any material indebtedness or other liability; or (iii) except as set forth in Section 6.1(d) of the Company Disclosure Letter, make or authorize or commit for any capital expenditures, including entering into capital lease obligations, other than in amounts not exceeding $1,000,000 in the aggregate or, by any means, make any acquisition of, or -27- investment in, assets or stock of any other Person or entity, including by way of assumption reinsurance, in excess of $1,000,000 individually or $5,000,000 in the aggregate (other than in connection with ordinary course investment activities); (e) neither it nor any of its Subsidiaries shall terminate, establish, adopt, enter into, make any new grants or awards under, amend or otherwise modify, any Compensation and Benefit Plans including the Stay Bonus Plan, or increase the salary, wage, bonus or other compensation of any employees except increases occurring in the ordinary and usual course of business (which shall include normal periodic performance reviews and related compensation and benefit increases) or promote any employee into any of bands 1, 2, 3 or 4, or from one of such bands into another of such bands; (f) neither it nor any of its Subsidiaries shall pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, settlement, discharge or satisfaction of claims, liabilities or obligations legally due and payable and arising in the ordinary and usual course of business, claims arising under the terms of products, contracts or policies issued by the Company Insurance Subsidiaries in the ordinary and usual course of business and such other claims, liabilities or obligations as shall not, subject to Section 5.1(a) of the Company Disclosure Letter, exceed $2,000,000 in the aggregate; (g) neither it nor any of its Subsidiaries shall make, change or revoke any material Tax election, settle or compromise any material Tax liability arising in any audit, change its method of accounting if such change would have a material impact on Taxes, enter into any closing or other agreement with respect to a material amount of Taxes, file a request for refund of a material amount of Taxes (but not including the prosecution of any refund claim pending on the date hereof), or file an amended Tax Return if such Tax Return is materially different from the original return to which it relates, except, in each case, (i) in the ordinary course of business and consistent with the Company's past practice in respect of the Tax at issue in the jurisdiction in question or (ii) with the consent of Parent, such consent not to be unreasonably withheld; (h) neither it nor any of its Subsidiaries shall enter into any agreement containing any provision or covenant limiting in any material respect the ability of the Company or any Subsidiary or affiliate to (i) sell any products or services of or to any other Person, (ii) engage in any line of business or (iii) compete with or to obtain products or services from any Person or limiting the ability of any Person to provide products or services to the Company or any of its Subsidiaries or Affiliates; (i) neither it nor any of its Subsidiaries shall enter into any (A) commutations or (B) new quota share or other reinsurance transaction, in the case of clause (B), (i) which does not contain cancellation and termination provisions reasonably customary in the industry for that type of transaction, (ii) which, except in the ordinary course of business, materially increases or reduces the Company Insurance Subsidiaries' consolidated ratio of net written premiums to gross written premiums or (iii) except as set forth in Section 6.1(i) of the Company Disclosure Letter, pursuant to which $5,000,000 or more -28- in gross written premiums are ceded by the Company Insurance Subsidiaries to any Person other than the Company or any of its Subsidiaries; (j) neither it nor any of the Company Insurance Subsidiaries will alter or amend in any material respect their existing investment guidelines or policies; (k) neither it nor any of its Subsidiaries shall take any action or omit to take any action that would cause any of its representations and warranties herein to become untrue in any material respect; (l) neither it nor its Subsidiaries shall permit a material change in any of its underwriting, investment, actuarial, financial reporting or accounting practices or policies or in any material assumption underlying an actuarial practice or policy, except as may be required by any change in GAAP, statutory accounting principles or applicable Law; and (m) neither it nor any of its Subsidiaries will authorize or enter into an agreement to do any of the foregoing. 6.2. Acquisition Proposals. The Company will not, and will not permit or cause any of its Subsidiaries or any of its or its Subsidiaries officers or directors to, and shall direct its and its Subsidiaries' Representatives (as defined in Section 6.6(a)(i)) not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, consolidation, business combination, recapitalilzation or similar transaction involving, or any purchase of 15% or more of the assets or any equity securities of, the Company or any of its Subsidiaries (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"). The Company will not, and will not permit or cause any of its Subsidiaries or any of its or its Subsidiaries officers or directors to, and shall direct its and its Subsidiaries' Representatives (including any investment banker, attorney or accountant retained by it or any of its Subsidiaries) not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any Person relating to an Acquisition Proposal, whether made before or after the date of this Agreement, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal (including, without limitation, by means of an amendment to the Rights Agreement); provided, however, that nothing contained in this Agreement shall prevent the Company or its board of directors from: (i) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal or (ii) at any time prior to the approval of the Merger by the Company Requisite Vote (A) providing information in response to a request therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal if the board of directors receives from the Person so requesting such information an executed confidentiality agreement on terms substantially equivalent to those contained in the Confidentiality Agreement (as defined in Section 9.7); (B) engaging in any negotiations or discussions with any Person who has made an unsolicited bona fide written Acquisition Proposal or (C) recommending such an Acquisition Proposal to the stockholders of the Company, if and only to the extent that, in the case of clauses (A), (B) and (C) above, (i) the board of directors of the Company determines in good faith, after consultation with and receipt of advice of outside legal counsel, that such action is required in order for its directors to comply with their respective -29- fiduciary duties under applicable law and (ii) the board of directors of the Company determines in good faith (after consultation with its financial advisor) that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the Person making the proposal, and would, if consummated, result in a more favorable transaction than the transaction contemplated by this Agreement (any such Acquisition Proposal being referred to in this Agreement as a "Superior Proposal"). The Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. The Company agrees that it will take the necessary steps to promptly inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 6.2 and in the Confidentiality Agreement. The Company will notify Parent promptly, but in any event not later than one day following receipt, if any such inquiries, proposals or offers are received by, any such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, any of its Representatives indicating, in connection with such notice, the name of such Person and the material terms and conditions of any proposals or offers and thereafter shall keep Parent informed, on a current basis, of the status and terms of any such proposals or offers and the status of any such negotiations or discussions. The Company also will promptly request each Person that has heretofore executed a confidentiality agreement in connection with its consideration of an Acquisition Proposal to return or dispose of all confidential information heretofore furnished to such Person by or on behalf of it or any of its Subsidiaries in accordance with such agreement. 6.3. Information Supplied. The Company and Parent each agrees, as to itself and its Subsidiaries, that none of the information supplied or to be supplied by it or its Subsidiaries for inclusion or incorporation by reference in (i) the Offer Documents, the Schedule 14D-1 and the Schedule 14D-9 will, at the time of filing thereof and at the time of distribution thereof, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) the Proxy Statement (as defined in Section 6.5(a)) and any amendment or supplement thereto will, at the date of mailing to stockholders and at the time of the Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.4. Stockholders Meeting. If the approval by the holders of Common Shares constituting the Company Requisite Vote is required under DGCL to consummate the Merger and is required to be given at a duly held meeting of stockholders (the "Stockholders Meeting"), the Company will take, in accordance with its Governing Documents, all action necessary to convene a meeting of holders of Common Shares as promptly as practicable upon the written request of Parent to consider and vote upon the approval of the Merger. The Company's board of directors shall recommend approval of the Merger, shall not withdraw or modify such recommendation and shall take all lawful action to solicit such approval unless, in the good faith judgment of the board of directors of the Company, after consultation with and receipt of advice of outside legal counsel, the failure to take the foregoing actions is required under applicable law. Without limiting the generality of the foregoing, in the event that the Company's board of directors withdraws or modifies its recommendation, the Company nonetheless shall, if Parent so -30- requests, cause such a meeting of the stockholders to be convened and a vote taken with respect to the Merger, as contemplated by Section 251 of the DGCL. 6.5. Filings; Other Actions; Notification. (a) In connection with the Stockholders Meeting referred to in Section 6.4 above, the Company shall promptly prepare and deliver to Parent a draft of a proxy statement (the "Proxy Statement"). Thereafter, the Company and Parent shall use their reasonable best efforts to cooperate fully to make such changes to the Proxy Statement as may be reasonably requested by Parent or otherwise may be appropriate, file the Proxy Statement with the SEC as soon as practicable and respond promptly to any SEC comments. Upon filing the final, definitive Proxy Statement with the SEC, the Company shall mail such Proxy Statement to its stockholders. Notwithstanding the foregoing, if Merger Subsidiary obtains 90 percent or more of the Common Shares through the Tender Offer, Merger Subsidiary shall use the short form merger provisions of Section 253 of the DGCL. (b) The Company and Parent shall use and shall cause their "ultimate parent entities," (if applicable) to use, their best efforts to as promptly as practicable file notifications under the HSR Act in connection with the Merger (and the Tender Offer as applicable) and the transactions contemplated hereby, including, but not limited to, the Stock Option Agreement, and to respond as promptly as practicable to any inquiries received from the Federal Trade Commission and the Antitrust Division of the Department of Justice for additional information or documentation and to respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other Governmental Entity in connection with antitrust matters. (c) The Company and Parent shall cooperate with each other and use (and shall cause their respective Subsidiaries to use) all reasonable efforts (i) to cause to be done all things, necessary, proper or advisable on its part under this Agreement and applicable Laws to consummate and make effective the Tender Offer, the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary notices, reports and other filings, and (ii) to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Entity in connection with, as a result of or in order to consummate the Tender Offer, the Merger or any of the other transactions contemplated by this Agreement or the Stock Option Agreement, provided, however, that nothing in this Section 6.5 shall require, or be construed to require, Parent, in connection with the receipt of any regulatory approval, to proffer to, or agree to any conditions relating to, or changes or restriction in, the operations of any such assets or businesses which, in either case, could, in the reasonable judgment of the board of directors of Parent, materially and adversely impact the economic or business benefits to PLC and its Subsidiaries of the transactions contemplated by this Agreement or materially impair the ability of any Parent Company (including the Company following the Effective Time), to conduct its business in the manner as such business is now being conducted. Parent and Merger Subsidiary shall use reasonable best efforts to cause to be filed such statements on Form A as are required to be filed with the Governmental Entities identified in Section 5.1(d) of the Company Disclosure Letter by August 1, 1999. It is expressly understood by the parties hereto that the representatives of the Company and Parent respectively shall have the right to attend and participate in any hearing, proceeding, meeting or conference before or with a -31- Governmental Entity relating to the transactions contemplated hereby. In furtherance of the foregoing, the Company and Parent shall provide each other reasonable advance notice of any such hearing, proceeding, meeting or conference. Subject to applicable Laws relating to the exchange of information, Parent and the Company shall have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating to Parent or the Company, as the case may be, and any of their respective Subsidiaries, that appear in any filing made with, or written materials submitted to any Governmental Entity in connection with the Tender Offer, the Merger and the other transactions contemplated by this Agreement; provided that nothing in this Section 6.5 shall require Parent to provide information contained in its notification under the HSR Act to the Company that it reasonably deems to be confidential. In exercising the foregoing right, each of the Company and Parent shall act reasonably and as promptly as practicable. (d) The Company and Parent each shall, upon request by the other, furnish the other with all information concerning itself, its Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Offer Documents, the Schedule 14D-1, the Schedule 14D-9, the Proxy Statement, or any other statement, filing, notice or application made by or on behalf of Parent, the Company or any of their respective Subsidiaries to any third party and/or any Governmental Entity in connection with the Tender Offer, the Merger and the other transactions contemplated by this Agreement; provided that nothing in this Section 6.5 shall require Parent to provide information contained in its notification under the HSR Act to the Company that it reasonably deems to be confidential. (e) (i) The Company and Parent each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by Parent or the Company, as the case may be, or any of its Subsidiaries, from any third party and/or any Governmental Entity with respect to the Tender Offer, the Merger and the other transactions contemplated by this Agreement. The Company and Parent each shall give prompt notice to the other of any change that would have a Company Material Adverse Effect or Parent Material Adverse Effect, respectively. (ii) The Company and Parent each shall give prompt notice to the other of (A) the occurrence, or nonoccurrence, of any event the occurrence, or nonoccurrence, of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time and (B) any material failure of any party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of notice pursuant to this Section 6.5(e)(ii) shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. 6.6. Access. (a) (i) Upon reasonable notice, and except as may otherwise be required by applicable Law, the Company shall (and shall cause its Subsidiaries to) afford Parent's directors, officers, employees, counsel, accountants, financial advisors and other authorized agents and representatives (collectively, "Representatives") access, during normal business hours throughout the period prior to the earlier of the termination of this Agreement or the Effective -32- Time, to the Company's and its Subsidiaries' management, properties, books, contracts, records and personnel (and will use commercially reasonable efforts to provide access to its auditors (including such auditors' work papers)) and, during such period, shall (and shall cause its Subsidiaries to) furnish promptly to Parent all information concerning the Company's and its Subsidiaries' business, properties and personnel as may reasonably be requested; provided, that no investigation pursuant to this Section shall affect or be deemed to modify any representation or warranty made by the Company and provided, further, that the foregoing shall not require the Company to permit any inspection, or to disclose any information, that in the reasonable judgment of the board of directors of the Company would result in the disclosure of any trade secrets of third parties or violate any of its obligations with respect to confidentiality if the Company shall have used all reasonable efforts to obtain the consent of such third party to such inspection or disclosure. All requests for information made pursuant to this Section 6.6 (a) shall be directed to an executive officer of the Company or such Person as may be designated by the Company's executive officers. All such information shall be governed by the terms of the Confidentiality Agreement. 6.7. Publicity. The initial press release relating to the transaction contemplated by this Agreement shall be a joint press release and thereafter the Company and Parent shall consult with each other prior to issuing any press releases or otherwise making public announcements with respect to the Tender Offer, the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement and prior to making any filings with any third party and/or any Governmental Entity (including any national securities exchange) with respect thereto, except as may be required by Law or by obligations pursuant to any listing agreement with or rules of any national or foreign securities exchange. 6.8. Employee Benefits. (a) Parent agrees that those individuals who are employed by the Company or any of its Subsidiaries immediately prior to the Effective Time shall continue to be employees of the Surviving Corporation and its Subsidiaries as of the Effective Time (each such employee, an "Affected Employee"); provided, however, that this Section 6.8 shall not be construed to limit the ability of the applicable employer to terminate the employment of any Affected Employee at any time. (b) From the Effective Time until December 31, 2000, Parent shall, or shall cause the Surviving Corporation to, continue and maintain in effect all employee benefit plans and programs of the Company and its Subsidiaries which are listed in Section 6.8(b) of the Company Disclosure Letter, as in effect on the date hereof or in the alternative for retirement plan purposes, a retirement plan of Parent which provides the same or substantially similar employer provided benefits, to the extent such continuance and maintenance is permissible under applicable law. (c) Effective as of January 1, 2001, or such other date as Parent makes participation in employee benefit plans or arrangements of Parent available to Affected Employees (the "Plan Entry Date"), Parent shall, or shall cause the Surviving Corporation to, give Affected Employees full credit for purposes of eligibility, vesting, benefit accrual (except to the extent giving such credit would result in the duplication of benefits and except for benefit accruals under any defined benefit pension plan or defined benefit supplemental retirement plan (other than as required by law)) and determination of the level of benefits under any such employee benefit plans or -33- arrangements for such Affected Employees' service with the Company or any Subsidiary of the Company to the same extent recognized by the Company or such Subsidiary immediately prior to the Plan Entry Date. (d) Effective as of the Plan Entry Date, Parent shall, or shall cause the Surviving Corporation to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Affected Employees under any welfare benefit plans of Parent in which such Affected Employees may be eligible to participate, other than limitations or waiting periods that were already in effect with respect to such Affected Employees and that had not been satisfied as of the Plan Entry Date under any welfare plan maintained for the Affected Employees immediately prior to the Plan Entry Date. With respect to any plan for which the Plan Entry Date is prior to January 1, 2000, Parent shall, or shall cause the Surviving Corporation to, provide each Affected Employee with credit for any co-payments and deductibles paid prior to the Plan Entry Date in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans that such Affected Employees are eligible to participate in after the Plan Entry Date. (e) Parent shall cause the Surviving Corporation to honor the obligations described in Section 6.8(e) of the Company Disclosure Letter with respect to stay bonuses and other incentive compensation arrangements, it being agreed that such stay bonus arrangements will provide benefits in lieu of benefits that would otherwise have been provided under the Orion Specialty Restructuring Retention Plan and the Security Re Retention Agreements. (f) During calendar year 2000, Affected Employees shall be eligible to participate in the incentive compensation programs of Parent, subject to the eligibility conditions and other terms of such plans, with the level of such participation being subject to the discretion of the Persons or committees administering such plans. 6.9. Expenses. If the Merger or the Tender Offer is consummated, the Surviving Corporation shall pay all charges and expenses, including those of the Exchange Agent, in connection with the transactions contemplated in Article IV. Except as otherwise provided in Section 8.5(b), whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the Tender Offer, the Merger and the other transactions contemplated by this Agreement shall be paid by the party incurring such expense, except that expenses incurred in connection with the printing and mailing of the Offer Documents, the Schedule 14D-1, the Schedule 14D-9 and the Proxy Statement shall be shared equally by Parent and the Company. 6.10. Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time, Parent agrees that it will indemnify and hold harmless each present and former director and officer of the Company, (when acting in such capacity) determined as of the Effective Time (each, an "Indemnified Party" and, collectively, the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, -34- administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time to the fullest extent that the Company was permitted under Delaware Law and its Governing Documents in effect on the date hereof to indemnify such Person (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable Law provided the Person to whom expenses are advanced provides a written affirmation of his or her good faith belief that the standard of conduct necessary for indemnification has been met and an undertaking to repay such advances if it is ultimately determined that such Person is not entitled to indemnification). (b) Any Indemnified Party wishing to claim indemnification under paragraph (a) of this Section 6.11, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify Surviving Corporation and Parent thereof but the failure to so notify shall not relieve Parent of any liability it may have to such Indemnified Party if such failure does not materially prejudice the indemnifying party. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof and neither Parent or Surviving Corporation shall be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if Parent or the Surviving Corporation elects not to assume such defense, or if counsel for the Indemnified Parties advises that there are issues that raise conflicts of interest between Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and Parent shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, however, that Parent and the Surviving Corporation shall be obligated pursuant to this paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction unless the use of one counsel for such Indemnified Parties would present such counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate in the defense of any such matter, and (iii) Parent and the Surviving Corporation shall not be liable for any settlement effected without their prior written consent; and provided, further, that neither Parent nor the Surviving Corporation shall have any obligation hereunder to any Indemnified Party if and when a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable Law. (c) The Surviving Corporation shall continue to maintain the Company's existing officers' and directors' liability insurance ("D&O Insurance") or D&O Insurance that is substantially comparable to the Company's existing D&O Insurance for a period of six years after the Effective Time so long as the annual premium therefor is not in excess of 200% of the last annual premium paid prior to the date hereof (such last annual premium being hereinafter referred to as the "Current Premium"); provided, however, that if the existing D&O Insurance or substantially comparable D&O Insurance cannot be acquired during the six-year period for not in excess of 200% of the Current Premium, then the Company will obtain as much D&O Insurance as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of 200% of the Current Premium. -35- (d) The provisions of this Section 6.11 are intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties, their heirs and their representatives. 6.11. Other Actions by the Company and Parent. (a) Rights. Except as provided in Section 5.1(p) with respect to the Merger, the Tender Offer and the other transactions contemplated by this Agreement and the Option Agreements, the Company's board of directors shall not, without the prior written consent of Parent, (a) amend the Rights Agreement or (b) take any action with respect to, or make any determination under, the Rights Agreement, including a redemption of the Rights to facilitate an Acquisition Proposal. (b) Takeover Statute. If any Takeover Statute is or may become applicable to the Tender Offer, the Merger or the other transactions contemplated by this Agreement or the Stock Option Agreement, each of Parent and the Company and its respective board of directors shall grant such approvals and take such actions as are necessary so that such transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement or the Stock Option Agreement, as the case may be, or by the Tender Offer or the Merger and otherwise act to eliminate or minimize the effects of such statute or regulation on such transactions. (c) NYSE De-Listing. The Surviving Corporation shall use its best efforts to cause the Common Shares to be delisted from the NYSE and de-registered under the Exchange Act as soon as practicable following the Effective Time. ARTICLE VII. Conditions 7.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction (or, if permissible, waiver) at or prior to the Effective Time of each of the following conditions: (a) Stockholder Approval. If required under the DGCL, the Merger shall have been duly approved by holders of Common Shares constituting the Company Requisite Vote and shall have been duly approved by the sole stockholder of Merger Subsidiary in accordance with applicable Law. (b) Regulatory Consents. The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated and, other than the applicable filing provided for in Section 1.3, all notices, reports and other filings required to be made prior to the Effective Time by the Company or Parent or any of their respective Subsidiaries with, and all consents, registrations, approvals, permits and authorizations required to be obtained prior to the Effective Time by the Company or Parent or any of their respective Subsidiaries from, any Governmental Entity (collectively, "Governmental Consents"), including, but not limited to, the consent of those insurance commissioners, directors or superintendents of the state insurance departments set forth on Section 5.1(d) of the Company Disclosure Letter, in connection with the -36- execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby shall have been made or obtained (as the case may be) and shall be in full force and effect. (c) Legal Prohibition. No court or Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law, statute, ordinance, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Merger (collectively, an "Order"). (d) Purchase of Shares Pursuant to Tender Offer. Merger Subsidiary shall have purchased Common Shares pursuant to the Tender Offer; provided that the purchase of Common Shares pursuant to the Tender Offer shall not be a condition to the obligations of Parent and Merger Subsidiary hereunder if Merger Subsidiary shall fail to accept for payment and pay for Common Shares pursuant to the Tender Offer in violation of the terms thereof or of this Agreement. ARTICLE VIII. Termination 8.1. Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval by stockholders of the Company referred to in Section 7.1 (a), by mutual written consent of the Company and Parent by action of their respective boards of directors. 8.2. Termination by Either Parent or the Company. This Agreement may be terminated and the transactions contemplated hereby may be abandoned (i) by action of the board of directors of Parent or the Company if (x) the Tender Offer shall have expired or been terminated in accordance with its terms without any Common Shares being purchased pursuant thereto or (y) Merger Subsidiary shall not have accepted for payment any Common Shares pursuant to the Tender Offer by December 31, 1999 (the "Termination Date") or (ii) by action of the board of directors of either Parent or the Company if any Order permanently restraining, enjoining or otherwise prohibiting consummation of the Tender Offer or the Merger shall become final and non-appealable (whether before or after the approval by the stockholders of the Company); provided, that (A) the right to terminate this Agreement pursuant to clause (i) above shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the Tender Offer to be consummated and (B) the Company shall not receive a termination fee pursuant to Section 8.5(e) of this Agreement even if otherwise payable pursuant to the terms thereof, if it exercises its right to terminate this Agreement pursuant to clause (i)(y) above on or prior to February 29, 2000. 8.3. Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the consummation of the Tender Offer, by action of the board of directors of the Company: -37- (a) if (i) the board of directors of the Company authorizes the Company, subject to complying with the terms of this Agreement, to enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement, (ii) Parent does not make, prior to five business days after receipt of the Company's written notification of its intention to enter into a binding agreement for a Superior Proposal (the "Alternative Transaction Notice") an offer that the board of directors of the Company determines, in good faith after consultation with the Company Financial Advisor, is at least as favorable, as the Superior Proposal, and (iii) the Company pays all amounts required to be paid pursuant to Section 8.5. The Company agrees and acknowledges (x) that it cannot terminate this Agreement pursuant to this Section 8.3(a) in order to enter into a binding agreement referred to in clause (ii) above until five business days after Parent's receipt of the Alternative Transaction Notice and until the payment required by Section 8.5 has been received by Parent, and (y) to notify Parent promptly if its intention to enter into a written agreement referred to in its Alternative Transaction Notice shall change at any time after giving such notification; or (b) if there has been a material breach by Parent or Merger Subsidiary of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured within 20 days after written notice of such breach is given by the Company to the party committing such breach. 8.4. Termination by Parent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by action of the board of directors of Parent if (a) the Company enters into a binding agreement for, or recommends, a Superior Proposal or the board of directors of the Company shall have withdrawn or adversely modified its approval or recommendation of this Agreement or, after the mailing of the Proxy Statement or the Offer Documents, failed to reconfirm its recommendation of this Agreement within ten business days after a reasonable written request by Parent to do so or the Company redeems any rights under, or modifies or agrees to modify, the Rights Agreement (or any replacement thereof), in order to facilitate any Acquisition Proposal with any Person (other than PLC or any Subsidiary of PLC), or (b) prior to consummation of the Tender Offer there has been a material breach by the Company of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured within 20 days after written notice of such breach is given by Parent to the party committing such breach. 8.5. Effect of Termination and Abandonment. (a) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article VIII, this Agreement (other than as set forth in Section 9.1) shall become void and of no effect with no liability (other than the liabilities arising under the provisions, including this Section 8.5, set forth in Section 9.1) on the part of any party hereto (or of any of its Representatives); provided, however, except as otherwise provided herein, no such termination shall relieve any party hereto of any liability or damages resulting from any willful breach of this Agreement. -38- (b) In the event that this Agreement is terminated (i) by the Company pursuant to Section 8.3(a), or (ii) by Parent pursuant to Section 8.4(a), then the Company shall, not later than immediately prior to the time of such termination or not later than immediately prior to the time of entering into an agreement concerning a transaction that constitutes an Acquisition Proposal, pay Parent a termination fee of $45,000,000 plus an amount equal to Parent's out-of-pocket charges and expenses incurred in connection with the transactions contemplated by this Agreement up to a maximum of $5,000,000 ("Expenses"). In every case, such payments shall be made by wire transfer of same day funds. In order to facilitate the timely making of the foregoing payments, in the event that Parent elects to terminate this Agreement, Parent shall notify the Company thereof not later than 10:00 A.M. (New York City time) on the business day immediately preceding the date of such termination. In the event that Parent fails to provide such advance notice of its election to terminate this Agreement, the foregoing payments shall be made not later than 12:00 P.M. (New York City time) on the business day immediately following the date of such termination. The Company acknowledges that the agreements contained in this Section 8.5(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent and Merger Subsidiary would not have entered into this Agreement. If in order to obtain such payments, Parent or Merger Subsidiary commences a suit that results in a judgment against the Company for the amounts set forth in this paragraph (b) or paragraph 8.5(c), the Company shall pay to Parent or Merger Subsidiary its costs and expenses (including attorneys' fees) in connection with such suit, together with interest from the date of termination of this Agreement on the amounts owed at the prime rate of The Chase Manhattan Bank, in effect from time to time during such period plus two percent. (c) In the event that this Agreement is terminated by the Company or Parent pursuant to Section 8.2(i)(x) (provided that (1) on the date of expiration or termination of the Tender Offer the Minimum Tender Condition has not been satisfied and (2)(x) at least 5 business days prior to such date, it shall have been publicly disclosed that the conditions to the Tender Offer set forth in paragraphs (a)(ii), (a)(iii), (a)(iv) and (b)(i) of Annex I have been satisfied or on such date any of such conditions shall not have been satisfied as a result of a material breach of this Agreement by the Company or (y) on such date, the condition to the Tender Offer set forth in paragraph (b)(iii) of Annex I has not been satisfied), in circumstances where within 9 months after the termination of this Agreement the Company enters into a definitive agreement in respect of, or approves or recommends an Acquisition Proposal or redeems any rights under, or modifies or agrees to modify, the Rights Agreement (or any replacement thereof), in order to facilitate any Acquisition Proposal with any Person (other than PLC or any Subsidiary of PLC), then the Company shall make payment to Parent by wire transfer of immediately available funds a fee in the amount of $45,000,000 plus the Expenses of Parent, payable upon the earlier of the time of entering into such agreement or consummation of an Acquisition Proposal. (d) In the event that this Agreement is terminated by the Company or Parent pursuant to Section 8.2(i)(y) (provided that (i) on the date of expiration or termination there is no condition to the Tender Offer which has failed to be satisfied as a result of a material breach of this Agreement by Parent or Merger Subsidiary and (2) prior to such termination an Acquisition Proposal with respect to the Company shall have been publicly announced or otherwise became public) in circumstances where within 9 months after the termination of this Agreement the Company enters into a definitive agreement in respect of, or approves or recommends an -39- Acquisition Proposal or redeems any rights under, or modifies or agrees to modify, the Rights Agreement (or any replacement thereof), in order to facilitate any Acquisition Proposal with any person (other than Parent or any Subsidiary of Parent), then the Company shall make payment to Parent by wire transfer of immediately available funds a fee in the amount of $45,000,000 plus the Expenses of Parent, payable upon the earlier of the time of entering into such agreement or consummation of an Acquisition Proposal (e) In the event that (i) this Agreement is terminated (x) by the Company and Parent pursuant to Section 8.1, (y) by the Company or Parent pursuant to Section 8.2(i)(y) (other than a termination resulting from a breach of this Agreement by the Company) or Section 8.2(ii) or (z) by the Company pursuant to Section 8.3(b) and (ii) as of the date of Termination, a Change in Control of PLC shall have occurred, then Parent shall promptly, but in no event later than two business days after the Company shall have requested payment pursuant to this Section 8.5(e), pay the Company a termination fee of $45,000,000. "Change in Control of PLC" shall mean, (i) offers for the entire issued ordinary share capital of PLC in accordance with the requirements of the United Kingdom Code on Takeovers and Mergers which (x) have been recommended by the board of directors of PLC, (y) have been publicly announced by the offeror to have become unconditional as to acceptances or (z) where the offeror has publicly announced that acceptances have been received and not withdrawn by Shareholders representing 50 percent of the issued ordinary share capital of PLC; (ii) the conveyance, transfer or lease by Parent of all or substantially all of its assets to any Person or (iii) PLC has entered into a binding written agreement providing for any of the foregoing. ARTICLE IX. Miscellaneous and General 9.1. Survival. This Article IX and the agreements of the Company, Parent and Merger Subsidiary contained in Sections 6.8 (Employee Benefits) and 6.10 (Indemnification; Directors' and Officers' Insurance) shall survive the consummation of the Merger. This Article IX, the agreements of the Company, Parent and Merger Subsidiary contained in Section 6.6 (Access), insofar as it relates to the Company's and Parent's respective confidentiality obligations, Section 6.9 (Expenses) and Section 8.5 (Effect of Termination and Abandonment) shall survive the termination of this Agreement. All other representations, warranties, covenants and agreements in this Agreement shall not survive the consummation of the Merger or the termination of this Agreement. 9.2. Modification or Amendment. Subject to the provisions of applicable Law, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties. 9.3. Waiver of Conditions. The conditions to each of the parties' obligations to consummate the Merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable Law. Any waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this -40- Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 9.4. Counterparts. This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 9.5. Governing Law; Consent to Jurisdiction. (a) This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the laws of the State of Delaware without regard to the conflict of law principles thereof. (b) The Company, Parent and Merger Subsidiary each agrees that, in connection with any legal suit or proceeding arising with respect to this Agreement, it shall submit to the jurisdiction of the United States District Court for the District of Delaware and agrees to venue in such courts. The Company and Merger Subsidiary each hereby appoints the secretary of the Company and Merger Subsidiary, respectively, as its agent for service of process for purposes of the foregoing sentence only. 9.6. Notices. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and shall be deemed delivered (i) on the date personally delivered, (ii) one business day after the date delivered by facsimile transmission with a confirmation copy sent by overnight courier or first-class mail, or (iii) three business days after the date sent by registered or certified mail, postage prepaid: if to Parent or Merger Subsidiary: Royal Group Inc. 9300 Arrowpoint Blvd Charlotte, North Carolina 28273-8135 Attention: Joyce W. Wheeler Fax: (704) 522-3111 Phone: (704) 522-2739 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10019 Attention: Christopher E. Manno Fax: (212) 728-8111 Phone: (212) 728-8000 -41- if to the Company: Orion Capital Corporation 9 Farm Springs Road Farmington, Connecticut 06032 Attention: Corporate Secretary Fax: (860) 674-6670 Phone: (860) 674-6904 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attention: Alan C. Myers Fax: (212) 735-2000 Phone: (212) 735-3780 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 9.7. Entire Agreement; No Other Representations. This Agreement (including any exhibits and annexes hereto), the Company Disclosure Letter, the Stock Option Agreement and the Confidentiality Agreement between Parent and the Company dated June 18, 1999 (the "Confidentiality Agreement"), constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof. 9.8. No Third Party Beneficiaries. Except as provided in Section 6.10 (Indemnification; Directors' and Officers' Insurance), this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. 9.9. Obligations of Parent and of the Company. Whenever this Agreement requires a Subsidiary of Parent to take any action, such requirement shall be deemed to include an undertaking on the part of Parent to cause such Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of the Company to take any action, such requirement shall be deemed to include an undertaking on the part of the Company to cause such Subsidiary to take such action and, after the Effective Time, on the part of the Surviving Corporation to cause such Subsidiary to take such action. 9.10. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability or the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and -42- the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 9.11. Interpretation. The table of contents and headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section, Exhibit or Annex, such reference shall be to a Section of or Exhibit or Annex to this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. References to a person are also to its permitted successors and assigns. For purposes of this Agreement, the words "the knowledge of the Company" or words of similar import means the knowledge of any executive officer or any band 1 or band 2 employee of the Company. 9.12. Assignment. This Agreement shall not be assignable by any party hereto by operation of Law or otherwise, without the prior written consent of the other parties; provided, however, that Parent may designate, by written notice to the Company, another wholly owned direct or indirect Subsidiary of PLC to be a Constituent Corporation in lieu of Merger Subsidiary, in which event all references herein to Merger Subsidiary shall be deemed references to such other Subsidiary. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. -43- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first written above. ORION CAPITAL CORPORATION By: /s/ W. Marston Becker ------------------------------- Name: W. Marston Becker Title: Chairman and CEO ROYAL GROUP INC. By: /s/ Terry Broderick ------------------------------- Name: Terry Broderick Title: President U.S. Operations NTG ACQUISITION CORP. By: /s/ Joyce Wheeler ------------------------------- Name: Joyce Wheeler Title: General Counsel -44- ANNEX I CERTAIN CONDITIONS OF THE TENDER OFFER. The capitalized terms used in this Annex I have the meanings set forth in the attached Agreement. Notwithstanding any other provision of the Tender Offer, Merger Subsidiary shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating to Merger Subsidiary's obligation to pay for or return tendered Common Shares promptly after termination or withdrawal of the Tender Offer), pay for, or may delay the acceptance for payment of or, subject to the above restriction, payment for, any tendered Common Shares, or may, in its sole discretion, terminate or amend the Tender Offer as to any Common Shares not then paid for if (a) prior to the Expiration Date (i) there shall not have been tendered and not withdrawn at least that number of Common Shares that would represent at least a majority of all outstanding Common Shares on the date of purchase (excluding for all purposes in calculating such majority any outstanding Common Shares owned by Parent or Merger Subsidiary pursuant to the exercise of Parent's rights under the Stock Option Agreement) (the "Minimum Tender Condition"), (ii) any waiting period applicable to the consummation of the Tender Offer and the Merger under the HSR Act shall not have expired or been terminated, (iii) other than the filing provided for in Section 1.3 of the Agreement, any notices, reports and other filings required to be made prior to the Effective Time by the Company or PLC or any of their respective Subsidiaries with, and any consents, registrations, approvals, permits and authorizations required to be obtained prior to the Effective Time by the Company or Parent or any of their respective Subsidiaries from, any Governmental Entity, including but not limited to the consent of those insurance commissioners, directors or superintendents of the state insurance departments set forth in Section 5.1(d) of the Company Disclosure Letter, in connection with the execution and delivery of the Agreement and the consummation of the Tender Offer and the Merger and the other transactions contemplated by the Agreement shall not have been made or obtained (as the case may be) and shall not be in full force and effect, or (iv) the Company shall not have obtained the consent or approval of each Person whose consent or approval is set forth in Section I or Section 5.1(d) of the Company Disclosure Letter or which shall be required under any Contract to which the Company or any of its Subsidiaries is a party, except those for which the failure to obtain such consents or approvals would not, individually or in the aggregate, have a Company Material Adverse Effect or is not, individually or in the aggregate, reasonably likely to prevent or materially burden or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement; or any such consent or approval, or any Governmental Consent, imposes any condition or conditions relating to, or requires changes or restrictions in, the operations of any asset or businesses of the Company, PLC or their respective Subsidiaries which could, in the reasonable judgment of the board of directors of Parent, individually or in the aggregate, materially and adversely impact the economic or business benefits to PLC and its Subsidiaries of the transactions contemplated by the Agreement or materially impair the ability of any Parent Company (including the Company following the Effective Time) to conduct its business in the manner as such business is now being conducted; or (b) at or before the time of payment for any of such Common Shares (whether or not any Common Shares have theretofore been accepted for payment), any of the following events shall occur: (i) any court or Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law, statute, ordinance, rule, regulation, -45- judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Tender Offer or the Merger, or which makes the acceptance for payment of, or payment for, any Common Shares in the Tender Offer illegal; (ii) the representations and warranties of the Company set forth in the Agreement shall not be true and correct both when made and at and as of the Expiration Date as though made on and as of the Expiration Date (except to the extent any such representation or warranty expressly speaks as of an earlier date) except where the failure of such representations and warranties to be so true and correct (without giving effect to any qualifications in the representations and warranties as to "Company Material Adverse Effect," "material" or similar qualifications set forth in the Agreement) would not have, individually or in the aggregate, a Company Material Adverse Effect, or Parent shall not have received a certificate on the Expiration Date signed on behalf of the Company by an executive officer of the Company to such effect; (iii) the Company shall not have performed in all material respects all obligations required to be performed by it under the Agreement at or prior to the Expiration Date; or (iv) there shall have occurred a change, event or circumstance that has had, or would reasonably be expected to have, a Company Material Adverse Effect; or (v) the Agreement shall have been terminated in accordance with its terms prior to the Expiration Date; or Parent, Merger Subsidiary and the Company shall have otherwise agreed that Merger Subsidiary may amend, terminate or withdraw the Tender Offer; The foregoing conditions are for the sole benefit of Parent and Merger Subsidiary and may be asserted by Parent or Merger Subsidiary regardless of the circumstances (including any action or inaction by Parent or Merger Subsidiary) giving rise to such condition or may be waived by Parent or Merger Subsidiary, by express and specific action to that effect, in whole or in part at any time and from time to time in their sole discretion. Any determination by Parent and Merger Subsidiary concerning any event described in this Annex I shall be final and binding upon all holders of Common Shares. The failure by Merger Subsidiary at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. -46- ANNEX II INDEX OF DEFINED TERMS Section Term Containing Definition - ---- --------------------- Acquisition Proposal.................................... 6.2 Affected Employee....................................... 6.8(a) Agreement............................................... 1st Paragraph Alternative Transaction Notice.......................... 8.3(a) Audit Date.............................................. 5.1(e)(i) Bankruptcy and Equity Exception......................... 5.1(c)(i) By-Laws................................................. 2.2 Certificates............................................ 4.4(b) Certificate of Merger................................... 1.3 Change in Control of Parent ............................ 8.5(e) Charter................................................. 2.1 Closing................................................. 1.2 Closing Date............................................ 1.2 Code.................................................... 5.1(h)(ii) Common Shares........................................... 3rd Recital Company................................................. 1st Paragraph Company Actuarial Analyses.............................. 5.1(r)(iii) Company Disclosure Letter............................... 5.1 Company Financial Advisor............................... 1.5(c) Company Insurance Contracts............................. 5.1(r)(i) Company Insurance Subsidiaries.......................... 5.1(a) Company Material Adverse Effect......................... 5.1(a) Company Option.......................................... 4.3(a) Company Prepared SAP Statements......................... 5.1(e)(ii) Company Reports......................................... 5.1(e)(i) Company Requisite Vote.................................. 5.1(c)(i) Company SAP Statements.................................. 5.1(e)(ii) Company Stock Plans..................................... 5.1(b) Compensation and Benefit Plans.......................... 5.1(h)(i) Confidentiality Agreement............................... 9.7 Constituent Corporations................................ 1st Paragraph Contract................................................ 5.1(d)(ii) Costs................................................... 6.10(a) Current Premium......................................... 6.10(c) D&O Insurance........................................... 6.10(c) DGCL.................................................... 1.1 Dissenting Shares....................................... 4.2 Dissenting Stockholder.................................. 4.2 Effective Time.......................................... 1.3 47 Section Term Containing Definition - ---- --------------------- Environmental Law....................................... 5.1(k) ERISA................................................... 5.1(h)(ii) ERISA Affiliate......................................... 5.1(h)(iii) Exchange Act............................................ 1.4 Exchange Agent.......................................... 4.4(a) Exchange Fund........................................... 4.4(a) Excluded Shares......................................... 4.1(b) Exercise Price.......................................... 4.3(a) Expenses................................................ 8.5(b) Expiration Date......................................... 1.5(b) GAAP.................................................... 5.1(e)(i) Governing Documents..................................... 5.1(a) Governmental Consents................................... 7.1(b) Governmental Entity..................................... 5.1(d)(i) Hazardous Substance..................................... 5.1(k) HSR Act................................................. 5.1(d)(i) Indemnified Parties..................................... 6.10(a) Insurance Laws.......................................... 5.1(i)(i) IRS..................................................... 5.1(h)(ii) Laws.................................................... 5.1(i)(ii) Merger.................................................. 2nd Recital Merger Consideration.................................... 4.1(c) Merger Subsidiary....................................... 1st Paragraph Merger Subsidiary Common Stock.......................... 5.2(a) Millennium Functionality................................ 5.1(n)(ii) Minimum Tender Condition................................ Annex I NYSE.................................................... 5.1(d)(i) Offer Documents......................................... 1.4 Order................................................... 7.1(c) Parent.................................................. 1st Paragraph Parent Companies........................................ 4.1(b) Parent Material Adverse Effect.......................... 5.2(b) Pension Plan............................................ 5.1(h)(ii) Per Share Purchase Price................................ 4.1(c) Performance Unit........................................ 4.3(c) Person.................................................. 5.1(b) Plan Entry Date......................................... 6.8(c) PLC..................................................... 1st Recital Proxy Statement......................................... 6.5 Representatives......................................... 6.6(a)(i) Restricted Stock........................................ 4.3(b) Rights.................................................. 5.1(p) Rights Agreement........................................ 5.1(b) 48 Section Term Containing Definition - ---- --------------------- SAP..................................................... 5.1(e)(ii) Schedule 14D-1.......................................... 1.5(a) Schedule 14D-9.......................................... 1.5(d) SEC..................................................... 1.5(a) Secretary............................................... 1.3 Securities Act.......................................... 5.1(e)(i) Stock Option Agreement.................................. 3rd Recital Stockholders Meeting.................................... 6.4 Subsidiary.............................................. 5.1(a) Superior Proposal....................................... 6.2 Surviving Corporation................................... 1.1 Takeover Statute........................................ 5.1(j) Tax..................................................... 5.1(l) Tax Return.............................................. 5.1(l) Taxing Authority........................................ 5.1(l) Tender Offer............................................ 1.4 Termination Date........................................ 8.2 49 EXHIBIT B --------- Officers - -------- Terry Broderick - President Marston Becker - Vice President Joseph Fisher - Chief Financial Officer Joyce Wheeler - Secretary Michael Pautler - Treasurer 50 EX-99.(C)(2) 12 STOCK OPTION AGREEMENT EXHIBIT (C)(2) -------------- STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of July 12, 1999 (the "Agreement"), between ROYAL GROUP INC., a Delaware corporation (the "Grantee"), and ORION CAPITAL CORPORATION, a Delaware corporation (the "Grantor"). WHEREAS, the Grantee, NTG Acquisition Corp., a Delaware corporation and a direct or indirect wholly owned subsidiary of the Grantee ("Merger Subsidiary"), and the Grantor are entering into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides, among other things, for the merger of Merger Subsidiary with and into the Grantor (the "Merger"); WHEREAS, as a condition to their willingness to enter into the Merger Agreement, the Grantee and Merger Subsidiary have requested that the Grantor grant to the Grantee an option to purchase up to 5,443,697 shares of Common Stock, par value $1.00 per share, of the Grantor (the "Common Stock"), upon the terms and subject to the conditions hereof; and WHEREAS, in order to induce the Grantee and Merger Subsidiary to enter into the Merger Agreement, the Grantor is willing to grant the Grantee the requested option. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. The Option; Exercise; Adjustments; Payment of Spread. (a) Contemporaneously herewith the Grantee, Merger Subsidiary and the Grantor are entering into the Merger Agreement. Subject to the other terms and conditions set forth herein, the Grantor hereby grants to the Grantee an irrevocable option (the "Option") to purchase up to 5,443,697 shares of Common Stock (the "Shares") at a cash purchase price equal to $50.00 per share (the "Purchase Price"). The Option may be exercised by the Grantee, in whole or in part, at any time, or from time to time, following the occurrence of one of the events set forth in Section 2(d) hereof, and prior to the termination of the Option in accordance with the terms of this Agreement. (b) In the event the Grantee wishes to exercise the Option, the Grantee shall send a written notice to the Grantor (the "Stock Exercise Notice") specifying a date (subject to the HSR Act (as defined below) and applicable insurance regulatory approvals) not later than 10 business days and not earlier than three business days following the date such notice is given for the closing of such purchase. In the event of any change in the number of issued and outstanding shares of Common Stock by reason of any stock dividend, stock split, split-up, recapitalization, merger or other change in the corporate or capital structure of the Grantor, the number of Shares subject to this Option and the purchase price per Share shall be appropriately adjusted to restore the Grantee to its rights hereunder, including its right to purchase Shares representing 19.9% of the capital stock of the Grantor entitled to vote generally for the election of the directors of the Grantor which is issued and outstanding immediately prior to the exercise of the Option at an aggregate purchase price equal to the Purchase Price multiplied by 5,443,697. (c) If at any time the Option is then exercisable pursuant to the terms of Section l(a) hereof, the Grantee may elect, in lieu of exercising the option to purchase Shares provided in Section 1(a) hereof, to send a written notice to the Grantor (the "Cash Exercise Notice") specifying a date not later than 20 business days and not earlier than 10 business days following the date such notice is given on which date the Grantor shall pay to the Grantee an amount in cash equal to the Spread (as hereinafter defined) multiplied by all or such portion of the Shares subject to the Option as Grantee shall specify, net of any taxes required to be withheld under applicable law. As used herein "Spread" shall mean the excess, if any, over the Purchase Price of the higher of (x) if applicable, the highest price per share of Common Stock (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid or proposed to be paid by any person pursuant to one of the transactions enumerated in Section 2(d) hereof (the "Alternative Purchase Price") or (y) the closing price of the shares of Common Stock on the NYSE Composite Tape on the last trading day immediately prior to the date of the Cash Exercise Notice (the "Closing Price"). If, in the case of clause (x) above, the Alternative Purchase Price can be calculated by reference to an all cash amount paid or proposed to be paid for any shares of Common Stock outstanding, such cash amount shall be deemed to be the Alternative Purchase Price; if, in the case of clause (x) above, no shares of Common Stock will be purchased for all cash, the Alternative Purchase Price shall be the sum of (i) the fixed cash amount, if any, included in the Alternative Purchase Price plus (ii) the fair market value of such property other than cash included in the Alternative Purchase Price. If such other property consists of securities with an existing public trading market, the average of the closing prices (or the average of the closing bid and asked prices if closing prices are unavailable) for such securities in their principal public trading market on the five trading days ending five days prior to the date of the Cash Exercise Notice or, if Section l(d) is applicable, ending on the last trading day immediately prior to termination of the Merger Agreement, shall be used to calculate the fair market value of such property. If such other property consists of something other than cash or securities with an existing public trading market and, as of the payment date for the Spread, agreement on the value of such other property has not been reached, the Alternative Purchase Price shall be deemed to equal the Closing Price. Upon exercise of its right to receive cash pursuant to this Section 1(c), the obligations of the Grantor to deliver Shares pursuant to Section 3 shall be terminated with respect to such number of Shares for which the Grantee shall have elected to be paid the Spread. 2. Conditions to Delivery of Shares. The Grantor's obligation to deliver Shares upon exercise of the Option is subject only to the conditions that: (a) No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction in the United States prohibiting the delivery of the Shares shall be in effect; and -2- (b) Any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall have expired or been terminated; and (c) Any approval required to be obtained prior to the delivery of the Shares under the insurance laws of any state or foreign jurisdiction shall have been obtained and be in full force and effect; and (d) Any of the events specified in Sections 8.5(b), 8.5(c) or 8.5(d) of the Merger Agreement shall have occurred (each, a "Trigger Event"). 3. The Closing. (a) Any closing hereunder shall take place on the date specified by the Grantee in its Stock Exercise Notice or Cash Exercise Notice, as the case may be, at 9:00 A.M., local time, at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York, or if the conditions set forth in Section 2(a), (b) or (c) have not then been satisfied, on the second business day following the satisfaction of such conditions, or at such other time and place as the parties hereto may agree (the "Closing Date"). On the Closing Date, (i) in the event of a closing pursuant to Section 1(b) hereof, the Grantor will deliver to the Grantee a certificate or certificates, representing the Shares in the denominations designated by the Grantee in its Stock Exercise Notice and the Grantee will purchase such Shares from the Grantor at the price per Share equal to the Purchase Price, or (ii) in the event of a closing pursuant to Section 1(c) hereof, as the case may be, the Grantor will deliver to the Grantee cash in an amount determined pursuant to Section 1(c) hereof, as the case may be. Any payment made by the Grantee to the Grantor, or by the Grantor to the Grantee, pursuant to this Agreement shall be made by certified or official bank check or by wire transfer of federal funds to a bank designated by the party receiving such funds. (b) The certificates representing the Shares shall bear an appropriate legend relating to the fact that such Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). 4. Representations and Warranties of the Grantor. The Grantor represents and warrants to the Grantee that: (a) Grantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to enter into and perform this Agreement; (b) the execution and delivery of this Agreement by the Grantor and the consummation by it of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Grantor and this Agreement has been duly executed and delivered by a duly authorized officer of the Grantor and constitutes a valid and binding obligation of the Grantor, enforceable in accordance with its terms, subject to bankruptcy, -3- insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (c) the Grantor has taken all necessary corporate action to authorize and reserve the Shares issuable upon exercise of the Option and the Shares, when issued and delivered by the Grantor upon exercise of the Option and paid for by Grantee as contemplated hereby will be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights; (d) except as otherwise required by the HSR Act and applicable insurance laws, the execution and delivery of this Agreement by the Grantor and the consummation by it of the transactions contemplated hereby do not require the consent, waiver, approval or authorization of or any filing with any person or public authority and will not violate, result in a breach of or the acceleration of any obligation under, or constitute a default under, any provision of Grantor's charter or by-laws, or any material indenture, mortgage, lien, lease, agreement, contract, instrument, order, law, rule, regulation, judgment, ordinance, or decree, or restriction by which the Grantor or any of its subsidiaries or any of their respective properties or assets is bound; (e) no "fair price", "moratorium", "control share acquisition," "interested shareholder" or other form of antitakeover statute or regulation, including without limitation, Section 203 of the Delaware General Corporation Law, or similar provision contained in the charter or by-laws of Grantor, is or shall be applicable to the acquisition of Shares pursuant to this Agreement; and (f) the Grantor has taken all corporate action necessary so that any Shares acquired pursuant to this Agreement shall not be counted for purposes of determining the number of shares of Common Stock beneficially owned by the Grantee or any of its Affiliates or Associates (as defined in the Rights Agreement) pursuant to the Rights Agreement, dated as of September 11, 1998, between the Grantor and Chase Mellon Shareholder Services, LLC, as Rights Agent (the "Rights Agreement"). 5. Representations and Warranties of the Grantee. The Grantee represents and warrants to the Grantor that: (a) the execution and delivery of this Agreement by the Grantee and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Grantee and this Agreement has been duly executed and delivered by a duly authorized officer of the Grantee and constitutes a valid and binding obligation of Grantee; and (b) the Grantee is acquiring the Option and, if and when it exercises the Option, will be acquiring the Shares issuable upon the exercise thereof for its own account and not with a view to distribution or resale in any manner which would be in violation of the Securities Act. -4- 6. Listing of Shares; Filings; Governmental Consents. Subject to applicable law and the rules and regulations of the New York Stock Exchange, Inc. (the "NYSE"), the Grantor will promptly file an application to list the Shares on the NYSE and will use its reasonable best efforts to obtain approval of such listing and to effect all necessary filings by the Grantor under the HSR Act and the applicable insurance laws of each state and foreign jurisdiction. Each of the parties hereto will use its reasonable best efforts to obtain consents of all third parties and governmental authorities, if any, necessary for the consummation of the transactions contemplated. 7. Repurchase of Shares. If by the first anniversary of the date the Merger Agreement was terminated (the "Merger Termination Date") pursuant to the terms thereof, neither the Grantee nor any other Person has acquired more than fifty percent (excluding the Shares) of the shares of outstanding Common Stock, then the Grantor has the right to purchase (the "Repurchase Right") all, but not less than all, of the Shares at the greater of (i) the Purchase Price or (ii) the average of the last sales prices for shares of Common Stock on the five trading days ending five days prior to the date the Grantor gives written notice of its intention to exercise the Repurchase Right. If the Grantor does not exercise the Repurchase Right within thirty days following the end of the one year period after the Merger Termination Date, the Repurchase Right lapses. In the event the Grantor wishes to exercise the Repurchase Right, the Grantor shall send a written notice to the Grantee specifying a date (not later than 20 business days and not earlier than 10 business days following the date such notice is given) for the closing of such purchase. 8. Sale of Shares. At any time prior to the first anniversary of the Merger Termination Date, the Grantee shall have the right to sell (the "Sale Right") to the Grantor all, but not less than all, of the Shares at the greater of (i) the Purchase Price, or (ii) the average of the last sales prices for shares of Common Stock on the five trading days ending five days prior to the date the Grantee gives written notice of its intention to exercise the Sale Right. If the Grantee does not exercise the Sale Right prior to the first anniversary of the Merger Termination Date, the Sale Right terminates. In the event the Grantee wishes to exercise the Sale Right, the Grantee shall send a written notice to the Grantor specifying a date (not later than 20 business days and not earlier than 10 business days following the date such notice is given) for the closing of such sale. 9. Registration Rights. (a) In the event that the Grantee shall desire to sell any of the Shares within two years after the purchase of such Shares pursuant hereto, and such sale requires, in the opinion of counsel to the Grantee, which opinion shall be reasonably satisfactory to the Grantor and its counsel, registration of such Shares under the Securities Act, the Grantor will cooperate with the Grantee and any underwriters in registering such Shares for resale, including, without limitation, promptly filing a registration statement which complies with the requirements of applicable federal and state securities laws, and entering into an underwriting agreement with such underwriters upon such terms and conditions as are customarily contained in underwriting agreements with respect to secondary distributions; provided that the Grantor shall not be required to have declared effective more than two registration statements hereunder and shall be entitled to delay the filing or effectiveness of any registration statement for up to 60 days if the offering would, in the judgment of the -5- Board of Directors of the Grantor, require premature disclosure of any material corporate development or material transaction involving the Grantor or interfere with any previously planned securities offering by the Company. (b) If the Common Stock is registered pursuant to the provisions of this Section 9, the Grantor agrees (i) to furnish copies of the registration statement and the prospectus relating to the Shares covered thereby in such numbers as the Grantee may from time to time reasonably request, and (ii) if any event shall occur as a result of which it becomes necessary to amend or supplement any registration statement or prospectus, to prepare and file under the applicable securities laws such amendments and supplements as may be necessary to keep available for at least 45 days a prospectus covering the Common Stock meeting the requirements of such securities laws, and to furnish the Grantee such numbers of copies of the registration statement and prospectus as amended or supplemented as may reasonably be requested. The Grantor shall bear the cost of the registration, including, but not limited to, all registration and filing fees, printing expenses, and fees and disbursements of counsel and accountants for the Grantor, except that the Grantee shall pay the fees and disbursements of its counsel, and the underwriting fees and selling commissions applicable to the shares of Common Stock sold by the Grantee. The Grantor shall indemnify and hold harmless (i) Grantee, its affiliates and its officers and directors, and (ii) each underwriter and each person who controls any underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (collectively, the "Underwriters") ((i) and (ii) being referred to as "Indemnified Parties") against any losses, claims, damages, liabilities or expenses, to which the Indemnified Parties may become subject, insofar as such losses, claims, damages, liabilities (or actions in respect thereof) and expenses arise out of or are based upon any untrue statement or alleged untrue statement, of any material fact contained or incorporated by reference in any registration statement filed pursuant to this paragraph, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Grantor will not be liable in any such case to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any such documents in reliance upon and in conformity with written information furnished to the Grantor by the Indemnified Parties expressly for use or incorporation by reference therein. (c) The Grantee and the Underwriters shall indemnify and hold harmless the Grantor, its affiliates and its officers and directors against any losses, claims, damages, liabilities or expenses to which the Grantor, its affiliates and its officers and directors may become subject, insofar as such losses, claims, damages, liabilities (or actions in respect thereof) and expenses arise out of or are based upon any untrue statement of any material fact contained or incorporated by reference in any registration statement filed pursuant to this paragraph, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Grantor by the Grantee -6- Grantee or the Underwriters, as applicable, specifically for use or incorporation by reference therein. 10. Expenses. Each party hereto shall pay its own expenses incurred in connection with this Agreement, except as otherwise specifically provided herein. 11. Specific Performance. The Grantor acknowledges that if the Grantor fails to perform any of its obligations under this Agreement immediate and irreparable harm or injury will be caused to the Grantee for which money damages would not be an adequate remedy. In such event, the Grantor agrees that the Grantee shall have the right, in addition to any other rights it may have, to specific performance of this Agreement. Accordingly, if the Grantee should institute an action or proceeding seeking specific enforcement of the provisions hereof, the Grantor hereby waives the claim or defense that the Grantee has an adequate remedy at law and hereby agrees not to assert in any such action or proceeding the claim or defense that such a remedy at law exists. The Grantor further agrees to waive any requirements for the securing or posting of any bond in connection with obtaining any such equitable relief. 12. Notice. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and shall be deemed delivered (i) on the date personally delivered, (ii) one business day after the date delivered by facsimile transmission with a confirmation copy sent by overnight courier or first-class mail, or (iii) three business days after the date sent by registered or certified mail, postage prepaid: If to the Grantee: Royal Group Inc. 9300 Arrowpoint Blvd Charlotte, North Carolina 28273-8135 Attention: Joyce W. Wheeler Fax: (704) 522-3111 Phone: (704) 522-2739 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10019 Attention: Christopher E. Manno Fax: (212) 728-8111 Phone: (212) 728-8000 -7- If to the Grantor: Orion Capital Corporation 9 Farm Springs Road Farmington, Connecticut 06032 Attention: Corporate Secretary Fax: (860) 674-6670 Phone: (860) 674-6904 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attention: Alan C. Myers Fax: (212) 735-2000 Phone: (212) 735-3780 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 13. Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties named herein and their respective successors and assigns; provided, however, that such assigns shall agree to be bound by the provisions of this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the Grantor or the Grantee or their successors or assigns, any rights or remedies under or by reason of this Agreement. 14. Entire Agreement; Amendments. This Agreement, together with the Merger Agreement and the other documents referred to therein, contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, oral or written, with respect to such transactions. This Agreement may not be changed, amended or modified orally, but may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge may be sought. 15. Assignment. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto, except that the Grantee may assign its rights and obligations hereunder to any of its direct or indirect wholly owned subsidiaries (including Merger Subsidiary) or direct or indirect parent companies, but no such transfer shall relieve the Grantee of its obligations hereunder if such transferee does not perform such obligations. 16. Headings. The section headings herein are for convenience only and shall not affect the construction of this Agreement. -8- 17. Counterparts. This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable Delaware principles of conflicts of law). 19. Termination. The right to exercise the Option granted pursuant to this Agreement shall terminate at the earlier of (i) the Effective Time (as defined in the Merger Agreement); (ii) 90 days after the date full payment of the termination fee is made by Grantor to Grantee under Section 8.5(b), 8.5(c) or 8.5(d) of the Merger Agreement (the date referred to in clause (ii) being hereinafter referred to as the "Option Termination Date"), or (iii) one day following the date on which it is certain that no termination fee will become payable to Parent under Section 8.5 of the Merger Agreement; provided that, if the Option cannot be exercised or the Shares cannot be delivered to Grantee upon such exercise because the conditions set forth in Section 2(a), (b) or (c) hereof have not yet been satisfied, the Option Termination Date shall be extended until thirty days after such impediment to exercise or delivery has been removed but not past December 31, 2001. All representations and warranties contained in this Agreement shall survive delivery of and payment for the Shares. 20. Profit Limitation. Notwithstanding any other provision of this Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined) exceed $55,000,000 and, if it otherwise would exceed such amount, the Grantee, at its sole election, shall either (a) reduce the number of shares of Common Stock required to be delivered by Grantor pursuant to the Stock Exercise Notice, (b) deliver to the Grantor for cancellation Shares previously purchased by Grantee, (c) reduce the cash payable to Grantee pursuant to Section 1(c) or 1(d) hereof, (d) pay cash or other consideration to the Grantor, or (e) undertake any combination thereof, so that Grantee's Total Profit shall not exceed $55,000,000 after taking into account the foregoing actions. Notwithstanding any other provision of this Agreement, this Option may not be exercised for a number of Shares as would, as of the date of the Stock Exercise Notice, result in a Notional Total Profit (as defined below) of more than $55,000,000 and, if exercise of the Option otherwise would exceed such amount, the Grantee, at its discretion, may increase the Purchase Price for that number of Shares set forth in the Stock Exercise Notice so that the Notional Total Profit shall not exceed $55,000,000; provided, that nothing in this sentence shall restrict any exercise of the Option permitted hereby on any subsequent date at the Purchase Price set forth in Section 1(a) hereof. As used herein, the term "Total Profit" shall mean the aggregate amount (before taxes) of the following: (i) the amount of cash received by Grantee pursuant to Section 8.5 of the Merger Agreement and Section l(c) and Section l(d) hereof, (ii) the amount of (x) cash received by Grantee pursuant to the Grantor's repurchase of Shares pursuant to Sections 7 or 8 hereof, less (y) the Grantee's purchase price for such Shares, and (iii) (x) the net cash amounts received by -9- Grantee pursuant to the sale of Shares (or any other securities into which such Shares are converted or exchanged) to any unaffiliated party prior to the first anniversary of the Merger Termination Date, less (y) the Grantee's purchase price for such Shares. As used herein, the term "Notional Total Profit" with respect to any number of Shares as to which Grantee may propose to exercise this Option shall be the Total Profit determined as of the date of the Stock Exercise Notice assuming that this Option were exercised on such date for such number of Shares and assuming that such Shares, together with all other Shares held by Grantee and its affiliates as of such date, were sold for cash at the closing market price for the Common Stock as of the close of business on the preceding trading day (less customary brokerage commissions). 21. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 22. Public Announcement. The Grantee will consult with the Grantor and the Grantor will consult with the Grantee before issuing any press release with respect to the initial announcement of this Agreement, the Option or the transactions contemplated hereby and neither party shall issue any such press release prior to such consultation except as may be required by law or the applicable rules and regulations of the NYSE. -10- IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement to be duly executed and delivered on the day and year first above written. ORION CAPITAL CORPORATION By: /s/ W. Marston Becker --------------------- Name: W. Marston Becker Title: Chairman and CEO ROYAL GROUP INC. By: /s/ Terry Broderick ------------------- Name: Terry Broderick Title: President U.S. Operations EX-99.(C)(3) 13 CONFIDENTIALITY AGREEMENT 06/18/1999 Exhibit (c)(3) June 18, 1999 Terry Broderick President Royal & SunAlliance, USA, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273-8135 Dear Terry: In connection with consideration of a possible transaction (the "Transaction") involving Royal & SunAlliance, USA, Inc. or one of its affiliates, (collectively, "RSA") and Orion Capital Corporation ("Orion"), Orion has furnished or will furnish to RSA, its directors, officers, employees, agents or representatives, and RSA has furnished or will furnish to Orion, its directors, officers, employees, agents or representatives, information (in both written and oral form) related to the business and operations of Orion and RSA, respectively All such information furnished to RSA and its Representatives (as defined below) and all such information furnished to Orion and its Representa tives whether prior to, on, or following the date hereof, together with analysis, compilations, forecasts, studies or other documents or records prepared by Orion or its Representatives on the one hand, or RSA or its Representatives on the other, which contain, are based on or otherwise reflect or are generated in whole or in part from such information, including that stored on any computer, word processor or other similar device, are collectively referred to herein as the "Evaluation Material." Orion and RSA hereby agree as follows: (1) Each shall use the Evaluation Material solely for the purpose of evaluating the Transaction and each shall keep the Evaluation Material confidential, except that each may disclose the Evaluation Material or portions thereof to those of its directors, officers, employees, affiliates, representatives (including, without limitation, financial advisors, attorneys and accountants) and (with the prior written consent of Orion in each case, which consent shall not be unreasonably withheld) potential sources of financing (if any) for the Transaction (collectively, the "Representatives") (a) who need to know such information for the purpose of evaluating the Transaction, (b) who are informed of the confidential nature of the Evaluation Material and (c) who agree to be bound by the terms of Sections 1 through 5 and 11 through 14 of this agreement as if they were parties hereto. Each party shall be responsible for any breach of this agreement by its Representatives. In the event that either party or any of its Representatives are requested or required (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any of the Evaluation Material, that party shall provide the other with prompt notice of such requirement, and shall furnish only that portion of the Evaluation Material which is in the opinion of its legal counsel legally required, and shall exercise its best efforts to obtain reliable assurance that confidential treatment will be accorded such Evaluation Material. (2) If either Orion or RSA determines not to proceed with the Transaction, the party making such determination will promptly inform the other of that decision and, in that case or at any time upon the request of either party, Orion and RSA shall, and each party's Representatives shall, at the option of the party possessing the Evaluation Material, promptly (i) destroy all copies of the written Evaluation Material in its possession or under their custody or control (including that stored in any computer, word processor or similar device) and confirm such destruction to the other party in writing or (ii) return to the other party all copies of any Evaluation Material furnished to it by or on behalf of the other party in its possession or in the possession of its Representatives. Any oral Evaluation Material will continue to be held subject to the terms of this agreement. (3) The term "Evaluation Material" does not include any information which (i) is or becomes generally available to the public (other than as a result of a disclosure by the party receiving the Evaluation Material (the "Receiving Party") or by any of its Representatives); (ii) was available to the Receiving Party or its Representatives on a non-confidential basis from a source (other than the other party or its Representatives) that is not and was not prohibited from disclosing such information to the Receiving Party by a contractual, legal or fiduciary obligation of which the Receiving Party is aware or should have been aware or (iii) is independently developed based on information received by the Receiving Party as described in (i) or (ii) of this paragraph. (4) Without the prior written consent of the other, neither Orion nor RSA nor their respective Representatives shall disclose to any person (a) that any investigations, discussions or negotiations are taking place concerning the Transaction or any other possible Transaction involving Orion and RSA, (b) that either party has requested or received any Evaluation Material or (c) any of the terms, conditions or other facts with respect to the Transaction or such investigations, discussions or negotiations, including 2 the status thereof. The term "person" as used in this agreement shall be broadly interpreted to include the media and any corporation, partnership, group, individual or entity. (5) Orion and RSA each acknowledges that it and its Representatives may receive material non-public information in connection with the evaluation of the Transaction and each is aware (and will so advise its Representatives) that the United States securities laws impose restrictions on trading in securities when in possession of such information. (6) Although Orion and RSA have endeavored to include in the Evaluation Material information known to them which they believe to be relevant for the purpose of consideration of the Transaction, each understands and acknowledges that neither Orion nor RSA nor any of their respective officers, directors, employees, affiliates, stockholders, agents or controlling persons is making any representation or warranty, express or implied, as to the accuracy or completeness of the Evaluation Material, and each of Orion, RSA and such other persons expressly disclaims any and all liability to the other or any other person that may be based upon or relate to (a) the use of the Evaluation Material by either party or any of its Representatives or (b) any errors therein or omissions therefrom. Orion and RSA further agree that neither is entitled to rely on the accuracy and completeness of the Evaluation Material and that each will be entitled to rely solely on those particular representations and warranties, if any, that are in a definitive agreement relating to the Transaction when, as, and if it is executed, and subject to such limitations and restrictions as may be specified in such definitive agreement. (7) Orion and RSA acknowledge that remedies at law may be inadequate to protect against any actual or threatened breach of this agreement by either party or its Representatives, and, without prejudice to any other rights and remedies otherwise available to the non-breaching party, each party agrees that the non-breaching party shall be entitled to seek equitable relief in its favor. In the event of litigation relating to this agreement, if a court of competent jurisdiction determines in a final, nonappealable order that this agreement has been breached by either party or its Representatives, then the breaching party will reimburse the non-breaching party for its costs and expenses (including, without limitation, legal fees and expenses) incurred in connection with all such litigation. 3 (8) For a period one year following the date hereof, neither party shall directly or indirectly solicit for employment any officer, director, or employee of the other or the other's affiliates, with whom such party had contact or who became known to such party in connection with consideration of the Transaction, except that neither party shall be precluded from hiring any such employee who (i) initiates discussions regarding such employment without any direct or indirect solicitation, (ii) responds to any public advertisement or (iii) has been terminated by the other party or its affiliates prior to commencement of employment discussions. (9) In consideration of substantial expenditures of time, effort and expense to be undertaken by RSA in connection with the evaluation of a possible Transaction, Orion undertakes and agrees that from and after the date on which RSA shall present a term sheet which is reasonably satisfactory to Orion as a basis for further discussion and until the earliest of (i) the execution of a definitive purchase agreement, (ii) the mutual termination of the due diligence process relating to the Transaction or (iii) July 15 , 1999 neither it, nor any officer, director, affiliate or agent shall (except as provided below) solicit or encourage inquiries or proposals with respect to, further information relating to, participate in any negotiations or discussions concerning, or cooperate in any manner relating to any change in control of Orion, or any sale of (or granting of any option with respect to), any assets of, or of an equity interest in Orion other than as contemplated in this agreement and will notify RSA immediately if any such inquiries or proposals are received by, any information is requested, or any such negotiations or discussions are sought to be initiated with Orion. RSA acknowledges that it has been informed that Orion has received preliminary indications of interest from several entities with respect to the purchase by those entities of certain program and binding authority business of Orion Specialty. RSA agrees that Orion may continue to respond to requests from those entities for information; provided, however, Orion agrees that during the period of exclusivity referred to in the first sentence of this Section 9, Orion will not enter into a definitive agreement with respect to the disposition of such Orion Specialty business. (10) Without the prior written consent of the Board of Directors of Orion, RSA will not, prior to the first anniversary of this letter, (a) initiate any contact with any of the directors or employees, shareholders, capital providers or clients of Orion (other than in relation to matters which do 4 not breach this confidentiality agreement and are unrelated to the Transaction or any similar transaction) or (b) solicit, or join or encourage or support any group to solicit, proxies or consents from the shareholders of Orion or make any offer or proposal, or join or encourage or support any group in making any offer or proposal, to Orion or its Board of Directors or its shareholders which is intended to result in the acquisition by RSA or such group of more than 10% of the business or assets or earning power of Orion or more than 10% of the number of shares of Common Stock of Orion outstanding at the time. Notwithstanding the preceding sentence, if (a)(1) the Board of Directors of Orion approves a transaction with any person (other than Orion or any employee benefit plans of Orion) and (2) such transaction would result in such person beneficially owning more than 50% of the outstanding voting securities of Orion or all or substantially all of Orion's assets, or (b) any person or "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, (other than Orion or RSA or a group of which RSA is a member) shall have commenced or publicly announced its intention to commence a tender or exchange offer for more than 50% of the outstanding voting securities of Orion, or any securities convertible into more than 50% of the outstanding voting securities of Orion, or any options, warrants or other rights to acquire more than 50% of the outstanding voting securities of Orion, then RSA shall not be prohibited thereafter from taking any of the actions described in the preceding sentence. (11) Each party agrees that no failure or delay by the other in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. (12) This agreement is for the benefit of Orion and RSA, and their respective successors and assigns. (13) This agreement and all controversies arising from or relating to performance under this agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to its conflicts of laws principles. (14) This agreement contains the entire agreement between Orion and RSA concerning the subject matter hereof, and no modification of this agreement or waiver of the terms and conditions hereof will be binding unless approved in writing by Orion and RSA. 5 Please confirm your agreement to the foregoing by signing both copies of this agreement and returning one to Orion Capital Corporation, Attn: W. Marston Becker Very truly yours ORION CAPITAL CORPORATION By: _____________________________ W. Marston Becker Chief Executive Officer CONFIRMED AND AGREED AS OF THE DATE WRITTEN ABOVE: ROYAL & SUN ALLIANCE, USA, INC. By: ______________________________ Terry Broderick President 6 -----END PRIVACY-ENHANCED MESSAGE-----