<PAGE>
As filed with the Securities and Exchange Commission on November 16, 1999
Registration No. 333-88609
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1 TO
FORM S-4
Registration Statement
Under
The Securities Act of 1933
--------------
Markel Holdings Inc.
(Exact Name of the Registrant as Specified in its Charter)
--------------
Virginia 6331 54-1959284
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
4551 Cox Road
Glen Allen, Virginia 23060
804-747-0136
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
--------------
Steven A. Markel
Markel Corporation
4551 Cox Road
Glen Allen, Virginia 23060
(804) 747-0136
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With Copies to:
Gregory B. Nevers Leslie A. Grandis
Corporate Counsel McGuire, Woods, Battle & Boothe
Markel Corporation LLP
4551 Cox Road One James Center
Glen Allen, Virginia 23060 901 East Cary Street
Richmond, Virginia 23219-4030
Jean M. Waggett (804) 775-1000
Senior Vice President and
General Counsel Edward A. Perell
Terra Nova (Bermuda) Holdings Ltd. Debevoise & Plimpton
12 Par-La-Ville Road 875 Third Avenue
Hamilton HM 08, Bermuda -------------- New York, NY 10022
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. The
issuance of securities shall occur when all other conditions to the
consummation of the transactions described in the joint proxy
statement/prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If the form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
[LOGO OF MARKEL]
Dear Shareholder:
This joint proxy statement/prospectus relates to the proposed acquisition of
Terra Nova by Markel for a combination of cash and stock. We believe this
acquisition will create value for both companies' shareholders by providing
opportunities to achieve substantial benefits that would not be available to
either company alone.
The shareholders of both companies must approve the proposed transactions as
a condition for the acquisition closing. Both of our boards have unanimously
approved the proposed acquisition and recommend that you vote in favor of the
proposed transactions. This is an important decision for you as a shareholder
and we urge you to read this document. Your vote is very important.
Markel shareholders do not have to take any other action. Terra Nova
shareholders can make their election to receive cash or stock or both by
following the steps described on page .
Sincerely,
<TABLE>
<S> <C>
Alan I. Kirshner John J. Dwyer
Chairman Chairman
Markel Corporation Terra Nova (Bermuda) Holdings Ltd.
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the merger or the scheme of arrangement or the issuance
of Markel Holdings common shares in connection therewith, or determined whether
the information contained in this document is accurate or adequate. Any
representation to the contrary is a criminal offense.
To the extent it involves an offering of securities, this document is issued
by Markel Holdings and has been approved by Salomon Brothers International Ltd.
solely for the purposes of section 57 of the United Kingdom's Financial
Services Act 1986. Salomon Brothers International Ltd., which is regulated by
The Securities and Futures Authority Limited, is acting exclusively for Markel
in relation to this document and will not regard any other person, whether or
not a recipient of this document, as its customer in relation to any
transaction described in or contemplated by this document.
The information in this document has been provided by Markel, Markel
Holdings and Terra Nova and has not been verified by Salomon Brothers
International Ltd. No representation or warranty, express or implied, is or
will be made as to, or in relation to, and no responsibility or liability is or
will be accepted by Salomon Brothers International Ltd. or by any of its
officers, servants or agents as to, or in relation to, the accuracy or
completeness of this document, or any other written or oral information made
available to any interested party or its advisers and any liability therefore
is hereby expressly disclaimed.
Joint proxy statement/prospectus dated , 1999 and first mailed to
shareholders on or about , 1999.
<PAGE>
[LOGO OF MARKEL CORPORATION]
Notice of Special Meeting of Shareholders
, 1999
To the Shareholders of Markel:
Notice is hereby given that a special meeting of the shareholders of Markel
Corporation will be held in the Markel American Building, 4501 Highwoods Pkwy.,
Glen Allen, Virginia, on , 2000 starting at 10:00 a.m.
The purposes for which the special meeting is being held are:
1. To consider and vote on a proposal to approve and adopt an Agreement
and Plan of Merger and Scheme of Arrangement between Markel Corporation and
Terra Nova (Bermuda) Holdings, Ltd., dated as of August 15, 1999 and the
transactions contemplated by the agreement. The agreement provides for the
merger of a wholly-owned subsidiary of Markel Holdings into Markel and a
scheme of arrangement between Terra Nova and its shareholders. After
completion of the merger and the scheme of arrangement, each of Terra Nova
and Markel will be a wholly-owned subsidiary of Markel Holdings, which will
change its name to "Markel Corporation." A copy of the agreement is
attached as Appendix A.
2. To transact such other business as may properly come before the
special meeting or any adjournment thereof.
Only shareholders of record on , 1999 are entitled to vote at the
Markel special meeting. The affirmative vote of at least two-thirds of the
Markel common shares outstanding on , 1999 is required to approve and
adopt the agreement and the transactions contemplated by the agreement.
It is important that your shares be represented and voted. Shareholders,
whether or not they expect to attend the special meeting in person, are
requested to date, sign and return the accompanying proxy card in the envelope
provided, on which no postage is needed if mailed in the United States.
The Markel board has unanimously approved and adopted the agreement and
unanimously recommends that Markel shareholders vote for approval of the
agreement at the Markel special meeting.
By Order of the Board of Directors
Leslie A. Grandis, Secretary
Markel shareholders will not need to surrender or exchange their existing
certificates as a result of this transaction.
<PAGE>
Terra Nova (Bermuda) Holdings Ltd.
Richmond House [LOGO OF TERRA NOVA]
12 Par-La-Ville Road
Hamilton HM 08
Bermuda
Notice Of Special General Meeting Of Shareholders
, 1999
To the Shareholders of Terra Nova (Bermuda) Holdings Ltd.:
Notice is hereby given that a special general meeting of the shareholders of
Terra Nova (Bermuda) Holdings Ltd. will be held at the offices of Terra Nova
(Bermuda) Holdings Ltd., Richmond House, 12 Par-La-Ville Road, Hamilton HM 08,
Bermuda on Monday, , 2000 at 10:30 a.m. for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger and Scheme of Arrangement, dated as of August
15, 1999 between Terra Nova and Markel Corporation, a Virginia corporation,
and the transactions contemplated by the agreement. The agreement provides
for the merger of a wholly-owned subsidiary of Markel Holdings into Markel
and a scheme of arrangement between Terra Nova and its shareholders. After
completion of the merger and the scheme of arrangement, each of Terra Nova
and Markel will be a wholly-owned subsidiary of Markel Holdings, which will
change its name to "Markel Corporation." At the effective time of the
merger and scheme of arrangement, each outstanding Class A ordinary share
of Terra Nova and each outstanding Class B ordinary share of Terra Nova
will be cancelled and the holder thereof, other than Markel, Terra Nova or
their subsidiaries, will be entitled to receive 0.184 Markel Holdings
common shares or $34.00 in cash per share without any interest thereon in
each case as the holder shall have elected or deemed to have elected in
accordance with, and subject to the limitations set forth in, the
agreement.
2. To consider and vote upon a proposal to approve and adopt the Scheme
of Arrangement among Terra Nova (Bermuda) Holdings Ltd. and the holders of
the Class A ordinary shares and Class B ordinary shares with any
modification or addition or condition approved or imposed by the Supreme
Court of Bermuda.
3. To transact such business as may properly come before the special
general meeting or any adjournment thereof.
The Terra Nova board of directors has fixed the close of business on
, 1999 as the record date for determining the shareholders having the right to
vote at the special general meeting or any adjournment thereof.
The affirmative vote of a majority in number of Terra Nova Class A
shareholders who represent at least 75 percent in value of the Terra Nova Class
A ordinary shares present and voting at the special general meeting is required
to approve and adopt the agreement and the transactions contemplated by the
agreement.
The vote of all holders of Terra Nova Class A ordinary shares is important.
Whether or not you attend the special meeting, please complete, sign, date and
return the accompanying proxy card in the postage prepaid envelope as soon as
possible. If you attend the special meeting, you may revoke your proxy and vote
your Terra Nova Class A ordinary shares in person.
<PAGE>
The board of directors unanimously recommends that the holders of Terra
Nova Class A ordinary shares vote for approval and adoption of the agreement
and the transactions contemplated by the agreement at the special general
meeting.
By Order of the Board of Directors
Jean M. Waggett, Secretary
Hamilton, Bermuda
, 1999
<PAGE>
Notice of Court Meetings of Shareholders
In the Supreme Court of Bermuda
Civil Jurisdiction
In the Matter of Terra Nova (Bermuda) Holdings Ltd.
And
In the Matter of Section 99 of the Companies Act 1981
---------------------
Notice of Court Meetings
---------------------
Notice is hereby given that, by an Order dated day of , 1999, made in
the above matters, the Supreme Court of Bermuda has directed separate court
meetings to be convened of the holders of Class A ordinary shares and Class B
ordinary shares of Terra Nova (Bermuda) Holdings Ltd., specified in the
schedule to this notice for the purpose of considering and, if thought fit,
approving, with or without modification, a Scheme of Arrangement proposed to be
made between Terra Nova and the holders of Class A and Class B ordinary shares.
The court meetings will be held at the offices of Terra Nova (Bermuda) Holdings
Ltd., Richmond House, 12 Par-La-Ville Road, Hamilton HM 08, Bermuda on the
day of 2000 at 10:00 a.m. for Class A ordinary shares and 10:15 a.m. for
Class B ordinary shares, respectively, at which place and time the holders of
the Class A and Class B ordinary shares are requested to attend.
Copies of the Scheme of Arrangement and the explanatory statement required
by section 100 of the Companies Act 1981 are incorporated as appendices to the
joint proxy statement/prospectus of which this notice is a part.
Holders of Class A ordinary shares or the Class B ordinary shares may vote
in person at the relevant court meeting or they may appoint another person,
whether a member of Terra Nova or not, as their proxy to attend and vote in
their stead. A form of proxy for use at the court meetings is enclosed.
The completion and return of the form of proxy does not preclude
shareholders from attending and voting at the court meetings if they wish.
In the case of joint holders, the vote of the senior holder who tenders a
vote whether in person or by proxy will be accepted to the exclusion of the
vote(s) or the other joint holder(s), and for this purpose seniority will be
determined by the order in which the names stand in the Register of Members of
Terra Nova in respect of the relevant joint holding.
The accompanying form of proxy should be signed, dated and returned in the
postage prepaid envelope before the time appointed for the meetings, but if the
form is not so lodged it may be handed to the Chairman at the meetings.
By its Order, the Court has appointed John J. Dwyer or failing him, Nigel
Rogers, to act as Chairman of the court meetings and has directed the Chairman
to report the result of the court meetings to the Court.
The Scheme of Arrangement will be subject to the subsequent approval of the
Court.
<PAGE>
The Schedule
Particulars of Class Meetings
ordered to be convened: Time appointed for Meetings on
the day of , 2000:
(1) Holders of the Class A 10:00 a.m.
Ordinary Shares
(2) Holders of the Class B 10:15 a.m. or so soon
Ordinary Shares thereafter as the preceding
meeting convened for the same
day and place shall have been
concluded or or adjourned.
Dated the day of , 1999
Conyers Dill & Pearman
Attorneys for Terra Nova (Bermuda) Holdings Ltd.
By Order of the Supreme Court of Bermuda
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers About the Merger and Scheme of Arrangement.......... 1
Summary................................................................... 2
The Transactions........................................................ 2
What You Will Receive................................................... 2
How You Make An Election................................................ 3
Material U.S. Federal Income Tax Consequences of the Transactions....... 3
Markel Shareholder Approval............................................. 3
Terra Nova Shareholder Approval......................................... 4
Dissenter's Rights...................................................... 4
Treatment of Outstanding Options........................................ 4
Reasons for the Transactions; Recommendation............................ 5
Interests of Terra Nova Officers and Directors that are Different From
Yours.................................................................. 5
Opinion of Terra Nova's Financial Advisor............................... 6
Opinion of Markel's Financial Advisor................................... 6
What We Need to do to Complete the Proposed Transactions................ 7
Terminating the Agreement; Who Pays for What............................ 7
Accounting Treatment of the Proposed Transactions....................... 7
Governmental and Regulatory Approvals................................... 7
Comparison of Rights of Markel and Terra Nova Shareholders to their
Rights as Markel Holdings Shareholders................................. 8
Markel.................................................................. 8
Terra Nova.............................................................. 8
Markel Holdings......................................................... 8
Comparative Per Share Market Prices and Dividend Information.............. 9
Summary Comparative Historical and Pro Forma Per Share Information ....... 10
Markel Corporation Summary Historical Financial Information............... 11
Terra Nova (Bermuda) Holdings Ltd. Summary Historical Financial
Information.............................................................. 12
Summary Unaudited Selected Pro Forma Condensed Financial Information...... 13
Forward-Looking Information............................................... 14
The Markel Special Meeting................................................ 14
Date, Time and Place.................................................... 14
Matters to Be Considered at the Markel Special Meeting.................. 14
Voting and Proxies...................................................... 15
Solicitation of Proxies................................................. 15
The Terra Nova Meetings................................................... 16
Date, Time and Place.................................................... 16
Matters to Be Considered at the Terra Nova Meetings .................... 16
Voting and Proxies...................................................... 16
Solicitation of Proxies................................................. 17
The Transactions.......................................................... 18
Background of the Agreement............................................. 18
Reasons for the Proposed Transactions................................... 19
Opinion of Terra Nova's Financial Advisor............................... 21
Opinion of Markel's Financial Advisor................................... 28
General Description of the Transactions................................. 36
Material U.S. Federal Tax Consequences.................................. 40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Interests of Terra Nova Officers and Directors in the Transactions....... 44
Employment Agreements--Change of Control Arrangements.................. 44
Special Bonus.......................................................... 46
Effects of Transaction on Share Option Plans........................... 46
Directors Plan......................................................... 46
Octavian Stock Option Plan............................................. 46
New Benefit Plan....................................................... 47
Interests of Financial Advisor......................................... 47
Registration Rights.................................................... 47
Board of Directors of Markel........................................... 47
Indemnification and Insurance.......................................... 47
Anticipated Accounting Treatment......................................... 48
Regulatory Matters....................................................... 48
Approvals and Consents................................................. 48
Antitrust Filings...................................................... 48
U.S. Antitrust Laws.................................................... 48
Financial Services Authority Consent................................... 49
Lloyd's Consent........................................................ 49
U.S. Insurance Regulatory Approvals.................................... 49
Other.................................................................. 49
Status of Regulatory Approvals and Other Information................... 49
Supreme Court of Bermuda Approval...................................... 50
Restrictions on Resales.................................................. 50
No Dissenter's Rights.................................................... 51
Stock Exchange Listing for the Markel Holdings Shares.................... 51
Management and Operations After the Transactions......................... 51
The Agreement............................................................ 51
Representations and Warranties......................................... 52
Certain Covenants and Agreements....................................... 54
Conditions Precedent to the Merger and Scheme of Arrangement........... 55
Amendment, Waiver...................................................... 57
No Solicitation........................................................ 57
Termination............................................................ 59
Termination Fee and Expenses........................................... 60
Indemnification; Insurance............................................. 61
Shareholders Agreements................................................ 62
Effective Time........................................................... 64
Unaudited Pro Forma Condensed Financial Information...................... 65
The Companies............................................................ 72
Markel................................................................. 72
Terra Nova............................................................. 73
Markel Holdings........................................................ 74
Description of Markel Holdings Capital Shares............................ 75
Preferred Shares....................................................... 75
Common Shares.......................................................... 75
Rights of Shareholders of Markel Holdings Compared to Markel and Terra
Nova.................................................................... 75
General................................................................ 75
Comparison of Rights of Markel Holdings and Markel Shareholders.......... 76
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Comparison of Rights of Terra Nova Shareholders to their Rights as Markel
Holdings Shareholders................................................... 76
Comparison of Bermuda and Virginia Corporate Law....................... 76
Voting Rights with Respect to Extraordinary Corporate Transactions..... 76
Appraisal Rights....................................................... 76
Derivative Suits....................................................... 77
Special Meetings of Shareholders....................................... 78
Action by Consent...................................................... 78
Amendments to Charter.................................................. 79
Anti-takeover Statutes................................................. 79
Limitations on Director Liability...................................... 80
Indemnification of Directors and Officers.............................. 80
Inspection of Books and Records; Shareholder and Shareholder Lists..... 81
Legal Matters............................................................ 82
Experts.................................................................. 82
Future Shareholder Proposals............................................. 82
Other Matters............................................................ 83
Where You Can Find More Information...................................... 83
Appendix A--Agreement and Plan of Merger and Scheme of Arrangement....... A-1
Appendix B--Opinion of Terra Nova Financial Advisor...................... B-1
Appendix C--Opinion of Markel Financial Advisor.......................... C-1
Appendix D--Chairman's Letter, Explanatory Statement and Bermuda Scheme
of Arrangement.......................................................... D-1
</TABLE>
All information contained in this joint proxy statement/prospectus
concerning Markel has been furnished by Markel, all information concerning
Markel Holdings has been furnished by Markel Holdings and all information
concerning Terra Nova has been furnished by Terra Nova.
iii
<PAGE>
Questions and Answers About the Merger and Scheme of Arrangement
Q: How do I vote?
A: After you read this document, sign and mail your proxy card in the enclosed
return envelope, as soon as possible, so that your shares may be represented
at your special meeting, in the case of Markel shareholders, or special
general meeting and court meetings, in the case of Terra Nova shareholders.
In order to assure that your vote is obtained, please sign and mail your
proxy as instructed on your proxy card even if you currently plan to attend
the applicable meeting or meetings in person.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to your company's corporate
secretary. Or you can attend your special meeting, in the case of Markel
shareholders, or special general meeting or court meetings, in the case of
the Terra Nova shareholders, in person and vote. You may also revoke your
proxy by sending a notice of revocation to your company's corporate
secretary at:
Markel: Terra Nova:
Markel Corporation Terra Nova (Bermuda)
4551 Cox Road Holdings Ltd.
Glen Allen, Virginia 23060 Richmond House
12 Par-La-Ville Road
Hamilton HM 08
Bermuda
Q: If my broker holds my shares in "street name," will my broker vote my shares
for me?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them. You
should be sure to provide your broker with instructions on how to vote your
shares by completing and returning the enclosed form.
Q: When should Terra Nova shareholders send in their share certificates and
election forms?
A: You must send a completed election form, share certificates or guarantee of
delivery of the share certificates, and other documentation required by the
enclosed election form soon enough so that the exchange agent receives them
no later than 5:00 p.m. on , 2000.
Q: Should Markel shareholders send in their share certificates?
A: No. Markel shareholders will not need to surrender or exchange their
certificates as a result of the proposed transactions.
Q: When do you expect the transactions to be completed?
A: We are working to complete the transactions as quickly as possible. We hope
to complete the transactions shortly after the shareholder meetings,
assuming the required shareholder approvals are obtained and the scheme is
approved by the Supreme Court of Bermuda.
Q: Who do I call if I have questions about the special meetings or the
transactions?
A: Markel
You should call Markel's investor relations department at (804) 747-0136.
Questions about completing and mailing your proxy should be directed to
First Union National Bank at (800) 829-8432.
Terra Nova
You should call Kissell-Blake, a division of Georgeson & Company, Inc.,
with any questions about the special general meeting or court meetings or
the transactions or about completing and mailing your proxy or notice of
election at 800-498-2628 (toll free in the United States).
1
<PAGE>
Summary
This summary highlights information from this joint proxy
statement/prospectus which we believe is the most important information about
the transactions. We urge you to read this entire document carefully and the
documents to which we refer you for a complete description of the transactions
and our business. We have included page references in parentheses to direct you
to more complete descriptions of the topics presented in this summary.
The Transactions (page 36)
The transactions consist of the merger of a wholly-owned subsidiary of
Markel Holdings into Markel and the scheme of arrangement between Terra Nova
and its shareholders.
Upon completion of the transactions:
. shareholders of Markel will become shareholders of Markel Holdings;
. shareholders of Terra Nova will either become shareholders of Markel
Holdings, receive cash for their Terra Nova shares or receive a
combination of Markel Holdings shares and cash for their Terra Nova
shares; and
. Markel and Terra Nova will become subsidiaries of Markel Holdings, and
Markel Holdings will change its name to Markel Corporation.
Bermuda law permits a company to reorganize its share capital in a scheme of
arrangement between the Company and its shareholders, if the shareholders
approve the scheme and the Bermuda Supreme Court sanctions the scheme following
a court hearing.
A copy of the Scheme of Arrangement presented to the court on , 1999,
and an explanatory statement in compliance with Section 100 of the Bermuda
Companies Act, are included as Appendix D to this joint proxy
statement/prospectus. We encourage you to read these materials.
The agreement is the legal document that governs the transactions. A copy of
the agreement is included as Appendix A to this joint proxy
statement/prospectus. We encourage you to read the agreement.
What You Will Receive (page 36)
Markel Shareholders. Each Markel common share that you own at the effective
time will convert into one Markel Holdings common share and will continue to be
represented by your current Markel stock certificate.
Terra Nova Shareholders. Each share of Terra Nova that you own at the
effective time will convert into the right to receive either 0.184 shares of
Markel Holdings, $34.00, or a combination thereof. You will have the
opportunity to select your preferred form of payment. However, for the reasons
discussed below, you may not receive the form of payment you select. Markel
Holdings will not issue fractional shares. Instead, you will receive the value
of any fractional share in cash.
The total amount of cash that can be paid to Terra Nova shareholders and
option holders is fixed at 45% of the total consideration. Also, the total
number of Markel Holdings common shares that Terra Nova shareholders and option
holders can receive is fixed at 55% of the total consideration. If more cash
consideration is elected than the amount of cash available for payment or if
more shares are elected than are available for issuance, there will be a
proration, and the Terra Nova ordinary shares will be exchanged for a
combination of Markel Holdings common shares and cash that results from the
proration. Because we cannot determine the amount you will receive in cash or
stock until after elections are made, you will not know the actual mix of
consideration you will receive at the time you vote or make your election.
2
<PAGE>
We have fixed the cash price and exchange ratio per share and will not
adjust them based on changes in market prices or any other factor. Because we
cannot predict the market price of Markel Holdings common shares immediately
after the effective time of the transactions, we cannot predict the value of
the Markel Holdings common shares you will receive. The value of these shares
at that time, based on reported market prices, may be significantly higher or
lower than the value of the $34.00 per share paid per Terra Nova ordinary share
in cash.
How You Make An Election (page 37)
Terra Nova shareholders must make their election to receive cash or Markel
Holdings common shares by delivering to the exchange agent, ChaseMellon
Shareholder Services L.L.C., a completed election form included with this
document together with the certificates representing their shares, or guarantee
of delivery of the share certificates, and any other required documentation
specified in the election form. The election form and other documentation must
be received by the exchange agent no later than the close of business on the
third business day before the date the merger and scheme of arrangement become
effective. We anticipate that the merger and scheme of arrangement will be
completed on the date following the court hearing before the Supreme Court of
Bermuda. Accordingly, shareholders who wish to make any election must ensure
that their materials are received by the exchange agent no later than 5:00 p.m.
eastern time on , 2000, three business days before the anticipated
effective date.
We do not intend to complete the merger and scheme of arrangement until all
conditions to the merger and the scheme of arrangement are satisfied or waived.
We expect to satisfy all conditions by the time of the court hearing, scheduled
for , 2000, which is seven days after the date of Terra Nova's court
meetings and special general meeting. However, we cannot assure you that this
will be the case. If the merger and scheme of arrangement are not completed by
, 2000, we will issue a press release on the Dow Jones News Service at
least five days before completing the merger and scheme of arrangement. The
press release will inform you of the last date for submitting and/or changing
your election forms. For a discussion of the key regulatory approvals necessary
for the merger and scheme of arrangement, please see "Regulatory Matters."
If a broker holds your Terra Nova shares in "street name" and you wish to
make an election you will have to instruct your broker, dealer, bank or other
financial institution that holds your shares to make an election on your behalf
by completing and returning the enclosed form. Your broker must receive this
form in time to deliver the election form to the exchange agent no later than
5:00 p.m. eastern time on , 2000 or the later date announced by press
release if the transactions are not completed by , 2000.
Material U.S. Federal Income Tax Consequences of the Transactions (page 40)
As a condition to the transactions, we must receive opinions from the
parties' counsels, that, taken together, indicate that the transactions will
not result in the recognition of gain or loss by Markel, Terra Nova, Markel
Holdings, Markel shareholders, or Terra Nova shareholders except each Terra
Nova shareholder will recognize gain up to the amount of cash that the
shareholder receives in the transactions. These opinions will be based upon
facts, representations by management of the companies, foreign counsel and
others and assumptions set forth in the opinions. We have not nor will we
request any Internal Revenue Service rulings regarding any tax matters relating
to the transactions. We urge you to consult your tax advisors as to the tax
consequences of the transactions to you under U.S. federal, state, local or any
other applicable law.
Markel Shareholder Approval (page 15)
As of the record date, Markel common shares were outstanding and
entitled to vote at the Markel special meeting. Assuming a quorum is present,
holders of at least two-thirds or approximately 66.7%
3
<PAGE>
of the Markel common shares outstanding and entitled to vote at the Markel
special meeting must approve the transactions.
Markel officers and directors beneficially owned approximately 29% of the
outstanding Markel common shares on the record date. These officers and
directors have either granted Terra Nova an irrevocable proxy to vote their
Markel common shares in favor of the transactions or have indicated to Markel
that they intend to vote in favor of the transactions.
Terra Nova Shareholder Approval (page 16)
As of the record date, Terra Nova Class A ordinary shares were
outstanding. Assuming a quorum is present, a majority in number of Terra Nova
Class A shareholders who represent at least 75% in value of the Terra Nova
Class A ordinary shares present and voting must
. approve the scheme of arrangement at the court meeting, and
. approve the agreement and the transactions, including the scheme of
arrangement, at the special general meeting.
Terra Nova officers and directors beneficially owned approximately [651,953]
or [2.6]% of the outstanding Terra Nova Class A ordinary shares on the record
date and the officers and directors have indicated to Terra Nova that they
intend to vote in favor of the transactions. In addition, holders of 5,362,403
or approximately 21% of the outstanding Terra Nova Class A ordinary shares have
granted Markel an irrevocable proxy to vote shares in favor of the
transactions. Thus, a total of [6,014,356] or [23.6]% of the outstanding Terra
Nova Class A ordinary shares have indicated their intention to vote or have
granted proxies to vote in favor of the transactions. In addition, one of the
holders granting an irrevocable proxy has agreed to use commercially reasonable
efforts to cause an additional 1,214,414 or approximately 5% of the outstanding
Terra Nova Class A ordinary shares to be voted in favor of the transactions.
As of the record date 1,796,217 Terra Nova Class B ordinary shares were
outstanding. Assuming a quorum is present, a majority in number of Terra Nova
Class B shareholders who represent at least 75% in value of the Terra Nova
Class B ordinary shares present and voting must approve the scheme of
arrangement at the court meeting. The holders of all of the Terra Nova Class B
ordinary shares have granted Markel an irrevocable proxy to vote all of the
Terra Nova Class B ordinary shares in favor of the transactions.
Former Terra Nova ordinary shareholders and option holders will own
approximately 33% of Markel Holdings' outstanding common shares after we
complete the transactions. In the transactions, Terra Nova ordinary
shareholders and option holders will receive approximately 2,694,000 Markel
Holdings common shares and approximately $407 million in cash.
Dissenter's Rights (page 51)
The shareholders of Terra Nova and Markel do not have dissenter's rights or
other similar rights in connection with the transactions.
Treatment of Outstanding Options (page 46)
Markel--When we complete the transactions, all outstanding options to
purchase Markel common shares held by existing option holders, whether or not
exercisable, will convert into options to purchase the same number of Markel
Holdings common shares on the identical terms and conditions as the existing
options.
4
<PAGE>
Terra Nova--When we complete the arrangement, we will treat each outstanding
option under the Terra Nova Approved and Non Approved Executive Share Option
Schemes as fully exercisable and Terra Nova option holders may elect to receive
the difference between $34.00 and the exercise price of the option in the form
of cash, Markel Holdings shares or a combination of both. Immediately before we
complete the arrangement, we will attempt to terminate the Octavian Stock
Option Plan for consideration to be agreed or amend the terms of the plan.
Reasons for the Transactions; Recommendation (page 19)
We believe the combination of our two companies, both of which focus on
underwriting profitability, will create an organization able to compete more
effectively in the international insurance markets. The transactions should
also provide opportunities to achieve benefits that would not be available to
either company alone, such as:
. opportunities for Markel to cross-sell its insurance products as a
result of Terra Nova's presence in London, Bermuda and other
international insurance markets,
. increased access to U.S. markets for Terra Nova's insurance products as
a result of Markel's presence in the United States, and
. enhanced ability as a company with larger size and scale to attract
business where size and financial strength are purchasing factors.
The Markel board and the Terra Nova board have each unanimously concluded
that the merger and scheme of arrangement are in the best interests of their
respective shareholders, and each unanimously recommends that its shareholders
vote for approval and adoption of the Agreement and Plan of Merger and Scheme
of Arrangement and the transactions contemplated by the agreement.
Interests of Terra Nova Officers and Directors that are Different From Yours
(page 44)
In considering the recommendations of the Terra Nova board that Terra Nova
shareholders approve the agreement and the proposed transactions, you should be
aware of the interests which executive officers and directors of Terra Nova
have in the transactions that are different from your interest.
These interests include the following:
. John J. Dwyer, Chairman and a director, Nigel H. J. Rogers, President
and Chief Executive Officer and a director, and Jean M. Waggett, Senior
Vice President, General Counsel and Corporate Secretary, may terminate
their employment and receive, under change of control provisions of
existing employment agreements, payments estimated to be approximately,
$3.4 million, $ and $1.1 million, respectively, plus additional
payments to compensate them for excise taxes and taxes in respect of the
additional payments.
. We expect to enter into a new employment agreement with Mr. Rogers with
compensation levels comparable to those under his current agreement. Mr.
Rogers will receive a $5 million bonus payment in cash and Markel
Holdings common shares, one half of which will be paid upon completion
of the transactions and the remainder vesting in six month increments
over 30 months. If Mr. Rogers terminates his employment during the first
year after completion of the transactions, the $2.5 million initial
payment will be offset against the change of control termination
payment.
. Mr. Rogers will receive a $2 million one-time bonus upon completion of
the transactions.
. Terra Nova's executive officers hold options for Terra Nova ordinary
shares, with exercise prices of equal to or greater than the fair market
value on the grant dates. In the transactions, option holders
5
<PAGE>
will receive the difference between $34.00 and the exercise price of the
options in the form of cash, Markel Holding shares or a combination of
both. Messrs. Dwyer, Rogers, William J. Wedlake, senior vice president
and chief financial officer, Ian L. Bowden, chief investment officer,
Ms. Waggett and all six executive officers as a group, have options
valued, based on the spread between $34.00 and the option exercise
prices, of $4,005,175, $2,590,894, $1,248,266, $1,488,372, $1,075,139,
and $10,857,897.
. The management of Terra Nova's subsidiary, Octavian Syndicate Management
Limited, is entitled to options under the Octavian Stock Option Plan
established at the time of the acquisition of Octavian. The options are
and will be based on profit commissions to be received by Octavian for
the 1996 to 2000 years of account. We expect Mr. Rogers will receive 13%
of the options to be granted. Prior to the effective time of the
transactions, the parties will attempt to terminate the Octavian Stock
Option Plan for consideration to be agreed or to amend the terms so that
the participants receive up to a maximum of 110,400 Markel Holding
options instead of options for Terra Nova ordinary shares.
. Markel Holdings expects to establish a new benefit plan to replace Terra
Nova's existing plan for key management employees, which is expected to
include Terra Nova's executive officers other than Mr. Rogers. We expect
this plan to allocate up to $7.75 million in Markel Holding common
shares, cash or a combination of both.
. Donaldson, Lufkin & Jenrette Securities Corporation has acted as
financial advisor to Terra Nova, provided a fairness opinion regarding
the proposed transactions and is receiving fees from Terra Nova.
Affiliates of Donaldson, Lufkin & Jenrette are shareholders of Terra
Nova and their new shares of Markel Holdings will have the benefit of a
registration rights agreement. Robert S. Fleischer and David L. Jaffe
are directors of Terra Nova and are managing directors of affiliates of
these shareholders.
. Markel Holdings common shares that will be issued to John J. Byrne and
related entities and to Marsh & McLennan Risk Capital Holdings, Ltd. and
related entities will have the benefit of a registration rights
agreement. Mr. Byrne is a director of Terra Nova and Mr. Phillip F.
Petronis, a director of Terra Nova, is an executive officer of an
affiliate of Marsh & McLennan.
. Markel has agreed that the board of directors of Markel Holdings will
include Mr. Rogers and two other directors of Terra Nova, John J. Byrne
and Mark J. Byrne.
. Markel will indemnify present and former officers and directors of Terra
Nova, subject to specified limitations, for claims arising as a result
of their service to Terra Nova or relating to the agreement and the
transactions, and will maintain directors and officers liability
insurance coverage for them for 7 years.
Opinion of Terra Nova's Financial Advisor (page 21)
Donaldson, Lufkin & Jenrette Securities Corporation delivered its written
opinion to the Terra Nova board that, as of August 15, 1999, the consideration
that shareholders of Terra Nova, other than shareholders who were affiliates of
Donaldson, Lufkin & Jenrette, would receive in the transactions was fair to
them from a financial point of view. The opinion of Donaldson, Lufkin &
Jenrette is not a recommendation as to how any holder of Terra Nova ordinary
shares should vote with respect to the transaction or whether any holder should
elect to receive stock consideration or cash consideration.
We have attached as Appendix B the full text of that written opinion, which
describes the methods, assumptions, limitations and qualifications that
Donaldson, Lufkin & Jenrette used, and the matters considered, to develop its
opinion. We urge you to read the opinion carefully and in its entirety.
6
<PAGE>
Opinion of Markel's Financial Advisor (page 28)
Salomon Smith Barney Inc. delivered its written opinion to the Markel board
that, as of August 15, 1999, the consideration to be paid for each outstanding
Terra Nova ordinary share pursuant to the scheme of arrangement was fair, from
a financial point of view, to the holders of Markel common shares. The opinion
of SSB is not a recommendation as to how any holder of Markel common shares
should vote with respect to the transactions contemplated by the agreement.
We have attached as Appendix C the full text of SSB's written opinion, which
describes the methods, assumptions, limitations and qualifications that it used
to develop its opinion. We urge you to read the opinion carefully and in its
entirety.
What We Need to do to Complete the Proposed Transactions (page 55)
To complete the transactions:
. the shareholders of Markel and Terra Nova must approve the transactions;
. we must receive all required regulatory consents and approvals,
including the approval of the scheme of arrangement by the Supreme Court
of Bermuda;
. no temporary restraining order, injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
may prevent completion of the transactions; and
. Markel and Terra Nova must each receive a legal opinion addressing the
tax consequences of the proposed transactions.
We have received the required regulatory consents and approvals, except the
Supreme Court of Bermuda's approval of the scheme of arrangement. Unless
prohibited by law, either Markel or Terra Nova could elect to extend the time
for the performance of any obligation of the other party or waive a condition
that has not been satisfied by the other party and complete the transactions
anyway.
Terminating the Agreement; Who Pays for What (page 59 and 60)
Either Markel or Terra Nova may terminate the agreement at any time before
we complete the proposed transactions, either before or after shareholder
approval, if one of the termination conditions in the agreement, described on
page 59, occurs. Based upon the circumstances of the termination, Markel or
Terra Nova may be obligated to pay a $27 million termination fee and/or the
other party's expenses associated with the transaction up to $3 million.
Whether or not we complete the proposed transactions, Markel and Terra Nova
will each pay their own fees and expenses, except as described in the
immediately preceding paragraph and except that Markel and Terra Nova will each
pay one-half of the costs and expenses incurred in printing and mailing this
joint proxy statement/prospectus and the related SEC filing fees.
Accounting Treatment of the Proposed Transactions (page 48)
We will account for the proposed transactions as a "purchase." This means
that for accounting and financial reporting purposes, we expect to treat our
companies as one company beginning as of the date we complete the transactions.
7
<PAGE>
Governmental and Regulatory Approvals (page 48)
We have received the required governmental and regulatory consents and
approvals, except the Supreme Court of Bermuda's approval of the scheme of
arrangement. We have received early termination from the Antitrust Division of
the Department of Justice and the Federal Trade Commission of the waiting
period that is required prior to consummating the transactions.
Comparison of Rights of Markel and Terra Nova Shareholders to their Rights as
Markel Holdings Shareholders (page 76)
At the effective time, shareholders of Markel and Terra Nova will become
shareholders of Markel Holdings. As shareholders of Markel Holdings, your
rights will be governed by the Articles of Incorporation and By-laws of Markel
Holdings and the Virginia Stock Corporation Act. The rights of shareholders of
Markel Holdings will be similar to the rights of current Markel shareholders.
The rights of shareholders of Markel Holdings will differ from the rights of
current holders of Terra Nova ordinary shares.
Markel (page 72)
Markel Corporation markets and underwrites specialty insurance products and
programs to a variety of niche markets. In each of these markets, Markel seeks
to provide quality products and excellent customer service so that it can be a
market leader. Markel's financial goals are to earn consistent underwriting
profits and superior investment returns to build shareholder value.
Terra Nova (page 73)
Terra Nova is the holding company for wholly owned operating entities. The
five principal operating entities are:
. Terra Nova Insurance Company Limited in the U.K.
. Terra Nova (Bermuda) Insurance Company Ltd.
. "Corifrance" in Paris--Compagnie de Reassurance d'Ile de France
. Terra Nova Capital Limited, Terra Nova's corporate capital provider at
Lloyd's, and
. Octavian Syndicate Management Limited
Octavian manages the eight Lloyd's syndicates in which Terra Nova has a
participation. Through these subsidiaries, Terra Nova writes specialty
property, casualty, marine and aviation insurance and reinsurance business
worldwide.
Markel Holdings (page 74)
Markel Holdings is a Virginia corporation that has been formed for the
purpose of the transactions. Markel Holdings is currently a subsidiary of
Markel. Upon completion of the transactions, Markel Holdings will be the parent
corporation of Markel and Terra Nova, and its name will be changed to Markel
Corporation.
8
<PAGE>
Comparative Per Share Market Prices and Dividend Information
Markel common shares are traded on the New York Stock Exchange under the
symbol "MKL", and Terra Nova Class A ordinary shares are traded on the NYSE
under the symbol "TNA". Prior to June 11, 1997, Markel's common shares traded
in the NASDAQ stock market under the symbol "MAKL". The following table sets
forth the range of high and low sale prices for Markel Corporation common
shares and Terra Nova Class A ordinary shares for the periods indicated, as
reported on the NYSE and NASDAQ stock market.
<TABLE>
<CAPTION>
Markel Corporation Terra Nova (Bermuda)
--------------------------- --------------------------
High Low Dividend High Low Dividend
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter........... $ 113.500 $ 89.000 -- $ 21.500 $ 18.750 $ 0.02
Second Quarter.......... 131.000 102.500 -- 22.125 18.000 0.05
Third Quarter........... 157.500 127.500 -- 27.250 20.875 0.05
Fourth Quarter.......... 161.000 144.000 -- 29.625 24.250 0.05
1998
First Quarter........... 177.500 150.000 -- 30.500 23.813 0.05
Second Quarter.......... 180.500 158.500 -- 33.000 29.000 0.06
Third Quarter........... 185.000 141.000 -- 34.500 25.875 0.06
Fourth Quarter.......... 183.750 132.750 -- 29.938 23.063 0.06
1999
First Quarter........... 184.500 166.500 -- 26.750 21.750 0.06
Second Quarter.......... 192.000 176.500 -- 27.750 21.500 0.06
Third Quarter........... 191.500 174.000 -- 32.438 23.000 0.06
Fourth Quarter
(through , 1999)..
</TABLE>
On August 13, 1999, the last trading day prior to the announcement by Markel
and Terra Nova that they had reached an agreement concerning the transactions,
the closing sale prices of Markel common shares and Terra Nova Class A ordinary
shares as reported on the NYSE were $184.500 and $25.938, respectively. On
, 1999, the closing sale prices of Markel common shares and Terra Nova
Class A ordinary shares as reported on the NYSE were and ,
respectively. The market price of Markel and Terra Nova shares will fluctuate
between the date of this joint proxy statement/prospectus and the date on which
the transactions occur. We urge you to obtain current share price quotations
for Markel and Terra Nova shares.
The Terra Nova Class B ordinary shares are not traded in any regularly
established securities market. The Terra Nova Class B ordinary shares may be
converted into Class A ordinary shares at the election of the holder of such
shares.
As of , 1999, the record date for the special meetings, there were
record holders of Markel common shares and record holders of Terra Nova
Class A ordinary shares and six record holders of the Terra Nova Class B
ordinary shares.
Following the transactions, Markel Holdings shares will be traded on the
NYSE under the symbol "MKL" and Terra Nova Class A ordinary shares will cease
to be traded and there will be no further market for such shares.
9
<PAGE>
Summary Comparative Historical and Pro Forma Per Share Information
The following table sets forth historical income from continuing operations
per share, historical book value per share and historical cash dividends per
share for Markel and Terra Nova, unaudited pro forma per share information for
Markel and unaudited pro forma equivalent per share information for Terra Nova
based on the 0.184 exchange ratio of Markel Holdings common shares that will be
received by Terra Nova stockholders for each Terra Nova ordinary share.
The information presented in the table should be read in conjunction with
the unaudited pro forma condensed financial statements and the separate
historical consolidated financial statements of Markel and Terra Nova and the
related notes contained elsewhere or incorporated by reference in this joint
proxy statement/prospectus. See "Unaudited Pro Forma Condensed Financial
Information" and "Where You Can Find More Information."
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ -----------------------
Markel/Terra
Markel Terra Nova Nova Terra Nova
------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Income from continuing operations
per basic share:
Year ended December 31, 1998
(1)............................. $ 10.41 $ 3.30 $ 7.07 $ 1.30
Nine months ended September 30,
1999............................ 6.34 1.83 4.18 .77
Income from continuing operations
per diluted share:
Year ended December 31, 1998
(1)............................. $ 10.17 $ 3.22 $ 6.96 $ 1.28
Nine months ended September 30,
1999............................ 6.27 1.77 4.15 .76
Book value per share as of (2):
December 31, 1998................ $ 77.02 $22.51 $ 112.35 $ 20.67
September 30, 1999............... 68.96 20.74 106.59 19.61
Dividends per share (3):
Year ended December 31, 1998..... $ -- $ 0.23 $ -- $ --
Nine months ended September 30,
1999............................ -- 0.18 -- --
</TABLE>
- --------
(1) Excludes an extraordinary charge of $11.6 million (net of $5.2 million
income tax benefit), $0.46 per basic share or $0.45 per diluted share,
relating to the debt extinguishment by Terra Nova for the year ended
December 31, 1998.
(2) Book value per share assumes pro forma shareholders' equity of $923.1
million and pro forma shares outstanding of 8.2 million as of December 31,
1998. As of September 30, 1999 pro forma shareholders' equity was $883.7
million and pro forma shares outstanding were 8.3 million.
(3) Dividends per share on a pro forma Markel/Terra Nova basis are based on
Markel's historical dividend policy. Markel Holdings does not expect to pay
dividends.
10
<PAGE>
Markel Corporation Summary Historical Financial Information
Markel derived the following summary selected consolidated financial
information for, and as of the end of each of the years in the five year period
ended December 31, 1998 from Markel's audited consolidated financial
statements. Markel derived the financial information for the nine-month periods
ended September 30, 1999 and 1998 and as of September 30, 1999 from Markel's
unaudited consolidated financial statements. These unaudited consolidated
financial statements include, in Markel's opinion, all adjustments, consisting
only of normal recurring items, necessary for a fair presentation of Markel's
financial position and results of operations for the covered periods. You
should read the following information along with Markel's consolidated
financial statements and related notes incorporated by reference in this joint
proxy statement/prospectus. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------- -----------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- ----- ----- ----- ----- -----
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Revenues................... $ 404 $ 313 $ 426 $ 419 $ 367 $ 344 $ 280
Income from continuing
operations................ 35 40 57 50 47 34 19
Income from continuing
operations per basic
share..................... 6.34 7.25 10.41 9.20 8.58 6.38 3.44
Income from continuing
operations per diluted
share..................... 6.27 7.07 10.17 8.92 8.30 6.15 3.33
Cash dividends per share... -- -- -- -- -- -- --
Weighted average shares
outstanding:
Basic.................... 5.58 5.50 5.51 5.48 5.44 5.41 5.40
Diluted.................. 5.64 5.64 5.64 5.65 5.62 5.61 5.57
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------------------
1999 1998 1997 1996 1995 1994
------------- ------- ------- ------- ----- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total investments.......... $ 1,652 $ 1,481 $ 1,408 $ 1,131 $ 909 $ 612
Total assets............... 2,507 1,921 1,870 1,605 1,315 1,103
Long-term obligations and
redeemable preferred
stock..................... 308 243 243 115 107 101
Shareholders' equity....... 386 425 357 268 213 139
</TABLE>
11
<PAGE>
Terra Nova (Bermuda) Holdings Ltd. Summary Historical Financial Information
Terra Nova derived the following summary selected consolidated financial
information for, and as of the end of each of the years in the five year period
ended December 31, 1998 from Terra Nova's audited consolidated financial
statements. Terra Nova derived the financial information for the nine-month
periods ended September 30, 1999 and 1998 and as of September 30, 1999 from
Terra Nova's unaudited consolidated financial statements. These unaudited
consolidated financial statements include, in Terra Nova's opinion, all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of Terra Nova's financial position and results of operations for
the covered periods. You should read the following information along with Terra
Nova's consolidated financial statements and related notes incorporated by
reference in this joint proxy statement/prospectus. See "Where You Can Find
More Information."
<TABLE>
<CAPTION>
Nine Months
Ended
September Year Ended
30, December 31,
----------- ----------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- ----
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Revenues............................ $ 571 $ 479 $ 675 $ 534 $ 378 $ 337 $321
Income from continuing operations
(1)................................ 46 65 84 73 64 43 27
Income from continuing operations
per basic share (1)................ 1.83 2.55 3.30 2.87 2.81 3.13 --
Income from continuing operations
per diluted share (1).............. 1.77 2.48 3.22 2.82 2.69 2.63 --
Cash dividends per share............ 0.18 0.17 0.23 0.17 0.06 -- --
Weighted average shares outstanding:
Basic ............................ 25.29 25.47 25.45 25.59 22.68 13.44 --
Diluted........................... 26.11 26.20 26.10 26.00 23.94 16.72 --
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
------------- ----------------------------------
1999 1998 1997 1996 1995 1994
------------- ------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total investments........... $1,410 $1,535 $1,366 $1,240 $1,079 $ 816
Total assets................ 2,608 2,479 2,220 1,867 1,785 1,752
Long-term obligations and
redeemable preferred
stock...................... 175 175 175 100 100 85
Shareholders' equity........ 526 571 482 399 197 59
</TABLE>
- --------
(1) Excludes an extraordinary charge of $11.6 million (net of $5.2 million
income tax benefit), $0.46 per basic share or $0.45 per diluted share,
relating to the debt extinguishment by Terra Nova for the year ended
December 31, 1998.
12
<PAGE>
Summary Unaudited Selected Pro Forma Condensed Financial Information
The following summary unaudited selected pro forma condensed financial
information is intended to give you a better picture of what our businesses
might have looked like if Markel and Terra Nova had been combined for the
periods, and as of the date, presented. The pro forma results of operations
information assumes that the transactions and scheme of arrangement were
completed as of the beginning of each of the periods provided. The pro forma
condensed balance sheet information assumes that the merger and scheme of
arrangement were completed as of the date indicated. We derived this condensed
financial information from our separate historical consolidated financial
statements and other financial information, which includes adjustments for
goodwill and financing costs. We have included this unaudited pro forma
condensed financial information for comparative purposes only, and it does not
necessarily indicate the results of operations or financial position which
actually would have been obtained if we had completed the merger and scheme of
arrangement at the beginning of the periods or as of the date presented. This
pro forma condensed financial information does not represent the results of
operations or financial position that we will experience in the future. See
"Unaudited Pro Forma Condensed Financial Information."
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
-------------------- -------------------
1999 1998
-------------------- -------------------
(in millions, except per share data)
<S> <C> <C>
Operating Results:
Revenues................. $969 $1,217
Income from continuing
operations (1).......... 35 58
Income from continuing
operations per basic
share (1)............... 4.18 7.07
Income from continuing
operations per diluted
share (1)............... 4.15 6.96
Cash dividends per
share................... -- --
Weighted average shares
outstanding
Basic.................. 8.27 8.20
Diluted................ 8.33 8.33
</TABLE>
<TABLE>
<CAPTION>
September 30,
-------------
1999
-------------
(in millions)
<S> <C>
Balance Sheet Data:
Total investments............................................ $ 2,942
Total assets................................................. 5,413
Long-term obligations and redeemable preferred stock......... 774
Shareholders' equity......................................... 884
</TABLE>
- --------
(1) Excludes an extraordinary charge of $11.6 million (net of $5.2 million
income tax benefit), $0.46 per basic share or $0.45 per diluted share,
relating to the debt extinguishment by Terra Nova for the year ended
December 31, 1998.
13
<PAGE>
Forward-Looking Information
This joint proxy statement/prospectus contains or incorporates by reference
certain forward-looking statements and information relating to Markel and Terra
Nova that are based on the beliefs of their respective managements as well as
assumptions made by and information currently available to each of Markel and
Terra Nova. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," "plan" and "intend" and similar expressions, as they
relate to Markel and Terra Nova or their respective managements, are intended
to identify forward-looking statements. These forward-looking statements are
based on current management assumptions and are subject to uncertainties and
inherent risks that could cause actual results to differ materially from those
contained in any forward-looking statement. Markel and Terra Nova have
identified certain factors that could cause actual plans or results to differ
substantially from those included in any forward-looking statements. These risk
factors include, but are not limited to, the following:
. uncertainties and changes in government policy, regulatory policy,
statutory law or case law with respect to the companies, their
respective brokers or customers;
. the occurrence of man-made or natural catastrophic events with a
frequency or severity exceeding the estimates of the companies;
. the uncertainties of the reserving process;
. loss of the services of any of the companies' executive officers;
. the competitive environment in which the companies operate and related
pricing weaknesses in some lines of business;
. changing rates of inflation and other economic conditions;
. losses due to foreign currency exchange rate fluctuations;
. ability to collect reinsurance recoverables;
. changes in the availability, cost or quality of reinsurance;
. developments in global financial markets that could affect the
companies' investment portfolios;
. changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers;
. the impact of Year 2000 related issues, including their impact on the
companies' technology systems and underwriting exposures; and
. the effects of mergers, acquisitions and divestitures.
Neither Markel nor Terra Nova undertakes any obligation to publicly update
or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Readers are cautioned not to place
undue reliance on any forward-looking statements, which speak only as at their
dates.
14
<PAGE>
The Markel Special Meeting
Date, Time and Place
The Markel special meeting will be held on , , 2000 at 10:00 a.m.
Matters to Be Considered at the Markel Special Meeting
At the Markel special meeting, holders of Markel common shares will be asked
to vote on a proposal to approve and adopt the agreement.
Voting and Proxies
The Markel board has fixed the close of business on , 1999 as the
record date for the determination of the shareholders entitled to notice of,
and to vote at, the Markel special meeting. At that date, there were
outstanding Markel common shares. No other voting securities of Markel are
outstanding.
The presence at the Markel special meeting, in person or by proxy, of
shareholders entitled to cast a majority of all the votes entitled to be cast
at the Markel special meeting constitutes a quorum for the transaction of
business at the Markel special meeting. If a quorum should not be present, the
Markel special meeting may be adjourned from time to time until a quorum is
obtained. Assuming a quorum is present, the vote of at least two-thirds of the
outstanding Markel common shares entitled to be cast at the Markel special
meeting is required to approve the agreement.
At the close of business on the record date, there were Markel common
shares outstanding and entitled to vote at the Markel special meeting, of which
the directors and officers of Markel beneficially owned approximately 1.6
million shares, representing approximately 29% of the outstanding shares. These
officers and directors have either granted Terra Nova an irrevocable proxy to
vote their Markel common shares in favor of the transactions or have indicated
to Markel that they intend to vote in favor of the transactions. Holders of
Markel common shares will be entitled to one vote per share on each matter
submitted to the Markel special meeting.
Markel common shares represented by properly executed proxies will, unless
the proxies have been properly revoked, be voted in accordance with the
instructions indicated on the proxies or, if no instructions are indicated,
will be voted for approval of the agreement and in the best judgment of the
individuals named in the accompanying proxy on any other matters which may
properly come before the Markel special meeting. Any proxy may be revoked by
the shareholder giving it, at any time prior to its being voted, by filing a
notice of revocation or a duly executed proxy bearing a later date with the
Secretary of Markel at 4551 Cox Road, Glen Allen, Virginia 23060. Any proxy may
also be revoked by the shareholder's attendance at the Markel special meeting
and voting in person. A notice of revocation need not be on any specific form.
Any proxy may also be revoked by attending the special meeting and voting in
person. Attendance at the special meeting will not by itself constitute
revocation of a proxy. Markel does not expect to adjourn the special meeting
for a period of time long enough to require the setting of a new record date
for such meeting. If an adjournment occurs, it will have no effect on the
ability of Markel's shareholders of record as of the record date to exercise
their voting rights or to revoke any previously delivered proxies.
Abstentions may be specified with respect to the approval of the agreement
by properly marking the "ABSTAIN" box on the proxy, and will be counted as
present for the purpose of determining the existence of a quorum. Abstentions
and broker non-votes will have the same effect as a vote against the approval
of the agreement.
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Solicitation of Proxies
Proxies are being solicited by and on behalf of the Markel board. Markel and
Terra Nova will share the expenses related to printing this joint proxy
statement/prospectus as well as all mailing and SEC filing fees incurred in
connection with the joint proxy statement/prospectus. Markel has not engaged
the services of any party to solicit proxies or to assist in the distribution
of proxy materials, but Markel reserves the right to retain such services or
assistance at its discretion. In addition to soliciting proxies by mail,
officers, directors and employees of Markel, without receiving additional
compensation, may solicit proxies by telephone, telegraph, in person or by
other means. Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward proxy solicitation material to
the beneficial owners of Markel common shares, and Markel will reimburse
brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-
pocket expenses incurred by them in connection with forwarding information.
The Terra Nova Meetings
Date, Time and Place
The Terra Nova special general and court meetings will be held at the
offices of Terra Nova, Richmond House, 12 Par-La-Ville Road, Hamilton HM 08,
Bermuda on , 2000 commencing at 10:00 a.m. local time. The court
meeting for the Class A ordinary shareholders will be held at 10:00 a.m.,
followed by the court meeting for the Class B ordinary shareholders. The
special general meeting will be held 10:30 a.m. or immediately after the court
meetings.
Matters to be Considered at the Terra Nova Meetings
At the court meetings, holders of Terra Nova Class A ordinary shares and
Class B ordinary shares, each acting separately as a class, will be asked to
vote on a proposal to approve the scheme of arrangement to be filed at the
effective time. Terra Nova is required to obtain the approval of the Class A
and Class B ordinary shareholders at the separate court meetings as a
prerequisite to obtaining the Supreme Court of Bermuda's approval of the
scheme.
At the special general meeting, holders of Terra Nova Class A ordinary
shares will be asked to vote on proposals to approve the agreement and the
transactions contemplated by the agreement, including the scheme of arrangement
and the resulting changes to issued share capital, and on such other matters as
may properly come before the special general meeting. The special general
meeting is being held in accordance with Terra Nova's bye-laws.
Voting and Proxies
The Terra Nova board has fixed the close of business, 5:00 p.m., New York
City time, on , 1999 as the record date for determining the holders of
Terra Nova ordinary shares entitled to notice of, and to vote at, the court
meetings and the special general meeting. Only holders of record of Terra Nova
Class A and Class B ordinary shares at the close of business on the record date
will be entitled to notice of, and to vote at, the court meetings. Only holders
of record of Terra Nova Class A ordinary shares at the close of business on the
record date will be entitled to notice of, and to vote at, the special general
meeting.
At the close of business on the record date,
. Terra Nova Class A ordinary shares were issued and outstanding and
entitled to vote at the special general meeting and to vote at the court
meetings as a separate class and
. 1,796,217 Terra Nova Class B ordinary shares were issued and outstanding
and entitled to vote at the court meeting as a separate class.
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Holders of record of Terra Nova Class A ordinary shares are entitled to one
vote at the special general meeting and one class vote at the Class A court
meeting for each share of Terra Nova Class A ordinary share held of record on
the record date on any matter which may properly come before the special
general meeting and the court meeting, respectively. Holders of record of Terra
Nova Class B ordinary shares are entitled to one class vote at the Class B
court meeting for each share of Terra Nova Class B ordinary shares held of
record on the record date on any matter which may properly come before the
court meeting.
The presence at the court meetings, either in person or by proxy, of the
holders of a majority of the outstanding Terra Nova Class A ordinary shares and
Terra Nova Class B ordinary shares entitled to vote, respectively, is necessary
to constitute a quorum in order to transact business at such court meetings. In
the event that a quorum is not present at a court meeting, it is expected that
such meeting will be adjourned or postponed in order to solicit additional
proxies. The presence at the special general meeting, either in person or by
proxy of the holders of a majority of the outstanding Terra Nova Class A
ordinary shares entitled to vote is necessary to constitute a quorum in order
to transact business at the special general meeting. In the event that a quorum
is not present at the special general meeting, it is expected that such meeting
will be adjourned or postponed in order to solicit additional proxies.
Approval of the proposal to adopt the scheme of arrangement at the Class A
and Class B court meetings will require the respective affirmative vote of
. a majority in number of Terra Nova Class A shareholders who represent at
least 75 percent in value of the Terra Nova Class A ordinary shares
present and voting at the related court meeting and
. a majority in number of Terra Nova Class B shareholders who represent at
least 75 percent in value of the Terra Nova Class B ordinary shares
present and voting at the related court meeting.
Approval of the proposals to adopt the agreement and the transactions
contemplated by the agreement, including the scheme of arrangement and the
resulting changes to issued share capital, at the special general meeting will
require the affirmative vote of a majority in number of Terra Nova Class A
shareholders who represent at least 75 percent in value of the Terra Nova Class
A ordinary shares present and voting at the special general meeting.
Under applicable Bermuda law, brokers who hold Terra Nova Class A or Class B
ordinary shares as nominees, in the absence of instructions from the beneficial
owners thereof, will not have discretionary authority to vote such shares for
or against the approval and adoption of the agreement and the transactions. Any
shares covered by proxies which indicate that they are non-voting because the
nominee-broker lacks discretionary authority will be counted as present for
determining the existence of a quorum, but will not otherwise be counted in the
voting.
Abstentions may be specified with respect to the approval of the agreement
by properly marking the "ABSTAIN" box on the proxy, and will be counted as
present for the purpose of determining the existence of a quorum, but will not
otherwise be counted in the voting.
Shares represented by properly executed proxies received in time for the
court meetings and the special general meeting will be, unless the proxies have
been properly revoked, voted at such meetings in the manner specified by such
proxies. Terra Nova shareholders should be aware that, if your proxy is
properly executed but does not contain voting instructions, your proxy for the
special general meeting will be voted FOR approval of the agreement and the
transactions contemplated by the agreement and your proxy for the court
meetings will be voted FOR the scheme of arrangement. The grant of a proxy on
the enclosed special general meeting proxy card and court meeting proxy card
does not preclude a shareholder from voting in person. A shareholder of Terra
Nova may revoke a proxy at any time prior to its exercise by filing a written
notice of revocation or a duly executed proxy bearing a later date with the
secretary of Terra Nova at the address given on the notice of special general
meeting or notice of court meetings accompanying this joint proxy statement/
prospectus. Any proxy may also be revoked by attending the special general
meeting or the relevant court meeting, as the case
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may be, and voting in person. Attendance at the special general meeting or
court meeting will not by itself constitute revocation of a proxy. Terra Nova
does not expect to adjourn either the special general meeting or the court
meetings for a period of time long enough to require the setting of a new
record date for such meeting. If an adjournment occurs, it will have no effect
on the ability of Terra Nova's shareholders of record as of the record date to
exercise their voting rights or to revoke any previously delivered proxies.
Solicitation of Proxies
Proxies are being solicited by and on behalf of the Terra Nova board. Terra
Nova will bear the cost of solicitation of proxies from its own shareholders,
except that Terra Nova and Markel will share the expenses related to printing
this joint proxy statement/prospectus, as well as all mailing and SEC filing
fees incurred in connection with the joint proxy statement prospectus.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries for the forwarding of solicitation material to the beneficial
owners of Terra Nova shares held of record by such persons, and Terra Nova will
reimburse its custodians, nominees and fiduciaries for their reasonable out-of-
pocket expenses in connection therewith. In addition to soliciting proxies by
mail, officers, directors and employees of Terra Nova, without receiving
additional compensation, may solicit proxies by telephone, telegraph, in person
or by other means. Terra Nova has also made arrangements with Kissell-Blake to
assist in soliciting proxies from shareholders.
The Transactions
Background of the Agreement
Both Markel and Terra Nova have a history of growth through acquisitions.
Senior management of Markel has felt for some time that an acquisition which
expanded Markel's base of profitably underwritten business and also provides
opportunities for increased investment leverage would be very beneficial.
Senior management of Terra Nova believed that an appropriate acquisition or
combination providing access to the U.S. insurance markets would be beneficial
to Terra Nova.
In the spring of 1998, Terra Nova's financial advisors contacted Steven
Markel, vice chairman of Markel, to explore interest in a possible business
combination. The transaction discussed at that time involved an acquisition by
Markel which would have been structured so the surviving entity would be a
Bermuda corporation not subject to U.S. tax. Representatives of Terra Nova and
Markel held numerous discussions throughout the early summer but reached no
agreement. Both parties agreed that discussions might re-commence in the
future.
In early December 1998, Steven Markel contacted John Dwyer, chairman of
Terra Nova, to discuss the possibility of continuing discussions. Mr. Markel
and Mr. Dwyer met on December 21 and determined that it would be beneficial for
each of Terra Nova and Markel to conduct a due diligence review of the other. A
mutual confidentiality agreement was executed in early January and the parties
and their representatives conducted due diligence reviews throughout January
and early February of 1999. The transaction under discussion continued to
involve a Bermuda based surviving entity and would have utilized pooling of
interests accounting treatment. No agreement was reached, and the parties
formally terminated discussions on April 1, 1999.
During June of 1999, Steven Markel and Markel's financial advisors met with
Terra Nova's financial advisors and other representatives of Terra Nova to
discuss the due diligence results and explore whether a transaction was still
possible. No agreement was reached at that time. On July 23, 1999, Steven
Markel wrote to the board of directors of Terra Nova indicating that Markel was
willing to make a proposal to acquire all outstanding equity interests in Terra
Nova for $33.00 per share with the consideration being 1/3 cash and 2/3 Markel
common shares. The proposed transaction did not contemplate a Bermuda-based
surviving entity nor would it have been accounted for as a pooling of
interests.
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On August 4 and 5, 1999, the board of directors of Terra Nova held a
regularly scheduled meeting at which it considered the letter from Steven
Markel and directed the executive committee to continue discussions with Markel
executives and advisors regarding the proposal.
On August 6, 1999, Terra Nova issued a press release announcing that it had
received an unsolicited proposal for a merger and that it was in the advanced
stages of negotiating an agreement to acquire another company.
On August 6, 1999, the executive committee of Terra Nova's board of
directors advised Steven Markel that it was willing to discuss a transaction
and that Markel should complete any additional due diligence as quickly as
possible. Both parties conducted additional due diligence between August 6 and
August 13, and the parties' legal representatives commenced drafting and
negotiation of definitive agreements.
On August 13, 1999, Steven Markel and Darrell Martin, Markel's executive
vice president and chief financial officer, along with Markel's financial
advisors met with the Terra Nova executive committee and Terra Nova's financial
advisors. Numerous issues were discussed and negotiated but no final agreement
was reached as to price or as to the proposed mix of cash and shares to be
offered Terra Nova shareholders. The parties' legal representatives continued
to revise the proposed definitive agreements. Meetings continued on August 14
with final agreements as to price and consideration being reached, subject to
approval of the respective boards of directors of each party. On August 15,
1999, the board of directors of each of Markel and Terra Nova approved the
Agreement and Plan of Merger and Scheme of Arrangement and definitive
agreements were executed and delivered by the parties.
Reasons for the Proposed Transactions
We believe the combination of our two companies, both of which focus on
underwriting profitability, will create an organization able to compete more
effectively in the international insurance markets. The transactions should
also provide opportunities to achieve benefits that would not be available to
either company alone, such as:
. opportunities for Markel to cross-sell its insurance products as a
result of Terra Nova's presence in London, Bermuda and other
international insurance markets,
. increased access to U.S. markets for Terra Nova's insurance products as
a result of Markel's presence in the United States, and
. enhanced ability as a company with larger size and scale to attract
business where size and financial strength are purchasing factors.
The Markel board also considered a number of other items and factors,
including, without limitation, the following:
. Markel's business and strategic objectives and the recommendation of
Markel's management;
. Terra Nova's proven record of profitable underwriting and conservatism
in its financial reporting;
. Terra Nova's culture, similar to Markel's, that is focused on
underwriting profitability;
. Terra Nova's products are specialized and not sold on the basis of price
alone;
. current industry, economic and market conditions, including the
intensification of competition in the property and casualty insurance
and reinsurance business and the recent consolidation activity in the
insurance and reinsurance industry;
. Markel's knowledge and review of the financial condition, results of
operations and business prospects of Terra Nova, including the results
of Markel's due diligence review of Terra Nova;
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. the investment leverage in Terra Nova's investment portfolio and
opportunities to enhance investment performance and contribute to
greater profitability for the combined group;
. the lack of overlap between Terra Nova and Markel's distribution systems
or customer bases;
. Terra Nova's presence in London, Bermuda and other international
insurance markets and opportunities for the combined group to cross sell
products and enhance the combined group's future rate of growth;
. the terms and conditions of the transactions and the respective
representations, warranties, covenants, agreements and conditions to
their respective obligations, including the condition that the
transaction be approved by the Markel shareholders;
. the financial condition and business reputation of Terra Nova, and the
strength of its management team;
. the combined group's size and scale, which should enhance the companies'
ability to attract and retain business where size and financial strength
are purchasing factors; and
. the financial presentation of Salomon Smith Barney Inc. to the Markel
board and the oral opinion of SSB to the effect that, as of August 15,
1999, and based upon the assumptions made, general procedures followed,
matters considered and limits on the review undertaken by SSB described
in its written opinion, dated August 15, 1999, the consideration to be
received by the shareholders of Terra Nova in the scheme of arrangement
was fair, from a financial point of view, to the shareholders of Markel.
The Terra Nova board also considered a number of other items and factors,
including, without limitation, the following:
. Terra Nova's business, management, financial performance and condition,
strategic objectives, prospects and competitive position, and the
recommendations of Terra Nova's management;
. a review of strategic alternatives, including other possible business
combinations and, based on the foregoing, the belief that a transaction
with another company could not reasonably be expected to offer terms
with advantages superior to those of a business combination with Markel;
. Markel's culture, similar to Terra Nova's, that is focused on
underwriting profitability;
. the current industry, economic and market conditions, including in
particular the intensification of competition in the property and
casualty insurance and reinsurance business and the resulting downward
pressure on pricing, together with the recent consolidation trend within
the insurance and reinsurance industry;
. the current and historical trading prices and values of Terra Nova
ordinary shares and Markel common shares and the current and historical
trading multiples of other comparable companies;
. the fact that the consideration on a per share basis represented a
premium over recently prevailing market prices of Terra Nova ordinary
shares;
. the increased liquidity to Terra Nova's shareholders resulting from at
least 40% of the consideration consisting of cash;
. the Terra Nova shareholders will only recognize gain for U.S. tax
purposes to the extent that they receive cash consideration;
. its knowledge and review of the financial condition, results of
operations and business prospects of Markel, as well as the results of
Terra Nova's due diligence review of Markel, and its belief that the
merger and scheme of arrangement would not be likely to adversely affect
Terra Nova's relationships with its clients and associates;
. the terms and conditions of the transactions and the parties' respective
representations, warranties, covenants, agreements and conditions to
their respective obligations, including the condition that the
transactions be approved by the Terra Nova shareholders;
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. the Terra Nova board's belief that conducting an auction after receipt
of Markel's proposal might (a) expose Terra Nova's business to
competitive harm, (b) cause Markel to withdraw its proposal and (c) not
assure Terra Nova of receiving any other acceptable offers;
. the financial condition and business reputation of Markel, and the
strength of its management team;
. the risk that benefits sought in the transactions would not be obtained,
the risk that the transactions would not be consummated, and the effect
of the public announcement of the transactions on the trading price of
Markel common shares and Terra Nova ordinary shares; and
. the financial presentation of Donaldson, Lufkin & Jenrette Securities
Corporation to the Terra Nova board and the oral opinion of Donaldson,
Lufkin & Jenrette Securities Corporation to the effect that, as of
August 15, 1999 and based upon the qualifications and assumptions made
and matters considered by Donaldson, Lufkin & Jenrette described in its
written opinion dated August 15, 1999, the consideration to be received
by the shareholders of Terra Nova, other than shareholders who are
affiliates of Donaldson, Lufkin & Jenrette, in the transaction is fair
to such shareholders from a financial point of view.
Each company's board determined that the potential advantages of the
transactions far outweigh the disadvantages. Each company's board believes that
the transactions will result in its respective shareholders realizing greater
value than its company could deliver to them alone. Based on the consideration
of these and other relevant matters, each company's board unanimously
determined that the agreement and the transactions contemplated by the
agreement are in the best interests of its company and its company's
shareholders.
The foregoing discussion of the factors considered by each company's board
is not intended to be exhaustive, but is believed to include all material
factors considered by each company's board. In reaching its decision to approve
the agreement and the transactions contemplated by the agreement, neither
company's board quantified or assigned any relative weights to the factors
considered, or considered any one factor to be determinative, and individual
directors may have given different weight to different matters.
The Markel board of directors and the Terra Nova board of directors have
each unanimously concluded that the merger and scheme of arrangement are in the
best interests of their respective shareholders, and each unanimously
recommends that its shareholders vote for approval and adoption of the merger
agreement and the transactions.
Opinion of Terra Nova's Financial Advisor
Terra Nova requested Donaldson, Lufkin & Jenrette Securities Corporation, as
financial advisor to Terra Nova, to render an opinion to the Terra Nova board
of directors regarding the fairness from a financial point of view to Terra
Nova's shareholders of the consideration to be received by such holders in the
transaction. The consideration receivable will be in the form of 0.184 Markel
Holdings common shares or $34.00 in cash, at the election of the shareholder,
for each Terra Nova ordinary share but limited to a maximum 40% cash component
and a maximum 60% shares component for the total transaction value. On
August 15, 1999, Donaldson, Lufkin & Jenrette delivered its opinion to the
board of directors of Terra Nova that, as of that date, and based on and
subject to the assumptions, limitations and qualifications set forth in the
written opinion, the consideration receivable by Terra Nova's shareholders,
other than shareholders who were affiliates of Donaldson, Lufkin & Jenrette,
was fair to the shareholders from a financial point of view. See "--General
Description of the Transactions Proration."
The full text of the Donaldson, Lufkin & Jenrette opinion is attached as
Appendix B. We urge you to read the opinion carefully and in its entirety for
the procedures followed, assumptions made, other matters considered and limits
of the review by Donaldson, Lufkin & Jenrette in connection with its opinion.
Donaldson, Lufkin & Jenrette prepared its opinion for the board of directors
of Terra Nova. The opinion addressed only the fairness from a financial point
of view of the consideration receivable by Terra Nova's
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shareholders as of August 15, 1999. Donaldson, Lufkin & Jenrette did not
consider the fairness of the consideration receivable to shareholders who are
its affiliates. Donaldson, Lufkin & Jenrette necessarily based its opinion on
economic, market, financial and other conditions as they existed on the date of
its opinion and on the information made available to it as of that date.
Although subsequent developments may affect the assumptions, analyses or
conclusions of the opinion, Donaldson, Lufkin & Jenrette does not have any
obligation to update, revise or reaffirm its opinion. Donaldson, Lufkin &
Jenrette expressed no opinion as to the prices at which Markel Holdings common
shares might actually trade at any time. The opinion is not a recommendation to
any Terra Nova shareholder as to whether such shareholder should elect to
receive cash or Markel Holdings common shares, nor is it a recommendation to
any Terra Nova shareholder as to how such shareholder should vote on the
transaction. The opinion did not address the relative merits of the transaction
compared to other business strategies considered by Terra Nova's board of
directors or the board of directors' decision to proceed with the transaction.
In arriving at its opinion, Donaldson, Lufkin & Jenrette:
. reviewed the agreement;
. reviewed financial and other information that was publicly available or
furnished to it by Terra Nova and Markel, including information provided
during discussions with the respective managements of Terra Nova and
Markel;
. reviewed earnings projections of Terra Nova for the period beginning
January 1, 1999 and ending December 31, 2001 prepared by the management
of Terra Nova. For earnings projections of Terra Nova for periods
subsequent to December 31, 2001, Donaldson, Lufkin & Jenrette used
estimates of long-term earnings growth from I/B/E/S International, Inc.,
a database source for institutional analyst's earnings estimates;
. reviewed earnings projections of Markel for the period beginning January
1, 1999 and ending December 31, 2003 prepared by the management of
Markel;
. compared financial and securities data of Terra Nova and Markel with
data of various other companies whose securities are traded in public
markets;
. reviewed the historical share prices and trading volumes of Terra Nova
ordinary shares and Markel common shares;
. reviewed prices and premiums paid in other relevant business
combinations of property-casualty insurance companies, selected on the
basis of their mix of business; and
. conducted such other financial studies, analyses and investigations as
Donaldson, Lufkin & Jenrette deemed appropriate for purposes of the
opinion.
In rendering its opinion, Donaldson, Lufkin & Jenrette relied upon and
assumed the accuracy and completeness of all of the financial and other
information that was available to it from public sources, that was provided to
it by Terra Nova and Markel or their respective representatives, or that it
otherwise reviewed. The management of Terra Nova and Markel believe that their
financial projections are based on reasonable assumptions. Donaldson, Lufkin &
Jenrette did not make any independent evaluation of any assets or liabilities
or make any independent verification of any of the information that it
reviewed.
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The following is a summary of the presentation that Donaldson, Lufkin &
Jenrette made to the Terra Nova board of directors at the board's August 15,
1999 meeting in connection with rendering its fairness opinion. The chart below
summarizes the ranges of implied per share prices based on Donaldson, Lufkin &
Jenrette's analyses and compares these ranges with the consideration receivable
by holders of Terra Nova ordinary shares. For a detailed description of each of
Donaldson, Lufkin & Jenrette's analyses, see the discussion of the individual
analyses below:
[CHART APPEARS HERE]
Selected
M&A
Property
and
Selected Casualty Selected
Publicly Selected Insurance M&A Discounted Historical
Traded M&A Premiums Premiums Equity Share
Comparables Transactions Paid Paid Value Price
- ----------- ------------ ---- ---- ----- -----
$21.79 - $17.09 - $32.07 - $29.82 - $19.93 - $14.13 -
$31.16 $35.24 $40.43 $43.68 $31.49 $34.50
1. Analysis of Consideration Receivable Based on Selected Publicly Traded
Property-Casualty Insurance Companies. Donaldson, Lufkin & Jenrette compared
the consideration receivable by holders of Terra Nova ordinary shares to the
range of values of Terra Nova ordinary shares implied by the relative valuation
multiples of the following publicly traded property-casualty insurance
companies, selected on the basis of their mix of business:
. Ace Limited
. W.R. Berkley Corporation
. Everest Reinsurance Holdings, Inc.
. PartnerRe Ltd.
. Transatlantic Holdings, Inc.
. Trenwick Group Inc.
. XL Capital Ltd.
Donaldson, Lufkin & Jenrette analyzed the equity value of each of these
selected companies using trading valuations as of August 11, 1999, measured as
a multiple of selected financial data, including 1999 and 2000 estimated
earnings per share and the June 30, 1999 book value per share. The 1999 and
2000 estimated earnings per share of the selected companies were based on
I/B/E/S estimates. Based on this analysis, Donaldson, Lufkin & Jenrette
developed the following ranges of valuation multiples:
. 8.5x--13.5x for 1999 estimated earnings per share,
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. 7.6x--10.3x for 2000 estimated earnings per share, and
. 0.89x--1.17x for June 30, 1999 book value per share.
In determining the range of valuation multiples, Donaldson, Lufkin &
Jenrette excluded the high and low multiple for each set of selected financial
data, and applied the preceding valuation multiples to Terra Nova's respective
data to determine the range of implied equity values of Terra Nova. Terra
Nova's respective data included management earnings estimates. The analysis
resulted in a range of implied values per share for Term Nova of $21.79 to
$31.16. The consideration receivable by holders of Terra Nova ordinary shares
is above the resulting implied range of value of Terra Nova's ordinary shares.
2. Analysis of Consideration Receivable Based on Acquisitions of Property-
Casualty Insurance Companies. Donaldson, Lufkin & Jenrette compared the
consideration receivable by Terra Nova's shareholders to the range of values of
Terra Nova's ordinary shares implied by the relative purchase price multiples
generated from 12 acquisitions of property-casualty insurance companies,
selected on the basis of their mix of business, that have occurred since
January 1, 1997. These 12 selected acquisitions are:
. Royal & Sun Alliance Insurance Group PLC acquisition of Orion Capital
Corporation;
. Trenwick Group Inc. acquisition of Chartwell Inc.;
. ACE Limited acquisition of Capital Re Corporation;
. XL Capital Ltd. acquisition of Nac Re Corp.;
. Chubb Corporation acquisition of Executive Risk Inc.;
. ACE Limited acquisition of CIGNA Corp. P&C Operations;
. Ohio Casualty Corporation acquisition of Great American Insurance Co.
(Commercial Lines);
. Gerling Global Reinsurance Corp. acquisition of Constitution Re Corp.;
. Liberty Mutual Insurance Co. acquisition of Summit Holding Southeast
Inc.;
. ACE Limited acquisition of Cat Ltd.;
. XL Capital Ltd. acquisition of Mid Ocean Ltd.; and
. XL Capital Ltd. acquisition of GCR Holdings Ltd.
Donaldson, Lufkin & Jenrette analyzed the equity value of each of the acquired
companies, measured as a multiple of selected financial data, including
earnings per share for the latest twelve months, estimated earnings per share
for the next twelve months and book value per share for the most recent
quarter. Based on this analysis, Donaldson, Lufkin & Jenrette developed the
following ranges of acquisition multiples based on a subset of such property-
casualty acquisitions, selected on the basis of their mix of business:
. 6.7x--15.0x for latest twelve months earnings per share,
. 8.6x--14.1x for next twelve months estimated earnings per share and
. 0.89x--2.11x for current book value per share.
Donaldson, Lufkin & Jenrette then applied these acquisition multiples to Terra
Nova's respective data to determine the range of implied equity values of Terra
Nova. Terra Nova's respective data included earnings estimates based on
management tax affected earnings estimates. Terra Nova's management prepared
earnings estimates on the assumption that Terra Nova would continue to operate
as a Bermuda domiciled company which would not be subject to U.S. taxes. The
transaction will, however, subject Terra Nova's earnings to current U.S. taxes.
Therefore for purposes of its analysis, Donaldson, Lufkin & Jenrette adjusted
Terra Nova's earnings estimates as if Terra Nova were taxed at the U.S.
corporate statutory rate. The analysis resulted in a
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<PAGE>
range of implied values per share for Terra Nova of $17.09 to $35.24. The
consideration receivable by holders of Terra Nova ordinary shares is within
this range of implied values.
3. Analysis of Consideration Receivable Based on Premiums Paid Over Market
Prices in Selected Acquisitions of Property-Casualty Insurance
Companies. Donaldson, Lufkin & Jenrette compared the consideration receivable
by holders of Terra Nova ordinary shares to the range of values of Terra Nova
ordinary shares implied by the premiums paid over market prices in recent
selected acquisitions of property-casualty insurance companies. Donaldson,
Lufkin & Jenrette analyzed seven property-casualty acquisitions involving
public companies, selected on the basis of their mix of business, that have
occurred since January 1, 1997. These seven selected acquisitions are:
. Royal & Sun Alliance Insurance Group PLC acquisition of Orion Capital
Corp.;
. Trenwick Group Inc. acquisition of Chartwell Inc.;
. XL Capital Ltd. acquisition of Nac Re Corporation;
. Chubb Corporation acquisition of Executive Risk Inc.;
. Liberty Mutual Insurance Co. acquisition of Summit Holding Southeast
Inc.;
. XL Capital Ltd. acquisition of Mid Ocean Ltd; and
. XL Capital Ltd. acquisition of GCR Holdings.
Donaldson, Lufkin & Jenrette analyzed the premium, measured as a percentage,
that the transaction price represented over the closing prices for the acquired
companies' common shares for the following periods: one day prior, one week
prior and one month prior to the transaction announcement. Based on this
analysis, Donaldson, Lufkin & Jenrette developed the following ranges of
premiums paid percentages:
. 20.7%--57.6% over the closing price one day prior to announcement,
. 20.5%--52.5% over the closing price one week prior to announcement, and
. 20.2%--45.5% over the closing price one month prior to announcement.
Donaldson, Lufkin & Jenrette then applied these premium paid percentages to
the respective closing prices for Terra Nova ordinary shares to determine the
range of implied equity values of Terra Nova. The analysis resulted in a range
of implied Terra Nova value per share of $32.07 to $40.43. The consideration
receivable by holders of Terra Nova ordinary shares is within this range of
implied values.
4. Analysis of Consideration Receivable Based on Premiums Paid Over Market
Prices in Selected Acquisitions. Donaldson, Lufkin & Jenrette compared the
consideration receivable by holders of Terra Nova ordinary shares to the range
of values of Terra Nova ordinary shares implied by the premiums paid over
market prices in recent acquisitions, selected on the basis of market
capitalization. Donaldson, Lufkin & Jenrette analyzed 12 acquisitions involving
public companies that have occurred since January 1, 1997. The 12 selected
transactions are as follows:
. MedTrans Acquisition Co. (Laidlaw Inc.) acquisition of American Medical
Response, Inc.
. ITT Industries Inc. acquisition of Gould Pumps Inc.
. Rational Software Corp. acquisition of Pure Atria Corporation
. Excel Communications Inc. acquisition of Telco Communications Group Inc.
. Misys PLC acquisition of Medic Computer Systems, Inc.
. Converse Technology, Inc. acquisition of Boston Technology, Inc.
. Teleport Communications Group Inc. acquisition of ACC Corp
. USA Networks, Inc. acquisition of Ticketmaster Group, Inc.
. Southdown Inc. acquisition of Medusa Corp.
. Armstrong World Industries, Inc. acquisition of Triangle Pacific
Corporation
25
<PAGE>
. General Electric Company Medical Systems acquisition of Marquette
Medical Systems, Inc.
. HBO & Co. acquisition of Access Health, Inc.
Donaldson, Lufkin & Jenrette analyzed the premium, measured as a percentage,
that the transaction price represented over the closing prices for the acquired
companies' common shares for the following periods: one day prior, one week
prior and one month prior to the transaction announcement. Based on this
analysis, Donaldson, Lufkin & Jenrette developed the following ranges of
premiums paid percentages:
. 7.7%--61.7% over the closing price one day prior to announcement,
. 12.0%--57.4% over the closing price one week prior to announcement, and
. 16.2%--73.1% over the closing price one month prior to announcement.
Donaldson, Lufkin & Jenrette then applied these premium paid percentages to
the respective closing prices for Terra Nova ordinary share to determine the
range of implied equity values of Terra Nova. The analysis resulted in a range
of implied values per share of Terra Nova of $29.82 to $43.68. The
consideration receivable by holders of Terra Nova ordinary shares is within
this range of implied values.
5. Analysis of Consideration Receivable Based on an Analysis of Discounted
Future Equity Value. Donaldson, Lufkin & Jenrette compared the consideration
receivable by holders of Terra Nova ordinary shares to the range of values of
Terra Nova ordinary shares implied by an analysis of discounted future equity
value. For purposes of this analysis, Donaldson, Lufkin & Jenrette assumed
. annual cash flows for 1999 to 2003 equal to common share dividends
distributed by Terra Nova assuming Terra Nova's current annual common
share dividend of $0.24 per share increased at the same rate as GAAP net
operating income as projected by management for 1999, 2000 and 2001 and
according to the I/B/E/S long-term earnings growth estimates for 2002
and 2003 and
. a terminal value in 2003 based on a range of multiples, 8.0x--11.0x, of
2004 earnings, estimated based on I/B/E/S long-term earnings growth
estimates.
Donaldson, Lufkin & Jenrette discounted the resulting cash flows and
terminal value using a range of discount rates, 8.0%--12.0%, based on Terra
Nova's estimated cost of equity capital. The analysis resulted in a range of
implied values per share of Terra Nova of $19.93 to $31.49. The consideration
receivable by Terra Nova shareholders is above the resulting implied range of
values of Terra Nova ordinary shares.
6. Analysis of Consideration Receivable Based on the Historical Prices of
Terra Nova Ordinary Shares. Donaldson, Lufkin & Jenrette compared the
consideration receivable by Terra Nova shareholders to the range of implied per
share equity values resulting from Terra Nova's historical share trading
prices. Donaldson, Lufkin & Jenrette examined the history of Terra Nova
ordinary shares trading prices since its initial public offering on April 17,
1996 through August 11, 1999. The analysis resulted in a range of Terra Nova
closing share prices of $14.13 to $34.50. The consideration receivable by Terra
Nova shareholders is above Terra Nova's historical closing share prices except
for a period of two days in July 1998.
7. Analysis of Markel Common Shares. In order to analyze the value of the
Markel Holdings common shares to be received by Terra Nova shareholders,
Donaldson, Lufkin & Jenrette reviewed the historical share prices and trading
volumes of Markel's common shares for the past three years and compared them
with the following group of publicly traded companies, selected on the basis of
their mix of business:
. American International Group
. Berkeley (W R) Corp.
. Capital Transamerica Corp.
. Frontier Insurance Group Inc.
. HCC Insurance Holdings Inc.
26
<PAGE>
. HSB Group Inc.
. RLI Corp.
Specificially Donaldson, Lufkin & Jenrette compared the historical share
prices of Markel common shares to those of the selected publicly traded
companies for the past three years, compared the historical price to earnings
multiples of Markel common shares to those of the selected publicly traded
companies for the past three years, and compared the historical book value per
share multiples of Markel common shares to those of the selected publicly
traded companies for the past three years.
Donaldson, Lufkin & Jenrette also:
. analyzed pro forma financial effects of the transactions on Markel's
1999, 2000 and 2001 estimated earnings per share and shareholders'
equity per share. In conducting its analysis, Donaldson, Lufkin &
Jenrette relied upon financial projections provided by the management of
Terra Nova that were adjusted to reflect the fact that Terra Nova's
earnings will be subject to current U.S. taxes as a result of the
transaction, and financial projections provided by the management of
Markel;
. analyzed the pro forma effect of the transaction on 1999, 2000 and 2001
estimated earnings per share and shareholders' equity per share of the
pro forma combined company. The results of the pro forma transaction
analysis are not necessarily indicative of future operating results or
financial position;
. compared the projected 1999, 2000 and 2001 earnings per share of Terra
Nova and Markel on a stand-alone basis to Terra Nova and Markel
projected pro forma 1999, 2000 and 2001 earnings per share; and
. compared the actual June 30, 1999 book value per share of Markel to the
pro forma June 30, 1999 book value per share.
In its analysis, Donaldson, Lufkin & Jenrette utilized an acquisition
standard of 60% stock consideration and 40% cash consideration paid to Terra
Nova shareholders and assumed that the transaction occurred on January 1, 1999.
The analysis resulted in immediate accretion to Markel's book value per share
and accretion to Markel's earnings per share in the year 2001.
The summary set forth above is not a complete description of the analyses
performed by Donaldson, Lufkin & Jenrette but summarizes the material elements
of its presentation to the Terra Nova board of directors on August 15, 1999 in
connection with preparation of the opinion. When Donaldson, Lufkin & Jenrette
prepares a fairness opinion it must determine the most appropriate and relevant
methods of financial analysis and apply these methods to the particular
circumstances. Donaldson, Lufkin & Jenrette conducted each of the analyses in
order to provide a different perspective on the transaction and to add to the
total mix of information available. In reaching its conclusion, Donaldson,
Lufkin & Jenrette considered the results of the analyses in light of each other
and ultimately reached its opinion based on the results of all analyses taken
as a whole. Donaldson, Lufkin & Jenrette did not place particular reliance or
weight on any individual analysis. Accordingly, Donaldson, Lufkin & Jenrette
has indicated to Terra Nova that it believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. The
results of Donaldson, Lufkin & Jenrette's analyses are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses.
Pursuant to the engagement agreement dated August 13, 1999, Terra Nova
. has paid to Donaldson, Lufkin & Jenrette a fee of $750,000 relating to
the delivery of the fairness opinion;
. upon completion of the transaction, will pay to Donaldson, Lufkin &
Jenrette an additional amount equal to 0.60% of the aggregate value of
Terra Nova's ordinary shares, treating any shares issuable upon exercise
of options, warrants or other rights of conversion as outstanding, plus
the amount of
27
<PAGE>
any debt assumed, acquired, remaining outstanding, retired or defeased
or preferred shares redeemed or remaining outstanding in connection with
the transaction, minus the sum of
. $750,000, which was already paid to Donaldson, Lufkin & Jenrette in
connection with the fairness opinion, and
. $250,000
The formula used to determine Donaldson, Lufkin & Jenrette's fee depends in
part on the value per share of Terra Nova's ordinary shares at the time of
closing, which is determined in part on the value of Markel Holdings common
shares at the time of closing. For this reason, we cannot at this time
determine the exact amount of the fees that Terra Nova will pay to Donaldson,
Lufkin & Jenrette. However, these fees will not exceed $6,500,000 unless the
value per Terra Nova ordinary share for purposes of calculating the amount
paid above, is greater than $36.00 per share. In addition, Terra Nova agreed
to reimburse Donaldson, Lufkin & Jenrette from time to time for all out-of-
pocket expenses, including the reasonable fees and expenses of counsel, that
it incurs in connection with its engagement and to indemnify Donaldson, Lufkin
& Jenrette and related persons against specified liabilities in connection
with its engagement, including liabilities under U.S. federal securities laws.
Donaldson, Lufkin & Jenrette and Terra Nova negotiated the terms of the fee
arrangement, and the Terra Nova board of directors was aware of the
arrangement, including the fact that a significant portion of the aggregate
fee payable to Donaldson, Lufkin & Jenrette is contingent upon consummation of
the transaction. Donaldson, Lufkin & Jenrette believes that the terms of this
fee arrangement are customary for transactions of this nature.
As part of its investment banking business, Donaldson, Lufkin & Jenrette
regularly engages in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes. In the ordinary course of its business, Donaldson, Lufkin &
Jenrette or its affiliates may at any time hold long or short positions, and
may trade or otherwise effect transactions, for its own account or for the
accounts of customers, in equity or debt securities of Terra Nova or Markel.
Donaldson, Lufkin & Jenrette has performed investment banking and other
services for Terra Nova and for Markel in the past and has received
compensation for its services. In considering the opinion of Donaldson, Lufkin
& Jenrette, Terra Nova shareholders should be aware that:
. affiliates of Donaldson, Lufkin & Jenrette own, in the aggregate,
approximately 18% of the outstanding ordinary shares of Terra Nova;
. two members of the board of directors of Terra Nova are Managing
Directors of Donaldson, Lufkin & Jenrette or one or more of its
affiliates;
. affiliates of Donaldson, Lufkin & Jenrette and other shareholders of
Terra Nova have entered into a shareholder agreement, pursuant to which
they have agreed to vote Terra Nova's ordinary shares held by them in
favor of the transaction;
. Donaldson, Lufkin & Jenrette and affiliates are parties to a
registration rights agreement covering Markel Holdings common shares to
be received by affiliates of Donaldson, Lufkin & Jenrette in the
transaction.
Opinion of Markel's Financial Advisor
Markel retained Salomon Smith Barney Inc. to act as financial advisor to
Markel in connection with the possible acquisition of Terra Nova. On August
15, 1999, SSB rendered an opinion to the Markel board of directors to the
effect that, based upon and subject to the considerations set forth in the
opinion, as of that date, the consideration of $34.00 in cash or 0.184 Markel
Holdings common shares proposed to be paid for each outstanding Terra Nova
ordinary share was fair, from a financial point of view, to Markel
shareholders.
28
<PAGE>
The full text of SSB's opinion, which sets forth the assumptions made,
general procedures followed, matters considered and limits on the review
undertaken, is attached as Appendix C to this document and is incorporated by
reference. The summary of SSB's opinion set forth below is qualified in its
entirety by reference to the full text of the opinion. Markel did not impose
any limitations on SSB with respect to the investigations made or procedures
followed by it in rendering its opinion. Shareholders are urged to read SSB's
opinion carefully and in its entirety.
In connection with rendering its opinion, SSB among other things:
. reviewed a draft of the agreement, including the exhibits and schedules
thereto;
. reviewed publicly available business and financial information relating
to Markel and Terra Nova;
. reviewed other financial information and operating data provided to it
by or on behalf of Markel and Terra Nova relating to their businesses,
including information relating to the strategic implications and
operational benefits anticipated to result from the merger and the
scheme of arrangement;
. held discussions with senior officers, directors and other
representatives and advisors of Markel and senior officers, directors
and other representatives and advisors of Terra Nova concerning the
businesses, operations and prospects of Markel and Terra Nova;
. evaluated the potential pro forma impact of the merger and the scheme of
arrangement on Markel;
. compared the financial terms of the merger and the scheme of arrangement
as set forth in the agreement to, among other things: current and
historical market prices and trading volumes of the Terra Nova ordinary
shares; the historical and projected earning and other operating data of
Markel and Terra Nova; and the capitalization and financial condition of
Markel and Terra Nova;
. reviewed publicly available information concerning the financial terms
of other transactions recently effected that SSB considered relevant to
its inquiry; and
. reviewed publicly available information relating to the businesses of
other companies whose operations SSB considered relevant in evaluating
those of Markel and Terra Nova; and
. conducted other analyses and examinations and considered other
financial, economic and market criteria that it deemed appropriate.
SSB was not requested to and did not approach, or hold discussions with,
third parties to evaluate alternate acquisition candidates for Markel.
In rendering its opinion, SSB assumed and relied, without independent
verification, upon the accuracy and completeness of all of the financial and
other information and data publicly available or furnished to or otherwise
reviewed and discussed with it. SSB also assumed, with Markel's consent, that
the final terms of the agreement reviewed by it in draft form would not vary
materially from the draft reviewed and that the merger would qualify as a tax-
free reorganization for U.S. federal income tax purposes. Markel management
advised SSB that the financial forecasts and other information and data
provided to or otherwise reviewed by or discussed with it were reasonably
prepared on bases reflecting management's best currently available estimates
and judgments as to the future financial performance of Markel and the
strategic implications and operational benefits anticipated to result from the
merger and the scheme of arrangement.
SSB's opinion relates to the relative values of Markel and Terra Nova and
does not express any opinion as to what the value of the Markel Holdings common
shares actually will be when issued in the merger and the scheme of
arrangement, or the price at which the Markel common shares or the Terra Nova
ordinary shares will trade subsequent to the announcement of the merger and the
scheme of arrangement. SSB did not make and was not provided with an
independent evaluation or appraisal of the assets and liabilities, contingent
or otherwise, of Markel or Terra Nova nor did it make any physical inspection
of the properties or assets of Markel or Terra Nova. SSB's opinion is
necessarily based upon information available to it, and financial, stock market
and other conditions and circumstances existing and disclosed to it, as of
August 15, 1999.
29
<PAGE>
In connection with rendering its opinion, SSB made a presentation to the
Markel board of directors on August 15, 1999, with respect to the material
analyses it performed in evaluating the fairness of the consideration to be
received by Terra Nova shareholders in the scheme of arrangement.
The following is a summary of that presentation. To the extent earnings
forecasts for Markel or Terra Nova were used in its analyses, SSB relied on
Markel and Terra Nova management earnings estimates, as applicable. The
following quantitative information, to the extent it is based on market data,
is, except as otherwise indicated, based on market data as it existed at or
prior to August 15, 1999. Therefore, that information is not necessarily
indicative of current or future market conditions.
The following summary of financial analyses includes information presented
in tabular format and in order to understand fully these analyses, the tables
must be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Analyses Used to Derive Implied Per Share Equity Reference Ranges of Terra
Nova
SSB used the following methodologies to derive implied per share equity
reference ranges of Terra Nova:
. comparable public company analysis;
. price to book value versus projected return on average common equity
regression analysis;
. comparable precedent transaction analysis; and
. dividend discount analysis.
The per share equity reference ranges derived from these analyses were then
used as a basis to evaluate the consideration to be received by Terra Nova
shareholders in the scheme of arrangement. The various methodologies and the
implied per share equity reference ranges of Terra Nova are summarized in the
following table:
<TABLE>
<CAPTION>
Implied Per Share
Equity Reference
Methodology Summary Description Of Methodology Range of Terra Nova
- ----------- ---------------------------------- -------------------
<S> <C> <C>
Comparable Public Analysis of common stock trading $31.76-$37.72
Company Analysis multiples of selected comparable public
companies, adjusted to reflect implied
private market valuation
Price to Book Value vs. Analysis of implied private market $32.58-$35.30
Projected Return on valuation based on a regression of
Average Common Equity comparable public companies' trading
Regression Analysis price to book value multiples versus
projected return on average common equity
Comparable Precedent Analysis of consideration paid in $25.79-$38.58
Transaction Analysis selected comparable transactions
Dividend Discount Net present value of various financial $28.00-$36.00
Analysis projections of dividends and terminal
values using selected discount rates
</TABLE>
I. Comparable Public Company Analysis
SSB reviewed publicly available financial, operating, and stock market
information for Markel, Terra Nova and the following other publicly-traded
property casualty insurance companies:
. XL Capital Ltd.;
. ACE Limited, Transatlantic Holdings, Inc.;
. Everest Reinsurance Holdings, Inc.;
30
<PAGE>
. HSB Group, Inc.;
. HCC Group, Inc.;
. RLI Corp.;
. Capital Transamerica Corporation;
. W.R. Berkley Corporation;
. Frontier Insurance Group Inc.; and
. Trenwick Group Inc.
SSB considered these companies to be reasonably similar to Terra Nova
insofar as they participate in business segments similar to Terra Nova's
business segments. However, it noted that none of these companies has the same
management, makeup, size and combination of businesses as Terra Nova.
For each of the comparable companies, SSB calculated, among other things,
the multiples, based on trading information as of August 13, 1999, of:
. market price to estimated 1999 operating earnings;
. market price to estimated 2000 operating earnings; and
. market price to book value.
SSB then compared these multiples to the comparable multiples for Terra
Nova. Operating earnings per share estimates for the comparable companies were
based on median I/B/E/S International Inc. estimates as of August 13, 1999.
IBES is a data service that monitors and publishes compilations of earnings
estimates by selected research analysts regarding companies of interest to
institutional investors. The complete range of multiples calculated by SSB for
the comparable companies and Terra Nova are presented below.
<TABLE>
<CAPTION>
Market Price/1999 Market Price/ 2000
Estimated Operating Estimated Operating Market Price/ Book
Earnings Per Share Earnings Per Share Value Per Share
------------------- ------------------- ------------------
<S> <C> <C> <C>
Comparable
Companies/1........./.. 8.0x-15.7x 7.2x-14.2x 0.87x-2.63x
Terra Nova/2........./.. 10.9x 9.8x 1.28x
</TABLE>
- --------
1 As of March 31, 1999, except for Everest Reinsurance Holdings, Inc., Markel
and Terra Nova, which are as of June 30, 1999.
2 Adjustment to reflect Markel management's estimate of an effective tax rate
of 30% and a potential improvement in Terra Nova's combined ratio by 1.50%.
SSB analyzed the multiples of the comparable companies based on market price
to book value, market price to 1999 estimated earnings and market price to 2000
estimated earnings. Based on a selected range of these multiples and an
estimated acquisition premium of 25%, a level SSB considered representative of
the acquisition premiums paid in comparable acquisitions, the implied per share
equity reference range for Terra Nova was from $31.76 to $37.72.
II. Price to Book Value versus Projected Return on Average Common Equity
Regression Analysis
SSB analyzed the implied relationship between a company's multiple of
trading price to book value versus its projected return on average common
equity. SSB examined this relationship by performing a regression analysis on
the comparable companies. Based on this analysis, and based on an estimate of
Terra Nova book value per share and estimated stand-alone 2000 return on
average common equity, as adjusted for the potential tax adjustment and
combined ratio improvement, SSB noted an implied per share equity reference
range of $32.58 to $35.30. This range includes an acquisition premium of 20% to
30%, levels SSB considered representative of the acquisition premiums paid in
comparable acquisitions.
31
<PAGE>
III. Comparable Precedent Transaction Analysis
SSB analyzed publicly available financial, operating and stock market
information for the following merger and acquisition transactions involving
specialty insurance and reinsurance companies since 1997:
Target Acquiror
. Chartwell Re Corp. . Trenwick Group, Inc.;
. NAC Re Corp. . XL Capital Ltd.;
. Clarendon America Insurance Company . Hannover
Rueckversicherungs;
. Constitution Re . Gerling Kozern
Versicherungs;
. CAT Ltd.
. Ace Ltd.;
. Mid Ocean Ltd.
. Exel Ltd.;
. Unionamerica Holdings Plc.
. MMI Cos.;
. Sphere Drake Holdings Ltd.
. Fairfax Financial Holdings
. GCR Holdings Ltd. Ltd.;
. SAFR
. Exel Ltd.; and
. PartnerRe Ltd.
SSB considered these transactions to be reasonably similar to the scheme of
arrangement. However, it noted that none of these transactions is identical to
the scheme of arrangement.
The following table presents the complete ranges for the precedent
transactions of the implied value per share of the target shares in each
precedent transaction, based on the price of the acquiror shares for the
trading day immediately prior to announcement of the transaction, to the IBES
estimated forward earnings per share and the book value per share.
Additionally, the table presents the range of premiums paid in the precedent
transactions to the closing price of the target shares for the day prior to
announcement and to the closing price of the target shares for the 30th trading
day prior to announcement. These statistics are presented in comparison to the
implied multiples indicated for the scheme of arrangement.
<TABLE>
<CAPTION>
Precedent Scheme of
Transaction Range Arrangement
----------------- -----------
<S> <C> <C>
Implied Acquisition Price to:
Estimated Forward Earnings................... 7.8x-14.0x 14.3x
Book Value................................... 0.82x-2.06x 1.70x
Premium to Market Price:
Day Prior to Announcement.................... 11.1%-57.5% 47.8%/1/
30th Day Prior............................... 17.3%-45.5% 27.7%
</TABLE>
- --------
1 Based upon the closing price on August 5, 1999, the last trading day prior
to Terra Nova's announcement of its receipt of the unsolicited bid.
Based on a selected range of the outlined statistics, SSB derived an implied
per share equity reference range of Terra Nova from $25.79 to $38.58.
IV. Dividend Discount Analysis
SSB also performed a dividend discount analysis in which the value of the
Terra Nova ordinary shares was estimated by adding:
. the estimated present value of Terra Nova's future stream of dividend
payments to Terra Nova's shareholders for the years 1999 through 2003;
and
. the estimated present value of the terminal value per share of the Terra
Nova ordinary shares at the end of the year 2003.
32
<PAGE>
This analysis was based upon management estimated operating earnings for
1999 and 2000, and an assumed 8% compound annual growth along with combined
ratio improvement of 0.5%, 1.00% and 1.50%, respectively, for 2001 through
2003.
SSB utilized discount rates of 9.0%, 10.0%, 11.0%, 12.0% and 13.0% which
resulted in the following per share ranges of value for the Terra Nova ordinary
shares:
<TABLE>
<CAPTION>
Terra Nova
Ordinary
Share Value
Terminal Value Multiples Per Share
-------------- ----------- -------------
<S> <C> <C>
As a Multiple of Projected 2004 Operating Earnings.. 12.0x-16.0x $26.49-$41.81
As a Multiple of Projected Book Value at the End of
2003............................................... 1.10x-1.90x $20.60-$41.64
</TABLE>
SSB noted that the appropriate per share equity reference range implied by
the analysis was $28.00 to $36.00.
Historical Trading Analyses. For the period January 1, 1998 through August
13, 1999, SSB compared the performance of the Markel common shares and the
Terra Nova ordinary shares against each other and against:
. the Standard & Poors Composite Average;
. the Standard & Poors Insurance Index (Property and Casualty); and
. the Salomon Smith Barney Insurance Comparables Index.
SSB reviewed the historical ratio of share price to forward earnings
estimates for both the Markel common shares and the Terra Nova ordinary shares
during the period from January 1, 1998 through August 13, 1999.
The following table compares the average ratio of share price to forward
earnings estimates for Terra Nova and Markel over this period.
Average Ratio of Share Price to Forward Earnings Estimates
<TABLE>
<S> <C> <C>
Markel................................... 18.5x (average Markel advantage: 9.4x)
Terra Nova............................... 9.1x
</TABLE>
SSB also reviewed the historical multiple of share price to book value for
both the Markel common shares and the Terra Nova ordinary shares during the
period from January 1, 1999 through August 13, 1999.
The following table compares the average multiple of share price to book
value per share for Terra Nova and Markel over this one year period.
Average Multiple of Share Price to Book Value Per Share
<TABLE>
<S> <C> <C>
Markel.................................. 2.37x (average Markel advantage: 1.06x)
Terra Nova.............................. 1.31x
</TABLE>
33
<PAGE>
Contribution Analyses. SSB performed analyses of the relative contributions
of each of Markel and Terra Nova to Markel Holdings with respect to market and
financial data, including items in the following table.
<TABLE>
<CAPTION>
Markel Terra Nova
Contribution Contribution
------------ ------------
<S> <C> <C>
1999 Estimated Operating Earnings/1.............../.. 60.5% 39.5%
2000 Estimated Operating Earnings/1/................. 55.9% 44.1%
Shareholders' Equity as of June 30, 1999............. 56.3% 43.7%
Assets as of June 30, 1999........................... 51.2% 48.8%
Net Income (For the 12 Months Ended June 30, 1999,
excluding the reserve
strengthening)...................................... 60.3% 39.7%
Revenue (For the 12 Months Ended June 30, 1999)...... 61.0% 39.0%
</TABLE>
- --------
1 Adjusted to reflect Markel management's estimate of an effective tax rate of
30% and a potential improvement in Terra Nova's combined ratio by 1.50%.
<TABLE>
<CAPTION>
Markel Terra Nova
Shareholders Shareholders
------------ ------------
<S> <C> <C>
Pro Forma Ownership Resulting From the Scheme of
Arrangement
Pro Forma Ownership excluding Options............. 66.6% 33.4%
Pro Forma Ownership including Options............. 65.8% 34.2%
</TABLE>
Premium Analysis. SSB performed analyses summarizing the implied premiums of
the consideration to be received by Terra Nova shareholders in the scheme of
arrangement over the market prices of the Terra Nova ordinary shares.
The following table compares the premium of the cash consideration of $34.00
per Terra Nova ordinary share to prices for the Terra Nova ordinary shares on
specified dates and for specified periods ended August 13, 1999.
<TABLE>
<CAPTION>
Price Of
Terra Nova Premium Of $34.00
Ordinary Shares To Applicable Price
--------------- -------------------
<S> <C> <C>
Period Ended August 13, 1999
Closing Price on August 13............... $25.94 31.1%
Closing Price on August 5 (Pre-
Announcement of Receipt of the
Unsolicited Bid)........................ $23.00 47.8%
Closing Price on July 2 (30 Days Prior).. $26.62 27.7%
52 Week High Price (August 17, 1998)..... $29.63 14.7%
</TABLE>
Merger Consequences Analysis. Giving pro forma effect to the estimated cost
savings and a 30.0% tax rate, SSB noted that, based upon management earnings
estimates for each of Markel and Terra Nova, Markel Holdings would have
estimated operating earnings per share, representing estimated potential
accretion to holders of Markel common shares as described in the table below.
<TABLE>
<CAPTION>
Operating Estimated
Earnings Potential
Per Share Accretion
--------- ---------
<S> <C> <C>
2000 Estimated........................................... $10.83 10.0%
2001 Estimated........................................... $12.18 11.3%
</TABLE>
SSB additionally noted that Markel Holdings would have an estimated book
value per share of $113.91, representing estimated potential accretion of 47.6%
to holders of the Markel common shares.
34
<PAGE>
Using Markel and Terra Nova management earnings estimates, taking into
account the pro forma adjustments with respect to the merger and the scheme of
arrangement described above and varying the estimated combined ratio resulting
from the merger and the scheme of arrangement, SSB reviewed the sensitivity of
operating earnings per share accretion from the perspective of the Markel
shareholders.
The preparation of financial analyses and fairness opinions is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analysis or summary description. SSB made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of the analyses and
factors considered. Accordingly, SSB believes that its analyses, including the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by it, without
considering all of the analyses and factors, could create a misleading or
incomplete view of the processes underlying the analyses and the opinion.
With regard to the comparable public company analysis and the comparable
transaction analysis summarized above, SSB selected comparable public companies
on the basis of various factors, including the size of the public company and
similarity of the line of business. However, no public company or transaction
utilized as a comparison is identical to Terra Nova, any business segment of
Terra Nova or the scheme of arrangement. As a result, these analyses are not
purely mathematical, but also take into account differences in financial and
operating characteristics of the comparable companies and other factors. These
factors could affect the transaction or public trading value of the comparable
companies and transactions to which Terra Nova, the business segments of Terra
Nova, and the scheme of arrangement, are being compared.
In its analyses, SSB made numerous assumptions with respect to Markel, Terra
Nova, industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Markel
and Terra Nova. Any estimates contained in SSB's analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by the
analyses. Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the prices at which companies may actually be sold.
Because these estimates are inherently subject to uncertainty, none of Markel,
Terra Nova, the Markel board of directors, SSB or any other person assumes
responsibility if future results or actual values differ materially from the
estimates. SSB's analyses were prepared solely as part of its analysis of the
fairness, from a financial point of view, of the consideration to be received
by Terra Nova shareholders in the scheme of arrangement, and were provided to
the Markel board of directors in that connection.
SSB is an internationally recognized investment banking firm engaged, among
other things, in the valuation of businesses and their securities in connection
with mergers and acquisitions, restructurings, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities , private placements and valuations for estate, corporate
and other purposes. Markel selected SSB to act as its financial advisor on the
basis of its international reputation and its familiarity with Markel. SSB and
its predecessors had previously rendered investment banking and financial
advisory services to Markel, for which they received customary compensation. In
addition, in the ordinary course of its business, SSB and its affiliates
including Citigroup Inc. may trade the debt and equity securities of both
Markel and Terra Nova for their own accounts and for the accounts of customers.
Accordingly, SSB and those affiliates may at any time hold a long or short
position in such securities.
Under the terms of its engagement letter, Markel will pay SSB a fee of
$500,000 upon delivery of its opinion and an additional fee of $4.8 million,
less the $500,000 previously paid, upon consummation of the merger and the
scheme of arrangement. Markel has also agreed to reimburse SSB for its
reasonable travel and other out-of-pocket expenses incurred in connection with
its engagement, including the reasonable fees and disbursements of its counsel.
In addition, Markel will indemnify SSB against liabilities and expenses
relating to or arising out of its engagement, including liabilities under the
federal securities laws.
35
<PAGE>
The consideration to be received by Terra Nova shareholders in the scheme of
arrangement was determined by arm's length negotiations between Terra Nova and
Markel, in consultation with their respective financial advisors and other
representatives, and was not established by those financial advisors.
General Description of the Transactions
As a result of the transactions, Markel Holdings will become the holding
company for Markel and Terra Nova and the shareholders of Markel and Terra
Nova, to the extent that they receive shares in the transactions, will be the
shareholders of Markel Holdings.
The transactions include the merger and the scheme of arrangement. The
merger will include the merger of Markel Holdings Sub Ltd., a subsidiary of
Markel Holdings that has been formed for the purpose of the transactions, into
Markel. Markel will be the surviving corporation in the merger and the
shareholders of Markel will become shareholders of Markel Holdings. The scheme
of arrangement will involve a Bermuda court proceeding whereby the shareholders
of Terra Nova will have their Terra Nova shares cancelled and will be given the
right to receive either shares of Markel Holdings, or cash, or a combination of
shares of Markel Holdings and cash, and newly issued Class A ordinary shares of
Terra Nova will be issued to Markel Holdings. The merger and the scheme of
arrangement will be completed simultaneously and neither of them will be
completed unless both of them are completed.
Based upon the number of Markel common shares and Terra Nova ordinary shares
and options outstanding as of the date of the agreement, approximately
8,267,000 Markel common shares will be outstanding immediately following the
effective time, of which approximately 2,694,000 shares representing
approximately 33% of the total, will be held by former Terra Nova shareholders.
Treatment of Shares
When we complete the transactions:
. each outstanding Terra Nova ordinary share, except for shares owned by
Markel, Terra Nova or any of their subsidiaries, will be automatically
cancelled and converted into the right to receive, subject to the
proration provisions described below, $34.00 in cash, 0.184 Markel
Holdings common shares, or a combination of cash and Markel Holdings
common shares;
. each Markel common share, except for shares owned by Markel, Terra Nova
or any of their subsidiaries, will convert into one Markel Holdings
common share and continue to be represented by the current Markel stock
certificates;
. outstanding Markel common shares owned by Markel, Terra Nova or any of
their subsidiaries, will be automatically canceled and no consideration
will be paid for them;
. Markel Holdings common shares outstanding immediately before we complete
the merger will be automatically cancelled and no consideration will be
paid for them;
. 40,000,000 new Terra Nova Class A ordinary shares will be issued to
Markel Holdings.
Treatment of Share Options
Terra Nova Approved and Non Approved Executive Share Option Schemes
When we complete the transactions, we will treat each outstanding option as
fully exercisable.
Subject to the fractional share and proration provisions described below,
each option holder may request that he or she receive as consideration for each
such option:
. cash equal to the excess of $34.00 per Terra Nova ordinary share
issuable upon the exercise of such option over the exercise price
payable in respect to such option;
36
<PAGE>
. a number of Markel Holdings common shares equal to (x) the quotient of
(A) the excess of $34.00 per Terra Nova ordinary share issuable upon the
exercise of such Terra Nova option over the exercise price payable in
respect of such Terra Nova option divided by (B) $34.00, multiplied by
(y) the Terra Nova exchange ratio of a Markel Holdings common share
(0.184); or
. a combination of cash and Markel Holdings common shares.
Option holders may exercise their options by delivering a notice of exercise
that contains a waiver or acknowledgment of full satisfaction of all rights in
respect of options, the option plans and the Employee Plan Grantor Trust, to
Terra Nova with a copy to the exchange agent prior to the election deadline.
Immediately before we complete the merger and the scheme of arrangement,
Terra Nova will use commercially reasonable efforts to terminate the Employee
Plan Grantor Trust and distribute all of the assets held in the trust to Terra
Nova.
Terra Nova 1997 Non-Employee Directors Share Unit Plan
When we complete the transactions, Terra Nova will pay to each participant,
each of whom is a current or former non-employee director, in the plan an
amount equal to the sum of the number of share units credited to the
participant's account under the unit plan multiplied by $34.00 per share, plus
the amount of cash credited to the participant's account in accordance with the
terms of such plan.
Immediately before we complete the merger and scheme of arrangement Terra
Nova will use comercially reasonable efforts to terminate the Directors Plan
Grantor Trust, distribute all of the assets held in the trust to Terra Nova and
obtain a waiver or acknowledgment of full satisfaction of all rights in respect
of such plan and the Directors Plan Grantor Trust from each participant
receiving a distribution under the plan.
Octavian Syndicate Management Ltd. 1996 Option Plan
Before we complete the transactions, Terra Nova and Markel will attempt to
terminate the Octavian Plan for such consideration as the participants in the
plan and Markel mutually agree upon. If the Octavian Plan is not terminated,
Terra Nova and Markel will attempt to amend the terms of the Octavian Plan so
that:
. the book value of Terra Nova for purposes of determining the option
grants for the year 2000 is set at the first to occur of December 31,
1999 or the closing date; and
. the participants in the plan will be entitled to receive, in lieu of
options with respect to Terra Nova ordinary shares, options to purchase
a number of Markel Holdings common shares equal to the product of the
number of Terra Nova ordinary shares subject to such options multiplied
by the Terra Nova exchange ratio, 0.184.
In attempting to amend the plan, Markel Holdings will obligate itself to
issue no more than an aggregate number of 110,400 Markel Holdings common
shares. We will set the exercise price or prices for the Markel Holdings
replacement options issued or to be issued under the terms of the Octavian Plan
so that the aggregate exercise price payable in respect of the Terra Nova
ordinary share options will equal the aggregate exercise price payable in
respect of the exercise of the Markel Holdings replacement options.
Election
Each holder of the outstanding Terra Nova ordinary shares that will be
cancelled when we complete the transactions will be entitled to elect as
consideration for the holder's Terra Nova ordinary shares:
. the number of Terra Nova ordinary shares that the holder wishes to have
converted into Markel Holdings common shares; and
. the number of Terra Nova ordinary shares that the holder wishes to have
converted into cash.
37
<PAGE>
Terra Nova shareholders must make their election to receive cash or Markel
Holdings common shares by delivering to the exchange agent, Chase Mellon
Shareholder Services L.L.C., a completed election form included with this
document together with the certificates representing their shares and any other
required documentation specified in the election form. If your share
certificates are not available, you may deliver an appropriate guarantee of
delivery of the share certificates, as set forth in the election form, by a
member of any registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
in the United States, provided the share certificates are in fact delivered to
the exchange agent by the time required in the guarantee of delivery. The
election form and other documentation must be received by the exchange agent no
later than the close of business on the third business day before the date the
merger and scheme of arrangement become effective. We anticipate that the
merger and scheme of arrangement will be completed on , 2000, the date
following the court hearing before the Supreme Court of Bermuda. Accordingly,
shareholders who wish to make any election must ensure that their materials are
received by the exchange agent no later than 5:00 p.m. eastern time on ,
2000, three business days before the anticipated effective date.
We do not intend to complete the merger and scheme of arrangement until all
conditions to the merger and the scheme of arrangement are satisfied or waived.
We expect to satisfy all conditions by the time of the court hearing, scheduled
for , 2000, which is seven days after the date of Terra Nova's court
meetings and special general meeting. However, we cannot assure you that this
will be the case. If the merger and scheme of arrangement are not completed by
, 2000, we will issue a press release on the Dow Jones News Service at
least five days before completing the merger and scheme of arrangement. The
press release will inform you of the last date for submitting and/or changing
your election forms. For a discussion of the key regulatory approvals necessary
for the merger and scheme of arrangement, please see "Regulatory Matters."
If a broker holds your Terra Nova shares in "street name" and you wish to
make an election you will have to instruct your broker, dealer, bank or other
financial institution that holds your shares to make an election on your behalf
by completing and returning the enclosed form. Your broker must receive this
form in time to deliver the election form to the exchange agent no later than
5:00 p.m. eastern time on , 2000 or the later date announced by press
release if the transactions are not completed by , 2000.
The election decisions of each holder of Terra Nova ordinary shares are
subject to the proration provisions explained below. There is no guarantee that
a Terra Nova shareholder will receive cash and/or shares in accordance with the
holder's election decisions.
Markel Holdings will not issue a certificate representing a fractional
Markel Holdings common share in exchange for Terra Nova ordinary share
certificates or Terra Nova options. Each holder of Terra Nova ordinary shares
or Terra Nova options who, after taking into account all Markel Holdings shares
that holder is entitled to receive in the aggregate, would otherwise be
entitled to receive a fractional Markel Holdings common share will be entitled
to receive cash equal to the product of such fractional interest multiplied by
the closing trading price for a Markel common share on the day preceding the
day we close the transactions.
Proration
Fifty-five percent of the Terra Nova ordinary shares and the cash value of
the options (the difference between the cash consideration of $34.00 per share
and the exercise price of such options) will be converted into Markel Holdings
common shares in the transactions at a rate of 0.184 Markel Holdings common
shares for each Terra Nova ordinary share. Forty-five percent of the Terra Nova
ordinary shares and the cash value of the options will be converted into cash
in the transactions at the rate of $34.00 per Terra Nova ordinary share. The
maximum amount of cash to be paid to Terra Nova shareholders and option holders
in the transactions is approximately $407 million less the cost of fractional
shares and the cash paid to participants in the Terra Nova Directors Share Unit
Plan. The maximum number of Markel Holdings common shares that is expected to
be issued to Terra Nova shareholders and option holders in the transactions is
approximately 2,694,000.
38
<PAGE>
If we receive cash elections for Terra Nova ordinary shares and Terra Nova
options that are equal to or less than the maximum amount of cash consideration
available, each Terra Nova ordinary share and Terra Nova option covered by a
cash election will be converted into the right to receive cash. If we receive
cash elections for Terra Nova ordinary shares and Terra Nova options that
exceed the maximum amount of cash consideration available:
. Terra Nova ordinary shares and Terra Nova options which elected to
receive Markel Holdings common shares, and non-electing ordinary shares
and options, will be converted into Markel Holdings common shares; and
. all Terra Nova ordinary shares and Terra Nova options which elected to
receive cash will receive cash on a pro rata basis up to the maximum
amount of the cash consideration available and will receive the
remainder of their consideration in Markel Holdings common shares.
If we receive share elections for Terra Nova ordinary shares and Terra Nova
options that are equal to or less than the maximum amount of stock
consideration available, each Terra Nova ordinary share and Terra Nova option
covered by a share election will be converted into the right to receive Markel
Holdings common shares. If we receive share elections for Terra Nova ordinary
shares and Terra Nova options that exceed the total amount of stock
consideration available:
. Terra Nova ordinary shares and Terra Nova options which elected to
receive cash, and non-electing ordinary shares and options, will be
converted to cash; and
. all Terra Nova ordinary shares and Terra Nova options which elected to
receive Markel Holdings common shares will receive Markel Holdings
common shares on a pro rata basis up to the maximum amount of stock
consideration available and the remainder of their consideration in
cash.
For the purpose of these proration provisions, a shareholder of Terra Nova
who does not properly complete his election form and deliver it to the exchange
agent as required is deemed not to have elected either shares or cash.
All non-electing Terra Nova ordinary shares and non-electing Terra Nova
options will receive shares and cash pro rata based on the amount of stock
consideration still available and the cash consideration still available after
the share elections and the cash elections have been counted and prorated, if
necessary.
Exchange of Terra Nova Ordinary Share Certificates
At the time we complete the transactions, Markel and Markel Holdings will
deposit, in trust with the exchange agent, certificates representing the shares
of Markel Holdings and an estimated amount of cash to be paid to holders of
Terra Nova ordinary shares and Terra Nova share options in the transactions.
As soon as practicable after we complete the transactions and after delivery
of a notice of election with a Terra Nova ordinary share certificate or
certificates or a notice of exercise of Terra Nova options to the exchange
agent, together with any other document required in the election instructions,
each holder of certificates or options will receive certificates or the
electronic equivalent for the Markel Holdings common shares to which the holder
is entitled and/or a check for the cash consideration and any fractional share
interests the holder is entitled to receive. No interest will be paid on any
consideration to be paid pursuant to the transactions.
Markel Holdings will not pay Terra Nova shareholders or option holders
entitled to receive dividends or other distributions with respect to Markel
Holdings common shares, dividends declared with a record date after the time we
complete the transactions and no cash payment in lieu of fractional shares will
be paid to any such holder until those shareholders have properly surrendered
their Terra Nova ordinary shares and Terra Nova options. Any payments to which
a holder is entitled will be made after delivery of any such certificates or
options as required.
39
<PAGE>
Fixed Consideration
The cash price to be paid for Terra Nova ordinary shares is fixed at $34.00
per share. The price will not be adjusted based on changes in market prices or
any other factor. The exchange ratio for Terra Nova shareholders that elect
shares is also fixed. Each Terra Nova ordinary share will be exchanged for
0.184 Markel Holdings common shares, and this exchange ratio will not be
adjusted based on changes in market prices or any other factor.
There will be a time delay, which may be significant, between the date when
shareholders vote on the arrangement at the court meetings and the special
general meeting, the date when the Terra Nova shareholders make their election
prior to completion of the scheme of arrangement and the date of completion.
The values of Terra Nova ordinary shares and Markel common shares may fluctuate
during that period. The relative prices of Terra Nova ordinary shares and
Markel common shares may vary significantly between the date of this joint
proxy statement/prospectus, the date of the shareholder's meetings and the
effective time of the proposed transactions. Accordingly, it is impossible to
accurately predict the market price of Markel Holdings common shares
immediately after the effective time of the transactions, and therefore,
impossible to accurately predict the value of the Terra Nova stock
consideration. The value of the stock consideration at that time, based on
reported market prices, may be significantly higher or lower than the value of
the Terra Nova cash consideration.
Material U.S. Federal Tax Consequences
This discussion describes the material U.S. federal tax consequences of the
merger and scheme of arrangement. It is for general information only and does
not consider all aspects of U.S. federal taxation that may be relevant to you.
This discussion is based upon the provisions of the Internal Revenue Code of
1986, as amended, existing Treasury regulations promulgated thereunder and
administrative and judicial interpretations of each, all as in effect as of the
date hereof and all of which are subject to change at any time, possibly with
retroactive effect. This discussion applies only to shareholders who hold their
Terra Nova shares or their Markel shares as capital assets. It does not apply
to Terra Nova shares or Markel shares:
. received pursuant to the exercise of options or similar securities or
otherwise as compensation;
. held as part of a "straddle", "hedge", "conversion transaction",
"synthetic security", or other integrated investment; or
. held by other types of shareholders who may be subject to special rules
including, without limitation, financial institutions, insurance
companies, tax-exempt organizations and broker dealers
In addition, we provide no information as to the tax consequences of the
merger and scheme of arrangement under state, local or foreign tax laws.
We urge you to consult your tax advisors to determine the tax consequences
to you of the merger and the scheme of arrangement, including the application
and effect of U.S. federal state, local, United Kingdom and other foreign
estate, gift and income tax laws.
The Merger and Scheme of Arrangement
The agreement requires that we receive the following tax opinions:
. Markel must receive an opinion of McGuire, Woods, Battle & Boothe LLP
that indicates that the merger will qualify as a tax deferred
reorganization for U.S. federal income tax purposes within the meaning
of Section 368 of the Internal Revenue Code, and
. Terra Nova must receive an opinion of Debevoise & Plimpton that
indicates that the scheme of arrangement, together with the merger, will
result in a partially tax deferred exchange for U.S. federal income tax
purposes as described in Section 351 of the Internal Revenue Code.
40
<PAGE>
Neither Markel nor Terra Nova will waive the condition that the opinion of its
tax counsel be delivered.
The opinions will be based upon conditions, assumptions and representations
of fact, including representations of fact contained in certificates of
officers of Markel, Terra Nova, foreign counsel and others, to be provided
before closing, all of which must be true, correct and complete as of the
closing. We have not sought any Internal Revenue Service ruling as to the U.S.
federal income tax consequences of the merger or scheme of arrangement, and the
opinions of counsel are not binding upon the Internal Revenue Service or any
court. Accordingly, the Internal Revenue Service might disagree with and
contest the tax treatment we describe below, and a court might sustain such
contest.
Markel has received the opinion of McGuire, Woods, Battle and Boothe, LLP,
special counsel to Markel, that the following accurately summarizes the
material U.S. federal income tax consequences of the merger to the Markel
shareholders. Terra Nova has received the opinion of Debevoise & Plimpton,
special counsel to Terra Nova, that the following accurately summarizes the
material U.S. federal income tax consequences of the merger and scheme of
arrangement to the Terra Nova shareholders. Both opinions are conditioned on
the assumptions and representations described above.
Tax Treatment of U.S. Holders
The following discussion is limited to any beneficial holder of Terra Nova
shares or Markel shares who, for U.S. federal income tax purposes, is
. a U.S. citizen or resident alien individual,
. a domestic corporation or partnership,
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or
. a trust, if a court within the United States is able to exercise primary
jurisdiction over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust.
We refer to each of the foregoing as a "U.S. holder" in the discussion
below.
Tax Consequences to Markel Shareholders
In general, a Markel shareholder will not recognize any gain or loss on the
exchange or deemed exchange of Markel shares for shares of Markel Holdings in
the merger. The adjusted tax basis of Markel Holdings shares received in the
merger will equal the shareholder's adjusted tax basis in the Markel shares
exchanged. The holding period for Markel Holdings shares received solely in
exchange for Markel shares surrendered in the merger will include the holding
period of the exchanged Markel shares. The treatment of a Markel shareholder
who is also a Terra Nova shareholder and who receives cash in the scheme of
arrangement is described below under "-- Terra Nova Shareholders Who Receive
Markel Holdings Shares and Cash " and "-- Terra Nova Shareholders Who Receive
Cash in Lieu of a Fractional Share."
Tax Consequences to Terra Nova Shareholders
Terra Nova Shareholders Who Receive Solely Markel Holdings Common Shares. A
Terra Nova shareholder who exchanges Terra Nova shares solely for Markel
Holdings shares in the scheme of arrangement will not recognize any gain or
loss on that exchange, except to the extent the shareholder receives cash in
lieu of a fractional share, as described below. The adjusted tax basis of
Markel Holdings shares received by a Terra Nova shareholder will equal the
Terra Nova shareholder's adjusted tax basis in the Terra Nova shares
surrendered in the exchange, excluding adjusted tax basis allocated to
fractional shares, as described below. The holding period of the Markel
Holdings shares received in the scheme of arrangement will include the holding
period of the Terra Nova shares exchanged for those shares.
41
<PAGE>
Terra Nova Shareholders Who Receive Solely Cash. A Terra Nova shareholder
who receives solely cash in the scheme of arrangement will recognize taxable
gain or loss equal to the difference between the amount of cash received and
the shareholder's adjusted tax basis in the Terra Nova shares surrendered. Any
gain or loss recognized by a Terra Nova shareholder will be long-term capital
gain or loss if the Terra Nova shareholder's holding period in its Terra Nova
shares is more than one year at the time of exchange. The treatment of a Terra
Nova shareholder who receives cash in the scheme of arrangement and who is also
a Markel shareholder is described below under "--Terra Nova Shareholders Who
Receive Markel Holdings Shares and Cash" and "--Terra Nova Shareholders Who
Receive Cash for a Fractional Share."
Terra Nova Shareholders Who Receive Markel Holdings Shares and Cash. A Terra
Nova shareholder who receives Markel Holdings shares and cash in the exchange
will recognize gain, but not loss, in an amount equal to the lesser of:
. the amount of cash received in the exchange, but excluding cash paid for
fractional shares; and
. the amount of gain realized by the Terra Nova shareholder, as determined
below.
The amount of gain realized by the Terra Nova shareholder will equal the excess
of:
. the sum of cash, but excluding cash paid for fractional shares, plus the
fair market value of the Markel Holdings shares received in the scheme
of arrangement and merger, over
. the adjusted tax basis of the Terra Nova shares and the Markel shares,
if any, surrendered in the scheme of arrangement and merger, excluding
adjusted tax basis allocated to fractional shares.
The treatment of cash received by a Terra Nova shareholder for a fractional
share is described below under "--Terra Nova Shareholders Who Receive Cash for
a Fractional Share." Any gain recognized by a Terra Nova shareholder will be
long-term capital gain if the Terra Nova shareholder's holding period in its
Terra Nova shares and in its Markel shares, if any, is more than one year at
the time of the exchange.
Terra Nova Shareholders Who Receive Cash for a Fractional Share. A Terra
Nova shareholder who receives cash for a fractional share will be treated as
having received the fractional share in the scheme of arrangement and then
having exchanged the fractional share for cash in a redemption by Markel
Holdings. A Terra Nova shareholder who receives cash for a fractional share
will need to allocate to that fractional share the portion of his adjusted tax
basis attributable to that fractional share. The amount of any capital gain or
loss attributable to such redemption will be equal to the difference between
the cash received for the fractional share and the portion of the adjusted tax
basis of the exchanged Terra Nova shares that is allocated to the fractional
share.
Withholding. Unless an exemption applies, the exchange agent will be
required to withhold, and will withhold, 31% of any cash payments to which a
shareholder or other payee is entitled in the scheme of arrangement, unless the
shareholder or other payee provides his or her tax identification number,
social security number or employer identification number and certifies that
such number is correct. Each shareholder and, if applicable, each other payee
is required to complete and sign the Form W-9 that will be included as part of
the transmittal letter to avoid backup withholding, unless the shareholder
proves that an applicable exemption exists in a manner satisfactory to Markel
or Terra Nova, as the case may be, and the exchange agent.
U.S. Tax Treatment of Non-U.S. Holders
The following discussion is limited to the U.S. federal income and estate
tax consequences relevant to a non-U.S. holder. By "non-U.S. holder" we mean a
beneficial holder of Terra Nova shares or Markel shares who is not a U.S.
holder as defined above.
The Merger and the Scheme of Arrangement. A non-U.S. holder will not be
subject to U.S. federal income tax on the exchange of Terra Nova shares for
Markel Holdings shares in the scheme of arrangement or on the exchange of
Markel shares for Markel Holdings shares in the merger.
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A non-U.S. holder of Terra Nova shares, including a Terra Nova shareholder
who is also a Markel shareholder, who receives cash in the scheme of
arrangement generally will not be taxed in the U.S. on the receipt of that
cash, unless
. the gain is "U.S. trade or business income" which means income or gain
that is attributable to the conduct of a trade or business in the U.S.
or, in the case of a treaty resident, means income or gain that is
attributable to a permanent establishment or, in the case of an
individual, a fixed base, in the U.S.,
. subject to exceptions, the non-U.S. holder is an individual who holds
the Terra Nova shares or Markel shares as a capital asset and is present
in the U.S. for 183 days or more in the taxable year of the disposition,
or
. the non-U.S. holder is also a Markel shareholder subject to tax as a
result of U.S. tax law applicable to some U.S. expatriates, including
some former citizens or residents of the United States.
Ownership of Markel Holdings Shares
Dividends. In general, unless an income tax treaty applies, any dividends
paid to a non-U.S. holder of Markel Holdings shares will be subject to 30% U.S.
federal income tax withholding. Dividends that constitute U.S. trade or
business income are generally subject to U.S. federal income tax at regular
rates. Withholding generally does not apply to this tax. Any U.S. trade or
business income a non-U.S. holder that is a corporation receives may also be
subject under U.S. federal income tax law to an additional "branch profits tax"
at a 30% rate or such lower rate as may be applicable under an income tax
treaty. A non-U.S. holder who wishes to claim an exemption from withholding for
dividends that constitute U.S. trade or business income is generally required
to satisfy certification and documentation requirements.
Under current rules, dividends paid to an address in a country other than
the United States generally are presumed to be paid to a resident of such
country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate, unless the payor knows that
the recipient is not a resident of that country. U.S. Treasury regulations have
been adopted that apply to dividend and other payments made after December 31,
2000 (the "New Regulations"). Under the New Regulations, a non-U.S. holder who
is the beneficial owner, of dividends paid on Markel Holdings common shares and
who wishes to claim the benefit of an applicable treaty generally will be
required to satisfy certification and documentation requirements. In some cases
these requirements include the need to make recertifications for periods after
December 31, 2000. The New Regulations include provisions for determining who
is a beneficial owner of such dividends.
A non-U.S. holder of Markel Holdings shares who is eligible for a reduced
rate of U.S. withholding tax pursuant to an income treaty may obtain a refund
of any excess amounts withheld by filing a claim for a refund with the Internal
Revenue Service.
Sale, Exchange or Redemption of Markel Holdings Shares
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a non-U.S. holder on the future sale,
exchange or redemption of Markel Holdings shares generally will not be subject
to U.S. federal income tax, unless
. the gain is U.S. trade or business income, as defined above,
. subject to exceptions, the non-U.S. holder is an individual who holds
the Markel Holdings shares as a capital asset and is present in the
United States for 183 days or more in the taxable year of the
disposition,
. the non-U.S. holder is subject to tax as a result of U.S. tax law
applicable to some U.S. expatriates including some former citizens or
residents of the United States, or
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. Markel Holdings is a United States real property holding corporation for
U.S. federal income tax purposes.
We do not expect that Markel Holdings will become a United States real property
holding corporation in the future.
Estate Tax. If an individual non-U.S. holder owns, or is treated as owning,
Markel Holdings shares at the time of his or her death, the shares will be
includable in the individual's gross estate for purposes of U.S. federal estate
tax imposed on the estates of nonresident aliens, unless an applicable tax
treaty provides that the shares will not be included.
Information Reporting and Backup Withholding. Markel Holdings must report
annually to the IRS and to each non-U.S. holder any dividend that is subject to
withholding or is exempt from U.S. withholding tax as a result of a tax treaty.
Copies of these information returns may also be made available, under a
specific treaty or agreement, to the tax authorities of the country in which
the non-U.S. holder resides.
If you sell your Markel Holdings shares through a U.S. office of any broker,
U.S. or foreign, the broker will be required to report the sale to the IRS and
withhold 31% of the proceeds unless you certify under penalty of perjury that
you are a non-U.S. holder or otherwise establish an exemption, and the broker
does not know that you are, in fact, a U.S. holder or that the exemption does
not apply.
If you sell your Markel Holdings shares through a foreign branch of a U.S.
brokerage firm, the broker will be required to report the sale to the IRS
unless the broker knows that you are a non-U.S. holder. Backup withholding will
not apply to payments made through foreign offices of a broker that is not a
U.S. person or a U.S. related person, unless the broker knows that the payee is
a U.S. person.
The New Regulations, not currently in effect, modify the withholding, backup
withholding and information reporting rules described above. The New
Regulations generally attempt to unify certification requirements and modify
reliance standards. We urge Terra Nova and Markel shareholders to consult their
own tax advisors regarding the New Regulations.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be allowed as a refund or a credit against such non-U.S.
holder's U.S. federal income tax liability, provided that the required
information is provided to the IRS.
The preceding discussion is for general information only. We urge each
shareholder of Markel and Terra Nova to consult its own tax advisor as to
particular tax consequences to it of the merger and the scheme of arrangement,
including the applicability and effect of any U.S. federal, state, local,
United Kingdom or other foreign tax laws, and of any proposed changes in
applicable laws.
Interests of Terra Nova Officers and Directors in the Transactions
In considering the recommendation of the Terra Nova board that you vote for
the transactions, you should be aware that, as described below, members of
Terra Nova's management and board may have interests in the transactions that
are different from, or in addition to, their interests solely as shareholders
of Terra Nova and that may create potential conflicts of interest. The Terra
Nova board was aware of these interests when it considered and approved the
agreement and the transactions.
Employment Agreements--Change of Control Arrangements
Terra Nova has employment agreements with three of its executive officers:
John J. Dwyer, Chairman and a director; Nigel H.J. Rogers, President and Chief
Executive Officer and a director; and Jean M. Waggett, Senior Vice President,
General Counsel and Corporate Secretary.
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Each agreement provides for
. a base salary which is subject to review for increase at the discretion
of the board;
. participation in Terra Nova's annual and long term incentive
compensation programs;
. reimbursement for, or payment of, reasonable expenses; and
. the right to participate in other employee or benefit programs as are in
effect from time to time.
The employment agreements of Messrs. Dwyer and Rogers each expire on
December 31, 2002. The employment agreement of Ms. Waggett expires on December
31, 2001. Each agreement is automatically extended for an additional period of
one year from the expiration date and each anniversary thereof unless Terra
Nova or the applicable executive provides written notice at least 90 days prior
to the then-scheduled expiration date. Each agreement is automatically extended
upon a change of control until the third anniversary, second anniversary for
Ms. Waggett, of the date of such change of control.
If Terra Nova terminates the employment of any of these executives other
than for cause, including termination for gross misconduct or dishonesty, or
any of these executive terminates his or her employment at any time for a
defined good reason or any executive voluntarily terminates employment without
good reason during the one year period beginning on a defined change of
control, then Terra Nova will pay to such executive
. the executive's base salary through the termination date;
. a cash amount, without offset for other amounts payable in conjunction
with a change of control, equal to three times, for Ms. Waggett, two
times, the sum of (i) such executive's base salary and (ii) the greater
of (x) the highest bonus amount paid to or deferred by such executive in
respect of any of the last three fiscal years of Terra Nova ending
immediately prior to the change of control or (y) the amount that would
have been payable to such executive as a target bonus for the year in
which the change of control occurs; and
. benefits and perquisites paid annually to the executive.
The merger and scheme will be a change of control under the employment
agreements.
Mr. Dwyer and Ms. Waggett are U.S. citizens and may be subject to excise
taxes under Section 280G of the Internal Revenue Code by reason of payments
made to them on account of the change of control. If this tax is imposed on
either of them, Terra Nova must make specified additional payments to
compensate the affected executive for the excise tax and any income, employment
and excise taxes payable in respect of the additional payment.
If terminations of employment occur in the 12 months following a change of
control, Messrs. Dwyer and Rogers and Ms. Waggett would be entitled to payments
estimated to be approximately $3.4 million, $ and $1.1 million,
respectively, together with any necessary additional payments to compensate for
excise taxes and the taxes in respect of the additional payments.
We expect to enter into a new employment agreement with Mr. Rogers which is
expected to provide for him to continue employment at annual compensation
levels comparable to those under his current agreement and to receive a $5
million bonus payment in a combination of cash and Markel Holdings common
shares, one half of which will be paid immediately with the remainder vesting
in six-month increments over 30 months. The new agreement is also expected to
provide the same change of control benefit provisions as are in Mr. Rogers'
existing agreement, including those resulting from the merger and scheme for a
period of one year, with the qualification that the initial bonus payment of
$2.5 million will be deducted from the payment that may become due under the
change in control benefit provisions.
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Special Bonus
Terra Nova's board of directors has declared a one-time bonus in the amount
of $2 million for Mr. Rogers in recognition of his contribution to Terra Nova.
This bonus will be payable as of the effective time of the transactions.
Effects of Transaction on Share Option Plans
Terra Nova's executive officers hold options for Terra Nova ordinary shares
pursuant to Terra Nova's Approved and Non Approved Executive Share Option
Schemes. The plans provide the right to purchase Class A ordinary shares at the
fair market value as of the date grant. At June 30, 1999, the outstanding
option shares had exercise prices between $5.80 and $27.05. Options granted in
1997 have a price adjustment provision that, as of each January 1 prior to the
date the option is exercised, increases the option exercise price per share
pursuant to a stated formula. Options generally vest over a five-year period
and expire no later than 10 years after the grant date. In connection with the
merger and scheme of arrangement, escalation of exercise prices after August
15, 1999 has been eliminated and all of the options under the plans will, at
their election, be treated as fully exercisable at the effective time of the
merger and scheme of arrangement. Each of these executives holds options that,
in the ordinary course, would not have been exercisable and vested at the
effective time. Terra Nova option holders may elect to receive the difference
between $34.00 and the exercise price of the option in the form of cash, Market
Holdings shares or a combination of both.
The following table sets forth the value of the options outstanding under
the share option schemes, based on the spread between $34.00 and the exercise
price of each option, held by Terra Nova's five most highly compensated
executive officers and all of the executive officers as a group:
<TABLE>
<CAPTION>
Option
Option Holder Value
------------- ----------
<S> <C>
John J. Dwyer.................................................... $4,005,175
Nigel H. J. Rogers............................................... 2,590,894
William J. Wedlake............................................... 1,248,266
Ian L. Bowden.................................................... 1,488,372
Jean M. Waggett.................................................. 1,075,139
All executive officers as a group (6 persons).................... 10,857,897
</TABLE>
Directors Plan
Terra Nova's non-employee directors are participants in Terra Nova's 1997
Non-Employee Directors Share Unit Plan, pursuant to which they may elect to
defer all or a portion of their annual director's fee in the form of share
units in the plan in lieu of cash. At the effective time of the merger and
scheme of arrangement, each participant will receive, in accordance with the
terms of the plan $34.00 per share unit in the plan plus the amount of cash
that had been credited to the participant in accordance with the plan.
Octavian Stock Option Plan
In connection with its acquisition of Octavian Syndicate Management Limited,
Terra Nova established the Octavian Stock Option Plan providing for the grant
of options to members of the management of Octavian, including Mr. Rogers,
based on profit commissions received by Octavian for the 1996 to 2000 years of
account. It is expected that Mr. Rogers will receive 13% of the options to be
granted. Under the Octavian Stock Option Plan, these members of management will
receive annual option grants to purchase a number of ordinary shares equal in
the aggregate to
. 90% of the profit commission received by Octavian from the Octavian
Syndicates (less underwriters' and management bonuses relating thereto
and corporate taxes) for each year of account, divided by
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. the fully-diluted net asset value (as defined in the Octavian Stock
Option Plan) per ordinary share of Terra Nova as of the end of that
year.
The aggregate Profit Commission Component for the 1996 to 2000 underwriting
years of account is subject to a maximum of (Pounds)10.0 million ($16.0
million, assuming an exchange rate of $1.60 to (Pounds)1.0) and no further
options shall be issued once such maximum has been reached. The options will be
granted upon receipt of the profit commissions by Octavian on closure of each
year of account under applicable Lloyds' regulations, which currently are the
years 1999 to 2003 with regard to the years 1996 to 2000, respectively. The
options have a nominal exercise price and become exercisable on or after the
January 1 next succeeding the date of grant, commencing January 1, 2000,
provided that all options granted after January 1, 2002 become immediately
exercisable. As of December 31, 1998, 214,158 Terra Nova shares were reserved
for grant under the Octavian Stock Option Plan.
Prior to the effective time of the merger and scheme of arrangement, the
parties will attempt either to terminate the Octavian Stock Option Plan for
consideration to be agreed upon by the participants of the plan and Markel or
to amend the terms of the plan so that the participants will receive up to a
maximum of 110,400 Markel Holdings options in lieu of options for Terra Nova
ordinary shares.
New Benefit Plan
Markel Holdings expects to establish a new benefit plan designed to replace
Terra Nova's existing stock option plan for key management of Terra Nova which
would include current Terra Nova executive officers other than Mr. Rogers. This
plan is expected to allocate up to $7.75 million in Markel Holdings common
shares, cash, or a combination of both, for awards which are expected to be
made in five equal increments over a 30-month period.
Interests of Financial Advisor
Donaldson, Lufkin & Jenrette has acted as financial advisor to Terra Nova
and provided a fairness opinion regarding the proposed transactions and is
receiving customary fees from Terra Nova. Affiliates of Donaldson, Lufkin &
Jenrette are shareholders of Terra Nova and their new shares of Markel Holdings
will have the benefit of a registration rights agreement. Robert S. Fleischer,
a director of Terra Nova, is a managing director of Donaldson, Lufkin &
Jenrette Securities Corporation and David L. Jaffe, a director of Terra Nova,
is a managing director of DLJ Merchant Banking, Inc., affiliates of which are
shareholders of Terra Nova. See "Appendix B-Opinion of Terra Nova Financial
Advisor" and "Registration Rights Agreement."
Registration Rights
Markel Holdings common shares that will be issued to John J. Byrne and
related entities over which he has voting or dispositive power for Terra Nova
ordinary shares and to Marsh & McLennan Risk Capital Holdings, Ltd. and related
entities will have the benefit of a registration rights agreement. Mr. Byrne is
a director of Terra Nova and Mr. Phillip F. Petronis, a director of Terra Nova,
is an executive officer of an affiliate of Marsh & McLennan.
Board of Directors of Markel
Following the transactions, Markel will take all necessary action to elect
three directors of Terra Nova, Nigel Rogers, John J. Byrne and Mark J. Byrne,
as directors of Markel Holdings. See "Management and Operations After the
Transactions."
Indemnification and Insurance
The agreement also provides that after the effective time, Markel Holdings
will indemnify the present and former officers and directors of Terra Nova,
subject to specified limitations, for all claims arising as a result of
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their service to Terra Nova, or relating to the agreement and the transactions,
and to maintain directors and officers liability insurance coverage for Terra
Nova's officers and directors for a period of seven years. See "Certain
Provisions of The Agreement--Indemnification and Insurance."
Anticipated Accounting Treatment
The transactions will be accounted for by Markel Holdings under the purchase
method of accounting in accordance with generally accepted accounting
principles. Therefore, the aggregate consideration paid by Markel Holdings in
connection with the transactions, together with the direct costs of
acquisition, will be allocated to Terra Nova's assets and liabilities based on
their fair market values with the excess being treated as goodwill. The assets
and liabilities and results of operations of Terra Nova will be consolidated
into the assets and liabilities and results of operations of Markel Holdings
after the transactions.
Markel Holdings will include in the total purchase consideration amounts
paid to the optionholders under the Terra Nova Share Option Plan as well as to
the participants in the Terra Nova 1997 Non-Employee Directors Share Unit Plan.
Terra Nova will account for the settlement of these plans as compensation
expense immediately prior to completion of the transactions with a
corresponding addition to shareholders' equity. If Terra Nova terminates the
Octavian Plan before completion of the transactions, it will reflect the impact
of the termination as a charge to operations at that time. Otherwise, Markel
Holdings will include in the total purchase consideration the fair value of the
Terra Nova options exchanged for the Markel Holdings options. Markel Holdings
will expense over the vesting period the value of options granted after the
transactions under the Octavian Plan.
Terra Nova will expense immediately before completion of the transactions
the $2 million bonus for Nigel Rogers, declared by the Terra Nova board. Of the
additional $5 million bonus paid to Mr. Rogers, Markel Holdings will expense
$2.5 million immediately following completion of the transactions and will
expense the remaining $2.5 million, which vests over 30 months, in five equal
increments following completion of the transactions.
Regulatory Matters
Approvals and Consents
The agreement provides that Markel and Terra Nova will use their
commercially reasonable efforts to cause the transactions to be consummated,
including the obtaining of all necessary consents, waivers, permits,
authorizations, orders and consents of third parties, whether private or
governmental, in connection with the transactions.
Antitrust Filings
The businesses of Markel and Terra Nova involve transactions in numerous
jurisdictions, and as a result, implementation of the transactions may be
subject to antitrust laws in those jurisdictions.
U. S. Antitrust Laws
Under the Hart-Scott-Rodino Act, specified business combination transactions
may not be consummated unless notice has been given and required information
furnished to the Antitrust Division of the United States Department of Justice
and the Federal Trade Commission and specified waiting period requirements have
been satisfied, unless earlier termination has been granted. Terra Nova and
Markel each filed with the Department of Justice and the Federal Trade
Commission a Notification and Report Form with respect to the merger and scheme
on September 7, 1999. On September 21, 1999, Markel and Terra Nova received
notice of early termination of the waiting period under the Hart-Scott-Rodino
Act. At any time before or after the effective time, and notwithstanding that
the Hart-Scott-Rodino Act waiting period has been terminated, the Department of
Justice could take such action under the antitrust laws as it deems necessary
or desirable in the public
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interest, including seeking to enjoin consummation of the merger and scheme of
arrangement or seeking divestiture of substantial assets of Markel or Terra
Nova. Private parties also may seek to take legal action under the antitrust
laws under certain circumstances.
Financial Services Authority Consent
Terra Nova Insurance Company, Ltd., a subsidiary of Terra Nova, is currently
authorized to carry on an insurance business in the United Kingdom under the
Insurance Companies Act 1982 and is, therefore, a United Kingdom-regulated
insurance company. Consent must be obtained from the Financial Services
Authority in the United Kingdom before any changes occur in the directors,
managers or controllers of a United Kingdom-regulated insurance company. The
insurance company must give written notice to the Financial Services Authority
detailing the changes to be made and the Financial Services Authority must
indicate whether or not it consents to the changes within three months
following that notice. If that period elapses without the Financial Services
Authority objecting consent is deemed to be given.
A similar filing with similar notice periods has been made with the
Financial Services Authority with respect to Terra Nova Asset Management, Ltd.,
an investment management company.
We received the relevant consents.
Lloyd's Consent
Terra Nova indirectly owns 100% of the share capital of Octavian Syndicate
Management Limited, a Lloyd's managing agent and Terra Nova Capital Limited, a
corporate member of Lloyd's. Once the transactions are completed, Markel
Holdings will be a controller, as defined in the relevant Lloyd's rules, of the
managing agent and the corporate member. The prior written consent of the
Lloyd's council is required for Markel Holdings to become a controller of the
managing agent and the corporate member. Markel Holdings has made the required
filing and received the required approvals.
U.S. Insurance Regulatory Approvals
Under applicable state laws the acquisition by Markel Holdings of all the
outstanding interests in Markel may require notice to, and/or prior approval
of, the insurance departments for the states where Markel's insurance
subsidiaries are incorporated: California, Delaware, Illinois, New Jersey and
Virginia. Markel has made the relevant notices and/or filings and has received
all necessary regulatory approvals.
Other
In addition to the foregoing, we may be required to obtain regulatory
approvals, file notices, or make other filings in other jurisdictions in which
one or the other maintains an office, conducts business or has customers. At
the time of this filing, we do not expect any such other approvals, notices or
other filings to be material in connection with the transactions.
Status of Regulatory Approvals and Other Information
We have received all requisite regulatory approvals.
We are not aware of any governmental approvals or actions that may be
required for consummation of the transactions other than as described above.
Should any other approval or action be required, we currently contemplate that
such approval or action would be sought.
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Supreme Court of Bermuda Approval
The scheme of arrangement is subject to approval by the Supreme Court of
Bermuda. In connection with obtaining this approval, Terra Nova filed an
originating summons and supporting affirmation with the Supreme Court of
Bermuda on , 1999 and a hearing on such originating summons took place on
, 1999. At the originating summons hearing, the Supreme Court ordered
that a notice of separate court meetings to be held among the holders of Terra
Nova Class A ordinary shares as a class and Class B ordinary shares as a class
be included in the scheme. The scheme of arrangement, including the notice of
the court meetings, has been incorporated into this joint proxy
statement/prospectus.
The court meetings are scheduled for 2000, the same day that the special
general meeting will be held. The court meetings will be held in accordance
with the directions given by the Bermuda Supreme Court at the hearing of the
originating summons. The special general meeting will be held in accordance
with Terra Nova's bye-laws. Approval of the proposal to adopt the scheme of
arrangement at the court meetings will require the affirmative vote of
. a majority in number of Terra Nova Class A shareholders who represent at
least 75 percent in value of the Terra Nova Class A ordinary shares
present and voting at the court meeting; and
. a majority in number of Terra Nova Class B shareholders who represent at
least 75 percent in value of the Terra Nova Class B ordinary shares
present and voting at the court meeting.
Once the court meetings and the special general meeting are held, Terra Nova
will file with the Bermuda Supreme Court a chairman's report of the results of
the court meetings, a signed petition, an affirmation by the chairman in
support of petition and an affidavit of posting of the scheme document by Terra
Nova's secretary/share registrar. Assuming the requisite shareholder approvals
are received at the court meetings and special general meeting on 2000, the
Bermuda Supreme Court will conduct an open hearing on such petitions on ,
2000, at a.m. Terra Nova shareholders will be entitled to be present and be
heard. In order to approve the scheme, the Bermuda Supreme Court will consider,
among other things, whether the scheme is fair to Terra Nova's shareholders.
The scheme of arrangement will become effective when the supreme court order
granted at the petition hearing is filed with the Registrar of companies, which
Terra Nova expects will be made as soon as the other conditions to closing are
met or waived.
Restrictions on Resales
The Markel Holdings shares issued to Markel and Terra Nova shareholders
pursuant to the transactions will be registered under the Securities Act. As a
result, the Markel Holdings shares issued pursuant to the transactions will be
freely transferable under the United States federal securities laws, except
that Markel Holdings shares received by persons who are deemed to be
"affiliates", as such term is defined under the Securities Act, of Markel
Holdings after the transactions, or of Markel or Terra Nova before the
transactions, may be resold by them only in transactions permitted by the
resale provisions of Rule 145 (d)(1), (2) or (3) promulgated under the
Securities Act or as otherwise permitted under the Securities Act. Rule
145(d)(1) generally provides that "affiliates" of Markel Holdings, or Markel or
Terra Nova before the transactions, may not sell securities of Markel Holdings
received in the transactions unless pursuant to an effective registration
statement or unless pursuant to the volume, current public information, manner
of sale and timing limitations of Rule 144. These limitations generally require
that any sale made by an affiliate in any three-month period not exceed the
greater of 1% of the outstanding shares of Markel Holdings or the average
weekly trading volume over the four calendar weeks preceding the placement of
the sell order and that such sales be made in unsolicited, open market "brokers
transactions". Rules 145(d)(2) and (3) generally provide that the foregoing
limitations lapse for non-affiliates after a period of one or two years,
respectively, depending upon whether currently available information continues
to be available with respect to Markel Holdings.
Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that control, are controlled by, or under common
control with, such issuer, and may include officers and directors of such
issuer as well as principal shareholders of such issuers.
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Terra Nova has agreed to use its reasonable best efforts to cause each
person who is an "affiliate", for purposes of Rule 145 under the Securities
Act, of Terra Nova to deliver to Markel, a written agreement in connection with
restrictions on affiliates under Rule 145, in customary form mutually agreeable
to Terra Nova and Markel.
No Dissenter's Rights
There are no dissenter's rights or other similar rights of appraisal
available to the shareholders of Markel in connection with the transactions.
Any Terra Nova shareholder who wishes to oppose the sanctioning of the
scheme of arrangement at the hearing of the petition at the court must record
its vote against the resolution at the Terra Nova special general meeting
and/or court meetings at which the shareholder is entitled to vote. At the
hearing of the petition itself the Terra Nova shareholders who have so voted
will be entitled to make presentations to the court on the hearing of the
petition. If the scheme of arrangement is approved by the requisite vote at the
Terra Nova special general meeting and the court approves the scheme of
arrangement, the order of the court will bind any dissenters to the terms of
the scheme of arrangement.
Stock Exchange Listing for the Markel Holdings Shares
The NYSE has approved the Markel Holdings common shares to be issued
pursuant to the transactions, or reserved for issuance upon exercise of Markel
Holdings options, for listing on the NYSE, subject to shareholder approval at
the special meeting and to notice of issuance. This listing is a condition to
the completion of the transactions. So long as Markel and Terra Nova continue
to meet the requirements of the NYSE, Markel common shares, and Terra Nova
Class A ordinary shares, as the case may be, will continue to be listed on the
NYSE until the effective time.
Management and Operations After the Transactions
After the transactions, Markel Holdings will be the parent corporation of
Markel and Terra Nova and the subsidiaries of Markel and Terra Nova will remain
as subsidiaries of those companies.
Except as indicated in this joint proxy statement/prospectus, Markel
Holdings does not have any present plans or proposals which relate to or would
result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving Markel Holdings, a sale or transfer of
a material amount of assets of Markel Holdings or any material change in Markel
Holdings' capitalization or any other material changes in Markel Holdings'
business.
It is currently anticipated that the business and operations of Markel
Holdings will be continued substantially as they are currently conducted by
Markel and Terra Nova. Changes may be made as are deemed appropriate and Markel
Holdings' assets, businesses, operations, properties, policies, corporate
structure, capitalization and management will be reviewed in the future to
determine if any changes would be desirable in light of the circumstances then
existing. The current Chairman and Chief Executive Officer, Vice Chairman,
President and Chief Operating Officer and Executive Vice President and Chief
Financial Officer of Markel will continue to fulfill these functions for Markel
Holdings after the transactions. Nigel Rogers is expected to be elected
Executive Vice President of International Operations for Markel Holdings. The
board of directors of Markel Holdings will be comprised of the current Markel
board, Nigel Rogers, John J. Byrne and Mark J. Byrne.
The Agreement
The following is a summary of the material terms of the Agreement and Plan
of Merger and Scheme of Arrangement not discussed elsewhere in this joint proxy
statement/prospectus. This summary is qualified in its
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entirety by reference to the agreement, which is incorporated by reference in
its entirety and attached to this joint proxy statement/prospectus as Appendix
A. You are urged to read the agreement in its entirety for a more complete
description of the transactions.
Representations and Warranties
The agreement contains representations and warranties by Markel relating to
a number of matters, including:
. the due organization, valid existence and good standing of Markel and
its subsidiaries;
. the capital structure of Markel and its subsidiaries;
. the authorization, execution, delivery and enforceability of the
agreement and related matters;
. the absence of conflict with Markel's or its subsidiaries charters and
bylaws, with material agreements of Markel or its subsidiaries, except
as disclosed, or under any governmental order or law as a result of the
execution of the agreement and related matters and that subject to the
exceptions set forth in the agreement, no governmental filings and
approvals will be necessary to effect the transactions;
. the filing of documents and financial statements by Markel with the SEC
and the accuracy of the information contained therein;
. the absence of undisclosed liabilities and obligations;
. the filing of documents by Markel's insurance subsidiaries with
applicable regulatory authorities and the compliance of the information
contained therein with applicable regulatory requirements;
. the compliance of the insurance reserves of Markel's subsidiaries with
generally accepted actuarial standards;
. the absence of material claims or assessments pending or threatened
against Markel's insurance subsidiaries by state insurance guaranty
associations;
. the absence of activity, except as disclosed, which would require
registration as an investment advisor or investment company;
. the accuracy of the information to be supplied by Markel for use in this
joint proxy statement/prospectus;
. the absence of material litigation;
. compliance by Markel and its subsidiaries with laws relating to
employment and labor;
. employee benefit plan matters;
. tax matters and the payment of taxes;
. the absence of any "excess parachute payments" resulting from the
transactions;
. compliance by Markel and its subsidiaries with applicable law;
. ownership by Markel and its subsidiaries of the assets shown on its
financial statements;
. the shareholders voting requirement for approval of the transactions by
the shareholders of Markel;
. the absence of "takeover" statutes affecting the transactions;
. the absence of broker and other similar fees, except as disclosed;
. the absence of undisclosed related party transactions;
. the absence of undisclosed material contracts;
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. the absence of claims to intellectual property used by Markel and its
subsidiaries;
. the absence of events or conditions that would cause Markel to fail to
satisfy applicable legal requirements relating to the transactions;
. the absence of belief that any rating held by Markel or its subsidiaries
is likely to be lowered other than as a result of the transaction;
. reinsurance matters; and
. the absence of material exposure on hedging arrangements to which Markel
or its subsidiaries are parties.
The agreement also contains representations and warranties by Terra Nova
relating to a number of matters, including:
. the due organization, valid existence and good standing of Terra Nova
and its subsidiaries;
. the capital structure of Terra Nova and its subsidiaries;
. the authorization, execution, delivery and enforceability of the
agreement and related matters;
. the absence of conflict with Terra Nova's or its subsidiaries charters
and bylaws, with material agreements of Terra Nova or its subsidiaries,
except as disclosed, or under any governmental order or law as a result
of the execution of the agreement and related matters and that subject
to the exceptions set forth in the agreement, no governmental filings
and approvals will be necessary to effect the transactions;
. the filing of documents and financial statements by Terra Nova with the
SEC and the accuracy of the information contained therein;
. the absence of material liabilities and obligations;
. the filing of documents by Terra Nova's insurance subsidiaries with
applicable regulatory authorities and the compliance of the information
contained therein with applicable regulatory requirements;
. the compliance of the insurance reserves of Terra Nova's subsidiaries
with generally accepted actuarial standards;
. the absence of material claims or assessments pending or threatened
against Terra Nova's insurance subsidiaries by state insurance guaranty
associations;
. the absence of activity, except as disclosed, which would require
registration as an investment advisor or investment company;
. the accuracy of the information to be supplied by Terra Nova for use in
this joint proxy statement/prospectus;
. the absence of changes or events regarding Terra Nova's business, except
as disclosed;
. the absence of material litigation;
. compliance by Terra Nova and its subsidiaries with laws relating to
employment and labor;
. employee benefit plan matters;
. tax matters and the payment of taxes;
. the absence of any "excess parachute payments", except as disclosed,
resulting from the transactions;
. compliance by Terra Nova and its subsidiaries with applicable law;
. ownership by Terra Nova and its subsidiaries of the assets shown on its
financial statements;
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. the shareholders voting requirement for approval of the transactions by
the shareholders of Terra Nova;
. the absence of "takeover" statutes affecting the transactions;
. the absence of broker and other similar fees, except as disclosed;
. the absence of undisclosed related party transactions;
. the absence of undisclosed material contracts;
. the absence of claims to intellectual property used by Terra Nova and
its subsidiaries;
. the absence of events or conditions that would cause Terra Nova to fail
to satisfy applicable legal requirements relating to the transactions;
. the absence of belief that any rating held by Terra Nova or its
subsidiaries is likely to be lowered other than as a result of the
transaction;
. reinsurance matters; and
. the absence of material exposure on hedging arrangements to which Terra
Nova or its subsidiaries are parties.
Many of the representations and warranties of Markel and Terra Nova
contained in the agreement are qualified by reference to materiality. The
agreement defines a "material adverse effect" or "material adverse change" as
any material adverse effect on or change with respect to:
. the business, operations, assets, liabilities, condition (financial or
otherwise) or results of operations of Markel or Terra Nova, in each
case together with their respective subsidiaries taken as a whole; or
. the right of Markel or Terra Nova, or any of their respective
subsidiaries, to complete the transactions contemplated by the
agreement, other than any effect or change resulting from the agreement
or the announcement of the transactions contemplated by the agreement.
None of the representations or warranties in the agreement survive the
completion of the transactions contemplated by the agreement.
Certain Covenants and Agreements
Conduct of Business by Markel and Terra Nova
We have agreed that during the period from the date of the agreement to the
effective time, we will carry on our businesses in the ordinary and usual
course in a manner consistent with past practices, and to the extent consistent
therewith use our commercially reasonable efforts to preserve intact our
current business organizations, keep available the services of our current
officers and employees and preserve current business relationships. Without
limiting the foregoing, without the prior written consent of the other, the
agreement generally limits our ability to:
. pay any dividends, other than dividends from direct or indirect
subsidiaries and other than regular quarterly dividends by Terra Nova of
$.06 per share;
. split, combine or reclassify our shares or issue or authorize the
issuance of other securities for our common shares, purchase, redeem or
otherwise acquire any such shares or other securities;
. authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any of our capital shares or the capital shares of
subsidiaries, any other voting securities or securities convertible
into, or rights to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents or
contract obligations measured by reference to such shares;
. amend our articles of incorporation, articles of association, bylaws or
other comparable charter or organizational documents;
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. except in the ordinary course, consistent with past practice, acquire or
agree to acquire the shares or assets of another business entity;
. dispose of or encumber a material portion of our respective properties,
except in the ordinary course of business consistent with past practice;
. except in the ordinary course of business, consistent with past
practice, incur indebtedness, guarantee the indebtedness of others,
issue debt securities or rights to acquire debt securities or guarantee
the debt securities of others;
. except in the ordinary course of business, consistent with past
practice, make loans to or an investment in any other person or entity;
. acquire material assets other than acquisitions of portfolio investments
of insurance subsidiaries in the ordinary course of business consistent
with past practice;
. make capital expenditures except in the ordinary course of business
consistent with past practice;
. pay any claims, liabilities or obligations except for liabilities for
obligations in the ordinary course of business consistent with past
practice or in accordance with their terms as in effect on August 15,
1999 and liabilities reflected or reserved in our most recent
consolidated audited financial statements or the notes thereto filed
with the SEC;
. waive material rights or change in any material respect existing
contracts, other than in the ordinary course of business consistent with
past practice;
. amend in any material respect compensation and employee benefit
arrangements, except as required by law or the agreement;
. change any material accounting principle used by us, except for changes
required by generally accepted accounting principles or SEC regulations;
. take actions that would result in the material inaccuracy of our
respective representations and warranties or the conditions to our
obligations not being satisfied;
. except in the ordinary course of business and consistent with past
practice, make or change any material tax election, file any material
amendment to any material tax return or settle or compromise any
material federal, state, local or foreign tax liability; or
. take action that could reasonably be expected to cause the transactions
not to qualify for the intended tax treatment.
However, notwithstanding the provisions of the agreement, Markel and its
subsidiaries are permitted to take any of the following actions without the
consent of Terra Nova:
. comply with the terms of all outstanding securities or agreements,
including, without limitation, securities issued by Markel Capital Trust
I;
. issue securities or enter into loan or other agreements to provide
financing for the transactions contemplated by the agreement;
. repurchase Markel capital shares at a cost of $100 million or less; or
. acquire other businesses or organizations at a cost of $250 million or
less.
Conditions Precedent to the Merger and Scheme of Arrangement
Conditions to Each Party's Obligation to Effect the Transactions.
Our obligation to effect the transactions is subject to the fulfillment of
the following conditions:
. Shareholder Approval. Each of the Terra Nova shareholder approvals and
the Markel shareholder approval shall have been obtained.
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. Stock Exchange Listing. The authorization of the Markel Holdings common
shares issuable in the transactions for listing on the New York Stock
Exchange, subject to official notice of issuance.
. Governmental Approvals. All required regulatory approvals or waiting
periods shall have been obtained or lapsed, respectively, and the
Bermuda Supreme Court shall have approved the scheme of arrangement on
the terms contemplated by the agreement.
. Registration Statement. The effectiveness of the registration statement
of which this joint proxy statement/prospectus is a part with no stop
orders in effect or threatened.
. No Injunctions or Restraints. The absence of any effective temporary
restraining order, preliminary or permanent injunction or other similar
order or legal restraint or prohibition which would prevent the
consummation of the transaction.
. Antitrust laws. The waiting period, and any extension of time thereof,
applicable to the transactions under the U.S. antitrust laws must have
expired or have been terminated.
Conditions to the Obligation of Markel to Effect the Transactions
The obligation of Markel to effect the transactions is subject to the
fulfillment of the following additional conditions:
. Representations and Warranties. The accuracy, as of the date of the
transactions, of the representations and warranties of Terra Nova in the
agreement, subject to qualifications set forth in the agreement.
. Material Adverse Change. There must have been no material adverse change
in the assets, liabilities, condition (financial or otherwise), results
of operations or business of Terra Nova and its subsidiaries taken as a
whole since June 30, 1999 or any circumstance that with the passage of
time would result in a material adverse change. Material adverse change
does not include (i) changes solely in the market price of Markel shares
or Terra Nova shares, or (ii) any change resulting from changes in
general economic conditions, changes in the market levels of investment
portfolios or changes affecting the property-casualty insurance industry
generally.
. Performance by Terra Nova. Terra Nova must have materially performed all
covenants and agreements to be performed by it before the closing and
materially complied with all conditions required by the agreement to be
complied with by it before the closing.
. Tax Opinion. Markel must receive from McGuire, Woods, Battle & Boothe
LLP on the closing date a legal opinion that the merger will be treated
for United States federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code and that
Markel and Markel Holdings will each be a party to that reorganization
within the meaning of Section 368(b) of the Internal Revenue Code.
Conditions to the Obligation of Terra Nova to Effect the Transactions
The obligations of Terra Nova to effect the transactions is subject to the
fulfillment of the following additional conditions.
. Representations and Warranties. The accuracy, as of the date of the
transactions, of representations and warranties of Markel in the
agreement, subject to qualifications set forth in the agreement.
. No Material Adverse Change. There must have been no material adverse
change in the assets, liabilities, condition (financial or otherwise),
results of operations or business of Markel and its subsidiaries taken
as a whole since June 30, 1999, or any circumstance that with the
passage of time would result in a material adverse change. Material
adverse change does not include (i) changes solely in the market price
of Markel common shares or (ii) changes resulting from changes in
general
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economic condition, changes in the market level of investment portfolios
or changes affecting the property-casualty insurance industry generally.
. Performance by Markel. Markel must have materially performed all
covenants and agreements required to be performed by it before the
closing and materially complied with all conditions required by the
agreement to be complied with by it before the closing.
. Tax Opinion. Terra Nova must receive an opinion from Debevoise &
Plimpton on the closing date to the effect that the scheme of
arrangement, when integrated with the merger, will be treated for United
States federal income tax purposes as a transaction described in Section
351 of the Internal Revenue Code.
Neither Markel nor Terra Nova may rely on the failure of any condition set
forth above to be satisfied if the failure of that condition was caused by the
party's own failure to use reasonable efforts to complete the transactions
contemplated by the agreement or the other agreements entered into in
connection with the agreement.
Amendment, Waiver
We may amend the agreement in writing by action of our boards of directors
at any time before or after the approval of the transactions by the
shareholders of Markel and Terra Nova. After shareholder approval is obtained,
however, no amendment, modification or supplement may alter the amount or
change the form of the consideration to be delivered to the shareholders of
Markel or Terra Nova in the proposed transactions or in any other way alter
the proposed transaction in a manner that would require further shareholder
approval.
At any time before the effective time, Markel or Terra Nova may
. extend the time for the performance of any of the obligations of the
other party,
. waive a breach of a representation or warranty of the other party,
. waive compliance by the other party, or
. waive any of the conditions set forth in the agreement.
No Solicitation
The agreement provides that we will not authorize or permit any of our
respective officers, directors, employees, investment bankers, financial
advisors, attorneys, accountants or other representatives to, directly or
indirectly
. solicit, initiate, facilitate or knowingly encourage any inquires that
might constitute or lead to any acquisition proposal; or
. participate in any discussions or negotiations regarding any acquisition
proposal.
If at any time the board of directors of either Markel or Terra Nova
determines in good faith, after consultation with and taking into account the
advice of independent legal counsel, who may be such company's regularly
engaged counsel, that it is necessary to do so in order to act in a manner
consistent with such board's fiduciary duties to such company's shareholders
under applicable law, Markel or Terra Nova as the case may be, may in response
to an unsolicited acquisition proposal and upon prompt notice to the other
party orally and in writing in accordance with the agreement
. furnish information with respect to Markel or Terra Nova as the case may
be to any person pursuant to a confidentiality agreement in reasonably
customary form; and
. participate in discussions or negotiations regarding an acquisition
proposal.
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An acquisition proposal means any inquiry, proposal or offer, or any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in the foregoing, from any person relating to any:
. direct or indirect acquisition or purchase of 20% or more of the assets
of Markel or Terra Nova as the case may be and their respective
subsidiaries taken as a whole or 20% or more of any class of equity
securities of Markel or Terra Nova as the case may be;
. tender offer or exchange offer that if consummated would result in any
person beneficially owning 20% or more of any class of equity securities
of Markel or Terra Nova as the case may be;
. merger, consolidation, business combination, sale of all or
substantially all the assets, recapitalization, liquidation, dissolution
or similar transaction involving Markel or Terra Nova or any of their
subsidiaries whose business constitutes 20% or more of the assets of
Markel or Terra Nova and their respective subsidiaries as the case may
be taken as a whole, other than the transactions contemplated by the
agreement; or
. other transaction the consummation of which would reasonably be expected
to impede, interfere with, prevent or materially delay the merger or
which would reasonably be expected to dilute materially the benefits to
the other of the transactions contemplated by the agreement.
Except as set forth above, neither the board of directors of Markel or Terra
Nova nor any committee thereof shall
. withdraw or modify, or propose to withdraw or modify, in a manner
adverse to the other company, the approval or recommendation by such
board of directors or such committee of the agreement or the
transactions contemplated hereby,
. approve or recommend, or propose to approve or recommend, any
acquisition proposal or
. cause Markel or Terra Nova as the case may be to enter into any
agreement with respect to any acquisition proposal.
However, if the board of directors of Markel or Terra Nova determines in
good faith, after consultation with and taking into account the advice of
independent legal counsel, who may be such company's regularly engaged
independent counsel, that it is necessary to do so in order to act in a manner
consistent with its fiduciary duties to such company's shareholders under
applicable law, such board of directors may, subject to the other provisions of
Section 5.3 of the agreement, withdraw or modify its approval or recommendation
of the agreement and the transactions contemplated hereby, approve or recommend
a superior proposal, cause Markel or Terra Nova as the case may be to enter
into an agreement with respect to a superior proposal or terminate the
agreement, but in any case involving an acquisition proposal only at a time
that is after the third business day following the other company's receipt of
written notice advising such company that the board of directors of the other
has received a superior proposal, specifying the material terms and conditions
of such superior proposal and identifying the person making such superior
proposal. In addition, if Markel or Terra Nova proposes to enter into an
agreement with respect to any acquisition proposal, it shall concurrently with
entering into such agreement pay, or cause to be paid, to the other $27 million
and an expense reimbursement payment of up to $3 million.
A superior proposal means any bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 20% of the capital shares then outstanding or all or
substantially all the assets of Markel or Terra Nova and otherwise on terms
which the board of directors of Markel or Terra Nova as the case may be
determines in its good faith judgment, after consultation with and taking into
account the advice of a financial advisor of nationally recognized reputation,
to be more favorable to such company's shareholders than the transactions
contemplated by the agreement.
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In addition, each of Markel and Terra Nova shall promptly advise the other
orally and in writing of any request for information or of any acquisition
proposal, the material terms and conditions of such request or acquisition
proposal and the identity of the person making such request or acquisition
proposal.
Nothing contained in the agreement prohibits Markel and Terra Nova from
taking and disclosing to its shareholders a position concerning a tender offer
as contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from
making any disclosure to such company's shareholders if, in the good faith
judgment of its board of directors, after consultation with independent legal
counsel, who may be such company's regularly engaged independent counsel,
failure so to disclose would be inconsistent with its fiduciary duties to such
company's shareholders under applicable law. However neither Markel or Terra
Nova nor their respective boards of directors nor any committee thereof shall,
except as described above, withdraw or modify, or propose to withdraw or
modify, its position with respect to the agreement or the transactions
contemplated by the agreement, or approve or recommend, or propose to approve
or recommend, an acquisition proposal.
Termination
The agreement may be terminated at any time prior to the Closing whether
before or after approval by the shareholders of either Markel or Terra Nova and
without further shareholder action:
(a) by the mutual consent of both parties;
(b) by Markel, if any event occurs which renders impossible compliance
by Terra Nova with any of Markel's conditions set forth in the
agreement, which condition is not waived by Markel;
(c) by Terra Nova, if any event occurs which renders impossible
compliance by Markel with any of Terra Nova's conditions set forth in
the agreement, which condition is not waived by Terra Nova;
(d) by Markel, if (i) the board of directors of Terra Nova fails to
approve and recommend or withdraw or modify in a manner adverse to
Markel its approval or recommendation of the arrangement or the
agreement, or approve or recommend any acquisition proposal, (ii) Terra
Nova enters into any agreement with respect to any superior proposal in
accordance with the agreement or (iii) the board of directors of Terra
Nova resolves to take any action described in (i) or (ii) above;
(e) by Terra Nova, if (i) the board of directors of Markel fails to
approve and recommend or withdraw or modify in a manner adverse to
Terra Nova its approval or recommendation of the merger or the
agreement, or approve or recommend any acquisition proposal, (ii)
Markel enters into any agreement with respect to any superior proposal
in accordance with the agreement or (iii) the board of directors of
Markel resolves to take any action described in (i) or (ii) above;
(f) by Markel in connection with entering into a definitive agreement
in accordance with the agreement as a result of receiving a superior
proposal, provided that Markel has made the $27 million termination
payment and the expense payment, if applicable, and complied with all
other applicable provisions of the agreement;
(g) by Terra Nova in connection with entering into a definitive
agreement in accordance with the agreement as a result of receiving a
superior proposal, provided that Terra Nova has made the $27 million
termination payment and the expense payment, if applicable, and
complied with all other applicable provisions in the agreement;
(h) by either Terra Nova or Markel if, upon a vote at the Markel
special meeting or any adjournment thereof, approval by the Markel
shareholders of the agreement shall not have been obtained;
(i) by either Markel or Terra Nova if, upon a vote at the Terra Nova
special general meeting or any adjournment thereof, approval by the
Terra Nova shareholders of the agreement shall not have been obtained;
(j) by either Terra Nova or Markel, if the merger shall not have been
consummated by 11:59 p.m., June 30, 2000.
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Termination Fee and Expenses
The expense payment is an amount equal to all of the charges and expenses
incurred by either Terra Nova or Markel, as the case may be, in connection with
the agreement, the registration rights agreement, the Terra Nova shareholders
agreement and the Markel shareholders agreement up to a maximum amount of $3
million.
Termination Fee and Expenses Payable by Terra Nova.
The agreement obligates Terra Nova to pay to Markel $27 million and to make
an expense payment to Markel if a Terra Nova acquisition proposal is made to
Terra Nova or any of Terra Nova's subsidiaries or shareholders or any person
has publicly announce its intent to make a Terra Nova acquisition proposal and:
. Markel terminates the agreement under (d) or (f) in "Termination" above,
or
. The agreement is terminated under (i) in "Termination" above and either
(1) a transaction contemplated by a Terra Nova acquisition proposal is
consummated within 12 months of the termination of the agreement or (2)
a definitive agreement which relates to a Terra Nova acquisition
proposal is signed within 12 months of the termination of the agreement
and such a transaction is thereafter consummated.
A Terra Nova acquisition proposal means any inquiry, proposal or offer, or
public announcement of intention to do such, relating to
. the acquisition or purchase of 20% or more of the assets of Terra Nova,
. the acquisition or purchase of any class of equity securities of Terra
Nova,
. any merger, consolidation, business combination, sale of all or
substantially all the assets, recapitalization, liquidation, dissolution
or similar transaction of Terra Nova or of any subsidiary of Terra Nova
which constitutes 20% or more of the assets of Terra Nova, or
. any other transaction which could reasonably be expected to interfere
with or materially delay the consummation of the agreement.
Termination Fee and Expenses Payable by Markel.
The agreement obligates Markel to pay to Terra Nova $27 million and to make
an expense payment to Terra Nova if a Markel acquisition proposal is made to
Markel or any of Markel's subsidiaries or shareholders or any person has
publicly announced its intent to make a Markel acquisition proposal and:
. Terra Nova terminates the agreement under (e) or (g) in "Termination"
above, or
. The agreement is terminated under (h) in "Termination" above and either
(1) a transaction contemplated by a Markel acquisition proposal is
consummated within 12 months of the termination of the agreement or (2)
a definitive agreement which relates to a Markel acquisition proposal is
signed within 12 months of the termination of the agreement and such
transaction is thereafter consummated.
A Markel acquisition proposal is any inquiry, proposal or offer, or public
announcement of intention to do such, relating to
. the acquisition or purchase of 20% or more of the assets of Markel,
. the acquisition or purchase of any class of equity securities of Markel,
. any merger, consolidation, business combination, sale of all or
substantially all the assets, recapitalization, liquidation, dissolution
or similar transaction of Markel or of any subsidiary of Markel which
constitutes 20% or more of the assets of Markel, or
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. any other transaction which could reasonably be expected to interfere
with or materially delay the consummation of the agreement.
Other Expenses
Except as otherwise provided for in the expense reimbursement payment, all
costs, fees and expenses incurred in connection with the agreement and the
transactions contemplated by the agreement will be paid by the party incurring
them, whether or not the merger is consummated, except each party will pay one-
half of the cost of this joint proxy statement/prospectus.
Indemnification; Insurance
Markel has agreed, to the extent permitted by law, to indemnify, the
officers and directors of Terra Nova and its subsidiaries against all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts that are
paid in settlement with the approval of Markel (which may not be unreasonably
withheld) arising out the fact that such person is or was a director or officer
of Terra Nova or any of its subsidiaries at or prior to the effective time,
whether the matter was asserted before or after the effective time. Markel will
pay all expenses in advance of the final disposition of any action or
proceeding, to the fullest extent permitted by law.
Markel and Terra Nova have also agreed that all rights of indemnification
and exculpation of liabilities for acts or omissions occurring at or prior to
the Effective Time now existing in favor of the current or former directors or
officers of Terra Nova and the subsidiaries of Terra Nova as provided in their
respective Articles and By-laws, or comparable organizational documents, and
any indemnification arrangements of Terra Nova, other than any entered into in
violation of the agreement, will survive the merger and scheme of arrangement
and shall continue in full force and effect in accordance with their respective
terms.
For a period of seven years after the Effective Time, Markel has agreed to
maintain Terra Nova's current directors' and officers' liability insurance or
substantially similar coverage.
Registration Rights Agreement
Markel entered into a registration rights agreement with Donaldson, Lufkin &
Jenrette and five of its affiliates, Marsh & McLennan Capital, Inc. on behalf
of itself and/or related entities and John J. Byrne on his own behalf and on
behalf of other entities as to which he has voting or dispositive power for
Terra Nova ordinary shares. The registration rights agreement provides that any
of the Marsh & McLennan entities and Donaldson, Lufkin & Jenrette entities may
require that Markel Holdings use its commercially reasonably efforts to
register a specified number of registrable securities as defined in the
registration rights agreement under the Securities Act. Markel Holdings is not
required to effect:
. more than three demand registrations requested by Donaldson, Lufkin &
Jenrette entities,
. more than two demand registrations requested by Marsh & McLennan
entities,
. any registration unless the registrable securities requested to be so
registered have, in the reasonable judgement of the board of directors
of Markel Holdings, exercised in good faith, an aggregate fair market
value of at least $25,000,000 unless the registrable securities
constitute all of the remaining registrable securities of the requesting
shareholder.
In addition, Markel Holdings is not required to effect any demand
registration prior to the earlier of
. the date that is six months after the effective date of Markel Holdings
most recent registration statement pursuant to which registrable
securities are or were sold in a demand registration, or
. the date that is three months after the effective date of Markel
Holdings most recent registration statement pursuant to which the
Donaldson, Lufkin & Jenrette entities were entitled to request that
registrable securities to be sold pursuant to an incidental
registration.
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There are also incidental registration rights in the registration rights
agreement which provide that Markel Holdings will include registrable
securities, which are held by the Donaldson, Lufkin & Jenrette entities, the
Marsh & McLennan entities or John J. Byrne, in registration statements for
Markel Holdings common shares which Markel Holdings is filing for its own
account or for other third parties. These rights are subject to rules of
priority in the event the underwriters advise that the number of securities
requested and otherwise proposed to be included exceed the maximum offering
size as defined in the registration rights agreement.
The registration rights agreement provides that specified expenses incurred
by the seller of the registrable securities in a demand registration and an
incidental registration will be paid for by Markel Holdings.
The registration rights agreement also provides for indemnification by
Markel Holdings of the seller of registrable securities and the indemnification
by the seller of registrable securities of Markel Holdings, in each case in
specified circumstances.
Shareholders Agreements
Terra Nova Shareholders Agreement
In connection with the agreement, Markel, Terra Nova and Donaldson, Lufkin &
Jenrette and five of its affiliates, Marsh & McLennan Capital Inc. on behalf of
itself and/or related entities and John J. Byrne, on his own behalf and on
behalf of other entities as to which he has voting or dispositive power for
Terra Nova ordinary shares entered into a shareholders agreement. Pursuant to
the Terra Nova shareholders agreement, each of these Terra Nova shareholders
granted, during the term of the shareholders agreement, an irrevocable proxy to
Markel to vote the shares held by that shareholder in favor of the agreement
and the scheme of arrangement. Markel is also allowed to vote against several
other types of extraordinary transactions involving Terra Nova, including the
sale of assets of Terra Nova and the sale of Terra Nova to another party.
The Terra Nova shareholders agreement prohibits, during the term of the
shareholders agreement, each of the Terra Nova shareholders who are bound by
the shareholders agreement from soliciting, facilitating, participating in or
initiating any proposal which constitutes, or may reasonably be expected to
lead, to the acquisition of Terra Nova by any party other than Markel, subject
to specified exceptions for a shareholder who is also a director of Terra Nova.
Each Terra Nova shareholder who is a party to the Terra Nova shareholders
agreement covenants, during the term of the shareholders agreement, not to:
. dispose of Terra Nova shares;
. grant other proxies with respect to or deposit his or its Terra Nova
shares in a voting trust; or
. take any action that would make any representation or warranty in the
Terra Nova shareholders agreement untrue or have the effect of rendering
such shareholder unable to perform his or its obligations under the
Terra Nova shareholders agreement.
The Terra Nova shareholders agreement terminates on the earlier of the
. the effective time of the merger and the scheme of arrangement; or
. the termination of the agreement in accordance with its terms.
Markel Shareholders Agreement
In connection with the agreement, Markel, Terra Nova and Steven Markel,
Anthony Markel and Alan Kirshner, who are shareholders of Markel, entered into
a shareholders agreement. Pursuant to the Markel shareholders agreement, each
of these Markel shareholders granted, during the term of the shareholders
agreement, an irrevocable proxy to Terra Nova to vote his shares in favor of
the agreement and the merger. Terra Nova is also allowed to vote against
several other types of extraordinary transactions involving Markel, including
the sale of assets of Markel and the sale of Markel to another party.
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<PAGE>
The Markel shareholders agreement prohibits, during the term of the
shareholders agreement, each Markel shareholder who is a party thereto from
soliciting, facilitating, participating in or initiating any proposal which
constitutes, or may be reasonably expected to lead to, the sale of his shares,
or the acquisition of Markel by any party other than Terra Nova, subject to
specified exceptions for a shareholder who is a director of Markel. Each Markel
shareholder who is a party to the Markel shareholders agreement covenants not
to:
. dispose of Markel shares subject to the shareholders agreement;
. grant proxies with respect to or deposit his Markel shares in a voting
trust; or
. take any action that would make any representation or warranty in the
Markel shareholders agreement untrue or have the effect of rendering
such shareholder unable to perform his obligations under the Markel
shareholders agreement.
The Markel shareholders agreement terminates on the earlier of the
. the effective time of the merger; or
. the termination of the agreement in accordance with its terms.
Effect of the Shareholders Agreements
The shareholders agreements are intended to increase the likelihood that the
merger and scheme of arrangement will be completed in accordance with the terms
of the agreement. The shareholders agreements may have the effect of making an
acquisition or other combination of Terra Nova or Markel by or with a third
party more difficult and more costly as a result of the concentration of voting
power under the shareholders agreements. We believe that the shareholders
agreements may discourage a third party from proposing a competing acquisition
or combination of Terra Nova or Markel.
63
<PAGE>
Effective Time
We will complete the proposed merger and scheme of arrangement and they will
become effective when both the order sanctioning the scheme of arrangement has
been filed with the Registrar of Companies of Bermuda and the Virginia State
Corporation Commission has issued a certificate of merger. We anticipate that
this will occur on , 2000, the date following the court hearing before the
Supreme Court of Bermuda. However, this will not occur until all conditions to
the agreement have been met or waived by Markel or Terra Nova, as appropriate.
Unaudited Pro Forma Condensed Financial Information
The following unaudited pro forma condensed financial information is based
on the historical consolidated financial statements of Markel Corporation
adjusted to give effect to the acquisition of Terra Nova (Bermuda) Holdings
Ltd. The Pro Forma Condensed Consolidated Statement of Income for the year
ended December 31, 1998 for Markel, as adjusted, includes the effect of the
January 15, 1999 acquisition of Gryphon Holdings Inc. as if that acquisition
had occurred on January 1, 1998. In the opinion of management, the historical
consolidated financial statements of Markel reflect all adjustments, which are
of a normal recurring nature, to present fairly Markel's financial position as
of September 30, 1999 and results of operations for the nine months ended
September 30, 1999 and the year ended December 31, 1998. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable.
The acquisition of Terra Nova will be accounted for using the purchase
method of accounting. The purchase price for the acquisition will be allocated
to tangible and identifiable intangible assets and liabilities based upon
management's estimates of their fair value with the excess of purchase price
over fair value of net assets acquired allocated to goodwill and amortized over
20 years. For purposes of presenting pro forma results, no changes in revenues
and expenses have been made to reflect the results of any modification to
operations that might have been made had the acquisition been consummated on
the assumed effective date of the acquisition. The pro forma expenses include
the recurring costs, which are directly attributable to the acquisition, such
as amortization of goodwill and interest expense.
The unaudited pro forma condensed financial information does not purport to
represent what Markel's results of operations or financial position would
actually have been had the acquisition in fact occurred on January 1, 1998 or
September 30, 1999 or to project Markel's results of operations or financial
position for or at any future period or date.
64
<PAGE>
MARKEL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Markel and
Markel Terra Nova Pro Forma Terra Nova
(historical) (historical) Adjustments Pro Forma
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments
Fixed maturities............ $1,285,686 $1,313,815 $(80,000)A $2,519,501
Equity securities........... 281,409 96,035 -- 377,444
Short-term.................. 85,391 -- (40,000)A 45,391
---------- ---------- -------- ----------
Total investments......... 1,652,486 1,409,850 (120,000) 2,942,336
---------- ---------- -------- ----------
Cash and cash equivalents... 1,476 87,486 -- 88,962
Receivables................. 102,699 454,206 -- 556,905
Reinsurance recoverable on
unpaid losses.............. 400,037 248,583 -- 648,620
Reinsurance recoverable on
paid losses................ 38,697 53,650 -- 92,347
Deferred policy acquisition
costs...................... 50,859 133,386 -- 184,245
Prepaid reinsurance
premiums................... 72,636 93,150 -- 165,786
Intangible assets........... 93,529 45,665 411,472 B 550,666
Other assets................ 94,917 81,766 6,868 D 183,551
---------- ---------- -------- ----------
Total assets.............. $2,507,336 $2,607,742 $298,340 $5,413,418
========== ========== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Unpaid losses and loss
adjustment expenses........ $1,376,745 $1,216,494 -- $2,593,239
Unearned premiums........... 288,164 537,235 -- 825,399
Payables to insurance
companies.................. 67,396 61,442 -- 128,838
Long-term debt.............. 158,258 175,000 290,250 A 623,508
Other liabilities........... 80,790 91,557 36,354 C 208,701
Company-Obligated
Mandatorily Redeemable
Preferred Capital
Securities of the
Subsidiary Trust Holding
Solely Junior Subordinated
Deferrable Interest
Debentures of Markel
Corporation................ 150,000 -- -- 150,000
---------- ---------- -------- ----------
Total liabilities......... 2,121,353 2,081,728 326,604 4,529,685
---------- ---------- -------- ----------
Shareholders' equity
Common stock................ 25,593 265,492 232,258 A,E 523,343
Retained earnings........... 339,229 277,866 (277,866)E 339,229
Accumulated other
comprehensive income
(loss)..................... 21,161 (8,255) 8,255 E 21,161
Treasury stock and other.... -- (9,089) 9,089 E --
---------- ---------- -------- ----------
Total shareholders'
equity................... 385,983 526,014 (28,264) 883,733
---------- ---------- -------- ----------
Total liabilities and
shareholders' equity..... $2,507,336 $2,607,742 $298,340 $5,413,418
========== ========== ======== ==========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Statements.
65
<PAGE>
MARKEL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended September 30, 1999
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Markel and
Markel Terra Nova Pro Forma Terra Nova
(historical) (historical) Adjustments Pro Forma
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Earned premiums............. $327,047 $459,371 $ -- $786,418
Net investment income....... 66,253 69,745 (5,400)F 130,598
Net realized gains from
investment sales........... 9,297 29,626 -- 38,923
Agency income............... -- 11,577 -- 11,577
Other....................... 1,426 408 -- 1,834
-------- -------- -------- --------
Total operating
revenues............... 404,023 570,727 (5,400) 969,350
-------- -------- -------- --------
OPERATING EXPENSES
Losses and loss adjustment
expenses................... 210,747 313,934 -- 524,681
Underwriting, acquisition
and insurance expenses..... 123,463 185,142 -- 308,605
Agency expenses............. -- 10,003 -- 10,003
Other expenses.............. -- 5,252 -- 5,252
Amortization of intangible
assets..................... 4,184 3,184 13,959 G 21,327
-------- -------- -------- --------
Total operating
expenses............... 338,394 517,515 13,959 869,868
-------- -------- -------- --------
Operating income............ 65,629 53,212 (19,359) 99,482
Interest expense............ 19,098 9,300 17,435 H 45,833
-------- -------- -------- --------
Income before income taxes.. 46,531 43,912 (36,794) 53,649
Income taxes................ 11,168 (2,355) 10,278 I 19,091
-------- -------- -------- --------
Income from continuing
operations................. $ 35,363 $ 46,267 $(47,072) $ 34,558
======== ======== ======== ========
Income from continuing
operations per share:
Basic....................... $ 6.34 -- -- $ 4.18
======== ======== ======== ========
Diluted..................... $ 6.27 -- -- $ 4.15
======== ======== ======== ========
Weighted average shares
outstanding:
Basic....................... 5,580 -- -- 8,274
======== ======== ======== ========
Diluted..................... 5,640 -- -- 8,334
======== ======== ======== ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Statements.
66
<PAGE>
MARKEL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1998
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Markel and
Markel Gryphon Pro Forma Markel Terra Nova Pro Forma Terra Nova
(historical) (historical) Adjustments (as adjusted) (historical) Adjustments Pro Forma
------------ ------------ ----------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Earned premiums........ $333,267 $100,764 $ -- $434,031 $546,908 $ -- $ 980,939
Net investment income.. 71,046 18,365 (6,042)J 83,369 93,262 (7,200)F 169,431
Net realized gains from
investment sales...... 20,558 10,105 -- 30,663 17,963 -- 48,626
Agency income.......... -- -- -- -- 17,057 -- 17,057
Other.................. 1,130 8 -- 1,138 (586) -- 552
-------- -------- -------- -------- -------- -------- ----------
Total operating
revenues............. 426,001 129,242 (6,042) 549,201 674,604 (7,200) 1,216,605
-------- -------- -------- -------- -------- -------- ----------
OPERATING EXPENSES
Losses and loss
adjustment expenses... 203,336 103,302 -- 306,638 359,567 -- 666,205
Underwriting,
acquisition and
insurance expenses.... 124,841 55,013 -- 179,854 180,702 -- 360,556
Agency expenses........ -- -- -- -- 13,760 -- 13,760
Other expenses......... -- -- -- -- 4,836 -- 4,836
Amortization of
intangible assets..... 2,033 145 3,259 K 5,437 781 22,076 G 28,294
-------- -------- -------- -------- -------- -------- ----------
Total operating
expenses............. 330,210 158,460 3,259 491,929 559,646 22,076 1,073,651
-------- -------- -------- -------- -------- -------- ----------
Operating income
(loss)................ 95,791 (29,218) (9,301) 57,272 114,958 (29,276) 142,954
Interest expense....... 20,406 3,212 3,563 L 27,181 13,697 23,247 H 64,125
Income (loss) before
income taxes.......... 75,385 (32,430) (12,864) 30,091 101,261 (52,523) 78,829
Income taxes........... 18,092 (13,128) (3,362)M 1,602 17,221 2,061 I 20,884
-------- -------- -------- -------- -------- -------- ----------
Income (loss) from
continuing
operations............ $ 57,293 $(19,302) $ (9,502) $ 28,489 $ 84,040 $(54,584) $ 57,945
======== ======== ======== ======== ======== ======== ==========
Income from continuing
operations per share:
Basic.................. $ 10.41 -- -- $ 5.17 -- -- $ 7.07
======== ======== ======== ======== ======== ======== ==========
Diluted................ $ 10.17 -- -- $ 5.05 -- -- $ 6.96
======== ======== ======== ======== ======== ======== ==========
Weighted average shares
outstanding:
Basic.................. 5,506 -- -- 5,506 -- -- 8,200
======== ======== ======== ======== ======== ======== ==========
Diluted................ 5,636 -- -- 5,636 -- -- 8,330
======== ======== ======== ======== ======== ======== ==========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Statements.
67
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of presentation
On August 15, 1999, Markel entered into an Agreement and Plan of Merger and
Scheme of Arrangement (the Merger Agreement) to acquire Terra Nova. The
unaudited Pro Forma Condensed Consolidated Balance Sheet, Statements of Income
and Notes to Pro Forma Condensed Consolidated Financial Statements were
prepared assuming consideration to the Terra Nova shareholders of 45 percent
cash and 55 percent Markel common shares. Consideration to be exchanged
consists of the following (in thousands, except per share data):
<TABLE>
<S> <C>
Cash.......................................................... $407,250
Markel common shares to be issued to Terra Nova shareholders
(2,694 shares at $184.78 per share).............................497,750
--------
Total purchase consideration.................................. 905,000
Direct costs of acquisition (1)............................... 12,000
--------
Total cost of acquisition..................................... 917,000
Less: Fair value of Terra Nova net tangible and identifiable
intangible assets as of September 30, 1999 (2)............... 459,863
--------
Excess of cost over fair value of net assets acquired......... $457,137
========
The acquisition will be funded as follows (in thousands):
Available cash................................................ $120,000
Borrowings under credit facilities............................ 299,250
Markel common shares to be issued to Terra Nova shareholders.. 497,750
--------
Total cost of acquisition..................................... $917,000
========
</TABLE>
In addition, Markel will assume $175.0 million of Terra Nova's debt.
(1) The direct costs of the acquisition are investment banking fees of
$11.0 million and estimated legal, tax and accounting fees of $1.0
million.
(2) The preliminary purchase price allocation is based on the estimated
fair value of the net tangible and identifiable intangible assets
acquired. Investments are recorded at estimated fair value, based
primarily on quoted market prices. Long term debt is recorded at
estimated fair value, based on an independent third party quote. All
other assets and liabilities are recorded at their historical bases
which approximate fair value. While the purchase price allocation is
preliminary, management is not aware of any material adjustments to the
allocation.
The accompanying unaudited Pro Forma Condensed Consolidated Financial
Statements are provided to illustrate the effect of the acquisition on Markel
and have been prepared using the purchase method of accounting. The unaudited
Pro Forma Condensed Consolidated Financial Statements reflect how the balance
sheet might have appeared as of September 30, 1999 if the acquisition had been
consummated at that date and how the condensed statements of income for the
nine months ended September 30, 1999 and for the year ended December 31, 1998
might have appeared had the acquisitions of Gryphon Holdings Inc. and Terra
Nova been consummated on January 1, 1998. Certain reclassifications of
Gryphon's and Terra Nova's historical financial statements have been made to
conform with Markel's historical presentation.
2.Adjustments--Unaudited Pro Forma Condensed Consolidated Balance Sheet--
Markel/Terra Nova
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet as
of September 30, 1999 reflects certain adjustments which are explained below
and are based on assumptions made by management.
68
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
These adjustments are required to give effect to matters directly attributable
to the acquisition. The explanations of these adjustments are as follows:
(A) To record the cash paid, debt incurred and equity issued to finance the
acquisition. In addition, Terra Nova's long term debt is reduced by
$9.0 million to a fair value of $166.0 million.
(B) To adjust the intangible assets to reflect the excess of cost over the
fair value of net assets acquired resulting from the acquisition.
(C) To accrue obligations as specified in various employment contracts and
debt issuance costs. In addition, as a result of the merger, Terra
Nova's operations will be subject to taxation in the United States.
Deferred taxes have been recorded for the United States tax
liabilities.
<TABLE>
<S> <C>
Obligations under employment contracts (1)........................ $ 8,000
Debt issuance costs (2)........................................... 4,000
Deferred taxes (3)................................................ 24,354
-------
$36,354
=======
</TABLE>
(1) Certain employees of Terra Nova had employment agreements in place
when the purchase agreement was signed. Obligations under these
agreements will be triggered by the change in control of Terra
Nova. The $8 million accrued obligation was calculated by external
advisors in accordance with the terms of the employment agreements.
(2) The debt issuance costs of $4 million include a commitment fee of
$3.5 million related to the $500 million credit facility and
estimated legal and accounting fees of $0.5 million. The commitment
fee is calculated in accordance with the terms of the credit
facility.
(3) Deferred taxes primarily relate to Terra Nova's accumulated
earnings which have not previously been subject to U.S. taxation
and to record deferred income taxes which reflect the net tax
effect of the temporary differences between the carrying amounts
of the assets and liabilities for financial reporting purposes and
their respective U.S. tax bases.
(D) To record debt issuance costs and prepaid pension benefit costs as
follows:
<TABLE>
<S> <C>
Debt issuance costs (1).... $4,000
Write off Terra Nova Debt
Costs (2)................. (2,123)
Pension Asset (3)............4,991.
------
$6,868
======
</TABLE>
(1) Debt issuance costs are established as an intangible asset and
amortized over the five year life of the credit facility.
(2) Represents the adjustment to write off Terra Nova's unamortized
debt issuance costs whichprovide no economic value to the combined
entity.
(3) A pension asset is recorded for the excess of the fair value of
plan assets over projected benefit obligations. A recent external
valuation of the pension plan was used to estimate the adjustment.
(E) To record consolidating and eliminating entries.
69
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Adjustments--Unaudited Pro Forma Condensed Consolidated Statements of
Income--Markel/Terra Nova
The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Income for the nine months ended September 30, 1999 and for the year ended
December 31, 1998 reflect certain adjustments which are explained below and are
based on assumptions made by management. These adjustments are required to give
effect to matters directly attributable to the acquisition. The explanations of
these adjustments are as follows:
(F) Reduction in net investment income due to net cash used in funding the
transaction; the rate of return is calculated at 6%. The 6% rate of
return is based on historical average yields for the Markel's
investment portfolio.
(G) Excess of cost over fair value of net assets acquired is amortized on
a straight line basis over 20 years. The estimated life of the
business acquired was estimated based on the value of the Lloyd's
franchise, the investment portfolio's earning power, profitable books
of business acquired, as well as the capital requirements and other
barriers to entering the business acquired.
(H) Interest on borrowed funds under the revolving credit facility is
assumed to be 7.125% which is calculated as LIBOR plus 1.125% as
specified in the credit facility. For the nine months ended September
30, 1999, a change of 1/8 percent in the interest rate would result in
a change in interest expense and income from continuing operations of
$0.3 million and $0.2 million, respectively. For the year ended
December 31, 1998, a change of 1/8 percent in the interest rate would
result in a change in interest expense and income from continuing
operations of $0.4 million and $0.2 million, respectively. In addition,
the fair value adjustment for Terra Nova's long term debt is amortized
over the remaining lives of those debt instruments.
(I) Taxes on the reduction in net investment income and interest expense
pro forma adjustments are calculated at an assumed 35% statutory rate.
In addition, as a result of the merger, Terra Nova's operations will be
subject to taxation in the United States. Taxes have been recorded for
Terra Nova in accordance with United States tax regulations.
4. Adjustments--Unaudited Pro Forma Condensed Consolidated Statement of
Income--Markel/Gryphon Holdings, Inc.
On January 15, 1999, Markel acquired Gryphon Holdings, Inc. and its
subsidiaries (Gryphon) as the result of the completion of a public tender
offer. Gryphon is the holding company for three property and casualty insurance
companies. Major lines of business include property and professional liability
programs. Markel's results of operatons include Gryphon's results of operations
since the date of acquisition. The acquisition was accounted for using the
purchase method of accounting. Total consideration paid for Gryphon was
approximately $145.7 million. The excess of the purchase price over the fair
value of the net tangible and identifiable intangible assets acquired was
recorded as goodwill and is being amortized using the straight-line method over
20 years. Markel funded the transaction with available cash of approximately
$100.7 million and borrowings of approximately $50 million. In addition Markel
refinanced $55.0 million of Gryphon's long-term debt.
The accompanying unaudited Pro Forma Condensed Consolidated Statement of
Income for the year ended December 31, 1998 reflects certain adjustments which
are explained below and are based on assumptions made by management. These
adjustments are required to give effect to matters directly attributable to the
acquisition. The explanations of these adjustments are as follows:
(J) Reduction in net investment income due to net cash used in funding the
transaction; the rate of return is calculated at 6%. The 6% rate of
return is based on historical average yields for Markel's investment
portfolio.
70
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
(Unaudited)
(K) Excess of cost over fair value of net assets acquired is amortized on a
straight line basis over 20 years. The estimated life of the business
acquired was estimated based on the investment portfolio's earnings
power and approximately $75 million of profitable business which
Gryphon provides, as well as the capital requirements and other
barriers to entering the business acquired.
(L) Interest on borrowed funds under revolving lines of credit is assumed
to be 7.125% which is calculated as LIBOR plus 1.125% as specified in
the credit facility. A change of 1/8 percent in the interest rate would
result in a change in interest expense and income from continuing
operations of $0.1 million and $0.1 million, respectively.
(M) Taxes on the reduction in net investment income and interest expense
pro forma adjustments are calculated at an assumed 35% statutory rate.
71
<PAGE>
The Companies
Markel
Markel Corporation, an insurance holding company, writes specialty insurance
products and programs for a variety of niche markets through its insurance
subsidiaries. Markel believes that its specialty product focus and niche market
strategy enable it to develop expertise and specialized market knowledge.
Underwriting Philosophy. By focusing on market niches where it has
underwriting expertise, Markel seeks to earn consistent underwriting profits.
Underwriting profits are a key component of Markel's strategy. The ability to
achieve consistent underwriting profits demonstrates knowledge and expertise,
commitment to superior customer service and the ability to manage insurance
risk.
The Underwriting Units. Markel has five underwriting units focused on
specific niches within the excess and surplus and specialty admitted markets.
Excess and Surplus Lines, Professional Products Liability and Brokered Excess
and Surplus Lines write business in the excess and surplus market. Specialty
Program Insurance and Specialty Personal and Commercial Lines write business in
the specialty admitted market.
Excess and Surplus Lines. The Excess and Surplus Lines unit (E&S unit)
writes a variety of coverages, focusing on light-to-medium casualty exposures
for businesses such as artisan contractors, habitational risks, restaurants and
bars, child and adult care facilities, vacant properties, office buildings and
light manufacturing operations. The E&S unit also writes property insurance on
classes of business ranging from small, single location risks to large, multi-
state, multi-location risks. Property coverages consist principally of fire and
allied lines, such as windstorm, hail and water damage and more specialized
property coverages. The E&S unit also offers coverages for heavier property
risks, including earthquake, through its special property division. These risks
are typically larger and are of a low frequency high severity nature.
Professional Products Liability. The Professional Products Liability unit
markets specialty professional liability coverages, including medical
malpractice and specialized medical coverages, professional liability for
lawyers, architects and engineers, agents and brokers and management
consultants. Errors and omissions coverage is targeted to mutual fund advisors,
investment advisors and insurance companies. Products liability insurance for
manufacturers and distributors is provided through the special risks program.
In addition, directors' and officers' liability coverage and employment
practices liability coverages are offered.
Specialty Program Insurance. Specialty Program Insurance focuses on
providing total insurance programs for businesses engaged in similar, but
highly specialized, activities. These activities typically do not fit the risk
profiles of standard insurers which makes complete coverage difficult to obtain
from a single insurer. The Specialty Program Insurance operation is organized
into six business units, which concentrate on particular markets and customer
groups. The camp and youth recreation division serves children's summer camps,
conference centers and youth organizations such as YM/YWCA's and Boys' and
Girls' Clubs. The agriculture division specializes in insurance coverages for
horse-related risks, such as horse mortality coverage, and property and
liability coverages for horse farms and boarding, breeding and training
facilities. Liability insurance for sports organizations, and accident and
medical insurance for colleges, universities and private schools are sold
through the sports liability, accident and medical division. The child care
division develops and markets insurance programs for child care centers,
nursery schools, Head Start programs, Montessori schools and private schools.
Gymnastic schools, health clubs, and martial arts and dance schools are
serviced by the health and fitness division. The contract surety bond division
provides surety bonds for small and transitional contractors.
Specialty Personal And Commercial Lines. Specialty Personal and Commercial
Lines markets and underwrites its insurance products in niche markets that are
overlooked by large admitted carriers. The recreational products division
concentrates on watercraft and motorcycle coverages. The watercraft program
markets personal insurance coverage for jet skis, yachts and high performance
boats; while small fishing ventures and small boat rentals are the focus of the
commercial marine department. The motorcycle program's
72
<PAGE>
target market is mature riders of high value bikes. The property division
provides coverage for dwellings that do not qualify for standard homeowner's
coverage. In addition, the Specialty Personal and Commercial Lines unit markets
a series of insurance products designed to meet the collateral protection needs
of automobile lenders.
New Revolving Credit Facility. Markel has entered into a commitment letter
for a syndicated five year $500 million revolving credit facility which will
replace its existing $250 million revolving credit facility. Markel will use
the new facility for working capital and other corporate purposes, including
part of the cash to be paid to holders of Terra Nova ordinary shares in the
scheme of arrangement. Markel will pay a commitment fee ranging from .20% to
.50% on the unused portion of the new facility. Markel expects to enter this
new facility before the closing of the merger and scheme of arrangement.
For additional information about Markel you should read Markel's annual
report on Form 10-K for the year ended 1998 and Markel's quarterly report on
Form 10-Q for the quarter ended September 30, 1999. See also "Where You Can
Find More Information."
Terra Nova
Overview of Terra Nova. Terra Nova is the holding company for wholly owned
operating entities. The five principal operating entities are: Terra Nova
Insurance Company Limited in the U.K., Terra Nova (Bermuda) Insurance Company
Ltd., "Corifrance in Paris--Compagnie de Reassurance d'Ile de France", Terra
Nova Capital Limited, Terra Nova's corporate capital provider at Lloyd's, and
Octavian Syndicate Management Limited. Octavian manages the eight Lloyd's
syndicates in which Terra Nova has a participation. Through these subsidiaries,
Terra Nova writes a specialty property, casualty, marine and aviation insurance
and reinsurance business worldwide.
Terra Nova. Since it began in 1970 as a reinsurance company, Terra Nova has
expanded into other fields of insurance. Although the largest segment of the
business continues to be reinsurance, growth in recent years has been in
specialty areas of primary insurance.
Terra Nova is authorized in the United Kingdom to transact all classes of
insurance business and underwrites a significant volume of property, marine and
casualty treaty reinsurance. Terra Nova is approved to underwrite excess and
surplus lines insurance in almost every state of the United States, and has
also gained accreditation in various states under statutes providing for
accreditation of non-US reinsurers. As at March 15, 1999, Terra Nova was
accredited as a reinsurer in forty-two jurisdictions of the United States and
had an application for approval pending in a further five.
Marine insurance is a major part of the business, transacted both on a
direct and a reinsurance basis through the International Underwriting
Association of London. This segment encompasses cargo, specie and liability. In
December 1998, Terra Nova announced its decision to withdraw from the marine
hull and marine energy markets.
A Terra Nova branch office operates from Brussels, transacting treaty
reinsurance in continental European reinsurance markets. Terra Nova is also
licensed to transact non-marine reinsurance in Canada through its branch office
in Toronto.
Terra Nova Insurance company in the U.K. and the Lloyd's syndicates managed
by Octavian are based in the London Market. The London Market is comprised of
Lloyd's and companies with underwriting offices close to Lloyd's. The London
Market is one of the world's largest insurance and reinsurance marketplaces and
attracts business from clients throughout the world who seek flexible and
innovative protection for a wide variety of risks.
Terra Nova (Bermuda) Insurance Company Limited. Terra Nova (Bermuda) is a
specialty property and casualty insurance and reinsurance company operating in
the Bermuda Market. The principal lines of business
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are various classes of property and casualty coverage written on a reinsurance
basis. Writings originate worldwide.
Octavian Syndicate Management Limited and Terra Nova Capital Limited. Terra
Nova participates in the eight syndicates managed by Octavian, through Terra
Nova Capital. The syndicates' writings include mainly UK liability, UK and
overseas auto, marine and aviation lines. Terra Nova Capital's average
participation on the Octavian syndicates increased to approximately 60% in
1998, from 44% in 1997 and 11% in 1996.
Corifrance. Corifrance is a French reinsurance company based in Paris.
Corifrance transacts specialty treaty and facultative reinsurance business
internationally, although mainly outside the US, on a direct and brokered
basis.
For additional information about Terra Nova you should read Terra Nova's
annual report on Form 10-K for the year ended 1998 and Terra Nova's quarterly
report on Form 10-Q for the quarter ended September 30, 1999. See also "Where
You Can Find More Information.
Markel Holdings
Markel Holdings is a Virginia corporation that has been formed for the
purpose of the transactions. Markel Holdings is currently a subsidiary of
Markel. Upon completion of the transactions, Markel Holdings will be the parent
corporation of Markel and Terra Nova.
As of the record date, there were Markel Corporation common shares
issued and outstanding and Class A ordinary shares and 1,796,217 Class B
ordinary shares of Terra Nova issued and outstanding. Based upon the number of
Markel Corporation common shares and Terra Nova ordinary shares and options
outstanding as of the record date, approximately 8,267,000 Markel Holdings
common shares will be outstanding immediately following the Effective Time, of
which approximately 2,694,000 shares, representing approximately % of the
total, will be held by former holders of Terra Nova.
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Description of Markel Holdings Capital Shares
Markel Holdings's authorized capital consists of 50,000,000 common shares,
no par value, and 10,000,000 preferred shares, $1.00 par value. At 1999,
100 common shares were outstanding all of which were held by Markel. At that
date, no preferred shares were outstanding.
Preferred Shares
Preferred shares of Markel Holdings are issuable in one or more series from
time to time at the direction of the board of directors. The board of
directors is authorized, with respect to each series, to fix its designation;
relative rights, including voting, dividend, conversion, sinking fund and
redemption rights; preferences, including with respect to dividends and on
liquidation; and limitations. The board of directors, without shareholder
approval, can issue preferred shares with voting and conversion rights that
could adversely affect the voting power of the holders of common shares. This
right of issuance could be used as a method of preventing a party from gaining
control of Markel Holdings. Markel Holdings presently has no plans or
arrangements for the issuance of any preferred shares.
Common Shares
Each holder of common shares of Markel Holdings is entitled to one vote for
each share held of record on each matter submitted to a vote of shareholders.
Cumulative voting in the election of directors is not permitted. As a result,
the holders of more than 50% of the outstanding shares have the power to elect
all directors. The quorum required at a shareholders' meeting for
consideration of any matter is a majority of the shares entitled to vote on
that matter, represented in person or by proxy. If a quorum is present, the
affirmative vote of a majority of the shares voting on the matter at the
meeting is required for shareholder approval, except in the case of major
corporate actions, such as merger, share exchange or dissolution of Markel
Holdings, an amendment to Markel Holdings' articles of incorporation, or the
sale of all or substantially all of Markel Holdings' assets, with respect to
which, under the provisions of Markel Holdings' articles of incorporation,
approval is required by the affirmative vote of more than two-thirds of all
shares entitled to vote on the matter, whether or not represented at the
meeting. These provisions, together with Markel Holdings' ability to issue
preferred shares with disproportionately high voting power could be used to,
or have the effect of, preventing or deterring a party from gaining control of
Markel Holdings, whether or not beneficial to public shareholders, and could
discourage tactics that involve an actual or threatened change of control of
Markel Holdings.
Subject to the rights of any holders of preferred shares of Markel
Holdings, the holders of common shares are entitled to receive dividends when,
as, and if declared by the board of directors out of funds legally available
therefor and, in the event of liquidation, dissolution or winding up of Markel
Holdings, to share ratably in all assets remaining after the payment of
liabilities. There are no preemptive or other subscription rights, conversion
rights, or redemption or sinking fund provisions with respect to common
shares. All common shares outstanding upon consummation of this offering will
be legally issued, fully paid and nonassessable.
The transfer agent and registrar for the Markel Holdings common shares is
First Union National Bank.
Rights of Shareholders of Markel Holdings Compared to Markel and Terra Nova
General
At the effective time, shareholders of Markel and Terra Nova will become
shareholders of Markel Holdings. As shareholders of Markel Holdings, their
rights will be governed by the Articles of Incorporation and By-laws of Markel
Holdings and the Virginia Stock Corporation Act. The following summary sets
forth the material differences among :
. the rights of Markel, Terra Nova and Markel Holdings shareholders;
. the Articles of Incorporation of Markel, Certificate of Incorporation
and Memorandum of Association of Terra Nova and the Articles of
Incorporation of Markel Holdings;
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. the By-laws of Markel, Terra Nova and Markel Holdings and
. the Virginia Stock Corporation Act and the Bermuda Companies Act 1981.
This summary is qualified by reference to the full text of each of such
documents, the Virginia law and the Bermuda law. For information as to how such
documents may be obtained, see "Where You Can Find More Information."
Comparison of Rights of Markel Holdings and Markel Shareholders
Both Markel Holdings and Markel are Virginia corporations and the Articles
of Incorporation and Bylaws of Markel Holdings are substantially similar to the
Articles of Incorporation and Bylaws of Markel. Accordingly, the rights of
shareholders of Markel Holdings will be substantially the same as the rights of
shareholders of Markel.
Comparison of Rights of Terra Nova Shareholders to their Rights as Markel
Holdings Shareholders
Comparison of Bermuda and Virginia Corporate Law
The Bermuda Companies Act, under which Terra Nova is incorporated, differs
in material respects from the provisions of the Virginia Stock Corporation Act,
under which Markel and Markel Holdings are incorporated. Set forth below is a
summary of such differences. The following statements are summaries, and do not
purport to deal with all aspects of Bermuda or Virginia law that may be
relevant to Markel, Markel Holdings, Terra Nova and their respective
shareholders.
Voting Rights with Respect to Extraordinary Corporate Transactions
Bermuda. Bermuda law permits an amalgamation between two or more Bermuda
companies (or between one or more Bermuda exempted companies and one or more
foreign corporations) subject, unless the bye-laws otherwise provide, to
obtaining a majority vote of three fourths of the shareholders of each such
company present and voting in person or by proxy at a meeting called for the
purpose. The Terra Nova bye-laws do not provide for a greater or lesser vote.
Virginia. Under Virginia law, a corporation may sell, lease, exchange or
otherwise dispose of all, or substantially all, of its property, other than in
the usual and regular course of business, if the proposed transaction is
approved by more than two-thirds of all the votes entitled to be cast thereon.
A merger or share exchange plan must be approved by each voting group entitled
to vote separately on the plan by more than two-thirds of all the votes
entitled to be cast on the plan by that voting group. The articles of
incorporation may provide for a greater or lesser vote, but not less than a
majority of all the votes cast on the transaction by each voting group entitled
to vote on the transaction. The Markel Holdings articles of incorporation do
not provide for a greater or lesser vote.
Appraisal Rights
Bermuda. Under Bermuda law, a shareholder of a company participating in an
amalgamation (other than an amalgamation between a company and its wholly-owned
subsidiary or between two or more subsidiaries of the same holding company) who
did not vote in favor of an amalgamation and who is not satisfied that he has
been offered fair value for his shares may within one month of the notice of
the meeting of shareholders to consider the amalgamation apply to the court to
appraise the fair value of his shares. Within one month of the court appraising
the fair value of any shares, the company is entitled either to pay to the
dissenting shareholder an amount equal to the value of his shares as appraised
by the court, or to terminate the amalgamation agreement.
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Virginia. Under Virginia law, a shareholder of a corporation is generally
entitled to dissent from and obtain payment of the fair value of such holders
shares in the event of a merger or share exchange or sale or exchange of all or
substantially all the property and assets of the corporation. However, except
with respect to affiliated transactions that are not approved by a majority of
disinterested directors, dissenter's rights are not available to holders of
shares that are listed on a national securities exchange unless, in the event
of a merger or share exchange, holders are to accept for their shares anything
other than cash and/or shares of the surviving corporation or shares of any
other corporation whose shares are listed on a national securities exchange.
Derivative Suits
Bermuda. The Bermuda courts ordinarily follow English precedent, which
permits a shareholder to commence a derivative action in the name of the
company to remedy a wrong done to the company only:
. where the act complained of is alleged to be beyond the corporate power
of the company or illegal;
. where the act complained of is alleged to constitute a fraud, in the
sense of inequitable conduct, against the minority shareholders by those
controlling the company; provided, that the majority shareholders have
used their controlling position to prevent the company from taking
action against the wrongdoers;
. where an act requires approval by a greater percentage of the company's
shareholders than actually approved it; or
. where there is an absolute necessity to waive the general rule that a
shareholder may not bring such an action in order that there not be a
violation of the company's memorandum of association or bye-laws. The
actions summarized above are generally recognized as exceptions to the
common law rule in Foss v. Harbottle, under which only the company could
initiate an action.
There is a statutory remedy under section 111 of the Bermuda Companies Act,
which provides that a shareholder may seek redress of the court as long as he
can establish that the company's affairs are being conducted, or have been
conducted, in a manner oppressive or prejudicial to the interests of some part
of the shareholders, including himself. The court would also have to be
satisfied that to wind up the company would unfairly prejudice the shareholders
seeking redress, but otherwise the facts would justify the making of a winding-
up order on the ground that it was just and equitable that the company should
be wound up. If the court is satisfied on these two grounds it can make such
order as it thinks fit, whether for regulating the conduct of the company's
affairs in future, or for the purchase of the shares of any shareholders of the
company by other shareholders of the company or by the company. There is also
provision under section 161(g) of the Bermuda Companies Act for the court to
wind up a company if it is of the opinion that it is just and equitable that
the company should be wound up. However, the Court may be reluctant to order a
winding up of a large publicly quoted company where other remedies may be
available.
Virginia. Under Virginia law, a shareholder may not commence or maintain a
derivative proceeding unless the shareholder:
. was a shareholder of the corporation at the time of the act or omission
complained of;
. became a shareholder through transfer by operation of law from a
shareholder who was a shareholder at that time; or
. became a shareholder before public disclosure and without knowledge of
the act or omission complained of.
In addition to these requirements, a shareholder must fairly and adequately
represent the interests of the corporation in enforcing the right of the
corporation.
Under Virginia law, no shareholder may commence a derivative proceeding
until a written demand has been made of the corporation to take suitable action
and ninety days has expired from the date demand was
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made. The ninety day waiting period does not apply if the shareholder has been
notified before the expiration of ninety days that the demand has been rejected
by the corporation or irreparable injury would result to the corporation by
waiting until the end of the ninety day period.
If the corporation commences a review and evaluation of the allegations made
in the demand or complaint, the court may stay any derivative proceeding for
such period as the court deems appropriate. A derivative proceeding shall not
be settled or discontinued without the court's approval. A derivative
proceeding shall be dismissed by the court on motion by the corporation if a
majority of independent directors constituting a quorum, a majority of a
committee of two or more independent directors appointed by a majority of
independent directors or a panel of independent persons appointed by the court
has:
. conducted a review and evaluation, adequately informed in the
circumstances, of the allegations made in the demand or complaint;
. determined in good faith on the basis of that review and evaluation that
the maintenance of the derivative proceeding is not in the best interest
of the corporation; and
. submitted in support of the motion a short and concise statement of the
reasons for its determination.
In addition, under Virginia law a court in the city or county where the
corporation's principal office is located may dissolve a corporation in a
proceeding by a shareholder if it is established that:
. the directors are deadlocked in the management of the corporate affairs,
the shareholders are unable to break the deadlock, and irreparable
injury to the corporation is threatened or being suffered, or the
business and affairs of the corporation can no longer be conducted to
the advantage of the shareholders because of the deadlock;
. the directors or those in control of the corporation have acted, are
acting or will act in a manner that is illegal, oppressive or
fraudulent;
. the shareholders are deadlocked in voting power and have failed for a
period that includes at least two consecutive annual meeting dates, to
elect successors to directors whose terms have expired; or
. the corporate assets are being misapplied or wasted.
Special Meetings of Shareholders
Bermuda. Under Bermuda law and the Terra Nova bye-laws, an annual general
meeting must be held once every calendar year; a special general meeting of
shareholders may be convened by the board of directors at any time and must be
convened upon the requisition of shareholders holding not less than one-tenth
of the paid up capital of the company carrying the right to vote at general
meetings.
Virginia. Under Virginia law, a special meeting of shareholders may be
called by the chairman of the board, the president, the board of directors or
by any person authorized to do so in the articles of incorporation or bylaws.
The Markel Holdings bylaws provide that shareholders may call a special meeting
only if required by law.
Action by Consent
Bermuda. Action by written consent of shareholders is permitted where the
written resolution is signed by all of the shareholders who would be entitled
to attend and vote at a meeting, with the exception of a resolution to remove
an auditor or a director before the expiration of his term of office.
Virginia. Virginia law permits action otherwise required or permitted to be
taken at a shareholder's meeting to be taken without a meeting if the action is
taken by all shareholders entitled to vote on the action.
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Amendments to Charter
Bermuda. Under Bermuda law, amendments to the memorandum of association of a
Bermuda company must be submitted to a general meeting of the shareholders and
shall be effective only to the extent approved by the shareholders at such
meeting and, any alteration to the objects clause which would permit the
company to carry out a restricted business activity (specified in the Ninth
Schedule of the Bermuda Companies Act) requires the consent of the Bermuda
Minister of Finance. Under Bermuda law and the Terra Nova bye-laws, amendments
to the bye-laws of a Bermuda company must be submitted to a general meeting of
the shareholders and shall be effective only to the extent approved by the
shareholders at such meeting.
Virginia. Virginia law generally provides that the articles of incorporation
may be amended through a proposal submitted by the board of directors to the
shareholders for their approval. Unless the articles of incorporation provide
otherwise, the amendment to be adopted must be approved by each voting group
entitled to vote on the proposed amendment by more than two-thirds of all the
votes entitled to be cast by that voting group. The articles of incorporation
may provide for a greater or lesser vote, but not less than a majority of all
the votes cast on the amendment by each voting group entitled to vote on the
amendment. Class votes are required in circumstances that, in general, affect a
class of shares adversely or uniquely. In very limited circumstances, which
involve ministerial actions that are likely to be immaterial to shareholders,
Virginia law permits the articles of incorporation to be amended by action of
the board of directors without shareholder approval.
Anti-takeover Statutes
Bermuda. Bermuda law provides that where an offer is made for shares in a
company by another company and, within four months of the offer, the holders of
not less than 90% in value of the shares which are the subject of the offer
accept, the offeror may by notice, given within two months after the expiration
of the said four months, require the dissenting shareholders to transfer their
shares on the terms of the offer. Dissenting shareholders may apply to a court
within one month of such notice objecting to the transfer and the court may
give such order as it thinks fit.
Virginia. Virginia law, except as to companies that elect not to be covered,
prohibits the following business combinations between a Virginia corporation
and any "interested shareholder:"
. mergers and statutory share exchanges;
. material dispositions of corporate assets not in the ordinary course of
business;
. any dissolution of the corporation proposed by or on behalf of an
interested shareholder; or
. any reclassification, including a reverse stock split, recapitalization
or merger of the corporation with its subsidiaries that increases the
percentage of voting shares beneficially owned by an interested
shareholder by more than 5%.
An interested shareholder is, among others, a person who is, or an affiliate
who was within three years of the transaction, a beneficial owner of more than
10% of any class of the outstanding voting shares of the applicable
corporation. In such a case, unless the affiliated transaction satisfies "fair
price" criteria or comes within an applicable exemption, the affiliated
transaction must be approved by the affirmative vote of a majority of the
disinterested directors and by the affirmative vote of the holders of two-
thirds of the voting shares other than shares beneficially owned by the
interested shareholder. Markel has not made any election in the Markel charter
not to be covered by this provision of the Virginia law.
Under Virginia law, voting rights for "control shares" must be approved by a
corporation's shareholders, not including the shares held by interested
parties. "Control shares" are shares whose acquisition entitles the acquirer to
between 1/5 and 1/3, between 1/3 and 1/2, or greater than 1/2 of a
corporation's voting power. If a shareholder has acquired control shares with a
majority of all voting power and these shares have been given
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voting rights, all other shareholders have dissenters' rights. Virginia law
exempts from these provisions, acquisitions in a merger where the corporation
is a party to the governing merger agreement. Markel has not made any election
not to be governed by these provisions of Virginia law.
Limitations on Director Liability
Bermuda. Under Bermuda law, a director must observe a statutory duty of care
which requires directors to act honestly and in good faith with a view to the
best interests of the company and to exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
Directors are also subject to common law fiduciary duties which require
directors to act in what they reasonably believe to be the best interests of
the company and for a proper purpose. Bermuda law renders void any provision in
the bye-laws or any contract between a company and any director exempting him
from or indemnifying him against any liability in respect of any fraud or
dishonesty of which he may be guilty in relation to the conduct of the affairs
of the company.
Virginia. Virginia law provides that a director is not liable to the
corporation, its shareholders, or any person asserting rights on behalf of the
corporation or its shareholders for liabilities arising from a breach of, or
failure to perform, any duty resulting solely from his or her status as
director, unless the person asserting liability proves that the breach or
failure to perform was in violation of the director's duty to discharge his
duties as a director, including his duties as a member of a committee, in
accordance with his good faith business judgment of the best interests of the
corporation, provided, that the director, unless he has knowledge or
information concerning the matter in question that makes reliance unwarranted,
is entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by:
. one or more officers or employees of the corporation whom the director
believes, in good faith, to be reliable and competent in the matters
presented;
. legal counsel, public accountants, or other persons as to matters the
director believes, in good faith, are within the person's professional
or expert competence; or
. a committee of the board of directors of which he is not a member if the
director believes, in good faith, that the committee merits confidence.
In addition, Virginia law provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct shall not exceed the
lesser of:
. the monetary amount, including the elimination of liability, specified
in the articles of incorporation or, if approved by the shareholders, in
the bylaws; or
. the greater of $100,000 or the amount of cash compensation received by
the officer or director from the corporation during the twelve months
immediately preceding the act or omission for which liability was
imposed.
The Markel Holdings articles of incorporation provide for the elimination of
liability of officers and directors in every instance permitted under Virginia
law. The liability of an officer or director is not limited if the officer or
director engaged in willful misconduct or a knowing violation of the criminal
law or of any federal or state securities law, including any claim of unlawful
insider trading or manipulation of the market for any security.
Indemnification of Directors and Officers
Bermuda. Under Bermuda law, a company is permitted to indemnify any officer
or director, out of the funds of the company, against:
. any liability incurred by him in defending any proceedings, whether
civil or criminal, in which judgment is given in his favor, or in which
he is acquitted, or in connection with any application under relevant
Bermuda legislation in which relief from liability is granted to him by
the court, and
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. any loss or liability resulting from negligence, default, breach of duty
or breach of trust, save for fraud and dishonesty.
The Terra Nova bye-laws indemnify officers and directors to the full extent
permitted by Bermuda law.
Virginia. Virginia law provides that, unless limited by its Articles of
Incorporation, a corporation shall indemnify a director or officer who
entirely prevails in the defense of any proceeding to which he was a party
because he is or was a director or officer of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
Virginia law permits a corporation to indemnify, after a determination has
been made that indemnification of the director is permissible in the
circumstances because he has met the following standard of conduct, an
individual made a party to a proceeding because he is or was a director
against liability incurred in the proceeding if:
. he conducted himself in good faith,
. he believed in the case of conduct in his official capacity with the
corporation, that his conduct was in its best interests and in all other
cases that his conduct was at least not opposed to its best interests
and
. in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
A Virginia corporation, however, may not indemnify a director in connection
with a proceeding by or in the right of the corporation in which the director
was adjudged liable to the corporation or in connection with any other
proceeding charging improper personal benefit to him, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him.
In addition, Virginia law permits a corporation to make any further
indemnity, including indemnity with respect to a proceeding by or in the right
of the corporation, and to make additional provision for advances and
reimbursement of expenses, to any director, officer, employee or agent that
may be authorized by the Articles of Incorporation or any Bylaw made by the
shareholders or any resolution adopted by the shareholders, except an
indemnity against his willful misconduct or a knowing violation of the
criminal law.
The Market Holdings articles of incorporation provide mandatory
indemnification of officers and directors to the full extent permitted by
Virginia law.
Inspection of Books and Records; Shareholder and Shareholder Lists
Bermuda. Bermuda law provides the general public with a right of inspection
of a Bermuda company's public documents at the office of the Registrar of
Companies in Bermuda or at a company's registered office, and provides a
Bermuda company's shareholders with a right of inspection of a company's bye-
laws, minutes of general (shareholder) meetings and audited financial
statements. The register of shareholders is also open to inspection by
shareholders free of charge and, upon payment of a small fee, by any other
person. A Bermuda company is required to maintain its share register in
Bermuda but may establish a branch register outside of Bermuda. A Bermuda
company is required to keep at its registered office a register of its
directors and officers which is open for inspection by members of the public
without charge. Bermuda law does not, however, provide a general right for
shareholders to inspect or obtain copies of any other corporate records.
Virginia. Virginia law does not provide the general public with any right
of inspection of a company's documents. Virginia law does provide the
company's shareholders the right to access a company's records, during regular
business hours at the company's principal office, which must contain minutes
of shareholders and board meetings and consents in lieu of such meetings,
accounting records, a list with the addresses of all shareholders, its
articles of incorporation and bylaws, financial statements of the company,
contact information
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for the members of the board of directors and the most recent annual report of
the company. A shareholder's right to such information is limited in that:
. the shareholder must have either been a shareholder for at least six
months or be the record holder of at least five percent of the company's
outstanding shares,
. the shareholder may only request such records in good faith and for a
proper purpose described with reasonable particularity, and
. the records requested need to be directly connected with such purpose.
Legal Matters
The legality of the Markel Holdings common shares offered hereby will be
passed upon by McGuire, Woods, Battle & Boothe LLP, counsel to Markel and
Markel Holdings. McGuire, Woods, Battle & Boothe LLP will deliver an opinion
concerning federal tax consequences of the transactions to the board of Markel.
Debevoise & Plimpton, counsel to Terra Nova, will deliver an opinion concerning
federal income tax consequences of the transactions to the board of Terra Nova.
Leslie A. Grandis, a partner in McGuire, Woods, Battle & Boothe LLP is Markel's
secretary and a member of Markel's board of directors. As of , 1999,
partners of McGuire Woods owned Markel common shares, or less than 1% of
the Markel common shares on that date.
Experts
The consolidated financial statements of Markel as of December 31, 1998 and
1997, and for each of the years in the three-year period ended December 31,
1998, have been incorporated by reference herein in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Terra Nova appearing in Terra
Nova's Annual Report on Form 10-K for the year ended December 31, 1998, have
been incorporated by reference herein in reliance upon the report of
PricewaterhouseCoopers, independent accountants, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
Future Shareholder Proposals
If the merger is not consummated, any shareholder desiring to make a
proposal to be acted upon at the next annual meeting of shareholders of Markel
must present the proposal to Markel at its principal executive offices in Glen
Allen, Virginia, no later than November 28, 1999 in order for the proposal to
be included in Markel's proxy materials. Any such proposal should meet the
applicable requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations thereunder.
For shareholder proposals not included in Markel's proxy statement for the
2000 Annual meeting, the persons named by the board of directors in Markel's
proxy statement will be entitled to exercise discretionary voting power in the
circumstances set forth in Rule 14a-4(c) of the Exchange Act unless the
shareholder making a proposal (i) notifies Markel's Secretary of the proposal
by February 10, 2000 and (ii) otherwise follows the procedures specified in
Rule 14a-4(c).
If the transactions are not consummated, any shareholder proposal intended
to be presented to the 2000 annual meeting of shareholders of Terra Nova must
be received at the principal offices of Terra Nova, Richmond House, 12 Par-La-
Ville Road, Hamilton HM 08 Bermuda, by no later than November 21, 1999, in
order to be considered for inclusion in Terra Nova's proxy statement for such
meeting.
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Other Matters
The board of directors of Markel knows of no other matters which will be
brought before the Markel special meeting. However, if any other matters are
properly presented, or if any question arises as to whether any matter has been
properly presented and is a proper subject for shareholder action, the persons
named as proxies in the accompanying proxy intend to vote the shares
represented by such proxy in accordance with their best judgment.
The board of directors of Terra Nova knows of no other matters which will be
brought before the Terra Nova special general meeting. However, if any other
matters are properly presented, or if any question arises as to whether any
matter has been properly presented and is a proper subject for shareholder
action, the persons named as proxies in the accompanying proxy intend to vote
the shares represented by such proxy in accordance with their best judgment. No
other matters will be brought before the Terra Nova court meetings.
Where You Can Find More Information
Terra Nova and Markel file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by Markel or Terra Nova at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room. SEC filings of Markel and Terra Nova are also
available to the public from commercial document retrieval services. The
website maintained by the SEC is "http://www.sec.gov".
Markel Holdings has filed with the SEC a Registration Statement on Form S-4
to register the Markel Holdings common shares to be issued pursuant to the
agreement. This joint proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of Markel in addition to being a proxy
statement of Markel for the Markel special meeting and of Terra Nova for the
Terra Nova special general meeting and court meeting. As allowed by SEC rules,
this joint proxy statement/prospectus does not contain all the information you
can find in the registration statement and the exhibits to the registration
statement.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information in this joint proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that Markel and Terra Nova have previously filed with the SEC. These documents
contain important information about Markel and Terra Nova and their finances.
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<TABLE>
<CAPTION>
Markel SEC Filings
- ------------------
(File No. 1-13051) Period
- ------------------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form Quarters ended March 31, 1999, June 30, 1999 and
10-Q September 30, 1999 (as amended November 16, 1999)
Current Reports on Form 8-K Filed on January 29, 1999 (as amended November 16,
1999) August 20, 1999, and September 22, 1999
The description of Markel Filed on June 2, 1997
common shares in a
Registration Statement on
Form 8-A
<CAPTION>
Terra Nova SEC Filings
- ----------------------
(File No. 1-13834) Period
- ------------------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form Quarters ended March 31, 1999, June 30, 1999 and
10-Q September 30, 1999
Current Reports on Form 8-K Filed on May 28, 1998 and August 20, 1999
The description of Terra As filed with the Commission on February 27, 1996.
Nova ordinary shares
contained in a registration
statement on Form S-1
(Registration No. 333-1726)
</TABLE>
All documents filed by Markel and Terra Nova pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this joint proxy
statement/prospectus and prior to the date of the special meetings shall be
deemed to be incorporated by reference in this joint proxy statement/prospectus
and to be a part of this joint proxy statement/prospectus hereof from the date
of filing. Any statement contained in this joint proxy statement/prospectus or
in a document incorporated or deemed to be incorporated by reference in this
joint proxy statement/prospectus shall be deemed to be modified or superseded
for purposes of this joint proxy statement/prospectus to the extent that a
statement contained in this joint proxy statement/prospectus or in any
subsequently filed document that also is or is deemed to be incorporated by
reference modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this joint proxy statement/prospectus.
Markel undertakes to provide without charge to each person to whom a copy of
this joint proxy statement/prospectus has been delivered, upon request, a copy
of any or all of the documents incorporated by reference herein, other than the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this joint proxy statement/prospectus
incorporates. Requests for copies should be directed to Markel Corporation,
4551 Cox Road, Glen Allen, Virginia 23060, Attention: Corporate Secretary
(Telephone number (804) 747-0136).
Terra Nova undertakes to provide without charge to each person to whom a
copy of this joint proxy statement/prospectus has been delivered, upon request,
a copy of any or all of the documents incorporated by reference herein, other
than the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this joint proxy
statement/prospectus incorporates. Requests for copies should be directed to
Terra Nova (Bermuda) Holdings Ltd., PO Box HM664, Hamilton HM CX, Bermuda,
Attention: Corporate Secretary (Telephone number (441) 292-7731).
If you would like to request documents from Markel or Terra Nova, please do
so by , 2000 to receive them before the Markel special meeting and the
Terra Nova special general meeting.
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The Markel board does not intend to bring any other matters, and does not
know of any other matters to be brought, before the Markel special meeting.
The Terra Nova board does not intend to bring any other matters, and does
not know of any other matters to be brought, before the Terra Nova special
general meeting.
This joint proxy statement/prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, any securities, or the solicitation of a
proxy, in any jurisdiction to or from any person to whom it is not lawful to
make any offer or solicitation in such jurisdiction. Neither the delivery of
this joint proxy statement/prospectus nor any distribution of securities in
this document shall, under any circumstances, create an implication that there
has been no change in the affairs of Terra Nova or Markel since the date of
this joint proxy statement/prospectus or that the information herein is correct
as of any later date.
You should rely on the information contained or incorporated by reference in
this joint proxy statement/prospectus. Neither Markel nor Terra Nova has
authorized anyone to provide you with information that is different from what
is contained in this joint proxy statement/prospectus. All information
contained, or incorporated by reference, in this joint proxy
statement/prospectus with respect to Terra Nova and its subsidiaries has been
provided by Terra Nova, and all information contained, or incorporated by
reference, in this joint proxy statement/prospectus with respect to Markel and
its subsidiaries has been provided by Markel. Neither Markel nor Terra Nova
warrants the accuracy of information relating to the other party. This joint
proxy statement/prospectus is dated , 1999. You should not assume that
the information contained in this joint proxy statement/prospectus is accurate
as of any date other than such date, and neither the mailing of this joint
proxy statement/prospectus nor the issuance of Markel Holdings common shares in
the transactions shall create any implication to the contrary.
Appendix A--Agreement and Plan of Merger and Scheme of Arrangement
Appendix B--Opinion of Terra Nova Financial Advisor
Appendix C--Opinion of Markel Financial Advisor
Appendix D--Chairman's Letter, Explanatory Statement and Bermuda Scheme of
Arrangement
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Appendix A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF
MERGER AND SCHEME OF ARRANGEMENT
BETWEEN
MARKEL CORPORATION
AND
TERRA NOVA (BERMUDA) HOLDINGS LTD.
Dated as of August 15, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
1.1 Definitions......................................................... 1
ARTICLE II
THE MERGER AND SCHEME
2.1 The Scheme.......................................................... 7
2.2 The Merger.......................................................... 7
2.3 Effective Time...................................................... 7
2.4 Effects of the Merger and the Scheme................................ 8
2.5 Articles and Bylaws................................................. 8
2.6 Directors........................................................... 8
2.7 Officers............................................................ 8
2.8 Treatment of Shares................................................. 8
2.9 Conversion of Sub Shares............................................ 9
2.10 Shareholders' Approval.............................................. 9
2.11 Election Procedure.................................................. 9
2.12 Issuance of MINT Common Stock and Payment of Cash and Stock
Consideration; Proration................................................ 10
2.13 Exchange of BB Common Share Certificates............................ 12
2.14 Stock Options....................................................... 14
2.15 Best Efforts To Increase Maximum Cash Consideration................. 15
2.16 Closing............................................................. 15
2.17 Tax Consequences.................................................... 15
2.18 VA Governance....................................................... 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BB
3.1 Organization, Standing and Corporate Power.......................... 15
3.2 Subsidiaries........................................................ 16
3.3 Capital Structure................................................... 16
3.4 Authority; Noncontravention......................................... 16
3.5 SEC Documents; Undisclosed Liabilities; SAP Statements.............. 17
3.6 Liabilities and Reserves............................................ 18
3.7 Investment Advisory and Investment Company Matters.................. 18
3.8 Information Supplied................................................ 19
3.9 Absence of Certain Changes or Events................................ 19
3.10 Litigation.......................................................... 19
3.11 Labor Relations..................................................... 20
3.12 Benefit Plans....................................................... 20
3.13 Tax Matters......................................................... 20
3.14 No Excess Parachute Payments........................................ 21
3.15 Compliance with Applicable Laws..................................... 21
3.16 Properties.......................................................... 21
3.17 Voting Requirements................................................. 22
3.18 Takeover Statutes................................................... 22
3.19 Brokers............................................................. 22
3.20 Related Party Transactions.......................................... 22
3.21 Material Contracts.................................................. 22
</TABLE>
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<TABLE>
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3.22 Intellectual Property............................................... 22
3.23 No Regulatory Disqualifications..................................... 23
3.24 Insurance Ratings................................................... 23
3.25 Reinsurance, etc.................................................... 23
3.26 Derivatives......................................................... 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VA
4.1 Organization, Standing and Corporate Power........................... 23
4.2 Subsidiaries......................................................... 23
4.3 Capital Structure.................................................... 24
4.4 Authority; Noncontravention.......................................... 24
4.5 SEC Documents; Undisclosed Liabilities; SAP Statements............... 25
4.6 Liabilities and Reserves............................................. 26
4.7 Investment Advisory and Investment Company Matters................... 26
4.8 Information Supplied................................................. 26
4.9 Absence of Certain Changes or Events................................. 27
4.10 Litigation.......................................................... 27
4.11 Labor Relations..................................................... 27
4.12 Benefit Plans....................................................... 27
4.13 Tax Matters......................................................... 28
4.14 No Excess Parachute Payments........................................ 28
4.15 Compliance with Applicable Laws..................................... 28
4.16 Properties.......................................................... 29
4.17 Voting Requirements................................................. 29
4.18 Takeover Statutes................................................... 29
4.19 Brokers............................................................. 29
4.20 Related Party Transactions.......................................... 29
4.21 Material Contracts.................................................. 29
4.22 Intellectual Property............................................... 29
4.23 No Regulatory Disqualifications..................................... 30
4.24 Insurance Ratings................................................... 30
4.25 Reinsurance, etc.................................................... 30
4.26 Derivatives......................................................... 30
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business.................................................. 30
5.2 Additional Financial Statements...................................... 32
5.3 No Solicitation; Notification........................................ 32
5.4 Investigation of Business and Properties............................. 34
5.5 Regulatory Matters................................................... 34
5.6 Investment Portfolio................................................. 35
5.7 Confidentiality...................................................... 35
5.8 Books and Records.................................................... 35
5.9 Fees and Expenses.................................................... 35
5.10 Preparation of the Form S-4 and the Proxy Statement/Prospectus;
Shareholders Meetings................................................... 36
5.11 Public Announcements................................................ 38
5.12 Efforts to Consummate............................................... 38
5.13 Employee Benefits................................................... 38
5.14 Agreements With Respect to Affiliates............................... 38
</TABLE>
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5.15 Indemnification, Exculpation and Insurance........................... 39
5.16 NYSE Listing and Delisting........................................... 40
5.17 Formation of MINT and Sub............................................ 40
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF VA
6.1 Representations and Warranties........................................ 40
6.2 Material Adverse Change............................................... 40
6.3 Performance of this Agreement......................................... 41
6.4 Injunction............................................................ 41
6.5 Shareholder Approval.................................................. 41
6.6 Governmental Approvals................................................ 41
6.7 NYSE Listing.......................................................... 41
6.8 HSR Act............................................................... 41
6.9 Form S-4.............................................................. 41
6.10 Tax Opinion.......................................................... 41
6.11 Frustration of Closing Conditions.................................... 41
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BB
7.1 Representations and Warranties........................................ 42
7.2 Material Adverse Change............................................... 42
7.3Performance of this Agreement.......................................... 42
7.4 Injunction............................................................ 42
7.5 Shareholder Approval.................................................. 42
7.6 Governmental Approvals................................................ 42
7.7 NYSE Listing.......................................................... 42
7.8 HSR Act............................................................... 42
7.9 Form S-4.............................................................. 42
7.10 Tax Opinion.......................................................... 42
7.11 Frustration of Closing Conditions.................................... 43
ARTICLE VIII
NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Non-Survival of Representations and Warranties........................ 43
ARTICLE IX
TERMINATION
9.1 Termination........................................................... 43
9.2 Restructuring......................................................... 44
9.3 Procedure: Effect of Termination...................................... 44
ARTICLE X
GENERAL PROVISIONS
10.1 Notices............................................................... 44
10.2 Interpretation........................................................ 45
10.3 Entire Agreement...................................................... 45
10.4 No Third Party Beneficiaries.......................................... 45
10.5 Successors and Assigns................................................ 45
10.6 Severability.......................................................... 45
10.7 Amendment............................................................. 46
10.8 Extension; Waiver..................................................... 46
10.9 Counterparts.......................................................... 46
10.10 Governing Law........................................................ 46
10.11 Disclosure Letter.................................................... 46
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF
MERGER AND SCHEME OF ARRANGEMENT
THIS AGREEMENT AND PLAN OF MERGER AND SCHEME OF ARRANGEMENT (the
"Agreement") dated as of August 15, 1999, is made between MARKEL CORPORATION, a
Virginia corporation ("VA") and TERRA NOVA (BERMUDA) HOLDINGS LTD., a Bermuda
corporation ("BB").
RECITALS
A. This Agreement provides for (i) the merger ("Merger") of MINT Sub Ltd.
("Sub"), a corporation to be organized under the laws of Virginia as a wholly-
owned subsidiary of Virginia Holdings Inc. ("MINT"), a corporation to be
organized under the laws of Virginia, with and into VA and (ii) a Scheme of
Arrangement between BB and its shareholders (the "Scheme"). Pursuant to the
Merger and the Scheme, the holders of outstanding capital stock of BB and VA,
respectively, will receive the applicable consideration set forth herein. Upon
consummation of the Merger and the Scheme, each of BB and VA will be a wholly-
owned subsidiary of MINT, which will change its name to "Markel Corporation."
B. The respective Boards of Directors of VA and BB have determined that it
is advisable and in the best interests of their respective shareholders that
each of VA and BB become a subsidiary of MINT pursuant to, and have approved,
the Merger and the Scheme.
C. In furtherance of such determination, VA will cause MINT to be formed and
MINT will cause Sub to be formed in accordance with the terms hereof.
D. The parties intend that, for U.S. federal income tax purposes, (i) the
Merger shall qualify as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and
(ii) the Merger together with the Scheme, when integrated, will be treated as a
transaction described in Section 351 of the Internal Revenue Code.
E. Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to VA's and BB's willingness to enter into this
Agreement, certain shareholders of BB and VA have entered into Stockholders
Agreements dated as of the date of this Agreement (the "Stockholders
Agreements"), pursuant to which, among other things, such shareholders have
agreed to vote the BB Common Shares or VA Common Shares, as the case may be,
held by them in favor of the Merger, the Scheme and the transactions
contemplated hereby.
F. Concurrently with the execution and delivery of this Agreement, VA has
entered into a Registration Rights Agreement (the "Registration Rights
Agreement") with certain shareholders of BB, pursuant to which VA has agreed to
cause MINT to grant such shareholders certain registration rights with respect
to the MINT Common Shares to be acquired by such shareholders upon the
consummation of the Scheme.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Acquisition Proposal" has the meaning set forth in Section 5.3(a).
"Action" means any complaint, claim, prosecution, indictment, action,
suit, arbitration, investigation, governmental audit, inquiry or proceeding
by or before any Governmental Authority.
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"Affiliate" of a Person means a Person who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person.
"Aggregate Fractional Amount" has the meaning set forth in Section
2.13(e).
"Assets" of a Person means all of such Person's properties, assets and
rights of any kind, whether tangible or intangible, real or personal, owned
by such Person or in which such Person has any interest whatsoever.
"BB Acquisition Proposal" has the meaning set forth in Section 5.9(b).
"BB Common Shares" means, collectively, the Class A Ordinary Shares and
the Class B Ordinary Shares of BB.
"BB Designated Insurance Approvals" has the meaning set forth in Section
3.4
"BB Directors Unit Plan" means the Terra Nova (Bermuda) Holdings
Ltd.1997 Non-Employee Directors Share Unit Plan.
"BB Directors Unit Plan Cash Amount" means the aggregate amount of cash
to be paid to participants in the BB Directors Unit Plan pursuant to the
provisions of Section 2.14(b) hereof.
"BB Disclosure Letter" has the meaning set forth in Article III.
"BB Exchange Ratio" means 0.184 of a MINT Common Share for each BB
Common Share.
"BB Insurance Subsidiaries" has the meaning set forth in Section 3.5(b).
"BB Intellectual Property Rights" means the Intellectual Property owned
by BB or any of its Subsidiaries.
"BB Option" means each option granted prior to the date of this
Agreement under a BB Option Plan that is outstanding as of the Effective
Time.
"BB Option Plans" means the Terra Nova (Bermuda) Holdings Ltd. Approved
Executive Share Option Scheme and the Terra Nova (Bermuda) Holdings Ltd.
Non Approved Executive Share Option Scheme.
"BB SAP Statement" has the meaning set forth in Section 3.5(b).
"BB SEC Documents" has the meaning set forth in Section 3.5 (a).
"BB Shareholder Approval" has the meaning set forth in Section 3.17.
"BB Shareholders Meeting" has the meaning set forth in Section 5.10(c).
"BCA" means the Bermuda Companies Act of 1981, as amended.
"Books and Records" means all books, records, lists, ledgers, files,
reports, plans, drawings and operating records of every kind relating to VA
or BB or their respective Subsidiaries, their Assets, their Business
operations, customers, suppliers and personnel, including, without
limitation, (i) all corporate books and records of VA or BB and their
respective Subsidiaries, disk or tape files, printouts, runs or other
computer-based information and VA's and BB's and their respective
Subsidiaries' interest in all computer programs required to access, and the
equipment containing, all such computer-based information, (ii) all
product, business and marketing plans, (iii) all environmental control
records and (iv) all sales, maintenance and production records.
"Business" means, as the context suggests, the insurance business
conducted by VA or BB and their respective Subsidiaries taken as a whole.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Hamilton, Bermuda, Richmond, Virginia or New
York, New York are authorized by Law to close.
"Cash Consideration" has the meaning set forth in Section 2.8(a).
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"Cash Election" has the meaning set forth in Section 2.11(a).
"Cashout Election" has the meaning set forth in Section 2.14(a).
"Certificate" has the meaning set forth in Section 2.13(c).
"Claim" has the meaning set forth in Section 5.15(a).
"Closing" has the meaning set forth in Section 2.16.
"Closing Date" has the meaning set forth in Section 2.16.
"Common Stock Consideration" has the meaning set forth in Section
2.8(b).
"Contract" means any written agreement, contract, lease, note, loan,
evidence of indebtedness, purchase order, letter of credit, franchise
agreement, undertaking, covenant not to compete, employment agreement,
license, instrument, obligation, commitment, purchase and sales order,
quotation and other executory commitment, which pursuant to its terms has
not expired, terminated or been fully performed by the parties thereto.
"Conversion Election" has the meaning set forth in Section 2.14(a).
"Defaulting Party" has the meaning set forth in Section 5.9(f).
"Derivatives" has the meaning set forth in Section 3.26.
"Directors Plan Grantor Trust" means the trust created under that
certain Trust Agreement, effective as of May 13, 1997, between BB and Codan
Trust Company Limited, as Trustee, with respect to the BB Directors Unit
Plan.
"Disclosure Letters" means the BB Disclosure Letter and the VA
Disclosure Letter.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"Effective Time" has the meaning set forth in Section 2.3(b).
"Election" has the meaning set forth in Section 2.11(a).
"Election Deadline" has the meaning set forth in Section 2.11(c).
"Election Form" has the meaning set forth in Section 2.11(b).
"Employee Benefit Plan" of a Person means each benefit plan maintained
or contributed to by such Person or with respect to which such Person may
reasonably be expected to have any liability, which provides (or is
intended to provide) benefits to the current or former directors or
employees of such Person (or other service providers to such Person),
including, without limitation, each pension, retirement or deferred
compensation plan, incentive compensation plan, share plan, unemployment
compensation plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance, medical or hospitalization program, sickness,
accident, disability or death benefit program or any other fringe benefit
arrangement.
"Employee Plan Grantor Trust" means the trust created under that certain
Trust Agreement II, made as of May 13, 1997, between BB and Codan Trust
Company Limited, as Trustee.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment,
conditional sales agreement, encumbrance or other right of third parties,
whether voluntarily incurred or arising by operation of Law, and includes
any agreement to give any of the foregoing in the future, and any
contingent sale or other title retention agreement or lease in the nature
thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Chase Mellon or such other Person as may be
selected by VA and is reasonably acceptable to BB.
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"Expense Payment" has the meaning set forth in Section 5.9(b).
"Form S-4" means the registration statement on Form S-4 filed with the
SEC relating to the issuance of MINT Common Shares in the Merger and
Scheme.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied.
"Governmental or Regulatory Authority" means any federal, state, local,
foreign, supernational or supranational court or tribunal, governmental,
regulatory or administrative agency, department, bureau, authority or
commission or arbitral panel or any self or other regulatory body or
authority (including the Council of Lloyds) having responsibility or
oversight, direct or indirect, over the operations of VA, BB or any of
their respective Subsidiaries.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Liabilities" has the meaning set forth in Section 5.15(a).
"Indemnified Parties" has the meaning set forth in Section 5.15(a).
"Insurance Laws" means Laws applicable to the business and products of
insurance.
"Intellectual Property" means 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, trademarks, trade names, service
marks and copyrights.
"Internal Revenue Code" has the meaning set forth in the Recitals.
"Investment Advisers Act" has the meaning set forth in Section 3.7(a).
"Investment Company Act" has the meaning set forth in Section 3.7(a).
"knowledge of BB" means the actual knowledge of any of John Dwyer, Nigel
Rogers, William Wedlake, Jean Waggett and John O'Neill.
"knowledge of VA" means the actual knowledge of any of Alan Kirshner,
Steven Markel, Anthony Markel, Darrell Martin, Greg Nevers and Brad
Kiscaden.
"Laws" means laws, statutes, ordinances, regulations, rules, policies,
guidelines, orders, directives, bye-laws or codes of conduct of any
Governmental or Regulatory Authority.
"Licenses and Permits" means all registrations, applications, filings,
certifications, notices, orders, licenses, permits, approvals, consents,
qualifications, authorizations and waivers of any Governmental or
Regulatory Authority.
"Lloyd's" means the Corporation of Lloyds, the Society of Lloyd's or the
Council of Lloyd's, as the context requires.
"Lloyd's Acts" means the Lloyd's Acts 1871--1982, together with the bye-
laws and regulations passed pursuant thereto.
"Lloyd's Member" means an underwriting member of Lloyd's, whether
corporate or individual.
"Mailing Date" has the meaning set forth in Section 2.11(b).
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"Material Adverse Effect" or "Material Adverse Change" means as to any
Person any material adverse effect on or change with respect to (A) the
business, operations, assets, liabilities, condition (financial or
otherwise) or results of operations of such Person and its Subsidiaries,
taken as a whole, or (B) the right or ability of such Person or any of its
Subsidiaries to consummate the transactions contemplated hereby, other than
any such effect or change resulting from this Agreement or the announcement
of the transactions contemplated hereby.
"Maximum Cash Consideration" means an amount equal to 40% of the sum of
the Scheme Consideration and Option Scheme Consideration (determined using
a value for Stock Consideration and Option Stock Consideration equal to the
value for each VA Common Share used in setting the BB Exchange Ratio), as
such percentage may be increased pursuant to Section 2.15, minus the
Aggregate Fractional Amount and the BB Directors Unit Plan Cash Amount.
"Maximum Cash Conversion Number" has the meaning set forth in Section
2.12(a).
"Maximum Stock Consideration" means 60% of the sum of the Scheme
Consideration and Option Scheme Consideration (determined using a value for
Stock Consideration and Option Stock Consideration equal to the value for
each VA Common Share used in setting the BB Exchange Ratio), as such
percentage may be decreased pursuant to Section 2.15.
"Maximum Stock Conversion Number" has the meaning set forth in Section
2.12(a).
"Merger" has the meaning set forth in Recital A.
"MINT Common Shares" means the shares of common stock, no par value, of
MINT.
"Non-Electing BB Options" has the meaning set forth in Section 2.12(g).
"Non-Electing Shares" has the meaning set forth in Section 2.12(g).
"Notice of Exercise" has the meaning set forth in Section 2.14(a).
"Notice of Superior Proposal" has the meaning set forth in Section
5.3(b).
"NYSE" means the New York Stock Exchange, Inc.
"Octavian Plan" means the Octavian Syndicate Management Ltd. 1996 Option
Plan.
"Option Cash Consideration" has the meaning set forth in Section
2.14(a).
"Option Scheme Consideration" has the meaning set forth in Section
2.14(a).
"Option Stock Consideration" has the meaning set forth in Section
2.14(a).
"Other Agreements" means the Registration Rights Agreement and the
Stockholders Agreements.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
governmental or political subdivision or an agency or instrumentality
thereof.
"Personnel" of a corporation means all directors, officers and employees
of such corporation and its Subsidiaries.
"Proxy Statement/Prospectus" has the meaning set forth in Section 3.4.
"Registrar" has the meaning set forth in Section 2.3.
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"Registration Rights Agreement" has the meaning set forth in the
Recitals.
"Reinsurance Agreement" means a reinsurance, coinsurance, excess
insurance, ceding of insurance, assumption of insurance or indemnification
or similar arrangement with respect to insurance.
"SAR" has the meaning set forth in Section 3.3.
"SCC" has the meaning set forth in Section 2.3.
"Scheduled Closing Date" has the meaning set forth in Section 2.16.
"Scheme" has the meaning set forth in Recital A.
"Scheme Consideration" has the meaning set forth in Section 2.8(a).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Units" means Share Units as defined in the BB Directors Unit
Plan.
"SSB" means Salomon Smith Barney, Inc..
"Statutory Accounting Practices" means the accounting practices
prescribed or permitted by the applicable Insurance Laws.
"Stock Election" has the meaning set forth in Section 2.11(a).
"Stockholders Agreements" has the meaning set forth in Recital E.
"Subsidiary" with respect to any party to this Agreement, means any
corporation or other business entity, whether or not incorporated, of which
at least 50% of the securities or interests having, by their terms,
ordinary voting power to elect members of the Board of Directors, or other
persons performing similar functions with respect to such entity, is held
directly or indirectly by such party.
"Superior Proposal" has the meaning set forth in Section 5.3(b).
"Taxes" shall mean any taxes of any kind, including but not limited to
those on or measured by or referred to as income, gross receipts, capital,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional tax amounts imposed with
respect thereto by any Governmental or Regulatory Authority.
"Tax Return" shall mean any return, report or statement required to be
filed with any Governmental or Regulatory Authority with respect to Taxes,
including any schedule or attachment thereto or amendment thereof.
"Termination Fee" has the meaning set forth in Section 5.9(b).
"Third-Party Intellectual Property Rights" means Intellectual Property
owned by any third party.
"VA Acquisition Proposal" has the meaning set forth in Section 5.9(d).
"VA Common Shares" means the Common Shares, no par value, of VA.
"VA Designated Insurance Approvals" has the meaning set forth in Section
4.4(a).
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"VA Disclosure Letter" has the meaning set forth in Article IV.
"VA Insurance Subsidiaries" has the meaning set forth in Section 4.5(b).
"VA Intellectual Property Rights" means the Intellectual Property owned
by VA or any of its Subsidiaries.
"VA SAP Statements" has the meaning set forth in Section 4.5(b).
"VA SEC Documents" has the meaning set forth in Section 4.5(a).
"VA Shareholder Approval" has the meaning set forth in Section 4.17.
"VA Shareholders Meeting" has the meaning set forth in Section 5.10(b).
"VA Surviving Corporation" has the meaning set forth in Section 2.2.
"VSCA" means the Virginia Stock Corporation Act, as amended.
ARTICLE II
THE MERGER AND SCHEME
2.1 The Scheme. (a) Upon the terms and subject to the satisfaction or
waiver, if permissible, of the conditions hereof and subject to the Supreme
Court of Bermuda (the "Court") exercising its discretion and sanctioning the
Scheme pursuant to Section 99 of the BCA and making such facilitating orders as
are appropriate pursuant to Section 99 of the BCA, at the Effective Time all of
the issued share capital of BB shall be cancelled and redeemed for the
applicable Scheme Consideration and 40,000,000 newly issued Class A Ordinary
Shares, par value $5.80, of BB (the "New Ordinary Shares") shall be allotted,
issued and transferred to MINT in consideration of the issuance of the Scheme
Consideration.
(b) As soon as practicable after the date hereof, (i) BB, will (x) cause an
application to be made to the Court requesting the Court to summon such class
meetings of members of BB as the Court may direct, (y) convene such class
meetings, and obtain the approval required under Section 99 of the BCA and,
subject to such approvals being obtained, (z) cause a petition to be presented
to the Court seeking the sanctioning of a Scheme of Arrangement pursuant to
Section 99 of the BCA and file such other documents as are required to be duly
filed with the Court to effect the Scheme.
(c) BB shall, subject to the provisions of this Agreement, do all things
necessary to effect the Scheme including but not limited to the holding of
extraordinary general meetings of its shareholders to approve the Scheme.
2.2 The Merger. Upon the terms and subject to the satisfaction or waiver, if
permissible, of the conditions hereof, in accordance with the VSCA, at the
Effective Time, Sub shall be merged with and into VA (the "Merger"). Following
the Merger, the separate corporate existence of Sub shall cease and VA shall
continue as the surviving corporation (the "VA Surviving Corporation") and
shall be governed by the VSCA.
2.3 Effective Time. (a) On the Closing Date, the parties shall cause the
Merger to be consummated by causing articles of merger with respect to the
Merger to be executed and filed with the Clerk of the State Corporation
Commission of the Commonwealth of Virginia (the "SCC") in accordance with the
relevant provisions of the VSCA. The Merger shall become effective at the time
of issuance of the certificate of merger by the SCC (such time and date being
referred to as the "Merger Effective Time").
(b) On the Closing Date, subject to receipt of orders from the Court
sanctioning the Scheme, and subject to the terms and provisions of this
Agreement, the order sanctioning the Scheme shall be duly filed with the
Registrar of Companies of Bermuda (the "Registrar"). The Scheme shall become
effective upon the filing of the order of the Court with respect to the Scheme
with the Registrar (the time of such filing being the "Scheme Effective Time"
and, together with the Merger Effective Time, the "Effective Time").
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2.4 Effects of the Merger and the Scheme. (a) The Merger shall have the
effects set forth in the Section 13.1-721 of the VSCA.
(b) As of the Scheme Effective Time, BB shall be a wholly owned Subsidiary
of MINT and the holders of BB Common Shares (other than the New Ordinary
Shares) shall only have the right to receive the Scheme Consideration as set
forth in Section 2.8(a).
2.5 Articles and Bylaws. (a) The Articles of Incorporation of VA, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the VA Surviving Corporation with the exception of the change
in name, and thereafter may be amended as provided therein and in the VSCA. The
Bylaws of VA, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the VA Surviving Corporation, and thereafter may be amended as
provided therein.
(b) At the Effective Time, the Memorandum of Association of BB shall be the
same as the existing Memorandum of Association of BB until thereafter amended
or restated as provided therein and by law. At the Effective Time, the Bylaws
of BB shall be amended as necessary to permit the allotment, issue and transfer
of the New Ordinary Shares to MINT.
2.6 Directors. (a) The directors of Sub immediately prior to the Effective
Time shall be the initial directors of the VA Surviving Corporation and shall
hold office until their respective successors are duly elected and qualified,
or their earlier death, resignation or removal.
(b) The parties hereto shall procure that at the Scheme Effective Time, only
those directors of BB and such additional persons, in each case who shall be
designated by MINT shall remain or be elected to serve as directors of BB, each
of such directors to hold office in accordance with the applicable provisions
of the articles of association of BB and until their successors shall be
elected or appointed and shall duly qualify.
2.7 Officers. The officers of BB immediately prior to the Effective Time
shall be the initial officers of BB following the Scheme Effective Time and
shall hold office in accordance with its By-laws. The officers of VA
immediately prior to the Merger Effective Time shall be the initial officers of
the VA Surviving Corporation and shall hold office until their respective
successors are duly elected and qualified, or their earlier death, resignation
or removal.
2.8 Treatment of Shares.
(a) Each BB Common Share outstanding immediately prior to the Effective Time
shall, by virtue of the Scheme and without any action on the part of the holder
thereof, automatically be cancelled, and the holder thereof shall be entitled
to receive the BB Exchange Ratio of a MINT Common Share (the "Common Stock
Consideration") or $34.00 in cash per share without any interest thereon (the
"Cash Consideration" and, together with the Common Stock Consideration, the
"Scheme Consideration") in each case as the holder thereof shall have elected
or deemed to have elected in accordance with, and subject to the limitations
set forth in, Sections 2.11 and 2.12 hereof.
(b) Each VA Common Share outstanding immediately prior to the Merger
Effective Time (other than VA Common Shares, if any, owned by MINT, Sub, VA or
BB or any Subsidiary of MINT, Sub or VA) shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be
converted into the right to receive one (1) MINT Common Share.
(c) Each VA Common Share owned by MINT, Sub, VA or BB or any Subsidiary of
MINT, Sub, VA or BB, in each case, immediately prior to the Merger Effective
Time, shall, by virtue of the Merger, and without any action on the part of the
holder thereof, automatically be canceled and cease to exist at and after the
Effective Time and no consideration shall be paid with respect thereto.
(d) Each share of capital stock of MINT outstanding immediately prior to the
Merger Effective Time shall by virtue of the Merger, and without any action on
the part of the holder thereof, automatically be canceled and cease to exist at
and after the Merger Effective Time and no consideration shall be paid with
respect thereto.
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2.9 Conversion of Sub Shares. The common shares, no par value, of Sub issued
and outstanding immediately prior to the Merger Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof,
automatically be converted into and thereafter represent 1,000 validly issued,
fully paid and nonassessable common shares, no par value, of the VA Surviving
Corporation, so that thereafter MINT will be the sole and exclusive owner of
the outstanding common shares of the VA Surviving Corporation.
2.10 Shareholders' Approval. Except as otherwise provided in Section 5.3,
BB, acting through its Board of Directors (which has recommended approval of
the Scheme and approval and adoption of this Agreement to its shareholders),
shall, in accordance with applicable law, use its best efforts to obtain the
approval of the Scheme and the approval and adoption of this Agreement by its
shareholders. Except as otherwise provided in Section 5.3, VA, acting through
its Board of Directors (which has recommended approval of the Merger and
approval and adoption of this Agreement to its shareholders), shall, in
accordance with applicable law, use its commercially reasonable efforts to
obtain the approval of the Merger and the approval and adoption of this
Agreement by its shareholders.
2.11 Election Procedure. Each holder (or beneficial owner through
appropriate and customary documentation and instructions) of outstanding BB
Common Shares shall have the right to submit a request specifying the number of
BB Common Shares that such holder desires to have converted into shares of MINT
Common Stock in the Scheme and the number of BB Common Shares that such holder
desires to have converted into the right to receive Cash Consideration in the
Scheme in accordance with the following procedure:
(a) Subject to Section 2.12, each such holder of BB Common Shares may
specify in a request made in accordance with the provisions of this Section
2.11 (herein called an "Election") (i) the number of BB Common Shares owned by
such holder that such holder desires to have converted into MINT Common Stock
in the Scheme (a "Stock Election") and (ii) the number of BB Common Shares
owned by such holder that such holder desires to have converted into the right
to receive the Cash Consideration in the Scheme (a "Cash Election").
(b) An election form and other appropriate and customary transmittal
materials in such form as VA and BB shall mutually agree (the "Election Form")
or, as applicable, a form of Notice of Exercise (as defined in Section 2.14)
shall be mailed thirty days prior to the anticipated Effective Time or on such
other date as VA and BB shall mutually agree (the "Mailing Date") to each
holder of record of BB Common Shares and each holder of BB Options not more
than five Business Days prior to the Mailing Date.
(c) Any Election shall have been made properly only if the Exchange Agent
shall have received, by 5:00 p.m. local time in the city in which the principal
office of such Exchange Agent is located, on the second Business Day prior to
the anticipated Effective Time (or such other time and date as VA and BB shall
mutually agree) (the "Election Deadline"), an Election Form properly completed
and signed and accompanied by certificates for the BB Common Shares to which
such Election Form relates (or customary affidavits and indemnification
regarding the loss or destruction of such certificate or certificates or by an
appropriate guarantee of delivery of such certificates, as set forth in such
Election Form, from a member of any registered national securities exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank or
trust company in the United States provided such certificates are in fact
delivered to the Exchange Agent by the time required in such guarantee of
delivery). Failure to deliver BB Common Shares covered by such a guarantee of
delivery within the time set forth on such guarantee shall be deemed to
invalidate any otherwise properly made Election.
(d) Any holder of BB Common Shares may at any time prior to the Election
Deadline revoke or change his or her Election by written notice received by the
Exchange Agent prior to the Election Deadline accompanied by a properly
completed and signed, revised Election Form or by withdrawal of his or her
certificates for BB Common Shares, or of the guarantee of delivery of such
certificates, previously deposited with the Exchange Agent. All Elections shall
be revoked automatically if the Exchange Agent is notified in writing by VA or
BB that this Agreement has been terminated. In the event an Election Form is
revoked prior
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to the Election Deadline, the shares of BB Common Stock represented by such
Election Form shall be promptly returned without charge to the person
submitting the Election Form upon written request to that effect from the
holder who submitted the Election Form. The Exchange Agent shall have
reasonable discretion to determine whether any election, revocation or change
has been properly or timely made and to disregard immaterial defects in the
Election Forms, and any good faith decisions of the Exchange Agent regarding
such matters shall be binding and conclusive. The Exchange Agent shall be under
no obligation to notify any person of any defect in an Election Form.
(e) Within two Business Days after the Election Deadline, unless the
Effective Time has not yet occurred, in which case within one Business Day
prior to the Effective Time, VA shall cause the Exchange Agent to effect the
allocation among the holders of BB Common Stock and BB Options of rights to
receive MINT Common Stock, Cash Consideration or cash (in respect of a Cashout
Election) in the Scheme in accordance with Sections 2.12 and 2.14.
2.12 Issuance of MINT Common Stock and Payment of Cash and Stock
Consideration; Proration. The manner in which each outstanding BB Common Share
shall be converted into MINT Common Stock or the right to receive the Cash
Consideration at the Effective Time shall be as set forth in this Section 2.12.
All references to "outstanding" BB Common Shares in Section 2.8(a), Section
2.11 and this Section 2.12 shall mean all BB Common Shares outstanding
immediately prior to the Effective Time, other than BB Common Shares owned by
VA, MINT, Sub or BB or any direct or indirect wholly owned Subsidiary of VA,
MINT, Sub or BB.
(a) As is more fully set forth below, the aggregate number of outstanding BB
Common Shares to be converted into the right to receive the Cash Consideration
pursuant to the Scheme shall not exceed the number of such BB Common Shares
that, when multiplied by the Cash Consideration plus the amount of cash payable
to all holders of BB Options pursuant to a Cashout Election, and after giving
effect to the pro-ration contemplated by Section 2.12(c)(vii), equals the
Maximum Cash Consideration (the "Maximum Cash Conversion Number"). As is more
fully set forth below, the aggregate number of BB Common Shares to be converted
into the right to receive the Common Stock Consideration in the Scheme shall
not exceed the number of such BB Common Shares that, when multiplied by the
Common Stock Consideration plus the number of shares of Mint Common Stock
issuable to all holders of BB Options pursuant to a Option Stock Election, and
after giving effect to the pro-ration contemplated by Section 2.12(e)(vii),
equals the Maximum Stock Consideration (the "Maximum Stock Conversion Number").
(b) If Cash Elections are received for a number of BB Common Shares that is
equal to or less than the Maximum Cash Conversion Number, each BB Common Share
covered by a Cash Election shall be converted in the Scheme into the right to
receive the Cash Consideration.
(c) If Cash Elections are received for a number of outstanding BB Common
Shares in the aggregate in excess of the Maximum Cash Conversion Number, then:
(i) Each Non-Electing Share and each outstanding BB Common Share for
which a Stock Election has been received shall be converted in the Scheme
into a fraction of a share of MINT Common Stock equal to the BB Exchange
Ratio;
(ii) Each Non-Electing BB Option and each BB Option for which a
Conversion Election has been received shall receive a number of shares of
MINT Common Stock calculated pursuant to the formula set forth in subclause
(ii) of the second sentence of Section 2.14(a).
(iii) Subject to the provisions of clause (vii) below, the Exchange
Agent will distribute Cash Consideration with respect to the number of such
outstanding BB Common Shares equal to the Maximum Cash Conversion Number of
outstanding BB Common Shares;
(iv) Each outstanding BB Common Share covered by a Cash Election and not
fully converted into the right to receive the Cash Consideration as set
forth in clause (iii) above shall be converted in the Scheme into the right
to receive the fraction of a MINT Common Share equal to the BB Exchange
Ratio;
(v) Subject to the provisions of clause (vii) below), the Exchange Agent
will distribute the Option Cash Consideration pursuant to a Cashout
Election with respect to that number of BB Options subject to
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such election that, when aggregated with a number of outstanding BB Common
Shares subject to a Cash Election, would be convertible into the Maximum
Cash Consideration;
(vi) Each outstanding BB Option covered by a Cashout Election and not
fully converted into the right to receive Option Cash Consideration as set
forth in clause (v) shall be converted in the Scheme into the right to
receive the number of MINT Common Shares calculated pursuant to the formula
set forth in subclause (ii) of the second sentence of Section 2.14(a); and
(vii) The distributions of Cash Consideration in respect of outstanding
BB Common Shares and cash in respect of BB Options contemplated by the
preceding clauses (iii) and (v) shall be made pro rata based on the ratio
of the Maximum Cash Consideration to the aggregate amount of Cash
Consideration and cash that would be payable in respect of all outstanding
BB Common Stares for which Cash Election has been made and all BB Options
for which a Cashout Election has been made among all outstanding BB Common
Shares as to which Cash Elections have been made and all BB Options as to
which Cashout Elections have been made.
(d) If Stock Elections are received for a number of BB Common Shares that is
equal to or less than the Maximum Stock Conversion Number, each BB Common Share
covered by a Stock Election shall be converted in the Scheme into a fraction of
a share of Mint Common Shares equal to the BB Exchange Ratio.
(e) If Stock Elections are received for a number of outstanding BB Common
Shares that is in the aggregate in excess of the Maximum Stock Conversion
Number, then:
(i) Each Non-Electing Share and each outstanding BB Common Share for
which a Cash Election has been received shall be converted into the right
to receive the Cash Consideration multiplied by the number of such BB
Common Share;
(ii) Each Non-Electing BB Option and each BB Option for which a Cashout
Election has been received shall be converted into the right to receive the
Option Cash Consideration pursuant to the formula set forth in subclause
(i) of the second sentence of Section 2.14(a);
(iii) Subject to the provisions of clause (vii) below, the Exchange
Agent will distribute a fraction of a share of Mint Common Stock equal to
the BB Exchange Ratio with respect to a number of such outstanding BB
Common Shares equal to the Maximum Stock Conversion Number;
(iv) Each outstanding BB Common Share covered by a Stock Election and
not fully converted into the right to receive Common Stock Consideration as
set forth in clause (iii) above shall be converted in the Scheme into the
right to receive the Cash Consideration multiplied by the number of such BB
Common Shares;
(v) Subject to the provisions of clause (vii) below, the Exchange Agent
will distribute a number of shares of Mint Common Stock pursuant to a
Conversion Election with respect to that number of BB Options subject to
such election that, when aggregated with a number of outstanding BB Common
Shares subject to the Stock Election, would be convertible into the Maximum
Stock Conversion Number; and
(vi) Each outstanding BB Option covered a Conversion Election, and not
fully converted into the right to receive Option Stock Consideration as set
forth in clause (v) shall be converted in the Scheme into the right to
receive Option Cash Consideration calculated pursuant to the formula set
forth in subclause (i) of the second sentence of Section 2.14(a); and
(vii) The distributions of the Common Stock Consideration in respect of
outstanding BB Common Stock and the Option Stock Consideration in respect
to the BB Options contemplated by the preceding clauses (iii) and (v) shall
be made pro rata based on the ratio of the Maximum Stock Consideration to
the aggregate amount of Common Stock Consideration and Option Stock
Consideration that would be distributable in respect of all outstanding BB
Common Shares for which a Stock Election has been made and all BB Options
for which a Conversion Election has been made among all outstanding BB
Common Shares as to which Stock Elections have been made and all BB Options
as to which Conversion Elections have been made.
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(f) If Non-Electing Shares or Non-Electing BB Options are not converted
under either Section 2.12(c) or Section 2.12(e), the Exchange Agent shall
distribute with respect to such Non-Electing Shares or Non-Electing BB Options:
(i) Stock Consideration or Option Stock Consideration with respect to a
number of such Non-Electing Shares and Non-Electing BB Options, as the case
may be, not in excess of that number that will result in the sum of (A) the
number of Non-Electing Shares and Non-Electing Options converted into MINT
Common Shares pursuant to this Section 2.12(f) and (B) the number of BB
Common Shares and BB Options for which Stock Elections and Option Stock
Elections have been received equaling the Maximum Stock Consideration;
(ii) Non-Electing Shares and Non-Electing BB Options not converted into
the right to receive the Stock Consideration or Option Stock Consideration
as set forth in the preceding sentence shall be converted in the Scheme
into the right to receive the Cash Consideration per BB Common Share and
the Option Cash consideration per BB Option; and
(iii) The distribution of Stock Consideration and Option Stock
Consideration or Cash Consideration and Option Cash Consideration
contemplated by the preceding clauses (i) and (ii) shall be made among all
Non-Electing Shares and Non-Electing BB Options pro rata based on the ratio
of (A) in the case of the Stock Consideration and Option Stock
Consideration, the aggregate Stock Consideration and Option Stock
Consideration available for distribution pursuant to clause (i) above to
the aggregate amount of Scheme Consideration that would be allocable to all
Non-Electing Shares and Non-Electing BB Options if the limitation imposed
by clause (i) above did not apply, among all Non-Electing Shares and Non-
Election BB Options, and (B) in the case of Cash Consideration and Option
Cash Consideration, pro rata among all Non-Electing Shares and Non-Electing
BB Options to be converted pursuant to clause (ii) of Section 2.12(f).
(g) For the purposes of this Section 2.12, outstanding BB Common Shares as
to which an Election is not in effect at the Election Deadline shall be called
"Non-Electing Shares" and outstanding BB Options as to which a Notice of
Exercise is not in effect at the Election Deadline shall be called "Non-
Election BB Options". If the Exchange Agent shall determine that any Election
is not properly made with respect to any outstanding BB Common Shares, such
Election shall be deemed to be not in effect, and the outstanding BB Common
Shares covered by such Election shall, for purposes hereof, be deemed to be
Non-Electing Shares. If VA and BB shall determine that any election of a
Cashout Election or a Conversion Election is not properly made with respect to
any BB Option, such election shall be deemed to be not in effect, and the BB
Options covered by such election shall, for purposes hereof, be deemed Non-
Electing BB Options.
2.13 Exchange of BB Common Share Certificates.
(a) Deposit of Certificates. At the Effective Time, VA and Mint will deposit
in trust with the Exchange Agent, for the benefit of the holders of BB Common
Shares and BB Options, for exchange in accordance with this Article II, the
aggregate Scheme Consideration and Option Scheme Consideration.
(b) Permitted Investments. The cash portion of the aggregate Scheme
Consideration and the aggregate Option Scheme Consideration shall be invested
by the Exchange Agent, as directed by and for the benefit of the VA Surviving
Corporation, provided that such investments shall be limited to direct
obligations of the United States of America, obligations for which the full
faith and credit of the United States of America is pledged to provide for the
payment of principal and interest, commercial paper rated of the highest
quality by Moody's Investor Services, Inc. ("Moody's") or Standard & Poor's
Ratings Group, a division of McGraw-Hill, Inc. ("S&P"), and certificates of
deposit issued by a commercial bank whose long-term debt obligations are rated
at least A2 by Moody's or at least A by S&P, in each case having a maturity not
in excess of one year.
(c) Exchange Procedures. Upon delivery of a share certificate (each, a
"Certificate") to the Exchange Agent for exchange, together with such other
documents as the Exchange Agent shall require, the holder of such Certificate
shall be entitled to receive in exchange therefor the applicable Scheme
Consideration and the
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amount of cash in lieu of fractional share interests which such holder has the
right to receive pursuant to the provisions of Section 2.13(e). Upon delivery
of a Notice of Exercise or such other documents as the Exchange Agent shall
require, which shall include a written receipt waiving all of such holder's
rights in respect of such BB Option, the BB Option Plans and the Employee Plan
Grantor Trust, the holder of a BB Option shall be entitled to receive in
exchange therefor the applicable Option Scheme Consideration, subject to
reduction for all applicable withholding taxes. In the event of a transfer of
ownership of BB Common Shares which is not registered in the transfer records
of BB, the applicable Scheme Consideration may be paid to a transferee if the
Certificate representing such BB Common Shares is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence satisfactory to the Exchange Agent that any applicable
stock transfer taxes have been paid or that an exception is applicable. Until
delivered as contemplated by this Section 2.13, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such delivery the applicable Scheme Consideration and cash in lieu
of any fractional MINT Common Shares as contemplated by this Section 2.13. No
interest shall be paid or accrued on Scheme Consideration.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to MINT
Common Shares with a record date after the Effective Time shall be paid to the
holder of any undelivered Certificate with respect to the MINT Common Shares
such holder is entitled to receive and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.13(e), until the
holder of record of such Certificate (or a transferee as described in Section
2.13(c)) shall have delivered such Certificate as contemplated in Section
2.13(c). Subject to the effect of unclaimed property, escheat and other
applicable laws, following delivery of any such Certificate, there shall be
paid to the record holder (or transferee) of the certificates representing
whole MINT Common Shares issued in exchange therefor, without interest, (i) at
the time of such delivery, the amount of any cash payable in lieu of a
fractional MINT Common Share to which such holder (or transferee) is entitled
pursuant to Section 2.13(e) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole MINT Common Shares and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to delivery and a payment date subsequent to delivery
payable with respect to such whole MINT Common Shares, as the case may be.
(e) No Fractional Shares. No certificates or scrip representing a fractional
MINT Common Share shall be issued upon the delivery for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of MINT. Each holder of BB
Common Shares or BB Options who would otherwise be entitled to receive a
fractional MINT Common Share will be entitled to receive from the Exchange
Agent in accordance with the provisions of this Section 2.13(e), in lieu
thereof, an amount of cash (without interest) equal to the product of such
fractional interest multiplied by the closing trading price for a MINT Common
Share on the day preceding the Closing Date (the aggregate amount of such cash
is the "Aggregate Fractional Amount").
(f) Closing of Transfer Books. From and after the Effective Time, the stock
transfer books of BB with respect to BB Common Shares issued and outstanding
prior to the Effective Time shall be closed and no transfer of any such shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to BB or the Exchange Agent, as the case may be, they shall be
canceled and exchanged for Scheme Consideration and cash in lieu of fractional
MINT Common Shares as provided in this Article II.
(g) Termination of Exchange Agent. Any certificates representing MINT Common
Shares deposited with the Exchange Agent pursuant to Section 2.13(a) and not
exchanged within one year after the Effective Time pursuant to this Section
2.13 shall be returned by the Exchange Agent to MINT, which shall thereafter
act as Exchange Agent. All cash and investments thereof pursuant to Section
2.13(b) held at the end of the one year period after the Effective Time shall
be remitted to MINT, after which time any holder of undelivered Certificates
shall look as a general creditor only to MINT for payment of such funds to
which such holder may be due, subject to applicable law. MINT shall not be
liable to any Person for such shares or funds delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
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(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as determined
pursuant to Section 5.14) of BB shall not be exchanged until MINT has received
a written agreement from such Person as provided in Section 5.14 hereof.
2.14 Stock Options.
(a) Each BB Option outstanding as of the Effective Time shall be treated as
fully exercisable in accordance with the terms of the applicable BB Option Plan
and stock option agreement. Each holder of any such BB Option may exercise any
such BB Option by delivering a notice of exercise (a "Notice of Exercise"), the
form of which shall be mutually agreeable to VA and BB and which shall contain
a waiver or acknowledgment of full satisfaction of all rights in respect of
such BB Options, the BB Option Plans and the Employee Plan Grantor Trust, to
the Exchange Agent prior to the Election Deadline and requesting that, in the
Scheme, he or she receive in respect of such BB Option (i) the excess of the
Cash Consideration payable in respect of the BB Common Shares issuable in
connection with the exercise of such BB Option over the exercise price payable
in respect of such BB Option (the "Option Cash Consideration"), (a "Cashout
Election"), and/or (ii) a number of shares of MINT Common Stock (the "Option
Stock Consideration" and, together with the Option Cash Consideration, the
"Option Scheme Consideration"), equal to (x) the quotient of (A) the amount of
such excess divided by (B) the amount of the Cash Consideration (a "Conversion
Election") multiplied by (y) the BB Exchange Ratio of a MINT Common Share, in
each case in full and complete satisfaction of his or her rights in respect of
such BB Option. Subject to Section 2.12, the net amount of the cash payable in
connection with a Cashout Election shall be paid by the Exchange Agent pursuant
to Section 2.13(c) without interest to the holder as soon as reasonably
practicable following the Effective Time, but in no event more than 5 days
following the Effective Time, but subject to reduction for all applicable
withholding taxes. Prior to the Effective Time, BB shall take such actions,
including, without limitation, action by appropriate committee of the Board of
Directors of BB, necessary to permit the application of the provisions of
Section 2.12 with respect to any Non-Electing BB Options.
(b) At the Effective Time, BB shall take such action as may be necessary to
pay to each participant in the BB Directors Unit Plan an amount equal to the
sum of the number of Share Units credited to such participant's account under
the Plan multiplied by the Cash Consideration plus the amount of any other cash
credited to such participant's account in accordance with the terms of such
Plan. BB shall use commercially reasonable efforts to terminate, immediately
prior to the Effective Time, the Directors Plan Grantor Trust, distribute all
of the assets held in the Trust to BB and obtain a waiver or acknowledgment of
full satisfaction of all rights in respect of such Plan and the Directors Plan
Grantor Trust from each participant receiving a distribution from such Plan.
(c) BB shall use commercially reasonable efforts to terminate, immediately
prior to the Effective Time, the Employee Plan Grantor Trust and to distribute
all of the assets held in the Trust to BB.
(d) Prior to the Effective Time, BB and VA shall use commercially reasonable
efforts to procure that (i) the Octavian Plan be terminated in consideration of
the payment of such consideration as the participants in such Plan and VA shall
mutually agree or (ii) if the Octavian Plan is not terminated pursuant to
clause (i), the terms of the Octavian Plan be amended such that (x) the book
value of BB for purposes of determining the option grants for the year 2000 be
set at the first to occur of (A) December 31, 1999 or (B) the Closing Date and
(y) the participants in such Plan will, from and after the Effective Time, be
entitled to receive, in lieu of options with respect to BB Common Shares,
options to purchase a number of Mint Common Shares equal to the product of the
number of BB Common Shares subject to such options multiplied by the BB
Exchange Ratio provided that Mint shall in no event be obligated to issue
options in respect of Mint Common Shares in excess of 600,000 BB Common Shares
multiplied by the BB Exchange Ratio in the aggregate. The exercise price or
prices for such replacement options will be set such that the aggregate
exercise price payable in respect of the options on BB Common Shares will equal
the aggregate exercise price payable in respect of the exercise of such
replacement options.
(e) Each outstanding option in respect of VA Common Shares shall from and
after the Effective Time represent an option in respect of an equal number of
MINT Common Shares on the same terms and conditions.
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2.15 Best Efforts To Increase Maximum Cash Consideration. VA shall use best
efforts to increase the Maximum Cash Consideration to an amount equal to 50% of
the sum of the Scheme Consideration and Option Scheme Consideration prior to
the mailing of the Proxy Statement/Prospectus in connection with the VA
Shareholders Meeting and to enter into an amendment to this Agreement to effect
such increase. To the extent VA shall so increase the Maximum Cash
Consideration, VA may, at its election, decrease the Maximum Cash
Consideration, but in no event shall the sum of the percentages referred to in
Maximum Cash Consideration and Maximum Stock Consideration, as so increased or
decreased, be less than 100%.
2.16 Closing. On the date which is the third business day after the
satisfaction of the last of the unsatisfied conditions set forth in Articles VI
and VII hereof, but not prior to December 3, 1999 (it being understood that
this limitation is for the benefit of, and may be waived by, VA) (or such other
time as the parties may mutually agree) (the "Scheduled Closing Date"), a
closing (the "Closing") will be held at the offices of Debevoise & Plimpton,
875 Third Avenue, New York, New York 10022 (or such other place as the parties
may agree) for the purpose of confirming all of the foregoing; provided, that
nothing in this Section 2.16 shall be deemed to affect (i) the conditions to
the respective parties' obligations hereunder contained in Articles VI and VII
hereof or (ii) Article IX hereof. Notwithstanding the foregoing, the date and
time at which such Closing actually occurs are herein referred to as the
"Closing Date."
2.17 Tax Consequences. It is intended by the parties hereto that the Merger
will qualify as a reorganization within (i) the meaning of Section 368(a) of
the Internal Revenue Code and (ii) the Merger together with the Scheme, when
integrated, will be treated as a transaction described in Section 351 of the
Internal Revenue Code. The parties hereto hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Section 1.368-1(c) of the United
States Treasury Regulations.
2.18 VA Governance.
(a) At the Effective Time, the Articles of Incorporation and By-laws of MINT
shall be in the form of the Articles of Incorporation and By-Laws of VA.
(b) Board of Directors; Committees. VA shall use its best efforts to cause
Nigel Rogers and two other persons to be designated by BB, subject to the
approval of VA, to be elected members of the Board of Directors of MINT
immediately after the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BB
As an inducement to VA to enter into this Agreement, and except as otherwise
disclosed to VA in a letter delivered to it prior to the execution hereof (the
"BB Disclosure Letter") BB hereby makes, as of the date hereof and as of the
Closing Date, the following representations and warranties to VA:
3.1 Organization, Standing and Corporate Power. Each of BB and its
Subsidiaries is a corporation duly organized, validly existing and, where
relevant under applicable law, is in good standing under the laws of the
respective jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of BB and its Subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed, individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect on BB. BB has made
available to VA complete and correct copies of its Certificate of
Incorporation, Memorandum of Association (or other organizational documents)
and Bye-laws and the articles of association (or other organizational
documents) and bylaws of its Subsidiaries, in each case as amended to the date
hereof.
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3.2 Subsidiaries. Section 3.2 of the BB Disclosure Letter lists each
subsidiary of BB. All the outstanding shares of capital stock of, or other
ownership interests in, each such Subsidiary have been validly issued and are
fully paid and nonassessable and, except as set forth in Section 3.2 of the BB
Disclosure Letter, are owned directly or indirectly by BB, free and clear of
all liens and free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or such other
ownership interest).
3.3 Capital Structure. Section 3.3 of the BB Disclosure Letter sets forth,
as of the date hereof, the authorized capital stock of BB, the number of such
shares issued and outstanding, the number of such shares held by BB in its
treasury, the number of such shares subject to options and the BB Option Plans
under which such options were granted, and the number of such shares reserved
for issuance under each such BB Option Plan. There are no outstanding stock
appreciation rights ("SARs") or rights (other than the BB Options listed in
Section 3.3 of the BB Disclosure Letter) to receive shares of the capital stock
of BB on a deferred basis granted under any of BB Option Plans or otherwise.
Section 3.3 of the BB Disclosure Letter sets forth a true and complete list of
all options to acquire shares of BB's capital stock, the number of shares
subject to each such option, the grant dates and the exercise prices thereof.
All outstanding shares of capital stock of BB are, and all shares which may be
issued pursuant to this Agreement or BB Option Plans will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the date of this Agreement, no bonds, debentures,
notes or other indebtedness of BB having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which shareholders of BB may vote are issued or outstanding. Except as set
forth above, as of the date of this Agreement, there are no preemptive or other
outstanding securities, options, warrants, calls, rights, conversion rights,
redemption rights, repurchase rights, commitments, agreements, arrangements or
undertakings of any kind to which BB or any of its Subsidiaries is a party or
by which any of them is bound obligating BB or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of BB or any of its
Subsidiaries, or giving any person a right to subscribe for or acquire, any
securities of BB or any of its Subsidiaries or obligating BB or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, conversion right, redemption right, repurchase right,
commitment, agreement, arrangement or undertaking. There are no outstanding
contractual obligations of BB or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any shares of capital stock of BB or any of its
Subsidiaries. There are no outstanding contractual obligations of BB to vote or
to dispose of any shares of the capital stock of any of its Subsidiaries.
3.4 Authority; Noncontravention.
(a) BB has all requisite corporate power and authority to enter into this
Agreement and the Other Agreements to which it is a party and, subject to
receipt of the BB Shareholder Approval, to consummate the transactions
contemplated by this Agreement and the Other Agreements to which it is a party.
The execution and delivery of this Agreement and the Other Agreements to which
it is a party by BB and the consummation of the transactions contemplated by
this Agreement and the Other Agreements to which it is a party have been duly
authorized by all necessary corporate action on the part of BB, subject to
receipt of the BB Shareholder Approval in the case of this Agreement. This
Agreement and the Other Agreements to which it is a party have been duly
executed and delivered by BB and, assuming the due execution and delivery of
each such agreement by the counterparties thereto, each such agreement
constitutes a valid and binding obligation of BB as to BB's obligations
therein, enforceable against BB in accordance with its terms. The execution and
delivery of this Agreement and the Other Agreements to which it is a party do
not, and the consummation of the transactions contemplated by, and compliance
with the provisions of this Agreement and the Other Agreements to which it is a
party by BB will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the properties or assets of BB or any of its Subsidiaries under, (A) Memorandum
of Association (or other organizational documents) and By-laws of BB, in each
case as amended to the date hereof or, except as set forth in Section 3.4 of
the BB Disclosure Letter, the memorandum, the comparable organizational
documents and bylaws of any of BB's Subsidiaries, (B) except as set forth in
Section 3.4 of the BB Disclosure Letter, any loan or credit agreement,
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note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to BB or any of its Subsidiaries or
their respective properties or assets or (C) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to BB or
any of its Subsidiaries or their respective properties or assets, other than,
in the case of clauses (B) and (C), any such conflicts, violations, defaults,
obligations, losses, rights, liens, judgments, orders, decrees, statutes, laws,
ordinances, rules or regulations that, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect on BB. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any federal, state or local government or any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign, is required by or with respect to BB or any of its Subsidiaries in
connection with the execution and delivery of this Agreement and the Other
Agreements to which it is a party by BB or the consummation by BB of any of the
transactions contemplated by this Agreement and the Other Agreements to which
it is a party except for (A) the filing of a premerger notification and report
form by BB under the HSR Act; (B) the filing with the SEC of (1) the Form S-4,
(2) a proxy statement relating to the BB Shareholders Meeting (such proxy
statement, together with the proxy statement relating to the VA Shareholders
Meeting and the prospectus relating to the issuance of the MINT Common Shares,
in each case as amended or supplemented from time to time, the "Proxy
Statement/Prospectus") and (3) such reports under the Exchange Act, as may be
required in connection with this Agreement, the Other Agreements to which it is
a party and the transactions contemplated hereby and thereby; (C) the filing
with the applicable Registrars of the application for registration of the order
sanctioning the Scheme and such other documents as are required by the BCA, and
such filings with Governmental or Regulatory Authorities to satisfy the
applicable requirements of state securities or "blue sky" laws; (D) such
filings with and approvals of the NYSE to permit the MINT Common Shares that
are to be issued in the Merger and the Scheme to be listed on the NYSE; (E)
filings in respect of, and approvals and authorizations of, and, as applicable,
the expiration of applicable waiting periods of Lloyd's and of Governmental and
Regulatory Authorities in the U.K. and Canada (the "BB Designated Insurance
Approvals"); and (F) such consents, approvals, orders or authorizations the
failure of which to be made or obtained, individually or in the aggregate, is
not reasonably likely to have a Material Adverse Effect on BB.
(b) As of the date hereof, the Board of Directors of BB has approved and
declared advisable and in the best interests of the shareholders of BB this
Agreement and the Scheme, and has approved Other Agreements to which it is a
party and the transactions contemplated by this Agreement and Other Agreements
to which it is a party.
3.5 SEC Documents; Undisclosed Liabilities; SAP Statements.
(a) BB has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1996 (including all filed
reports, schedules, forms, statements and other documents whether or not
required, the "BB SEC Documents"). As of their respective dates, the BB SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such BB SEC
Documents, and none of the BB SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any BB SEC Document has been revised or
superseded by a later filed BB SEC Document, none of the BB SEC Documents
contains any untrue statement of a material fact or omits 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. The financial statements of BB included in the BB SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or in the BB SEC Documents) and fairly present the consolidated
financial position of BB and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of
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unaudited statements, to normal year-end adjustments). Except for liabilities
and obligations incurred in the ordinary course of business consistent with
past practice since the date of the most recent consolidated balance sheet
included in the BB SEC Documents or disclosed in Section 3.5(a) of the BB
Disclosure Letter, neither BB nor any of its Subsidiaries has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) required by GAAP to be recognized or disclosed on a consolidated
balance sheet of BB and its consolidated Subsidiaries or in the notes thereto.
(b) BB conducts its material insurance operations through those companies
listed in Section 3.5 of the BB Disclosure Letter (collectively, the "BB
Insurance Subsidiaries"). Each of the BB Insurance Subsidiaries has filed all
annual and quarterly statements, together with all exhibits, interrogatories,
notes, schedules and any actuarial opinions, affirmations or certifications or
other supporting documents 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 or as may be required by any
applicable Governmental or Regulatory Authority on forms prescribed or
permitted by such authority (collectively, the "BB SAP Statements"). BB has
delivered or made available to VA all of the BB SAP Statements for each BB
Insurance Subsidiary for the periods beginning January 1, 1996, each in the
form (including exhibits, annexes and any amendments thereto) filed with the
applicable insurance regulatory agencies. Financial statements included in the
BB SAP Statements and prepared on a statutory basis, including the notes
thereto, were prepared in conformity with statutory accounting practices
prescribed or permitted by the applicable insurance regulatory authority
consistently applied for the periods covered thereby and present fairly the
statutory financial position of such BB Insurance Subsidiaries as at the
respective dates thereof and the results of operations of such BB Insurance
Subsidiaries for the respective periods then ended. The BB SAP Statements
complied in all material respects with all applicable laws, rules and
regulations when filed, and to the knowledge of BB no material deficiency has
been asserted with respect to any BB SAP Statements by the applicable insurance
regulatory body or any other governmental agency or body. The statutory balance
sheets and income statements included in the BB SAP Statements required to be
audited have been audited, and BB has delivered or made available to VA true
and complete copies of all audit opinions related thereto for periods beginning
January 1, 1996. BB has delivered or made available to VA true and complete
copies of all examination reports of insurance departments and any insurance
regulatory agencies received by BB on or after January 1, 1996, relating to the
BB Insurance Subsidiaries.
3.6 Liabilities and Reserves.
(a) The reserves carried on the BB SAP Statements of each of BB and its
Subsidiaries for the quarter ended March 31, 1999 for losses, claims and
similar purposes (including claims litigation) were, as of such date, in
compliance in all material respects with the requirements for reserves
established by the appropriate regulatory authorities of the jurisdiction in
which it is domiciled or commercially domiciled or as may be required by any
applicable Governmental or Regulatory Authority, were determined in all
material respects in accordance with generally accepted actuarial standards and
principles consistently applied, and were fairly stated in all material
respects in accordance with actuarial and statutory accounting practices.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of BB, no claim or assessment is
pending or threatened against any of BB's Subsidiaries which is peculiar or
unique to such Subsidiary by any governmental insurance guaranty associations
or Lloyds in connection with such association's or Lloyds' fund relating to
insolvent insurers which if determined adversely, would, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect.
3.7 Investment Advisory and Investment Company Matters.
(a) Except as set forth in Section 3.7 of the BB Disclosure Letter, neither
BB nor any of its Subsidiaries conducts activities of or is otherwise deemed
under law (1) to control an "investment adviser," as such term is defined in
Section 2(a)(20) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), whether or not registered under the Investment
Advisers Act of 1940, as amended (the "Investment
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Advisers Act"), or any person required to be registered as an investment
company under the Investment Company Act. Except as set forth in Section 3.7 of
the BB Disclosure Letter, neither BB nor any of its Subsidiaries carries on
investment business in the United Kingdom as defined in the Financial Services
Act 1986, whether or not authorized under Chapter III, or being an exempted
person under Chapter IV of that Act. Neither BB nor any of its Subsidiaries is
an "investment company" as defined in the Investment Company Act, and neither
BB nor any of its Subsidiaries is a promoter (as such term is defined in
Section 2(a)(30) of the Investment Company Act) of any person that is such an
investment company.
(b) Except as set forth in Section 3.7 of the BB Disclosure Letter, neither
BB nor any of its Subsidiaries conducts activities of, controls, owns more than
a 20% interest in, or is deemed under applicable law to control, any Person
that is an investment adviser as defined in the Investment Advisers Act,
whether or not registered under such Act, other than such an investment adviser
whose only clients are "insurance companies" as defined in Section 2(a)(17) of
the Investment Company Act.
3.8 Information Supplied. None of the information supplied or to be supplied
by BB for inclusion or incorporation by reference in (i) the Form S-4 will, at
the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Proxy Statement/Prospectus will, at the date the
Proxy Statement/Prospectus is first mailed to the holders of BB Common Shares
or at the time of the BB Shareholders Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 and the
Proxy Statement/Prospectus will comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act, as applicable, and
the respective rules and regulations promulgated thereunder, except that no
representation or warranty is made by BB with respect to statements made or
incorporated by reference therein based on information supplied by VA
specifically for inclusion or incorporation by reference in the Form S-4 or the
Proxy Statement/Prospectus.
3.9 Absence of Certain Changes or Events. Except as disclosed in the BB SEC
Documents filed and publicly available prior to the date of this Agreement or
in Section 3.9 of the BB Disclosure Letter, since the date of the most recent
audited financial statements included in the BB SEC Documents, BB has conducted
its business only in the ordinary course, and there has not been since such
date, (i) any Material Adverse Change in BB, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of BB's capital stock (other than regular
quarterly dividends), (iii) any split, combination or reclassification of any
of its capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (A) any granting by BB or any of its Subsidiaries to
any director, executive officer or key employee of BB or any of its
Subsidiaries of any award or incentive payment or increase in compensation or
benefits, except in the ordinary course of business consistent with past
practice or as was required under employment agreements in effect as of
September 30, 1998 (copies of which have been delivered to VA), (B) any
granting by BB or any of its Subsidiaries to any such director, executive
officer or key employee of any increase in severance or termination pay, except
as was required under any employment, severance or termination agreements in
effect as of the date of this Agreement (copies of which have been made
delivered to VA) or (C) any entry by BB or any of its Subsidiaries into any
employment, severance or termination agreement with any such director,
executive officer or key employee, (v) any change in accounting methods,
principles or practices by BB materially affecting its assets, liabilities or
business, except insofar as may have been required by a change in GAAP or (vi)
any condition, event or occurrence which would be reasonably likely to prevent,
hinder or materially delay the ability of BB to consummate the transactions
contemplated by this Agreement or the Other Agreements to which it is a party.
3.10 Litigation. There is no suit, action or proceeding pending or, to the
knowledge of BB, threatened against or affecting BB or any of its Subsidiaries
or any of their respective officers or employees that,
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individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on BB nor is there any judgment, decree, injunction, rule or
order of any Governmental or Regulatory Authority or arbitrator outstanding
against BB or any of its Subsidiaries having, or which is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on BB;
provided that for purposes of this Section 3.10 any such suit, action,
proceeding, judgment, decree, injunction, rule or order arising after the date
hereof shall not be deemed to have a Material Adverse Effect on BB if and to
the extent such suit, action, proceeding, judgment, decree, injunction, rule or
order (or any relevant part thereof) is based on this Agreement, the Other
Agreements to which it is a party or the transactions contemplated hereby or
thereby.
3.11 Labor Relations. Except as set forth in Section 3.11 of the BB
Disclosure Letter or the BB SEC Documents, (i) BB and its Subsidiaries have
complied with all Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity and collective
bargaining and there are no controversies pending or, to the knowledge of BB,
threatened, between BB or any of its Subsidiaries and any of their respective
employees, except such non-compliance or controversies which have not had, and
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on BB; (ii) neither BB nor any of its Subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by BB or its Subsidiaries, nor does BB know of
any activities or proceedings of any labor union to organize any such
employees; and (iii) BB does not have knowledge of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any employees of
BB or any of its Subsidiaries which would reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect on BB.
3.12 Benefit Plans. Except as described in Section 3.12 of BB Disclosure
Letter and except as would not reasonably be expected to have a Material
Adverse Effect on BB, (i) each Employee Benefit Plan conforms to, and its
administration is in conformity with, all applicable laws, no liability has
been or is expected to be incurred by BB or any of its Subsidiaries with
respect to any Employee Benefit Plan except regular periodic contributions to
such plans and full payment has been made of all amounts that BB or any of its
Subsidiaries is required to have paid as contributions to each Employee Benefit
Plan, (ii) to BB's knowledge, the current value of accrued benefits of each
Employee Benefit Plan that is a defined benefit plan does not exceed the
current value of such plan's assets, (iii) BB has made available to VA a true
and correct copy of each of the Employee Benefit Plans, and all applicable
trust agreements and all contracts relating thereto, or to the funding thereof,
(iv) all Employee Benefit Plans intended to satisfy applicable Tax
qualification requirements, or other requirements necessary to secure favorable
Tax or other legal treatment comply in all material respects with such
requirements, and (v) adequate accruals for all obligations under the Employee
Benefit Plans are reflected in the financial statements included in the BB SEC
Documents. Except as set forth in Section 3.12 of the BB Disclosure Letter, no
employee of BB will be entitled to any additional benefits or any acceleration
of the time of payment, funding or vesting of any benefits under any BB Benefit
Plan as a result of the transactions contemplated by this Agreement.
3.13 Tax Matters.
(a) To the knowledge of BB, none of BB and its Subsidiaries has, nor has it
had, any income which is, or has been, subject to the United States federal
income tax as income that is effectively connected with the conduct of a trade
or business within the United States, within the meaning of Section 882(a)(1)
of the Code. BB and its Subsidiaries have filed, or caused to be filed with the
appropriate Governmental or Regulatory Authorities, all income Tax Returns and
all other material Tax Returns required to be filed on or prior to the date
hereof which, if not filed, would have a Material Adverse Effect on BB, and
have paid in full all Taxes (including Taxes withheld from employees' salaries
and other withholding Taxes and obligations) shown to be due on such Tax
Returns, and the most recent financial statements of BB included in the BB SEC
Documents reflect an adequate reserve in accordance with GAAP for all Taxes
payable by BB and its Subsidiaries for all taxable periods and portions thereof
accrued through the date of such financial statements, except for inadequately
reserved Taxes that individually or in the aggregate would not reasonably be
expected to have a
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Material Adverse Effect. All written assessments of Taxes due and payable by or
on behalf of BB or any of its Subsidiaries have either been paid or provided
for (in accordance with GAAP) except for assessments that individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect.
(b) There are no material audits, administrative proceedings or court
proceedings regarding Taxes pending against BB or any of its Subsidiaries and
wherein an adverse determination or ruling, for any one of, or all such, audits
or proceedings, would reasonably be expected to have a Material Adverse Effect.
No deficiencies for any Tax have been proposed in writing, asserted or
assessed, except for deficiencies that individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect.
(c) To BB's knowledge, BB and its Subsidiaries did not have for the year
ended December 31, 1998, and BB does not expect BB or any of its Subsidiaries
to have for the period commencing January 1, 1999 and ending at the earlier of
December 31, 1999 and the Effective Time (treating such period as if it were a
taxable year) "related person insurance income" within the meaning of Section
953(c)(2) of the Code in excess of the exceptions provided in Sections
953(c)(3)(B) of the Code or, if such exception is not available for such year
or such period, BB and its Subsidiaries qualified for such year or for such
period, as the case may be, for the exception provided in Section 953(c)(3)(A)
of the Code.
(d) Except as disclosed in Section 3.13(d) of the BB Disclosure Letter, to
BB's knowledge, neither BB nor any of its Subsidiaries is, nor has BB or any of
its Subsidiaries ever been, a "controlled foreign corporation" within the
meaning of Section 957(a) or 957(b) of the Code.
3.14 No Excess Parachute Payments. Except as set forth in Section 3.14 of
the BB Disclosure Letter, no amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement, either alone or together with other events, by
any employee, officer or director of BB or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or the BB Benefit Plan currently in
effect would be characterized as an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code).
3.15 Compliance with Applicable Laws. Each of BB and its Subsidiaries and,
where applicable, each of their respective officers and employees, has in
effect all Licenses and Permits necessary for it to own, lease or operate its
assets and to carry on its business as now conducted, and there has occurred no
default under or limitation with respect to any such Licenses and Permits,
except for the lack of Licenses and Permits and for defaults or limitations
under Licenses and Permits which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on BB. To the knowledge of
BB, BB and its Subsidiaries are, and have been, in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental or Regulatory Authority, including Insurance Laws, except for
instances of noncompliance which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on BB. To the knowledge of
BB, the businesses and operations of each of BB and its Subsidiaries are being
and have been conducted in compliance in all respects with all applicable
Insurance Laws, except for instances of noncompliance which, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect on
BB. No investigation, examination or review by any Governmental or Regulatory
Authority with respect to BB or any of its Subsidiaries is pending or, to the
knowledge of BB, threatened, nor has any Governmental or Regulatory Authority
indicated an intention to conduct the same, except for those the outcome of
which, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect on BB. Any of BB and its Subsidiaries which is
registered as either a Managing Agent at Lloyds or a Corporate Member at Lloyds
has not, since its first registration, had such registration withdrawn, and no
notice has been given by Lloyds to the effect that (and, to the knowledge of
BB, no circumstances exist such that) such registration will or is likely to be
withdrawn or reviewed and no conditions, obligations or undertakings have been
imposed on such registration, other than those applicable to managing agents or
corporate members at Lloyd's generally.
3.16 Properties. Except as disclosed in the BB SEC Documents, each of BB and
its Subsidiaries (i) has good, clear and marketable title to all the properties
and assets reflected in the latest audited balance sheet
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included in the most recent BB SEC Document as being owned by BB or one of its
Subsidiaries or acquired after the date thereof which are, individually or in
the aggregate, material to BB's business on a consolidated basis (except
properties and assets sold or otherwise disposed of since the date thereof in
the ordinary course of business), free and clear of (A) all Encumbrances except
(1) statutory liens securing payments not yet due and (2) such imperfections or
irregularities of title or other Encumbrances (other than real property
mortgages or deeds of trust) as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise
materially impair business operations at such properties, and (B) all real
property mortgages and deeds of trust and (ii) is the lessee of all leasehold
estates reflected in the latest audited financial statements included in the
most recent BB SEC Document or acquired after the date thereof which are
material to its business on a consolidated basis and is in possession of the
properties purported to be leased thereunder, and each such lease is valid
without material default thereunder by the lessee or, to the BB's knowledge,
the lessor.
3.17 Voting Requirements. The affirmative vote at the BB Shareholders
Meeting (the "BB Shareholder Approval") of the holders of a majority in number
representing at least 75 percent of the voting power of all outstanding BB
Common Shares present and voting at the BB Shareholders Meeting to adopt this
Agreement is the only vote of the holders of any class or series of BB's
capital stock necessary to approve and adopt this Agreement, the Other
Agreements to which it is a party, and the transactions contemplated hereby and
thereby.
3.18 Takeover Statutes. To the knowledge of BB, no takeover statute, and no
anti-takeover provision in BB's Memorandum of Association (or other
organizational documents) and Bye-laws, is applicable to the Scheme or the
other transactions contemplated by this Agreement or the Other Agreements to
which it is a party.
3.19 Brokers. No broker, investment banker, financial adviser or other
person, other than DLJ, the fees and expenses of which will be paid by BB, is
entitled to any broker's, finder's, financial adviser's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of BB. BB has delivered to VA true
and complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the engagement
of the persons to whom such fees are payable.
3.20 Related Party Transactions. Except for the transactions described in
the BB SEC Reports or Section 3.20 of the BB Disclosure Letter, all
transactions involving BB or any of the Subsidiaries that are required to be
disclosed in the BB SEC Reports in accordance with Item 404 of Regulation S-K
have been so disclosed, and to the knowledge of BB, since December 31, 1998,
neither BB nor any of its Subsidiaries has entered into any transactions that
would be required to be disclosed in future public filings under the Exchange
Act pursuant to such Item which have not already been disclosed in the BB SEC
Reports filed prior to the date hereof.
3.21 Material Contracts. Other than Contracts or amendments thereto that are
required to be filed and have been filed as an exhibit to the latest Form 10-K
filed by BB with the SEC, and except as set forth in Section 3.21 of the BB
Disclosure Letter, there are no Contracts that are material to the business,
financial position or results of operations of BB, including (i) any
employment, severance, termination, consulting or retirement contract providing
for aggregate payments to any individual in any calendar year in excess of
$500,000, (ii) any contract relating to the borrowing of money or the guarantee
of any such obligation (other than contracts evidencing fully secured
repurchase agreements, trade payables, and contracts relating to borrowings or
guarantees made in the ordinary course of business), (iii) any material agency,
third party administrator, management or other service contracts and (iv) any
material contract or agreement between or among BB and its Subsidiaries.
3.22 Intellectual Property. Except as, individually or in the aggregate, is
not reasonably likely to have a Material Adverse Effect on BB, BB does not have
knowledge of any valid grounds for any bona fide claims (i) to the effect that
the manufacture, sale, licensing or use of any product or service as now used,
sold or licensed or proposed for use, sale or license by BB or any of its
Subsidiaries, infringes on any copyright, patent, trademark, trade name,
service mark or trade secret; (ii) against the use by BB or any of its
Subsidiaries,
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of any copyrights, patents, trademarks, trade names, service marks, trade
secrets, technology, know-how or computer software programs and applications
used in the business of BB or any of its Subsidiaries as currently conducted or
as proposed to be conducted; (iii) challenging the ownership, validity or
effectiveness of any BB Intellectual Property Rights or other trade secret
material to BB; or (iv) challenging the license or legally enforceable right to
use of the Third-Party Intellectual Rights by BB or any of its Subsidiaries.
3.23 No Regulatory Disqualifications. To the knowledge of BB, no event has
occurred or condition exists or, to the extent it is within the reasonable
control of BB, will occur or exist with respect to BB that, in connection with
obtaining any approval of any Governmental or Regulatory Authority required for
the Scheme, would cause BB to fail to satisfy any applicable statute or written
regulation of any applicable insurance regulatory authority that, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect on
BB.
3.24 Insurance Ratings. As of the date hereof, BB has no reason to believe
that any rating presently held by BB or any of its Subsidiaries is likely to be
modified, qualified, lowered or placed under surveillance for a possible
downgrade for any reason other than as a result of the transactions
contemplated hereby.
3.25 Reinsurance, etc. BB has no reason to believe that any material amount
recoverable pursuant to any material Reinsurance Agreement applicable to the BB
Insurance Subsidiaries or their properties or assets reflected in the BB, SAP
Statements is not fully collectible in due course. Each BB Insurance Subsidiary
is entitled to take full credit in its SAP Statements pursuant to Insurance
Laws, rules and regulations for such reinsurance, coinsurance or excess
insurance ceded pursuant to any such Reinsurance Agreement. Except as set forth
in Section 3.25 of the BB Disclosure Letter, there are no assumption
reinsurance contracts or arrangements entered into by any BB Insurance
Subsidiary in which such BB Insurance Subsidiary has ceded risk to any other
Person which are material individually or in the aggregate to BB and its
Subsidiaries taken as a whole.
3.26 Derivatives. As of December 31, 1998, none of BB and the BB
Subsidiaries was subject to any material exposure, individually or in the
aggregate, under any futures or option contracts, swaps, hedges or similar
instruments ("Derivatives") to which BB or any of BB Subsidiaries is a party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VA
As an inducement to BB to enter into this Agreement, and except as otherwise
disclosed to BB in a letter delivered to it prior to the execution hereof (the
"VA Disclosure Letter") VA hereby makes, as of the date hereof and as of the
Closing Date, the following representations and warranties to BB:
4.1 Organization, Standing and Corporate Power. Each of VA and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on
its business as now being conducted. Each of VA and its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect on VA. VA has made available to BB complete and correct copies
of its articles of incorporation (or other organizational documents) and bylaws
and the articles of incorporation (or other organizational documents) and
bylaws of its Subsidiaries, in each case as amended to the date hereof.
4.2 Subsidiaries. Except for directors' qualifying shares, all the
outstanding shares of capital stock of, or other ownership interests in, each
such Subsidiary have been validly issued and are fully paid and nonassessable
and are owned directly or indirectly by VA, free and clear of all liens and
free of any other restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or such other ownership
interest).
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4.3 Capital Structure. Section 4.3 of the VA Disclosure Letter sets forth,
as of the date hereof, the authorized capital stock of VA, the number of such
shares issued and outstanding, the number of such shares subject to options and
the VA Option Plans under which such options were granted and the number of
such shares reserved for issuance under each such VA Option Plan. There are no
outstanding SARs or rights (other than the stock options listed in Section 4.3
of the VA Disclosure Letter) to receive shares of the capital stock of VA on a
deferred basis granted under any of VA Stock Option Plans or otherwise. All
outstanding shares of capital stock of VA are, and all shares which may be
issued pursuant to this Agreement or VA Stock Option Plans will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. As of the date of this Agreement, no bonds,
debentures, notes or other indebtedness of VA having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of VA may vote are issued or outstanding.
Except as set forth above, as of the date of this Agreement, there are no
preemptive or other outstanding securities, options, warrants, calls, rights,
conversion rights, redemption rights, repurchase rights, commitments,
agreements, arrangements or undertakings of any kind to which VA or any of its
Subsidiaries is a party or by which any of them is bound obligating VA or any
of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities of VA or
any of its Subsidiaries, or giving any person a right to subscribe for or
acquire, any securities of VA or any of its Subsidiaries or obligating VA or
any of its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, conversion right, redemption right,
repurchase right, commitment, agreement, arrangement or undertaking. There are
no outstanding contractual obligations of VA or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of VA or
any of its Subsidiaries. There are no outstanding contractual obligations of VA
to vote or to dispose of any shares of the capital stock of any of its
Subsidiaries.
4.4 Authority; Noncontravention.
(a) VA has all requisite corporate power and authority to enter into this
Agreement and Other Agreements to which it is a party and, subject to receipt
of the VA Shareholder Approval, to consummate the transactions contemplated by
this Agreement and the Other Agreements to which it is a party. The execution
and delivery of this Agreement and the Other Agreements to which it is a party
by VA and the consummation of the transactions contemplated by this Agreement
and the Other Agreements to which it is a party have been duly authorized by
all necessary corporate action on the part of VA, subject to receipt of the VA
Shareholder Approval in the case of this Agreement. This Agreement and the
Other Agreements to which it is a party have been duly executed and delivered
by VA and, assuming the due execution and delivery of each such agreement by
the counterparties thereto, each such agreement constitutes a valid and binding
obligation of VA as to VA's obligations therein, enforceable against VA in
accordance with its terms. The execution and delivery of this Agreement and the
Other Agreements to which it is a party do not, and the consummation of the
transactions contemplated by this Agreement, the Other Agreements to which it
is a party and compliance with the provisions of this Agreement and the Other
Agreements to which it is a party by VA will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the
creation of any lien upon any of the properties or assets of VA or any of its
Subsidiaries under, (A) the articles of incorporation (or other organizational
documents) and bylaws of VA, in each case as amended to the date hereof or the
comparable charter or organizational documents and bylaws of any of VA's
Subsidiaries, (B) except as set forth in Section 4.4 of the VA Disclosure
Letter, any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license
applicable to VA or any of its Subsidiaries or their respective properties or
assets or (C) subject to the governmental filings and other matters referred to
in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to VA or any of its Subsidiaries or
their respective properties or assets, other than, in the case of clauses (B)
and (C), any such conflicts, violations, defaults, obligations, losses, rights,
liens, judgments, orders, decrees, statutes, laws, ordinances, rules or
regulations that, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect on VA. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative
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agency or commission or other governmental authority or agency, domestic or
foreign, is required by or with respect to VA or any of its Subsidiaries in
connection with the execution and delivery of this Agreement and the Other
Agreements to which it is a party by VA or the consummation by VA of any of the
transactions contemplated by this Agreement and the Other Agreements to which
it is a party, except for (A) the filing of a premerger notification and report
form by VA under the HSR Act; (B) the filing with the SEC of (1) the Form S-4,
(2) the Proxy Statement/Prospectus relating to the VA Shareholders Meeting and
(3) such reports under the Exchange Act, as may be required in connection with
this Agreement, the Other Agreements to which it is a party and the
transactions contemplated hereby and thereby; (C) the filing of appropriate
documents with the relevant authorities of other states and jurisdictions in
which VA is qualified to do business and such filings with Governmental or
Regulatory Authorities to satisfy the applicable requirements of state
securities or "blue sky" laws; (D) such filings with and approvals of the NYSE
to permit the MINT Common Shares that are to be issued in the Merger to be
listed on the NYSE; (E) filings in respect of, and approvals and authorizations
of, and, as applicable, the expiration of applicable waiting periods of, the
respective Commissioners of Insurance of the states of California, Delaware,
Illinois, New Jersey and Virginia (the "VA Designated Insurance Approvals");
and (F) such consents, approvals, orders or authorizations the failure of which
to be made or obtained, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect on VA.
(b) As of the date hereof, the Board of Directors of VA has approved and
declared advisable and in the best interest of the shareholders of VA this
Agreement and the Merger, and has approved Other Agreements to which it is a
party and the other transactions contemplated by this Agreement and Other
Agreements to which it is a party.
4.5 SEC Documents; Undisclosed Liabilities; SAP Statements.
(a) VA has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1996 (including all filed
reports, schedules, forms, statements and other documents whether or not
required, the "VA SEC Documents"). As of their respective dates, the VA SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such VA SEC
Documents, and none of the VA SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any VA SEC Document has been revised or
superseded by a later filed VA SEC Document, none of the VA SEC Documents
contains any untrue statement of a material fact or omits 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. The financial statements of VA included in the VA SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or in the VA SEC Documents) and fairly present the consolidated
financial position of VA and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end adjustments). Except for liabilities and obligations incurred in the
ordinary course of business consistent with past practice since the date of the
most recent consolidated balance sheet included in the VA SEC Documents,
neither VA nor any of its Subsidiaries has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) required by
U.S. generally accepted accounting principles to be recognized or disclosed on
a consolidated balance sheet of VA and its consolidated Subsidiaries or in the
notes thereto.
(b) VA conducts its material insurance operations through those companies
listed in Section 4.5 of the VA Disclosure Letter (collectively, the "VA
Insurance Subsidiaries"). Each of the VA Insurance Subsidiaries has filed all
annual and quarterly statements, together with all exhibits, interrogatories,
notes, schedules and any actuarial opinions, affirmations or certifications or
other supporting documents in connection therewith, required to be filed with
or submitted to the appropriate regulatory authorities of the jurisdiction in
which it is domiciled
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or commercially domiciled or as may be required by any Governmental or
Regulatory Authority on forms prescribed or permitted by such authority
(collectively, the "VA SAP Statements"). VA has delivered or made available to
BB all of the VA SAP Statements for each VA Insurance Subsidiary for the
periods beginning January 1, 1996, each in the form (including exhibits,
annexes and any amendments thereto) filed with the applicable state insurance
regulatory agency. Financial statements included in the VA SAP Statements and
prepared on a statutory basis, including the notes thereto, were prepared in
conformity with statutory accounting practices prescribed or permitted by the
applicable insurance regulatory authority consistently applied for the periods
covered thereby and present fairly the statutory financial position of such VA
Insurance Subsidiaries as at the respective dates thereof and the results of
operations of such VA Insurance Subsidiaries for the respective periods then
ended. The VA SAP Statements complied in all material respects with all
applicable laws, rules and regulations when filed, and no material deficiency
has been asserted with respect to any VA SAP Statements by the applicable
insurance regulatory body or any other governmental agency or body. The
statutory balance sheets and income statements included in the VA SAP
Statements required to be audited have been audited, and VA has delivered or
made available to BB true and complete copies of all audit opinions related
thereto for periods beginning January 1, 1996. VA has delivered or made
available to BB true and complete copies of all examination reports of
insurance departments and any insurance regulatory agencies received by VA on
or after January 1, 1996 relating to the VA Insurance Subsidiaries.
4.6 Liabilities and Reserves.
(a) The reserves carried on the VA SAP Statements of each of VA and its
Subsidiaries for the quarter ended March 31, 1999 for losses, claims and
similar purposes (including claims litigation) were, as of such date, in
compliance in all material respects with the requirements for reserves
established by the jurisdiction in which it is domiciled or commercially
domiciled, were determined in all material respects in accordance with
generally accepted actuarial standards and principles consistently applied, and
were fairly stated in all material respects in accordance with actuarial and
statutory accounting practices.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of VA, no claim or assessment is
pending or threatened against any of VA's Subsidiaries which is peculiar or
unique to such Subsidiary by any state insurance guaranty associations in
connection with such association's fund relating to insolvent insurers which if
determined adversely, would, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect.
4.7 Investment Advisory and Investment Company Matters.
(a) Except as set forth in Section 4.7 of the VA Disclosure Letter, neither
VA nor any of its Subsidiaries conducts activities of or is otherwise deemed
under law to control an "investment adviser," as such term is defined in
Section 2(a)(20) of the Investment Company Act, whether or not registered under
the Investment Advisers Act, or any person required to be registered as an
investment company under the Investment Company Act. Neither VA nor any of its
Subsidiaries is an "investment company" as defined in the Investment Company
Act, and neither VA nor any of its Subsidiaries is a promoter (as such term is
defined in Section 2(a)(30) of the Investment Company Act) of any person that
is such an investment company.
(b) Except as set forth in Section 4.7 of the VA Disclosure Letter, neither
VA nor any of its Subsidiaries conduct activities of, controls, owns more than
a 20% interest in, or is deemed under applicable law to control, any person
that is an investment adviser as defined in the Investment Advisers Act,
whether or not registered under such Act, other than such an investment adviser
whose only clients are "insurance companies" as defined in Section 2(a)(17) of
the Investment Company Act.
4.8 Information Supplied. None of the information supplied or to be supplied
by VA for inclusion or incorporation by reference in (i) the Form S-4 will, at
the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue
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statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Proxy Statement/Prospectus will, at the date the Proxy
Statement/Prospectus is first mailed to the holders of VA Common Shares or at
the time of the VA Shareholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 and the
Proxy Statement/Prospectus will comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act, as applicable, and
the respective rules and regulations promulgated thereunder, except that no
representation or warranty is made by VA with respect to statements made or
incorporated by reference therein based on information supplied by BB
specifically for inclusion or incorporation by reference in the Form S-4 or the
Proxy Statement/Prospectus.
4.9 Absence of Certain Changes or Events. Except as disclosed in the VA SEC
Documents filed and publicly available prior to the date of this Agreement or
in Section 4.9 of the VA Disclosure Letter, since the date of the most recent
audited financial statements included in the VA SEC Documents, VA has conducted
its business only in the ordinary course, and there has not been since such
date, any Material Adverse Change in VA, any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of VA's capital stock, ) any split, combination
or reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, any change in accounting
methods, principles or practices by VA materially affecting its assets,
liabilities or business, except insofar as may have been required by a change
in U.S. generally accepted accounting principles or any condition, event or
occurrence which would be reasonably likely to prevent, hinder or materially
delay the ability of VA to consummate the transactions contemplated by this
Agreement or the Other Agreements to which it is a party.
4.10 Litigation. There is no suit, action or proceeding pending or, to the
knowledge of VA, threatened against or affecting VA or any of its Subsidiaries
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on VA nor is there any judgment, decree, injunction, rule or
order of any Governmental or Regulatory Authority or arbitrator outstanding
against VA or any of its Subsidiaries having, or which is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on VA;
provided, that for purposes of this paragraph any such suit, action,
proceeding, judgment, decree, injunction, rule or order arising after the date
hereof shall not be deemed to have a Material Adverse Effect on VA if and to
the extent such suit, action, proceeding, judgment, decree, injunction, rule or
order (or any relevant part thereof) is based on this Agreement, the Other
Agreements to which it is a party or the transactions contemplated hereby or
thereby.
4.11 Labor Relations. Except as set forth in Section 4.11 of the VA
Disclosure Letter or the VA SEC Documents, VA and its Subsidiaries have
complied with all Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity and collective
bargaining and there are no controversies pending or, to the knowledge of VA,
threatened, between VA or any of its Subsidiaries and any of their respective
employees, except such non-compliance or controversies which have not had, and
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on VA; neither VA nor any of its Subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by VA or its Subsidiaries, nor does VA know of
any activities or proceedings of any labor union to organize any such
employees; and VA does not have knowledge of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any employees of
VA or any of its Subsidiaries which would reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect on VA.
4.12 Benefit Plans. Except as described in Section 4.12 of the VA Disclosure
Letter and except as would not reasonably be expected to have a Material
Adverse Effect on VA, (i) each Employee Benefit Plan conforms to, and its
administration is in conformity with, all applicable laws, no liability has
been or is expected to be incurred by VA or any of its Subsidiaries with
respect to any Employee Benefit Plan except regular periodic contributions to
such plans and full payment has been made of all amounts that VA or any of its
Subsidiaries is required to have paid as contributions to each Employee Benefit
Plan, (ii) to VA's knowledge,
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the current value of accrued benefits of each Employee Benefit Plan that is a
defined benefit plan does not exceed the current value of such plan's assets,
(iii) VA has made available to VA a true and correct copy of each of the
Employee Benefit Plans, and all applicable trust agreements and all contracts
relating thereto, or to the funding thereof, (iv) all Employee Benefit Plans
intended to satisfy applicable Tax qualification requirements, or other
requirements necessary to secure favorable Tax or other legal treatment comply
in all material respects with such requirements, and (v) adequate accruals for
all obligations under the Employee Benefit Plans are reflected in the financial
statements included in the VA SEC Documents. Except as set forth in Section
4.12 of the VA Disclosure Letter, no employee of VA will be entitled to any
additional benefits or any acceleration of the time of payment, funding or
vesting of any benefits under any VA Benefit Plan as a result of the
transactions contemplated by this Agreement.
4.13 Tax Matters.
(a) VA and its Subsidiaries have filed or caused to be filed with the
appropriate United States federal, state, local, foreign and other Governmental
or Regulatory Authorities, all income Tax Returns and all other material Tax
Returns, required to be filed on or prior to the date hereof which, if not
filed, would have a Material Adverse Effect on VA, and have paid in full all
Taxes (including Taxes withheld from employees' salaries and other withholding
Taxes and obligations) shown to be due on such Tax Returns, and the most recent
financial statements of VA included in the VA SEC Documents reflect an adequate
reserve in accordance with GAAP for all Taxes payable by VA and its
Subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements, except for inadequately reserved Taxes that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect. All written assessments of Taxes due and payable by or
on behalf of VA or any of its Subsidiaries have either been paid or provided
for (in accordance with GAAP), except for assessments that individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect.
(b) There are no material audits, administrative proceedings or court
proceedings regarding Taxes pending against VA or any of its Subsidiaries
wherein an adverse determination or ruling, for any one of, or all such, audits
or proceedings, would reasonably be expected to have a Material Adverse Effect.
No deficiencies for any Tax have been proposed in writing, asserted or
assessed, except for deficiencies that individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect.
4.14 No Excess Parachute Payments. No amount that could be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement, either alone or together with
other events, by any employee, officer or director of VA or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or the VA Benefit Plan
currently in effect would be characterized as an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code).
4.15 Compliance with Applicable Laws. Each of VA and its Subsidiaries has in
effect all Licenses and Permits necessary for it to own, lease or operate its
assets and to carry on its business as now conducted, and there has occurred no
default under or limitation with respect to any such Licenses and Permits,
except for the lack of Licenses and Permits and for defaults or limitations
under Licenses and Permits which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on VA. To the knowledge of
VA, VA and its Subsidiaries are, and have been, in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental or Regulatory Authority, including Insurance Laws, except for
instances of noncompliance which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on VA. To the knowledge of
VA, the businesses and operations of each of VA and its Subsidiaries are being
and have been conducted in compliance in all respects with all applicable
Insurance Laws, except for instances of noncompliance which, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect on
VA. No investigation, examination or review by any Governmental or
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Regulatory Authority with respect to VA or any of its Subsidiaries is pending
or, to the knowledge of VA, threatened, nor has any Governmental or Regulatory
Authority indicated an intention to conduct the same, except for those the
outcome of which, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect on VA.
4.16 Properties. Except as disclosed in the VA SEC Documents, each of VA and
its Subsidiaries has good, clear and marketable title to all the properties and
assets reflected in the latest audited balance sheet included in the most
recent VA SEC Document as being owned by VA or one of its Subsidiaries or
acquired after the date thereof which are, individually or in the aggregate,
material to VA's business on a consolidated basis (except properties and assets
sold or otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of (A) all Encumbrances except (1) statutory liens
securing payments not yet due and (2) such imperfections or irregularities of
title or other Encumbrances (other than real property mortgages or deeds of
trust) as do not materially affect the use of the properties or assets subject
thereto or affected thereby or otherwise materially impair business operations
at such properties, and (B) all real property mortgages and deeds of trust and
is the lessee of all leasehold estates reflected in the latest audited
financial statements included in the most recent VA SEC Document or acquired
after the date thereof which are material to its business on a consolidated
basis and is in possession of the properties purported to be leased thereunder,
and each such lease is valid without material default thereunder by the lessee
or, to the VA's knowledge, the lessor.
4.17 Voting Requirements. The affirmative vote at the VA Shareholders
Meeting (the "VA Shareholder Approval") of the holders of more than two-thirds
of the voting power of all outstanding shares of VA's capital stock at the VA
Shareholders Meeting to adopt this Agreement is the only vote of the holders of
any class or series of VA's capital stock necessary to approve and adopt this
Agreement, the Other Agreements to which it is a party, and the transactions
contemplated hereby and thereby.
4.18 Takeover Statutes. To the knowledge of VA, no takeover statute, and no
anti-takeover provision in VA's articles of incorporation (or other
organizational documents) and bylaws, is applicable to the Merger or the other
transactions contemplated by this Agreement and the Other Agreements to which
it is a party.
4.19 Brokers. No broker, investment banker, financial adviser or other
person, other than SSB, the fees and expenses of which will be paid by VA, is
entitled to any broker's, finder's, financial adviser's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of VA.
4.20 Related Party Transactions. Except for the transactions described in
the VA SEC Reports or Section 4.20 of the VA Disclosure Letter, all
transactions involving VA or any of its Subsidiaries that are required to be
disclosed in the VA SEC Reports in accordance with Item 404 of Regulation S-K
have been so disclosed, and to the knowledge of VA, since December 31, 1998,
neither VA nor any of its Subsidiaries has entered into any transactions that
would be required to be disclosed in future public filings under the Exchange
Act pursuant to such Item which have not already been disclosed in the VA SEC
Reports filed prior to the date hereof.
4.21 Material Contracts. Other than Contracts or amendments thereto that are
required to be filed and have been filed as an exhibit to the latest Form 10-K
filed by VA with the SEC, there are no Contracts that are material to the
business, financial position or results of operations of VA, including any
employment, severance, termination, consulting or retirement contract providing
for aggregate payments to any individual in any calendar year in excess of
$500,000, any contract relating to the borrowing of money or the guarantee of
any such obligation (other than contracts evidencing fully secured repurchase
agreements, trade payables, and contracts relating to borrowings or guarantees
made in the ordinary course of business), any material agency, third party
administrator, management or other service contracts and any material contract
or agreement between or among VA and its Subsidiaries.
4.22 Intellectual Property. Except as, individually or in the aggregate, is
not reasonably likely to have a Material Adverse Effect on VA, VA does not have
knowledge of any valid grounds for any bona fide claims to the effect that the
manufacture, sale, licensing or use of any product or service as now used, sold
or licensed
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or proposed for use, sale or license by VA or any of its Subsidiaries,
infringes on any copyright, patent, trademark, trade name, service mark or
trade secret; against the use by VA or any of its Subsidiaries, of any
copyrights, patents, trademarks, trade names, service marks, trade secrets,
technology, know-how or computer software programs and applications used in the
business of VA or any of its Subsidiaries as currently conducted or as proposed
to be conducted; challenging the ownership, validity or effectiveness of any VA
Intellectual Property Rights or other trade secret material to VA; or
challenging the license or legally enforceable right to use of the Third-Party
Intellectual Rights by VA or any of its Subsidiaries.
4.23 No Regulatory Disqualifications. To the knowledge of VA, no event has
occurred or condition exists or, to the extent it is within the reasonable
control of VA, will occur or exist with respect to VA that, in connection with
obtaining any approval or any Governmental or Regulatory Authority required for
the Merger, would cause VA to fail to satisfy any applicable statute or written
regulation of any applicable insurance regulatory authority that, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect on
VA.
4.24 Insurance Ratings. As of the date hereof, VA has no reason to believe
that any rating presently held by VA or any of its Subsidiaries is likely to be
modified, qualified, lowered or placed under surveillance for a possible
downgrade for any reason other than as a result of the transactions
contemplated hereby.
4.25 Reinsurance, etc. VA has no reason to believe that any material amount
recoverable pursuant to any material Reinsurance Agreement applicable to the VA
Insurance Subsidiaries or their properties or assets reflected in the VA SAP
Statements is not fully collectible in due course. Each VA Insurance Subsidiary
is entitled to take full credit in its SAP Statements pursuant to Insurance
Laws, rules and regulations for such reinsurance, coinsurance or excess
insurance ceded pursuant to any such Reinsurance Agreement. There are no
assumption reinsurance contracts or arrangements entered into by any VA
Insurance Subsidiary in which such VA Insurance Subsidiary has ceded risk to
any other Person which are material individually or in the aggregate to VA and
its Subsidiaries taken as a whole.
4.26 Derivatives. As of December 31, 1998, none of VA and the VA
Subsidiaries was subject to any material exposure, individually or in the
aggregate under any Derivatives to which VA or any of VA Subsidiaries is a
party.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business. From the date hereof and until the Closing, each of
VA and BB will, and will cause each of their respective Subsidiaries to,
conduct their respective businesses and operations only in the ordinary and
usual course and in a manner consistent with past practices and to the extent
consistent therewith, use their commercially reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
insureds, reinsurers, customers, suppliers, insurance brokers and agents, and
others having business dealings with them to the end that their goodwill and
ongoing businesses shall not be impaired in any material respect at the
Effective Time. Without limiting the generality of the foregoing, from the date
hereof until Closing except as otherwise expressly contemplated by this
Agreement or as set forth in Section 5.1 of the VA Disclosure Letter or Section
5.1 of the BB Disclosure Letter, as the case may be, VA and BB shall not, and
shall not permit any of their Subsidiaries to, without the prior written
consent of the other:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of their capital stock, other (x) than
dividends and distributions by their direct or indirect wholly owned
Subsidiaries to them and (y) regular quarterly dividends payable by BB in
an amount not to exceed $.06 per share, (B) split, combine or reclassify
any of their capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of their
capital stock, or (C) purchase, redeem or otherwise acquire any shares of
their respective capital stock or any of their
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Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities, except, in the case
of clause (C), for the acquisition of shares of capital stock from holders
of options in full or partial payment of the exercise price payable by such
holder or tax liability arising in connection therewith (including by way
of exercise of cash settlement rights pursuant to the terms of any stock
option), upon exercise of stock options outstanding on the date of this
Agreement in accordance with their present terms;
(ii) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of their capital stock or the capital stock of any of
their Subsidiaries, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or any other securities
or equity equivalents (including without limitation stock appreciation
rights), or contractual obligation valued or measured by the value or
market price of such capital stock (other than the issuance of capital
stock upon the exercise of stock options outstanding on the date of this
Agreement and in accordance with their present terms, such issuance,
together with the acquisitions of shares of shares of capital stock
permitted under clause (i) above, being referred to herein as "Permitted
Changes");
(iii) amend their respective Articles of Incorporation, Articles of
Association, Bylaws or other comparable charter or organizational
documents;
(iv) except in the ordinary course of business, consistent with past
practice, acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Encumbrance or otherwise dispose of any of their respective properties
or assets that are material, individually or in the aggregate, to each of
them and their Subsidiaries taken as a whole, except in the ordinary course
of business consistent with past practice;
(vi) except in the ordinary course of business, consistent with past
practice (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person (other than its parent or another
Subsidiary of its parent), issue or sell any debt securities or warrants or
other rights to acquire any debt securities of itself, its parent or any
other Subsidiary of its parent, guarantee any debt securities of another
Person (other than its parent or another Subsidiary of its parent), enter
into any "keep well" or other agreement to maintain any financial statement
condition of another Person (other than its parent or another Subsidiary of
its parent) or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice, or (B) make any loans,
advances or capital contributions to, or investments in, any other Person
(other than its parent or another Subsidiary of its parent);
(vii) (A) acquire or agree to acquire any assets that are material,
individually or in the aggregate, to VA or BB and their respective
Subsidiaries taken as a whole, other than acquisitions of portfolio
investments of insurance Subsidiaries in the ordinary course of business
consistent with past practice, or (B) make or agree to make any capital
expenditures, except in the ordinary course of business consistent with
past practice;
(viii) pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, of (i) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof, or (ii) liabilities reflected or reserved
against in, or contemplated by, their most recent consolidated audited
financial statements (or the notes thereof) included in the VA or BB SEC
Documents filed prior to the date hereof, or waive, release, grant, or
transfer any rights of material value or modify or change in any material
respect any existing license, lease, contract or other document, other than
in the ordinary course of business consistent with past practice;
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(ix) adopt or amend in any material respect (except as may be required
by law or by this Agreement) any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement
(including any Benefit Plan) for the benefit or welfare of any employee,
director or former director or employee or, other than increases for
individuals (other than executive officers of BB) in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any director, employee or former director or employee; pay any
benefit not required by any existing plan, arrangement or agreement, grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under their severance or termination pay
policies in effect on the date hereof, other than any such increase or
acceleration provided for under such policies as in effect on the date of
this Agreement;
(x) change any material accounting principle used by them, except for
such changes as may be required to be implemented following the date of
this Agreement pursuant to generally accepted accounting principles or
rules and regulations of the SEC promulgated following the date hereof;
(xi) take any action that would, or is reasonably likely to, result in
any of their respective representations and warranties in this Agreement
becoming untrue in any material respect, or in any of the conditions to the
Scheme and Merger set forth in Article 6 or Article 7 not being satisfied;
(xii) except in the ordinary course of business and consistent with past
practice, make or change any material tax election, file any material
amendment to any material Tax Return or settle or compromise any material
federal, state, local or foreign tax liability;
(xiii) take any action that would reasonably be expected to cause the
Merger to fail to qualify as a reorganization within the meaning of Section
368 of the Internal Revenue Code or that would reasonably be expected to
cause the Merger together with the Scheme, when integrated, to fail to
qualify as a transaction described in Section 351 of the Internal Revenue
Code; and
(xiv) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 Additional Financial Statements.
(a) From the date hereof to the Closing Date, each of VA and BB shall
promptly deliver to the other all periodic management reports prepared for
their respective senior management in the ordinary course of business.
(b) Promptly after they become available, each of VA and BB shall furnish to
the other all statutory statements of their respective Insurance Subsidiaries
for any calendar years or quarters ending after December 31, 1998, but prior to
the Closing Date. Such statutory statements shall have been prepared on a basis
consistent with past practice and, with respect to the financial statements
included therein, in accordance with Statutory Accounting Practices.
5.3 No Solicitation; Notification.
(a) Both VA and BB shall, and shall cause their respective officers,
directors, employees, representatives and agents to, immediately cease any
discussions or negotiations with any parties that may be ongoing with respect
to an Acquisition Proposal (as hereinafter defined). From and after the date
hereof until the termination of this Agreement, neither VA nor BB shall, nor
shall it permit any of its Subsidiaries to, authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by them or any of their
Subsidiaries to, directly or indirectly, (i) solicit, initiate or knowingly
encourage (including by way of furnishing non-public information or
assistance), or knowingly take any other action to facilitate, any inquiries or
the making of any proposal which constitutes, or would reasonably be expected
to lead to, any Acquisition Proposal or (ii) participate in any discussions or
negotiations regarding any Acquisition Proposal; provided that if, at any time
the Board of Directors of either VA and BB determines in good faith, after
consultation with and taking into account the advice of independent legal
counsel (who may be such company's regularly engaged independent counsel), that
it is necessary to do so in
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order to act in a manner consistent with such Board's fiduciary duties to such
company's shareholders under applicable Law, VA or BB, as the case may be, may,
in response to an unsolicited Acquisition Proposal, and subject to compliance
with Section 5.3(c), (A) furnish information with respect to VA or BB as the
case may be to any person pursuant to a confidentiality agreement in reasonably
customary form and (B) participate in discussions or negotiations regarding
such Acquisition Proposal. For purposes of this Agreement, "Acquisition
Proposal" means any inquiry, proposal or offer (or any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in the foregoing) from any person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of VA or BB as the case
may be and their respective Subsidiaries, taken as a whole, or 20% or more of
any class of equity securities of VA or BB as the case may be, any tender offer
or exchange offer that if consummated would result in any person beneficially
owning 20% or more of any class of equity securities of VA or BB as the case
may be, any merger, consolidation, business combination, sale of all or
substantially all the assets, recapitalization, liquidation, dissolution or
similar transaction involving VA or BB or any of their Subsidiaries whose
business constitutes 20% or more of the assets of VA or BB and their respective
Subsidiaries, as the case may be, taken as a whole (other than the transactions
contemplated by this Agreement) or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would reasonably be expected to dilute
materially the benefits to the other of the transactions contemplated hereby.
(b) Except as set forth in this Section 5.3, neither the Board of Directors
of VA or BB nor any committee thereof shall (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to the other company, the approval
or recommendation by such Board of Directors or such committee of this
Agreement or the transactions contemplated hereby, (ii) approve or recommend,
or propose to approve or recommend, any Acquisition Proposal or (iii) cause VA
or BB as the case may be to enter into any agreement with respect to any
Acquisition Proposal. Notwithstanding the foregoing, in the event that the
Board of Directors of VA or BB determines in good faith, after consultation
with and taking into account the advice of independent legal counsel (who may
be such company's regularly engaged independent counsel), that it is necessary
to do so in order to act in a manner consistent with its fiduciary duties to
such company's shareholders under applicable law, such Board of Directors may
(subject to the other provisions of this Section 5.3) withdraw or modify its
approval or recommendation of this Agreement and the transactions contemplated
hereby, approve or recommend a Superior Proposal (as defined below), cause VA
or BB as the case may be to enter into an agreement with respect to a Superior
Proposal or terminate this Agreement, but in any case involving an Acquisition
Proposal only at a time that is after the third business day following the
other company's receipt of written notice (a "Notice of Superior Proposal")
advising such company that the Board of Directors of the other has received a
Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal. In
addition, if VA or BB proposes to enter into an agreement with respect to any
Acquisition Proposal, it shall concurrently with entering into such agreement
pay, or cause to be paid, to the other the Termination Fee and the Expense
Payment (as such terms are defined in Section 5.9(b)). For purposes of this
Agreement, a "Superior Proposal" means any bona fide proposal made by a third
party to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 20% of the shares of capital stock then
outstanding or all or substantially all the assets of VA on the one hand and BB
on the other hand and otherwise on terms which the Board of Directors of VA or
BB as the case may be determines in its good faith judgment (after consultation
with and taking into account the advice of a financial advisor of nationally
recognized reputation) to be more favorable to such company's shareholders than
the Merger.
(c) In addition to the obligations of VA and BB set forth in paragraphs (a)
and (b) of this Section 5.3, each of VA and BB shall promptly advise the other
orally and in writing of any request for information or of any Acquisition
Proposal, the material terms and conditions of such request or Acquisition
Proposal and the identity of the person making such request or Acquisition
Proposal.
(d) Nothing contained in this Section 5.3 shall prohibit VA or BB from
taking and disclosing to its shareholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to such
company's shareholders if, in the good faith judgment of the Board of Directors
of such
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company, after consultation with independent legal counsel (who may be such
company's regularly engaged independent counsel), failure so to disclose would
be inconsistent with its fiduciary duties to such company's shareholders under
applicable law; provided neither VA or BB nor their respective Boards of
Directors nor any committee thereof shall, except as permitted by Section
5.3(b), withdraw or modify, or propose to withdraw or modify, its position
with respect to this Agreement or the transactions contemplated hereby or
approve or recommend, or propose to approve or recommend, an Acquisition
Proposal.
5.4 Investigation of Business and Properties. From the date hereof until
the earlier of (i) the Effective Time and (ii) termination under Article IX,
each of VA and BB will, and will cause their respective Subsidiaries to,
afford the other, any financial institution providing financing to the other,
and their respective attorneys, accountants, financial advisors and other
representatives, reasonable access during regular business hours upon
reasonable notice, to make such reasonable inspection of the Assets, business
and operations of such company and its Subsidiaries and to inspect and make
copies of Contracts, Books and Records and all other documents and information
reasonably requested by the other and related to the operations and business
of such company and its Subsidiaries, including historical financial
information concerning the business of such company and its Subsidiaries and
to meet with designated Personnel of such company and its Subsidiaries and/or
their respective representatives; provided that any such access shall be
conducted in such a manner as not to interfere unreasonably with the conduct
of such company's operations and business; provided further, that no
disclosure to the other, its counsel, accountants or other representatives
after the date hereof shall be deemed to be a reduction of, or otherwise
affect, the representations and warranties of such company set forth in this
Agreement. Each of VA and BB shall furnish to the other promptly upon request
(i) all additional documents and information with respect to the affairs of
such company and its Subsidiaries and (ii) access during regular business
hours to its Personnel and to such company's accountants and counsel as the
other, or its counsel or accountants, may from time to time reasonably request
and VA and BB shall instruct their respective Personnel, accountants and
counsel to cooperate with the other, and to provide such documents and
information as the other and its representatives may reasonably request;
provided that each of VA and BB shall execute and deliver to such counsel and
accountants such consents and waivers as are customary in connection in
providing such documents and information. Notwithstanding any right of VA or
BB to investigate and examine the affairs of the other and its Subsidiaries
and notwithstanding any knowledge of facts determined or determinable by VA or
BB pursuant to such investigation or examination, VA and BB have the right to
rely fully upon the representations, warranties, covenants and agreements of
the other contained in this Agreement.
5.5 Regulatory Matters.
(a) From the date hereof through the Closing Date, VA and BB shall
cooperate with each other and use their respective commercially reasonable
efforts promptly to prepare and file all necessary documentation with, and to
obtain as promptly as practicable all Licenses and Permits of, all third
parties and Governmental or Regulatory Authorities which are necessary or
advisable to consummate the transactions contemplated by this Agreement,
including any filings under the HSR Act. VA and BB shall have the right to
review in advance, and shall consult with the other on, in each case subject
to any laws relating to the exchange of information, all the information
relating to each other and any of their respective Subsidiaries, as the case
may be, and any of their respective Affiliates, which appear in any filing
made with, or written materials submitted to, any third party or any
Governmental or Regulatory Authority in connection with the transactions
contemplated by this Agreement. The parties hereto agree that they will
consult with each other with respect to the obtaining of all Licenses and
Permits of all third parties and Governmental or Regulatory Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement, and each party shall keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein. The
party responsible for any such filing shall promptly deliver to the other
party evidence of the filing of all applications, filings, registrations and
notifications relating thereto, and the filing of any supplement, amendment or
item of additional information in connection therewith. The party responsible
for a filing shall also promptly deliver to the other party a copy of each
material notice, order, opinion and other item of correspondence received by
such filing party from any Governmental or Regulatory Authority in respect of
any such application. In exercising the foregoing rights and obligations, VA
and BB shall act reasonably and as promptly as practicable.
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(b) From the date hereof through the Closing Date, VA and BB shall, upon
request, furnish each other with all information concerning themselves and
their Subsidiaries, directors, officers and shareholders and such other matters
as may be reasonably necessary in connection with any statement, filing, notice
or application made by or on behalf VA or BB, as the case may be, or any of its
respective Affiliates, to any Governmental or Regulatory Authority in
connection with the transactions contemplated by this Agreement.
(c) From the date hereof through the Closing Date, VA and BB shall promptly
advise each other upon receiving any communication from any Governmental or
Regulatory Authority whose consent or approval is required for consummation of
the transactions contemplated by this Agreement, which causes such party to
believe that there is a reasonable likelihood that the requisite consent or
approval will not be obtained or that the receipt of such consent or approval
will be materially delayed.
5.6 Investment Portfolio. From the date hereof through the Closing Date, VA
and BB shall cause each of their respective Subsidiaries not to change its
investment managers or alter its investment guidelines or criteria (accurate
and complete copies of which have been provided by each of VA and BB to the
other) without the prior written approval of the other and shall cause each of
their respective Subsidiaries to make such changes in its investment managers
and to alter its investment guidelines and criteria as VA and BB may mutually
agree.
5.7 Confidentiality. Unless and until the Closing has been consummated, VA
and BB shall continue to be subject to the confidentiality provisions of the
Confidentiality Agreement, dated as of January 6, 1999, between VA and BB.
5.8 Books and Records. Through the Closing, each of VA and BB and their
respective Subsidiaries shall maintain their respective Books and Records in
all material respects in the same manner and with the same care that such Books
and Records have been maintained prior to the execution of this Agreement.
5.9 Fees and Expenses.
(a) Except as otherwise provided in this Agreement, all costs, fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs, fees and
expenses, whether or not the Merger is consummated.
(b) In the event that (i) an Acquisition Proposal shall have been made to BB
or any of its Subsidiaries or any of its stockholders (a "BB Acquisition
Proposal") or any Person shall have publicly announced an intention (whether or
not conditional) to make an Acquisition Proposal with respect to BB or any of
its Subsidiaries and (ii) thereafter this Agreement is terminated pursuant to
the provisions of clause (iv) or (v) of Section 9.1, then BB shall promptly,
but in no event later than two days after the date VA makes a written request
for payment, pay VA an amount in dollars equal to $27,000,000 as a termination
fee (the "Termination Fee") and shall promptly, but in no event later than two
days after being notified of such by VA, pay to VA an amount equal to all of
the charges and expenses incurred by VA in connection with this Agreement and
the Other Agreements to which it is a party and the transactions contemplated
by this Agreement and the Other Agreements to which it is a party up to a
maximum amount of $3 million (the "Expense Payment"), in each case payable by
wire transfer of same day funds against presentation of invoices or other
documentation evidencing the incurrence of such expenses.
(c) In the event that (i) a BB Acquisition Proposal shall have been made or
any Person shall have publicly announced an intention (whether or not
conditional) to make a BB Acquisition Proposal, (ii) thereafter this Agreement
is terminated pursuant to clause (ix) of Section 9.1, and (iii), within a
twelve month period after termination of this Agreement pursuant to clause (ix)
of Section 9.1, the transaction contemplated in such BB Acquisition Proposal is
consummated or the parties enter into a definitive agreement with regard to the
transaction contemplated in such BB Acquisition Proposal and the transaction is
thereafter consummated, then BB shall promptly, but in no event later than two
days, after consummation of the transaction contemplated in such BB Acquisition
Proposal, pay VA the Termination Fee and shall promptly, but in no event later
than two
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days, after such date, pay to VA the Expense Payment in an amount equal to all
of the charges and expenses incurred by VA in connection with this Agreement
and the Other Agreements to which it is a party and the transactions
contemplated by this Agreement and the Other Agreements to which it is a party
up to a maximum amount of $3 million, in each case payable by wire transfer of
same day funds against presentation of invoices or other documentation
evidencing the incurrence of such expenses.
(d) In the event that (i) an Acquisition Proposal shall have been made to
VA or any of its Subsidiaries or any of its Shareholders (a "VA Acquisition
Proposal") or any Person shall have publicly announced an intention (whether
or not conditional) to make an Acquisition Proposal with respect to VA or any
of its Subsidiaries and (ii) thereafter this Agreement is terminated pursuant
to the provisions of clause (vi) or (vii) of Section 9.1, then VA shall
promptly, but in no event later than two days after the date BB makes a
written request for payment, pay BB the Termination Fee and shall promptly,
but in no event later than two days after being notified of such by BB, pay to
BB the Expense Payment in an amount equal to all of the charges and expenses
incurred by BB in connection with this Agreement and the Other Agreements to
which it is a party and the transactions contemplated by this Agreement and
the Other Agreements to which it is a party up to a maximum amount of $3
million, in each case payable by wire transfer of same day funds against
presentation of invoices or other documentation evidencing the incurrence of
such expenses.
(e) In the event that (i) a VA Acquisition Proposal shall have been made or
any Person shall have publicly announced an intention (whether or not
conditional) to make a VA Acquisition Proposal, (ii) thereafter this Agreement
is terminated pursuant to the provisions of clause (viii) of Section 9.1, and
(iii) within a twelve month period after termination of this Agreement
pursuant to clause (viii) of Section 9.1, the transaction contemplated in such
VA Acquisition Proposal is consummated or the parties enter into a definitive
agreement with regard to the transaction contemplated in such VA Acquisition
Proposal and the transaction is thereafter consummated, then VA shall
promptly, but in no event later than two days, after consummation of the
transaction contemplated in such VA Acquisition Proposal, pay BB the
Termination Fee and shall promptly, but in no event later than two days, after
such date, pay to BB the Expense Payment in an amount equal to all of the
charges and expenses incurred by BB in connection with this Agreement and the
Other Agreements to which it is a party and the transactions contemplated by
this Agreement and the Other Agreements to which it is a party up to a maximum
amount of $3 million, in each case payable by wire transfer of same day funds
against presentation of invoices or other documentation evidencing the
incurrence of such expenses.
(f) BB and VA acknowledge that its agreement to pay to the other the
Termination Fee and the pense Payment as set forth in paragraphs (b), (c), (d)
and (e) of this Section 5.9 are an integral part of the transactions
contemplated by this Agreement, and that, without such agreement, VA, on the
one hand and BB, on the other hand, would not enter into this Agreement.
Accordingly, if BB or VA, as applicable, fails promptly to pay the Termination
Fee or the Expense Payment pursuant to paragraph (b), (c), (d) or (e), as
applicable, of this Section 5.9 and, in order to obtain such payments, VA or
BB, as applicable, commences a suit which results in a judgment against the
other (the "Defaulting Party") for the Termination Fee and the Expense Payment
set forth in paragraph (b), (c), (d) or (e) of this Section 5.9, the
Defaulting Party shall pay to the other party the costs and expenses
(including reasonable attorneys' fees) incurred by such party in connection
with such suit, together with interest from the date of termination of this
Agreement to the date of payment on the amounts owed at the prime rate of
First Union National Bank in effect from time to time during such period plus
two percent.
5.10 Preparation of the Form S-4 and the Proxy Statement/Prospectus;
Shareholders Meetings.
(a) As soon as practicable following the date of this Agreement, VA and BB
shall prepare and file with the SEC a preliminary Proxy Statement/Prospectus
relating to the Merger and use all commercially reasonable efforts to obtain
and furnish the information required to be included by the SEC in the Proxy
Statement/Prospectus and to respond promptly to any comments made by the SEC
with respect to the preliminary Proxy Statement/Prospectus. VA shall prepare
and file with the SEC the Form S-4, in which the Proxy Statement/Prospectus
will be included as a prospectus of VA with respect to the MINT Common Shares
to be issued in the Merger and the Scheme. Each of VA and BB shall use
commercially reasonable efforts to
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have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. VA will use all reasonable efforts to cause the
Proxy Statement/Prospectus to be mailed to VA's shareholders, and BB will use
all commercially reasonable efforts to cause the Proxy Statement/Prospectus to
be mailed to BB's shareholders, in each case as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. MINT shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or filing a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of MINT Common Shares in the Merger and the
Scheme, VA shall furnish all information concerning VA and the holders of VA
Common Shares as may be reasonably requested in connection with any such action
and BB shall furnish all information concerning BB and the holders of BB Common
Shares as may be reasonably requested in connection with any such action. No
filing of, or amendment or supplement to, the Form S-4 or the Proxy
Statement/Prospectus, or response to any comments made by the SEC with respect
thereto, will be made by either party without providing the other party the
opportunity to review and comment thereon. VA will advise BB, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective or
any supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the MINT Common Shares issuable in
connection with the Merger and the Scheme for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Proxy
Statement/Prospectus or the Form S-4 or comments thereon and responses thereto
or requests by the SEC for additional information. If at any time prior to the
Effective Time any information relating to VA or BB, or any of their respective
affiliates, officers or directors, should be discovered by VA or BB which
should be set forth in an amendment or supplement to either the Form S-4 or the
Proxy Statement/Prospectus, so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other party hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law, disseminated to the shareholders of VA and
BB.
(b) VA (i) shall, as soon as practicable following the Form S-4 being
declared effective by the SEC, duly call, give notice of, convene and hold a
meeting of its shareholders (the "VA Shareholders Meeting") for the purpose of
obtaining the VA Shareholder Approval and (ii) shall, through its Board of
Directors, recommend to its shareholders the approval and adoption of this
Agreement, the issuance of MINT Common Shares in the Merger and the Scheme and
the other transactions contemplated hereby unless, in the case of this clause
(ii), in the good faith judgment of the Board of Directors of VA, after
consultation with outside counsel, the failure to take the foregoing action
would be inconsistent with its obligations under applicable law. Without
limiting the generality of the foregoing but subject to its rights to terminate
this Agreement pursuant to clause (vii) of Section 9.1, VA agrees that its
obligations pursuant to clause (i) of this Section 5.10(b) shall not be
affected by the commencement, public proposal, public disclosure or
communication to VA of any Acquisition Proposal applicable to VA or by the
withdrawal or modification by the Board of Directors of VA, in accordance with
clause (ii) above, of its recommendation to the shareholders of VA that such
shareholders approve and adopt this Agreement, the Merger and the other
transactions contemplated hereby.
(c) BB (i) shall, as soon as practicable following the Form S-4 being
declared effective by the SEC, duly call, give notice of, convene and hold a
meeting of its shareholders (the "BB Shareholders Meeting") for the purpose of
obtaining the BB Shareholder Approval and (ii) shall, through its Board of
Directors, recommend to its shareholders the approval and adoption of this
Agreement, the Scheme and the other transactions contemplated hereby unless, in
the case of this clause (ii), in the good faith judgment of the Board of
Directors of BB, after consultation with outside counsel, the failure to take
the foregoing action would be inconsistent with its obligations under
applicable law. Without limiting the generality of the foregoing but subject to
its rights to terminate this Agreement pursuant to clause (v) of Section 9.1,
BB agrees that its obligations pursuant to clause (i) of this Section 5.10(c)
shall not be affected by the commencement, public proposal, public disclosure
or communication to BB of any Acquisition Proposal applicable to BB or by the
withdrawal or modification by the Board of Directors of BB, in accordance with
clause (ii) above, of its recommendation to the shareholders of BB that such
shareholders approve and adopt this Agreement, the Scheme and the other
transactions contemplated hereby.
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(d) BB and VA will use all reasonable efforts to hold the VA Shareholders
Meeting and the BB Shareholders Meeting on the same date and as soon as
practicable after the date hereof.
5.11 Public Announcements. The initial press release with respect to this
Agreement and the transactions contemplated hereby shall be a joint press
release and thereafter BB and VA shall obtain the written consent of the other
prior to issuing press releases or otherwise making public announcements with
respect to this Agreement and the transactions contemplated hereby and prior to
making any filings with any third party or any Governmental or Regulatory
Authority (including the NYSE) with respect thereto, except to the extent
required by law or by obligations pursuant to the listing agreement with or
rules of the NYSE.
5.12 Efforts to Consummate. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including the obtaining of
all necessary consents, waivers, authorizations, orders and approvals of third
parties, whether private or governmental, required of it to enable it to comply
with the conditions precedent to consummating the transactions contemplated by
this Agreement. Each party agrees to cooperate fully with the other party in
assisting it to comply with this Section 5.12. Without limiting the generality
of the foregoing, each party hereto shall defend and cooperate with each other
party in any defending legal proceedings, whether judicial or administrative
and whether brought derivatively or on behalf of third parties, challenging
this Agreement or the consummation of the transactions contemplated hereby. No
consideration, whether such consideration shall consist of the payment of money
or shall take any other form, for any such consent, waiver or agreement
necessary to the consummation of the transactions contemplated hereby shall be
given or promised by VA or BB without the prior written consent of the other.
Notwithstanding the foregoing, nothing contained herein shall require (i) any
party hereto or any of their respective Affiliates to sell, transfer, divest or
otherwise dispose of any of its respective material lines of business, material
assets or material properties in connection with this Agreement or any of the
transactions contemplated hereby, or (iii) any party hereto to initiate any
litigation, make any substantial payment or incur any material economic burden
(including as a result of any divestiture), except for payments a party
presently is contractually obligated to make, to obtain any consent, waiver,
authorization, order or approval.
5.13 Employee Benefits. Until the second anniversary of the Closing, VA
shall maintain or used to be maintained for the benefit of the employees of VA
or any of its subsidiaries who were BB employees immediately prior to the
Closing employee benefit plans and programs that provide such employee with
benefits, rights and entitlements which, in the aggregate, are substantially
comparable to the benefits, rights and entitlements provided to such employee
under the employee benefit plans and programs in which the employee
participated immediately prior to the Closing (other than the BB Option Plans
or any other stock plans). Following the Effective Time, VA shall honor in
accordance with their terms all employment, severance and other compensation
agreements and arrangements existing on or prior to the execution of this
Agreement which are between BB and any of its respective Subsidiaries and any
officer, director or employee thereof.
5.14 Agreements With Respect to Affiliates.
(a) At least five days prior to the Closing Date, BB shall deliver to VA and
MINT a list of names and addresses of those Persons who will be, in the opinion
of the BB, as of the time of the BB Shareholders Meeting, "affiliates" of BB
within the meaning of Rule 145 under the Securities Act. BB shall use
reasonable best efforts to cause each Person who is identified as an
"affiliate" in such letter to deliver to VA and MINT, prior to the Closing
Date, a written agreement in connection with restrictions on affiliates under
Rule 145, in customary form mutually agreeable to BB and VA.
(b) VA shall not be required to maintain the effectiveness of the Form S-4
or any other registration statement under the Securities Act for the purposes
of resale of VA Common Shares by such affiliates received in the Scheme and the
certificates representing MINT Common Shares received by such affiliates shall
bear a customary legend regarding applicable Securities Act restrictions and
the provisions of this Section 5.14.
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5.15 Indemnification, Exculpation and Insurance.
(a) From and after the Effective Time VA shall, to the extent permitted by
applicable law, indemnify, defend, protect and hold harmless each person who is
now, or has been at any time prior to the date of this Agreement or who becomes
such prior to the Effective Time, an officer or director of BB or any of its
respective Subsidiaries (the "Indemnified Parties") against (i) all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts that are
paid in settlement with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director or
officer of BB or any of its Subsidiaries whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), and (ii) all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement,
Other Agreements to which it is a party or the transactions contemplated hereby
and thereby. VA will pay all expenses of each Indemnified Party in advance of
the final disposition of any such action or proceeding, to the fullest extent
permitted by law, provided, that such Indemnified Party delivers to VA his or
her undertaking to reimburse such advanced expenses in the event it is finally
determined by a court of competent jurisdiction that such Indemnified Party is
not entitled to be indemnified hereunder. Promptly after receipt by an
Indemnified Party of actual notice of any claim, suit, action, proceeding or
investigation (collectively, a "Claim") for which indemnification hereunder may
be sought, the Indemnified Party shall give notice thereof to VA, and the
Indemnified Party shall permit VA (at the expense of VA) to assume the defense
of such Claim, provided, that (i) counsel for VA who shall conduct the defense
of such Claim shall be reasonably satisfactory to the Indemnified Party, and
the Indemnified Party may participate in such defense at such Indemnified
Party's expense, and (ii) the failure of any Indemnified Party to give notice
as provided herein shall not relieve VA of its indemnification obligation
hereunder except to the extent that such failure results in a lack of actual
notice to VA and VA is prejudiced as a result of such failure to give notice.
Except with the prior written consent of the Indemnified Party, VA, in the
defense of any such claim or litigation, shall not consent to entry of any
judgment or enter into any settlement that provides for injunctive or other
nonmonetary relief affecting the Indemnified Party or that does not include as
an unconditional term thereof the giving by each claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such Claim.
In the event that the Indemnified Party shall in good faith determine that VA
and the Indemnified Party have differing interests or the Indemnified Party may
have available to it one or more defenses or counterclaims that are
inconsistent with one or more of those that may be available to VA in respect
of such Claim, the Indemnified Party shall have the right at all times to take
over and assume control over the defense, settlement, negotiations or
litigation relating to any such Claim with counsel of its choice at the sole
cost of VA, provided, that if the Indemnified Party does so take over and
assume control, the Indemnified Party shall not settle such claim or litigation
without the written consent of VA, such consent not to be unreasonably
withheld. In the event that VA does not accept the defense of any matter as
above provided, the Indemnified Party shall have the full right to defend
against any such claim or demand, and shall be entitled to settle or agree to
pay in full such claim or demand and be indemnified hereunder. In any event, VA
and the Indemnified Party shall cooperate in the defense of any Claim.
(b) Without limiting the foregoing, VA and BB agree that all rights to
indemnification and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time now existing in favor of the
current or former directors or officers of BB and its Subsidiaries as provided
in their respective articles of incorporation or by-laws (or comparable
organizational documents) and any indemnification agreements of BB (other than
any entered into in violation of Section 5.1 hereof), shall survive the Merger
and shall continue in full force and effect in accordance with their respective
terms.
(c) For seven years after the Effective Time, VA shall maintain in effect
BB's respective current directors' and officers' liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to those
persons who are currently covered by BB's respective directors' and officers'
liability insurance policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the
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date hereof; provided that VA may substitute therefor policies of VA or its
subsidiaries containing terms with respect to coverage and amount no less
favorable to such directors or officers; provided further, that if the existing
or substituted directors' and officers' liability insurance expires, is
terminated or canceled during such seven-year period, VA will obtain as much
directors' and officers' liability insurance as can be obtained for the
remainder of such period for a premium not in excess of 300% of the aggregate
premiums paid by BB in 1998 on an annualized basis for such purpose.
(d) The provisions of this Section 5.15 are intended to be for the benefit
of, and will be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives and are in addition to, and not in substitution for,
any other rights to indemnification or contribution that any such person may
have by contract or otherwise.
5.16 NYSE Listing and Delisting. VA shall use its commercially reasonable
efforts to cause the MINT Common Shares to be approved for listing on the NYSE
subject to official notice of issuance. VA and BB shall use their respective
reasonable efforts to cause the VA Common Shares and the BB Common Shares,
respectively to be delisted from the NYSE and de-registered under the Exchange
Act as soon as practicable after the Effective Time.
5.17 Formation of MINT and Sub.
(a) As soon as practicable following the date of this Agreement, (i) VA
shall cause MINT to be formed as a Virginia corporation, and shall cause MINT
to adopt its Articles of Incorporation and its Bylaws in accordance with the
VSCA and the terms hereof, which Articles and By-Laws shall be substantially
identical to the Articles and By-Laws of VA, MINT shall cause Sub to be formed
as Virginia corporation and shall cause Sub to adopt its Articles of
Incorporation and its Bylaws in accordance with the VSCA and the terms hereof,
which Articles of Incorporation and By-Laws shall be reasonably satisfactory to
BB and VA.
(b) Immediately after the formation of MINT and Sub, respectively, (i) VA
shall cause (1) MINT and Sub to adopt and become parties to this Agreement, (2)
the respective Boards of Directors of MINT and Sub to approve the Merger and
this Agreement (and to recommend approval of the Merger and this Agreement to
their respective shareholders) and (3) immediately following the taking of the
actions contemplated by subclauses (1) and (2) above, MINT to approve the
Merger in its capacity as sole shareholder of Sub, and (ii) immediately
following the taking of the actions contemplated by clause (i) above, VA shall
approve the Merger in its capacity as sole shareholder of MINT.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF VA
The obligation of VA to consummate the transactions contemplated by this
Agreement shall be subject, in the sole discretion of VA, to the satisfaction,
on or prior to the Closing Date, of each of the following conditions, any of
which may be waived by VA in accordance with Section 10.8:
6.1 Representations and Warranties. The representations and warranties of BB
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement, and the representations and warranties of BB
in this Agreement shall be true and correct as of the Closing Date as though
made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier specified date)
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any qualification as to "Material Adverse
Effect," "material" or similar qualifications) are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on BB.
6.2 Material Adverse Change. There shall not have been any material adverse
change in the assets, liabilities, condition (financial or otherwise), results
of operations or business of BB and its Subsidiaries taken as a whole since
June 30, 1999, nor any occurrence or circumstance that with the passage of time
would result
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in such material adverse change; provided that a material adverse change shall
not include (i) changes solely in the market price of VA Common Shares or BB
Common Shares or (ii) any change resulting from (x) changes in general economic
conditions, (y) changes in the market level of investment portfolios, or (z)
changes affecting the property-casualty insurance industry generally.
6.3 Performance of this Agreement. BB shall have, in all material respects,
performed all covenants and agreements and complied with all conditions
required by this Agreement to be performed or complied with by BB prior to or
on the Closing Date.
6.4 Injunction. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger
or the Scheme shall be in effect; provided, however, that the parties hereto
shall use their commercially reasonable efforts to have any such injunction,
order, restraint or prohibition vacated.
6.5 Shareholder Approval. Each of the BB Shareholder Approval and the VA
Shareholder Approval shall have been obtained.
6.6 Governmental Approvals. All of the BB Designated Insurance Approvals and
the VA Designated Insurance Approvals shall have been obtained. The Court shall
have sanctioned the Scheme on the terms contemplated by this Agreement.
6.7 NYSE Listing. The MINT Common Shares to be issued in conjunction with
the transactions contemplated hereby and to be received by the holders of BB
Common Shares and VA Common Shares in connection with the Merger and the Scheme
shall have been approved for listing on the NYSE, subject to notice of
issuance, effective as of the Effective Time.
6.8 HSR Act. The waiting period, and any extension of time thereof,
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
6.9 Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a
stop order, and any material "blue sky" and other state securities laws
applicable to the issuance of the VA Common Shares to be issued in connection
with the Merger and the Scheme shall have been complied with.
6.10 Tax Opinion. The Board of Directors of VA shall have received from
McGuire, Woods, Battle & Boothe LLP on the Closing Date a legal opinion that
the Merger will be treated for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and that VA and MINT will each be a party to that reorganization within
the meaning of Section 368(b) of the Internal Revenue Code. In rendering such
opinion, counsel may require and rely upon representations of VA and BB and
certificates of shareholders that beneficially own five percent or more of any
class of stock of VA or BB, in each case reasonably satisfactory to such
counsel.
6.11 Frustration of Closing Conditions. VA may not rely on the failure of
any condition set forth in this Article VI to be satisfied if such failure was
caused by VA's failure to use reasonable efforts to consummate the Scheme, the
Merger and the other transactions contemplated by this Agreement and the Other
Agreements to which it is a party.
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BB
The obligation of BB to consummate the transactions contemplated by this
Agreement shall be subject, in the sole discretion of BB, to the satisfaction,
on or prior to the Closing Date, of each of the following conditions, any of
which may be waived by BB in accordance with Section 10.8.
7.1 Representations and Warranties. The representations and warranties of VA
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement, and the representations and warranties of VA
in this Agreement shall be true and correct as of the Closing Date as though
made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier specified date)
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any qualification as to "Material Adverse
Effect," "material" or similar qualifications) are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on VA.
7.2 Material Adverse Change. There shall not have been any material adverse
change in the assets, liabilities, condition (financial or otherwise), results
of operations or business of VA and its Subsidiaries taken as a whole since
June 30, 1999, nor any occurrence or circumstance that with the passage of time
would result in such material adverse change; provided that a material adverse
change shall not include (i) changes solely in the market price of VA Common
Shares or BB Common Shares or (ii) any change resulting from (x) changes in
general economic conditions, (y) changes in the market level of investment
portfolios, or (iii) changes affecting the property-casualty insurance industry
generally.
7.3 Performance of this Agreement. VA shall have, in all material respects,
performed all covenants and agreements and complied with all conditions
required by this Agreement to be performed or complied with by VA prior to or
on the Closing Date.
7.4 Injunction. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Scheme
and the Merger shall be in effect; provided, however, that the parties hereto
shall use their commercially reasonable efforts to have any such injunction,
their best order, restraint or prohibition vacated.
7.5 Shareholder Approval. Each of the VA Shareholder Approval and the BB
Shareholder Approval shall have been obtained.
7.6 Governmental Approvals. All of the BB Designated Insurance Approvals and
the VA Designated Insurance Approvals shall have been obtained. The Court shall
have sanctioned the Scheme on the terms contemplated by this Agreement.
7.7 NYSE Listing. The MINT Common Shares to be issued in conjunction with
the transactions contemplated hereby and to be received by the holders of BB
Common Shares and VA Common Shares in connection with the Merger and the Scheme
shall have been approved for listing on the NYSE, subject to notice of
issuance, effective as of the Effective Time.
7.8 HSR Act. The waiting period, and any extension of time thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
7.9 Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a
stop order, and any material "blue sky" and other state securities laws
applicable to the issuance of the MINT Common Shares to be issued in connection
with the Merger and the Scheme shall have been complied with.
7.10 Tax Opinion. The Board of Directors of BB shall have received from
Debevoise & Plimpton on the Closing Date a legal opinion that the Merger
together with the Scheme, when integrated will be treated for United States
federal income tax purposes as a transaction described in Section 351 of the
Code. In rendering
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such opinion, counsel may require and rely upon representations of VA and BB,
opinions of local counsel, and certificates of shareholders that beneficially
own five percent or more of any class of stock of VA or BB, in each case
reasonably satisfactory to such counsel
7.11 Frustration of Closing Conditions. BB may not rely on the failure of
any condition set forth in this Article VII to be satisfied if such failure was
caused by BB's failure to use reasonable efforts to consummate the Merger and
the Scheme and the other transactions contemplated by this Agreement and the
Other Agreements to which it is a party.
ARTICLE VIII
NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing whether before or after approval by the shareholders of the Company and
without further shareholder action:
(i) by the mutual written consent of the Boards of Directors of BB and
VA;
(ii) by VA, if any event occurs which renders impossible compliance with
one or more of the conditions set forth in Article VI hereof, which
condition or conditions are not waived by VA;
(iii) by BB, if any event occurs which renders impossible compliance
with one or more of the conditions set forth in Article VII hereof, which
condition or conditions are not waived by BB;
(iv) by VA, if (A) the Board of Directors of BB shall have failed to
approve and recommend or shall have withdrawn or modified in a manner
adverse to VA its approval or recommendation of the Scheme or this
Agreement, or approved or recommended any Acquisition Proposal, (B) BB
shall have entered into any agreement with respect to any Superior Proposal
in accordance with Section 5.3(b) of this Agreement or (C) the Board of
Directors of BB shall have resolved to take any of the foregoing actions;
(v) by BB in connection with entering into a definitive agreement in
accordance with Section 5.3(b), provided that it has complied with all
provisions thereof, including the notice provisions therein and the payment
of the Termination Fee and Expense Payment (if applicable), and provided
that BB shall not have breached in any material respect any other provision
of Section 5.3;
(vi) by BB, if (A) the Board of Directors of VA shall have failed to
approve and recommend or shall have withdrawn or modified in a manner
adverse to BB its approval or recommendation of the Merger or this
Agreement, or approved or recommended any Acquisition Proposal, (B) VA
shall have entered into any agreement with respect to any Superior Proposal
in accordance with Section 5.3(b) of this Agreement or (C) the Board of
Directors of VA shall have resolved to take any of the foregoing actions;
(vii) by VA in connection with entering into a definitive agreement in
accordance with Section 5.3(b), provided that it has complied with all
provisions thereof, including the notice provisions therein and the payment
of the Termination Fee and Expense Payment (if applicable), and provided
that VA shall not have breached in any material respect any other provision
of Section 5.3;
(viii) by either BB or VA if any required approval of the stockholders
of VA shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at
any adjournment thereof;
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<PAGE>
(ix) by either VA or BB if any required approval of the stockholders of
BB shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at
any adjournment thereof; or
(x) by either BB or VA if the Closing has not occurred by 11:59 p.m.,
June 30, 2000.
9.2 Restructuring. Prior to any termination of this Agreement (a) by BB
pursuant to clause (iii) of Section 9.1 resulting from the failure to receive
the opinion referred to in Section 7.9 or (b) by VA pursuant to clause (ii) of
Section 9.1 resulting from the failure to receive the opinion referred to in
Section 6.9, the parties hereto will negotiate in good faith to restructure the
transactions contemplated hereby so as to permit the delivery of such opinions
or letters without adversely effecting the economic or business benefits of the
transactions contemplated hereby to VA, BB and their respective shareholders.
9.3 Procedure: Effect of Termination. If this Agreement is terminated as
provided in Section 9.1, written notice thereof shall forthwith be given by the
terminating party to the other party, and this Agreement shall thereupon
terminate and become void and of no further force and effect and there shall be
no further liability or obligation on the part of either party hereto except
for the obligations under Sections 5.7, 5.9 and 9.1; provided that termination
of this Agreement by VA or BB pursuant to clause (ii), (iii), (viii) or (ix) of
Section 9.1, respectively, shall not relieve a defaulting or breaching party
(the "Breaching Party"), whether or not it is the terminating party, of
liability for damages actually incurred by the other party as a result of
intentional breach of this Agreement by the Breaching Party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices required to be given hereunder shall be in writing
and shall be deemed to have been given if (i) delivered personally or by
documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in the
manner hereinabove described, to the others entitled to notice:
(a) If to VA, to:
Markel Corporation
4551 Cox Road
Glen Allen, Virginia 23059
Attention: Steven A. Markel
Facsimile No.: 804-527-3810
and
Gregory B. Nevers, Esq.
and to:
McGuire, Woods, Battle & Boothe LLP
One James Center
901 E. Cary Street
Richmond, Virginia 23219
Attention: Leslie A. Grandis, Esq.
Facsimile No.: 804-775-1061
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<PAGE>
(b) If to BB, to:
Terra Nova (Bermuda) Holdings Ltd.
Richmond House
2nd Floor
12 Par-la-ville Road
Hamilton HM 8, Bermuda
Facsimile No.: (44-1) 296-6645
Attention: John J. Dwyer and
Jean M. Waggett, Esq.
and to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Attention: Edward A. Perell, Esq.
Facsimile No.: 212-909-6836
If given personally or by documented courier or delivery service, or
transmitted by facsimile, a notice shall be deemed to have been given when it
is received. If given by mail, it shall be deemed to have been given on the
third business day following the day on which it was posted.
10.2 Interpretation. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. For purposes of this Agreement, the words
"includes" and "including" shall mean "including without limitation." All
accounting terms not defined in this Agreement shall have the meaning
determined by GAAP. All capitalized terms defined herein are equally applicable
to both the singular and plural forms. This Agreement has been jointly prepared
by the parties hereto and the terms hereof shall not be construed in favor of
or against any party on account of its participation in such preparation.
10.3 Entire Agreement. This Agreement, the Disclosure Letters and the
Annexes and Exhibits hereto, contain the entire agreement among the parties
with respect to the subject matter hereof and there are no agreements,
understandings, representations or warranties between the parties other than
those set forth or referred to herein; provided that the forms of agreements
attached hereto as Exhibits shall be superseded by the copies of such
agreements and opinions executed and delivered by the respective parties
thereto, the execution and delivery of such agreements and opinions by the
parties thereto to be conclusive evidence of such parties' approval of any
change or modification therein.
10.4 No Third Party Beneficiaries. Except as otherwise provided in Section
5.15, nothing in this Agreement (whether expressed or implied) is intended to
confer upon any person other than the parties hereto and their respective
permitted successors and assigns, any rights or remedies under or by reason of
this Agreement nor is anything in this Agreement intended to relieve or
discharge the liability of any party hereto, nor shall any provision hereof
give any person any right of subrogation against, or action over against any
party.
10.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that no party hereto will assign its rights or delegate its
obligations under this Agreement without the express prior written consent of
each other party hereto
10.6 Severability. In the event that this Agreement or any other instrument
referred to herein, or any of their respective provisions, or the performance
of any such provision, is found to be invalid, illegal or unenforceable under
applicable law now or hereafter in effect, the parties shall be excused from
performance of such portions of this Agreement as shall be found to be invalid,
illegal or unenforceable under the applicable
A-45
<PAGE>
laws or regulations without, to the maximum extent permitted by law, affecting
the validity of the remaining provisions of the Agreement. Should any method of
termination of this Agreement or a portion thereof be found to be invalid,
illegal or unenforceable, such method shall be reformed to comply with the
requirements of applicable law so as, to the greatest extent possible, to allow
termination by that method. Nothing herein shall be construed as a waiver of
any party's right to challenge the validity of such law.
10.7 Amendment. This Agreement may be amended, modified or supplemented at
any time by the parties hereto, provided, however, that after receipt of the VA
Shareholder Approval or the BB Shareholder Approval, there shall be made no
amendment that by law requires further approval by such shareholders without
the further approval of such shareholders. This Agreement may be amended only
by an instrument in writing signed by each of the parties hereto.
10.8 Extension; Waiver. At any time prior to the Closing either party to
this Agreement may (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive a breach of a representation
or warranty of the other party hereto, or (iii) waive compliance by the other
party hereto with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid if set forth in a written instrument
signed by the party giving the extension or waiver. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
10.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 Governing Law. Except for Article II in so far as it relates to the
Merger, including issuance of the MINT Common Shares to holders of VA Common
Shares and the issuance of Mint Common Shares to holders of BB Common Shares,
which shall be governed by the laws of Virginia, or the Scheme, which shall be
governed by the laws of Bermuda, this Agreement shall be governed in all
respects by the laws of the State of New York without regard to any laws or
regulations relating to choice of laws (whether of the State of New York or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
10.11 Disclosure Letter. The parties acknowledge that the Disclosure Letters
(i) relate to certain matters concerning the disclosures required and
transactions contemplated by this Agreement, (ii) are qualified in their
entirety by reference to specific provisions of this Agreement, (iii) are not
intended to constitute and shall not be construed as indicating that such
matter is required to be disclosed, nor shall such disclosure be construed as
an admission that such information is material with respect to the BB or VA, as
the case may be, except to the extent required by this Agreement, and (iv)
disclosure of the information contained in one section or part of the BB
Disclosure Letter or the VA Disclosure Letter shall be deemed as proper
disclosure for all sections or parts of the BB Disclosure Letter or the VA
Disclosure Letter, as the case may be, only if appropriately cross-referenced
or if the relevance thereof is reasonably apparent from the context in which it
appears.
A-46
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed and their corporate seals to be hereto affixed and attested by their
duly authorized officers.
Markel Corporation
/s/ Steven A. Markel
By: _________________________________
Title: Vice Chairman
Terra Nova (Bermuda) Holdings ltd.
/s/ John J. Dwyer
By: _________________________________
Title: Chairman
A-47
<PAGE>
Appendix B
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 . (212) 892-3000
August 15, 1999
Board of Directors
Terra Nova (Bermuda) Holdings Ltd.
12 Par-la-Ville Road
Hamilton HM08, Bermuda
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Terra Nova (Bermuda) Holdings Ltd. (the "Company")
of the consideration to be received by such stockholders pursuant to the terms
of the Agreement and Plan of Merger and Scheme of Arrangement dated as of
August 15, 1999 (the "Agreement"), between Markel Corporation ("Markel") and
the Company. Upon consummation of the Merger and the Scheme, each as defined in
the Agreement (together, the "Transaction"), each of the Company and Markel
will be a wholly owned subsidiary of Virginia Holdings Inc. ("MINT"), which
will change its name to Markel Corporation.
Pursuant to the Agreement, each ordinary share of the Company, par value
$5.80 per share, will be converted into the right to receive .184 shares (the
"Exchange Ratio") of MINT common stock, no par value, ("New Markel common
shares"), or $34.00 in cash per share, at the election of the stockholder, but
limited to a maximum 40% cash component and maximum 60% stock component for the
total transaction value.
In arriving at our opinion, we have reviewed the draft dated August 15, 1999
of the Agreement. We also have reviewed financial and other information that
was publicly available or furnished to us by the Company and Markel including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of the Company for the period
beginning January 1, 1999 and ending December 31, 2001 prepared by the
management of the Company and certain financial projections of Markel for the
period beginning January 1, 1999 and ending December 31, 2003 prepared by the
management of Markel. For earnings projections of the Company for periods
subsequent to December 31, 2001, we have used I/B/E/S long term earnings growth
estimates. In addition, we have compared certain financial and securities data
of the Company and Markel with financial data of various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of ordinary shares of the Company and common stock of
Markel, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and Markel or
their respective representatives, or that was otherwise reviewed by us. With
respect to the financial projections (or underlying assumptions, as the case
may be) supplied to us, we have relied on representations that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company and Markel as to the
future operating and financial performance of the Company and Markel,
respectively. We have not assumed any responsibility for making an independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by us. We have assumed that the
receipt of New Markel shares qualifies as a tax-free reorganization under
section 368(a) of the Internal Revenue Code of 1986, as amended.
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<PAGE>
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Transaction compared to other business strategies being
considered by the Company's Board of Directors, nor does it address the Board's
decision to proceed with the Transaction. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed transaction or as to whether such stockholder should elect to receive
cash or New Markel common shares in the Transaction. In addition, we are
expressing no opinion as to the prices at which New Markel common shares will
trade at any time.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company and Markel in
the past and has been compensated for such services. In addition, (i)
affiliates of DLJ own, in the aggregate, approximately 18% of the outstanding
ordinary shares of the Company; (ii) two members of the Board of Directors of
the Company are Managing Directors of DLJ or one or more of its affiliates; and
(iii) certain shareholders of the Company, including affiliates of DLJ, will
enter into stockholder agreements, pursuant to which such shareholders have
agreed to vote the Company's ordinary shares held by them in favor of the
Transaction.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the stockholders of the
Company, other than stockholders who are affiliates of DLJ, pursuant to the
Agreement is fair to such stockholders from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Perry H. Braun
By: _________________________________
Perry H. Braun
Managing Director
B-2
<PAGE>
Appendix C
[LOGO OF SALOMON SMITH BARNEY]
August 15, 1999
Board of Directors
Markel Corporation
4551 Cox Road
Glen Allen, Virginia 23060
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of issued and outstanding common shares, no par value per
share ("Company Common Shares"), of Markel Corporation (the "Company") of the
Scheme Consideration (as defined below) proposed to be paid pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger and Scheme of Arrangement to be dated as of August 15, 1999 (the "Merger
Agreement"), between the Company and Terra Nova (Bermuda) Holdings Ltd. ("Terra
Nova"). As more fully described in the Merger Agreement, (A) (i) MINT Sub Ltd.,
a wholly owned subsidiary of Virginia Holdings Inc. (the "New Holding
Company"), which in turn is a wholly owned subsidiary of the Company, will
merge with and into the Company (the "Merger") and (ii) each outstanding
Company Common Share will be converted into one Common Share, no par value, of
the New Holding Company (collectively, "New Holding Company Common Shares") and
(B) pursuant to a Scheme of Arrangement between Terra Nova and certain of its
shareholders (the "Scheme"), each outstanding Class A Ordinary Share, par value
$5.80 per share, of Terra Nova and each outstanding Class B Ordinary Share, par
value $5.80 per share, of Terra Nova (collectively, "Terra Nova Common Shares")
will be converted into the right to receive, at the option of the holder
thereof (subject to certain limitations specified in the Merger Agreement),
(i) $34.00 in cash or (ii) 0.1840 of one New Holding Company Common Share (the
"Scheme Consideration"). Upon consummation of the Merger and the Scheme, each
of the Company and Terra Nova will be a wholly owned subsidiary of the New
Holding Company.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of the Company and certain senior officers, directors and other
representatives and advisors of Terra Nova concerning the businesses,
operations and prospects of the Company and Terra Nova. We examined certain
publicly available business and financial information relating to the Company
and Terra Nova as well as certain financial forecasts and other information and
data for the Company and Terra Nova which were provided to or otherwise
discussed with us by the respective management teams of the Company and Terra
Nova, including information relating to certain strategic implications and
operational benefits anticipated to result from the Merger and the Scheme. We
reviewed the financial terms of the Merger and the Scheme as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of the Terra Nova Common Shares; the
historical and projected earning and other operating data of the Company and
Terra Nova; and the capitalization and financial conditions of the Company and
Terra Nova. We considered, to the extent publicly available, the financial
terms of certain other transactions recently effected which we considered
relevant in evaluating the Merger and the Scheme and analyzed certain
financial, stock market and other publicly available information relating to
the businesses of other companies whose operations we considered relevant in
evaluating those of the Company and Terra Nova. We also evaluated the potential
pro forma financial impact of the Merger and the Scheme on the Company. In
connection with our engagement, we were not requested to and did not approach,
or hold discussions with, third parties to evaluate alternate acquisition
candidates for the Company. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise
C-1
<PAGE>
reviewed by or discussed with us. We have also assumed with your consent, that
the final terms of the Merger Agreement reviewed by us in draft form will not
vary materially from the draft reviewed by us and that the Merger will qualify
as a tax-free reorganization for U.S. federal income tax purposes. With respect
to financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with us, we have been advised by the management of the
Company that such forecasts and other information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company and the strategic implications and operational
benefits anticipated to result from the Merger and the Scheme. Our opinion, as
set forth herein, relates to the relative values of the Company and Terra Nova.
We are not expressing any opinion as to what the value of the New Holding
Company Common Shares actually will be when issued pursuant to the Merger and
the Scheme, or the price at which the Company Common Shares or the Terra Nova
Common Shares will trade subsequent to the announcement of the Merger and the
Scheme. We have not made nor have we been provided with an independent
evaluation or appraisal of the assets and liabilities (contingent or otherwise)
of the Company and Terra Nova nor have we made any physical inspection of the
properties or assets of the Company or Terra Nova. Our opinion is necessarily
based upon information available to us, and financial, stock market, and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Salomon Smith Barney Inc. has acted as financial advisor to the Company in
connection with the proposed Merger and Scheme and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Scheme. We also will receive a fee in connection with the delivery of this
opinion. We have in the past provided investment banking services to the
Company, for which services we have received compensation. In the ordinary
course of our business, we and our affiliates may actively trade or hold the
securities of the Company and Terra Nova for our own account or for the account
of our customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
Citigroup Inc. and its affiliates) may maintain relationships with the Company
and Terra Nova.
Our advisory services and opinion expressed herein are provided for the
information of the Board of Directors of the Company in its evaluation of the
proposed Merger and Scheme, and our opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on the proposed Merger or the Scheme. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Salmon Smith Barney Inc. be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Scheme Consideration to be
paid is fair, from a financial point of view, to the holders of issued and
outstanding Company Common Shares.
Very truly yours,
/s/ Salomon Smith Barney
C-2
<PAGE>
Appendix D
[Logo]
TERRA NOVA (BERMUDA) HOLDINGS LTD.
RICHMOND HOUSE
12 PAR-LA-VILLE ROAD
HAMILTON HM 08
BERMUDA
LETTER FROM THE CHAIRMAN
IN CONNECTION WITH THE SCHEME OF ARRANGEMENT
October , 1999
Dear Shareholders:
Terra Nova (Bermuda) Holdings Ltd. has proposed a Scheme of Arrangement to
be made between Terra Nova and holders of Class A ordinary shares and Class B
ordinary shares. Under the Scheme of Arrangement, Terra Nova will become a
wholly owned subsidiary of Markel Holdings. Terra Nova ordinary shares will be
canceled and the shareholders of Terra Nova will have the opportunity to
receive either 0.184 of a Markel Holdings common share for each Class A
ordinary share or Class B ordinary share held or $34.00 for each Class A
ordinary share or Class B ordinary share held or a combination of cash and
Markel Holdings common shares, subject, in each case, to the limitations set
forth under the scheme.
Following this letter is an Explanatory Statement that will provide you with
a summary of the Scheme of Arrangement, including a description of the steps
involved in the Scheme, the consideration to be received by shareholders in the
Scheme, how you make an election regarding the consideration, the conditions to
the effectiveness of the Scheme and the business of Markel Holdings. Following
the Explanatory Statement is the Scheme of Arrangement that will be filed with
the Registrar of Companies once it receives the sanction of the Supreme Court
of Bermuda.
One of the conditions to the Scheme of Arrangement is the approval of the
Scheme by holders of Class A ordinary shares and Class B ordinary shares, each
voting as a class, at separate court meetings. A separate Notice of Court
Meetings and a proxy card for use at the court meetings has been included in
the joint proxy statement/prospectus of which this letter, the Explanatory
Statement and the Scheme of Arrangement are a part. As indicated in the Notice
of Court Meetings, the court meetings will be held at the offices of Terra Nova
(Bermuda) Holdings Ltd., Richmond House, 12 Par-La-Ville Road, Hamilton HM 08,
Bermuda on the 6th day of December 1999 at 10:00 a.m. for Class A ordinary
shares and 10:15 a.m. for Class B ordinary shares, respectively.
The vote of all holders of Class A and Class B ordinary shares at the court
meetings is important. Whether or not you attend the court meetings, please
sign, date and return the accompanying proxy card in the postage prepaid
envelope as soon as possible. If you attend the court meetings, you may revoke
your proxy and vote your Terra Nova Class A ordinary shares or Class B ordinary
shares in person.
The Board of Directors unanimously recommends that the holders of Terra Nova
Class A ordinary shares and Class B ordinary shares vote for approval and
adoption of the Scheme of Arrangement at the Class A and Class B court
meetings, respectively.
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<PAGE>
Following the court meetings, and assuming the resolutions to be passed at
the court meetings are approved, application will be made to the Supreme Court
of Bermuda to sanction the Scheme of Arrangement pursuant to Section 99 of the
Companies Act 1981.
You are urged to read carefully the joint proxy statement/prospectus, the
Explanatory Statement, the Scheme of Arrangement and the Notice of Court
Meetings.
Sincerely,
John J. Dwyer
Chairman
Terra Nova (Bermuda) Holdings Ltd.
D-2
<PAGE>
SCHEME OF ARRANGEMENT
EXPLANATORY STATEMENT
(in compliance with Section 100 of the Companies Act)
Introduction Terra Nova (Bermuda) Holdings Ltd. proposes to effect an
arrangement with the holders of Terra Nova ordinary shares pursuant to the
scheme of arrangement which will result in Terra Nova becoming a wholly-owned
subsidiary of Markel Holdings. Under the scheme, the Terra Nova ordinary
shares will be cancelled and the shareholders of Terra Nova will have the
opportunity to receive either 0.184 of a Markel Holdings common share for each
Class A ordinary share or Class B ordinary share held, or $34.00 for each
Class A ordinary share or Class B ordinary share held or a combination of cash
and Markel Holdings common shares, in each case subject to the proration
provisions under the scheme of arrangement.
The purpose of this document is to explain the scheme of arrangement, the
effect of the scheme of arrangement and the steps necessary for the
implementation of the scheme of arrangement. Your attention is drawn in
particular to the joint proxy statement/prospectus which gives the reasons for
the scheme of arrangement and the letter of the Chairman of Terra Nova, which
recommends that the shareholders of Terra Nova vote in favour of the
resolutions to be proposed at the meetings.
1. The Scheme of Arrangement The scheme of arrangement comprises the
following principal steps:
(a) the issued share capital (but not the authorised share capital) of
Terra Nova will be reduced to $12,000 by canceling and extinguishing all of
the outstanding Class A and Class B ordinary shares, except for 2,069 Class
A ordinary shares held by Markel Corporation or its transferee;
(b) Terra Nova will apply the credit which will arise in its books of
account as a result of the cancellation of the outstanding Class A and
Class B ordinary shares (except for the 2,069 Class A ordinary shares held
by Markel Corporation or its transferee) in paying up in full at par an
appropriate number of Class A ordinary shares to be issued to Markel
Holdings;
(c) in exchange for the cancellation of the outstanding Class A and
Class B ordinary shares, Markel Holdings will pay the scheme consideration
to Terra Nova shareholders, which will consist of a combination of cash
consideration of $34.00 per Terra Nova ordinary share and stock
consideration of 0.184 of a Markel Holdings common share per Terra Nova
ordinary share in accordance with the election procedures set out below and
more fully described in the Agreement and Plan of Merger and Scheme of
Arrangement between Terra Nova and Markel Corporation, dated August 15,
1999.
The maximum amount of cash that can be paid to Terra Nova shareholders and
option holders is fixed at 45% of the total consideration. Also, the maximum
number of Markel Holdings common shares that Terra Nova shareholders and
option holders can receive is fixed at 55% of the total consideration. If more
cash consideration is elected than the amount of cash available for payment or
if more shares are elected than are available for issuance, there will be a
proration, and the Terra Nova ordinary shares will be exchanged for a
combination of Markel Holdings common shares and cash that results from the
proration.
2. Election Procedure.
Terra Nova shareholders will be entitled to specify:
. the number of Terra Nova ordinary shares that the holder wishes to have
converted into Markel Holdings common shares; and
. the number of Terra Nova ordinary shares that the holder wishes to have
converted into cash.
Terra Nova shareholders must make their election to receive cash or Markel
Holdings common shares by delivering to the exchange agent, Chase Mellon
Shareholder Services L.L.C., a completed election form together with the
certificates representing their shares and any other required documentation
specified in the election form. The election form, certificates and other
documentation must be received by the exchange agent
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no later than the close of business on the third business day before the date
the merger and scheme of arrangement become effective. We anticipate that the
merger and scheme of arrangement will be completed on December , 1999, the
date following the court hearing before the Supreme Court of Bermuda.
Accordingly, shareholders who wish to make any election must ensure that their
materials are received by the exchange agent no later than 5:00 p.m. eastern
time on December , 1999, three business days before the anticipated effective
date.
The merger and scheme of arrangement will not be completed until all
conditions to the merger and the scheme of arrangement are satisfied or waived,
including receipt of all necessary regulatory approvals. These regulatory
approvals are expected to be received by the time of the court hearing,
scheduled for December , 1999, which is seven days after the date of Terra
Nova's court meetings and special general meeting. If the merger and scheme of
arrangement are not completed by December , 1999, Markel and Terra Nova will
issue a press release on the Dow Jones News Service at least five days before
completing the merger and scheme of arrangement. The press release will specify
the last date for submitting and/or changing election forms. For a discussion
of the key regulatory approvals necessary for the merger and scheme of
arrangement, please see "Conditions of the Scheme" below.
If a broker holds Terra Nova shares in "street name" the broker, dealer,
bank or other financial institution that holds the shares will have to be
instructed to make an election on your behalf.
The election decisions of each holder of Terra Nova ordinary shares are
subject to the proration provisions explained below. There is no guarantee that
a Terra Nova shareholder will receive cash and/or shares in accordance with the
holder's election decisions.
Markel Holdings will not issue a certificate representing a fractional
Markel Holdings common share in exchange for Terra Nova ordinary share
certificates. Each holder of Terra Nova ordinary shares who, after taking into
account all Markel Holdings shares that holder is entitled to receive in the
aggregate, would otherwise be entitled to receive a fractional Markel Holdings
common share will be entitled to receive cash equal to the product of such
fractional interest multiplied by the closing trading price for a Markel common
share on the day preceding the day of closing.
3. Proration of Consideration.
Pursuant to the scheme of arrangement and the merger agreement, fifty-five
percent of the Terra Nova ordinary shares and the cash value of the options
(the difference between the cash consideration of $34.00 per share and the
exercise price of such options) will be converted into Markel Holdings common
shares at a rate of 0.184 Markel Holdings common shares for each Terra Nova
ordinary share. Pursuant to the scheme of arrangement and the merger agreement,
forty-five percent of the Terra Nova ordinary shares and the cash value of the
options will be converted into cash at the rate of $34.00 per Terra Nova
ordinary share. The maximum amount of cash to be paid to Terra Nova
shareholders and option holders pursuant to the scheme of arrangement and the
merger agreement is approximately $407 million less the cost of fractional
shares and the cash paid to participants in the Terra Nova Directors Share Unit
Plan. The maximum number of Markel Holdings common shares that is expected to
be issued to Terra Nova shareholders and option holders pursuant to the scheme
of arrangement and the merger agreement is approximately 2,694,000.
If cash elections are received for Terra Nova ordinary shares and Terra Nova
options that are equal to or less than the maximum amount of cash consideration
available, each Terra Nova ordinary share and Terra Nova option covered by a
cash election will be converted into the right to receive cash. If cash
elections are received for Terra Nova ordinary shares and Terra Nova options
that exceed the maximum amount of cash consideration available:
. Terra Nova ordinary shares and Terra Nova options which elected to
receive Markel Holdings common shares, and non-electing ordinary shares
and options, will be converted into Markel Holdings common shares; and
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. all Terra Nova ordinary shares and Terra Nova options which elected to
receive cash will receive cash on a pro rata basis up to the maximum
amount of the cash consideration available and will receive the
remainder of their consideration in Markel Holdings common shares.
If share elections for Terra Nova ordinary shares and Terra Nova options
are received that are equal to or less than the maximum amount of stock
consideration available, each Terra Nova ordinary share and Terra Nova option
covered by a share election will be converted into the right to receive Markel
Holdings common shares.
If share elections for Terra Nova ordinary shares and Terra Nova options
are received that exceed the total amount of stock consideration available:
. Terra Nova ordinary shares and Terra Nova options which elected to
receive cash, and non-electing ordinary shares and options, will be
converted to cash; and
. all Terra Nova ordinary shares and Terra Nova options which elected to
receive Markel Holdings common shares will receive Markel Holdings
common shares on a pro rata basis up to the maximum amount of stock
consideration available and the remainder of their consideration in
cash.
For the purpose of these proration provisions, a shareholder of Terra Nova
who does not properly complete his election form and deliver it to the
exchange agent as required is deemed not to have elected either shares or
cash.
All non-electing Terra Nova ordinary shares and non-electing Terra Nova
options will receive shares and cash pro rata based on the amount of stock
consideration still available and the cash consideration still available after
the share elections and the cash elections have been counted and prorated, if
necessary.
4. Conditions of the Scheme of Arrangement. The scheme of arrangement will
become effective and binding on all Terra Nova shareholders if the following
conditions are satisfied or, if permissible, waived:
(a) the scheme of arrangement is duly approved by the Terra Nova Class A
and Class B shareholders present and voting either in person or by proxy at
the Class A and Class B court meetings, respectively;
(b) the necessary resolutions to approve and implement the agreement and
scheme of arrangement are duly passed at the special general meeting of the
holders of the Class A ordinary shares and the agreement is duly approved
by Markel's shareholders;
(c) the Markel Holdings common shares are authorized for listing on the
New York Stock Exchange;
(d) the scheme of arrangement is sanctioned by the Supreme Court of
Bermuda and a copy of the Court order as well as the memorandum of
reduction of share capital and other particulars required by section 46 of
the Companies Act are delivered to, and filed with, as the case may be, the
Registrar of Companies in Bermuda;
(e) all required regulatory approvals or waiting periods shall have been
obtained or lapsed, respectively;
(f) the effectiveness of the registration statement of which the joint
proxy statement/prospectus is a part with no stop orders in effect or
threatened;
(g) the absence of any effective temporary restraining order,
preliminary or permanent injunction or other similar order or legal
restraint or prohibition which would prevent the consummation of the
transaction;
(h) the waiting period, and any extension of time thereof, applicable to
the transactions under the U.S. antitrust laws must have expired or have
been terminated;
(i) the following conditions to the obligations of Markel to effect the
transactions have been satisfied:
(i) the accuracy, as of the date of the transactions, of the
representations and warranties of Terra Nova in the agreement, subject
to qualifications set forth in the agreement;
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(ii) there must have been no material adverse change in the assets,
liabilities, condition (financial or otherwise), results of operations
or business of Terra Nova and its subsidiaries taken as a whole since
June 30, 1999 or any circumstance that with the passage of time would
result in a material adverse change. Material adverse change does not
include (A) changes solely in the market price of Markel shares or
Terra Nova shares, or (B) any change resulting from changes in general
economic conditions, changes in the market levels of investment
portfolios or changes affecting the property-casualty insurance
industry generally;
(iii) Terra Nova must have materially performed all covenants and
agreements to be performed by it before the closing and materially
complied with all conditions required by the agreement to be complied
with by it before the closing; and
(iv) Markel must receive from McGuire, Woods, Battle & Boothe LLP on
the closing date a legal opinion that the merger will be treated for
United States federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code and that
Markel and Markel Holdings will each be a party to that reorganization
within the meaning of Section 368(b) of the Internal Revenue Code;
(j) the following conditions to the obligations of Terra Nova to effect
the transactions have been satisfied:
(i) the accuracy, as of the date of the transactions, of
representations and warranties of Markel in the agreement, subject to
qualifications set forth in the agreement;
(ii) there must have been no material adverse change in the assets,
liabilities, condition (financial or otherwise), results of operations
or business of Markel and its subsidiaries taken as a whole since June
30, 1999, or any circumstance that with the passage of time would
result in a material adverse change. Material adverse change does not
include (A) changes solely in the market price of Markel common shares
or (B) changes resulting from changes in general economic condition,
changes in the market level of investment portfolios or changes
affecting the property-casualty insurance industry generally;
(iii) Markel must have materially performed all covenants and
agreements required to be performed by it before the closing and
materially complied with all conditions required by the agreement to be
complied with by it before the closing; and
(iv) Terra Nova must receive an opinion from Debevoise & Plimpton on
the closing date to the effect that the scheme of arrangement, when
integrated with the merger, will be treated for United States federal
income tax purposes as a transaction described in Section 351 of the
Internal Revenue Code.
Neither Markel nor Terra Nova may rely on the failure of any condition set
forth above to be satisfied if the failure of that condition was caused by the
party's own failure to use reasonable efforts to complete the transactions
contemplated by the agreement or the other agreements entered into in
connection with the agreement.
5. The Effect of the Scheme of Arrangement. As a result of the
implementation of the scheme, Terra Nova will become a wholly-owned subsidiary
of Markel Holdings.
Application has been made to the New York Stock Exchange for the listing of
the Markel Holdings common shares.
The implementation of the scheme of arrangement will not of itself, other
than by way of expenses relating to the scheme, alter the underlying net
assets, business or financial position of Terra Nova and its subsidiaries.
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6. Meetings
Date, Time and Place
The Terra Nova court and special general meetings will be held at the
offices of Terra Nova, Richmond House, 12 Par-La-Ville Road, Hamilton HM 08,
Bermuda on Monday, , at 10:00 a.m. local time. The court meeting
for the Class A ordinary shareholders will be held at 10:00 a.m., followed by
the court meeting for the Class B ordinary shareholders. The special general
meeting will be held at 10:30 a.m. or immediately after the court meetings.
Purpose
At the court meetings, holders of Terra Nova Class A ordinary shares and
Class B ordinary shares, each acting separately as a class, will be asked to
vote on a proposal to approve the scheme of arrangement.
At the Terra Nova special general meeting, Terra Nova will ask the holders
of Terra Nova Class A ordinary shares to approve the Agreement and Plan of
Merger and Scheme of Arrangement, dated as of August 15, 1999 between Terra
Nova and Markel, and the transactions contemplated by the agreement, including
the scheme of arrangement and the resulting changes to issued share capital of
Terra Nova. Terra Nova Class A shareholders may also vote upon any other matter
that may properly come before the special general meeting or any adjournment
thereof.
Record Date and Vote Required
Record owners of Terra Nova Class A ordinary shares at the close of business
on , 1999 may vote at the Terra Nova special general meeting. The
affirmative vote of a majority in number of Terra Nova Class A shareholders who
represent at least 75 percent in value of the Terra Nova Class A ordinary
shares present and voting at the special general meeting is required to approve
the agreement and the transactions contemplated by the agreement, including the
scheme of arrangement and the resulting changes to issued share capital.
Record owners of Terra Nova Class A or Class B ordinary shares on ,
1999 may vote at the Terra Nova court meetings. On , 1999 there were
Class A ordinary shares outstanding and 1,796,217 Class B ordinary shares
outstanding. Approval of the proposal to adopt the scheme of arrangement at the
court meetings will require the affirmative vote of
. a majority in number of the Terra Nova Class A shareholders who
represent at least 75% in value of the Terra Nova Class A ordinary
shares present and voting at the court meeting and
. a majority in number of Terra Nova Class B shareholders who represent at
least 75% in value of the Terra Nova Class B ordinary shares present and
voting at the court meeting.
7. Share Certificates All certificates representing Terra Nova Class A and
Class B ordinary shares subject to the scheme of arrangement will, immediately
after the scheme of arrangement becoming effective, represent the right to
receive the scheme consideration.
8. Directors' Interests
In considering the recommendation of the Terra Nova board that Terra Nova
shareholders vote for the transactions, Terra Nova shareholders should be aware
that, as described below, members of Terra Nova's management and board may have
interests in the transactions that are different from, or in addition to, their
interests solely as shareholders of Terra Nova and that may create potential
conflicts of interest. The Terra Nova board was aware of these interests when
it considered and approved the agreement and the transactions.
Board of Directors of Markel
Following the transactions, Markel will take all necessary action to elect
three directors of Terra Nova, Nigel Rogers, John J. Byrne and Mark J. Byrne,
as directors of Markel Holdings.
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Employment Agreements--Change of Control Arrangements
Terra Nova has employment agreements with three of its executive officers:
John J. Dwyer, Chairman and a director; Nigel H.J. Rogers, President and Chief
Executive Officer and a director; and Jean M. Waggett, Senior Vice President,
General Counsel and Corporate Secretary. Each agreement provides for
. a base salary which is subject to review for increase at the discretion
of the board;
. participation in Terra Nova's annual and long term incentive
compensation programs;
. reimbursement for, or payment of, reasonable expenses; and
. the right to participate in other employee or benefit programs as are in
effect from time to time.
The employment agreements of Messrs. Dwyer and Rogers each expire on
December 31, 2002. The employment agreement of Ms. Waggett expires on December
31, 2001. Each agreement is automatically extended for an additional period of
one year from the expiration date and each anniversary thereof unless Terra
Nova or the applicable executive provides written notice at least 90 days
prior to the then-scheduled expiration date. Each agreement is automatically
extended upon a change of control until the third anniversary, second
anniversary for Ms. Waggett, of the date of such change of control. If Terra
Nova terminates the employment of any of these executives other than for
cause, including termination for gross misconduct or dishonesty, or any of
these executive terminates his or her employment at any time for a defined
good reason or any executive voluntarily terminates employment without good
reason during the one year period beginning on a defined change of control,
then Terra Nova will pay to such executive
. the executive's base salary through the termination date;
. a cash amount, without offset for other amounts payable in conjunction
with a change of control, equal to three times, for Ms. Waggett, two
times, the sum of (i) such executive's base salary and (ii) the greater
of (x) the highest bonus amount paid to or deferred by such executive in
respect of any of the last three fiscal years of Terra Nova ending
immediately prior to the change of control or (y) the amount that would
have been payable to such executive as a target bonus for the year in
which the change of control occurs; and
. benefits and perquisites paid annually to the executive.
The merger and scheme of arrangement will be a change of control under the
employment agreements.
Mr. Dwyer and Ms. Waggett are U.S. citizens and may be subject to excise
taxes under Section 280G of the Internal Revenue Code by reason of payments
made to them on account of the change of control. If this tax is imposed on
either of them, Terra Nova must make specified additional payments to
compensate the affected executive for the excise tax and any income,
employment and excise taxes payable in respect of the additional payment.
If terminations of employment occur in the 12 months following a change of
control, Messrs. Dwyer and Rogers and Ms. Waggett would be entitled to
payments estimated to be approximately $3.4 million, $ and $1.1 million,
respectively, together with any necessary additional payments to compensate
for excise taxes and the taxes in respect of the additional payments.
Markel Holdings expects to enter into a new employment agreement with Mr.
Rogers which is expected to provide for him to continue employment at annual
compensation levels comparable to those under his current agreement and to
receive a $5 million bonus payment in a combination of cash and Markel
Holdings common shares, one half of which will be paid immediately with the
remainder vesting in six-month increments over thirty months. The new
agreement is also expected to provide the same change of control benefit
provisions as are in Mr. Rogers' existing agreement, including those resulting
from the merger and scheme, for a period of one year, with the qualification
that the initial bonus payment of $2.5 million will be deducted from the
payment that may become due under the change in control benefit provisions.
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Effects of Transaction on Terra Nova Share Option Plans
Terra Nova's executive officers hold options for Terra Nova ordinary shares
pursuant to Terra Nova's Approved and Non Approved Executive Share Option
Schemes. The plans provide the right to purchase Class A ordinary shares at the
fair market value as of the date grant. At June 30, 1999, the outstanding
option shares had exercise prices between $5.80 and $27.05. Options granted in
1997 have a price adjustment provision that, as of each January 1 prior to the
date the option is exercised, increases the option exercise price per share
pursuant to a stated formula. Options generally vest over a five-year period
and expire no later than 10 years after the grant date. In connection with the
merger and scheme of arrangement, escalation of exercise prices after August
15, 1999 has been eliminated and all of the options under the plans will, at
their election, be treated as fully exercisable at the effective time of the
merger and scheme of arrangement. Each of these executives holds options that,
in the ordinary course, would not have been exercisable and vested at the
effective time. Terra Nova option holders may elect to receive the difference
between $34.00 and the exercise price of the option in the form of cash, Markel
Holdings shares or a combination of both.
Terra Nova Directors Plan
Terra Nova's non-employee directors are participants in Terra Nova's 1997
Non-Employee Directors Share Unit Plan, pursuant to which they may elect to
defer all or a portion of their annual director's fee in the form of share
units in the plan in lieu of cash. At the effective time of the merger and
scheme of arrangement, each participant will receive, in accordance with the
terms of the plan $34.00 per share unit in the plan plus the amount of cash
that had been credited to the participant in accordance with the plan.
Octavian Stock Option Plan
In connection with its acquisition of Octavian Syndicate Management Limited,
Terra Nova established the Octavian Stock Option Plan providing for the grant
of options to members of the management of Octavian, including Mr. Rogers,
based on profit commissions received by Octavian for the 1996 to 2000 years of
account. It is expected that Mr. Rogers will receive 13% of the options to be
granted. Under the Octavian Stock Option Plan, these members of management will
receive annual option grants to purchase a number of ordinary shares equal in
the aggregate to
. 90% of the profit commission received by Octavian from the Octavian
Syndicates (less underwriters' and management bonuses relating thereto
and corporate taxes) for each year of account, divided by
. the fully-diluted net asset value (as defined in the Octavian Stock
Option Plan) per ordinary share of Terra Nova as of the end of that
year.
The aggregate Profit Commission Component for the 1996 to 2000 underwriting
years of account is subject to a maximum of (Pounds)10.0 million ($16.0
million, assuming an exchange rate of $1.60 to (Pounds)1.0) and no further
options shall be issued once such maximum has been reached. The options will be
granted upon receipt of the profit commissions by Octavian on closure of each
year of account under applicable Lloyds' regulations, which currently are the
years 1999 to 2003 with regard to the years 1996 to 2000, respectively. The
options have a nominal exercise price and become exercisable on or after the
January 1 next succeeding the date of grant, commencing January 1, 2000,
provided that all options granted after January 1, 2002 become immediately
exercisable. As of December 31, 1998, 214,158 Terra Nova shares were reserved
for grant under the Octavian Stock Option Plan.
Prior to the effective time of the merger and scheme of arrangement, the
parties will attempt either to terminate the Octavian Stock Option Plan for
consideration to be agreed upon by the participants of the plan and Markel or
to amend the terms of the plan so that the participants will receive up to a
maximum of 110,400 Markel Holdings options in lieu of options for Terra Nova
ordinary shares.
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Terra Nova Special Bonus
Terra Nova's board of directors has declared a one-time bonus in the amount
of $2 million for Mr. Rogers in recognition of his contribution to Terra Nova.
This bonus will be payable as of the effective time of the transactions.
New Benefit Plan
Markel Holdings expects to establish a new benefit plan designed to replace
Terra Nova's existing stock option plan for key management of Terra Nova which
would include current Terra Nova executive officers other than Mr. Rogers. This
plan is expected to allocate $7.75 million in Markel Holdings common shares,
cash, or a combination of both, for awards which are expected to be made in
five equal increments over a 30-month period.
Interests of Financial Advisor
Donaldson, Lufkin & Jenrette has acted as financial advisor to Terra Nova
and provided a fairness opinion regarding the proposed transactions and is
receiving customary fees from Terra Nova. Affiliates of Donaldson, Lufkin &
Jenrette are shareholders of Terra Nova and their new shares of Markel Holdings
will have the benefit of a registration rights agreement. Robert S. Fleischer,
a director of Terra Nova, is a managing director of Donaldson, Lufkin &
Jenrette Securities Corporation and David L. Jaffe, a director of Terra Nova,
is a managing director of DLJ Merchant Banking, Inc., affiliates of which are
shareholders of Terra Nova.
Registration Rights
Markel Holdings common shares that will be issued to John J. Byrne and
related entities over which he has voting or dispositive power for Terra Nova
ordinary shares and to Marsh & McLennan Risk Capital Holdings, Ltd. and related
entities will have the benefit of a registration rights agreement. Mr. Byrne is
a director of Terra Nova and Mr. Phillip F. Petronis, a director of Terra Nova,
is an executive officer of an affiliate of Marsh & McLennan.
Indemnification and Insurance
The agreement also provides that after the effective time, Markel Holdings
will indemnify the present and former officers and directors of Terra Nova,
subject to specified limitations, for all claims arising as a result of their
service to Terra Nova, or relating to the agreement and the transactions, and
to maintain directors and officers liability insurance coverage for Terra
Nova's officers and directors for a period of seven years.
9. Legal Messrs. Conyers Dill & Pearman of Hamilton, Bermuda, act as legal
advisers to the Terra Nova Group and have rendered legal advice in connection
with the reorganisation.
10. Inspection of Documents Copies of the following documents are available
for inspection at any time during the normal business hours on any day
(excluding Saturdays, Sundays and public holidays) free of charge at the
offices of Terra Nova in Bermuda, namely:
i the memorandum of association and bye-laws of Terra Nova;
ii the Agreement and Plan of Merger and Scheme of Arrangement; and
iii. the Articles of Incorporation and bylaws of Markel Holdings.
11. Additional Information Information relating to Markel Holdings is set
out in the next section of this document.
12. Action to be Taken Shareholders are requested to complete, sign and mail
your proxy card in the enclosed return envelope, as soon as possible, so that
your shares may be represented at the special general
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meeting and court meetings. In order to assure that your vote is obtained,
please complete, sign and mail your proxy as instructed on your proxy card even
if you currently plan to attend the applicable meeting or meetings in person.
If you want to change your vote send in a later-dated, signed proxy card to
Terra Nova's corporate secretary or you may attend the special general meeting
or court meetings, in person and vote. You may also revoke your proxy by
sending a notice of revocation to Terra Nova's corporate secretary at: Terra
Nova (Bermuda) Holdings Ltd., Richmond House, 12 Par-La-Ville Road, Hamilton HM
08, Bermuda.
INFORMATION RELATING TO MARKEL HOLDINGS
Markel Holdings is a Virginia corporation that has been formed for the
purpose of the transactions. Markel Holdings is currently a subsidiary of
Markel. Upon completion of the transactions, Markel Holdings will be the parent
corporation of Markel and Terra Nova.
As of the record date, there were Markel Corporation common shares
issued and outstanding and Class A ordinary shares and 1,796,217 Class B
ordinary shares of Terra Nova (Bermuda) Holdings Ltd. issued and outstanding.
Based upon the number of Markel Corporation common shares and Terra Nova
(Bermuda) Holdings Ltd. ordinary shares and options outstanding as of the
record date, approximately 8,267,000 Markel Holdings common shares will be
outstanding immediately following the Effective Time, of which approximately
2,694,000 shares, representing approximately 33% of the total, will be held by
former holders of Terra Nova (Bermuda) Holdings Ltd.
Description of Markel Holdings Capital Shares
Markel Holdings's authorized capital consists of 50,000,000 common shares,
no par value, and 10,000,000 preferred shares, $1.00 par value. At , 1999,
100 common shares were outstanding all of which were held by Markel. At that
date, no preferred shares were outstanding.
Preferred Shares
Preferred shares of Markel Holdings are issuable in one or more series from
time to time at the direction of the board of directors. The board of directors
is authorized, with respect to each series, to fix its designation; relative
rights, including voting, dividend, conversion, sinking fund and redemption
rights; preferences including with respect to dividends and on liquidation; and
limitations. The board of directors, without shareholder approval, can issue
preferred shares with voting and conversion rights that could adversely affect
the voting power of the holders of common shares. This right of issuance could
be used as a method of preventing a party from gaining control of Markel
Holdings. Markel Holdings presently has no plans or arrangements for the
issuance of any preferred shares.
Common Shares
Each holder of common shares of Markel Holdings is entitled to one vote for
each share held of record on each matter submitted to a vote of shareholders.
Cumulative voting in the election of directors is not permitted. As a result,
the holders of more than 50% of the outstanding shares have the power to elect
all directors. The quorum required at a shareholders' meeting for consideration
of any matter is a majority of the shares entitled to vote on that matter,
represented in person or by proxy. If a quorum is present, the affirmative vote
of a majority of the shares voting on the matter at the meeting is required for
shareholder approval, except in the case of certain major corporate actions,
such as merger or liquidation of Markel Holdings, an amendment to Markel
Holdings' articles of incorporation, or the sale of all or substantially all of
Markel Holdings' assets, with respect to which, under the provisions of Markel
Holdings' articles of incorporation, approval is required by the affirmative
vote of more than two-thirds of all shares entitled to vote on the matter,
whether or not
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represented at the meeting. These provisions, together with Markel Holdings'
ability to issue preferred shares with disproportionately high voting power
could be used to, or have the effect of, preventing or deterring a party from
gaining control of Markel Holdings, whether or not beneficial to public
shareholders, and could discourage certain types of tactics that involve an
actual or threatened change of control of Markel Holdings.
Subject to the rights of any holders of preferred shares of Markel
Holdings, the holders of common shares are entitled to receive dividends when,
as, and if declared by the board of directors out of funds legally available
therefor and, in the event of liquidation, dissolution or winding up of Markel
Holdings, to share ratably in all assets remaining after the payment of
liabilities. There are no preemptive or other subscription rights, conversion
rights, or redemption or sinking fund provisions with respect to common
shares. All common shares outstanding upon consummation of this offering will
be legally issued, fully paid and nonassessable.
The transfer agent and registrar for the Markel Holdings common shares is
First Union National Bank.
Articles of Incorporation
Markel Holdings is organized to engage in any lawful business not required
by the Virginia Stock Corporation to be stated in the articles of
incorporation.
Bylaws.
The bylaws of Markel Holdings provide:
Directors. The business and affairs of Markel Holdings will be managed
under the direction of the board of directors, subject to any limitations set
forth in the Markel Holdings articles of incorporation. The number of
directors is fixed from time to time by the board of directors at a number not
less than 3 nor more than 11. Immediately after the scheme of arrangement, the
number of directors is expected to be 11. Each director holds office until his
death, resignation or removal or until his successor is elected.
Directors are elected at the annual meeting of shareholders. The
shareholders may remove one or more directors with or without cause. Unless
the Markel Holdings articles of incorporation require greater vote, a director
may be removed if the number of votes cast to remove him constitutes a
majority of the votes entitled to be cast at an election of directors of the
voting group or voting groups by which such director was elected. A vacancy on
the board of directors, including a vacancy resulting from the removal of a
director or increase in the number of directors, may be filled by (i) the
shareholders, (ii) board of directors, or (iii) the affirmative vote of a
majority of the remaining directors though less than a quorum of the board.
The board of directors may fix a compensation of directors and may provide
for the payment of all expenses incurred by them in attending meetings of the
board of directors.
Meetings of Shareholders. The annual meeting of shareholders will be held
in May of each year on a date designated by the board of directors and
specified in the notice of the meeting. Special meetings of the shareholders
may be called only by the chairman, the president, the board of directors, or
if required by law, the shareholders. Notice of annual meetings of
shareholders and special meeting of shareholders must be given not less than
10 nor more than 60 days before the date of the meeting, except when a
different time is required by the bylaws or law. Notice of shareholders
meetings to act on (i) an amendment of the articles of incorporation, (ii) a
plan of merger or share exchange, (iii) the sale, lease, exchange or other
disposition of all or substantially all the property of Markel Holdings
otherwise unusual in the regular course of business or (iv) the dissolution of
the corporation, must be given not less than 25 nor more than 60 days before
the date of meeting.
D-12
<PAGE>
SCHEME OF ARRANGEMENT
IN THE SUPREME COURT OF BERMUDA
CIVIL JURISDICTION
IN THE MATTER OF TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND IN THE MATTER OF SECTION 99 OF THE COMPANIES ACT 1981
-------------------------
SCHEME OF ARRANGEMENT
-------------------------
BETWEEN
TERRA NOVA (BERMUDA) HOLDINGS LTD.
AND
THE HOLDERS OF SCHEME SHARES
(as defined herein)
------------
PRELIMINARY
------------
(A) In this Scheme of Arrangement, unless inconsistent with the subject or
context, the following expressions bear the following meanings:
"Aggregate Fractional Amount"
The aggregate amount of cash (without interest)
payable pursuant to the provisions of Section
2.13(e) of the Merger Agreement in lieu of the
issuance of fractional interests in Holdings
Common Shares.
"Cash Consideration" $34.00 per Scheme Share, without any interest
thereon, to be paid pursuant to the Scheme.
"Closing Date"
The date which is the third Business Day after
the satisfaction of the last of the unsatisfied
conditions set forth in Articles VI and VII of
the Merger Agreement, but not prior to 3
December 1999 (or such other time as Terra Nova
and Markel may otherwise agree); provided that
this does not affect (i) the conditions to the
respective parties' obligations contained in
Articles VI and VII or (ii) Article IX of the
Merger Agreement. Notwithstanding the
foregoing, the date and time at which the
closing actually occurs are herein referred to
as the "Closing Date".
"Common Stock Consideration" 0.184 Holdings Common Shares per Scheme Share
to be allotted pursuant to the Scheme.
"Court"
The Supreme Court of Bermuda.
"Directors Unit Plan Cash Amount"
The aggregate amount of cash to be paid to
participants in the "Terra Nova 1997 Non-
Employee Directors Share Unit Plan" pursuant to
the provisions of Section 2.14(b) of the Merger
Agreement.
D-13
<PAGE>
"Effective Time"
The time at which both the Merger has become
effective through the issuance of the
certificate of merger by the Virginia State
Corporation Commission ("Merger Effective
Time") and the Scheme has become effective upon
filing of the Order of the Court sanctioning
the Scheme with the Registrar of Companies of
Bermuda (the "Scheme Effective Time").
"Holdings" Markel Holdings Inc., a corporation
incorporated in the Commonwealth of Virginia,
U.S.A.
"Holdings Common Shares" The common shares in the capital of Holdings of
no par value to be issued pursuant to the
Scheme.
"Maximum Cash Consideration" An amount equal to 45% of the sum of the Scheme
Consideration and Option Scheme Consideration
(determined using a value for the Common Stock
Consideration and the Option Stock
Consideration equal to the value for each
Markel Common Share used in setting the Terra
Nova Exchange Ratio), minus the Aggregate
Fractional Amount and the Terra Nova Directors
Unit Plan Cash Amount.
"Maximum Stock Consideration" 55% of the sum of the Scheme Consideration and
Option Scheme Consideration (determined using a
value for the Common Stock Consideration and
the Option Stock Consideration equal to the
value for each Markel Common Share used in
setting the Terra Nova Exchange Ratio).
"Markel" Markel Corporation, a company incorporated in
the Commonwealth of Virginia, U.S.A.
"Merger" The merger of Markel Holdings Sub Ltd., a
corporation to be organized under the laws of
the Commonwealth of Virginia as a wholly-owned
subsidiary of Holdings, with and into Markel.
"Merger Agreement" The Agreement and Plan of Merger and Scheme of
Arrangement dated 15 August 1999 between Markel
and Terra Nova.
"New Ordinary Shares" 40,000,000 new Class A ordinary shares, par
value $5.80 each, of Terra Nova to be allotted,
issued, and transferred to Holdings at the
Effective Time.
"Option Cash Consideration"
The excess of the Cash Consideration payable in
respect of the Terra Nova Scheme Shares
issuable in connection with the exercise of a
Terra Nova Option over the Option Exercise
Price.
"Option Exercise Price" The exercise price payable in respect of a
Terra Nova Option.
"Option Scheme Consideration" The Option Cash Consideration and the Option
Stock Consideration.
"Option Stock Consideration" A number of shares of Holdings equal to (x)
the quotient of (A) the amount of the excess of
the Cash Consideration payable in respect of
Scheme Shares issuable in connection with the
exercise of a Terra Nova Option over the Option
Exercise Price divided by (b) the amount of the
Cash Consideration multiplied by (y) the Terra
Nova Exchange Ratio.
D-14
<PAGE>
"Scheme" This Scheme of Arrangement in its present form
or with or subject to any modification or
addition or condition which the Court may
approve or impose.
"Scheme Consideration" The Cash Consideration and the Common Stock
Consideration.
"Scheme Shares" The Class A ordinary shares and the Class B
ordinary shares, par value $5.80 each (other
than 2,069 Class A ordinary shares, par value
$5.80 each, owned by Markel or its transferee).
"Shareholders" The holders of the Scheme Shares.
"Terra Nova" Terra Nova (Bermuda) Holdings Ltd.
"Terra Nova Exchange Ratio" 0.184 of a Holdings Common Share for each
Scheme Share
"Terra Nova Option" Each Terra Nova option granted prior to the
date of the Merger Agreement under a Terra Nova
option plan that is outstanding as of the
Effective Time.
(B) The share capital of Terra Nova as at the date of this document is as
follows:
Authorized Capital: $518,000,000 divided into 75,000,000 Class A
Shares of $5.80 each; 10,000,000 Class B Shares
of $5.80 each and 25,000,000 Preferred Shares
of $5.80 each.
Issued and fully paid 25,022,366 Class A Shares
shares: 1,796,217 Class B Shares
(C) Holdings was incorporated on 25th day of August, 1999 in Virginia under
the Virginia Stock Corporation Act with authorized capital shares of 50,000,000
common shares, no par value, and 10,000,000 preferred shares, $1.00 par value.
(D) The primary purpose of the Scheme is to enable Terra Nova to become a
wholly owned subsidiary of Holdings and to enable the holders of Scheme Shares
to receive the Scheme Consideration in consideration for the cancellation of
the Scheme Shares.
(E) Holdings has agreed by way of written undertaking to the Court to be
bound by this Scheme and to execute all documents and to do all acts and things
as may be necessary or desirable to effect this Scheme.
D-15
<PAGE>
THE SCHEME
PART I
Effect of Scheme on Share Capital of Terra Nova
1. (i) At the Effective Time, the issued share capital of Terra Nova will be
reduced by canceling and extinguishing the Scheme Shares.
(ii) At the Effective Time, Terra Nova will apply the credit arising in
its books of account as a result of the cancellation and extinguishment of
the Scheme Shares in paying up in full at par an appropriate number of New
Ordinary Shares.
PART II
Consideration for Cancellation of the Scheme Shares
2. In consideration for the cancellation of the Scheme Shares, Holdings
will:
(i) pay the Cash Consideration in respect of outstanding Scheme Shares
to Shareholders in accordance with elections made by Shareholders pursuant
to Section 2.11 of the Merger Agreement, but subject to the proration
provisions set forth in Section 2.12 of the Merger Agreement; and
(ii) allot and issue the Holdings Common Shares in respect of
outstanding Scheme Shares to Shareholders in accordance with elections made
by Shareholders pursuant to Section 2.11 of the Merger Agreement, but subject
to the proration provisions set forth in Section 2.12 of the Merger
Agreement, and pay amounts in lieu of fractional shares in accordance with
Section 2.13 of the Merger Agreement.
3. Elections by Shareholders pursuant to Section 2.11 of the Merger Agreement
are subject to the proration provisions set forth in Section 2.12 of the Merger
Agreement so that (a) the sum of the Cash Consideration and the Option Cash
Consideration will not exceed the Maximum Cash Consideration and (b) the sum of
the value of the Common Stock Consideration and the value of the Option Stock
Consideration will not exceed the Maximum Stock Consideration.
PART III
Conditions to Effectiveness of the Scheme of Arrangement
4. The effectiveness of the Scheme is subject to each of the conditions set
forth in Articles VI and VII of the Merger Agreement being satisfied or, if
permissible, waived.
PART IV
General
5. Holdings will:
(a) at the Effective Time, effect the allotment and issuance of the
Holdings Common Shares allotted and issued in accordance with Part II of
this Scheme and enter into the record of shareholders of Holdings the
necessary particulars; and
(b) in accordance with the exchange procedure set forth in Section 2.13
of the Merger Agreement and through ChaseMellon Shareholder Services L.L.C.,
as exchange agent, despatch certificates for the Holdings Common Shares
allotted and issued in accordance with Part II of this Scheme to the persons
entitled to the same by sending such certificates through the post in pre-
paid envelopes addressed to such persons (i) in the case of sole holders, to
their respective registered addresses as appearing in the register of members
of Holdings, (ii) in the case of joint holders, to the registered address as
appearing in the register of members of Holdings of that one of the joint
holders whose name stands first in such register of members in respect of the
joint holding, or (iii) by electronic transfer in accordance with applicable
clearing and exchange rules. Certificates will be posted at the risk of the
addressees and neither Terra Nova nor Holdings will be responsible for any
loss or delay in transmission.
D-16
<PAGE>
6. As from and including the Effective Time, all existing certificates
representing Scheme Shares will cease to have effect as documents of title to
the Scheme Shares and outstanding Scheme Shares will be deemed to represent the
right to receive Cash Consideration or Common Stock Consideration, or a
combination thereof, as the case may be.
7. This Scheme will become effective as soon as a copy of the Order of the
Court sanctioning the Scheme under Section 99 of the Companies Act shall have
been delivered for registration to the Registrar of Companies in Bermuda.
8. Terra Nova and Holdings may jointly consent for and on behalf of all
concerned to any modification of or addition to this Scheme or to any condition
which the Court may think fit to approve or impose.
DATED this [ ] day of [ ] , 1999
D-17
<PAGE>
Part II
Information not Required In Prospectus
Item 20. Indemnification of Directors and Officers
Article 10 of the Virginia Stock Corporation Act allows, in general, for
indemnification, in certain circumstances, by a corporation of any person
threatened with or made a party to any action, suit or proceeding by reason of
the fact that he or she is, or was, a director, officer, employee or agent of
such corporation. Indemnification is also authorized with respect to a criminal
action or proceeding where the person had no reasonable cause to believe that
his conduct was unlawful. Article 9 of the Virginia Stock Corporation Act
provides limitations on damages payable by officers and directors, except in
cases of willful misconduct or knowing violation of criminal law or any federal
or state securities law. Article VII of Markel Holdings' Articles of
Incorporation provides for mandatory indemnification of any director or officer
against all liabilities and reasonable expenses incurred in any proceeding
except such liabilities and expenses as are incurred because of such
individual's willful misconduct or knowing violation of criminal law.
Markel Holdings maintains a standard policy of officers' and directors'
liability insurance.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Index to Exhibits
----------------- ---
<C> <S> <C>
2.1 Agreement and Plan of Merger and Scheme of Arrangement between
Markel Corporation and Terra Nova (Bermuda) Holdings Ltd.,
dated August 15, 1999 (included as Appendix A to the joint
proxy statement/prospectus filed as part of this registration
statement)
4.1 Articles of Incorporation of the Registrant, previously filed
4.2 Bylaws of the Registrant, previously filed
5.1 Opinion of McGuire, Woods, Battle & Boothe LLP, previously filed
8.1 Opinion of McGuire, Woods, Battle & Boothe regarding federal
income tax consequences filed herewith
Opinion of Debevoise & Plimpton regarding federal income tax
8.2 consequences filed herewith
23.1 Consent of KPMG LLP, filed herewith
23.2 Consent of PricewaterhouseCoopers LLP, filed herewith
Consent of McGuire, Woods, Battle & Boothe LLP (included in
23.3 Exhibit 5.1)
Consent of McGuire, Woods, Battle & Boothe (included in Exhibit
23.4 8.1)
23.5 Consent of Debevoise & Plimpton (included in Exhibit 8.2)
Consent of Donaldson, Lufkin & Jenrette Securities Corporation
23.6 filed herewith
23.7 Consent of Salomon Smith Barney Inc. filed herewith
24.1 Power of Attorney, previously filed
99.1 Form of proxy for Markel Holdings Inc., filed herewith
Form of proxy for Terra Nova (Bermuda) Holdings Ltd., filed
99.2 herewith
</TABLE>
Item 22. Undertakings
(a) The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the joint proxy statement/prospectus any facts or
events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
II-1
<PAGE>
which individually, or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar amount of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post- effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration Statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the joint proxy
statement/prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form S-4,
within one business day of receipt of such requests, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the requests.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
following persons on November 16, 1999 have signed this Amendment No. 1 to the
Registration Statement, in the capacities indicated:
Markel Holdings Inc.
/s/ Steven A. Markel
By: _________________________________
Steven A. Markel
Vice Chairman
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Alan I. Kirshner* Director, Chairman and Chief
___________________________________ Executive Officer (Principal
Alan I. Kirshner Executive Officer)
/s/ Anthony F. Markel* President, Director
___________________________________
Anthony F. Markel
/s/ Steven A. Markel Vice-Chairman, Director
___________________________________
Steven A. Markel
</TABLE>
/s/ Darrell D. Martin* Director, Executive Vice President
___________________________________ and Chief Financial Officer
Darrell D. Martin (Principal Financial Officer,
Principal Accounting Officer)
/s/ Gregory B. Nevers
*By: __________________________
Gregory B. Nevers
Attorney-in-fact
II-4
<PAGE>
Index to Exhibits
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger and Scheme of Arrangement between Markel
Corporation and Terra Nova (Bermuda) Holdings Ltd., dated August 15,
1999 (included as Appendix A to the joint proxy statement/prospectus
filed as part of this registration statement)
4.1 Articles of Incorporation of the Registrant, previously filed
4.2 Bylaws of the Registrant, previously filed
5.1 Opinion of McGuire, Woods, Battle & Boothe LLP, previously filed
8.1 Opinion of McGuire, Woods, Battle & Boothe regarding federal income tax
consequences, filed herewith
8.2 Opinion of Debevoise & Plimpton regarding federal income tax
consequences, filed herewith
23.1 Consent of KPMG LLP, filed herewith
23.2 Consent of PricewaterhouseCoopers LLP, filed herewith
23.3 Consent of McGuire, Woods, Battle & Boothe LLP (included in Exhibit
5.1)
23.4 Consent of McGuire, Woods, Battle & Boothe LLP (included in Exhibit
8.1)
23.5 Consent of Debevoise & Plimpton (included in Exhibit 8.2)
23.6 Consent of Donaldson, Lufkin & Jenrette Securities Corporation, filed
herewith
23.7 Consent of Salomon Smith Barney Inc., filed herewith
24.1 Power of Attorney, previously filed
99.1 Form of proxy for Markel Holdings Inc., filed herewith
99.2 Form of proxy for Terra Nova (Bermuda) Holdings Ltd., filed herewith
</TABLE>
<PAGE>
Exhibit 8.1
[MWBB LETTERHEAD]
Markel Holdings, Inc.
4551 Cox Road November 16, 1999
Glen Allen, VA 23060
Markel Holdings Inc.
Amendment No. 1 to Registration Statement on Form S-4
Dated as of November 16, 1999
-----------------------------
Ladies and Gentlemen:
We have acted as counsel to Markel Holdings, Inc., a Virginia corporation
("Markel Holdings"), in connection with the proposed scheme of arrangement
whereby the shareholders of Terra Nova (Bermuda) Holdings Ltd., a Bermuda
company ("Terra Nova") will have their Terra Nova Class A ordinary shares and
Class B ordinary shares canceled and will receive common shares of Markel
Holdings and/or cash; the issuance of Class A ordinary shares of Terra Nova to
Markel Holdings, and the merger of Markel Holdings Sub Ltd. ("Merger Sub"), a
Virginia corporation and a wholly-owned subsidiary of Markel Holdings with and
into Markel Corporation, a Virginia corporation ("Markel") (collectively, the
"Transaction"), in each case pursuant to the Agreement and Plan of Merger and
Scheme of Arrangement between Markel Corporation and Terra Nova dated as of
August 15, 1999 (the "Agreement").
In so acting, we have participated in the preparation of the Agreement and
the preparation and filing with the Securities and Exchange Commission of a
Registration Statement on Form S-4 of Markel Holdings relating to the proposed
Transactions and Amendment No. 1 thereto (the "Registration Statement"). We have
also examined and relied upon the representations and warranties as to factual
matters set forth in the documents referred to above, and the originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, certificates or other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion set forth below. We have not,
however, undertaken any independent investigation of any factual matter set
forth in any of the foregoing.
Subject to the foregoing and to the assumptions and limitations set forth
herein and in the Registration Statement and assuming that the Transactions are
consummated in accordance with the Agreement and as described in the
Registration Statement, the discussion under the caption "The Transactions --
Material U.S. Federal Tax Consequences," to the extent it describes matters of
law and legal conclusions applicable to the Markel shareholders, is an accurate
summary of the material federal income tax consequences of the Transactions to
such shareholders.
<PAGE>
Markel Holdings, Inc. November 14, 1999
Page 2
This opinion is limited solely to the federal law of the United States as
in effect on the date hereof and the relevant facts that exist as of the date
hereof. No assurance can be given that the law or facts will not change, and we
have not undertaken to advise you or any other person with respect to any event
subsequent to the date hereof.
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the captions "The Transactions --
Material U.S. Federal Income Tax Consequences" and "Legal Matters" in the
Registration Statement. In giving such consent, we do not thereby concede that
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the Rules and Regulations of the Securities and
Exchange Commission thereunder.
We are members of the Bar of the Commonwealth of Virginia, and we do not
express any opinion herein concerning any law other than the federal law of the
United States.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe LLP
<PAGE>
Exhibit 8.2
November 16, 1999
Terra Nova (Bermuda) Holdings Ltd.
Richmond House
12 Par-La-Ville Road
Hamilton HM 08, Bermuda
Markel Holdings Inc.
Amendment No. 1 to Registration Statement on Form S-4
Dated as of November 16, 1999
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Terra Nova (Bermuda) Holdings Ltd., a
Bermuda company ("Terra Nova"), in connection with: the proposed scheme of
arrangement whereby the shareholders of Terra Nova will have their Terra Nova
Class A ordinary shares and Class B ordinary shares canceled and will receive
common shares of Markel Holdings Inc., a Virginia corporation ("Markel
Holdings"), and/or cash; the issuance of Class A ordinary shares of Terra Nova
to Markel Holdings; and the merger of Markel Holdings Sub Ltd. ("Merger Sub"), a
Virginia corporation and a wholly-owned subsidiary of Markel Holdings with and
into Markel Corporation, a Virginia corporation (collectively, the
"Transactions"), in each case pursuant to the Agreement and Plan of Merger and
Scheme of Arrangement between Markel Corporation and Terra Nova dated as of
August 15, 1999 (the "Agreement").
<PAGE>
Terra Nova (Holdings) Bermuda Ltd. 2 November 16, 1999
In so acting, we have participated in the preparation of the Agreement and
the preparation and filing with the Securities and Exchange Commission of a
Registration Statement on Form S-4 of Markel Holdings relating to the proposed
Transactions, and Amendment No. 1 thereto (the "Registration Statement"). We
have also examined and relied upon the representations and Warranties as to
factual matters set forth in the documents referred to above, and the originals,
or copies certified or otherwise identified to our satisfaction, of such
records, documents, certificates or other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion set forth below. We
have not, however, undertaken any independent investigation of any factual
matter set forth in any of the foregoing.
Subject to the foregoing and to the assumptions and limitations set forth
herein and in the Registration Statement and assuming that the Transactions are
consummated in accordance with the Agreement as described in the Registration
Statement, the discussion under the caption "The Transactions-Material U.S.
Federal Tax Consequences," to the extent it describes matters of law and legal
conclusions applicable to the Terra Nova shareholders, is an accurate summary of
the material federal income tax consequences of the Transactions to
shareholders.
This opinion is limited solely to the federal law of the United States as
in effect on the date hereof and the relevant facts that exist as of the date
hereof. No assurance can be given that the law of facts will not change, and we
have not undertaken to advise you or any other person with respect to any event
subsequent to the date hereof.
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the captions "The Transactions-
Material U.S. Federal Tax Consequences" and "Legal Matters" in the Registration
Statement. In giving such consent, we do not thereby concede that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the Rules and Regulations of the Securities and
Exchange Commission thereunder.
We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the federal law of the United
States.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Markel Corporation
We consent to incorporation herein by reference of our report dated September
10, 1999, with respect to the consolidated balance sheet of Gryphon Holdings
Inc. and subsidiaries as of December 31, 1998, and the related consolidated
statements of income and comprehensive income, shareholders' equity, and cash
flows for the year then ended, which report appears in the Form 8-K of Markel
Corporation dated September 22, 1999. We also consent to incorporation herein by
reference of our report dated February 2, 1999, with respect to the consolidated
balance sheets of Markel Corporation and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income and comprehensive
income, changes in shareholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1998, which report appears in the
Markel Corporation 1998 annual report on Form 10-K. Furthermore, we consent to
incorporation herein by reference of our report dated February 24, 1998, with
respect to the consolidated balance sheets of Gryphon Holdings, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1997, which report appears in the
Form 8-K of Markel Corporation dated January 29, 1999, as amended, November 16,
1999.
We also consent to the reference to our firm under the heading "Experts" in the
joint proxy statement/prospectus.
/s/ KPMG LLP
Richmond, Virginia
November 16, 1999
<PAGE>
EXHIBIT 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in this registration statement on
Form S-4, of our report dated March 9, 1999, with respect to the consolidated
balance sheets of Terra Nova (Bermuda) Holdings Ltd. and its subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, comprehensive income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1998.
We also consent to the reference to our firm under the heading "Experts" herein.
PricewaterhouseCoopers
Hamilton, Bermuda
November 16, 1999
<PAGE>
Exhibit 23.6
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE]
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated August
15, 1999, to the Board of Directors of Terra Nova (Bermuda) Holdings Ltd.
(the"Company") as Appendix B to the Joint Proxy Statement/Prospectus (the
"Prospectus") of the Company and Markel Holdings Inc. ("Markel") relating to the
merger and scheme of arrangement between the Company and Markel and (ii) all
references to Donaldson, Lufkin & Jenrette Securities Corporation and our
opinion letter in the Prospectus which forms a part of this Registration
Statement on Form S-4. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, and we do not
admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Perry H. Braun
---------------------
Perry H. Braun
Managing Director
New York, New York
November 16, 1999
<PAGE>
Exhibit 23.7
[LETTERHEAD OF SALOMON SMITH BARNEY]
CONSENT OF SALOMON SMITH BARNEY INC.
We hereby consent to the use of our name and to the description of our opinion
letter, dated August 15, 1999, to the Board of Directors of Markel Corporation
("Markel") under the captions "Summary--Opinion of Markel's Financial Advisor",
"The Transactions--Reasons for the Proposed Transactions" and "--Opinion of
Markel's Financial Advisor" in, and to the inclusion of such opinion letter as
Appendix C to, the Joint Proxy Statement/Prospectus is part of the Registration
Statement on Form S-4 (File No. 333-88609) of Markel Holdings Inc. By giving
such consent, we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
SALOMON SMITH BARNEY INC.
By:/s/ [ILLEGIBLE]
-------------------------------
Managing Director
New York, New York
November 15, 1999
SALOMON SMITH BARNEY INC. 388 Greenwich Street, New York, NY 10013
<PAGE>
Exhibit 99.1
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MARKEL CORPORATION
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON __________ __, 2000.
The undersigned, having received the Joint Proxy Statement/ Prospectus
and the accompanying materials, dated _______ __, 1999 appoints Alan I.
Kirshner, Anthony F. Markel and Steven A. Markel (each with power to act alone)
as proxies, with full power of substitution, to attend the Special Meeting of
Shareholders of Markel Corporation on ________ __, 2000 and any adjournments
thereof, and to vote all shares which the undersigned would be entitled to vote
if personally present upon the following matters set forth in the Notice of
Special Meeting and the Joint Proxy Statement/Prospectus:
1. Approval and adoption of the Agreement and Plan of Merger and Scheme of
Arrangement between Markel Corporation and Terra Nova (Bermuda) Holdings,
Ltd., dated as of August 15, 1999 and the transactions contemplated
thereby.
[_] FOR this proposal [_] AGAINST this proposal [_] ABSTAIN
- --------------------------------------------------------------------------------
2. In their discretion, upon such other business as may properly come before the
meeting and any adjournments thereof.
Please sign your name(s) exactly as they
appear hereon. If signer is a
corporation, please sign the full
corporate name by duly authorized
officer. If an attorney, guardian,
administrator, executor, or trustee,
please give full title as such. If a
partnership, sign in partnership name by
authorized person. Receipt of Notice of
Special Meeting is hereby acknowledged
------------------------------------
Shareholder's Signature
------------------------------------
Joint Holder's Signature (If
applicable)
Date:_______________________________
When properly executed, this proxy will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR the approval and
adoption of the Agreement and Plan of Merger and Scheme of Arrangement and in
accordance with the judgment of the person(s) voting the proxy upon such other
matters properly coming before the meeting and any adjournments thereof. PLEASE
COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING
ENVELOPE.
<PAGE>
EXHIBIT 99.2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TERRA NOVA (BERMUDA) HOLDINGS LTD.
The undersigned hereby appoints Nigel H.J. Rogers and Jean M. Waggett as
proxies, with power to act without the other and with power of substitution,
and hereby authorizes them to represent and vote, on the matters and as
designated on the other side, all the ordinary shares of Terra Nova (Bermuda)
Holdings Ltd. standing in the name of the undersigned with all powers which the
undersigned would possess if present at each of the Court Meeting of Holders of
Class A Ordinary Shares, the Court Meeting of Holders of Class B Ordinary
Shares and the Special General Meeting of Holders of Class A Ordinary Shares,
as applicable, each such meeting to be held on , 2000 or any adjournment
thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
FOLD AND DETACH HERE
<PAGE>
The Board of Directors recommends a vote FOR Items 1, 2, 3, 4 and 5
Please mark
your votes
as indicated in
this sample [X]
Court Meeting of Holders of Class A Ordinary Shares
Item 1--Resolution. The Scheme of Arrangement among Terra Nova (Bermuda)
Holdings Ltd. and the holders of the Class A Ordinary Shares and Class B
Ordinary Shares in the form of the document presented to the meeting and signed
by the Chairman of the Court Meeting for purposes of identification, with any
modification or addition or condition approved or imposed by the Supreme Court
of Bermuda, be and hereby is approved.
FOR AGAINST ABSTAIN
[_] [_] [_]
Court Meeting of Holders of Class B Ordinary Shares
Item 2--Resolution. The Scheme of Arrangement among Terra Nova (Bermuda)
Holdings Ltd. and the holders of the Class A Ordinary Shares and Class B
Ordinary Shares in the form of the document presented to the meeting and signed
by the Chairman of the Court Meeting for purposes of identification, with any
modification or addition or condition approved or imposed by the Supreme Court
of Bermuda, be and hereby is approved.
FOR AGAINST ABSTAIN
[_] [_] [_]
Special General Meeting of Holders of Class A Ordinary Shares
Item 3--Resolution. The Agreement and Plan of Merger and Scheme of
Arrangement between Markel Corporation and Terra Nova (Bermuda) Holdings, Ltd.,
dated as of August 15, 1999, and the transactions contemplated thereby, be and
hereby are approved.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 4--Resolution. To give effect to the Scheme of Arrangement at the
effective time of the Scheme of Arrangement, (i) the issued share capital of
Terra Nova (Bermuda) Holdings Ltd. will be reduced to $12,000 by canceling all
of the outstanding Terra Nova Class A ordinary shares and Class B ordinary
shares and (ii) Terra Nova (Bermuda) Holdings Ltd. will apply the credit
arising in its books of account as a result of the cancellation of the
outstanding Terra Nova Class A ordinary shares and Class B ordinary shares in
paying up in full at par an appropriate number of new Class A ordinary shares,
credited as fully paid, to Markel Holdings Inc. or to its nominees and Terra
Nova (Bermuda) Holdings Ltd. is unconditionally authorized to allot and issue
the new Class A ordinary shares accordingly.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 5--Resolution. The Scheme of Arrangement among Terra Nova (Bermuda)
Holdings Ltd. and the holders of the Class A Ordinary Shares and Class B
Ordinary Shares in the form of the document presented to the meeting and signed
by the Chairman of the Court Meeting for purposes of identification, with any
modification or addition or condition approved or imposed by the Supreme Court
of Bermuda, be and hereby is approved.
2
<PAGE>
Court Meeting of Holders of Class A Ordinary Shares and Court Meeting of
Holders of Class B Ordinary Shares and Special General Meetings of Holders of
Class A Ordinary Shares
Item 6--Other Business. The undersigned hereby authorizes the proxies to
vote in their discretion on any other business which may be properly brought
before the meeting or any adjournment or postponements thereof.
Date: _________________________, 1999
Signature: __________________________
Date: _________________________, 1999
Signature (if held jointly): ________
Please sign exactly as name appears on stock certificate. When shares are
held by joint tenants, both should sign. When signing as an attorney, or as
executor, administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
FOLD AND DETACH HERE
