<PAGE>
As filed with the Securities and Exchange Commission on February 7, 2000
Registration No. 333-
Registration No. 333-88609
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
Registration Statement
Under
The Securities Act of 1933
AND POST-EFFECTIVE 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)
4521 Highwoods Pkwy
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
4521 Highwoods Pkwy
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
One James Center
4521 Highwoods Parkway 901 East Cary Street
Glen Allen, Virginia 23060
Richmond, Virginia 23219-4030
Jean M. Waggett
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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Maximum
Title of Each Class of to be Offering Price Aggregate Amount of
Securities to be Registered(1) Registered(1) Per Unit Offering Price Registration Fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contingent Value Rights
(2)....................... 1,800,000 (3) (3) (3)
</TABLE>
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(1) As permitted by Rule 429 under the Securities Act of 1933, as amended, the
Prospectus contained in this Registration Statement also relates to
8,455,000 shares of Markel Holdings Inc. common stock, no par value,
previously registered under a registration statement on Form S-4
(Registration Statement No. 333-88609) filed on October 7, 1999 and
declared effective on December 21, 1999.
(2) Includes such indeterminate number of shares of Markel Holdings common
stock as may be issued for the Contingent Value Rights registered hereby.
No additional consideration will be received for such underlying
securities.
(3) The registration fee paid under Registration No. 333-88609 was $408,984, of
which $132,055.43 was computed, pursuant to Rule 457, based on the Terra
Nova (Bermuda) Holdings Ltd. securities to be acquired by Markel Holdings
and the average of the high and low sales prices of the Class A ordinary
shares of Terra Nova (Bermuda) Holdings Ltd. as reported on the New York
Stock Exchange on October 6, 1999. The registration fee with respect to the
Terra Nova securities to be acquired by Markel Holdings based on the
average of the high and low sales prices of the Class A ordinary shares of
Terra Nova, as reported on the New York Stock Exchange on January 28, 2000,
less cash to be paid by Markel Holdings, is $54,100 and Markel Holdings
paid the filing fee associated with such securities with Registration
Statement No. 333-88609.
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] [LOGO OF TERRA NOVA]
Dear Shareholder:
On January 26, 2000, we announced revised terms for the proposed acquisition
of Terra Nova by Markel for a combination of cash, stock and contingent value
rights. This joint proxy statement/prospectus relates to the revised proposal.
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.
Because of the important information contained in this joint proxy
statement/prospectus, we have adjourned the meeting of shareholders originally
scheduled for February 10, 2000, and will hold these meetings on , 2000.
In order to vote, you must return the enclosed proxy card, even if you have
previously sent a proxy card. Your earlier proxy card will not be voted.
Sincerely,
/s/ Alan I. Kirschner /s/ John J. Dwyer
Alan I. Kirshner John J. Dwyer
Chairman Chairman
Markel Corporation Terra Nova (Bermuda) Holdings Ltd.
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 February , 2000 and first mailed to
shareholders on or about February , 2000.
<PAGE>
[LOGO OF MARKEL CORPORATION]
Notice of Special Meeting of Shareholders
February , 2000
To the Shareholders of Markel:
Notice is hereby given that a special meeting of the shareholders of Markel
Corporation was convened on February 10, 2000, was adjourned and will be
reconvened and 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, as
amended, the related plan of merger 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." Copies of the amended agreement and the related plan of
merger are attached as Appendix A and B, respectively.
2. To transact such other business as may properly come before the
special meeting or any adjournment thereof.
Only shareholders of record at the close of business on December 20, 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 December 20, 1999
is required to approve and adopt the agreement, the related plan of merger 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 and the related plan of merger at the Markel special meeting.
By Order of the Board of Directors
/s/ Leslie A. Grandis
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
12 Par-La-Ville Road
Hamilton HM 08
Bermuda
[LOGO OF TERRA NOVA]
Notice Of Special General Meeting Of Shareholders
February , 2000
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. was convened on February 10, 2000, was
adjourned and will be reconvened and held at the offices of Terra Nova
(Bermuda) Holdings Ltd., Richmond House, 12 Par-La-Ville Road, Hamilton HM 08,
Bermuda on , , 2000 at 10:30 a.m., local time, 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, as amended, 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, other than 2,069 shares held by
Markel or its transferee, 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 $13.00 in
cash, 0.07027 of a Markel Holdings common share and 0.07027 of a Markel
Holdings contingent value right per share without any interest thereon.
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
December 23, 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 scheme of arrangement 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 of the scheme of arrangement and the
transactions contemplated by the agreement at the special general meeting.
Terra Nova will not use the proxy cards mailed to you with the joint proxy
statement/prospectus, dated December 27, 1999, at the special general meeting.
Therefore, we ask that you fill out and send in the enclosed proxy card even if
you have previously sent in a proxy card.
By Order of the Board of Directors
/s/ Jean M. Waggett
Jean M. Waggett, Secretary
Hamilton, Bermuda
February , 2000
<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 the day of February,
2000, made in the above matters, the Supreme Court of Bermuda has directed
separate court meetings, originally convened and adjourned on February 10,
2000, to be reconvened 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 reconvened and 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., local time, 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) of 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.
Terra Nova will not use the proxy cards mailed to you with the proxy
statements/prospectus, dated December 27, 1999, at the court meetings. In order
to vote, you must fill out and send in the enclosed proxy card even if you have
previously sent in a proxy card.
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 Court 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 February, 2000
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
Material U.S. Federal Tax Consequences of the Transactions.............. 3
Markel Shareholder Approval............................................. 3
Terra Nova Shareholder Approval......................................... 3
Dissenter's Rights...................................................... 4
Treatment of Outstanding Options........................................ 4
Reasons for the Transactions; Recommendation............................ 4
Interests of Terra Nova Officers and Directors that are Different From
Yours.................................................................. 4
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................ 6
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........................................... 7
Markel.................................................................. 7
Terra Nova.............................................................. 7
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
Recent Developments....................................................... 14
Forward-Looking Information............................................... 15
The Markel Special Meeting................................................ 16
Date, Time and Place.................................................... 16
Matters to Be Considered at the Markel Special Meeting.................. 16
Voting and Proxies...................................................... 16
Solicitation of Proxies................................................. 17
The Terra Nova Meetings................................................... 17
Date, Time and Place.................................................... 17
Matters to Be Considered at the Terra Nova Meetings .................... 17
Voting and Proxies...................................................... 17
Solicitation of Proxies................................................. 19
The Transactions.......................................................... 19
Background of the Agreement............................................. 19
Reasons for the Proposed Transactions................................... 20
Opinion of Terra Nova's Financial Advisor............................... 23
Opinion of Markel's Financial Advisor................................... 28
General Description of the Transactions................................. 35
Cash in Lieu of Fractional Interests.................................... 37
Material U.S. Federal Tax Consequences.................................. 37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Interests of Terra Nova Officers and Directors in the Transactions......... 43
Employment Agreements--Change of Control Arrangements.................... 43
Special Bonus............................................................ 44
Effects of Transaction on Share Option Plans............................. 44
Directors Plan........................................................... 45
Octavian Stock Option Plan............................................... 45
New Benefit Plan......................................................... 46
Interests of Financial Advisor........................................... 46
Registration Rights...................................................... 46
Board of Directors of Markel............................................. 46
Indemnification and Insurance............................................ 46
Anticipated Accounting Treatment........................................... 46
Regulatory Matters......................................................... 47
Approvals and Consents................................................... 47
Antitrust Filings........................................................ 47
U.S. Antitrust Laws...................................................... 47
Financial Services Authority Consent..................................... 47
Lloyd's Consent.......................................................... 48
U.S. Insurance Regulatory Approvals...................................... 48
Other.................................................................... 48
Status of Regulatory Approvals and Other Information..................... 48
Supreme Court of Bermuda Approval........................................ 48
Restrictions on Resales.................................................. 49
No Dissenter's Rights...................................................... 49
Market for the Markel Holdings Shares and Contingent Value Rights.......... 50
Management and Operations After the Transactions........................... 50
The Agreement.............................................................. 50
Representations and Warranties........................................... 50
Certain Covenants and Agreements......................................... 53
Conditions Precedent to the Merger and Scheme of Arrangement............. 54
Amendment, Waiver........................................................ 56
No Solicitation.......................................................... 56
Termination.............................................................. 58
Termination Fee and Expenses............................................. 58
Effect of Termination.................................................... 60
Indemnification; Insurance............................................... 60
Registration Rights Agreement............................................ 60
Shareholders Agreements.................................................. 61
Effective Time............................................................. 63
Unaudited Pro Forma Condensed Financial Information........................ 63
The Companies.............................................................. 71
Markel................................................................... 71
Terra Nova............................................................... 72
Markel Holdings.......................................................... 73
Description of Contingent Value Rights..................................... 73
Payment in Cash or Market Holdings Common Shares; No Interest............ 73
Payment at Maturity Date................................................. 73
Payment Upon the Occurrence of a Disposition............................. 74
Event of Default......................................................... 74
Early Redemption......................................................... 75
Automatic Extinguishment................................................. 75
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certificate of Calculations............................................ 75
Antidilution; Disposition Adjustments.................................. 75
Current Market Value Calculations...................................... 75
Restrictions on Purchases by Markel Holdings and Affiliates............ 76
Issuance of the CVRs................................................... 76
Description of Markel Holdings Capital Shares............................ 77
Preferred Shares....................................................... 77
Common Shares.......................................................... 77
Rights of Shareholders of Markel Holdings Compared to Markel and Terra
Nova.................................................................... 77
Comparison of Rights of Markel Holdings and Markel Shareholders.......... 78
Comparison of Rights of Terra Nova Shareholders to their Rights as Markel
Holdings Shareholders................................................... 78
Comparison of Bermuda and Virginia Corporate Law....................... 78
Voting Rights with Respect to Extraordinary Corporate Transactions..... 78
Appraisal Rights....................................................... 78
Derivative Suits....................................................... 79
Special Meetings of Shareholders....................................... 80
Action by Consent...................................................... 80
Amendments to Charter.................................................. 81
Anti-takeover Statutes................................................. 81
Limitations on Director Liability...................................... 82
Indemnification of Directors and Officers.............................. 83
Inspection of Books and Records; Shareholder and Shareholder Lists..... 83
Legal Matters............................................................ 84
Experts.................................................................. 84
Other Matters............................................................ 84
Where You Can Find More Information...................................... 85
Appendix A--Agreement and Plan of Merger and Scheme of Arrangement....... A-1
Appendix B--Plan of Merger............................................... B-1
Appendix C--Opinion of Terra Nova Financial Advisor...................... C-1
Appendix D--Opinion of Markel Financial Advisor.......................... D-1
Appendix E--Chairman's Letter, Explanatory Statement and Bermuda Scheme
of Arrangement.......................................................... E-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: If I previously returned a proxy, do I need to vote again?
A: Yes. Your earlier proxy card will not be voted. In order to vote, you must
return your enclosed proxy card, even if you have previously sent a proxy
card.
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:
Terra Nova:
Markel:
Terra Nova (Bermuda)
Markel Corporation Holdings Ltd.
4551 Cox Road Richmond House
Glen Allen, Virginia 23060 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?
A: You will receive separate instructions on surrendering share certificates in
the next several weeks. You should not send your share certificates until
you receive these instructions.
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 Georgeson Shareholder Communication 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 800-223-2064 (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 )
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 receive shares of Markel Holdings, cash
and contingent value rights of Markel Holdings 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 , 2000,
and an explanatory statement in compliance with Section 100 of the Bermuda
Companies Act, are included as Appendix E 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 )
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 $13.00 in cash, 0.07027
of a Markel Holdings common share, and 0.07027 of a contingent value right of
Markel Holdings. Markel Holdings will not issue fractional shares or contingent
value rights. Instead, you will receive the value of any fractional interest in
cash.
We have fixed the cash price and exchange ratios for shares and contingent
value rights 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 or contingent value rights immediately after the effective time
of the transactions, we cannot predict the value of the Markel Holdings common
shares or contingent value rights you will receive. The value of the
consideration received for each Terra Nova ordinary share at that time, based
on reported market prices, may be significantly higher or lower than the value
of the consideration on the date of this joint proxy statement/prospectus.
2
<PAGE>
Material U.S. Federal Tax Consequences of the Transactions (p. )
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 sum of the amount of cash plus
the fair market value of the contingent value rights 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 )
As of the record date, 5,588,873 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% 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 )
As of the record date, 24,348,192 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 24% of Markel Holdings' outstanding common shares after we
complete the transactions. In the transactions, Terra Nova
3
<PAGE>
ordinary shareholders and option holders will receive approximately 1,758,000
Markel Holdings common shares, approximately $325.2 million in cash, and
approximately 1,758,000 Markel Holdings contingent value rights.
Dissenter's Rights (page )
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 )
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.
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 and, if issued before January 1, 2000, the Octavian Stock Option Plan
as fully exercisable, each option will be deemed valued at the excess of $26.00
over its exercise price. We will calculate a number of option units by dividing
the aggregate value of all options held by a holder by $26.00 and the holder
will receive, for each option unit, $13.00 in cash, 0.07027 of a Markel
Holdings common share and 0.07027 Markel Holdings contingent value rights.
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 )
We believe the combination of our two companies 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 )
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:
. Nigel H. J. Rogers, President and Chief Executive Officer and a
director, may terminate his employment and receive, under change of
control provisions in his existing employment agreement, payments
estimated to be approximately, $5.5 million. This amount may be higher
or lower depending on the manner in which Mr. Rogers' bonuses, if any,
as an Octavian executive are factored into the agreement.
4
<PAGE>
. John Dwyer, Terra Nova's Chairman, and Jean Waggett, Terra Nova's Senior
Vice President, General Counsel and Secretary, had employment agreements
that have been canceled in exchange for a payment in settlement of their
rights under the employment agreements and bonuses in respect of 1999 of
$3,707,500, in the case of Mr. Dwyer and $1,165,000 in the case of Ms.
Waggett. Terra Nova made these payments to minimize the costs of such
agreements to Terra Nova by reducing the officers' exposure to special
excise tax imposed on certain U.S. taxpayers.
. Mr. Rogers will also receive a $2 million one-time bonus upon completion
of the transactions.
. Markel Holdings is discussing a new employment arrangement with Mr.
Rogers which would provide compensation levels comparable to those under
his current agreement. Mr. Rogers would receive a $5 million bonus
payment in cash and Markel Holdings common shares, one half of which
would be paid upon completion of the transactions and the remainder
vesting in six month increments over 30 months. If Mr. Rogers were to
terminate his employment during the first year after completion of the
transactions, the $2.5 million initial payment would be offset against
the change of control termination payment.
. Terra Nova's executive officers hold options for Terra Nova ordinary
shares, with exercise prices equal to or greater than the fair market
value on the grant dates. In the transactions, we will treat the options
as fully exercisable. We will value each option at the excess of $26.00
over its exercise price, and calculate a number of option units by
dividing the aggregate value of all options held by a holder by $26.00.
The holder will receive, for each option unit, $13.00 in cash, 0.07027
of a Markel Holdings common share and 0.07027 of a Markel Holdings
contingent value right. 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 $26.00 and the
option exercise prices, of $1,204,309, $758,534, $355,841, $955,228,
$297,586, and $3,828,926.
. 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 62,087 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.
5
<PAGE>
. 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 )
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 under the original agreement from a financial point of view. On January
27, 2000, Donaldson, Lufkin & Jenrette delivered its opinion to the Board of
Directors of Terra Nova that, as of that date, the consideration that the
shareholders of Terra Nova, other than shareholders who were affiliates of
Donaldson, Lufkin & Jenrette, would receive in the transaction 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 C 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.
Opinion of Markel's Financial Advisor (page )
Salomon Smith Barney Inc. delivered its written opinion to the Markel board
that, as of August 15, 1999, the consideration proposed to be paid for each
outstanding Terra Nova ordinary share under the original agreement was fair,
from a financial point of view, to Markel shareholders. On January 27, 2000,
SSB rendered an oral opinion, later confirmed in writing, to the Markel board
of directors that, as of that date, the consideration that Markel Holdings
would pay for each outstanding Terra Nova ordinary share under the amended
agreement was fair, from a financial point of view, to Markel shareholders. 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 D the full text of SSB's January 27, 2000
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 )
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.
6
<PAGE>
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 )
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 )
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.
Governmental and Regulatory Approvals (page )
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 )
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 Bylaws 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 )
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 )
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.
7
<PAGE>
. 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 six 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 )
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 ....... 180.500 145.000 -- 31.825 28.563 0.06
2000
First Quarter (through
February 2000).......
</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 original
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 February , 2000, 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 December 20 and December 23, 1999, the respective record dates for the
special meetings, there were 497 record holders of Markel common shares and 83
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 0.07027 exchange ratio of Markel Holdings common shares, cash and
0.07027 exchange ratio of contingent value rights that will be received by
Terra Nova shareholders 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", "Recent Developments" 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 $10.05 $ 1.41
Nine months ended September 30,
1999............................. 6.34 1.83 6.25 .88
Income from continuing operations
per diluted share:
Year ended December 31, 1998 (1).. $10.17 $ 3.22 $ 9.32 $ 1.31
Nine months ended September 30,
1999............................. 6.27 1.77 5.85 .82
Book value per share as of (2):
December 31, 1998................. $77.02 $22.51 $98.74 $13.88
September 30, 1999................ 68.96 20.74 92.38 12.98
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 $718.8
million and pro forma shares outstanding of 7.3 million as of December 31,
1998. As of September 30, 1999 pro forma shareholders' equity was $679.5
million and pro forma shares outstanding were 7.4 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 2.77 2.94 --
Income from continuing operations
per diluted share (1).............. 1.77 2.48 3.22 2.82 2.68 2.59 --
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 24.26 17.67 --
</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...................... 175 175 175 100 134 119
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" and "Recent
Developments."
<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................. $970 $1,217
Income from continuing
operations (1).......... 46 73
Income from continuing
operations per basic
share (1)............... 6.25 10.05
Income from continuing
operations per diluted
share (1)............... 5.85 9.32
Cash dividends per
share................... -- --
Weighted average shares
outstanding
Basic.................. 7.34 7.26
Diluted................ 7.84 7.83
</TABLE>
<TABLE>
<CAPTION>
September 30,
-------------
1999
-------------
(in millions)
<S> <C>
Balance Sheet Data:
Total investments............................................ $ 2,951
Total assets................................................. 5,167
Long-term obligations and redeemable preferred stock......... 732
Shareholders' equity......................................... 679
</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>
Recent Developments
Terra Nova will report an operating loss* for the fourth quarter of 1999 and
the full year ended December 31, 1999. The fourth quarter operating loss
results from several factors, including:
. significant catastrophe losses in the quarter, primarily from two
intense storms in late December which caused severe damage to areas of
western Europe, an earlier December storm in Denmark and hurricanes in
the Caribbean
. adverse development on claims relating to certain property loss events,
in large part because of deterioration on proportional property treaties
. a charge taken to recognize the cost of buying additional reinsurance
protection for the runoff of certain lines of aviation and satellite
business written by one of Terra Nova's Lloyd's syndicates which has
merged with another of its syndicates for the 2000 underwriting year
Based on the preliminary information, Terra Nova estimates that the after-
tax operating loss will be $79.0 million or $3.01 per share for the fourth
quarter and $55.6 million or $2.13 per share for the year ended December 31,
1999. Terra Nova also estimates that its book value as at December 31, 1999
will be $439.3 million or $17.32 per share.
- --------
* Operating losses represent net losses before extraordinary charges,
discontinued operations, minority interests and realized gains on
investments after tax. Terra Nova management believes this measure is
relevant and useful to the investor as it shows income or losses from core
operations. It excludes non-recurring items and realized gains on
investments which reflect management's decision to sell investments from
time to time. The measure does not replace operating income or net income,
computed in accordance with generally accepted accounting principles, as a
measure of profitability.
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Forward-Looking Information
This joint proxy statement/prospectus contains or incorporates by reference
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 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.
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The Markel Special Meeting
Date, Time and Place
The Markel special meeting was convened on February 10, 2000 was adjourned
and will be reconvened and held, in the Markel American Building, 4501
Highwoods Pkwy., Glen Allen, Virginia 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 and the related plan
of merger.
Voting and Proxies
The Markel board has fixed the close of business on December 20, 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 5,588,873 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 and the related plan of merger.
At the close of business on the record date, there were 5,588,873 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 4521 Highwoods Parkway, 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 has not adjourned the special meeting for a
period of time long enough to require the setting of a new record date for the
meeting. The adjournment will have no effect on the ability of Markel's
shareholders of record as of the record date to exercise their voting rights.
Your earlier proxy card will not be voted.
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 were convened on February
10, 2000, were adjourned and will reconvene and 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 reconvene and 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 December 23, 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,
. 24,348,192 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.
Terra Nova will not vote the proxy cards mailed to you with the joint proxy
statement/prospectus, dated December 27, 1999, at the special general meeting
or court meetings.
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
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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 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
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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.
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.
In mid January, 2000, Terra Nova management informed Markel management that
Terra Nova was likely to incur an operating loss for the fourth quarter. Upon
receipt of this information Steven Markel contacted Terra Nova's executive
committee to request further information. After reviewing preliminary fourth
quarter and year-end Terra Nova financial information, Steven Markel expressed
concern to Terra Nova's executive committee that the transaction might not be
consummated. Terra Nova management continued its efforts to produce additional
financial and operating data which was shared with Markel management on January
18, 2000. This additional preliminary information indicated that Terra Nova's
fourth quarter losses would likely result in a loss for the year ended December
31, 1999 and Markel raised questions about Terra Nova's operating profitability
for 2000 and 2001.
After reviewing this additional information Steven Markel advised Terra
Nova's executive committee that Markel was unlikely to proceed with the
original transaction but was willing to discuss a revised transaction. Terra
Nova's executive committee indicated that its willingness to consider a revised
transaction would depend on proposed terms. The parties and their advisors
discussed numerous issues and proposals from January 18 through January 24 but
no agreement was reached.
The parties continued discussions on January 25 and reached an agreement in
principle on revised terms late in the evening, subject to negotiation of
definitive documentation and full board approval. Each of the Terra Nova and
Markel Board's approved the transaction, subject to completion of definitive
documentation, on January 27. Definitive documentation was completed on January
28.
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
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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 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;
. 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 January 27,
2000, 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 January 27, 2000, the consideration to be
received by the shareholders of Terra Nova in the scheme of arrangement
under the amended agreement 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, which is focused on
underwriting profitability;
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. 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 a
substantial portion of the consideration consisting of cash;
. the Terra Nova shareholders will only recognize gain for U.S. tax
purposes to the extent of the amount of cash consideration and the value
of the contingent value rights they receive;
. 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;
. 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
January 27, 2000 and based upon the qualifications and assumptions made
and matters considered by Donaldson, Lufkin & Jenrette described in its
written opinion dated January 27, 2000, 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
agreement and the transactions.
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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. In the scheme of arrangement each ordinary share of Terra Nova
will be converted into the right to receive:
$13.00 in cash;
0.07027 of a Markel Holdings common share; and
0.07027 of a Markel Holdings Contingent Value Right.
In determining the value of the consideration receivable for purposes of its
analysis, Donaldson, Lufkin & Jenrette determined the value of .07027 of a
Markel Holdings common share was $10.89, based on the closing price for Markel
common stock as of January 26, 2000 of $155 per share. Based on the same price
for Markel common stock, Donaldson, Lufkin & Jenrette determined that the value
of .07027 of a Contingent Value Right was a range of $1.10 to $1.32 as
determined by the Black-Scholes method of option valuation. These assumptions
resulted in a range of values of the consideration receivable of $24.99 to
$25.21 for each Terra Nova ordinary share.
On January 27, 2000, 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.
The full text of the Donaldson, Lufkin & Jenrette opinion is attached as
Appendix C. 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 shareholders as of
January 27, 2000. 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 or the
contingent value rights might actually trade at any time. The opinion is not 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 the 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 and the amended 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
October 1, 1999 and ending December 31, 2000 prepared by the management
of Terra Nova. For earnings projections of Terra Nova for periods
subsequent to December 31, 2000, Donaldson, Lufkin & Jenrette used
estimates of
23
<PAGE>
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 October
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 Markel
common shares;
. reviewed prices 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.
The following is a summary of the presentation that Donaldson, Lufkin &
Jenrette made to the Terra Nova board of directors at the board's January 27,
2000 meeting in connection with rendering its fairness opinion. The chart below
summarizes the ranges of implied per share prices resulting from each of the
analyses prepared by Donaldson, Lufkin & Jenrette and compares these ranges
with the range of values of 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:
1. Analysis of Consideration Receivable Based on Selected Publicly Traded
Property-Casualty Insurance Companies. Donaldson, Lufkin & Jenrette compared
the range of values of the consideration receivable by
24
<PAGE>
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 January 26, 2000, measured
as a multiple of selected financial data, including 2000 estimated earnings per
share and the September 30, 1999 book value per share. The 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:
. 6.4x--12.8x for 2000 estimated earnings per share; and
. 0.70x--1.08x for September 30, 1999 book value per share.
In determining the ranges of valuation multiples, Donaldson, Lufkin &
Jenrette excluded the high and low multiple for each set of selected financial
data, Donaldson, Lufkin & Jenrette then applied the resulting ranges of
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 for 2000 and management estimates of Terra Nova's
book value per share as of December 31, 1999. The analysis resulted in a range
of implied values per share for Terra Nova of $14.38 to $25.87. The range of
values of the consideration receivable by holders of Terra Nova ordinary shares
is within 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 range
of values of 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 13 acquisitions of property-casualty
insurance companies, selected on the basis of their mix of business, that have
occurred since January 1, 1997. These 13 selected acquisitions are:
. Trenwick Group Inc. acquisition of LaSalle Re Holdings Ltd.;
. Royal & SunAlliance 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 Corporation property and casualty
operations;
. Ohio Casualty Corporation acquisition of Great American Insurance Co.
(Commercial Lines);
. Gerling Kozern Versicherungs 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
25
<PAGE>
. XL Capital Ltd. acquisition of GCR Holdings Ltd.
Donaldson, Lufkin & Jenrette analyzed the equity value paid for each of the
acquired companies, measured as a multiple of selected financial data,
including estimated earnings per share for the next twelve months subsequent to
the announcement date of each acquisition and book value per share for the most
recent quarter prior to the announcement date of each acquisition. 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:
. 7.2x--14.1x for next twelve months estimated earnings per share; and
. 0.89x--1.51x for current book value per share.
Donaldson, Lufkin & Jenrette then applied these ranges of 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 for 2000 and estimates of Terra
Nova's book value per share as of December 31, 1999. 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 range of
implied values per share for Terra Nova of $14.80 to $26.86. The range of
values of the consideration receivable by holders of Terra Nova ordinary shares
is within this range of implied values.
3. Analysis of Consideration Receivable Based on an Analysis of Discounted
Future Equity Value. Donaldson, Lufkin & Jenrette compared the range of values
of 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 annually at the same rate as
GAAP net operating income as projected by management for 1999 and 2000
and according to the I/B/E/S long-term earnings growth estimates for
2001, 2002 and 2003 and
. a terminal value in 2003 based on a range of multiples, 8.0x--10.0x, of
2004 earnings which were 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 of 11.5%--13.5%, 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 $17.72 to $23.79. The range of values
of the consideration receivable by Terra Nova shareholders is above the
resulting implied range of values of Terra Nova ordinary shares.
4. 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 Inc.
. W.R. Berkeley Corporation
. Capitol Transamerica Corporation
. Frontier Insurance Group Inc.
. HCC Insurance Holdings Inc.
. HSB Group Inc.
26
<PAGE>
. RLI Corporation
Specifically, 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 transaction 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;
. 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 estimated December 31, 1999 book value per share of Markel
to the pro forma estimated December 31, 1999 book value per share of
Markel.
This analysis resulted in immediate accretion to Markel's estimated book
value per share as of December 31, 1999 and accretion to Markel's estimated
earnings per share in the years 2000 and 2001.
In its analysis, Donaldson, Lufkin & Jenrette assumed that the transaction
occurred on January 1, 1999.
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 January 27, 2000
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
the 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 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
27
<PAGE>
. $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 shares 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 proposed to be paid for each outstanding Terra
Nova ordinary share under the original agreement was fair, from a financial
point of view, to Markel shareholders. On January 27, 2000, SSB rendered an
oral opinion, later confirmed in writing, to the Markel board of directors to
the effect that, as of the date, the consideration of $13.00 in cash, 0.07027
of a Markel Holdings common share and 0.07027 of a Markel Holdings contingent
value right proposed to be paid for each outstanding Terra Nova ordinary share
under the amended agreement was fair, from a financial point of view to Markel
shareholders.
28
<PAGE>
The full text of SSB's opinion dated January 27, 2000, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, is attached as Appendix D to this document and is
incorporated by reference. Markel did not impose any limitations on SSB with
respect to the investigations made or procedures followed by it in rendering
its January 27, 2000 opinion. Shareholders are urged to read SSB's January 27,
2000 opinion carefully and in its entirety.
In connection with rendering its January 27, 2000 opinion, SSB among other
things:
. reviewed the original agreement and a summary presented to the Markel
board of directors of the proposed amended terms of the merger and the
scheme of arrangement;
. 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 January 27, 2000 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 amended agreement would not vary
materially from the summary presented to the Markel board of directors of the
proposed amended terms of the merger and the scheme of arrangement reviewed by
SSB 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 Terra Nova and the strategic implications and
operational benefits anticipated to result from the merger and the scheme of
arrangement.
SSB's January 27, 2000 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 or Markel Holdings contingent value rights 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
29
<PAGE>
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 January 27, 2000
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 January 27, 2000.
In connection with rendering its January 27, 2000 opinion, SSB made a
presentation to the Markel board of directors on January 27, 2000, 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 management estimates of Markel and Terra Nova earnings. 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
January 25, 2000. 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 $20.39-$29.00
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 $24.35-$26.38
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 $19.86-$28.09
Transaction Analysis selected comparable transactions
Dividend Discount Net present value of various financial $16.09-$26.29
Analysis projections of dividends and terminal
values using selected discount rates
</TABLE>
30
<PAGE>
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.;
. 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 January 25, 2000, of:
. market price to estimated 2000 operating earnings;
. market price to estimated 2001 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 January 25, 2000.
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........./.. 3.3x-13.5x 5.6x-13.1x 0.51x-2.52x
Terra Nova.............. 17.7x/2/ 13.3x/2/ 1.28x
</TABLE>
- --------
1 As of September 30, 1999.
2 Terra Nova operating earnings estimates were provided by Markel management.
SSB analyzed the multiples of the comparable companies based on market price
to book value, market price to 2000 estimated earnings and market price to 2001
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 $20.39 to $29.00.
31
<PAGE>
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 2001 return on
average common equity, SSB noted an implied per share equity reference range
of $19.86 to $28.09. This range includes an acquisition premium of 20% to 30%,
levels SSB considered representative of the acquisition premiums paid in
comparable acquisitions.
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
. Underwriters Re . Swiss Re;
. Risk Capital Reinsurance Company . Folksamerica Reinsurance Company;
. LaSalle Re Holdings Ltd. . Trenwick Group Inc.;
. 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 Ltd.;
. GCR Holdings Ltd. . Exel Ltd.; and
. SAFR . 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. The
following table presents these statistics in comparison to the implied
multiples indicated for the scheme of arrangement. 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.
<TABLE>
<CAPTION>
Precedent Scheme of
Transaction Range Arrangement
----------------- -----------
<S> <C> <C>
Implied Acquisition Price to:
Estimated Forward Earnings................... 7.3x-14.0x 15.7x
Book Value................................... 0.82x-2.06x 1.45x
Premium to Market Price:
Day Prior to Announcement.................... 11.1%-57.5% NM/1/
30th Day Prior............................... 17.3%-45.5% NM/1/
</TABLE>
- --------
1 Not meaningful given that the Terra Nova market price reflected the
original transaction with Markel.
Based on a selected range of the outlined statistics, SSB derived an
implied per share equity reference range of Terra Nova from $20.39 to $29.00.
32
<PAGE>
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 2000 through 2004;
and
. the estimated present value of the terminal value per share of the Terra
Nova ordinary shares at the end of the year 2004.
This analysis was based upon Markel management estimated operating earnings
for 2000, 2001 and 2002, and an assumed 4% compound annual growth in 2003, 2004
and 2005.
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 2005 Operating Earnings.. 11.0x-15.0x $14.84-$23.68
As a Multiple of Projected Book Value at the End of
2003............................................... 1.00x-1.80x $14.16-$29.43
</TABLE>
SSB noted that the appropriate per share equity reference range implied by
the analysis was $16.09 to $26.29.
Historical Trading Analyses. For the periods January 1, 1998 through August
13, 1999, the last trading day immediately prior to the announcement of the
original transaction with Markel, and August 16, 1999 through January 25, 2000
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.
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>
2000 Estimated Operating Earnings/1/ ................. 57.1% 42.9%
2001 Estimated Operating Earnings/1/ ................. 52.6% 47.4%
Shareholders' Equity as of December 31, 1999.......... 46.8% 53.2%
Assets as of December 31, 1999........................ 49.0% 51.0%
</TABLE>
- --------
1 Terra Nova operating earnings were provided by Markel management.
<TABLE>
<CAPTION>
Markel Terra Nova
Shareholders Shareholders
------------ ------------
<S> <C> <C>
Pro Forma Ownership Resulting From the Scheme of
Arrangement
Pro Forma Ownership excluding Options............. 75.8% 24.2%
Pro Forma Ownership including Options............. 75.4% 24.6%
</TABLE>
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Merger Consequences Analysis. Based upon Markel management earnings
estimates for each of Markel and Terra Nova, Markel Holdings would have
estimated operating earnings per share, representing estimated potential
accretion/(dilution) to holders of Markel common shares as described in the
table below.
<TABLE>
<CAPTION>
Operating
Earnings Estimated Potential
Per Share Accretion/(dilution)
--------- --------------------
<S> <C> <C>
2000 Estimated................................ $ 9.29 (5.7)%
2001 Estimated................................ $11.98 9.4 %
</TABLE>
SSB additionally noted that Markel Holdings would have an estimated book
value per share of $84.21, representing estimated potential accretion of 24.4%
to holders of the Markel common shares.
Using Markel management estimates of Markel and Terra Nova earnings, 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,
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<PAGE>
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 paid SSB a fee of $500,000
upon delivery of its opinion relating to the originally contemplated merger and
scheme of arrangement. Markel has also agreed to pay SSB 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.
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
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 a combination of cash, Markel Holdings common shares, and
contingent value rights of Markel Holdings, 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 7.3
million Markel common shares will be outstanding immediately following the
effective time, of which approximately 1.76 million shares representing
approximately 24% 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, other than 2,069 Class A
ordinary shares held by Markel, will be cancelled and, except for shares
owned by Markel, Terra Nova or any of their subsidiaries, will be
automatically converted into the right to receive $13.00 in cash,
0.07027 of a Markel Holdings common share, and 0.07027 of a contingent
value right of Markel Holdings;
. 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.
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<PAGE>
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 interest provisions described below, each option
holder may receive consideration for the holder's options calculated as
follows:
. we will determine a number of option units by calculating the excess of
$26.00 per Terra Nova ordinary share issuable upon the exercise of each
Terra Nova option held over the exercise price payable in respect of
that Terra Nova option, aggregating the resulting amounts for all
options held and dividing the result by $26.00; and
. the option holder will then receive as consideration for each option
unit, $13.00 in cash, 0.07027 of a Markel Holdings common share and
0.07027 of a Markel Holdings contingent value right.
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.
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, each participant, each of whom is a
current or former non-employee director, in the plan will receive, for each
whole share unit credited to the participant under the plan, $13.00 in cash,
0.07027 of a Markel Holdings common share and 0.07027 of a Markel Holdings
contingent value right plus the amount of cash credited to the participant's
account in accordance with the terms of the plan.
Immediately after we complete the merger and scheme of arrangement and the
participants receive the payments, Terra Nova will terminate the Directors Plan
Grantor Trust 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 the payments.
Octavian Syndicate Management Ltd. 1996 Option Plan
When we complete the transactions, we will treat options issued before
January 1, 2000 in the same manner as options issued under the Terra Nova
Approved and Non Approved Executive Share Option Schemes.
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 December 31, 1999; 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 0.14054.
In attempting to amend the plan, Markel Holdings will obligate itself to
issue no more than an aggregate number of 62,087 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.
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<PAGE>
Cash in Lieu of Fractional Interests
Markel Holdings will not issue a certificate representing fractional Markel
Holdings common shares or contingent value rights 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 or
fractional contingent value right 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 in
the case of Markel Holdings common shares and multiplied by fair value agreed
to by Markel and Terra Nova in the case of contingent value rights.
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 Terra Nova share certificates or the electronic equivalent or a notice of
exercise of Terra Nova options, 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, confirmation of the contingent
value rights of Markel Holdings to which the holder is entitled, and 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.
Fixed Consideration
The cash and other consideration to be paid for each Terra Nova ordinary
share is fixed at $13.00 in cash, 0.07027 of a Markel Holdings common share,
and 0.07027 of a contingent value right of Markel Holdings. This cash and other
consideration 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 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 and contingent value rights immediately
after the effective time of the transactions, and therefore, impossible to
accurately predict the value of the total consideration to be received by Terra
Nova shareholders.
Material U.S. Federal Tax Consequences
This discussion describes the material U.S. federal tax consequences of the
merger and the scheme of arrangement. It does not consider all of the possible
U.S. federal tax consequences that might affect you. In addition, this
discussion does not provide information as to the tax consequences of the
merger and scheme of arrangement under state, local, or foreign tax laws. We
based this discussion on current provisions of the
37
<PAGE>
Internal Revenue Code, Treasury regulations, and administrative and judicial
interpretations of each. These provisions and interpretations may change at
any time, and the changes may apply retroactively. This discussion applies
only to shareholders that hold their Terra Nova or Markel shares as capital
assets. It does not apply to Terra Nova or Markel shares:
. received when exercising an option or other similar security or
otherwise received as compensation;
. held as part of a "straddle," "hedge," "conversion transaction,"
"synthetic security," or other integrated investment; or
. held by other types of shareholders subject to special rules, such as
financial institutions, insurance companies, tax-exempt organizations,
and broker dealers.
We urge you to consult your tax advisors to determine the income, gift, and
estate tax consequences to you of the merger and the scheme of arrangement.
The Merger and Scheme of Arrangement
At closing, we expect to receive the following tax opinions:
. the opinion of McGuire, Woods, Battle & Boothe LLP 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
. the opinion of Debevoise & Plimpton 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.
We will file these opinions as exhibits to the registration statement relating
to this joint proxy statement prospectus by post-effective amendment. Neither
Markel nor Terra Nova will waive the condition to the agreement requiring
delivery of these opinions by tax counsel. We will resolicit proxies from
shareholders if we amend the agreement to waive this condition.
Our counsel will base their opinions on representations of fact contained
in certificates of officers and shareholders of Markel, Terra Nova, foreign
counsel and others and on conditions and assumptions set forth in the
opinions. The parties will provide this information before closing, and the
information must be correct as of the date it is provided and the time of the
closing.
We did not obtain any ruling by the Internal Revenue Service concerning the
U.S. federal income tax consequences of the merger or the scheme of
arrangement. Furthermore, opinions of counsel such as those to be provided to
Markel and Terra Nova do not bind the Internal Revenue Service or any court.
The Internal Revenue Service may disagree with the opinions and contest our
opinion of the tax treatment of the transactions, and a court may sustain this
contest.
Tax Treatment of U.S. Holders
This discussion applies only to a beneficial holder of Terra Nova or Markel
shares that, for purposes of U.S. federal income tax laws, is:
. a U.S. citizen or resident alien individual,
. a domestic corporation or partnership,
. an estate, if the estate's income is subject to U.S. federal income
taxation regardless of its source, or
. a trust, if any U.S. court may exercise primary jurisdiction over the
trust's administration and if one or more U.S. persons have authority to
control all substantial decisions of the trust.
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<PAGE>
We refer to individuals or entities that meet any of these descriptions as
"U.S. holders" in the discussion below.
Tax Consequences to Markel Shareholders
In general, if you do not hold Terra Nova shares, you will not recognize any
gain or loss on the exchange of your Markel shares for Markel Holdings shares
in the merger. Your adjusted tax basis in the Markel Holdings shares that you
receive in the merger will equal your adjusted tax basis in the Markel shares
that you surrendered. The holding period for your Markel Holdings shares that
you receive in exchange for your Markel shares will include your holding period
for the Markel shares that you surrendered. We describe the treatment of a
Markel shareholder that also holds Terra Nova shares and that receives cash and
contingent value rights in the scheme of arrangement in "-- Tax Consequences to
Terra Nova Shareholders."
Tax Consequences to Terra Nova Shareholders
If you hold Terra Nova shares, you will recognize gain, but not loss, on
your receipt of Markel Holdings shares, cash and contingent value rights in the
exchange.
The amount of gain will equal the lesser of the following:
. the amount of cash, excluding cash paid for fractional shares, plus the
fair market value of the contingent value rights that you receive in the
exchange and
. the amount of gain that you realize in the exchange.
The amount of gain that you realize in the exchange will equal:
. the amount of cash, excluding cash paid for fractional shares, plus the
fair market value of the contingent value rights, plus the fair market
value of the Markel Holdings shares that you receive in the scheme of
arrangement and merger minus
. the adjusted tax basis of the Terra Nova shares and the Markel shares,
if any, that you surrendered in the scheme of arrangement and merger,
excluding the adjusted tax basis allocated to fractional shares.
Any gain you recognize will constitute long-term capital gain if your holding
period in your Terra Nova shares and your Markel shares, if any, exceeds one
year at the time of the exchange.
Your tax basis in the contingent value rights generally will equal the fair
market value of the contingent value rights at the time we complete the
transactions.
Terra Nova Shareholders Who Receive Cash for a Fractional Share. If you
receive cash for a fractional share, you will be treated as if you received the
fractional share in the scheme of arrangement and then exchanged the fractional
share for cash in a redemption by Markel Holdings. You must allocate to that
fractional share the portion of your adjusted tax basis attributable to that
fractional share. The amount of any capital gain or loss attributable to the
redemption will equal the difference between the cash that you receive for the
fractional share and the portion of your adjusted tax basis allocated to the
fractional share.
Withholding. Unless an exemption applies, the exchange agent must withhold
31% of any cash payments you are entitled to in the scheme of arrangement. The
exchange agent will not withhold this amount if you provide your tax
identification number, social security or employer identification number and
certify that the number is correct. You must complete and sign the Form W-9
that will be included as part of the transmittal letter to avoid backup
withholding unless you prove that an applicable exemption exists in a manner
satisfactory to Markel or Terra Nova, as the case may be, and the exchange
agent.
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<PAGE>
Ownership of Contingent Value Rights
In this discussion, we refer to contingent value rights as CVRs. The Federal
income tax consequences to you from the payment at or before maturity, lapse,
or disposition of any CVRs that you receive in the scheme of arrangement will
depend upon how the Internal Revenue Service characterizes the CVRs for Federal
income tax purposes. The Internal Revenue Service has taken the position that
taxpayers should treat rights similar to the CVRs as cash settlement put
options for Federal income tax purposes. However, it is possible that the CVRs
might be treated as debt instruments or in some other manner. Subsequent
legislation, regulations, court decisions, and revenue rulings could affect the
Federal income tax treatment of the CVRs. Markel Holdings anticipates that it
will treat the CVRs as cash settlement put options for Federal income tax
purposes, and the following summary assumes that the IRS will treat the CVRs as
cash settlement put options for Federal income tax purposes, except as
specifically noted.
Unless the straddle rules described below apply, upon the payment at or
before maturity or sale or exchange of the CVRs, generally you will recognize
capital gain or loss in an amount equal to the difference between the cash or
fair value of the Markel Holdings shares paid in respect of the CVRs and your
tax basis in the CVRs. In the event your CVRs lapse without any payment to you,
you will recognize capital loss equal to your tax basis in your CVRs. Your
capital gain or loss will be long term if your holding period in the CVRs is
more than one year at the time of payment, lapse, sale or exchange.
The straddle rules may apply to you while you hold both CVRs and Markel
Holdings shares. In the event your CVRs and your Market Holdings shares
comprise a straddle:
. some or all of the capital loss that you would otherwise recognize on
your CVRs may be deferred until a later tax year. The amount deferred
would be equal to the amount by which the fair value of the shares of
Markel Holdings you own exceeds your tax basis in the Markel Holdings
shares on the last trading day of the tax year in which you would
otherwise recognize the capital loss.
. if you had a holding period in your Markel Holdings shares of one year
or less when you received your CVRs, some or all of the capital gain or
loss that you would otherwise recognize upon a payment at or before
maturity, lapse, sale or exchange of the CVRs may be short term capital
gain or loss instead of long term capital gain or loss.
. if you had a holding period of one year or less in your Markel Holdings
shares when you received your CVRs, some or all of the capital loss that
you would otherwise recognize on a disposition of your Markel Holdings
shares may be deferred and be short term instead of long term.
. if you had a holding period in your Markel Holdings shares of more than
one year when you received your CVRs, some or all of the capital loss
that you would otherwise recognize on the disposition of your Markel
Holdings shares may be deferred, and some or all of the capital gain may
be short term instead of long term, but any capital loss recognized by
you on your CVRs will be long term, regardless of your holding period in
the CVRs.
. you may not be able to deduct interest and carrying charges allocable to
the CVRs or your Markel Holdings shares. These items will increase your
tax basis in the CVRs and Markel Holdings shares, respectively.
. if you are a corporation, your holding period for your Markel Holdings
shares will not include any day on which you also own the CVRs.
Therefore, the dividends received deduction may not be available to you
for dividend income on your Markel Holdings shares.
Treatment of the CVRs as debt instruments. If the Internal Revenue Service
were to assert successfully that the CVRs are treated as debt for Federal
income tax purposes, the character of income and loss that you would recognize
with respect to your CVRs and your Markel Holdings shares, as well as the
timing of the
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recognition of income and loss, could be substantially different from the
treatment discussed above. In particular, all of the income from your CVRs
could be treated as ordinary income, and you could recognize income before you
receive any cash with respect to the CVRs. Alternatively, amounts received with
respect to the CVR's could be treated as additional consideration with respect
to the Terra Nova shares you will surrender in the scheme of arrangement. We
urge you to consult your tax advisors regarding the consequences of the
possible treatment of the CVRs as debt for Federal income tax purposes.
U.S. Treatment of Non-U.S. Holders
We limit this discussion to the U.S. federal income and estate tax
consequences relevant to a non-U.S. holder. We refer to any beneficial holder
of Terra Nova or Markel shares who is not a U.S. holder, as defined above, as a
"non-U.S. holder."
The Merger and Scheme of Arrangement. A non-U.S. holder will not be subject
to U.S. federal income tax on the exchange of Markel shares for Markel Holdings
shares in the merger or on the exchange of Terra Nova shares for Markel
Holdings shares in the scheme of arrangement unless the non-U.S. holder
receives cash and contingent value rights in the scheme of arrangement and one
of the following conditions applies:
. the gain is "U.S. trade or business income," which means that the income
or gain is attributable to the conduct of a trade or business in the
U.S. or, in the case of a treaty resident, means that the income or gain
is attributable to a permanent establishment or, in the case of an
individual treaty resident, a fixed base, in the U.S.;
. the non-U.S. holder is an individual who holds the Terra Nova 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, unless an exception
applies; or
. the non-U.S. holder is a Markel shareholder and is subject to tax as a
result of U.S. tax law that applies to some U.S. expatriates, including
former citizens or residents of the United States.
Dividends. U.S. federal income tax withholding of 30% applies to dividends
paid to a non-U.S. holder of Markel Holdings shares unless an income tax treaty
applies. Regular U.S. federal income tax rates apply, however, to dividends
that constitute U.S. trade or business income and withholding generally does
not apply. An additional "branch profits tax" of 30% or less, depending on the
application of an income tax treaty, may apply to U.S. trade or business income
of a corporation that is a non-U.S. holder of the shares. A non-U.S. holder
wishing to claim an exemption from withholding for dividends that constitute
U.S. trade or business income generally must satisfy certification and
documentation requirements.
In determining whether to withhold and whether to apply a tax treaty rate,
current rules presume that dividends paid to an address in a country other than
the United States are paid to a resident of that country unless the payor of
the dividend knows that the recipient is not a resident of that country. New
Treasury regulations will apply to dividend and other payments made after
December 31, 2000. The new regulations will require a non-U.S. holder that
beneficially owns dividends paid on Markel Holdings shares and that wishes to
claim the benefit of an applicable treaty to satisfy certification and
documentation requirements. The new regulations include provisions for
determining who beneficially owns the dividends and in some cases require non-
U.S. holders to make recertifications for periods after December 31, 2000.
A non-U.S. holder of Markel Holdings shares that is eligible for a reduced
rate of U.S. withholding under an applicable income treaty may obtain a refund
of any excess amounts withheld by filing a claim with the Internal Revenue
Service.
Sale, Exchange or Redemption of Markel Holdings Shares and the Contingent
Value Rights. U.S. federal income tax generally will not apply to gain realized
by a non-U.S. holder on the future sale, exchange, or redemption of Markel
Holdings shares, or on the future sale, exchange, payment at or before to
maturity of the
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contingent value rights, except where the discussion below concerning backup
withholding is applicable. U.S. federal income tax will apply, however, if:
. the gain is U.S. trade or business income, as defined above;
. the non-U.S. holder is an individual who holds the Markel Holdings
shares or the contingent value rights, respectively, as a capital asset
and is present in the U.S. for 183 days or more in the taxable year of
the disposition, subject to certain exceptions;
. the non-U.S. holder is subject to tax as a result of U.S. tax law
applicable to certain U.S. expatriates, including certain former
citizens or residents of the United States; or
. in the case of Markel Holdings shares, Markel Holdings is a United
States real property holding corporation for U.S. federal income tax
purposes.
We do not expect Markel Holdings to become a real property holding corporation
in the future.
Estate Tax. The United States will impose a federal estate tax on the Markel
Holdings shares or contingent value rights that an individual non-U.S. holder
who is a nonresident alien owns, or is treated as owning, at the time of his or
her death, unless an applicable tax treaty provides that the estate will not
include the shares.
Information Reporting and Backup Withholding. Markel Holdings must report
annually to the Internal Revenue Service and to each non-U.S. holder any
dividend subject to U.S. withholding or exempt from U.S. withholding as a
result of a tax treaty. Markel Holdings may also make copies of this
information available to the tax authorities of the country in which the non-
U.S. holder resides under a specific treaty or agreement.
If you sell your Markel Holdings shares or contingent value rights through a
U.S. office of any broker, U.S. or foreign, the broker must report the sale to
the Internal Revenue Service and withhold 31% of the proceeds. The broker need
not withhold this amount if 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 or contingent value rights through a
foreign branch of a U.S. brokerage firm, the broker must report the sale to the
Internal Revenue Service unless the broker knows that you are a non-U.S.
holder. Backup withholding will not apply to payments made through foreign
offices of brokers that are not U.S. persons or U.S. related persons unless the
broker knows that the person receiving payment is a U.S. person.
Provided that the Internal Revenue Service receives the required
information, U.S. federal income tax rules permit a credit or refund of amounts
withheld from a payment to a non-U.S. holder under the backup withholding rules
against the non-U.S. holder's U.S. federal income tax liability.
The new Treasury regulations applicable to dividend and other payments made
after December 31, 2000 modify the withholding, backup withholding, and
information reporting rules described above. The new regulations attempt to
unify certification requirements and modify reliance standards. We urge Terra
Nova and Markel shareholders to consult their own tax advisors regarding these
new regulations.
Treatment of the CVRs as debt instruments. If the Internal Revenue Service
were to assert successfully that the CVRs are treated as debt for Federal
income tax purposes (as described above under "-- Ownership of the Contingent
Value Rights"), the character of income and loss that a non-U.S. shareholder
would recognize with respect to the CVRs and Markel Holdings shares, as well as
the timing of the recognition of income and loss, could be substantially
different from the treatment discussed above. In particular, U.S. 30%
withholding tax could apply to any deemed interest payments on the CVRs unless
the non-U.S. holder proved that an exception to the withholding requirement
applies, either under the rules for portfolio interest or under a tax treaty
between the United States and a foreign country.
We urge you to consult your own tax advisor as to the particular tax
consequences to you of the merger and scheme of arrangement. We urge each
shareholder to consult his own tax advisor concerning the application and
effect of any U.S. federal, state or local tax laws, any United Kingdom or
foreign tax laws, and any proposed changes to applicable tax laws.
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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 an employment agreement with Nigel H.J. Rogers, President and
Chief Executive Officer and a director, which 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 agreement of Mr. Rogers expires on December 31, 2002, but 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. The agreement is automatically extended upon a change of control until
the third anniversary of the date of such change of control. The merger and
scheme will be a change of control under the employment agreement.
If Terra Nova terminates Mr. Rogers' employment other than for cause,
including termination for gross misconduct or dishonesty, or he terminates his
employment at any time for a defined good reason or he voluntarily terminates
employment without good reason during the one year period beginning on a
defined change of control, then Terra Nova will pay to him
. his 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 the sum of (i) his base
salary and (ii) the greater of (x) the highest bonus amount paid to or
deferred by Mr. Rogers 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.
Markel Holdings is discussing a new employment arrangement with Mr. Rogers
which would 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 would be paid immediately with the remainder vesting
in six-month increments over 30 months. If Mr. Rogers were to terminate his
employment during the first year after completion of the transactions, the
initial bonus payment of $2.5 million would be deducted from the payment that
would become due under his existing change in control benefit provisions.
Markel is also discussing an arrangement pursuant to which, following the first
year after the transactions, if Markel Holdings were to terminate Mr. Rogers'
employment without cause or fail to renew the agreement, Mr. Rogers would be
entitled to continued base salary for two years.
John J. Dwyer, Terra Nova's Chairman, and Jean M. Waggett, Terra Nova's
Senior Vice President General Counsel and Corporate Secretary, each had
employment agreements substantially similar to Mr. Rogers
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agreement, except that the cash amount payable to Ms. Waggett on termination
was based on a multiple of two rather than three years.
Mr. Dwyer and Ms. Waggett are U.S. citizens and could have been subject to
excise taxes under the Internal Revenue Code for change of control payments
made to them. If this tax were to have been imposed on either of them, Terra
Nova would have to make specified additional payments to compensate the
affected executive for the taxes payable in respect of the additional payment.
Whether the excise tax is payable is partially a function of the amounts
actually paid to an affected individual for the five calendar years preceding
the year in which a change of control occurs. We expected that Mr. Dwyer and
Ms. Waggett would each become entitled to payments under the agreements and
would have been subject to the excise taxes, had the employment agreements
continued in effect until 2000 and following the effective time of the scheme
and merger. Accordingly, Terra Nova entered into settlement agreements with
each of Mr. Dwyer and Ms. Waggett for payments of $3,707,500 and $1,165,000
respectively, in settlement of their rights under the employment agreements and
bonuses in respect of 1999.
Under these agreements, Mr. Dwyer is to remain in Terra Nova's employment
until the earlier of the effective date of the merger and March 31, 2000, and
Ms. Waggett is to remain employed until the earlier of the end of the month
following the effective date and April 30, 2000. Due to the delay in the
effective date, Terra Nova will extend the fixed date so that the executives
remain with Terra Nova at least until the effective date.
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, except for
options granted in February 1999 which were based on the performance of Terra
Nova prior to the effective time of the merger and scheme of arrangement, will,
at their election, be treated as fully exercisable at the effective time. Each
of these executives holds options that, in the ordinary course, would not have
been exercisable and vested at the effective time. In the transaction, we will
value each option at the excess of $26.00 over its exercise price. We will
calculate a number of option units for each holder by dividing the aggregate
value of all the options held by a holder by $26.00. The holder will receive,
for each option unit, $13.00 in cash, 0.07027 of a Markel Holdings Share and
0.07027 of a Markel Holdings contingent value right.
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The following table sets forth the value of the options outstanding under
the share option schemes, based on the spread between $26.00 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.................................................... $1,204,309
Nigel H. J. Rogers............................................... 758,534
William J. Wedlake............................................... 355,841
Ian L. Bowden.................................................... 955,228
Jean M. Waggett.................................................. 297,586
All executive officers as a group (6 persons).................... 3,828,926
</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, for each whole share unit
under the plan, $13.00 in cash, 0.07027 of a Markel Holdings common share and
0.07027 of a Markel Holdings contingent value right, 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 62,087 Markel Holdings options in lieu of options for Terra Nova
ordinary shares.
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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 and contingent
value rights 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 C-Opinion of Terra Nova Financial Advisor" and "Registration Rights
Agreement."
Registration Rights
Markel Holdings common shares and contingent value rights 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 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.
We will settle options outstanding under the Terra Nova Share Option Plan,
units under the 1997 Non-Employee Directors Share Unit Plan and, if issued
before January 1, 2000, the Octavian Stock Option Plan as part of the
transactions. The settlement costs will be recorded as compensation expense by
Terra Nova and an
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adjustment to the purchase price by Markel. 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. If
Markel Holdings pays the additional $5 million bonus payable to Mr. Rogers
under the proposed new employment arrangement, 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 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.
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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.
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 December 10, 1999 and a hearing on such originating summons took
place on December 16, 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. Because of the revisions to the
scheme of arrangement, Terra Nova filed a summons and supporting affidavit on
February , 2000. The scheme of arrangement, including the notice of the court
meetings, has been incorporated into this joint proxy statement/prospectus.
The court meetings, originally scheduled for February 10, 2000, were
convened on that date and adjourned. Terra Nova will reconvene and hold the
court meetings on , 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
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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 9:30 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 and contingent value rights 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 and contingent
value rights 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.
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.
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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.
Market for the Markel Holdings Shares and Contingent Value Rights
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.
Markel Holdings will not list the contingent value rights on any exchange
and there can be no assurance that a trading market for the contingent value
rights will develop.
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. The agreement 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;
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. 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;
. 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.
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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;
. 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;
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. 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 except that Terra Nova will not pay quarterly dividends
in the year 2000 with a record date prior to June 1, 2000;
. 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;
. 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;
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. 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.
. 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.
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. 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, (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, or (iii) changes to Terra Nova or its subsidiaries taken as a
whole reflected in Terra Nova's Amendment No. 2 Disclosure Letter to
Markel, dated January 28, 2000.
. 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 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.
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. 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.
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;
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. 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.
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
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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 withdraws or modifies in a manner adverse to
Markel its approval or recommendation of the arrangement or the
agreement, or approves or recommends 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 withdraws or modifies in a manner adverse to
Terra Nova its approval or recommendation of the merger or the
agreement, or approves or recommends 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.
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.
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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 announced 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
. 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
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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.
Effect of Termination
If Markel or Terra Nova terminate the Agreement, both of us are prohibited
for a period of one year from termination from engaging in any of the following
acts, unless one of us submits a written request for the other to do so:
. disclose a plan or intent to enter into any form of business combination
or similar transaction relating to the other party or an affiliate or
the other party;
. acquire ownership of any voting or other securities of the other party
or of an affiliate of the other party;
. solicit proxies with respect to any voting securities of the other
party, participate in an election contest with respect to the other
party, seek to influence others with respect to voting securities of the
other party, or demand a copy of the list of the other party of its
stockholders or other books and records;
. participate in any group attempting to acquire beneficial ownership of
the voting securities of the other party;
. seek to control or influence the Board of Directors, management or
policies of the other party;
. disclose an intent to terminate, waive, or amend any of these
provisions;
. enter negotiations with any third party with respect to these
provisions; or
. take any action that might require either party to make a public
announcement regarding a possible transaction involving the other party
and any of these prohibited activities.
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 of 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
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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.
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
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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.
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.
62
<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 day 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.
63
<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 $ (71,250)A $2,528,251
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 (111,250) 2,951,086
---------- ---------- --------- ----------
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 45,665 156,472 B 295,666
Other assets............... 94,917 81,766 6,868 D 183,551
---------- ---------- --------- ----------
Total assets............. $2,507,336 $2,607,742 $ 52,090 $5,167,168
========== ========== ========= ==========
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............. 158,258 175,000 248,250 A 581,508
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 2,081,728 284,604 4,487,685
---------- ---------- --------- ----------
Shareholders' equity
Common stock............... 25,593 265,492 28,008 A,E 319,093
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 (232,514) 679,483
---------- ---------- --------- ----------
Total liabilities and
shareholders' equity.... $2,507,336 $2,607,742 $ 52,090 $5,167,168
========== ========== ========= ==========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Statements.
64
<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 (5,006)F 130,992
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 (5,006) 969,744
-------- -------- -------- --------
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 4,396 G 11,764
-------- -------- -------- --------
Total operating
expenses............... 338,394 517,515 4,396 860,305
-------- -------- -------- --------
Operating income............ 65,629 53,212 (9,402) 109,439
Interest expense............ 19,098 9,300 15,191 H 43,589
-------- -------- -------- --------
Income before income taxes.. 46,531 43,912 (24,593) 65,850
Income taxes................ 11,168 (2,355) 11,201 I 20,014
-------- -------- -------- --------
Income from continuing
operations................. $ 35,363 $ 46,267 $(35,794) $ 45,836
======== ======== ======== ========
Income from continuing
operations per share:
Basic....................... $ 6.34 -- -- $ 6.25
======== ======== ======== ========
Diluted..................... $ 6.27 -- -- $ 5.85
======== ======== ======== ========
Weighted average shares
outstanding:
Basic....................... 5,580 -- -- 7,338
======== ======== ======== ========
Diluted..................... 5,640 -- -- 7,838
======== ======== ======== ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Statements.
65
<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 (6,675)F 169,956
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 (6,675) 1,217,130
-------- -------- -------- -------- -------- -------- ----------
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 9,326 G 15,544
-------- -------- -------- -------- -------- -------- ----------
Total operating
expenses............. 330,210 158,460 3,259 491,929 559,646 9,326 1,060,901
-------- -------- -------- -------- -------- -------- ----------
Operating income
(loss)................ 95,791 (29,218) (9,301) 57,272 114,958 (16,001) 156,229
Interest expense....... 20,406 3,212 3,563 L 27,181 13,697 20,254 H 61,132
Income (loss) before
income taxes.......... 75,385 (32,430) (12,864) 30,091 101,261 (36,255) 95,097
Income taxes........... 18,092 (13,128) (3,362)M 1,602 17,221 3,292 I 22,115
-------- -------- -------- -------- -------- -------- ----------
Income (loss) from
continuing
operations............ $ 57,293 $(19,302) $ (9,502) $ 28,489 $ 84,040 $(39,547) $ 72,982
======== ======== ======== ======== ======== ======== ==========
Income from continuing
operations per share:
Basic.................. $ 10.41 -- -- $ 5.17 -- -- $ 10.05
======== ======== ======== ======== ======== ======== ==========
Diluted................ $ 10.17 -- -- $ 5.05 -- -- $ 9.32
======== ======== ======== ======== ======== ======== ==========
Weighted average shares
outstanding:
Basic.................. 5,506 -- -- 5,506 -- -- 7,264
======== ======== ======== ======== ======== ======== ==========
Diluted................ 5,636 -- -- 5,636 -- -- 7,834
======== ======== ======== ======== ======== ======== ==========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Statements.
66
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of presentation
On January 28, 2000, Markel entered into an Amended 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 each Terra Nova shareholder of $13.00 in
cash, .07027 of a Markel Holdings common share and .07027 of a Markel Holdings
contingent value right (CVR). Consideration to be exchanged consists of the
following (in thousands, except per share data):
<TABLE>
<S> <C>
Cash(1)............................................................ $356,500
Markel common shares and Markel Holdings contingent value rights to
be issued to Terra Nova shareholders (1,758 shares at $148.00 per
share and 1,758 contingent value rights at $19.00 per right)...... 293,500
--------
Total purchase consideration (2)................................... 650,000
Direct costs of acquisition (3).................................... 12,000
--------
Total cost of acquisition.......................................... 662,000
Less: Fair value of Terra Nova net tangible and identifiable
intangible assets as of September 30, 1999 (4).................... 459,863
--------
Excess of cost over fair value of net assets acquired.............. $202,137
========
The acquisition will be funded as follows (in thousands):
Available cash..................................................... $111,250
Borrowings under credit facilities................................. 257,250
Markel common shares and CVRs to be issued to Terra Nova
shareholders...................................................... 293,500
--------
Total cost of acquisition.......................................... $662,000
========
</TABLE>
In addition, $175.0 million of Terra Nova's debt will remain outstanding.
(1) 25 million Terra Nova shares at $13.00 per share and 1.1 million Terra
Nova shares purchased by Markel in the open market prior to the close
of the transaction, with an aggregate cost of $31.4 million.
(2) Includes $11.0 million cash and $8.8 million of Markel common shares
(59,000 shares at $148.00 per share) and $1.1 million of Markel
contingent value rights (59,000 rights at $19.00 per right) to be
issued to settle Terra Nova stock option plans.
(3) The direct costs of the acquisition are investment banking fees of
$10.0 million and estimated legal, tax and accounting fees of $2.0
million.
(4) 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
67
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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. 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>
68
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(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.
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 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
$0.2 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 $0.3 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
69
<PAGE>
MARKEL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
(Unaudited)
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 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.
(K) Excess of cost over fair value of net assets acquired of $68 million 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.
70
<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
71
<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 syndicated five
year $500 million revolving credit facility to replace its $250 million
revolving credit facility. Markel will use the new facility for working capital
and other corporate purposes. Markel will pay a commitment fee ranging from
.20% to .50% on the unused portion of the new facility. Due to the revised
terms of the transactions, Markel is seeking amendments to the $500 million
revolving credit facility to permit its use to fund part of the cash to be paid
to Terra Nova shareholders in the scheme of arrangement. Alternatively, Markel
has the ability to finance the scheme of arrangement through the use of its
existing credit facility and internal funding.
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-four jurisdictions of the United States and
had an application for approval pending in a further three.
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 Ltd.. 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 six 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 5,588,873 Markel Corporation common shares
issued and outstanding and 24,348,192 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 7.3 million Markel
Holdings common shares will be outstanding immediately following the Effective
Time, of which approximately 1.76 million shares, representing approximately
24% of the total, will be held by former holders of Terra Nova.
Description of Contingent Value Rights
Each whole contingent value right will represent the right, thirty months
after the effective time of the merger and scheme of arrangement, to receive,
in cash or common shares, at the option of Markel Holdings, the amount, if any,
by which the current market value, subject to a minimum or floor of $140.00 per
share, of Markel Holdings common shares is less than $185.00 per share. The
current market value will be based upon a formula averaging market prices
during 20 consecutive day trading periods during the 60 days ending on the
thirty-month anniversary date. The contingent value rights will be issued under
the CVR agreement between Markel Holdings and a trustee, the form of which we
have filed as part of our registration statement. See "Additional Information"
for information on how to obtain copies of the CVR agreement. Because this
section is a summary, it does not describe every aspect of the contingent value
rights. In this section, we refer to contingent value rights as CVRs.
Payment in Cash or Markel Holdings Common Shares; No Interest
Markel Holdings, at its option, may pay any amount due under the terms of
the CVRs to holders in cash or in Markel Holdings common shares. If payment is
made in common shares, they will be valued at their average current market
value over a 20 day trading period on the date before the date that payment is
due. Other than in the case of interest on the default amount, no interest will
accrue on any amounts payable to the CVR holders pursuant to the terms of the
CVRs.
Payment at Maturity Date
The CVRs will mature on the date thirty months after the effective time of
the merger and scheme of arrangement. Markel Holdings will pay each holder of a
CVR the amount, if any, by which the target price of
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$185.00 exceeds the greater of the current market value of Markel Holdings
common shares and the minimum price of $140.00. Markel Holdings will pay these
amounts, if in cash, three days after the maturity date or, if in Markel
Holdings shares, as promptly as possible after the maturity date. Both the
target price and minimum price are subject to antidilution adjustments.
Payment Upon the Occurrence of a Disposition
Following the consummation of a disposition of the type described below,
Markel Holdings will give notice and pay to CVR holders an amount for each CVR,
if any, by which the discounted target price, as described below, exceeds the
greater of
. the fair market value, as determined by an independent nationally
recognized investment banking firm, of the consideration, if any,
received by Markel Holdings common shareholders for each common share as
a result of such disposition and
. the minimum price of $140.00.
The discounted target price for a disposition payment is $185.00 discounted
from the maturity date to the disposition payment date at a per annum rate of
6%. The disposition payment date will be the date established by Markel
Holdings for payment of the amount due on the CVRs in respect of a disposition,
which in no event will be more than 30 days after the date on which such
disposition was consummated. The discounted target price and the minimum price
will be subject to antidilution adjustments as described below.
The types of dispositions for which a distribution payment will be made are
. a merger, consolidation or other business combination involving Markel
Holdings as a result of which no Markel Holdings common shares will
remain publicly outstanding,
. a sale, transfer or other disposition, in one or a series of
transactions, of all or substantially all of the assets of Markel
Holdings, or
. a reclassification of Markel Holdings shares as any other capital stock
of Markel Holdings or any other person,
unless, in the case of a merger, consolidation or other business combination
or sale transfer or other disposition of assets, the transaction is in
connection with a transaction in which
. All of the Markel Holdings common shares are exchanged solely for other
publicly traded equity securities of Markel Holdings or another entity,
. the successor assumes the obligations of Markel Holdings relating to the
CVRs, and
. the successor makes appropriate adjustments to the target price, the
minimum price, the discounted target price and other terms to reflect
the transaction.
Event of Default
If an event of default under the CVR agreement occurs, either the trustee
under the CVR agreement or CVR holders holding at least 25% of the outstanding
CVRs, by giving the required notice, may declare the CVRs to be due and
payable, and the default amount under the CVR agreement then becomes due and
payable and will bear interest at an interest rate of 6% per annum until
payment is made to the trustee. Under the CVR agreement, the default amount is
the amount, if any, by which the discounted target price exceeds the minimum
price. For purposes of payment of the default amount, discounted target price
means $185.00, discounted from the maturity date to the default payment date at
a per annum rate of 6%. The default payment date is the date on which the CVRs
are declared due and payable following an event of default.
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Early Redemption
Markel Holdings may redeem all of the CVRs at any time on at least 30 days
notice at a price equal to the amount by which $185.00 exceeds the current
market value of the Markel Holdings common shares as of five business days
before the redemption notice, discounted from the maturity date to the date on
which the early redemption is made at a per annum rate of 6%.
Automatic Extinguishment
If the current market value of Markel Holdings common shares during any 20
consecutive trading days in the applicable valuation period, as described
below, is greater than or equal to $185.00 per Markel Holdings common share,
the CVRs will automatically be extinguished without further consideration or
action by Markel Holdings or the CVR holders.
In the event that Markel Holdings determines that no amount is payable with
respect to the CVRs as a result of an automatic extinguishment or on the
maturity date, Markel Holdings will give notice to the CVR holders. The CVRs
will then terminate and become null and void and the CVR holders will have no
further rights under the CVRs. The failure to give notice or any defect in the
notice will not affect the validity of the determination of extinguishment.
Certification of Calculations
In connection with each notice of payment, early redemption, prepayment or
extinguishment of the CVRs, Markel Holdings will prepare a certificate
describing the calculations in determining the amount of the payment or the
extinguishment and, if it is making payment in its shares, the calculations in
determining the number of shares. Markel Holdings will before giving the notice
file a copy of the certificate with the trustee and mail a brief summary of the
certificate to each CVR holder.
Antidilution; Disposition Adjustments
If Markel Holdings in any manner subdivides or combines the number of
outstanding Markel Holdings common shares, Markel Holdings will correspondingly
subdivide or combine the CVRs and will appropriately adjust the target price,
the minimum price and the discounted target price. Whenever an adjustment is
made under these circumstances or in a disposition transaction requiring
adjustments to the target price, the minimum price or the discounted target
price, Markel Holdings will
. promptly prepare a certificate setting forth the adjustment and a brief
statement of the facts accounting for the adjustment,
. promptly file with the CVR trustee a copy of the certificate and
. mail a brief summary to each CVR holder.
Current Market Value Calculations
For purposes of determining the amount, if any, of any payment on the CVRs,
or the number of Markel Holdings common shares to be issued in payment of any
amounts due on the CVRs, the current market value of Markel Holdings common
shares is the mean of the averages of the high and low and opening and closing
prices on the New York Stock Exchange, or other exchange on which the shares
are then listed, of Markel Holdings common shares on each trading day during
the 20 consecutive trading days in the applicable valuation period which yield
the highest averages for any 20 consecutive trading day period within the
valuation period. The valuation period for a payment at the maturity date is
the 60-day trading period before the maturity date. The valuation period for an
automatic extinguishment of the CVRs or an early redemption of the CVRs is the
period of time beginning at the effective time of the merger and scheme of
arrangement and ending on the maturity date. In computing the current market
value for purposes of an early redemption or
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automatic extinguishment of the CVRs, no 20 consecutive day period may be
included in which Markel Holdings or specified affiliates purchased Markel
Holdings common shares , other than for employee benefit plans and other
incentive arrangements in the ordinary course of business or in compliance with
Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
Restrictions on Purchases by Markel Holdings and Affiliates
Neither Markel Holdings nor specified affiliates may purchase Markel
Holdings common shares during the period beginning ten trading days before the
valuation period with respect to the maturity date and ending on the maturity
date, except for purchases for employee benefit plans and other incentive
compensation arrangements in the ordinary course of business or purchases in
compliance with Rule 10b-18 promulgated under the Securities Exchange Act of
1934, as amended.
Issuance of the CVRs
Markel Holdings will issue the CVRs pursuant to a CVR agreement between
Markel Holdings and a trustee. Markel Holdings will use its reasonable best
efforts to cause the CVR agreement to be qualified under the Trust Indenture
Act of 1939, as amended.
Markel Holdings is registering the CVRs under the registration statement of
which this joint proxy statement/prospectus forms a part. The CVRs are not
currently listed on any securities exchange and Markel Holdings does not plan
to list the CVRs in the future.
The CVRs are unsecured obligations of Markel Holdings and will rank equally
with all other unsecured obligations of Markel Holdings.
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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, no par value. At December 20,
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 Bylaws 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;
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. the Articles of Incorporation of Markel, Certificate of Incorporation
and Memorandum of Association of Terra Nova and the Articles of
Incorporation of Markel Holdings;
. the Bylaws of Markel, Terra Nova and Markel Holdings and
. the Virginia Stock Corporation Act and the Bermuda Companies Act 1981.
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
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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.
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 the 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.
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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 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.
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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.
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 Holdings has not made any election in the Markel
Holdings articles not to be covered by this provision of the Virginia law.
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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 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 Holdings 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.
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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
. 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 Markel 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.
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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 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 February , 2000,
partners of McGuire Woods owned 27,089 Markel common shares, or less than 1% of
the Markel common shares outstanding 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 as
amended by Form 10-K/A, 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.
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.
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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 Holdings 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.
<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, September 22, 1999 and
February 3, 2000
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 (as amended December
21, 1999)
Quarterly Reports on Form Quarters ended March 31, 1999, June 30, 1999 and
10-Q September 30, 1999 (as amended December 21, 1999)
Current Reports on Form 8-K Filed on May 28, 1998, August 20, 1999 and
February 4, 2000
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
85
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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.
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 February , 2000. 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.
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Appendix A--Agreement and Plan of Merger and Scheme of Arrangement
Appendix B--Plan of Merger
Appendix C--Opinion of Terra Nova Financial Advisor
Appendix D--Opinion of Markel Financial Advisor
Appendix E--Chairman's Letter, Explanatory Statement and Bermuda Scheme of
Arrangement
87
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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, as amended
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
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................................. 7
2.5 Articles and Bylaws.................................................. 7
2.6 Directors............................................................ 8
2.7 Officers............................................................. 8
2.8 Treatment of Shares.................................................. 8
2.9 Conversion of Sub Shares............................................. 8
2.10 Shareholders' Approval.............................................. 8
2.11 Election Procedure.................................................. 9
2.12 Issuance of MINT Common Stock and Payment of Cash and Stock
Consideration; Proration................................................ 9
2.13 Exchange of BB Common Share Certificates............................ 9
2.14 Stock Options....................................................... 10
2.15 Best Efforts To Increase Maximum Cash Consideration................. 11
2.16 Closing............................................................. 11
2.17 Tax Consequences.................................................... 11
2.18 VA Governance....................................................... 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BB
3.1 Organization, Standing and Corporate Power........................... 11
3.2 Subsidiaries......................................................... 12
3.3 Capital Structure.................................................... 12
3.4 Authority; Noncontravention.......................................... 12
3.5 SEC Documents; Undisclosed Liabilities; SAP Statements............... 13
3.6 Liabilities and Reserves............................................. 14
3.7 Investment Advisory and Investment Company Matters................... 15
3.8 Information Supplied................................................. 15
3.9 Absence of Certain Changes or Events................................. 15
3.10 Litigation.......................................................... 16
3.11 Labor Relations..................................................... 16
3.12 Benefit Plans....................................................... 16
3.13 Tax Matters......................................................... 17
3.14 No Excess Parachute Payments........................................ 17
3.15 Compliance with Applicable Laws..................................... 17
3.16 Properties.......................................................... 18
3.17 Voting Requirements................................................. 18
3.18 Takeover Statutes................................................... 18
3.19 Brokers............................................................. 18
3.20 Related Party Transactions.......................................... 18
3.21 Material Contracts.................................................. 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
3.22 Intellectual Property............................................... 19
3.23 No Regulatory Disqualifications..................................... 19
3.24 Insurance Ratings................................................... 19
3.25 Reinsurance, etc.................................................... 19
3.26 Derivatives......................................................... 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VA
4.1 Organization, Standing and Corporate Power........................... 20
4.2 Subsidiaries......................................................... 20
4.3 Capital Structure.................................................... 20
4.4 Authority; Noncontravention.......................................... 20
4.5 SEC Documents; Undisclosed Liabilities; SAP Statements............... 21
4.6 Liabilities and Reserves............................................. 22
4.7 Investment Advisory and Investment Company Matters................... 23
4.8 Information Supplied................................................. 23
4.9 Absence of Certain Changes or Events................................. 23
4.10 Litigation.......................................................... 23
4.11 Labor Relations..................................................... 24
4.12 Benefit Plans....................................................... 24
4.13 Tax Matters......................................................... 24
4.14 No Excess Parachute Payments........................................ 24
4.15 Compliance with Applicable Laws..................................... 25
4.16 Properties.......................................................... 25
4.17 Voting Requirements................................................. 25
4.18 Takeover Statutes................................................... 25
4.19 Brokers............................................................. 25
4.20 Related Party Transactions.......................................... 25
4.21 Material Contracts.................................................. 26
4.22 Intellectual Property............................................... 26
4.23 No Regulatory Disqualifications..................................... 26
4.24 Insurance Ratings................................................... 26
4.25 Reinsurance, etc.................................................... 26
4.26 Derivatives......................................................... 26
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business.................................................. 27
5.2 Additional Financial Statements...................................... 29
5.3 No Solicitation; Notification........................................ 29
5.4 Investigation of Business and Properties............................. 30
5.5 Regulatory Matters................................................... 31
5.6 Investment Portfolio................................................. 31
5.7 Confidentiality...................................................... 31
5.8 Books and Records.................................................... 31
5.9 Fees and Expenses.................................................... 32
5.10 Preparation of the Form S-4 and the Proxy Statement/Prospectus;
Shareholders Meetings................................................... 33
5.11 Public Announcements................................................ 34
5.12 Efforts to Consummate............................................... 34
5.13 Employee Benefits................................................... 35
5.14 Agreements With Respect to Affiliates............................... 35
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
5.15 Indemnification, Exculpation and Insurance........................... 35
5.16 NYSE Listing and Delisting........................................... 36
5.17 Formation of MINT and Sub............................................ 37
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF VA
6.1 Representations and Warranties........................................ 37
6.2 Material Adverse Change............................................... 37
6.3 Performance of this Agreement......................................... 37
6.4 Injunction............................................................ 37
6.5 Shareholder Approval.................................................. 37
6.6 Governmental Approvals................................................ 38
6.7 NYSE Listing.......................................................... 38
6.8 HSR Act............................................................... 38
6.9 Form S-4.............................................................. 38
6.10 Tax Opinion.......................................................... 38
6.11 Frustration of Closing Conditions.................................... 38
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BB
7.1 Representations and Warranties........................................ 38
7.2 Material Adverse Change............................................... 38
7.3Performance of this Agreement.......................................... 39
7.4 Injunction............................................................ 39
7.5 Shareholder Approval.................................................. 39
7.6 Governmental Approvals................................................ 39
7.7 NYSE Listing.......................................................... 39
7.8 HSR Act............................................................... 39
7.9 Form S-4.............................................................. 39
7.10 Tax Opinion.......................................................... 39
7.11 Frustration of Closing Conditions.................................... 39
ARTICLE VIII
NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Non-Survival of Representations and Warranties........................ 39
ARTICLE IX
TERMINATION
9.1 Termination........................................................... 40
9.2 Restructuring......................................................... 40
9.3 Procedure: Effect of Termination...................................... 40
ARTICLE X
GENERAL PROVISIONS
10.1 Notices............................................................... 41
10.2 Interpretation........................................................ 42
10.3 Entire Agreement...................................................... 42
10.4 No Third Party Beneficiaries.......................................... 43
10.5 Successors and Assigns................................................ 43
10.6 Severability.......................................................... 43
10.7 Amendment............................................................. 43
10.8 Extension; Waiver..................................................... 43
10.9 Counterparts.......................................................... 43
10.10 Governing Law........................................................ 43
10.11 Disclosure Letter.................................................... 43
</TABLE>
iii
<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.
A-1
<PAGE>
"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 Amendment No. 2 Disclosure Letter" means the BB No. 2 Disclosure
Letter, dated as of January 28, 2000, delivered to VA.
"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 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.
A-2
<PAGE>
"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.
"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.
"CVR" means a contingent value right of MINT having the principal terms
set forth in Exhibit I hereto.
"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).
"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 and CVRs 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.
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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; provided that neither term shall
include any effect on or change in the business, operations, assets,
liabilities, condition (financial or otherwise) or results of operations of
BB and its Subsidiaries taken as a whole reflected in the information
contained in Schedule 6.2 of the BB Amendment No. 2 Disclosure Letter.
"Merger" has the meaning set forth in Recital A.
"MINT Common Shares" means the shares of common stock, no par value, of
MINT.
"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 Scheme Consideration" has the meaning set forth in Section
2.14(a).
" Option Units" means as to each holder of BB Options (x) the sum of the
Option Values in respect of all of such holder's BB Options divided by (y)
$26.00.
"Option Value" means as to each BB Option the excess, if any, of $26.00
over the exercise price applicable to such option.
"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.
"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).
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"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.
"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).
"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.
"Voting Securities" has the meaning set forth in Section 9.3(b).
"VSCA" means the Virginia Stock Corporation Act, as amended.
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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").
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.
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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
(except for 2,069 BB Common Shares held by VA or its transferee) 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
(i) $13.00 in cash, without any interest thereon, (ii) 0.07027 of a MINT Common
Share, and (iii) 0.07027 of a CVR (collectively, the "Scheme Consideration").
The 2,069 BB Common Shares held by VA or its transferee referred to in the
preceding sentence shall not be cancelled and shall remain outstanding. All
references to "outstanding" BB Common Shares in this Section 2.8(a) 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.
(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 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.
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.
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2.11 [Intentionally left blank]
2.12 [Intentionally left blank]
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 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
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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 VA 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.
(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 BB and which shall acknowledge that, in the Scheme, he
or she will receive the consideration in respect of such BB Options (the
"Option Scheme Consideration") set forth in the following sentence. As Option
Scheme Consideration, a holder of BB Options shall receive (i) for each whole
Option Unit the Scheme Consideration and (ii) for the remaining fractional
amount of an Option Unit cash in an amount equal to such fractional amount
multiplied by $26.00, but subject, in each case to reduction for all
applicable withholding taxes.
(b) At the Effective Time, BB shall take such action as may be necessary so
that each participant in the BB Directors Unit Plan receives (i) for each
whole Share Unit credited to such participant's account under the Plan the
Scheme Consideration and (ii) the amount of any other cash credited to such
participant's account in accordance with the terms of such Plan. BB shall,
immediately after the Effective Time and the receipt of such Scheme
Consideration and amounts, cause the termination of the Directors Plan Grantor
Trust and obtain a waiver or acknowledgement of full satisfaction of all
rights in respect of such Plan and the Directors Plan Grantor Trust from each
participant receiving such Scheme Consideration and amounts.
(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)
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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 as at December 31,
1999 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 0.14054
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
0.14054 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.
2.15 [Intentionally omitted]
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 Bylaws of MINT
shall be substantially in the form described in the Proxy Statement/Prospectus.
(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
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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.
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.
Schedule 3.3.2 of the BB Amendment No. 2 Disclosure letter sets forth, as of
the date hereof, the outstanding options of BB, which options do not include
any options granted in 1999 which, by their terms, could have been exercised
based on BB performance prior to the Effective Time.
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
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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, 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 and the CVRs, 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
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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 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.
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(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 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
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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, 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.
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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 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
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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 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.
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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, 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:
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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).
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
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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
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,
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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 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.
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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 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.
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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, 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
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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 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 at least 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
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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 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.
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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 than (x)
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, except that no such dividend may be
paid in the year 2000 having a record date prior to June 1, 2000, (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 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
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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;
(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.
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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 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
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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 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
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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.
(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.
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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 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
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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. MINT shall prepare
and file with the SEC the Form S-4, in which the Proxy Statement/Prospectus
will be included as a prospectus of MINT with respect to the MINT Common
Shares and the CVRs to be issued in the Merger and the Scheme. Each of VA and
BB shall use commercially reasonable efforts to 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 and CVRs 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 and CVRs
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.
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(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 (or
reconvene) 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 and CVRs 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 taking of any of the
foregoing actions 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 (or
reconvene) 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 taking
of any of the foregoing actions 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.
(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.
(e) Promptly after the Effective Time, BB and VA will send or cause to be
sent transmittal materials to each holder of BB Common Shares for use in
exchanging those certificates for the Scheme Consideration to which such holder
is entitled pursuant to the Merger and Scheme. MINT shall thereafter cause the
Scheme Consideration to be delivered upon surrender to the Exchange Agent of
certificates representing such BB Common Shares. After the Effective Time, no
dividend or other distribution payable with respect to MINT Common Shares will
be paid to the holder of any unsurrendered BB certificate, and no such
unsurrendered shares will be entitled to vote, until the holder duly surrenders
such certificate. Upon such surrender, all undelivered dividends and other
distributions and, if applicable, a check for the amount to be paid in respect
of any fractional interests will be delivered to such shareholder, in each case
without interest.
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,
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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.
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
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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 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
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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 Bylaws shall be substantially as
described in the Proxy Statement/Prospectus and (ii) MINT shall cause Sub to be
formed as a 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 Bylaws 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 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; or any effect on or change in the business, operations, assets,
liabilities, condition (financial or otherwise) or results of operations of BB
and its Subsidiaries taken as a whole reflected in the information contained in
Schedule 6.2 of the BB Amendment No. 2 Disclosure Letter.
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.
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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 MINT Common Shares and the CVRs 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. Notwithstanding anything in this Agreement to the contrary, VA may not
waive the satisfaction of the condition set forth in this Section 6.10.
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.
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.
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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 and the CVRs 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 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.
Notwithstanding anything in this Agreement to the contrary, BB may not waive
the satisfaction of the condition set forth in this Section 7.10.
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.
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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;
(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.
(a) 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
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for damages actually incurred by the other party as a result of intentional
breach of this Agreement by the Breaching Party.
(b) VA and BB agree that, for a period of one (1) year from the termination,
if any , of this Agreement pursuant to Article IX, except pursuant to the terms
of a specific written request from the other party hereto that has been
approved by such party's Board of Directors, neither VA, BB, nor any of their
Affiliates, will (or will assist or encourage others to):
(1) propose or publicly announce or otherwise disclose an intent to
propose, or enter into or agree to enter into, singly or with any other
person or directly or indirectly, any form of business combination,
acquisition, restructuring, recapitalization or other similar
transaction relating to the other party hereto or any majority-owned
Affiliate thereof;
(2) acquire, or offer, propose, seek or agree to acquire, by
purchase or otherwise, ownership (including as a beneficial owner) of
any securities entitled to be voted generally in the election of
directors of the other party hereto or any direct or indirect options
or other rights to acquire any such securities ("Voting Securities") or
any other securities, assets or business of the other party hereto or
any of its majority owned Affiliates or any of their respective
successors, or any options or other rights to acquire any such
ownership from a third party or otherwise;
(3) make or in any way participate in, any solicitation of proxies
with respect to any Voting Securities (including by the execution of
action by written consent) or take any similar action with respect to
any Voting Securities, become a participant in any election contest
with respect to the other party hereto, seek to advise or influence any
Person with respect to any Voting Securities, or demand a copy of the
list of the other party hereto of its stockholders or other books and
records;
(4) participate in or encourage the formation of any group that owns
or seeks or offers to acquire beneficial ownership of any Voting
Securities or seeks to affect control of the other party hereto or for
the purpose of circumventing any provision of this Agreement;
(5) otherwise act, alone or in concert with others (including by
providing financing for another person), to seek, offer or propose to
control or influence, in any manner, the Board of Directors, management
or policies of the other party hereto;
(6) publicly make or announce, or otherwise disclose an intent to
propose, any demand, request or proposal to amend, waive or terminate
any provision of this Section 9.3(b); or
(7) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to an action
contemplated by the foregoing provisions of this Section 9.3(b); or
(8) take any action that might require either party hereto to make a
public announcement regarding a possible transaction involving the
other party hereto to and an action contemplated by the foregoing
provisions of this Section 9.3(b).
This Section 9.3 shall survive the termination of this Agreement.
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
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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
(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.
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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 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 and CVRs 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.
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<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
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<PAGE>
Appendix B
PLAN OF MERGER
PLAN OF MERGER (this "Plan") of Markel Holdings, Inc., a Virginia
corporation ("Markel Holdings"), Markel Corporation, a Virginia corporation
("Markel"), and Markel Holdings Sub Ltd., a Virginia corporation ("Sub").
ARTICLE I
DEFINITIONS
"Effective Time" has the meaning set forth in Section 2.2.
"Markel Common Share(s)" means the common shares, no par value, of Markel.
"Markel Holdings Common Share(s)" means the common shares, no par value, of
Markel Holdings.
"Merger" has the meaning set forth in Section 2. 1.
"Merger Agreement" means the Agreement and Plan of Merger and Scheme of
Arrangement, dated as of August 15, 1999, as amended, between Markel and Terra
Nova.
"Sub Common Shares" means the common shares, no par value, of Sub.
"Subsidiary" with respect to a party 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.
" SCC" means the State Corporation Commission of the Commonwealth of
Virginia.
"Surviving Corporation" has the meaning set forth in Section 2. 1.
"Terra Nova" means Terra Nova (Bermuda) Holdings Ltd., a Bermuda
corporation.
"VSCA" means the Virginia Stock Corporation Act,
ARTICLE 11
TERMS OF THE MERGER
Section 2.1 The Merger. The names of the corporations to be merged are Sub
and Markel. At the Effective Time, Sub shall merge with and into Markel (the
"Merger"). Following the Merger, the separate corporate existence of Sub shall
cease and Markel shall continue as the surviving corporation (the "Surviving
Corporation") and shall be governed by the VSCA.
Section 2.2 Effective Time. The Merger shall become effective at the time of
the issuance of the certificate of merger by the SCC (the "Effective Time").
Section 2.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 13.1-721 of the VSCA.
Section 2.4 Articles and Bylaws. The Articles of Incorporation of Markel, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation with the exception of the amendment
to Article I set forth on Annex I hereto, and thereafter may be amended as
provided therein and in the VSCA. The Bylaws of Markel, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation, and thereafter may be amended as provided therein.
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<PAGE>
Section 2. 5 Directors. The directors of Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
Section 2.6 Officers. The officers of Markel immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
ARTICLE III
MANNER AND BASIS OF CONVERTING SHARES
Section 3.1 Conversion of Markel Common Shares. (a) Each Markel Common Share
outstanding immediately prior to the Effective Time (other than Markel Common
Shares, if any, owned by Markel Holdings, Sub, Markel or Terra Nova or any
Subsidiary of Markel Holdings, Sub, or Markel ) shall, by virtue of the Merger
and without any action on the part of the holder thereof, automatically be
converted into one (1) Markel Holdings Common Share.
(b) Each Markel Common Share owned by Markel Holdings, Sub, Markel or Terra
Nova or any Subsidiary of Markel Holdings, Sub, Markel or Terra Nova, in each
case, immediately prior to the 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.
Section 3.2 Cancellation of Markel Holdings Common Shares. Each share of
capital stock of Markel Holdings outstanding immediately prior to the 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.
Section 3.3 Conversion of Sub Shares. The Sub Common Shares issued and
outstanding immediately prior to the 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 Surviving Corporation so that
thereafter Markel Holdings will be the sole and exclusive owner of the
outstanding common shares of the Surviving Corporation.
Section 3.4 Markel Options. Each outstanding option in respect of Markel
Common Shares shall from and after the Effective Time represent an option in
respect of an equal number of Markel Holdings Common Shares on the same terms
and conditions.
ARTICLE IV
TERMINATION
Section 4.1 This Plan may be terminated prior to the Effective Time as
provided in the Merger Agreement. This Plan may be amended prior to the
Effective Time by the Boards of Directors of Markel and Sub, subject to the
provisions of the Merger Agreement and the VSCA.
B-2
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Annex 1
Article I is deleted in its entirety and the following inserted in lieu
thereof:
Article I
Name
The name of the Corporation is Markel North America, Inc.
B-3
<PAGE>
Appendix C
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 . (212) 892-3000
January 27, 2000
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 as amended by Amendment No. 1 thereto, dated as of December 10,
1999, by and, between Markel Corporation ("Markel") and the Company and as
further amended by Amendment No. 2 thereto, dated as of January 28, 2000 by and
between Markel and the Company (such Agreement and Plan of Merger and scheme of
Arrangement, as amended by Amendment No. 1 and Amendment No. 2, the
Agreement"). 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 $13.00 in cash;
.07027 shares of MINT common stock, no par value ("New Markel Common Shares");
and .07027 of a contingent value right (the "CVR"). Each CVR will grant the
holder thereof, subject to certain exceptions, the right to receive, on the
date that is 30 months following consummation of the Transaction, the amount,
if any, by which $185 exceeds the greater of (i) the average trading price of
MINT common stock as set forth in the Agreement and (ii) $140.
In arriving at our opinion, we have reviewed 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 October 1, 1999
and ending December 31, 2000 prepared by the management of the Company and
certain financial projections of Markel for the period beginning October 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,
2000, 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 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
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<PAGE>
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 Common Shares qualifies as a tax-free reorganization for
U.S. Federal income tax purposes.
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. In addition, we are expressing no opinion as to the
prices at which New Markel Common Shares and the CVR's 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 stockholders of the Company, including affiliates of DLJ, will
enter into stockholder agreements, pursuant to which such stockholders 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
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Appendix D
[LOGO OF SALOMON SMITH BARNEY]
January 27, 2000
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
New Scheme Consideration (as defined below) proposed to be paid pursuant to the
terms and subject to the conditions to be set forth in a proposed amendment to
the Agreement and Plan of Merger and New Scheme of Arrangement, dated as of
August 15, 1999, as amended by a Confirmation and Amendment Agreement, dated as
of December 1, 1999 (as amended), (the "Original Merger Agreement"), between
the Company and Terra Nova (Bermuda) Holdings Ltd. ("Terra Nova").
Under the Original Merger Agreement as it is proposed to be amended, (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 (i) 13.00 in cash, without interest
or (ii) 0.07027 of one New Holding Company Common Share and (iii) 0.07027 of
one contingent value right (a "New Holding Company Contingent Value Right") of
the New Holding Company (collectively, the "New 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 Original Merger Agreement and a
summary presented to the Board of Directors of the Company of the proposed
amended terms of the Merger and the Scheme 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 Original Merger Agreement as proposed
to be amended 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
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<PAGE>
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 reviewed
by or discussed with us. We have also assumed with your consent, that the final
terms of the amendment to the Original Merger Agreement to reflect the New
Scheme Consideration will not vary materially from the summary presented to the
Board of Directors of the Company of the proposed amended terms of the Merger
and the Scheme 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 Terra Nova 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 or the New Holding Company Contingent Value Rights 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 January 25, 2000.
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 received a fee in connection with the delivery of our opinion
relating to the originally contemplated Merger and Scheme. 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 New 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
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<PAGE>
Appendix E
[LOGO OF TERRA NOVA]
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
, 2000
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 be entitled to receive Markel
Holdings common shares for each Class A ordinary share or Class B ordinary
share held, $13.00 in cash, 0.07027 Markel Holdings common share and 0.07027 of
a contingent value right of Markel Holdings for each Class A share or Class B
ordinary share held. The proposed Scheme of Arrangement replaces a proposed
scheme described in my letter to you of December 27, 1999.
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, 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. Terra Nova will not use the
proxy cards sent with my letter dated December 27, 1999, at the meetings and we
urge you to return the enclosed proxy cards. 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 day of 2000, 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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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.
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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 receive
$13.00 in cash, 0.07027 Markel Holdings common share and 0.07027 of a Markel
Holdings contingent value right for each Class A ordinary share or Class B
ordinary share held.
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 per Terra Nova ordinary
share of a combination of cash consideration of $13.00, stock consideration
of 0.07027 of a Markel Holdings common share and 0.07027 of a Markel
contingent value right as more fully described in the Agreement and Plan of
Merger and Scheme of Arrangement between Terra Nova and Markel Corporation,
dated August 15, 1999, as amended on December 10, 1999 and January 28,
2000.
2. 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;
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(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;
(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, (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 or
(C) certain changes as of December 31, 1999 reflected in information
provided to Markel;
(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.
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3. 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.
The New York Stock Exchange has approved the Markel Holdings common shares
to be issued in the transactions, or reserved for issuance upon exercise of
Markel Holdings options, for listing on the New York Stock Exchange, subject to
shareholder approval at the Markel special meeting and to notice of issuance.
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.
4. 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 , , 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 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, as amended on
December 10, 1999 and January 28, 2000, 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 December 23, 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 December
23, 1999 may vote at the Terra Nova court meetings. On December 23, 1999 there
were 24,348,192 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.
5. 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.
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6. 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.
Employment Agreements--Change of Control Arrangements
Terra Nova has an employment agreement with Nigel H.J. Rogers, President and
Chief Executive Officer and a director, which 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 agreement of Mr. Rogers expires on December 31, 2002, but 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. The agreement is automatically extended upon a change of control until
the third anniversary of the date of such change of control.
The merger and scheme will be a change of control under the employment
agreement. If Terra Nova terminates Mr. Rogers' employment other than for
cause, including termination for gross misconduct or dishonesty, or he
terminates his employment at any time for a defined good reason or he
voluntarily terminates employment without good reason during the one year
period beginning on a defined change of control, then Terra Nova will pay to
him
. his 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 the sum of (i) his base
salary and (ii) the greater of (x) the highest bonus amount paid to or
deferred by Mr. Rogers 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.
Markel Holdings is discussing a new employment arrangement with Mr. Rogers
which would 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 would be paid immediately with the remainder vesting
in six-month increments over thirty months. If Mr. Rogers were to terminate his
employment during the first year after completion of the transactions, the
initial bonus payment of $2.5 million would be deducted from the payment that
would become due under his existing change in control benefit provisions.
Markel is also discussing an arrangement pursuant to which, following the first
year after the transactions, if Markel Holdings were to terminate Mr. Rogers'
employment without cause or fail to renew the agreement, Mr. Rogers would be
entitled to continued base salary for two years.
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John J. Dwyer, Terra Nova's Chairman, and Jean M. Waggett, Terra Nova's
Senior Vice President General Counsel and Corporate Secretary, each had
employment agreements substantially similar to Mr. Rogers agreement, except
that the cash amount payable to Ms. Waggett on termination was based on a
multiple of two rather than three years.
Mr. Dwyer and Ms. Waggett are U.S. citizens and could have been subject to
excise taxes under the Internal Revenue Code for change of control payments
made to them. If this tax were to have been imposed on either of them, Terra
Nova would have to make specified additional payments to compensate the
affected executive for the taxes payable in respect of the additional payment.
Whether the excise tax is payable is partially a function of the amounts
actually paid to an affected individual for the five calendar years preceding
the year in which a change of control occurs. We expected that Mr. Dwyer and
Ms. Waggett would each become entitled to payments under the agreements and
would have been subject to the excise taxes, had the employment agreements
continued in effect until 2000 and following the effective time of the scheme
and merger. Accordingly, Terra Nova entered into settlement agreements with
each of Mr. Dwyer and Ms. Waggett to cancel their rights under their agreements
for payments of $3,707,500 and $1,165,00 respectively, in settlement of their
rights under the employment agreements and bonuses in respect of 1999.
Under these agreements, Mr. Dwyer is to remain in Terra Nova's employment
until the earlier of the effective date of the merger and March 31, 2000, and
Ms. Waggett is to remain employed until the earlier of the end of the month
following the effective date and April 30, 2000. Due to the delay in the
effective date, Terra Nova will extend the fixed date so that the executives
remain with Terra Nova at least until the effective date.
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. Each of
these executives holds options that, in the ordinary course, would not have
been exercisable and vested at the effective time. In the transaction, each
option will be deemed valued at the excess of $26.00 over its exercise price, a
number of option units will be calculated by dividing the aggregate value of
all options held by a holder by $26.00 and the holder will be entitled to
receive, for each option unit, $13.00 in cash, 0.07027 Markel Holdings shares
and 0.07027 of a Markel Holdings contingent value right. 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 $26.00 and the option
exercise prices, at $1,204,309, $758,534, $355,841, $955,228, $297,586 and
$3,828,926.
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
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share units in the plan in lieu of cash. At the effective time of the merger
and scheme of arrangement, each participant will receive for each whole share
unit under the plan, $13.00 in cash, 0.07027 Markel Holdings common shares and
0.07027 of a Markel Holdings contingent value right, 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 62,087 Markel Holdings options in lieu of options for Terra Nova
ordinary shares.
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 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
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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.
7. 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.
8. 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.
9. Additional Information Information relating to Markel Holdings is set out
in the next section of this document.
10. 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 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 5,588,873 Markel Corporation common shares
issued and outstanding and 24,348,192 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
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7.3 million Markel Holdings common shares will be outstanding immediately
following the Effective Time, of which approximately 1.76 million shares,
representing approximately 24% 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, no par value. At December 20,
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 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 Act to be stated in the articles of
incorporation.
Bylaws.
The bylaws of Markel Holdings provide:
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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 the 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.
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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:
"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".
"Court" The Supreme Court of Bermuda.
"Directors Unit Plan Payments"
The aggregate amount of cash, Holdings Common
Shares and Holdings Contingent Value Rights 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.
"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.
E-12
<PAGE>
"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.
"Holdings Contingent Value Rights"
The contingent value rights of Holdings to be
issued pursuant to the Scheme in accordance
with the Merger Agreement.
"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, as amended on December 10, 1999
and January 28, 2000.
"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.
"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"
$13.00 in cash, 0.07027 of a Holdings Common
Shares and 0.07027 of a Holdings Contingent
Value Right, per Scheme Share.
"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 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 24,348,192 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, no 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.
(F) A copy of the Merger Agreement is annexed to this document and forms
part of the Scheme.
E-13
<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
pay the Scheme Consideration in respect of outstanding Scheme Shares to
Shareholders in accordance with the Merger Agreement, including the allotment
and issuance of the Holdings Common Shares and Holdings Contingent Value Rights
in respect of outstanding Scheme Shares to Shareholders in accordance with the
Merger Agreement, and pay amounts in lieu of fractional interests in accordance
with Section 2.13 and Exhibit I of the Merger Agreement.
PART III
Conditions to Effectiveness of the Scheme of Arrangement
3. 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
4. Holdings will:
(a) at the Effective Time, effect the allotment and issuance of the
Holdings Common Shares and Holdings Contingent Value Rights allotted and
issued in accordance with Part II of this Scheme and enter into the record
of shareholders and contingent value rights holders of Holdings the
necessary particulars; and
(b) in accordance with the procedures 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 and
the Holdings Contingent Value Rights 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.
E-14
<PAGE>
5. 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 the Scheme Consideration.
6. 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.
7. 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.
E-15
<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>
2.1 Agreement and Plan of Merger and Scheme of Arrangement between Markel
Corporation and Terra Nova (Bermuda) Holdings Ltd., dated August 15,
1999, as amended (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, (incorporated herein by
reference to Exhibit 4.1 of the Company's Registration Statement on Form
S-4 (Registration No. 333-88609))
4.2 Bylaws of the Registrant, (incorporated herein by reference to Exhibit
4.2 of the Company's Registration Statement on Form S-4 (Registration No.
333-88609))
4.3 Form of Contingent Value Rights Agreement, filed herewith
5.1 Opinion of McGuire, Woods, Battle & Boothe LLP, filed herewith
8.1 Opinion of McGuire, Woods, Battle & Boothe LLP regarding federal income
tax consequences, to be filed by post-effective amendment
8.2 Opinion of Debevoise & Plimpton regarding federal income tax
consequences, to be filed by post-effective amendment
23.1 Consent of KPMG LLP, filed herewith
23.2 Consent of PricewaterhouseCoopers, filed herewith
23.3 Consent of McGuire, Woods, Battle & Boothe LLP (included in Exhibit 5.1)
23.5 Consent of Debevoise & Plimpton, filed herewith
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, filed herewith
25.1 Statement of Eligibility of Trustee on Form T-1 of Chase Manhattan Bank,
as Trustee, filed herewith
99.1 Form of proxy for Markel Corporation, filed herewith
99.2 Form of proxy for Terra Nova (Bermuda) Holdings Ltd., filed herewith
</TABLE>
II-1
<PAGE>
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) 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.
II-2
<PAGE>
(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.
(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 February 4, 2000 have signed this Registration Statement
on Form S-4 and Post-Effective Amendment No. 1 to Registration No. 333-88609 to
the Registration Statement, in the capacities indicated:
Markel Holdings Inc.
/s/ Darrell D. Martin
By: _________________________________
Darrell D. Martin
Executive Vice President and Chief
Financial Officer
<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, as amended (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, (incorporated herein by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-4 (Registration No. 333-88609))
4.2 Bylaws of the Registrant, (incorporated herein by reference to Exhibit
4.2 of the Company's Registration Statement on Form S-4 (Registration
No. 333-88609))
4.3 Form of Contingent Value Rights Agreement, filed herewith
5.1 Opinion of McGuire, Woods, Battle & Boothe LLP, filed herewith
8.1 Opinion of McGuire, Woods, Battle & Boothe LLP regarding federal income
tax consequences, to be filed by post-effective amendment
8.2 Opinion of Debevoise & Plimpton regarding federal income tax
consequences, to be filed by post-effective amendment.
23.1 Consent of KPMG LLP, filed herewith
23.2 Consent of PricewaterhouseCoopers, filed herewith
23.3 Consent of McGuire, Woods, Battle & Boothe LLP (included in Exhibit
5.1)
23.5 Consent of Debevoise & Plimpton, filed herewith
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, filed herewith
25.1 Statement of Eligibility of Trustee on Form T-1 of Chase Manhattan, as
Trustee, filed herewith
99.1 Form of proxy for Markel Corporation, filed herewith
99.2 Form of proxy for Terra Nova (Bermuda) Holdings Ltd., filed herewith
</TABLE>
<PAGE>
MARKEL HOLDINGS INC.
TO
_______________________________________
Trustee
CONTINGENT VALUE RIGHTS
AGREEMENT
Dated as of
February ____, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE...................................................................... 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION......................... 1
Section 101. Definitions..................................................... 1
Act......................................................................... 2
Affiliate................................................................... 2
Agreement................................................................... 2
Authorized Newspaper........................................................ 2
Automatic Extinguishment.................................................... 2
Board of Directors.......................................................... 2
Board Resolution............................................................ 2
Business Day................................................................ 2
Commission.................................................................. 3
Company..................................................................... 3
Company Request or Company Order............................................ 3
Control..................................................................... 3
Corporate Trust Office...................................................... 3
Current Market Value........................................................ 3
CVR Certificate............................................................. 3
Default Amount.............................................................. 3
Default Interest Rate....................................................... 3
Default Payment Date........................................................ 3
Discounted Target Price..................................................... 3
Disposition................................................................. 4
Disposition Payment Date.................................................... 4
Early Redemption............................................................ 4
Early Redemption Determination Date......................................... 4
Early Redemption Price...................................................... 4
Early Redemption Payment Date............................................... 4
Effective Time.............................................................. 4
Events of Default........................................................... 4
Exchange Act................................................................ 4
Holder...................................................................... 4
Independent Financial Expert................................................ 4
Maturity Date............................................................... 4
Merger Agreement............................................................ 5
Minimum Price............................................................... 5
Nondisposition Event........................................................ 5
Officer's Certificate....................................................... 5
Opinion of Counsel.......................................................... 5
Outstanding................................................................. 5
Paying Agent................................................................ 6
Person...................................................................... 6
Responsible Officer......................................................... 6
</TABLE>
i
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<TABLE>
<CAPTION>
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<S> <C>
Security Register and Security Registrar.................................... 6
Shares...................................................................... 6
Stock....................................................................... 6
Surviving Person............................................................ 6
Target Price................................................................ 6
Trust Indenture Act......................................................... 6
Trustee..................................................................... 6
Valuation Period............................................................ 6
Value Report................................................................ 6
Vice President.............................................................. 6
Section 102. Compliance Certificates and Opinions............................ 6
Section 103. Form of Documents Delivered to Trustee.......................... 7
Section 104. Acts of Holders................................................. 8
Section 105. Notices, etc., to Trustee and Company........................... 9
Section 106. Notice to Holders; Waiver....................................... 9
Section 107. Conflict with Trust Indenture Act............................... 9
Section 108. Effect of Headings and Table of Contents........................ 9
Section 109. Successors and Assigns.......................................... 10
Section 110. Benefits of Agreement........................................... 10
Section 111. Governing Law................................................... 10
Section 112. Legal Holidays.................................................. 10
Section 113. Separability Clause............................................. 10
ARTICLE TWO...................................................................... 10
CVR FORMS....................................................................... 10
Section 201. Forms Generally................................................. 10
Section 202. Form of Face of CVR............................................. 11
Section 203. Form of Reverse of CVR.......................................... 12
Section 204. Form of Trustee's Certificate of Authentication................. 16
ARTICLE THREE.................................................................... 17
THE CVRs........................................................................ 17
Section 301. Title and Terms................................................. 17
Section 302. Registrable Form................................................ 21
Section 303. Execution, Authentication, Delivery and Dating.................. 21
Section 304. Temporary CVRs.................................................. 22
Section 305. Registration, Registration of Transfer and Exchange............. 23
Section 306. Mutilated, Destroyed, Lost and Stolen CVRs...................... 24
Section 307. Presentation of CVR Certificate................................. 24
Section 308. Persons Deemed Owners........................................... 24
Section 309. Cancellation.................................................... 25
ARTICLE FOUR..................................................................... 25
THE TRUSTEE..................................................................... 25
Section 401. Certain Duties and Responsibilities............................. 25
Section 402. Certain Rights of Trustee....................................... 26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Section 403. Not Responsible for Recitals or Issuance of CVRs................ 28
Section 404. May Hold CVRs................................................... 28
Section 405. Money Held in Trust............................................. 28
Section 406. Compensation, Reimbursement and Indemnification of the Trustee.. 28
Section 407. Disqualification; Conflicting Interests......................... 29
Section 408. Corporate Trustee Required; Eligibility......................... 29
Section 409. Resignation and Removal; Appointment of Successor............... 29
Section 410. Acceptance of Appointment by Successor.......................... 30
Section 411. Merger, Conversion, Consolidation or Succession to Business..... 31
ARTICLE FIVE..................................................................... 31
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY............................... 31
Section 501. Company to Furnish Trustee Names and Addresses of Holders....... 31
Section 502. Preservation of Information; Communications to Holders.......... 32
Section 503. Reports by Trustee.............................................. 33
Section 504. Reports by Company.............................................. 33
ARTICLE SIX...................................................................... 34
AMENDMENTS...................................................................... 34
Section 601. Amendments Without Consent of Holders........................... 34
Section 602. Amendments with Consent of Holders.............................. 35
Section 603. Execution of Amendments......................................... 35
Section 604. Effect of Amendments............................................ 36
Section 605. Conformity with Trust Indenture Act............................. 36
Section 606. Reference in CVRs to Amendments................................. 36
ARTICLE SEVEN.................................................................... 36
COVENANTS....................................................................... 36
Section 701. Payment of Amounts, if Any, to Holders.......................... 36
Section 702. Maintenance of Office or Agency............................... 36
Section 703. Money for CVR Payments to Be Held in Trust...................... 37
Section 704. Certain Purchases and Sales..................................... 38
Section 705. Written Statement to Trustee.................................... 38
ARTICLE EIGHT.................................................................... 38
REMEDIES OF THE TRUSTEE AND HOLDERS ON EVENT OF DEFAULT......................... 38
Section 801. Event of Default Defined; Acceleration of Maturity; Waiver
of Default...................................................... 38
Section 802. Collection of Indebtedness by Trustee; Trustee May Prove Debt... 40
Section 803. Application of Proceeds......................................... 42
Section 804. Suits for Enforcement........................................... 42
Section 805. Restoration of Rights on Abandonment of Proceedings............. 42
Section 806. Limitations on Suits by Holders................................. 43
Section 807. Unconditional Right of Holders to Institute Certain Suits....... 43
Section 808. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of....................................................... 43
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Section 809. Control by Holders.............................................. 44
Section 810. Waiver of Past Defaults......................................... 44
Section 811. Trustee to Give Notice of Default, but May Withhold in Certain.. 45
Section 812. Right of Court to Require Filing of Undertaking to Pay Costs.... 45
ARTICLE NINE..................................................................... 45
CONSOLIDATION, MERGER, SALE OR CONVEYANCE....................................... 45
Section 901. Company May Consolidate, Etc.................................... 45
Section 902. Successor Substituted........................................... 46
Section 903. Opinion of Counsel to Trustee................................... 46
</TABLE>
iv
<PAGE>
AGREEMENT, dated as of February ___, 2000, between Markel Holdings Inc., a
Virginia corporation (hereinafter called the "Company"), and
____________________, trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the creation of an issue of
contingent value rights (hereinafter called the "CVRs"), of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company has
duly authorized the execution and delivery of this Agreement;
WHEREAS, pursuant to the Agreement and Plan of Merger and Scheme of
Arrangement dated as of August 15, 1999, as amended December 10, 1999 and
further amended as of January 28, 2000 (the "Merger Agreement"), by and between
Markel Corporation ("Markel") and Terra Nova (Bermuda) Holdings Ltd., a Bermuda
Corporation ("Terra Nova"), the Company has agreed to issue and deliver to
stockholders of Terra Nova, among other securities, 0.07027 of a CVR for each
Class A and Class B ordinary share, par value $5.80 per share, of Terra Nova
("Terra Nova Share") issued and outstanding immediately prior to the effective
time (the "Effective Time") of the merger (except 2,069 Terra Nova Shares held
by Markel or its transferee); and
WHEREAS, all things necessary have been done to make the CVRs, when
executed by the Company and authenticated and delivered hereunder, the valid
obligations of the Company and to make this Agreement a valid agreement of the
Company, in accordance with their and its terms.
NOW, THEREFORE, for and in consideration of the premises and the
consummation of the transactions referred to above, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders of the CVRs,
as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all accounting terms used herein and not expressly defined shall
have the meanings assigned to such terms in accordance with generally
accepted accounting principles, and the term "generally accepted accounting
principles"
1
<PAGE>
means such accounting principles as are generally accepted in the United
States of America at the time of any computation;
(c) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Four, are defined in that
Article.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" means a Person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first
mentioned Person.
"Agreement" means this instrument as originally executed and as it may from
time to time be supplemented or amended pursuant to the applicable provisions
hereof.
"Authorized Newspaper" means The Wall Street Journal (Eastern Edition), or
if The Wall Street Journal (Eastern Edition) shall cease to be published, or, if
the publication or general circulation of The Wall Street Journal (Eastern
Edition) shall be suspended for whatever reason, such other English language
newspaper as is selected by the Company with general circulation in The City of
New York, New York.
"Automatic Extinguishment" has the meaning set forth in Section 301(l).
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day (other than a Saturday or a Sunday) on which
banking institutions in The City of New York, New York or in the State of the
principal office of the Trustee are not authorized or obligated by law or
executive order to close and, if the CVRs are listed on a national securities
exchange, such exchange is open for trading.
2
<PAGE>
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this Agreement such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of
this Agreement, until a successor Person shall have become such pursuant to the
applicable provisions of this Agreement, and thereafter "Company" shall mean
such successor Person. To the extent necessary to comply with the requirements
of the provisions of Trust Indenture Act Sections 310 through 317 as they are
applicable to the Company, the term "Company" shall include any other obligor
with respect to the CVRs for the purposes of complying with such provisions.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by the chairman or vice chairman of the Board
of Directors, the president, any vice president, the controller, the treasurer,
the secretary or any assistant secretary, and delivered to the Trustee.
"Control" (including the terms "controlled", "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock or as trustee or
executor, by contract or otherwise.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Agreement is located at
___________________________.
"Current Market Value" has the meaning set forth in Section 301(g).
"CVR Certificate" means a certificate representing any of the CVRs.
"Default Amount" means the amount, if any, by which the Discounted Target
Price exceeds the Minimum Price.
"Default Interest Rate" means 6% per annum.
"Default Payment Date" means the date upon which the CVRs become due and
payable pursuant to Section 801.
"Discounted Target Price" means, if a Disposition or an Event of Default
shall occur prior to the Maturity Date, $185.00 discounted from the Maturity
Date back to the Disposition Payment Date or the Default Payment Date, as the
case may be, at a per annum rate of 6%. In each case, upon each occurrence of
an event specified in Section 301(k), such amounts, as they may have been
previously adjusted, shall be adjusted pursuant to Section 301(k).
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"Disposition" means (i) a merger, consolidation or other business
combination involving the Company as a result of which no Shares shall remain
outstanding (other than any Shares owned by the Company or any other obligor
upon the CVRs or any Affiliate of the Company or any such other obligor), (ii) a
sale, transfer or other disposition, in one or a series of transactions, of all
or substantially all of the assets of the Company or (iii) a reclassification of
Shares as any other capital stock of the Company or any other Person; unless in
the case of clauses (i) and (ii) such transaction is in connection with a
transaction in which all of the Shares are exchanged solely for other publicly
traded equity securities of the Company or another Person, the successor assumes
the obligations of the Company relating to the CVRs, and appropriate adjustments
are made to the Target Price, the Minimum Price, the Discounted Target Price and
other terms hereof to reflect such transaction and the economic benefits
intended to be conferred on the CVRs under this Agreement (a "Nondisposition
Event").
"Disposition Payment Date" has the meaning set forth in Section 301(e).
"Early Redemption" has the meaning set forth in Section 203.
"Early Redemption Determination Date" means the date five Business Days
prior to the date, if any, upon which the Company issues a notice of redemption
of the CVRs prior to the Maturity Date pursuant to Section 301(d).
"Early Redemption Payment Date" means the date upon which the Early
Redemption Price is paid to the Trustee in connection with an Early Redemption,
which shall also be the redemption date.
"Early Redemption Price" means a price equal to the difference between the
Target Price and the Current Market Price as at five Business Days prior to the
date that a notice of redemption is issued pursuant to Section 301(d),
discounted from the Maturity Date to the Early Redemption Payment Date at a per
annum rate of 6%.
"Effective Time" has the meaning set forth in the Preamble.
"Event of Default" has the meaning set forth in Section 801.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a Person in whose name a CVR is registered in the Security
Register.
"Independent Financial Expert" means an independent nationally recognized
investment-banking firm.
"Maturity Date" means the date that is the first day after the expiration
of thirty (30) months from the Effective Time.
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"Merger Agreement" has the meaning as set forth in the recitals.
"Minimum Price" means $140.00. In each case, upon each occurrence of an
event specified in Section 301(k), such amount, as it may have been previously
adjusted, shall be adjusted pursuant to Section 301(k).
"Nondisposition Event" has the meaning as set forth in the definition of
"Disposition".
"Officer's Certificate'" means a certificate signed by the chairman or vice
chairman of the Board of Directors, the president, any vice president, the
controller, the treasurer, the secretary or any assistant secretary of the
Company in his or her capacity as such an officer, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be General
Counsel for the Company, and who shall be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to CVRs, means, as of the date of
determination, all CVRs theretofore authenticated and delivered under this
Agreement, except:
(a) CVRs theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) From and after the earlier of the Default Payment Date, the
Disposition Payment Date, Early Redemption Payment Date or the Maturity
Date, CVRs, or portions thereof, for whose payment in cash or securities of
the Company in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such CVRs; and
(c) CVRs in exchange for or in lieu of which other CVRs have been
authenticated and delivered pursuant to this Agreement, other than any such
CVRs in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such CVRs are held by a bona fide purchaser
in whose hands the CVRs are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
Outstanding CVRs have given any request, demand, direction, consent or waiver
hereunder, CVRs owned by the Company or any other obligor upon the CVRs or any
Affiliate of the Company or such other obligor shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, direction, consent or
waiver, only CVRs which the Trustee knows to be so owned shall be so
disregarded.
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"Paying Agent" means any Person authorized by the Company to pay the amount
determined pursuant to Section 301, if any, on any CVRs on behalf of the
Company, which shall initially be __________________________.
"Person" has the meaning set forth in Section 901.
"Responsible Officer", when used with respect to the Trustee, means any
officer assigned to the Corporate Trust Office and also means, with respect to
any particular corporate trust matter, any other officer of the Trustee to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Shares" means the common shares, no par value, of the Company.
"Stock" has the meaning as set forth in Section 202.
"Surviving Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Target Price" means $185.00. In each case, upon each occurrence of an
event specified in Section 301(k), such amount, as it may have been previously
adjusted, shall be adjusted pursuant to Section 301(k).
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this Agreement was executed, except as provided in Section
605.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Agreement, until a successor Trustee shall have become such pursuant to the
applicable provisions of this Agreement, and thereafter "Trustee" shall mean
such successor Trustee.
"Valuation Period" has the meaning set forth in Section 301(g).
"Value Report" has the meaning set forth in Section 301(h).
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title of "vice president".
Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Agreement, the Company shall furnish to the
Trustee an
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Officer's Certificate stating that all conditions precedent, if any, provided
for in this Agreement (including any covenants, compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Agreement
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Agreement shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
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Any certificate, statement or opinion of an officer of the Company or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous. Any certificate or
opinion of any independent firm of public accountants filed with the Trustee
shall contain a statement that such firm is independent.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
and (subject to Section 401) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner that the Trustee
deems sufficient.
(c) The ownership of CVRs shall be proved by the Security Register.
(d) At any time prior to (but not after) the evidencing to the Trustee, as
provided in this Section 104, of the taking of any action by the Holders of the
CVRs specified in this Agreement in connection with such action, any Holder of a
CVR may, by filing written notice at the Corporate Trust Office and upon proof
of holding as provided in this Section 104, revoke such action so far as it
concerns such CVR. Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any CVR shall bind every future
Holder of the same CVR or the Holder of every CVR issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company in reliance thereon, whether or not notation of such action is
made upon such CVR.
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Section 105. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Agreement to be
made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed, in writing,
to or with the Trustee at ______________________________________________.
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at 4521 Highwoods Parkway, Glen
Allen, Virginia 23060, Attention: Steven A. Markel and Gregory B. Nevers,
or at any other address previously furnished in writing to the Trustee by
the Company.
Section 106. Notice to Holders; Waiver.
Where this Agreement provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Agreement provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause, it shall be impracticable to mail notice of any event as
required by any provision of this Agreement, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Agreement by any of
the provisions of the Trust Indenture Act, such required provision shall
control.
Section 108. Effect of Headings and Table of Contents.
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The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 109. Successors and Assigns.
All covenants and agreements in this Agreement by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 110. Benefits of Agreement.
Nothing in this Agreement or in the CVRs, express or implied, shall give to
any Person (other than the parties hereto and their successors hereunder, any
Paying Agent and the Holders) any benefit or any legal or equitable right,
remedy or claim under this Agreement or under any covenant or provision herein
contained, all such covenants and provisions being for the sole benefit of the
parties hereto and their successors and of the Holders.
Section 111. Governing Law.
This Agreement and the CVRs shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
Section 112. Legal Holidays.
In the event that the Maturity Date, the Disposition Payment Date, the
Early Redemption Payment Date or the Default Payment Date, as the case may be,
shall not be a Business Day, then (notwithstanding any provision of this
Agreement or the CVRs to the contrary) payment on the CVRs need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Maturity Date, the Disposition Payment Date,
the Early Redemption Payment Date or the Default Payment Date, as the case may
be.
Section 113. Separability Clause.
In case any provision in this Agreement or in the CVRs shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
ARTICLE TWO
CVR FORMS
Section 201. Forms Generally.
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The CVRs and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Agreement and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may be
required by law or any rule or regulation pursuant thereto, all as may be
determined by officers executing such CVRs, as evidenced by their execution of
the CVRs. Any portion of the text of any CVR may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the CVR.
The definitive CVRs shall be printed, lithographed or engraved or produced
by any combination of these methods or may be produced in any other manner as
determined by the officers executing such CVRs, as evidenced by their execution
of such CVRs.
Section 202. Form of Face of CVR.
MARKEL HOLDINGS INC.
No. CVRs __________ Certificate for Contingent Value Rights
This certifies that __________________ or registered assigns (the "Holder")
is the registered holder of the number of Contingent Value Rights ("CVRs") set
forth above. Each CVR entitles the Holder, subject to the provisions contained
herein and in the Agreement referred to on the reverse hereof, to a payment from
Markel Holdings Inc., a Virginia corporation (the "Company"), in an amount and
in the form determined pursuant to the provisions set forth on the reverse
hereof and as more fully described in the Agreement. Such payment shall be
made, if in Cash (as defined below) on the third Business Day following, or if
in Stock (as defined below) as promptly as practicable after, the Maturity Date,
or on the Default Payment Date or the Early Redemption Payment Date or the
Disposition Payment Date upon the occurrence of an Event of Default or a
Disposition, as the case may be, each as defined in the Agreement referred to on
the reverse hereof.
Payment of any amounts pursuant to this CVR Certificate shall be made only
upon presentation of this CVR Certificate by the Holder hereof, at the office or
agency of the Company maintained for that purpose. Such payment, including
payments after a Disposition, Event of Default or Early Redemption, shall be
made in the Borough of Manhattan, The City of New York, or at any other office
or agency maintained by the Company for such purpose either, in the Company's
sole discretion, (i) in such coin or currency of the United States of America as
at the time is legal tender for the payment of public and private debts;
provided, however, the Company may pay such amounts by its check payable in such
money ("Cash") or (ii) by delivering the equivalent fair market value of Shares,
valued at the mean of the averages of the high and low and opening and closing
prices on the New York Stock Exchange (or, if the Shares are not listed thereon,
the principal other exchange upon which such shares are then listed) of Shares
during the
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20 consecutive trading day period ending on the date preceding the date the
amounts are due ("Stock"). ___________________ has been appointed as Paying
Agent in the Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this CVR Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this CVR
Certificate shall not be entitled to any benefit under the Agreement or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: February ____, 2000 MARKEL HOLDINGS INC.
By
_________________________________
Attest:
SEAL
_______________________________
Authorized Signature
Section 203. Form of Reverse of CVR.
This CVR Certificate is issued under and in accordance with the Contingent
Value Rights Agreement, dated as of February ____, 2000 (the "Agreement"),
between the Company and ________________, trustee (the "Trustee", which term
includes any successor Trustee under the Agreement), and is subject to the terms
and provisions contained in the Agreement, all of which terms and provisions the
Holder of this CVR Certificate consents by acceptance hereof. The Agreement is
hereby incorporated herein by reference and made a part hereof. Reference is
hereby made to the Agreement for a full statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Trustee and the Holders of the CVRs. Copies of the Agreement can
be obtained by contacting the Trustee.
Subject to adjustment pursuant to Section 301(k) of the Agreement, and
subject to Section 301(l) of the Agreement, the Company shall pay to the Holder
hereof, if in Cash,
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on the third Business Day following, or if in Stock as promptly as practicable
after, ______________ (the "Maturity Date"), an amount, if any, as determined
by the Company, by which the Target Price exceeds the greater of (i) the Current
Market Value and (ii) the Minimum Price. Such determination by the Company
absent manifest error shall be final and binding on the Company and the Holder.
Such amount, if any, shall be payable by the Company, either, in the
Company's sole discretion, (i) Cash or (ii) Stock. ______________ has been
appointed as Paying Agent in the Borough of Manhattan, The City of New York. All
payments to be made by the Company pursuant to this CVR Certificate shall be
subject to and reduced by withholding taxes, if any. The Company shall have no
obligation to reimburse, equalize, or compensate a Holder or other person for
such withholding taxes.
The Company may redeem all, but not less than all, of the CVRs at any
time upon not less than 30 days notice at a price per CVR (the "Early Redemption
Price") equal to the difference between the Target Price and the Current Market
Value as at the Early Redemption Determination Date, discounted from the
Maturity Date to the Early Redemption Payment Date at a per annum rate of 6% (an
"Early Redemption"). The Early Redemption Price shall be payable by the Company
in the Company's sole discretion either in (i) Cash or (ii) Stock. Nothing in
the Agreement shall limit the Company's ability to purchase or otherwise acquire
CVRs through open market transactions, privately negotiated transactions, or
otherwise.
Upon the consummation of a Disposition, the Company shall pay to the Holder
hereof (in Cash or Stock, at the Company's sole discretion) for each CVR
represented hereby an amount, if any, as determined by the Company, by which the
Discounted Target Price exceeds the greater of (i) the fair market value, as
determined by an Independent Financial Expert, of the consideration, if any,
received for each Share by the holder thereof as a result of such Disposition,
assuming that such holder did not exercise any right of appraisal granted under
law with respect to such Disposition, and (ii) the Minimum Price. Such
determinations by the Company and such Independent Financial Expert absent
manifest error shall be final and binding on the Company and the Holder. Such
payment shall be made on the date (the "Disposition Payment Date") established
by the Company, which in no event shall be more than 30 days after the date on
which the Disposition was consummated. As soon as practicable after the
Disposition, the Company shall give the Holder hereof and the Trustee notice of
such Disposition and the Disposition Payment Date, as provided in Section 301(e)
of the Agreement.
If an Event of Default occurs and is continuing, either the Trustee or the
Holders holding an aggregate of at least 25% of the Outstanding CVRs, by notice
to the Company (and to the Trustee if given by the Holders), may declare the
CVRs due and payable, and upon such declaration, the Company shall pay to the
Holder (in Cash or Stock, at the Company's sole discretion) for each CVR held by
the Holder the Default Amount with interest at a rate of 6% per annum from the
Default Payment Date through the date payment is made or duly provided for.
In the event that the Company determines that no amount is payable on the
CVRs to the Holder on the Maturity Date or the Disposition Payment Date, as the
case may be, as a result of Automatic Extinguishment or otherwise, the Company
shall give to the
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Holder and the Trustee notice of such determination. Upon making such
determination, absent manifest error, this CVR Certificate shall terminate and
become null and void and the Holder hereof shall have no further rights with
respect hereto. The failure to give such notice or any defect therein shall not
affect the validity of such determination.
If the Current Market Value of the Company's Shares during any 20
consecutive trading days in the Valuation Period is greater than or equal to
$185.00 per Share, the CVRs will automatically be extinguished without further
consideration or action by the Company or the Holders ("Automatic
Extinguishment").
Notwithstanding any provision of the Agreement or of this CVR Certificate
to the contrary, other than in the case of interest on the Default Amount, no
interest shall accrue on any amounts payable on the CVRs to the Holder.
"Authorized Newspaper" means The Wall Street Journal (Eastern Edition), or
if The Wall Street Journal (Eastern Edition) shall cease to be published, or, if
the publication or general circulation of The Wall Street Journal (Eastern
Edition) shall be suspended for whatever reason, such other English language
newspaper as is selected by the Company with general circulation in The City of
New York, New York.
"Current Market Value" shall be, during the 20 consecutive trading day
period that both begins and ends in the Valuation Period and which yields the
highest such averages for any such 20 consecutive trading day period within the
Valuation Period: (i) the mean of the averages of the high and low and opening
and closing prices, regular way, on the New York Stock Exchange (or, if the
Shares are not listed thereon, the principal other exchange on which such shares
are then listed); (ii) if the Shares are not then listed or admitted to trading
on any securities exchange, mean of the averages of the high and low and opening
and closing sale price on such days, or if no sale takes place on such days, the
mean of the averages of the high and low and opening and closing bid and asked
prices on such days, as reported by a reputable quotation source designated by
the Company; or (iii) if the Shares are not then listed or admitted to trade on
any securities exchange and no such reported sale price or bid and asked prices
are available, the mean of the averages of the reported high and low and opening
and closing bid and asked prices on those days on which such information is
available, as reported in the Authorized Newspaper. Notwithstanding the
foregoing, in computing Current Market Value for purposes of an Early Redemption
or the Automatic Extinguishment, no such 20 consecutive day period may be
included in which the Company, any of its subsidiaries or controlled Affiliates
or Steven A. Markel, Anthony F. Markel or Alan I. Kirshner purchase any Shares
except (x) in privately negotiated transactions that are not reported to any
exchange (other than as a result of being disclosed in a filing with the
Commission that is also required to be filed with such exchange), (y) with
respect to employee benefit plans and other incentive compensation arrangements
in the ordinary course of business and (z) purchases in compliance with Rule
10b-18 promulgated under the Exchange Act.
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"Default Amount" means the amount, if any, by which the Discounted Target
Price exceeds the Minimum Price.
"Default Payment Date" means the date upon which the CVRs become due and
payable pursuant to Section 801 of the Agreement.
"Discounted Target Price" means, if a Disposition or an Event of Default
shall occur prior to the Maturity Date, $185.00 discounted from the Maturity
Date back to the Disposition Payment Date or the Default Payment Date, as the
case may be, at a per annum rate of 6%. In each case, upon each occurrence of
an event specified in Section 301(k) of the Agreement, such amount, as it may
have been previously adjusted, shall be adjusted pursuant to Section 301(k) of
the Agreement.
"Disposition" means (i) a merger, consolidation or other business
combination involving the Company as a result of which no Shares shall remain
outstanding (other than any Shares owned by the Company or any other obligor
upon the CVRs or any Affiliate of the Company or any such other obligor), (ii) a
sale, transfer or other disposition, in one or a series of transactions, of all
or substantially all of the assets of the Company or (iii) a reclassification of
Shares as any other capital stock of the Company or any other Person; unless in
the case of clauses (i) and (ii) such transaction is in connection with a
transaction in which all of the Shares are exchanged solely for other publicly
traded equity securities of the Company or another Person, the successor assumes
the obligations of the Company relating to the CVRs, and appropriate adjustments
are made to the Target Price, the Minimum Price, the Discounted Target Price and
other terms hereof to reflect such transaction and the economic benefits
intended to be conferred on the CVRs under this Agreement (a "Nondisposition
Event").
"Early Redemption Determination Date" means the date five business
days prior to the date, if any, upon which the Company issues a notice of
redemption of the CVRs prior to the Maturity Date.
"Event of Default" has the meaning set forth in Section 801 of the
Agreement.
"Independent Financial Expert" means an independent nationally recognized
investment-banking firm.
The "Minimum Price" means $140.00. In each case, upon each occurrence of
an event specified in Section 301(k) of the Agreement, such amount, as it may
have been previously adjusted, shall be adjusted pursuant to Section 301(k) of
the Agreement.
"Shares" means the common shares, no par value, of the Company.
The "Target Price" means $185.00. In each case, upon each occurrence of an
event specified in Section 301(k) of the Agreement, such amount, as it may have
been previously adjusted, shall be adjusted pursuant to Section 301(k) of the
Agreement.
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"Valuation Period" has the meaning specified in Section 301(g) of the
Agreement.
The Agreement permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of CVRs under the Agreement at any time by
the Company and the Trustee with the consent of the Holders of a majority of the
CVRs at the time outstanding.
No reference herein to the Agreement and no provision of this CVR
Certificate or of the Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay any amounts determined
pursuant to the terms hereof and of the Agreement at the times, place, and
amount, and in the Cash or Stock, herein prescribed.
As provided in the Agreement and subject to certain limitations therein set
forth, the transfer of the CVRs represented by this CVR Certificate is
registerable on the Security Register of the Company, upon surrender of this CVR
Certificate for registration of transfer at the office or agency of the Company
maintained for such purpose in the City of New York or Richmond, Virginia, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new CVR Certificates, for the same amount of CVRs, will be issued to the
designated transferee or transferees. The Company hereby initially designates
the office of ___________ as the office for registration of transfer of this CVR
Certificate.
As provided in the Agreement and subject to certain limitations therein set
forth, this CVR Certificate is exchangeable for one or more CVR Certificates
representing the same number of CVRs as represented by this CVR Certificate as
requested by the Holder surrendering the same.
No service charge will be made for any registration of transfer or exchange
of CVRs, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this CVR Certificate for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this CVR Certificate is
registered as the owner hereof for all purposes, and neither the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
All capitalized terms used in this CVR Certificate without definition shall
have the meanings assigned to them in the Agreement.
Section 204. Form of Trustee's Certificate of Authentication'.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
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This is one of the CVR Certificates referred to in the within-mentioned
Agreement.
_______________________________
Trustee
By_____________________
Authorized Officer
ARTICLE THREE
THE CVRs
Section 301. Title and Terms.
(a) The aggregate number of CVR Certificates which may be authenticated
and delivered under this Agreement is limited to __________, except for CVRs
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other CVRs pursuant to Section 304, 305, 306 or 606 of this
Agreement. The Company will not issue any fractional CVRs, and in lieu thereof,
will make a pro rata cash payment in an amount equivalent to the fair market
value of any fraction of a CVR due under the Merger Agreement.
(b) The CVRs shall be known and designated as the "Contingent Value
Rights" of the Company and shall be unsecured obligations of the Company that
rank equally with all other unsecured obligations of the Company and the Holders
shall have no rights except for those rights explicitly provided for herein and
shall not, by virtue of their ownership of CVRs have any of the rights of a
shareholder of the Company.
(c) Subject to adjustment pursuant to Section 301(k) and subject to
Section 301(l), the Company shall pay to each Holder, if in Cash, on the third
Business Day following the Maturity Date, or if in Stock, as promptly as
practicable after the Maturity Date, for each CVR held by such Holder, an
amount, if any, as determined by the Company, by which the Target Price exceeds
the greater of (i) the Current Market Value and (ii) the Minimum Price. Such
determinations by the Company absent manifest error shall be final and binding
on the Company and the Holders. Not later than the second Business Day after
the Maturity Date, the Company shall (x) prepare and file with the Trustee a
certificate setting forth such determinations (including, if the amount payable
is to be paid in Stock, the Company's calculation of the amount of Stock to be
paid) and the facts accounting for such determinations and (y) mail to each
Holder a brief summary of
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such certificate, stating whether the amount payable will be paid in Cash or
Stock, and indicating the locations at which CVRs may be presented for payment.
(d) The Company may redeem all, but not less than all, of the CVRs at any
time upon not less than 30 Business Days notice at a price per CVR (the "Early
Redemption Price") equal to the difference between the Target Price and the
Current Market Value as at the Early Redemption Determination Date, discounted
from the Maturity Date to the Early Redemption Payment Date at a per annum rate
of 6% (an "Early Redemption"). The Early Redemption Price shall be payable by
the Company in the Company's sole discretion either in (i) Cash or (ii) Stock.
Such option shall be exercised by (i) publishing notice of such redemption in
the Authorized Newspaper and (ii) furnishing notice, in the form set forth
below, to the Trustee and each Holder of such redemption, in each case, not less
than thirty (30) Business Days before the redemption date, provided, that no
defect in any such notice shall affect the validity of the redemption, and that
any notice when published and mailed to the Trustee and a Holder in the
aforesaid manner shall be conclusively deemed to have been received by such
Holder whether or not actually received by such Holder. Nothing in this
Agreement shall limit the Company's ability to purchase or otherwise acquire
CVRs through open market transactions, privately negotiated transactions, or
otherwise.
* * * * * * *
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MARKEL HOLDINGS INC.
CONTINGENT VALUE RIGHTS
[DATE]
NOTICE OF REDEMPTION
NOTICE IS HEREBY GIVEN THAT, pursuant to Section 301 of the Contingent
Value Rights Agreement, dated as of February ___, 2000 (the "Agreement"),
between Markel Holdings Inc. (the "Company") and _________________, as trustee
(the "Trustee"), the Company has redeemed the Contingent Value Rights. All
terms used in this Notice that are defined in the Agreement shall have the
meanings assigned to them in the Agreement. Each and every currently
outstanding CVR will be redeemed at a price equal to the difference between the
[TARGET PRICE] and the current market value of a Share as of [DATE], discounted
from [MATURITY DATE] to [EARLY REDEMPTION PAYMENT DATE] at a per annum rate of
6%, less applicable withholding taxes, if any.
* * * * * * *
Promptly after the Early Redemption Payment Date, the Company shall (x) prepare
and file with the Trustee a certificate setting forth the Company's
determination of the Early Redemption Price (including, if the amount payable is
to be paid in Stock, the Company's calculation of the amount of Stock to be
paid) and the facts accounting for such determination and (y) mail to each
Holder a brief summary of such certificate, indicating the locations at which
CVRs may be presented for payment.
(e) Upon the consummation of a Disposition, the Company shall pay (in the
manner provided in Section 307) to each Holder for each CVR held by such Holder
an amount, if any, as determined by the Company, by which the Discounted Target
Price exceeds the greater of (i) the cash amount received for each Share by the
holder thereof as a result of such disposition, plus the fair market value, as
determined by an Independent Financial Expert, of the non-cash consideration, if
any, received for each Share by the holder thereof as a result of such
Disposition, assuming that such Holder did not exercise any right of appraisal
granted under law with respect to such Disposition, and (ii) the Minimum Price.
Such determinations by the Company and such Independent Financial Expert absent
manifest error shall be final and binding on the Company and the Holders. Such
payment shall be made on the date (the "Disposition Payment Date") established
by the Company, which in no event shall be more than 30 days after the date on
which the Disposition was consummated.
(f) As soon as practicable, the Company shall (x) prepare and file with
the Trustee a certificate setting forth the determinations referred to in
Section 301(e) (including, if the amount payable is to be paid in Stock, the
Company's calculation of the amount of Stock to be paid) and the facts
accounting for such determinations and (y) mail to each Holder a brief summary
of such certificate, indicating the locations at which
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CVRs may be presented for payment and the date on which the payment referred to
in Section 301(e) shall be made.
(g) The current market value per Share (the "Current Market Value") shall
be, during the 20 consecutive trading day period that both begins and ends in
the Valuation Period and which yields the highest such averages for any such 20
consecutive trading day period within the Valuation Period: (i) the mean of the
averages of the high and low and opening and closing prices, regular way, on the
New York Stock Exchange (or, if the Shares are not listed thereon, the principal
other exchange on which such shares are then listed); (ii) if the Shares are not
then listed or admitted to trading on any securities exchange, the mean of the
averages of the high and low and opening and closing sale price on such days, or
if no sale takes place on such days, the mean of the averages of the high and
low and opening and closing bid and asked prices on such days, as reported by a
reputable quotation source designated by the Company; or (iii) if the Shares are
not then listed or admitted to trade on any securities exchange and no such
reported sale price or bid and asked prices are available, the mean of the
averages of the reported high and low and opening and closing bid and asked
prices on those days on which such information is available, as reported in the
Authorized Newspaper. Notwithstanding the foregoing, in computing Current Market
Value for purposes of an Early Redemption or the Automatic Extinguishment, no
such 20 consecutive day period may be included in which the Company, any of its
subsidiaries or controlled Affiliates or Steven A. Markel, Anthony F. Markel or
Alan I. Kirshner purchase any Shares except (x) in privately negotiated
transactions that are not reported on any exchange (other than as a result of
being disclosed in a filing with the Commission that is also required to be
filed with such exchange), (y) with respect to employee benefit plans and other
incentive compensation arrangements in the ordinary course of business and
(z) purchases in compliance with Rule 10b-18 promulgated under the Exchange Act.
"Valuation Period" means (i) with respect to a payment at the Maturity
Date, the 60 day trading period immediately preceding (and including) the
Maturity Date, and (ii) with respect to an Automatic Extinguishment or an Early
Redemption, the period of time after the Effective Time and ending on the
Maturity Date.
(h) In the event the Current Market Value or fair market value, as the
case may be, is determined by an Independent Financial Expert, the Company shall
cause the Independent Financial Expert to deliver to the Company, with a copy to
the Trustee, a value report (the "Value Report") stating the methods of
valuation considered or used and, if applicable, the per share value of the
Shares, and containing a statement as to the nature and scope of the examination
or investigation upon which the determination of value was made. The Trustee
shall make available a copy of the Value Report to each Holder who requests such
Value Report. The determination of the Independent Financial Expert as set forth
in the Value Report absent manifest error shall be final and binding on the
Company and the Holders.
(i) Notwithstanding any provision of this Agreement or the CVR
Certificates to the contrary, other than in the case of interest on the Default
Amount, no interest shall accrue on any amounts payable on the CVRs to any
Holder.
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(j) In the event that the Company determines that no amount is payable on
the CVRs to the Holders on the Maturity Date, or the Disposition Payment Date,
as the case may be, as a result of an Automatic Extinguishment or otherwise, the
Company shall give to the Trustee and each Holder notice of such determination.
Upon making such determination, absent manifest error, the CVR Certificates
shall terminate and become null and void and the Holders thereof shall have no
further rights with respect thereto. The failure to give such notice or any
defect therein shall not affect the validity of such determination.
(k) In the event the Company shall in any manner subdivide (by stock
split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the number of outstanding Shares, the Company shall similarly
subdivide or combine the CVRs and shall appropriately adjust the Discounted
Target Price, the Target Price, the Early Redemption Price and the Minimum
Price. In the case of a Nondisposition Event, appropriate adjustments will be
made to the Target Price, the Minimum Price, the Discounted Target Price, and
the Early Redemption Price. Whenever an adjustment is made as provided in this
Section 301(k), the Company shall (i) promptly prepare a certificate setting
forth such adjustment and a brief statement of the facts accounting for such
adjustment, (ii) promptly file with the Trustee a copy of such certificate and
(iii) mail a brief summary thereof to each Holder. The Trustee shall be fully
protected in relying on any such certificate and on any adjustment therein
contained. Such adjustment absent manifest error shall be final and binding on
the Company and the Holders. Each outstanding CVR Certificate shall thenceforth
represent that number of adjusted CVRs necessary to reflect such subdivision or
combination, and reflect the adjusted Discounted Target Price, Target Price, the
Early Redemption Price and the Minimum Price.
(l) If the Current Market Value of the Shares during any 20 consecutive
trading days in the Valuation Period is greater than or equal to the Target
Price, the CVRs will automatically be extinguished without further consideration
or action by the Company or the Holders (the "Automatic Extinguishment") and all
obligation of the Company under this Agreement shall terminate and be of no
further force or effect; provided that the Company shall (i) promptly prepare a
certificate stating that an Automatic Extinguishment has occurred and briefly
stating the facts accounting for such Automatic Extinguishment, (ii) promptly
file with the Trustee a copy of such certificate and (iii) mail a brief summary
thereof to each Holder.
Section 302. Registrable Form.
The CVRs shall be issuable only in registered form.
Section 303. Execution, Authentication, Delivery and Dating.
The CVRs shall be executed on behalf of the Company by its chairman or vice
chairman of the Board of Directors or its president or any vice president or its
treasurer,
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under its corporate seal, which may, but need not, be attested. The signature of
any of these officers on the CVRs may be manual or facsimile.
CVRs bearing the manual or facsimile signatures of individuals who were at
any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such CVRs or did not hold
such offices at the date of such CVRs.
At any time and from time to time after the execution and delivery of this
Agreement, the Company may deliver CVRs executed by the Company to the Trustee
for authentication, together with a Company Order for the authentication and
delivery of such CVRs; and the Trustee in accordance with such Company Order
shall authenticate and deliver such CVRs as provided in this Agreement and not
otherwise.
Each CVR shall be dated as of the date of its authentication.
No CVR shall be entitled to any benefit under this Agreement or be valid or
obligatory for any purpose unless there appears on such CVR a certificate of
authentication substantially in the form provided for herein duly executed by
the Trustee by manual signature of an authorized officer, and such certificate
upon any CVR shall be conclusive evidence, and the only evidence, that such CVR
has been duly authenticated and delivered hereunder and that the Holder is
entitled to the benefits of this Agreement.
Section 304. Temporary CVRs.
Pending the preparation of definitive CVRs, the Company may execute, and
upon Company Order the Trustee shall authenticate and deliver, temporary CVRs
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, substantially of the tenor of the definitive CVRs in lieu of which
they are issued and with such appropriate insertions, omissions, substitutions
and other variations as the officers executing such CVRs may determine with the
concurrence of the Trustee. Temporary CVRs may contain such reference to any
provisions of this Agreement as may be appropriate. Every temporary CVR shall
be executed by the Company and be authenticated by the Trustee upon the same
conditions and in substantially the same manner, and with like effect, as the
definitive CVRs.
If temporary CVRs are issued, the Company will cause definitive CVRs to be
prepared without unreasonable delay. After the preparation of definitive CVRs,
the temporary CVRs shall be exchangeable for definitive CVRs upon surrender of
the temporary CVRs at the office or agency of the Company designated for such
purpose pursuant to Section 702, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary CVRs the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like amount of definitive CVRs. Until so exchanged, the temporary
CVRs
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shall in all respects be entitled to the same benefits under this Agreement as
definitive CVRs.
Section 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 702 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of CVRs and of transfers of CVRs. The Trustee is hereby initially appointed
"Security Registrar" for the purpose of registering CVRs and transfers of CVRs
as herein provided.
Upon surrender for registration of transfer of any CVR at the office or
agency of the Company designated pursuant to Section 702, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new CVR Certificates
representing the same aggregate number of CVRs represented by the CVR
Certificate so surrendered that are to be transferred and the Company shall
execute and the Trustee shall authenticate and deliver, in the name of the
transferor, one or more new CVR Certificates represented by such CVR Certificate
that are not to be transferred.
At the option of the Holder, CVR Certificates may be exchanged for other
CVR Certificates that represent in the aggregate the same number of CVRs as the
CVR Certificates surrendered at such office or agency. Whenever any CVR
Certificates are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the CVR Certificates that the Holder
making the exchange is entitled to receive.
All CVRs issued upon any registration of transfer or exchange of CVRs shall
be the valid obligations of the Company, evidencing the same right, and entitled
to the same benefits under this Agreement, as the CVRs surrendered upon such
registration of transfer or exchange.
Every CVR presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Security Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of CVRs, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of CVRs, other than exchanges
pursuant to Section 304 or not involving any transfer.
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Section 306. Mutilated, Destroyed, Lost and Stolen CVRs.
If (a) any mutilated CVR is surrendered to the Trustee or (b) the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any CVR, and there is delivered to the Company and the Trustee such
security or indemnity as may be required by them to save each of them harmless,
then, in the absence of notice to the Company or the Trustee that such CVR has
been acquired by a bona fide purchaser, the Company shall execute and upon its
written request the Trustee shall authenticate and deliver, in exchange for any
such mutilated CVR or in lieu of any such destroyed, lost or stolen CVR, a new
CVR Certificate of like tenor and amount of CVRs, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen CVR has become or is
to become due and payable within 15 days, the Company in its discretion may,
instead of issuing a new CVR Certificate, pay such CVR on the Maturity Date, the
Early Redemption Payment Date, the Disposition Payment Date or the Default
Payment Date, as the case may be.
Upon the issuance of any new CVRs under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new CVR issued pursuant to this Section in lieu of any destroyed,
lost or stolen CVR shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen CVR
shall be at any time enforceable by anyone, and shall be entitled to all
benefits of this Agreement equally and proportionately with any and all other
CVRs duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen CVRs.
Section 307. Presentation of CVR Certificate.
Payment of any amounts on the CVRs shall be made only upon presentation by
the Holder thereof at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in the City of New York and at any other
office or agency maintained by the Company for such purpose. Such payment shall
be made, either, in the Company's sole discretion, (i) in Cash or (ii) Stock.
The Holder of the CVRs shall furnish to the Company such forms, certificates, or
other information as the Company may request to establish the legal entitlement
of such Holder to an exemption from withholding taxes. In the event the Company
does not receive such forms, certificates, or other evidence establishing a
Holder's legal entitlement to exemption from withholding tax, then all payments
and disbursements to be made by the Company pursuant to this Agreement or the
CRSs shall be reduced by and subject to withholding taxes. The Company shall
have no obligation to reimburse, equalize or compensate a Holder or other person
for withholding taxes.
Section 308. Persons Deemed Owners.
Prior to the time of due presentment for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name any CVR is registered as the owner of such CVR for the
purpose of receiving payment on
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such CVR and for all other purposes whatsoever, whether or not such CVR be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
Section 309. Cancellation.
All CVRs surrendered for payment, registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it. The Company may at any time
deliver to the Trustee for cancellation any CVRs previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all CVRs so delivered shall be promptly cancelled by the
Trustee. No CVRs shall be authenticated in lieu of or in exchange for any CVRs
cancelled as provided in this Section, except as expressly permitted by this
Agreement. All cancelled CVRs held by the Trustee shall be disposed of as
directed by a Company Order.
ARTICLE FOUR
THE TRUSTEE
Section 401. Certain Duties and Responsibilities.
(a) With respect to the Holders of CVRs issued hereunder, the Trustee,
prior to the occurrence of an Event of Default with respect to the CVRs and
after the curing or waiving of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. In case an Event of Default with respect to the CVRs
has occurred (which has not been cured or waived), the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
(b) In the absence of bad faith on its part, prior to the occurrence of an
Event of Default and after the curing or waiving of all such Events of Default
which may have occurred, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this Agreement.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
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(1) this Subsection (c) shall not be construed to limit the effect of
Subsections (a) and (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) no provision of this Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it; and
(4) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders pursuant to Section 809 relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Agreement.
(d) Whether or not therein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 402. Certain Rights of Trustee.
The Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Trustee. Subject to
the provisions of Trust Indenture Act Sections 315(a) through 315(d) and Section
401 hereof:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Agreement the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein
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specifically prescribed) may, in the absence of bad faith on its part, rely
upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request or direction
of any of the Holders pursuant to this Agreement, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
appraisal, bond, debenture, note, coupon, security, or other paper or
document unless requested in writing to do so by the Holders of not less
than a majority in aggregate number of the CVRs then Outstanding; provided
that, if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Agreement,
the Trustee may require reasonable indemnity against such expenses or
liabilities as a condition to proceeding; the reasonable expenses of every
such investigation shall be paid by the Company or, if paid by the Trustee
or any predecessor Trustee, shall be repaid by the Company upon demand;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(h) the permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty and the Trustee shall be
liable for its negligence, bad faith or willful misconduct; and
(i) except for (i) a default under Section 801(a) and (ii) any other
event of which the Trustee has "actual knowledge," which event, with the
giving of notice or the passage of time or both, would constitute an Event
of Default, the Trustee shall not be deemed to have notice of any default
or event unless specifically notified in writing of such event by the
Company or the Holders of not less than 25% in aggregate number of CVRs
Outstanding; as used herein, the term "actual knowledge" means the actual
fact or statement of knowing, without any duty to make any investigation
with regard thereto.
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No provision of this Agreement shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
Section 403. Not Responsible for Recitals or Issuance of CVRs.
The recitals contained herein and in the CVRs, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Agreement or
of the CVRs. The Trustee shall not be accountable for the use or application by
the Company of CVRs or the proceeds thereof.
Section 404. May Hold CVRs.
The Trustee, any Paying Agent, Security Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of CVRs, and, subject to Sections 407 and 401, may otherwise deal with
the Company with the same rights it would have if it were not Trustee, Paying
Agent, Security Registrar or such other agent.
Section 405. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder.
Section 406. Compensation, Reimbursement and Indemnification of the Trustee.
The Company agrees
(a) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Agreement (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out
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of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder, including the enforcement of this Section 406.
When the Trustee incurs expenses or renders services after a Default
specified in Section 801(c) or 801(d) occurs, the reasonable expenses and the
compensation for services (including the reasonable fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any bankruptcy law.
Section 407. Disqualification; Conflicting Interests.
The Trustee shall be subject to the provisions of Section 310(b) of the
Trust Indenture Act during the period of time provided for therein. Nothing
herein shall prevent the Trustee from filing with the Commission the application
referred to in the penultimate paragraph of Section 310(b) of the Trust
Indenture Act.
Section 408. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any State, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, subject
to supervision or examination by Federal or State authority and, to the extent
there is such an institution eligible and willing to serve, having an office or
agency in the City of New York, the City of Richmond, Virginia or the City of
Charlotte, North Carolina. If such corporation publishes reports of condition
at least annually pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 409. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 410.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
resign at any time by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
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(c) The Trustee may be removed at any time by (i) the Company, by a Board
Resolution or, (ii) an Act of the Holders of a majority of the Outstanding CVRs,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 407 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a CVR for at least six months,
(2) the Trustee shall cease to be eligible under Section 408 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed, or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any case, (i) the
Company by a Board Resolution may remove the Trustee, or (ii) the Holder of
any CVR who has been a bona fide Holder of a CVR for at least six months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any reason, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority of the Outstanding CVRs delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with Section 410, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders of the CVRs and so accepted appointment, the Holder of any CVR who has
been a bona fide Holder for at least six months may on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
CVRs as their names and addresses appear in the Security Register. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office. If the Company fails to send such notice within ten days after
acceptance of appointment by a successor Trustee, the successor Trustee shall
cause the notice to be mailed at the expense of the Company.
Section 410. Acceptance of Appointment by Successor.
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Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 411. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any CVRs shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the CVRs so authenticated with the same effect
as if such successor Trustee had itself authenticated such CVRs; and such
certificate shall be fully effective, provided that the right to adopt the
certificate of authentication of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
ARTICLE FIVE
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY'
Section 501. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee (a)
semiannually, not later than [DATE 6 MOS. AFTER DATE OF CVR] and [DATE 12 MOS.
AFTER DATE OF CVR], a list, in such form as the Trustee may reasonably require,
of the names and addresses of the Holders as of [ DATE FIVE MONTHS 15 DAYS
AFTER DATE OF CVR] and [DATE ELEVEN MONTHS 15 DAYS AFTER DATE OF CVR],
respectively, and (b) at such times as the Trustee may request in
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writing, within 30 days after receipt by the Company of any such request, a
list, in such form as the Trustee may reasonably require, of the names and the
addresses of the Holders as of a date not more than 15 days prior to the time
such list is furnished; provided, however, that, if and so long as the Trustee
shall be the Security Registrar, no such list need be furnished.
Section 502. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 501 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 501 upon receipt of a new list so furnished.
(b) If three or more Holders (hereinafter referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee reasonable proof
that each such applicant has owned a CVR for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Agreement or under the CVRs and is accompanied by a copy of the form
of proxy or other communication which such applicants propose to transmit, then
the Trustee shall, within five Business Days after the receipt of such
application at its election, either
(1) afford such applicants access to the information preserved at the
time by the Trustee in accordance with Section 502(a), or
(2) inform such applicants as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time
by the Trustee in accordance with Section 502(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other communication,
if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 502(a), a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender, the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the Holders
or would be in violation of applicable law. Such written statement shall
specify the basis of such opinion. If the Commission, after opportunity for a
hearing upon the objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if, after the entry
of an order sustaining one or more of such objections, the
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Commission shall find, after notice and opportunity for hearing, that all the
objections so sustained have been met and shall enter an order so declaring, the
Trustee shall mail copies of such material to all such Holders with reasonable
promptness after the entry of such order and the renewal of such tender;
otherwise the Trustee shall be relieved of any obligation or duty to such
applicants respecting their application.
(c) Every Holder of CVRs, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee shall be
held accountable by reason of the disclosure of any such information as to the
names and addresses of the Holders in accordance with Section 502(b), regardless
of the source from which such information was derived, and that the Trustee
shall not be held accountable by reason of mailing any material pursuant to a
request made under Section 502(b).
Section 503. Reports by Trustee.
Within 60 days after July 15 of each year, commencing with the July 15
occurring after the initial issuance of CVRs hereunder, the Trustee shall
transmit by mail to the Holders of CVRs, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act, and to the Company a
brief report dated as of such July 15 which satisfies the requirements of
Section 313(a) of the Trust Indenture Act.
Section 504. Reports by Company.
The Company shall:
(a) file with the Trustee, within 15 days after the date on which the
Company is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may be
required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then
to file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations; and
(b) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Agreement as may be
required from time to time by such rules and regulations.
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The Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Security Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Company pursuant to Subsections (a) and (b)
of this Section as may be required by rules and regulations prescribed from time
to time by the Commission.
ARTICLE SIX
AMENDMENTS
Section 601. Amendments Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more amendments hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the Trustee as
security for the CVRs any property or assets;
(b) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company herein
and in the CVRs;
(c) to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions as its Board of Directors and the
Trustee shall consider to be for the protection of the Holders of CVRs, and
to make the occurrence, or the occurrence and continuance, of a default in
any such additional covenants, restrictions, conditions or provisions an
Event of Default permitting the enforcement of all or any of the several
remedies provided in this Agreement as herein set forth; provided that in
respect of any such additional covenant, restriction, condition or
provision such amendment may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the
case of other defaults) or may provide for an immediate enforcement upon
such an Event of Default or may limit the remedies available to the Trustee
upon such an Event of Default or may limit the right of the Holders of a
majority in aggregate principal amount of the CVRs to waive such an Event
of Default; or
(d) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Agreement; provided that in each case, such
provisions shall not adversely affect the interests of the Holders.
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Section 602. Amendments with Consent of Holders.
With the consent of the Holders of not less than a majority of the
Outstanding CVRs as required to amend the Agreement in accordance with the Trust
Indenture Act, by Act of said Holders delivered to the Company and the Trustee,
the Company, when authorized by a Board Resolution, and the Trustee may enter
into one or more amendments hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Holders under this Agreement;
provided that no such amendment shall, without the consent of the Holder of each
Outstanding CVR affected thereby:
(a) modify the definition of Maturity Date, Disposition Payment Date,
Default Payment Date, Early Redemption Payment, Early Redemption
Determination Date, Current Market Value, Valuation Period, Minimum Price,
Discounted Target Price, Target Price, Default Amount or Default Interest
Rate or modify Section 301(k) or otherwise extend the maturity of the CVRs
or reduce the amounts payable in respect of the CVRs;
(b) reduce the amount of the Outstanding CVRs, the consent of whose
Holders is required for any such amendment; or
(c) modify any of the provisions of this Section, except to increase
any such percentage or to provide that certain other provisions of this
Agreement cannot be modified or waived without the consent of the Holder of
each CVR affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed amendment, but it shall be
sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of any
amendment pursuant to the provisions of this Section, the Company shall mail a
notice thereof by first class mail to the Holders of CVRs at their addresses as
they shall appear on the Security Register, setting forth in general terms the
substance of such amendment. Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the validity
of any such amendment.
Section 603. Execution of Amendments.
In executing any amendment permitted by this Article, the Trustee shall be
entitled to receive, and (subject to Section 401) shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such amendment
is authorized or permitted by this Agreement. The Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Trustee's own
rights, duties or immunities under this Agreement or otherwise.
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Section 604. Effect of Amendments.
Upon the execution of any amendment under this Article, this Agreement
shall be modified in accordance therewith, and such amendment shall form a part
of this Agreement for all purposes; and every Holder of CVRs theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
Section 605. Conformity with Trust Indenture Act.
Every amendment executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
Section 606. Reference in CVRs to Amendments.
CVRs authenticated and delivered after the execution of any amendment
pursuant to this Article may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
amendment. If the Company shall so determine, new CVRs so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any such
amendment may be prepared and executed by the Company and authenticated and
delivered by the Trustee in exchange for Outstanding CVRs.
ARTICLE SEVEN
COVENANTS
Section 701. Payment of Amounts, if Any, to Holders.
The Company will duly and punctually pay the amounts, if any, in the manner
provided for in Section 307 on the CVRs in accordance with the terms of the CVRs
and this Agreement.
Section 702. Maintenance of Office or Agency.
As long as any of the CVRs remain Outstanding, the Company will maintain in
the Borough of Manhattan, the City of New York, an office or agency where CVRs
may be presented or surrendered for payment. The Company also will maintain in
the Borough of Manhattan, the City of New York, the City of Richmond, Virginia,
or the City of Charlotte, North Carolina, an office or agency (i) where CVRs may
be surrendered for registration of transfer or exchange and (ii) where notices
and demands to or upon the Company in respect of the CVRs and this Agreement may
be served. The Company hereby initially designates the office of
____________________ at ____________ as the office or agency of the Company
where CVRs may be presented for payment, and the _________________ as the office
or agency where CVRs may be surrendered for registration of transfer or exchange
and where such notices or demands
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may be served, in each case, unless the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company will
give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the __________________ of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may from time to time designate one or more other offices or
agencies (in or outside of the City of New York) where the CVRs may be presented
or surrendered for any or all such purposes, and may from time to time rescind
such designation; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligations as set forth in the
preceding paragraph. The Company will give prompt written notice to the Trustee
of any such designation or rescission and any change in the location of any such
office or agency.
Section 703. Money for CVR Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on
or before the Maturity Date, the Early Redemption Payment Date, the Disposition
Payment Date or the Default Payment Date, as the case may be, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the amounts, if any, so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided, and will promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the CVRs, it
will, on or before the Maturity Date, the Early Redemption Payment Date, the
Disposition Payment Date or the Default Payment Date, as the case may be,
deposit with a Paying Agent a sum in same day funds sufficient to pay the
amount, if any, so becoming due, such sum to be held in trust for the benefit of
the Persons entitled to such amount, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that (A) such
Paying Agent will hold all sums held by it for the payment of any amount payable
on CVRs in trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
(B) that it will give the Trustee notice of any failure by the Company (or by
any other obligor on the CVRs) to make any payment on the CVRs when the same
shall be due and payable.
Any money (or securities of the Company) deposited with the Trustee or any
Paying Agent, or then held by the Company, in trust for the payment on any CVRs
and remaining unclaimed for one year after the Maturity Date, the Early
Redemption
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Payment Date, the Disposition Payment Date or the Default Payment Date, as the
case may be, shall be paid to the Company on Company Request, or (if then held
by the Company) shall be discharged from such trust; and the Holder of such CVR
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof and all liability of the Trustee or such Paying Agent with
respect to such trust money (or securities of the Company) shall thereupon
cease.
Section 704. Certain Purchases and Sales.
The Company will not, and will not permit any of its subsidiaries or
controlled Affiliates or Steven A. Markel, Anthony F. Markel or Alan I.
Kirshner, to purchase any Shares on any day during the period commencing 10
trading days before the Valuation Period with respect to the Maturity Date and
ending on the Maturity Date, except (x) in privately negotiated transactions
that are not reported to any exchange (other than as a result of being disclosed
in a filing with the Commission that is also required to be filed with such
exchange), (y) with respect to employee benefit plans and other incentive
compensation arrangements in the ordinary course of business and (z) purchases
in compliance with Rule 10b-18 promulgated under the Exchange Act.
Section 705. Written Statement to Trustee.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year, a brief certificate from the principal executive officer,
principal financial officer or principal accounting officer as to his or her
knowledge of the Company's compliance with all conditions and covenants under
this Agreement. For purposes of this Section, such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Agreement.
ARTICLE EIGHT
REMEDIES OF THE TRUSTEE AND HOLDERS ON EVENT OF DEFAULT
Section 801. Event of Default Defined; Acceleration of Maturity; Waiver of
Default.
"Event of Default", with respect to CVRs, means any of the following events
which shall have occurred and be continuing (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of all or any part of the amounts payable
in respect of any of the CVRs as and when the same shall become due and
payable following the Maturity Date, the Disposition Payment Date, the
Early Redemption Payment Date or otherwise;
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(b) material default in the performance, or material breach, of any
material covenant or warranty of the Company relating to the CVRs (other
than a covenant or warranty in respect of the CVRs a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with), and continuance of such material default or breach for a period of
90 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% of the Outstanding CVRs, a written notice specifying such
material default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder;
(c) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Company in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Company or for any
substantial part of its property or ordering the winding up or liquidation
of its affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(d) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under
any such law, or consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or
similar official) of the Company or for any substantial part of its
property, or make any general assignment for the benefit of creditors.
If an Event of Default described above occurs and is continuing, then, and in
each and every such case, unless all of the CVRs shall have already become due
and payable, either the Trustee or the Holders of not less than 25% of the CVRs
then Outstanding hereunder by notice in writing to the Company (and to the
Trustee if given by the Holders) may declare the CVRs to be due and payable
immediately, and upon any such declaration the Default Amount shall become
immediately due and payable and, thereafter, shall bear interest at the Default
Interest Rate until payment is made to the Trustee.
The foregoing provisions, however, are subject to the condition that if, at
any time after the CVRs shall have been so declared due and payable, and before
any judgment or decree for the payment of the moneys due shall have been
obtained or entered as hereinafter provided, the Company shall pay or shall
deposit with the Trustee a sum sufficient to pay all amounts which shall have
become due otherwise than by acceleration (with interest upon such overdue
amount at the Default Interest Rate to the date of such payment or deposit) and
such amount as shall be sufficient to cover reasonable compensation to the
Trustee, its agents, attorneys and counsel, and all other expenses and
liabilities incurred and all advances made, by the Trustee except as a result of
negligence or bad faith, and if any and all Events of Default under this
Agreement, other than the nonpayment of the amounts which shall have become due
by acceleration, shall have
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been cured, waived or otherwise remedied as provided herein, then and in every
such case the Holders of a majority of all the CVRs then Outstanding, by written
notice to the Company and to the Trustee, may waive all defaults with respect to
the CVRs and rescind and annul such declaration and its consequences, but no
such waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereof.
Section 802. Collection of Indebtedness by Trustee; Trustee May Prove Debt.
The Company covenants that in case default shall be made in the payment of
all or any part of the CVRs when the same shall have become due and payable;
whether at the Maturity Date, the Early Redemption Payment Date, the Disposition
Payment Date, the Default Payment Date or otherwise, then upon demand of the
Trustee, the Company will pay to the Trustee for the benefit of the Holders of
the CVRs the whole amount, in Cash or Stock (in the Company's sole discretion),
that then shall have become due and payable on all CVRs (with interest from the
date due and payable to the date of such payment upon the overdue amount at the
Default Interest Rate); and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and any expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of its negligence or bad faith.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon such CVRs and
collect in the manner provided by law out of the property of the Company or
other obligor upon such CVRs, wherever situated, the moneys adjudged or decreed
to be payable.
In case there shall be pending proceedings relative to the Company or any
other obligor upon the CVRs under Title 11 of the United States Code or any
other applicable Federal or State bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Company or its property or such other obligor, or in
case of any other judicial proceedings relative to the Company or other obligor
upon the CVRs, or to the creditors or property of the Company or such other
obligor, the Trustee, irrespective of whether the principal of any CVRs shall
then be due and payable as therein expressed or otherwise and irrespective of
whether the Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, by intervention in such
proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount owing
and unpaid in respect of the CVRs, and to file such other papers or
documents as may
40
<PAGE>
be necessary or advisable in order to have the claims of the Trustee
(including any claim for reasonable compensation to the Trustee and each
predecessor Trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee, except as a
result of negligence or bad faith) and of the Holders allowed in any
judicial proceedings relative to the Company or other obligor upon the
CVRs, or to the creditors or property of the Company or such other obligor;
(b) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders in any election of a trustee or a standby trustee in
arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings or person performing similar functions in comparable
proceedings; and
(c) to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute all amounts receivable
with respect to the claims of the Holders and of the Trustee on their
behalf and any trustee, receiver, or liquidator, custodian or other similar
official is hereby authorized by each of the Holders to make payments to
the Trustee, and, in the event that the Trustee shall consent to the making
of payments directly to the Holders, to pay to the Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or
bad faith and all other amounts due to the Trustee or any predecessor
Trustee pursuant to Section 406.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
CVRs or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding except, as aforesaid,
to vote for the election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this Agreement, or under
any of the CVRs, may be enforced by the Trustee without the possession of any of
the CVRs or the production thereof at any trial or other proceedings relative
thereto, and any such action or proceedings instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and compensation
of the Trustee, each predecessor Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Holders.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Agreement to which the
Trustee shall be a party) the Trustee shall be held to represent all the
Holders, and it shall not be necessary to make any Holders of such CVRs parties
to any such proceedings.
41
<PAGE>
Section 803. Application of Proceeds.
Any monies (including CVRs or Shares) collected by the Trustee pursuant to
this Article in respect of any CVRs shall be applied in the following order at
the date or dates fixed by the Trustee upon presentation of the several CVRs in
respect of which monies (including CVRs or Shares) have been collected and
stamping (or otherwise noting) thereon the payment in exchange for the presented
CVRs if only partially paid or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses in respect of which
monies have been collected, including reasonable compensation to the
Trustee and each predecessor Trustee and their respective agents and
attorneys and of all expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith, and all other amounts due to the Trustee or any
predecessor Trustee pursuant to Section 406;
SECOND: To the payment of the whole amount then owing and unpaid upon
all the CVRs, with interest at the Default Interest Rate on all such
amounts, and in case such moneys shall be insufficient to pay in full the
whole amount so due and unpaid upon the CVRs, then to the payment of such
amounts without preference or priority of any CVR over any other CVR,
ratably to the aggregate of such amounts due and payable; and
THIRD: To the payment of the remainder, if any, to the Company or any
other person lawfully entitled thereto.
Section 804. Suits for Enforcement.
In case an Event of Default has occurred, has not been waived and is
continuing, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Agreement by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either at law or in equity or in bankruptcy or otherwise, whether for
the specific enforcement of any covenant or agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement or to
enforce any other legal or equitable right vested in the Trustee by this
Agreement or by law.
Section 805. Restoration of Rights on Abandonment of Proceedings.
In case the Trustee shall have proceeded to enforce any right under this
Agreement and such proceedings shall have been discontinued or abandoned for any
reason, or shall have been determined adversely to the Trustee, then and in
every such case the Company and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights, remedies and powers
of the Company, the Trustee and the Holders shall continue as though no such
proceedings had been taken.
42
<PAGE>
Section 806. Limitations on Suits by Holders.
No Holder of any CVR shall have any right by virtue or by availing itself
of any provision of this Agreement to institute any action or proceeding at law
or in equity or in bankruptcy or otherwise upon or under or with respect to this
Agreement, or for the appointment of a trustee, receiver, liquidator, custodian
or other similar official or for any other remedy hereunder, unless such Holder
previously shall have given to the Trustee written notice of default and of the
continuance thereof as hereinbefore provided, and unless also the Holders of not
less than 25% of the CVRs then Outstanding shall have made written request upon
the Trustee to institute such action or proceedings in its own name as trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby and the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such action or
proceeding and no direction inconsistent with such written request shall have
been given to the Trustee pursuant to Section 809; it being understood and
intended, and being expressly covenanted by the taker and Holder of every CVR
with every other taker and Holder and the Trustee, that no one or more Holders
of CVRs shall have any right in any manner whatever by virtue or by availing
itself or themselves of any provision of this Agreement to effect, disturb or
prejudice the rights of any other such Holder of CVRs, or to obtain or seek to
obtain priority over or preference to any other such Holder or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Holders of CVRs. For the protection
and enforcement of the provisions of this Section, each and every Holder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 807. Unconditional Right of Holders to Institute Certain Suits.
Notwithstanding any other provision in this Agreement and any provision of
any CVR, the right of any Holder of any CVR to receive payment of the amounts
payable in respect of such CVR on or after the respective due dates expressed in
such CVR, or to institute suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected without the
consent of such Holder.
Section 808. Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default.
Except as provided in Section 806, no right or remedy herein conferred upon
or reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
43
<PAGE>
No delay or omission of the Trustee or of any Holder to exercise any right
or power accruing upon any Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and, subject to
Section 806, every power and remedy given by this Agreement or by law to the
Trustee or to the Holders may be exercised from time to time, and as often as
shall be deemed expedient, by the Trustee or by the Holders.
Section 809. Control by Holders.
The Holders of a majority of the CVRs at the time Outstanding shall have
the right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee with respect to the CVRs by this Agreement; provided that such
direction shall not be otherwise than in accordance with law and the provisions
of this Agreement; and provided further that (subject to the provisions of
Section 401) the Trustee shall have the right to decline to follow any such
direction if the Trustee, being advised by counsel, shall determine that the
action or proceeding so directed may not lawfully be taken or if the Trustee in
good faith by its board of directors, the executive committee, or a trust
committee of directors or Responsible Officers of the Trustee shall determine
that the action or proceedings so directed would involve the Trustee in personal
liability or if the Trustee in good faith shall so determine that the actions or
forbearances specified in or pursuant to such direction would be unduly
prejudicial to the interests of Holders of the CVRs not joining in the giving of
said direction, it being understood that (subject to Section 401) the Trustee
shall have no duty to ascertain whether or not such actions or forbearances are
unduly prejudicial to such Holders.
Nothing in this Agreement shall impair the right of the Trustee in its
discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction or directions by Holders.
Section 810. Waiver of Past Defaults.
Prior to the declaration of the acceleration of the maturity of the CVRs as
provided in Section 801, in the case of a default or an Event of Default
specified in clause (b), (c) or (d) of Section 801, the Holders of a majority of
all the CVRs then Outstanding may waive any such default or Event of Default,
and its consequences, except a default in respect of a covenant or provisions
hereof which cannot be modified or amended without the consent of the Holder of
each CVR affected. In the case of any such waiver, the Company, the Trustee and
the Holders of the CVRs shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for every
purpose of this
44
<PAGE>
Agreement; but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.
Section 811. Trustee to Give Notice of Default, but May Withhold in Certain
Circumstances.
The Trustee shall transmit to the Holders, as the names and addresses of
such Holders appear on the Security Register, notice by mail of all defaults
which have occurred, such notice to be transmitted within 90 days after the
occurrence thereof unless such defaults shall have been cured before the giving
of such notice (the term "default" or "defaults" for the purposes of this
Section being hereby defined to mean any event or condition which is, or with
notice or lapse of time or both would become, an Event of Default); provided
that, except in the case of default in the payment of the amounts payable in
respect of any of the CVRs, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee, or a
trust committee of directors or trustees and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders.
Section 812. Right of Court to Require Filing of Undertaking to Pay Costs.
All parties to this Agreement agree, and each Holder of any CVR by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Agreement or in any suit against the Trustee for any action taken, suffered
or omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith or the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder or group of Holders holding in the
aggregate more than 10% of the CVRs Outstanding or to any suit instituted by any
Holder for the enforcement of the payment of any CVR on or after the due date
expressed in such CVR.
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 901. Company May Consolidate, Etc.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, unless:
(1) in case the Company shall consolidate with or merge into any
other Person or convey, transfer or lease its properties and assets
substantially as an
45
<PAGE>
entirety to any Person, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety (the "Surviving Person") shall be a
corporation, partnership or trust organized and existing under the laws of
the United States of America, any state thereof or the District of
Columbia, the United Kingdom, Bermuda, the Republic of Ireland, Barbados,
the Channel Islands, the Cayman Islands or any other jurisdiction that is
not materially adverse to the Holders and shall expressly assume payment of
amounts on all the CVRs and the performance of every covenant of this
Agreement on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officer's Certificate
stating that such consolidation, merger, conveyance, transfer or lease
complies with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.
Solely for purposes of this Section 901, "convey, transfer or lease its
properties and assets substantially as an entirety" shall mean properties and
assets contributing in the aggregate at least 80% of the Company's total
revenues as reported in the Company's last available periodic financial report
(quarterly or annual, as the case may be) filed with the Commission.
Section 902. Successor Substituted.
Upon any consolidation of or merger by the Company with or into any other
Person, or any conveyance, transfer or lease of the properties and assets
substantially as an entirety to any Person in accordance with Section 901, the
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Agreement with the same effect
as if the Surviving Person had been named as the Company herein, and thereafter,
the predecessor corporation shall be relieved of all obligations and covenants
under this Agreement and the CVRs.
Section 903. Opinion of Counsel to Trustee.
The Trustee, subject to the provisions of Sections 401 and 402, may receive
an Opinion of Counsel, prepared in accordance with Sections 103 and 104, as
conclusive evidence that any such consolidation, merger, sale, lease or
conveyance, and any such assumption, and any such liquidation or dissolution,
complies with the applicable provisions of this Agreement.
46
<PAGE>
* * * * * * *
This Agreement may be signed in any number of counterparts with the same
effect as if the signatures to each counterpart were upon a single instrument,
and all such counterparts together shall be deemed an original of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
MARKEL HOLDINGS INC.
By:_________________________________
Title:
Attest:
__________________________
Title:
[TRUSTEE]
By:_________________________________
Title:
Attest:
____________________________
Title:
47
<PAGE>
State of )
) ss.:
County of )
On the day of February ____, 2000, before me personally came
, to me known, who, being by me duly sworn, did depose and say that s/he resides
at ; that s/he is of Markel Holdings
Inc., one of the corporations described in and which executed the above
instrument; and s/he knows the corporate seal of such corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed
pursuant to authority of the Board of Directors of such corporation; and that
s/he signed her/his name thereto pursuant to like authority.
(NOTARIAL SEAL)
___________________________________
State of )
) ss.:
County of )
On the day of February ____, 2000, before me personally
came , to me known, who, being by me duly sworn, did depose and say
that s/he resides at ; that s/he is
of [TRUSTEE], one of the corporations described in and which executed the above
instrument; and s/he knows the corporate seal of such corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed
pursuant to authority of the Board of Directors of such corporation; and that
s/he signed her/his name thereto pursuant to like authority.
(NOTARIAL SEAL)
____________________________________
48
<PAGE>
Exhibit 5.1
February 4, 2000
Markel Holdings Inc.
4521 Highwoods Pkwy.
Glen Allen, Virginia 23060
Registration Statement on Form S-4
Contingent Value Rights
Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration Statement
on Form S-4, which also constitutes Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (Registration No. 333-88609) (together, the
"Registration Statements"), filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act") relating
to the offer and sale by Markel Holdings Inc., a Virginia corporation (the
"Company"), of up to 8,455,000 of its common shares, no par value (the
"Shares"), and up to 1,800,000 of its contingent value rights (the "CVRs")
pursuant to the Agreement and Plan of Merger and Scheme of Arrangement, dated
as of August 15, 1999, as amended (the "Merger Agreement"), between Markel
Corporation and Terra Nova (Bermuda) Holdings Ltd. ("Terra Nova").
We have assisted you in your preparation of the Registration Statement and
have examined such questions of law and such corporate records and documents,
statements and certificates of officers of the Company and such other
information as we have deemed necessary to the issuance of this opinion.
Based on the foregoing, we are of the opinion that:
1. The Shares have been duly authorized and, when issued in accordance
with the terms and provisions of the Merger Agreement and as described in the
joint proxy statement/prospectus that is a part of the Registration Statements,
will be validly issued, fully paid and non-assessable.
2. The CVRs and the Contingent Value Rights Agreement (the "CVR
Agreement") filed as Exhibit 4.1 to the Registration Statements will be duly
authorized by the Company upon adoption by the Board of Directors of a
resolution in form and content as required by applicable law, and when (a) the
CVR Agreement has been duly executed and delivered by the parties
<PAGE>
thereto, (b) the CVRs have been duly executed by the Company and duly
authenticated by the CVR Trustee under the CVR Agreement and (c) the CVRs have
been duly issued by the Company to the Terra Nova shareholders as contemplated
by the Merger Agreement in accordance with the provisions of the CVR Agreement
(including the provisions of the CVR Agreement regarding establishment of the
forms of CVRs) and as described in the joint proxy statement/prospectus that is
a part of the Registration Statements, the CVRs will be validly issued will
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, and be entitled to the benefit of the
CVR Agreement.
The opinions set forth in paragraph 2 above are subject to (i) the effect
of any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and (ii) the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
We consent to the filing of this opinion as an exhibit to the Registration
Statements and to the statements made in reference to our firm under the
captions "The Transactions - Material U.S. Federal Tax Consequences" and "Legal
Matters" therein. We do not admit by giving this consent that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe
<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
February 4, 2000
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 and Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 (Registration No. 333-88609) of Markel Holdings Inc., of
our report dated March 9, 1999 relating to the consolidated financial statements
and financial statement schedules, which appears in Terra Nova (Bermuda)
Holdings Ltd.'s Annual Report on Form 10-K for the year ended December 31, 1998,
as amended. We also consent to the reference to us under the heading "Experts"
herein.
PricewaterhouseCoopers
Hamilton, Bermuda
February 4, 2000
<PAGE>
Exhibit 23.5
February 4, 2000
Terra Nova (Bermuda) Holdings Ltd.
Richmond House
12 Par-La-Ville Road
Hamilton HM 08, Bermuda
Markel Holdings Inc.
Registration Statement
on Form S-4 and
Post-Effective Amendment No. 1 to
Registration Statement on Form S-4
Dated as of February 4, 2000
----------------------------------
Ladies and Gentlemen:
We hereby consent to the use of our name under the captions "The
Transactions-Material on Form S-4 and Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (Registration No. 333-88609). 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.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 . (212) 692-3000
Exhibit 23.6
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated
January 27, 2000, 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 and Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 (Registration No. 333-88609). 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
February 2, 2000
<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 January 27, 2000, 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 of Markel and Terra Nova
(Bermuda) Holdings, Ltd., which Joint Proxy Statement/Prospectus is part of the
Registration Statement on Form S-4 and Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (Registration 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/ David Head
----------------------
David Head
Managing Director
New York, New York
February 4, 2000
SALOMON SMITH BARNEY INC. 388 Greenwich Street, New York, NY 10013
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
The undersigned hereby appoints Gregory B. Nevers or Richard W. Whitt (each
with full power to act alone), as his true and lawful attorneys-in-fact, and
grants unto said attorneys the authority in his name and on his behalf to
execute and file (individually and in the capacity stated below) any documents
relating to the registration by Markel Corporation and/or Markel Holdings Inc.
(the "Company") of shares of common stock of the Company ("Common Stock") in
connection with the Company's filing of a Registration Statement on Form S-3
and/or Form S-4 and any and all amendments or supplements to any of the
foregoing, with all exhibits and documents required to be filed in connection
therewith. The undersigned further grants unto said attorneys, and each of
them, full power and authority to perform each and every act necessary in order
to accomplish the foregoing registration as fully as he himself might do.
IN WITNESS WHEREOF, the undersigned has signed this power of attorney this
4th day of October, 1999.
/s/ Alan I. Kirshner
- ----------------------------------------------------------------
Alan I. Kirshner, Director, Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Anthony F. Markel
- ---------------------------------------------------
Anthony F. Markel, President, Director
/s/ Steven A. Markel
- ---------------------------------------------------
Steven A. Markel, Vice-Chairman, Director
/s/ Darrell D. Martin
- ---------------------------------------------------
Darrell D. Martin, Director, Executive Vice President and
Chief Financial Officer (Principal Financial Officer, Principal
Accounting Officer)
<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
________________________________________
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
____________________________________________
Markel Holdings Inc.
(Exact name of obligor as specified in its charter)
Virginia 54-1959284
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
45201 Highwoods Pkwy
Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip Code)
____________________________________________
Contingent Value Rights
(Title of the indenture securities)
________________________________________________________________________________
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
New York State Banking Department, State House, Albany, New York 12110.
Board of Governors of the Federal Reserve System, Washington, D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New
York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect,
including the Organization Certificate and the Certificates of Amendment dated
February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being contained
in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-76439, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act (see
Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-
50010, which is incorporated by reference. On July 14, 1996, in connection with
the merger of Chemical Bank and The Chase Manhattan Bank (National Association),
Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 4th day of February, 2000.
THE CHASE MANHATTAN BANK
By____________________________________
Philbert G. Jones
Assistant Vice President
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<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect,
including the Organization Certificate and the Certificates of Amendment dated
February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being contained
in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-76439, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act (see
Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-
50010, which is incorporated by reference. On July 14, 1996, in connection with
the merger of Chemical Bank and The Chase Manhattan Bank (National Association),
Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 4th day of February, 2000.
THE CHASE MANHATTAN BANK
By /s/ Philbert G. Jones
-------------------------
Philbert G. Jones
Assistant Vice President
- 3 -
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business September 30, 1999, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Millions
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin....... $ 13,497
Interest-bearing balances.............................. 6,388
Securities:..............................................
Held to maturity securities.............................. 798
Available for sale securities............................ 48,655
Federal funds sold and securities purchased under
agreements to resell................................... 30,373
Loans and lease financing receivables:
Loans and leases, net of unearned income............... $132,392
Less: Allowance for loan and lease losses.............. 2,463
Less: Allocated transfer risk reserve.................. 0
--------
Loans and leases, net of unearned income,
allowance, and reserve................................. 129,929
Trading Assets........................................... 47,413
Premises and fixed assets (including capitalized
leases)................................................ 3,287
Other real estate owned.................................. 26
Investments in unconsolidated subsidiaries and
associated companies................................... 185
Customers' liability to this bank on acceptances
outstanding............................................ 716
Intangible assets........................................ 2,693
Other assets............................................. 15,430
--------
TOTAL ASSETS............................................. $299,390
========
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<PAGE>
LIABILITIES
Deposits
In domestic offices.................................... $100,324
Noninterest-bearing ................................... $41,601
Interest-bearing ...................................... 58,723
In foreign offices, Edge and Agreement subsidiaries
and IBF's.............................................. 88,064
Noninterest-bearing ..................................... $ 6,363
Interest-bearing ...................................... 81,701
Federal funds purchased and securities sold under
agreements to repurchase................................. 35,773
Demand notes issued to the U.S. Treasury................. 892
Trading liabilities...................................... 33,565
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases):
With a remaining maturity of one year or less.......... 4,434
With a remaining maturity of more than one year
through three years............................... 14
With a remaining maturity of more than three
years............................................. 97
Bank's liability on acceptances executed and outstanding. 716
Subordinated notes and debentures........................ 5,429
Other liabilities........................................ 11,457
TOTAL LIABILITIES........................................ 280,765
--------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............ 0
Common stock............................................. 1,211
Surplus (exclude all surplus related to preferred stock) 11,016
Undivided profits and capital reserves................... 7,333
Net unrealized holding gains (losses)
on available-for-sale securities ........................ (951)
Accumulated net gains (losses) on cash flow hedges....... 0
Cumulative foreign currency translation adjustments...... 16
TOTAL EQUITY CAPITAL..................................... 18,625
--------
TOTAL LIABILITIES AND EQUITY CAPITAL..................... $299,390
========
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with
the instructions issued by the appropriate Federal regulatory authority and is
true to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and
correct.
WALTER V. SHIPLEY )
WILLIAM B. HARRISON, JR. ) DIRECTORS
SUSAN V. BERRESFORD )
-5-
<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 revised Joint Proxy Statement/
Prospectus and the accompanying materials, dated February , 2000 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, as amended, the related Plan of Merger
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, as amended, 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.
FOR AGAINST ABSTAIN
[_] [_] [_]
2
<PAGE>
Court Meeting of Holders of Class A Ordinary Shares and Court Meeting of
Holders of Class B Ordinary Shares and Special General Meeting 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: ____________________, 2000
Signature: __________________________
Date: ____________________, 2000
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.
When properly executed, this proxy will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR each of the
resolutions contained in Items 1, 2, 3, 4 and 5 on which the undersigned is
entitled to vote 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.
FOLD AND DETACH HERE
