SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 15, 1999
NAC Re Corp.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-13891 13-3297840
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION) IDENTIFICATION NO.)
One Greenwich Plaza, CT 06836-2568
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (203) 622-5200
Not Applicable
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Item 5. Other Events.
NAC Re Corp. ("NAC") and XL Capital Ltd. ("XL") have entered into an
Agreement and Plan of Merger dated as of February 15, 1999 (the "Merger
Agreement"). In connection with the Merger Agreement, XL has entered into a
Stock Option Agreement dated February 15, 1999 with NAC. Each of these
agreements is filed herewith as an exhibit and is incorporated herein by
reference.
NAC and XL have issued a joint press release announcing the Merger
Agreement, which is filed herewith as Exhibit 99.2 and incorporated herein by
reference.
Item 7. Financial Statements and Exhibits.
(a) The following exhibits are filed with this report:
Exhibit Number Description
2 Agreement and Plan of Merger dated as of February 15, 1999 between NAC
and XL
99.1 Stock Option Agreement dated as of February 15, 1999 between NAC and XL
99.2 Press Release of NAC and XL issued February 15, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NAC RE CORP.
By: /s/ Richard H. Miller
-----------------------------
Name: Richard H. Miller
Title: Vice President, Chief
Financial Officer and Treasurer
Dated: February 18, 1999
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
2 Agreement and Plan of Merger dated as of February 15, 1999 between NAC
and XL
99.1 Stock Option Agreement dated as of February 15, 1999 between NAC and XL
99.2 Press Release of NAC and XL issued February 15, 1999
AGREEMENT AND PLAN OF MERGER
AMONG
XL CAPITAL LTD
DASHER ACQUISITION CORP.
AND
NAC RE CORP.
DATED AS OF FEBRUARY 15, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
Section 1.1 The Merger
Section 1.2 Effective Time
Section 1.3 Effects of the Merger
Section 1.4 Certificate of Incorporation; By-laws
Section 1.5 Directors and Officers3
Section 1.6 Effect on Capital Stock
ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund
Section 2.2 Exchange Procedures
Section 2.3 Distributions with Respect to Unexchanged Stock
Section 2.4 No Further Ownership Rights in Company Common Stock
Section 2.5 No Fractional Parent Ordinary Shares
Section 2.6 Termination of Exchange Fund
Section 2.7 No Liability
Section 2.8 Investment of the Exchange Fund
Section 2.9 Lost Certificates
Section 2.10 Withholding Rights
Section 2.11 Further Assurances
Section 2.12 Stock Transfer Books
Section 2.13 Certain Adjustments
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Corporation; Organization
Section 3.2 Capital Structure
Section 3.3 Corporate Authorization; Validity of Agreement; Company Action
Section 3.4 Consents and Approvals; No Violations
Section 3.5 SEC Filings; Financial Statements
Section 3.6 Absence of Certain Changes
Section 3.7 Information Supplied
Section 3.8 Employee Benefit Plans
Section 3.9 Compliance
Section 3.10 Material Contracts
Section 3.11 Absence of Litigation
Section 3.12 Tax Matters
Section 3.13 Title to Properties; Leases
Section 3.14 Intellectual Property
Section 3.15 Insurance Matters
Section 3.16 Liabilities and Reserves
Section 3.17 Environmental Laws
Section 3.18 Investment Company
Section 3.19 Year 2000
Section 3.20 Brokers
Section 3.21 Opinion of Financial Advisor
Section 3.22 Pooling of Interests
Section 3.23 Takeover Statutes
Section 3.24 Rights Agreement
Section 3.25 Employees
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.1 Organization
Section 4.2 Capital Structure
Section 4.3 Corporate Authorization; Validity of Agreement; Necessary Action
Section 4.4 No Prior Activities
Section 4.5 Consents and Approvals; No Violations
Section 4.6 SEC Filings; Financial Statements
Section 4.7 Absence of Certain Changes
Section 4.8 Information Supplied
Section 4.9 Compliance
Section 4.10 Absence of Litigation
Section 4.11 Brokers
Section 4.12 Pooling of Interests
Section 4.13 Opinion of Financial Advisor
Section 4.14 Investment Company
Section 4.15 Insurance Matters
Section 4.16 Employee Benefit Plans
Section 4.17 NYSE Listing
Section 4.18 Year 2000
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of the Company
Section 5.2 Preparation of Form S-4 and the Proxy Statement/Prospectus;
Stockholders Meetings
Section 5.3 Access to Information
Section 5.4 Consents and Approvals
Section 5.5 Supplemental Information
Section 5.6 Employee Matters
Section 5.7 Letters of Accountants
Section 5.8 No Solicitation
Section 5.9 Publicity
Section 5.10 Notification of Certain Matters
Section 5.11 Directors'and Officers'Insurance and Indemnification
Section 5.12 Listing of Parent Ordinary Shares
Section 5.13 Rule 145 Affiliates; Pooling Letters
Section 5.14 Parent Board of Directors
Section 5.15 Coordination of Dividends
Section 5.16 Pooling
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of Each Party
Section 6.2 Conditions to the Obligations of Parent and Sub
Section 6.3 Conditions to the Obligations of the Company
Section 6.4 Adjustment of Terms in Certain Circumstances.
ARTICLE VII
TERMINATION
Section 7.1 Termination
Section 7.2 Effect of Termination
Section 7.3 Termination Fees and Expenses
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Costs and Expenses
Section 8.2 Amendment and Modification
Section 8.3 Nonsurvival of Representations and Warranties
Section 8.4 Notices
Section 8.5 Interpretation
Section 8.6 Counterparts
Section 8.7 Entire Agreement; No Third Party Beneficiaries
Section 8.8 Severability
Section 8.9 Specific Performance
Section 8.10 Governing Law
Section 8.11 Assignment
Section 8.12 Consent to Jurisdiction and Service of Process
Section 8.13 Headings
Section 8.14 Certain Definitions
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 15, 1999, among XL
CAPITAL LTD, a limited liability company organized and incorporated under the
laws of the Cayman Islands ("Parent"), DASHER ACQUISITION CORP., a Delaware
corporation and a direct wholly owned subsidiary of Parent ("Sub"), and NAC RE
CORP., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have determined that it is advisable and would be fair to and in the best
interests of their respective stockholders to consummate the merger of Sub with
and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's willingness to enter into this
Agreement, the Company has entered into a stock option agreement dated as of the
date of this Agreement and attached hereto as Exhibit A (the "Stock Option
Agreement"), pursuant to which the Company granted Parent an option to purchase
shares of common stock, par value $0.10 per share, of the Company, together with
the associated purchase rights (the "Company Rights") under the Company Rights
Agreement (as defined in Section 3.24(a)) ("Company Common Stock") under certain
circumstances;
WHEREAS, Parent, Sub and the Company intend that the Merger be accounted
for as a pooling-of-interests for financial statement purposes under United
States generally accepted accounting principles;
WHEREAS, Parent, Sub and the Company intend that the Merger shall qualify
as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations promulgated thereunder;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby;
WHEREAS, the Board of Directors of the Company has approved the
transactions contemplated by this Agreement and the Stock Option Agreement in
accordance with the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"); and
WHEREAS, certain capitalized terms used but not defined herein shall have
the meanings set forth in Section 8.14.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Stock Option Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, and in accordance with the DGCL, at the Effective Time (as
defined in Section 1.2), Sub shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Sub shall cease and
the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
Section 1.2 Effective Time. Subject to the terms and conditions of this
Agreement, the parties hereto shall cause the Merger to be consummated by
filing, as soon as practicable after the Closing (as hereinafter defined), this
Agreement or a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in such form as required by, and
executed in accordance with the relevant provisions of, the DGCL. The date and
time of the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware (or such later time as shall be agreed to in writing by
the parties hereto and specified in the Certificate of Merger) will be the
"Effective Time". The closing of the Merger (the "Closing") shall take place at
10:00 a.m. (New York City time) on the second business day after the
Determination Date (as defined in Section 7.1(g)), unless the Board of Directors
of the Company shall have delivered notice to Parent of its determination to
exercise its termination right as set forth therein, in which case the Closing
shall take place on the tenth day following the Determination Date (or, if such
day is not a business day, on the next succeeding business day), unless this
Agreement has been theretofore terminated in accordance with its terms, at the
offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York
10017, or such other time, date and place as the parties shall agree.
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, immunities, powers and franchises of the Company and Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 1.4 Certificate of Incorporation; By-laws. (a) At the Effective
Time and without any further action on the part of the Company or Sub, the
certificate of incorporation of the Company as in effect immediately prior to
the Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided therein and under the DGCL,
except that at the Effective Time such certificate of incorporation of the
Company shall be amended as follows: (i) Article FOURTH shall be amended to read
in its entirety as follows: "The total number of shares of stock which the
Corporation shall have authority to issue is 1,000 shares, which shall be
designated Common Stock with a par value of $0.10 per share."; (ii) Article
FIFTH shall be deleted in its entirety; and (iii) Article TENTH shall be deleted
in its entirety.
(b) At the Effective Time and without any further action on the part of the
Company or Sub, the by-laws of Sub shall be the by-laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the terms of the certificate of incorporation of the Surviving
Corporation and as provided by law.
Section 1.5 Directors and Officers. The directors of Sub immediately prior
to the Effective Time, together with any directors of the Company specified by
Parent prior to the Effective Time, shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
Section 1.6 Effect on Capital Stock. (a) At the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive .915 (the "Exchange
Ratio") of a Class A Ordinary Share, par value $0.01 per share, of Parent
("Parent Ordinary Shares"), together with the associated purchase rights (the
"Parent Rights") under the Parent Rights Agreement (as defined in Section 4.2)
(which together with any cash in lieu of fractional Parent Ordinary Shares paid
pursuant to Section 2.5 shall be the "Merger Consideration"). All Parent
Ordinary Shares issued as Merger Consideration shall be validly issued, fully
paid and non-assessable. Subject to the terms and conditions of this Agreement,
Parent shall take such action as shall be necessary to issue the Parent Ordinary
Shares to be received as Merger Consideration and cause them to be registered on
its share register in the names of the holders of Company Common Stock
submitting Certificates (as defined in Section 1.6(b)) in exchange therefor in
accordance with the terms hereof.
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Company Common Stock shall
cease to be outstanding and shall be canceled and retired and shall cease to
exist, and each holder (other than Parent, Sub and the Company ) of a
certificate which, immediately prior to the Effective Time, represented any such
shares of Company Common Stock (a "Certificate") shall thereafter cease to have
any rights with respect to such shares of Company Common Stock, except the right
to receive the applicable Merger Consideration in accordance with Article II
upon the surrender of such Certificate.
(c) Each share of Company Common Stock issued and owned or held by Parent,
Sub or the Company at the Effective Time shall, by virtue of the Merger, cease
to be outstanding and shall be canceled and retired and no Parent Ordinary
Shares or other consideration shall be delivered in exchange therefor.
(d) Each share of common stock, par value $0.01 per share, of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall be converted into and shall become one validly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share, of the Surviving
Corporation ("Surviving Corporation Common Stock") as of the Effective Time, and
the Surviving Corporation shall become a wholly owned direct or indirect
subsidiary of Parent.
(e) At the Effective Time, each outstanding option to purchase, right to
receive or other equity grant whose value is derived from Company Common Stock
(a "Company Stock Option") issued pursuant to the (i) NAC Re Corp. 1989 Stock
Option Plan, (ii) NAC Re Corp. 1993 Stock Option Plan, (iii) NAC Re Corp. 1997
Incentive and Capital Accumulation Plan, (iv) Amended and Restated NAC Re Corp.
Employee Stock Purchase Plan (the "Stock Purchase Plan"), (v) Amended and
Restated Directors Stock Option Plan and (vi) the NAC Re United Kingdom Option
Scheme (collectively, the "Company Stock Plans"), whether vested or unvested,
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Company Stock Option (taking into
account any acceleration of vesting as a result of the Merger), that number of
Parent Ordinary Shares which the holder of such Company Stock Option would have
been entitled to receive pursuant to the Merger if such holder had exercised
such Company Stock Option in full immediately prior to the Effective Time
(rounded down to the nearest whole share), at an exercise price per share equal
to (y) the exercise price per share for the shares of Company Common Stock
purchasable pursuant to such Company Stock Option divided by (z) the Exchange
Ratio, rounded upwards to the nearest whole cent (a "Converted Option").
Notwithstanding the foregoing, in the case of any Company Stock Options to which
Section 421 of the Code applies by reason of their qualification under Section
422 or 423 of the Code, the option price, the number of Parent Ordinary Shares
purchasable upon exercise of such Company Stock Option and the terms and
conditions of exercise thereof shall be determined in order to comply with
Section 424(a) of the Code. Parent shall take such actions as are necessary for
the assumption of the Company Stock Options pursuant to this Section 1.6(e),
including the reservation, issuance and listing of Parent Ordinary Shares as are
necessary to effectuate the transactions contemplated by this Section 1.6(e).
Parent shall promptly prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-8 or other appropriate
form with respect to Parent Ordinary Shares subject to Company Stock Options
issued under such Company Stock Plans and shall use its best efforts to have
such registration statement declared effective immediately following the
Effective Time and to maintain the effectiveness of such registration statement
or registration statements covering the Parent Ordinary Shares issuable upon
exercise of such Company Stock Options (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such Company Stock
Options remain outstanding.
ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund. Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company reasonably acceptable to the Company,
having net capital of not less than $100,000,000, to act as exchange agent
hereunder for the purpose of exchanging Certificates for the Merger
Consideration (the "Exchange Agent"). At or prior to the Effective Time, Parent
shall deposit with the Exchange Agent, in trust for the benefit of holders of
shares of Company Common Stock, certificates representing the Parent Ordinary
Shares (and the associated Parent Rights) issuable pursuant to Section 1.6(a) in
exchange for outstanding shares of Company Common Stock. Parent agrees to make
available to the Exchange Agent, from time to time as needed, cash sufficient to
pay cash in lieu of fractional shares pursuant to Section 2.5 and any dividends
and other distributions pursuant to Section 2.3. Any cash and certificates
representing Parent Ordinary Shares (and the associated Parent Rights) deposited
with the Exchange Agent shall hereinafter be referred to as the "Exchange Fund."
Section 2.2 Exchange Procedures. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of a Certificate (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon due delivery of
the Certificates and other required documents to the Exchange Agent, and which
letter shall be in customary form and have such other provisions as Parent may
reasonably specify (ii) and instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (A)
a certificate representing one or more Parent Ordinary Shares (and the
associated Parent Rights) representing, in the aggregate, the whole number of
shares that such holder has the right to receive pursuant to Section 1.6(a)
(after taking into account all shares of Company Common Stock then held by such
holder) and (B) a check in the amount (after giving effect to any required tax
withholdings) equal to the cash that such holder has the right to receive
pursuant to the provisions of this Article II, including cash in lieu of any
fractional Parent Ordinary Shares pursuant to Section 2.5 and any unpaid
dividends and other distributions to which such holder is entitled pursuant to
Section 2.3, and the Certificate so surrendered shall forthwith be canceled. No
interest will be paid or will accrue on any cash payable pursuant to Section 2.3
or Section 2.5. In the event of a transfer of ownership of Company Common Stock
which is not registered in the transfer records of the Company prior to the
Effective Time, one or more certificates evidencing, in the aggregate, the
proper number of Parent Ordinary Shares and a check in the proper amount of cash
in lieu of any fractional Parent Ordinary Shares pursuant to Section 2.5 and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.3 may be issued with respect to such Company Common Stock to such a
transferee if the Certificate representing such shares of Company Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and the ownership of such shares of Company
Common Stock by such transferee and to evidence that any applicable stock
transfer taxes have been paid.
Section 2.3 Distributions with Respect to Unexchanged Stock. No dividends
or other distributions declared or made with respect to Parent Ordinary Shares
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the Parent Ordinary Shares that such
holder would be entitled to receive upon surrender of such Certificate pursuant
to the Merger and no cash payment in lieu of fractional Parent Ordinary Shares
shall be paid to any such holder pursuant to Section 2.5 until such holder shall
surrender such Certificate in accordance with Section 2.2. Subject to the effect
of applicable law, following surrender of any such Certificate, there shall be
paid to such holder, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional Parent Ordinary
Shares to which such holder is entitled pursuant to Section 2.5 and the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole Parent Ordinary Shares, and (b) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such Parent
Ordinary Shares.
Section 2.4 No Further Ownership Rights in Company Common Stock. All Parent
Ordinary Shares issued and cash paid upon conversion of shares of Company Common
Stock in accordance with the terms of Article I and this Article II (including
any stock dividends or cash paid pursuant to Section 2.3 or cash paid pursuant
to Section 2.5) shall be issued or paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock.
Section 2.5 No Fractional Parent Ordinary Shares. (a) No certificates or
scrip representing fractional Parent Ordinary Shares shall be issued upon the
surrender for exchange of Certificates and such fractional share interests will
not entitle the owner thereof to vote or to have any rights of a holder of
Parent Ordinary Shares.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a Parent Ordinary Share
(after taking into account all Certificates delivered by such holder) shall be
entitled to receive, in lieu thereof, cash (without interest) in an amount equal
to the product of (i) such fractional part of a Parent Ordinary Share and (ii)
the average closing price of the Parent Ordinary Shares on the New York Stock
Exchange, Inc. (the "NYSE"), as reported on the NYSE Composite Tape for the 20
trading days prior to and ending on the trading day immediately preceding the
Closing Date (the "Average Price"). As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of fractional
interests, the Exchange Agent shall so notify Parent, and Parent shall deposit
such amount with the Exchange Agent and shall cause the Exchange Agent to
forward payments to such holders of fractional interests subject to and in
accordance with the terms hereof.
Section 2.6 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for 12 months after
the Effective Time shall be delivered to Parent or otherwise on the instruction
of Parent, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to Parent for the Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.7
and Section 2.2, including any cash in lieu of fractional Parent Ordinary Shares
to which such holders are entitled pursuant to Section 2.5, and any dividends or
distributions with respect to Parent Ordinary Shares to which such holders are
entitled pursuant to Section 2.3, in each case, without any interest thereon.
Any such portion of the Exchange Fund remaining unclaimed by holders of shares
of Company Common Stock immediately prior to such time as such amounts would
otherwise escheat to or become property of any Governmental Entity (as defined
in Section 3.4) shall, to the extent permitted by applicable law, become the
property of Parent free and clear of any claims or interest of any person
previously entitled thereto.
Section 2.7 No Liability. None of Parent, Sub, the Company, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any Merger Consideration or any cash in respect of dividends or other
distributions from the Exchange Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
Section 2.8 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a daily
basis. Any interest and other income resulting from such investments shall
promptly be paid to Parent.
Section 2.9 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, and if required by
Parent, the posting by such person of a bond in such reasonable amount as Parent
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will deliver in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration with respect
to the shares of Company Common Stock formerly represented thereby (including
any cash in lieu of fractional Parent Ordinary Shares), and any unpaid dividends
and distributions on Parent Ordinary Shares deliverable in respect thereof,
pursuant to this Agreement.
Section 2.10 Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any other provision of applicable law. To the extent that amounts
are so withheld by the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation or
Parent, as the case may be.
Section 2.11 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of the Company or Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in Parent or in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by Parent or the Surviving Corporation as a
result of, or in connection with, the Merger.
Section 2.12 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
Certificates shall cease to have any rights with respect to the shares of
Company Common Stock formerly represented thereby, except the right to receive
the Merger Consideration and as otherwise provided herein. Subject to Sections
2.6 and 2.7, on or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into the Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby (including any cash in lieu of fractional Parent Ordinary
Shares to which the holders thereof are entitled pursuant to Section 2.5) and
shall represent the right to receive dividends or other distributions to which
the holders thereof are entitled pursuant to Section 2.3.
Section 2.13 Certain Adjustments. If, between the date of this Agreement
and the Effective Time, the outstanding Parent Ordinary Shares shall have been
changed into a different number of shares or different class of stock by reason
of any reclassification, recapitalization, stock split, split-up, combination or
exchange of shares, or a stock dividend or dividend payable in any other
securities shall be declared with a record date within such period, or any
similar event shall have occurred, the Exchange Ratio shall be appropriately
adjusted to provide the holders of Company Common Stock the same economic
effect, voting rights and other terms and designations as contemplated by this
Agreement prior to any such event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent that:
Section 3.1 Corporation; Organization.
(a) Each of the Company and its subsidiaries is a corporation or other
business organization duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization. Each of
the Company and its subsidiaries (i) is qualified, licensed or domesticated in
all jurisdictions where such qualification, license or domestication is required
to own and operate its properties and conduct its business in the manner and at
the places presently conducted; (ii) holds all franchises, grants, licenses,
certificates, permits, consents and orders, all of which are valid and in full
force and effect, from all applicable United States and foreign regulatory
authorities necessary to own and operate its properties and to conduct its
business in the manner and at the places presently conducted; and (iii) has full
power and authority (corporate and other) to own, lease and operate its
respective properties and assets and to carry on its business as presently
conducted and as proposed to be conducted, except where the failure to be so
qualified, licensed or domesticated, or to hold such franchises, grants,
licenses, certificates, permits, consents and orders or to have such power and
authority would not, when taken together with all other such failures,
reasonably be expected to have a Material Adverse Effect with respect to the
Company. The Company has furnished to Parent complete and correct copies of its
certificate of incorporation and by-laws as in effect on the date hereof. Such
certificate of incorporation and by-laws are in full force and effect and no
other organizational documents are applicable to or binding upon the Company.
When used in connection with any person or any of its subsidiaries, the term
"Material Adverse Effect" means any change or effect that, either individually
or in the aggregate with all other changes or effects, (i) is materially adverse
to the business, operations, assets, liabilities (including contingent
liabilities), financial condition or results of operations of such person and
its subsidiaries taken as a whole, or (ii) could reasonably be expected to
materially impair the ability of such person to consummate the Merger and to
perform its other obligations hereunder and under the Stock Option Agreement on
a timely basis.
(b) Section 3.1(b) of the letter, dated as of the date hereof, from the
Company to Parent regarding certain matters related to this Agreement (the
"Company Disclosure Letter"), sets forth the name of each material subsidiary of
the Company, the jurisdiction of its incorporation and whether it is an
insurance company (such insurance companies collectively, the "Company Insurance
Subsidiaries"). None of the Company Insurance Subsidiaries is deemed to be
"commercially domiciled" in any other jurisdiction other than as set forth
therein. Each of the Company Insurance Subsidiaries is (i) duly licensed or
authorized as an insurance company or, where applicable, a reinsurer in its
jurisdiction of incorporation, (ii) duly licensed or authorized as an insurance
company or, where applicable, a reinsurer in each other jurisdiction where it is
required to be so licensed or authorized (which jurisdictions are listed in
Section 3.1(b) of the Company Disclosure Letter), and (iii) duly authorized in
its jurisdiction of incorporation and each other applicable jurisdiction to
write each line of business currently written by it, except, in any such case,
where the failure to be so licensed or authorized would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect with
respect to the Company. Except as set forth in Section 3.1(b) of the Company
Disclosure Letter, there is no proceeding or investigation pending or, to the
knowledge of the Company, threatened which would, individually or in the
aggregate, reasonably be expected to lead to the revocation, amendment, failure
to renew, limitation, suspension or restriction of any such license to transact
insurance business. The Company has made all required filings under applicable
insurance holding company statutes except where the failure to so file would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company.
Section 3.2 Capital Structure. (a) The authorized capital stock of the
Company consists of 25,000,000 shares of Company Common Stock and 1,000,000
shares of preferred stock, par value $1.00 per share ("Preferred Stock"). As of
the date hereof, (i) 18,417,966 shares of Company Common Stock were issued and
outstanding, (ii) 3,617,064 shares of Company Common Stock were held in the
treasury of the Company, (iii) options to acquire an aggregate of 2,619,515
shares of Company Common Stock were outstanding pursuant to Company Stock
Options, including stock appreciation rights, performance units and stock units,
(iv) 49,703 shares of Company Common Stock were reserved for issuance under the
Stock Purchase Plan, (v) no shares of preferred stock were issued and
outstanding and (vi) 277,500 shares of Series A Junior Preferred Stock were
authorized and reserved for issuance upon the exercise of the Company Rights.
All the outstanding shares of the Company's capital stock are duly authorized,
validly issued, fully paid and non-assessable. Except as set forth in Section
3.2(a) of the Company Disclosure Letter, there are no bonds, debentures, notes
or other indebtedness having voting rights (or convertible or exchangeable into
securities having such rights) ("Voting Debt") of the Company or any of its
subsidiaries issued and outstanding. Section 3.2(a) of the Company Disclosure
Letter sets forth, with respect to each plan, arrangement or agreement set forth
in Section 3.8(a) of the Company Disclosure Letter pursuant to which options or
stock appreciation rights may be granted or under which such options or stock
appreciation rights have been granted and are outstanding, in the aggregate by
plan, arrangement or agreement the number of options and stock appreciation
rights outstanding, their grant price, the date such options or rights were
granted and the number of shares of Company Common Stock reserved for issuance
pursuant to the plan, arrangement or agreement (such options and rights being
herein collectively referred to as the "Company Options"), a description of the
exercise or purchase prices, vesting schedules, expiration dates and numbers of
shares of Company Common Stock subject to each such Company Option, together
with a listing of all Company Options which by their terms shall vest and the
time at which they will vest as a result of the Merger and the other
transactions contemplated hereby. Except as set forth above, as set forth in
Section 3.2(a) of the Company Disclosure Letter, for the Company Rights and for
the transactions contemplated by this Agreement and the Stock Option Agreement,
(i) there are no shares of capital stock of the Company authorized, issued or
outstanding and (ii) there are no existing (A) options, warrants, calls,
preemptive rights, subscriptions or other rights, convertible or exchangeable
securities, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of the Company or any of its
subsidiaries, obligating the Company or any of its subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of its subsidiaries, (B) securities convertible into or exchangeable for such
shares or equity interests or (C) obligations of the Company or any of its
subsidiaries to grant, extend or enter into any such option, warrant, call,
preemptive right, subscription or other right, convertible security, agreement,
arrangement or commitment.
(b) Except as set forth in Section 3.2(b) of the Company Disclosure Letter,
all of the outstanding shares of capital stock of each of the Company's material
subsidiaries are beneficially owned by the Company, directly or indirectly, and
all such shares have been validly issued and are fully paid and nonassessable
and are owned by either Company or one of its subsidiaries free and clear of all
Liens.
(c) There are no voting trusts or other agreements or understandings to
which the Company or any of its material subsidiaries is a party with respect to
the voting of the capital stock of the Company or any of its material
subsidiaries. None of the Company or its material subsidiaries is a party to any
agreement or obligation, contingent or otherwise, to redeem, repurchase or
otherwise acquire or retire shares of capital stock of the Company or any of its
material subsidiaries, whether as a result of the transactions contemplated by
this Agreement or otherwise.
(d) Except as described in Section 3.2(d) of the Company Disclosure Letter
or as specifically described in this Agreement or the Stock Option Agreement,
since September 30, 1998, the Company has not (i) made or agreed to make any
stock split or stock dividend, or issued or permitted to be issued any shares of
capital stock, or securities exercisable for or convertible into shares of
capital stock, of the Company other than pursuant to and as required by the
terms of any Company Option; (ii) repurchased, redeemed or otherwise acquired
any shares of capital stock of the Company; or (iii) other than its regular
quarterly cash dividend of $0.09 per share, declared, set aside, made or paid to
the stockholders of the Company dividends or other distributions on the
outstanding shares of capital stock of the Company.
Section 3.3 Corporate Authorization; Validity of Agreement; Company Action.
(a) The Company has full corporate power and authority to execute and deliver
this Agreement and the Stock Option Agreement and, subject to obtaining the
necessary approval of its stockholders as contemplated by Section 5.2(b) with
respect to the Merger, to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by the Company of this
Agreement and the Stock Option Agreement, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by its Board of Directors and, except for obtaining the approval of
its stockholders as contemplated by Section 5.2(b) with respect to the Merger,
no other corporate action or proceedings on the part of the Company are
necessary to authorize the execution and delivery by the Company of this
Agreement, and the consummation by it of the transactions contemplated hereby
and thereby. This Agreement and the Stock Option Agreement have been duly
executed and delivered by the Company and, assuming this Agreement and the Stock
Option Agreement constitute valid and binding obligations of Parent and Sub, as
applicable, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency, fraudulent
conveyance, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) The Board of Directors of the Company has duly and validly approved and
taken all corporate action required to be taken by the Board of Directors (in
each case by a unanimous vote of all the directors in office at such time) for
the consummation of the transactions contemplated by this Agreement and the
Stock Option Agreement, including, but not limited to, (i) having determined
that this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby, taken together, are advisable and are fair to
and in the best interests of the stockholders of the Company, (ii) having
resolved to recommend that the holders of the shares of Company Common Stock
adopt this Agreement and approve the Merger and (iii) having taken all actions
necessary to render the provisions of Section 203 of the DGCL inapplicable to
this Agreement and the Stock Option Agreement. The affirmative vote in favor of
the adoption of this Agreement by stockholders holding a majority of the
outstanding shares of Company Common Stock (the "Company Stockholder Approval")
is the only vote of the holders of any class or series of Company capital stock
necessary to approve this Agreement and the Merger. No vote of the stockholders
of the Company is required to approve the Stock Option Agreement.
Section 3.4 Consents and Approvals; No Violations. Except as set forth in
Section 3.4 of the Company Disclosure Letter and for all filings, permits,
authorizations, consents and approvals as may be required under, and compliance
with other applicable requirements of, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), state securities or "blue sky" laws, state
takeover laws, state and foreign insurance regulatory laws and commissions,
including Lloyd's of London and the U.K. Treasury Department, and for the
approval of this Agreement by the Company's stockholders and the filing and
recordation of this Agreement or the Certificate of Merger as required by the
DGCL, neither the execution, delivery or performance of this Agreement or the
Stock Option Agreement nor the consummation by the Company of the transactions
contemplated hereby or thereby nor compliance by the Company with any of the
provisions hereof or thereof will (i) result in any breach or violation of any
provision of the certificate of incorporation or by-laws or similar
organizational documents of the Company or of any of its subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval of, any
United States or foreign court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority, body, commission
or agency, including the Corporation of Lloyd's (a "Governmental Entity"),
except where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings would not have a Material Adverse Effect with
respect to the Company, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation, acceleration or increase in
the rate of interest) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, guarantee, other evidence of indebtedness,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its subsidiaries is a party or by which any of them or any
of their properties or assets may be bound (a "Company Agreement") or result in
the creation of a Lien upon any of the properties or assets of the Company or
any of its subsidiaries or (iv) violate any order, writ, injunction, judgment,
decree, statute, rule, regulation or law ("Law") applicable to the Company, any
of its subsidiaries or any of their properties or assets, except in the case of
clauses (iii) and (iv) for violations, breaches, defaults, or rights of
termination, amendment, cancellation or acceleration or Liens, which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company.
Section 3.5 SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports, statements, schedules, registration statements and other
documents required to be filed with the SEC since January 1, 1996 (the "Company
SEC Documents"), each of which complied in all material respects with the
applicable requirements of the Securities Act of 1933 (the "Securities Act") and
the rules and regulations promulgated thereunder, or the Exchange Act and the
rules and regulations promulgated thereunder, each as in effect on the date so
filed. No subsidiary of the Company is required to file any form, report,
statement, schedule, registration statement or other document with the SEC. No
Company SEC Document, when filed (or, if amended or superseded by a filing prior
to the Closing Date, then on the date of such filing) 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.
(b) Each of the audited and unaudited consolidated financial statements of
the Company (including any related notes thereto) included in the Company SEC
Documents filed prior to the date hereof and the audited consolidated financial
statements of the Company (including any related notes thereto) to be included
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, have been prepared in accordance with United States generally accepted
accounting principles, (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
relevant periods (except as may be disclosed in the notes thereto), and present
fairly the consolidated financial position and consolidated results of
operations and changes in cash flows of the Company and its subsidiaries as of
the respective dates or for the respective periods reflected therein, except, in
the case of the unaudited interim financial statements, for normal and recurring
year-end adjustments that are not material.
(c) Except to the extent set forth on the consolidated balance sheet of the
Company and its subsidiaries at September 30, 1998 included in the Company SEC
Documents (the "Latest Balance Sheet"), or in the notes thereto, neither the
Company nor any of its subsidiaries has any liabilities, debts, claims or
obligations of any nature (whether accrued, absolute, direct or indirect,
contingent or otherwise, whether due or to become due) which would be required
to be reflected on a balance sheet or in the notes thereto in accordance with
United States generally accepted accounting principles, and there is no existing
condition or set of circumstances which would reasonably be expected,
individually or in the aggregate, to result in such a liability, except for
liabilities or obligations incurred in the ordinary course of business
consistent with past practice since September 30, 1998, and liabilities incurred
pursuant to the terms of or as contemplated by this Agreement, the Stock Option
Agreement and the Merger, none of which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to the
Company.
(d) Each Company Insurance Subsidiary has filed during the three years
ended December 31, 1998, all annual and quarterly statements, together with all
exhibits and schedules thereto, required to be filed with or submitted to the
appropriate regulatory authorities of the jurisdiction in which it is domiciled
and to any other jurisdiction where required on forms prescribed or permitted by
such authority. Each Annual Statement filed by any Company Insurance Subsidiary
with the insurance regulator in its state of domicile for the three years ended
December 31, 1997 (each a "Company Annual Statement"), together with all
exhibits and schedules thereto, financial statements relating thereto and any
actuarial opinion, affirmation or certification filed in connection therewith
and each Quarterly Statement so filed for the quarterly periods ended after
January 1, 1998 (each a "Company Quarterly Statement") were prepared in
conformity with the statutory accounting practices prescribed or permitted by
the insurance regulatory authorities of the applicable state or other
jurisdiction of domicile ("SAP") applied on a consistent basis, and present
fairly, in all material respects, to the extent required by and in conformity
with SAP, the statutory financial condition of such Company Insurance Subsidiary
at their respective dates and the results of operations, changes in capital and
surplus and cash flow of such subsidiary for each of the periods then ended. No
deficiencies or violations have been asserted by any insurance regulator with
respect to the foregoing Company Annual Statements and Company Quarterly
Statements which have not been cured or otherwise resolved to the satisfaction
of such insurance regulator.
Section 3.6 Absence of Certain Changes. Since September 30, 1998, there has
not occurred any event, change, circumstance, condition or effect (including the
incurrence of any liabilities of any nature, whether or not accrued, contingent
or otherwise) having or reasonably likely to have, in the aggregate, a Material
Adverse Effect with respect to the Company. Since September 30, 1998, the
Company and its subsidiaries have conducted their respective businesses in the
ordinary course consistent with past practice.
Section 3.7 Information Supplied. None of the information supplied by the
Company for inclusion in (i) the registration statement on Form S-4 to be filed
with the SEC by Parent in connection with the issuance of the Parent Ordinary
Shares in the Merger (such Form S-4, as amended or supplemented, is herein
referred to as the "Form S-4") will, at the time the Form S-4 is filed with the
SEC, and 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 to be sent to the stockholders of the Company in connection with the
Stockholders Meeting (as defined in Section 5.2(b)) (such proxy statement, as
amended or supplemented, is herein referred to as the "Proxy
Statement/Prospectus") will, at the date the Proxy Statement/Prospectus is first
mailed to the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading or contain any statements which at the time and in the light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of a proxy for the
Stockholders Meeting which has become false or misleading. The Form S-4 will, as
of its effective date, and the prospectus contained therein will, as of its
date, comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder. No representation is made by the Company with respect to statements
made or incorporated by reference in the Form S-4 or the Proxy
Statement/Prospectus based on information supplied in writing by Parent
specifically for inclusion or incorporation in the Form S-4 or the Proxy
Statement/Prospectus.
Section 3.8 Employee Benefit Plans. (a) Section 3.8(a) of the Company
Disclosure Letter contains a true and complete list of each "employee benefit
plan" (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), including multiemployer plans within
the meaning of Section 3(37) of ERISA), stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements and programs, whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required in the future as a result of the
transaction contemplated by this Agreement or otherwise), whether oral or
written, under which any employee or former employee of the Company or its
subsidiaries has any present or future right to benefits or under which the
Company or its subsidiaries has any present or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively referred
to as the "Company Plans".
(b) Except as disclosed in Section 3.8(b) of the Company Disclosure Letter,
no Company Plan (i) is a multiemployer plan within the meaning of Section 3(37)
of ERISA (and neither the Company nor any of its subsidiaries has, at any time,
contributed to nor had an obligation to contribute to any such multiemployer
plan) or (ii) is an "employee pension plan" within the meaning of Section 3(2)
of ERISA that is subject to Title IV of ERISA.
(c) With respect to each Company Plan, the Company has delivered to Parent
a current, accurate and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable: (i) any related
trust agreement or other funding instrument; (ii) the most recent determination
letter, if applicable; (iii) the most recent summary plan description and other
written communications (or a description of any oral communications) by the
Company or its subsidiaries to their employees concerning the extent of the
benefits provided under a Company Plan; and (iv) for the three most recent years
(A) the Form 5500 and attached schedules, (B) audited financial statements, (C)
actuarial valuation reports (excluding valuation information regarding the
individuals set forth on Section 3.8(c) of the Company Disclosure Letter) and
(D) attorneys' responses to auditor's request for information.
(d)(i) Each Company Plan has been established and administered in all
material respects in accordance with its terms, and in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; (ii) each Company Plan which is intended
to be qualified within the meaning of Section 401(a) of the Code is so
qualified, to the knowledge of the Company, and has received a favorable
determination letter as to its qualification, and nothing has occurred, whether
by action or failure to act, that would reasonably be expected to cause the loss
of such qualification; (iii) no event has occurred and no condition exists that
would subject the Company or its subsidiaries, either directly or by reason of
their affiliation with any member of their "Controlled Group" (defined as any
organization which is a member of a controlled group of organizations within the
meaning of Sections 414(b), (c), (m) or (o) of the Code), to any material tax,
fine, lien, penalty or other liability imposed by ERISA, the Code or other
applicable laws, rules and regulations; (iv) for each Company Plan with respect
to which a Form 5500 has been filed, no material change has occurred with
respect to the matters covered by the most recent Form since the date thereof;
(v) no non-exempt "prohibited transaction" (as such term is defined in Section
406 of ERISA and Section 4975 of the Code) has occurred with respect to any
Company Plan; (vi) no Company Plan provides retiree welfare benefits and neither
the Company nor its subsidiaries have any obligations to provide any retiree
welfare benefits (except to the extent retirees are entitled to benefits
pursuant to Section 601 et seq. of ERISA); and (vii) except as set forth in
Section 3.8(d) of the Company Disclosure Letter, all awards, grants or bonuses
made pursuant to any Company Plan have been, or will be, fully deductible to the
Company or its subsidiaries notwithstanding the provisions of Section 162(m) of
the Code and the regulations promulgated thereunder.
(e) With respect to any Company Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or,
to the knowledge of the Company, threatened and (ii) to the knowledge of the
Company, no facts or circumstances exist that would give rise to any such
actions, suits or claims.
(f) Except as set forth in Section 3.8(f) of the Company Disclosure Letter,
the consummation of the Merger and other transactions contemplated by this
Agreement will not (i) entitle any employee or director of the Company to
severance pay, (ii) result in the payment to any present or former employee of
the Company or its subsidiaries of any money or other property or accelerate the
time of payment or vesting, or (iii) increase the amount payable or provide any
other rights or benefits to any present or former employee of the Company or its
subsidiaries, whether or not such payment would constitute a parachute payment
within the meaning of Section 280G of the Code.
Section 3.9 Compliance. Neither the Company nor any of its subsidiaries is
in default or violation of (and no event has occurred which with notice or lapse
of time or both would constitute a default or violation of) (i) its certificate
of incorporation or by-laws or other governing document, (ii) any Law applicable
to the Company or any of its subsidiaries or by which any of their respective
properties or assets is bound or affected, or (iii) any Company Agreement,
except in the case of clauses (ii) and (iii) for any such defaults or violations
that would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect with respect to the Company. The Company and its
subsidiaries have and are in compliance with all licenses, permits, and other
authorizations, domestic or foreign, necessary to conduct their respective
businesses, except where the failure to have or comply with such licenses,
permits and authorizations would not reasonably be expected to have a Material
Adverse Effect with respect to the Company.
Section 3.10 Material Contracts. Except as set forth in Section 3.10 of the
Company Disclosure Letter:
(a) All of the material contracts of the Company and its subsidiaries that
are required to be described in the Company SEC Documents or to be filed as
exhibits thereto are described in the Company SEC Reports or filed as exhibits
thereto and are in full force and effect.
(b) Neither the Company nor any of its subsidiaries is party to any
agreement containing any provision or covenant limiting in any material respect
the ability of the Company or any of its subsidiaries to (i) sell any products
or services of or to any other person, (ii) engage in any line of business in
any geographical area or (iii) compete with or obtain products or services from
any person or limiting the ability of any person to provide products or services
to the Company or any of its subsidiaries.
(c) Subject to obtaining the consents referred to in Section 3.4 and except
as set forth in Section 3.8(f) of the Company Disclosure Letter, neither the
Company nor any of its subsidiaries is a party to or bound by any contract,
agreement or arrangement which would cause the rights or obligations of any
party thereto to change upon the consummation of the Merger, except for any such
contract, agreement or arrangement which would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect with respect
to the Company.
Section 3.11 Absence of Litigation. There is no claim, suit, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any property or
asset of the Company or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which (a) individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect with respect to the Company or (b) in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated hereby. Neither the Company nor any of its
subsidiaries nor any of their respective properties or assets is subject to any
order, writ, judgment, injunction, decree, determination or award having, or
which would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to the Company. There are no pending or, to
the knowledge of the Company, threatened claims for indemnification by the
Company in favor of directors, officers, employees and agents of the Company.
Section 3.12 Tax Matters. The Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which the
Company or any of its subsidiaries is or has been a member has timely filed or
caused to be timely filed all Tax Returns required to be filed by it in the
manner provided by law and has paid or reserved for (in accordance with United
States generally accepted accounting principles), all amounts of Taxes
(including interest and penalties) whether or not shown to be due and owing on
such Tax Returns for all taxable years for periods (or portions thereof) ending
on or prior to the Effective Time unless such failure would not have a Material
Adverse Effect with respect to the Company. All such Tax Returns were true,
correct and complete in all material respects. Except as has been disclosed in
Section 3.12 of the Company Disclosure Letter: (i) no claim for any material
amount of unpaid Taxes has been proposed in writing against the Company or any
of its subsidiaries or, to the best knowledge of the Company, has become a Lien
of any kind against the property of the Company or any of its subsidiaries
(except for statutory Liens for current Taxes not yet due and payable) or is
being asserted in writing against the Company or any of its subsidiaries (other
than in each case claims or assertions for which adequate reserves have been
established in the Latest Balance Sheet and which are being contested in good
faith); (ii) as of the date hereof no audit of any material Tax Return of the
Company or any of its subsidiaries is being conducted by any Tax authority, no
material audit or other proceeding by any Tax authority has formally commenced
and there is no material claim or assessment pending, and, to the knowledge of
the Company, no written notice has been given to the Company and its
subsidiaries that such an audit or other proceeding is pending with respect to
any material amount of Taxes due from or with respect to the Company and its
subsidiaries or any material Tax Return filed by or with respect to the Company
and its subsidiaries; (iii) no extension or waiver of the statute of limitations
on the assessment of any material amount of Taxes has been granted by the
Company or any of its subsidiaries and is currently in effect and no power of
attorney granted by or with respect to the Company and its subsidiaries relating
to any material amount of Taxes is currently in force; (iv) neither the Company
nor its subsidiaries is a party to or bound by, and does not have any obligation
under, any material Tax sharing agreement or similar contract or arrangement or
any agreement that obligates it to make any payment computed by reference to the
Taxes, taxable income or taxable losses of any other person; and (v) none of the
Company nor any of its subsidiaries has been a member of an affiliated group
(other than the group to which it is currently a member) filing a consolidated
federal income Tax Return. As used herein, the term "Tax" or "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 amounts imposed by any governmental authority, domestic or foreign.
As used herein, "Tax Return" shall mean any return, report or statement required
to be filed with any Governmental Entity with respect to Taxes.
Section 3.13 Title to Properties; Leases. The Company has good and
marketable title to, and is the lawful owner of, or has the right to use
pursuant to a license or otherwise, all of the tangible and intangible assets,
properties and rights reflected in the Latest Balance Sheet or acquired since
the date of the Latest Balance Sheet, free and clear of all Liens and material
defects in title, in each case except where the failure to have title, be the
owner or have the right to use would not reasonably be expected to interfere in
any material respect with the conduct of the business of the Company as
currently conducted. The Company has provided Parent with a copy or an accurate
summary of the material terms of all material real property and personal
property leases of the Company. All such leases are valid, binding and
enforceable against the Company (and, to the knowledge of the Company, each
other party thereto) in accordance with their respective terms, and there does
not exist under any lease of real property or personal property any material
defect in title or any event which, with notice or lapse of time or both, would
constitute a material default by the Company or, to the knowledge of the
Company, by any other party thereto.
Section 3.14 Intellectual Property. The Company owns or possesses, or has
all necessary rights to use, all patents, patent rights, licenses, inventions
(whether or not patentable or reduced to practice), copyrights (whether
registered or unregistered), know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), registered and unregistered trademarks, service marks and trade
names and other intellectual property rights (collectively, "Intellectual
Property") necessary to conduct its business as conducted and proposed to be
conducted except to the extent that the failure of the Company to own or have
such rights and licenses in such Intellectual Property would not reasonably be
expected to have a Material Adverse Effect with respect to the Company. The
Company has not received any notice of, and is not aware of any fact or
circumstance that would give any person a right to assert, any infringement or
misappropriation of, or conflict with, asserted rights of others or invalidity
or unenforceability of any Intellectual Property owned by the Company with
respect to any of the foregoing which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect with respect to the
Company. To the best knowledge of the Company, the use of such Intellectual
Property to conduct the business and operations of the Company as conducted or
proposed to be conducted does not infringe on the rights of any person in any
case where such infringement would reasonably be expected to have a Material
Adverse Effect with respect to the Company. To the knowledge of the Company, no
person is challenging, infringing on or otherwise violating any right of the
Company with respect to any Intellectual Property owned by and/or licensed to
the Company. Except as set forth in Section 3.13 of the Company Disclosure
Letter, neither the execution of this Agreement or the Stock Option Agreement
nor the consummation of the transactions contemplated hereby or thereby will
result in a loss of or limitation in the rights and licenses of the Company to
use or enjoy the benefit of any Intellectual Property employed by the Company in
connection with its business as conducted or proposed to be conducted where such
loss or limitation, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect with respect to the Company.
Section 3.15 Insurance Matters. (a) Except as otherwise would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect with respect to the Company, all policies, binders, slips,
treaties, certificates, annuity contracts and participation agreements and other
agreements of insurance or reinsurance, whether individual or group, in effect
as of the date hereof (including all applications, supplements, endorsements,
riders and ancillary agreements in connection therewith) (the "General Insurance
Contracts") that are issued by the Company or its subsidiaries and any and all
marketing materials are, to the extent required under applicable Law, on forms
approved by applicable insurance or reinsurance regulatory authorities or which
have been filed and not objected to by such authorities within the period
provided for objection, and such forms comply in all material respects with the
insurance or reinsurance statutes, regulations and rules applicable thereto and,
as to premium rates established by the Company or any subsidiary which are
required to be filed with or approved by insurance or reinsurance regulatory
authorities, the rates have been so filed or approved, the premiums charged
conform thereto in all material respects and such premiums comply in all
material respects with the insurance or reinsurance statutes, regulations and
rules applicable thereto.
(b) Each reinsurance and coinsurance treaty or agreement, including
retrocessional agreements, to which the Company or any of its subsidiaries is a
party, under which the Company or any of its subsidiaries has any existing
rights, duties, obligations or liabilities or which is otherwise applicable to
the Company or any of its subsidiaries, assuming its due authorization,
execution and delivery by the other party or parties thereto, is valid and
binding in all material respects in accordance with its terms and is in full
force and effect, except for such treaties or agreements the failure to be valid
and binding or in full force and effect of which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect with
respect to the Company. No party to any such treaty or agreement has given
notice to the Company or any of its subsidiaries that it intends to terminate or
cancel any such treaty or agreement as a result of the Merger or the
contemplated operations of the Company or its subsidiaries after the Merger is
consummated, which termination or cancellation would have a Material Adverse
Effect with respect to the Company. Any subsidiary of the Company that has ceded
reinsurance pursuant to any such treaty or agreement is entitled to take full
credit in its financial statements for all amounts recoverable (net of any
reserve for collectibility under such treaty or agreement) with such credit
accounted for (i) pursuant to SAP, as a reduction of such Company's loss
reserves and (ii) pursuant to United States generally accepted accounting
principles, as a reinsurance recoverable asset. The Company has no unrecoverable
reinsurance balances, other than as fully reserved on the Latest Balance Sheet
or specified in Section 3.15 of the Company Disclosure Letter.
(c) The Company has not received any written notice that the financial
condition of any other party to any reinsurance, coinsurance or other similar
agreement with it or any of its subsidiaries is so impaired as to result in a
default thereunder, except to the extent that adequate reserves in respect of
any such default are reflected on the Latest Balance Sheet.
(d) Prior to the date hereof, the Company has delivered or made available
to Parent a true and complete copy of any actuarial reports prepared by
actuaries, independent or otherwise, with respect to the Company or any Company
Insurance Subsidiary since January 1, 1998, and all attachments, addenda,
supplements and modifications thereto (the "Company Actuarial Analyses"). The
information and data furnished by the Company or any Company Insurance
Subsidiary to its independent actuaries in connection with the preparation of
the Company Actuarial Analyses were accurate in all material respects.
(e) As of the date hereof, the Company has no reason to believe that any
rating presently held by the Company 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.
Section 3.16 Liabilities and Reserves. (a) Except for instances where the
failure of any of the following statements to be true would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
the Company, (i) the reserves carried on the statutory financial statements of
each Company Insurance Subsidiary for future insurance policy benefits, losses,
claims and similar purposes were, as of the respective dates of such financial
statements, in compliance with the requirements for reserves established by the
insurance departments of the jurisdiction of domicile of such Company Insurance
Subsidiary and each other jurisdiction where it is regulated or (as the case may
be) by the Corporation of Lloyd's, were determined in accordance with SAP and
with generally accepted actuarial standards, assumptions and principles
consistently applied, and were fairly stated in accordance with sound actuarial
and statutory accounting principles; (ii) such reserves were, in the reasonable
judgment of the Company, adequate in the aggregate to cover the total amount of
all reasonably anticipated liabilities of the Company and each Company Insurance
Subsidiary under all outstanding insurance, reinsurance and other applicable
agreements as of the respective dates of such financial statements; and (iii)
the statutory surplus of each Company Insurance Subsidiary as determined under
applicable laws or under the Lloyd's regulations are in an amount at least equal
to the minimum amounts required by applicable laws or regulations.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance and reinsurance industry, to the best knowledge of the Company and
its subsidiaries, no claim or assessment is pending or threatened against any
subsidiary 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, reasonably be expected to have a Material Adverse Effect with respect
to the Company.
Section 3.17 Environmental Laws . Except to the extent that any inaccuracy
in any of the following representations, individually or in the aggregate with
any other inaccuracy under the respective following representations, would not
reasonably be expected to have a Material Adverse Effect with respect to the
Company, (a) each of the Company and each of its subsidiaries is in compliance
with all Environmental Laws applicable to the properties, assets or businesses
of the Company and its subsidiaries, and possesses and complies with and has
possessed and complied with all Environmental Permits required under such laws;
(b) none of the Company and its subsidiaries has received any Environmental
Claim, and none of the Company and its subsidiaries is aware after reasonable
inquiry of any threatened Environmental Claim or of any Environmental Claim
pending or threatened against any entity for which the Company or any of its
subsidiaries may be responsible; (c) none of the Company and its subsidiaries
has assumed, contractually or by operation of law, any liabilities or
obligations under any Environmental Laws; (d) there are no present or, to the
best knowledge of the Company, past events, conditions, circumstances,
practices, plans or legal requirements that would reasonably be expected to
result in liability to the Company or any of its subsidiaries under
Environmental Laws, prevent, or reasonably be expected to increase the burden on
the Company or any of its subsidiaries of, complying with Environmental Laws or
of obtaining, renewing, or complying with all Environmental Permits required
under such laws; (e) there are and, to the best knowledge of the Company, there
have been no Hazardous Materials or other conditions at or from any property
owned, operated or otherwise used by the Company or any of its subsidiaries now
or, to the best knowledge of the Company, in the past that would reasonably be
expected to give rise to liability of the Company or any of its subsidiaries
under any Environmental Law; and (f) the Company has provided to Parent all
Environmental Reports in the possession or control of the Company or any of its
subsidiaries. For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability arising out of, relating to,
based on or resulting from (i) the presence, discharge, emission, release
or threatened release of any Hazardous Materials at any location, whether
or not owned, leased or operated by the Company or any of its subsidiaries
or (ii) circumstances forming the basis of any violation or alleged
violation of any Environmental Law or Environmental Permit or (iii)
otherwise relating to obligations or liabilities under any Environmental
Laws; provided, however, that the term "Environmental Claim" shall not
include any such claim, demand, action, suit, complaint, proceeding or
other communication under an insurance or reinsurance policy issued by the
Company.
"Environmental Laws" means all applicable statutes, rules,
regulations, ordinances, orders, decrees and common law, in each case of
any Governmental Entity, as they exist at the date hereof, relating in any
manner to contamination, pollution or protection of human health or the
environment, including without limitation the Comprehensive Environmental
Response, Compensation and Liability Act, the Solid Waste Disposal Act, the
Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water
Act, the Toxic Substances Control Act, the Occupational Safety and Health
Act, the Emergency Planning and Community-Right-to-Know Act, the Safe
Drinking Water Act, all as amended, and similar state laws.
"Environmental Permits" means all permits, licenses, registrations and
other governmental authorizations required for the Company and its
subsidiaries and the operations of the Company's and its subsidiaries'
facilities to conduct its business under Environmental Laws.
"Environmental Report" means any report, study, assessment, audit, or
other similar document that addresses any issue of noncompliance with, or
liability under, any Environmental Law that may affect the Company or any
of its subsidiaries.
"Hazardous Materials" means any gasoline or petroleum (including crude
oil or any fraction thereof) or petroleum products, polychlorinated
biphenyls, urea-formaldehyde insulation, asbestos, pollutants,
contaminants, radioactivity, and any other substances of any kind, whether
or not any such substance is defined as hazardous or toxic under any
Environmental Law, that is regulated pursuant to or could give rise to
liability under any Environmental Law.
Section 3.18 Investment Company. Neither the Company nor any of its
subsidiaries is an "investment company" as defined under the Investment Company
Act of 1940, as amended (the "1940 Act"), and neither the Company nor any of its
subsidiaries sponsors any person that is such an investment company.
Section 3.19 Year 2000. The Company is in the process of reviewing its and
its subsidiaries' software and hardware systems that perform critical or
important accounting, data processing, data storage, data transmission and
report writing functions for the purposes of evaluating the readiness of these
systems to function without material interruption on the occurrence of the year
2000 ("Y2K Readiness"). In connection with this process and as described in
Section 3.19 of the Company Disclosure Letter, the Company has retained the
services of Y2K Readiness consultants to assist the Company in these efforts and
has undertaken to obtain assurances from its principal software suppliers and
service firms as to the Y2K Readiness of certain critical or important systems
obtained from these outside sources or utilized by them in providing critical
services to the Company. The Company reasonably believes that all software,
hardware and equipment (including microprocessors) that is owned by, or leased
or licensed to, the Company or any of its subsidiaries in the operations of its
or their respective business will be capable, by December 31, 1999, of
accounting for all calculations using a century and date sensitive algorithm for
the year 2000 and the fact that the year 2000 is a leap year and to otherwise
continue to function without any interruption caused by the occurrence of the
year 2000. In the event of a Y2K related failure, the Company will have in place
a business contingency plan that will address the continuity of critical
business processes into the Year 2000.
Section 3.20 Brokers. No broker, finder or investment banker (other than
Morgan Stanley, Dean Witter & Co. Incorporated ("Morgan Stanley"), CIBC
Oppenheimer Corp. and SBC Warburg Dillon Read (collectively, the "Company
Financial Advisors")) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement.
The Company has furnished to Parent a complete and correct copy of all
agreements between the Company and the Company Financial Advisors pursuant to
which the Company Financial Advisors would be entitled to any payment relating
to the transactions contemplated hereby.
Section 3.21 Opinion of Financial Advisor. The Company has received an
opinion from Morgan Stanley, dated the date hereof, to the effect that, as of
such date, the Exchange Ratio is fair, from a financial point of view, to the
holders of Company Common Stock. A copy of such opinion has been provided to
Parent.
Section 3.22 Pooling of Interests As of the date of this Agreement, the
Company does not know of any reason relating to the Company why the Merger would
not qualify as a pooling of interests for financial reporting purposes under
United States generally accepted accounting principles.
Section 3.23 Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation enacted
under any law applicable to the Company is applicable to this Agreement, the
Stock Option Agreement, the Merger or the other transactions contemplated hereby
or thereby. The Company has taken all steps necessary to irrevocably exempt the
transactions contemplated by this Agreement and the Stock Option Agreement from
any applicable provisions of the Company's certificate of incorporation or
by-laws and from Section 203 of the DGCL.
Section 3.24 Rights Agreement. (a) Prior to entering into this Agreement,
the Company has taken all actions necessary such that, for all purposes under
the Rights Agreement, dated, as of June 18, 1998 (the "Company Rights
Agreement"), between the Company and American Stock Transfer & Trust Co., Parent
shall not be deemed an Acquiring Person (as defined in the Company Rights
Agreement), the Distribution Date (as defined in the Company Rights Agreement)
shall not be deemed to occur and the Company Rights issuable pursuant to the
Company Rights Agreement will not separate from the shares of the Company Common
Stock as a result of Parent's entering into this Agreement or the Stock Option
Agreement or consummating the Merger or the other transactions contemplated
hereby or thereby.
(b) The Company has taken all necessary action with respect to all of the
outstanding Company Rights so that (i) neither Parent, Sub nor any of their
respective affiliates shall become an "Acquiring Person" thereunder as a result
of the execution and delivery of this Agreement and the Stock Option Agreement
or the consummation of the transactions contemplated hereby and thereby and (ii)
no holder of Company Rights shall be entitled to exercise such Company Rights or
shall be entitled to any rights or benefits pursuant to the Company Rights
Agreement as a result of the execution and delivery of this Agreement and the
Stock Option Agreement and the consummation of the transactions contemplated
hereby and thereby.
Section 3.25 Employees. Neither the Company nor any of its subsidiaries is
a party to any collective bargaining agreement. Since January 1, 1996, neither
the Company nor any of its subsidiaries has had any employee strikes, work
stoppages, slowdowns or lockouts or received any requests for certifications of
bargaining units or any other requests for collective bargaining. Except as set
forth in Section 3.25 of the Company Disclosure Letter, there is no unfair labor
practice, employment discrimination or other complaint against the Company or
any of its subsidiaries pending or, to the knowledge of the Company, threatened,
which, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 4.1 Organization. (a) Each of Parent and Sub is a corporation or
other business organization duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization. Each of Parent and its subsidiaries (i) is qualified, licensed or
domesticated in all jurisdictions where such qualification, license or
domestication is required to own and operate its properties and conduct its
business in the manner and at the places presently conducted; (ii) holds all
franchises, grants, licenses, certificates, permits, consents and orders, all of
which are valid and in full force and effect, from all applicable United States
and foreign regulatory authorities necessary to own and operate its properties
and to conduct its business in the manner and at the places presently conducted;
and (iii) has full power and authority (corporate and other) to own, lease and
operate its respective properties and assets and to carry on its business as
presently conducted and as proposed to be conducted, except where the failure to
be so qualified, licensed or domesticated, or to hold such franchises, grants,
licenses, certificates, permits, consents and orders or to have such power and
authority would not, when taken together with all other such failures,
reasonably be expected to have a Material Adverse Effect with respect to Parent.
Parent has furnished to the Company complete and correct copies of its
memorandum and articles of association and Sub's certificate of incorporation
and by-laws as in effect on the date hereof. Such documents are in full force
and effect and no other organizational documents are applicable to or binding
upon Parent or Sub.
(b) Each material subsidiary of Parent that is an insurance company (a
"Parent Insurance Subsidiary") has filed during the three years ended December
31, 1998, all financial statements, together with all exhibits and schedules
thereto, required to be filed with or submitted to the appropriate regulatory
authorities of the jurisdiction in which it is domiciled and to any other
jurisdiction where required on forms prescribed or permitted by such authority.
Each annual statement filed by any Parent Insurance Subsidiary with the
insurance regulator in its jurisdiction of domicile for the three years ended
November 30, 1997 (each a "Parent Annual Statement"), together with all exhibits
and schedules thereto, financial statements relating thereto and any actuarial
opinion, affirmation or certification filed in connection therewith and any
Quarterly Statement so filed for the quarterly periods ended after December 31,
1998 (each a "Parent Quarterly Statement") were prepared in conformity with SAP
applied on a consistent basis, and present fairly, in all material respects, to
the extent required by and in conformity with SAP, the statutory financial
condition of such Parent Insurance Subsidiary at their respective dates and the
results of operations, changes in capital and surplus and cash flow of such
subsidiary for each of the periods then ended. No deficiencies or violations
have been asserted by any insurance regulator with respect to the foregoing
Parent Annual Statements and Parent Quarterly Statements which have not been
cured or otherwise resolved to the satisfaction of such insurance regulator.
Section 4.2 Capital Structure. (a) As of the date hereof, the authorized
share capital of Parent is $9,999,900 comprised of 999,990,000 ordinary shares
with a par value of $0.01 per share. As of February 1, 1999, (i) 109,013,614
Parent Ordinary Shares were issued and outstanding (excluding 509,700 Parent
Ordinary Shares held in treasury, which for purposes of Cayman Islands law are
deemed to be cancelled), (ii) 3,115,873 Non-Voting Common Shares, par value
$0.01 per share were issued and outstanding and (iii) additional Parent Ordinary
Shares were reserved for issuance upon the exercise of the Parent Rights
distributed to the holders of Parent Ordinary Shares pursuant to the Rights
Agreement dated as of December 1, 1996 (the "Parent Rights Agreement"), between
Parent and Mellon Securities Trust Company. All the outstanding shares of
Parent's share capital are duly authorized, validly issued, fully paid and
non-assessable. The Parent Ordinary Shares to be issued in the Merger, when
issued in accordance with the terms hereof, will be duly authorized, validly
issued and fully paid and nonassessable and not subject to preemptive rights.
(b) Except as set forth in Section 4.2(b) of the Parent Disclosure Letter,
all of the outstanding shares of capital stock of each of Parent's material
subsidiaries are beneficially owned by Parent, directly or indirectly, and all
such shares have been validly issued and are fully paid and nonassessable and
are owned by either Parent or one of its material subsidiaries free and clear of
all Liens.
(c) Except as set forth in Section 4.2(c) of the letter, dated as of the
date hereof, from Parent to the Company regarding certain matters related to
this Agreement (the "Parent Disclosure Letter"), there are no voting trusts or
other agreements or understandings to which Parent or any of its material
subsidiaries is a party with respect to the voting of the capital stock of
Parent or any of its material subsidiaries. None of Parent or its material
subsidiaries is a party to any agreement or obligation, contingent or otherwise,
to redeem, repurchase or otherwise acquire or retire shares of capital stock of
Parent or any of its subsidiaries, whether as a result of the transactions
contemplated by this Agreement or otherwise.
Section 4.3 Corporate Authorization; Validity of Agreement; Necessary
Action. (a) Each of Parent and Sub has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Parent and Sub
of this Agreement and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly and validly authorized by their respective
boards of directors, and no other corporate action or proceedings on the part of
Parent or Sub are necessary to authorize the execution and delivery by Parent or
Sub of this Agreement and the consummation by Parent and Sub of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Sub, and, assuming this Agreement constitutes a valid and binding
obligation of the Company, constitutes a valid and binding obligation of each of
Parent and Sub, enforceable against each of them in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(b) The Boards of Directors of each of Parent and Sub have duly and validly
approved and taken all corporate action required to be taken by each of them for
the consummation of the transactions contemplated by this Agreement and the
Stock Option Agreement, including having determined that this Agreement, the
Stock Option Agreement and the transactions contemplated hereby and thereby,
taken together, are fair to and in the best interests of Parent. No vote of the
shareholders of Parent is required to approve the Merger or the issuance of
Parent Ordinary Shares in the Merger under applicable Law.
Section 4.4 No Prior Activities. Sub has not incurred, directly or
indirectly, any liabilities or obligations, and has acquired no assets of any
kind, except those incurred or acquired in connection with its incorporation or
with the negotiation of this Agreement and the consummation of transactions
contemplated hereby. Sub has been formed solely to facilitate the transactions
contemplated in this Agreement and has not engaged, directly or indirectly, in
any business or activity of any type or kind, or entered into any Agreement or
arrangement with any person or entity, and is not subject to or bound by any
obligation or undertaking, that is not contemplated by or in connection with
this Agreement and the transactions contemplated thereby.
Section 4.5 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
compliance with other applicable requirements of, the Exchange Act, the
Securities Act, the HSR Act, state securities or "blue sky" laws, state takeover
laws, state and foreign insurance regulatory laws and commissions, and for the
filing or recordation of this Agreement or the Certificate of Merger as required
by the DGCL, neither the execution, delivery or performance of this Agreement by
Parent and Sub nor the consummation by Parent and Sub of the transactions
contemplated hereby nor compliance by Parent and Sub with any of the provisions
hereof will (i) result in any breach or violation of any provision of the
memorandum or articles of association or similar organizational documents of
Parent or any of its subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings would not have a Material Adverse Effect with respect to Parent,
(iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or increase in the rate of
interest) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, guarantee, other evidence of indebtedness, lease, license,
contract, agreement or other instrument or obligation to which Parent or any of
its subsidiaries is a party or by which or any of their properties or assets may
be bound (a "Parent Agreement") or result in the creation of a Lien upon any of
the properties or assets of Parent or (iv) violate any Law applicable to Parent,
any of its subsidiaries or any of their properties or assets, except in the case
of clauses (iii) and (iv) for violations, breaches, defaults, or rights of
termination, amendment, cancellation or acceleration, which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to Parent.
Section 4.6 SEC Filings; Financial Statements. (a) Parent has filed all
forms, reports, statements, schedules, registration statements and other
documents required to be filed with the SEC since January 1, 1996 (the "Parent
SEC Documents"), each of which complied in all material respects with the
applicable requirements of the Securities Act, and the rules and regulations
promulgated thereunder, or the Exchange Act and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. No subsidiary of
Parent is required to file any form, report, statement, schedule, registration
statement or other document with the SEC. No Parent SEC Document, when filed
(or, if amended or superseded by a filing prior to the Closing Date, then on the
date of such filing) 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.
(b) Each of the audited and unaudited consolidated financial statements of
Parent (including any related notes thereto) included in the Parent SEC
Documents filed prior to the date hereof and the audited consolidated financial
statements of Parent (including any related notes thereto) to be included in
Parent's Annual Report on Form 10-K for the fiscal year ended November 30, 1998,
have been prepared in accordance with United States generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the relevant
periods (except as may be disclosed in the notes thereto), and present fairly
the consolidated financial position and consolidated results of operations and
changes in cash flows of Parent and its subsidiaries as of the respective dates
or for the respective periods reflected therein, except, in the case of the
unaudited interim financial statements, for normal and recurring year-end
adjustments that are not material.
(c) Except to the extent set forth on the consolidated balance sheet of
Parent and its subsidiaries at August 31, 1998 included in the Parent SEC
Documents (the "Latest Parent Balance Sheet"), or in the notes thereto, neither
Parent nor any of its subsidiaries has any liabilities, debts, claims or
obligations of any nature (whether accrued, absolute, direct or indirect,
contingent or otherwise, whether due or to become due) which would be required
to be reflected on a balance sheet or in the notes thereto in accordance with
United States generally accepted accounting principles, and there is no existing
condition or set of circumstances which would reasonably be expected,
individually or in the aggregate, to result in such a liability, except for
liabilities or obligations incurred in the ordinary course of business
consistent with past practice since August 31, 1998, and liabilities incurred
pursuant to the terms of or as contemplated by this Agreement, the Stock Option
Agreement and Merger, none of which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to Parent.
Section 4.7 Absence of Certain Changes. Except as set forth in Section 4.7
of the Parent Disclosure Letter, since August 31, 1998 there has not occurred
any event, change, circumstance, condition or effect (including the incurrence
of any liabilities of any nature, whether or not accrued, contingent or
otherwise) having or reasonably likely to have, in the aggregate, a Material
Adverse Effect with respect to Parent.
Section 4.8 Information Supplied. None of the information supplied by
Parent or Sub for inclusion in (i) the Form S-4 will, at the time the Form S-4
is filed with the SEC, and 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 it is first mailed to the Company's
stockholders or at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading or contain
any statements which at the time and in the light of the circumstances under
which it is made, is false or misleading with respect to any material fact, omit
to state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the Stockholders
Meeting which has become false or misleading. The Form S-4 will, as of its
effective date, and the prospectus contained therein will, as of its date,
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder. No representation is made by Parent with respect to statements made
or incorporated by reference in the Form S-4 based on information supplied in
writing by the Company specifically for inclusion or incorporation in the Form
S-4.
Section 4.9 Compliance. Neither Parent nor Sub is in default or violation
of (and no event has occurred which with notice or lapse of time or both would
constitute a default or violation of) (i) its memorandum or articles of
association, certificate of incorporation or by-laws or other governing
document, (ii) any Law applicable to Parent or any of its subsidiaries or by
which any of their respective properties or assets is bound or affected, or
(iii) any Parent Agreement, except in the case of clauses (ii) and (iii) for any
such defaults or violations that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to Parent.
Parent and its subsidiaries have and are in compliance with all licenses,
permits, and other authorizations, domestic or foreign, necessary to conduct
their respective businesses, except where the failure to have or comply with
such licenses, permits and authorizations would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with respect
to Parent.
Section 4.10 Absence of Litigation. There is no claim, suit, action,
proceeding or investigation pending or, to the knowledge of Parent, threatened
against Parent or any of its subsidiaries, or any property or asset of the
Parent or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which (a) individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect with respect to Parent or (b) in any
manner challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated hereby. Neither Parent nor any of its subsidiaries nor any property
or asset of Parent or any of its subsidiaries is subject to any order, writ,
judgment, injunction, decree, determination or award having, or which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect with respect to Parent. Except as set forth in Section 4.10 of
the Parent Disclosure Letter, there are no pending or, to the knowledge of
Parent, threatened claims for indemnification by Parent in favor of directors,
officers, employees and agents of Parent.
Section 4.11 Brokers. No broker, finder or investment banker (other than
Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") and Wasserstein
Perella & Co. Inc. ("Wasserstein Perella" and, together with DLJ, the "Parent
Financial Advisors")) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement.
Parent has furnished to the Company a complete and correct copy of all
agreements between Parent and each of the Parent Financial Advisors pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated hereby.
Section 4.12 Pooling of Interests. As of the date of this Agreement,
neither Parent nor Sub knows of any reason relating to Parent or Sub why the
Merger would not qualify as a pooling of interests for financial reporting
purposes under United States generally accepted accounting principles.
Section 4.13 Opinion of Financial Advisor. The Board of Directors of Parent
has received opinions from each of DLJ and Wasserstein Perella, dated the date
of this Agreement, to the effect that, as of such date, the Exchange Ratio is
fair, from a financial point of view, to the Company. Copies of such opinions
have been provided to the Company.
Section 4.14 Investment Company. Neither Parent nor any of its subsidiaries
is an "investment company" as defined under the 1940 Act and neither Parent nor
any of its subsidiaries sponsors any person that is such an investment company.
Section 4.15 Insurance Matters. (a) Except as otherwise would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to Parent, General Insurance Contracts that are
issued by Parent or its subsidiaries and any and all marketing materials are, to
the extent required under applicable Law, on forms approved by applicable
insurance or reinsurance regulatory authorities or which have been filed and not
objected to by such authorities within the period provided for objection, and
such forms comply in all material respects with the insurance or reinsurance
statutes, regulations and rules applicable thereto and, as to premium rates
established by Parent or any subsidiary which are required to be filed with or
approved by insurance or reinsurance regulatory authorities, the rates have been
so filed or approved, the premiums charged conform thereto in all material
respects and such premiums comply in all material respects with the insurance or
reinsurance statutes, regulations and rules applicable thereto.
(b) Each reinsurance and coinsurance treaty or agreement, including
retrocessional agreements, to which Parent or any of its subsidiaries is a
party, under which Parent or any of its subsidiaries has any existing rights,
duties, obligations or liabilities or which is otherwise applicable to Parent or
any of its subsidiaries, assuming its due authorization, execution and delivery
by the other party or parties thereto, is valid and binding in all material
respects in accordance with its terms and is in full force and effect, except
for such treaties or agreements the failure to be valid and binding or in full
force and effect of which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to Parent.
No party to any such treaty or agreement has given notice to Parent or any of
its subsidiaries that it intends to terminate or cancel any such treaty or
agreement as a result of the Merger or the contemplated operations of Parent or
its subsidiaries after the Merger is consummated, which termination or
cancellation would have a Material Adverse Effect with respect to Parent. Any
subsidiary of Parent that has ceded reinsurance pursuant to any such treaty or
agreement is entitled to take full credit in its financial statements for all
amounts recoverable (net of any reserve for collectibility under such treaty or
agreement) with such credit accounted for (i) pursuant to SAP, as a reduction of
Parent's loss reserves and (ii) pursuant to United States generally accepted
accounting principles, as a reinsurance recoverable asset. Parent has no
unrecoverable reinsurance balances which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with respect
to Parent, other than as fully reserved on the Latest Parent Balance Sheet.
(c) Parent has not received any written notice that the financial condition
of any other party to any reinsurance, coinsurance or other similar agreement
with it or any of its subsidiaries is so impaired as to result in a default
thereunder, except to the extent that adequate reserves in respect of any such
default are reflected on the Latest Parent Balance Sheet.
(d) Prior to the date hereof, Parent has delivered or made available to the
Company a true and complete copy of any actuarial reports prepared by actuaries,
independent or otherwise, with respect to the Parent or any Parent Insurance
Subsidiary since January 1, 1998, and all attachments, addenda, supplements and
modifications thereto (the "Parent Actuarial Analyses"). The information and
data furnished by Parent or any Parent Insurance Subsidiary to its independent
actuaries in connection with the preparation of the Parent Actuarial Analyses
were accurate in all material respects.
(e) As of the date hereof, Parent has no reason to believe that any rating
presently held by Parent 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.
Section 4.16 Employee Benefit Plans. (a) Section 4.16(a) of the Parent
Disclosure Letter contains a true and complete list of each "employee benefit
plan" (within the meaning of Section 3(3) of ERISA) that is subject to ERISA.
All such plans, agreements, programs, policies and arrangements shall be
collectively referred to as the "Parent Plans".
(b) (i) Each Parent Plan has been established and administered in all
material respects in accordance with its terms, and in compliance in all
material respects with applicable Law and (ii) no event has occurred and no
condition exists that would subject Parent or its subsidiaries, either directly
or by reason of their affiliation with any member of their "Controlled Group"
(defined as any organization which is a member of a controlled group of
organizations within the meaning of Sections 414(b), (c), (m) or (o) of the
Code), to any material tax, fine, lien, penalty or other liability imposed by
applicable Law.
Section 4.17 NYSE Listing. Parent does not know of any reason why the
Parent Ordinary Shares to be issued in the Merger and upon the exercise of
Converted Stock Options would not be approved for listing on the NYSE.
Section 4.18 Year 2000. Parent is in the process of reviewing its and its
subsidiaries' software and hardware systems that perform critical or important
accounting, data processing, data storage, data transmission and report writing
functions for the purposes of evaluating its Y2K Readiness. In connection with
this process, Parent has undertaken to obtain assurances from its principal
software suppliers and service firms as to the Y2K Readiness of certain critical
or important systems obtained from these outside sources or utilized by them in
providing critical services to Parent. Parent reasonably believes that all
software, hardware and equipment (including microprocessors) that is owned by,
or leased or licensed by or to, Parent or any of its subsidiaries in the
operations of its or their respective business will be capable, by December 31,
1999, of accounting for all calculations using a century and date sensitive
algorithm for the year 2000 and the fact that the year 2000 is a leap year and
to otherwise continue to function without any material interruption caused by
the occurrence of the year 2000. In the event of a Y2K related failure, Parent
will have in place a business contingency plan that will address the continuity
of critical business processes into the Year 2000.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of the Company. Except as expressly
contemplated by this Agreement, in Section 5.1 of the Company Disclosure Letter
or as consented to in writing by Parent (in its sole discretion), during the
period from the date of this Agreement to the Effective Time, the Company will,
and will cause its subsidiaries to, conduct their operations, including their
investment practices and policies, only in, and not take any action except in,
the ordinary and usual course of business and consistent with past practice, and
the Company will, and will cause its subsidiaries to, use its and their best
efforts to preserve intact their business organization, to keep available the
services of their officers and employees and to maintain advantageous
relationships with customers, retrocessionaires, creditors, licensors,
licensees, suppliers, contractors, distributors, business partners and others
having business relationships with the Company and its subsidiaries. Without
limiting the generality of the foregoing, prior to the Effective Time, the
Company will not, and will not permit any of its subsidiaries to without the
prior written consent of Parent (which may be withheld in its sole discretion):
(a) split, combine or reclassify any shares of its capital stock; declare,
pay or set aside for payment any dividend or other distribution payable in cash,
stock, property or otherwise in respect of its capital stock (other than
quarterly cash dividends upon the shares of Company Common Stock in an amount
not to exceed $0.09 per share, provided, however, that in the event that the
Effective Time does not occur on or prior to September 1, 1999, such amount may
be increased in respect of the dividend for the Company's third fiscal quarter
to $.4026 per share, and dividends paid to the Company by its wholly owned
subsidiaries); or directly or indirectly redeem, purchase, repurchase or
otherwise acquire any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital stock
other than the forfeiture or repurchase of Company Common Stock pursuant to
Company Plans in accordance with the terms thereof as in effect on the date
hereof;
(b) authorize for issuance, issue, sell, pledge, dispose of or encumber,
deliver or agree or commit to issue, sell, pledge or deliver (whether through
the issuance or granting of any options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any of its capital stock or any securities
convertible into or exercisable or exchangeable for shares of its capital stock,
except as required by the Stock Option Agreement, in accordance with the terms,
as in effect on the date hereof, of any Company Options listed in Section 3.2 of
the Company Disclosure Letter or by agreements as in effect as of the date
hereof which are disclosed in Section 5.1(b) of the Company Disclosure Letter,
or amend any of the terms of any such securities or agreements outstanding as of
the date hereof;
(c) (i) incur or assume any debt or issue any debt securities except for
borrowings under existing lines of credit in the ordinary course of business
consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business
consistent with past practice, (iii) make any loans or advances to any person
other than loans or advances of out-of-pocket expenses incurred in connection
with Company business, or make any capital contributions to, or, except as
otherwise permitted in this Section 5.1, investments in, any other person, (iv)
pledge or otherwise encumber shares of capital stock of any of its subsidiaries,
or (v) mortgage or pledge any of its assets, tangible or intangible, or create
any material Lien thereupon other than in the ordinary course of business
consistent with past practice;
(d) except as may be required by Law or as set forth in Section 5.1(d) of
the Company Disclosure Letter, enter into, adopt, amend or terminate any bonus,
profit sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation, employment,
severance or other Company Plan; or enter into or amend any employment or
severance agreement with, increase in any manner the salary, wages, bonus,
commission, or other compensation or benefits of any director or officer of the
Company or any of its subsidiaries; or increase in any manner the salary, wages,
bonus, commission or other compensation or benefits of any other employee or
agent of the Company or any of its subsidiaries except, in the case of employees
other than directors or officers of the Company, for salary increases and
employee promotions in the ordinary course of business consistent with past
practice; or hire employees at the senior vice president level or higher except
to fill vacancies; or pay any benefit not required by any plan and arrangement
as in effect as of the date hereof (including the granting of stock options,
stock appreciation rights or performance units);
(e) acquire (by merger, amalgamation, consolidation or acquisition of stock
or assets) any corporation, partnership or other business organization or
division thereof or make any investment either by purchase of stock or
securities, contributions to capital, property transfer or acquisition
(including by lease) of any material amount of properties or assets of any other
individual or entity except for the purchase of investment securities by Company
Insurance Subsidiaries for investment in the ordinary and prudent course of
their business consistent with past practice.
(f) except as expressly required herein, (i) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted
contingent or otherwise), other than the payment, discharge or satisfaction 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) 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;
(g) amend the certificate of incorporation or by-laws of the Company or any
of its material subsidiaries;
(h) adopt a plan of complete or partial liquidation or resolutions
providing for the complete or partial liquidation, dissolution, merger (other
than the Merger), consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its material subsidiaries;
(i) enter into any new lines of business (whether or not part of the
insurance or reinsurance business) (except for the lines of business disclosed
in Section 5.1(i) of the Company Disclosure Letter), make any material change in
its policy forms, investment policies or guidelines or otherwise make material
changes to the operation of its business or change its loss reserve methodology;
(j) release or reverse any existing reserves, including any case reserves
or reserves for allocated or unallocated loss adjustment expenses (other than
for resolution of claims for which such reserve was established) or any reserves
for claims which are incurred but not reported, or recognize any unrecognized
gain on investment or other assets other than in the ordinary course of business
consistent with the Company's past practice;
(k) invest any investment securities of the Company in investments which
are not rated in one of the four highest categories by a "nationally recognized
statistical rating agency" as defined in the rules or regulations of the SEC;
(l) sell (whether by merger, consolidation or otherwise), lease, encumber,
transfer or dispose of any assets (including rights of renewal) other than sales
of investment assets in the ordinary course of business consistent with past
practice or sales of assets which are not, in the aggregate, material to the
Company, or enter into any material commitment or transaction outside the
ordinary course of business consistent with past practices;
(m) authorize or make or commit to make any capital expenditures, except
for transactions in the ordinary course of business consistent with past
practice (but in no event in excess of $500,000 in the aggregate) or pursuant to
agreements or commitments entered into by the Company prior to the date hereof
and disclosed in Section 5.1(m) of the Company Disclosure Letter;
(n) make any Tax elections, make or change any method of Tax accounting
(except as may be required by Law), file any amended Tax Returns, settle or
compromise any material Tax liability, or waive or extend the statute of
limitations for imposing or assessing any material Taxes;
(o) pay or agree to pay in settlement or compromise of any suits or claims
of liability against the Company, its directors, officers, employees or agents,
more than an aggregate of $500,000 for all such suits and claims, unless
otherwise reserved against in the Latest Balance Sheet, it being understood that
without the prior written consent of Parent, no such settlement or compromise
shall be entered into involving non-monetary obligations;
(p) take any action likely to materially decrease or diminish the assets or
net worth of the Company;
(q) except as may be required as a result of a change in law or in United
States generally accepted accounting principles or SAP (in either case, with the
written concurrence of the Company's independent accountants), change any of the
accounting principles or practices used by it;
(r) enter into any agreement providing for the acceleration of payment,
vesting or performance or other consequence as a result of a change in control
of the Company;
(s) amend, modify or waive any provision of the Company Rights Agreement,
or take any action to redeem the Company Rights or render the Company Rights
inapplicable to any transaction other than the Merger and the transactions
contemplated by the Stock Option Agreement;
(t) permit any material insurance policy or retrocessional agreement naming
it as a beneficiary or a loss payable payee to be cancelled or terminated,
except in the ordinary course of business consistent with past practice; or
(u) take any action or agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any representation or warranty
in Article III hereof materially untrue or incorrect.
Section 5.2 Preparation of Form S-4 and the Proxy Statement/Prospectus;
Stockholders Meetings. (a) Promptly following the execution of this Agreement,
Parent and the Company shall prepare and file with the SEC the Proxy
Statement/Prospectus, and Parent shall prepare and file with the SEC the Form
S-4, in which the Proxy Statement/Prospectus will be included. Each of Parent
and the Company shall use its reasonable best efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing and to keep the Form S-4 effective as long as is necessary to
consummate the Merger. Parent 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 the Parent
Ordinary Shares in the Merger and the Company shall furnish all information
concerning the Company and the holders of Company Common Stock as may be
reasonably requested in connection with any such action. The parties shall
promptly provide copies, consult with each other and prepare written responses
with respect to any written comments received from the SEC with respect to the
Proxy Statement/Prospectus and the Form S-4 and advise one another of any oral
comments with respect to the Proxy Statement/Prospectus and the Form S-4
received from the SEC. The parties will cooperate in preparing and filing with
the SEC any necessary amendment or supplement to the Proxy Statement/Prospectus
or the Form S-4. No amendment or supplement to the Proxy Statement/Prospectus
shall be filed without the approval of both parties, which approvals shall not
be unreasonably withheld or delayed. The Company will use its best efforts to
cause the Proxy Statement/Prospectus to be mailed to the Company's stockholders
as promptly as practicable after the Form S-4 is declared effective under the
Securities Act.
(b) Whether or not the Board of Directors of the Company shall take any
action permitted by the third sentence of this 5.2(b), the Company shall cause a
meeting of its stockholders (the "Stockholders Meeting") to be duly called and
held as soon as practicable after the date of this Agreement for the purpose of
voting on the adoption of this Agreement. The Board of Directors of the Company
shall (i) include in the Proxy Statement/Prospectus the recommendation described
in Section 3.3(b)(ii) (the "Company Board Recommendation") and the written
opinion of Morgan Stanley, dated the date of this Agreement, to the effect that,
as of the date hereof, the Exchange Ratio is fair, from a financial point of
view, to the holders of Company Common Stock and (ii) use its reasonable best
efforts to obtain the necessary vote in favor of the adoption of this Agreement
by its stockholders. The Board of Directors of the Company shall not withdraw,
amend, modify or qualify in a manner adverse to Parent the Company Board
Recommendation (or announce publicly its intention to do so), except that prior
to the receipt of the Company Stockholder Approval, the Board of Directors of
the Company shall be permitted to withdraw, amend, modify or materially qualify
in a manner adverse to Parent the Company Board Recommendation (or publicly
announce its intention to do so), upon three business days' prior notice to
Parent, but only if (i) the Company has complied with Section 5.8, (ii) an
unsolicited bona fide written Transaction Proposal with respect to the Company
shall have been made after the date of this Agreement by any person other than
Parent or its affiliates and such proposal is pending at the time of such
action, and (iii) the Board of Directors of the Company shall have concluded in
good faith, on the basis of the advice of its outside financial advisors
(confirmed in writing to the Board of Directors), that such Transaction Proposal
is a Superior Proposal (as defined in Section 5.8), and, on the basis of advice
of its outside U.S. legal counsel (confirmed in writing to the Board of
Directors), that the Board of Directors is required to withdraw, amend or modify
the Company Board Recommendation in order to prevent it from breaching its
fiduciary duties to the stockholders of the Company under the DGCL.
Section 5.3 Access to Information. (a) The Company shall (and shall cause
each of its subsidiaries to) afford to the officers, employees, accountants,
counsel, actuaries, financial advisors and other representatives of Parent
reasonable access, during normal business hours, during the period prior to the
Effective Time, to all of its and its subsidiaries' personnel, offices and other
facilities, books, contracts, commitments and records (including any Tax Returns
or other Tax related information pertaining to the Company and its subsidiaries)
and, during such period, the Company shall (and shall cause each of its
subsidiaries to) furnish promptly to Parent (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of the federal securities laws or any
insurance regulatory laws and (ii) all other information, including financial
and operating data, concerning its business, properties and personnel as Parent
may reasonably request (including any Tax Returns or other Tax related
information pertaining to the Company and its subsidiaries). Parent will hold
any such information which is nonpublic in confidence in accordance with the
provisions of the existing confidentiality agreement between the Company and
Parent, dated December 1, 1998 (the "Confidentiality Agreement").
(b) Parent shall (and shall cause each of its subsidiaries to) afford to
the officers, employees, accountants, counsel, actuaries, financial advisors and
other representatives of the Company reasonable access, during normal business
hours, during the period prior to the Effective Time, to all of its and its
subsidiaries' personnel, offices and other facilities, and, during such period,
Parent shall (and shall cause each of its subsidiaries to) furnish promptly to
the Company (i) a copy of each material report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of the federal securities laws or any insurance regulatory laws and
(ii) all other information, including financial and operating data, concerning
its business, properties and personnel as the Company may reasonably request
(including any Tax Returns or other Tax related information pertaining to Parent
and its subsidiaries). The Company will hold any such information which is
nonpublic in confidence in accordance with the provisions of the Confidentiality
Agreement.
Section 5.4 Consents and Approvals. (a) Each of the Company, Parent and Sub
will use its reasonable best efforts to comply promptly with all legal
requirements which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby, which actions shall include furnishing all
information in connection with approvals of or filings with any Governmental
Entity, including any schedules or reports required to be filed with the SEC,
and including any approvals or filings which are not compulsory but are
desirable to obtain in the reasonable opinion of Parent, Sub and the Company,
and will promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
subsidiaries in connection with this Agreement and the transactions contemplated
hereby. Each of the Company, Parent and Sub will, and will cause its
subsidiaries to, take all reasonable actions necessary to obtain any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public or private third party required to be obtained or made by
Parent, Sub, the Company or any of their subsidiaries or necessary in the
reasonable opinion of Parent, Sub or the Company in connection with the Merger
or the taking of any action contemplated thereby or by this Agreement.
(b) The Company and Parent will (i) take all actions necessary to make the
filings required of it or its affiliates under the HSR Act with respect to the
transactions contemplated by this Agreement as promptly as practicable following
the date of this Agreement, (ii) comply with any request for additional
information received from the Federal Trade Commission or the Antitrust Division
of the Department of Justice pursuant to the HSR Act, (iii) cooperate with each
other in connection with filings under the HSR Act and (iv) request early
termination of the applicable waiting period.
(c) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable, whether under applicable laws and regulations or otherwise, or to
remove any injunctions or other impediments or delays, legal or otherwise, (i)
to cause the conditions to closing set forth in Article VI to be satisfied,
including using its best efforts to satisfy the condition set forth in Section
6.1(g), and (ii) otherwise to consummate and make effective the Merger and the
other transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of Parent and the
Surviving Corporation shall use all reasonable efforts to take, or cause to be
taken, all such necessary actions.
Section 5.5 Supplemental Information. Except where prohibited by applicable
statutes and regulations, each party shall promptly provide the other (or its
counsel) with copies of all filings, material notices or material communications
made by such party with any Governmental Entity (including the SEC or NYSE) in
connection with this Agreement or the transactions contemplated hereby.
Section 5.6 Employee Matters. (a) For a period of three years following the
Effective Time, Parent shall either continue the existing Company Plans or shall
provide, or cause the Surviving Corporation to provide, benefits to employees of
the Company and its subsidiaries under substitute plans or arrangements ("Parent
Benefit Plans") that are no less favorable in the aggregate to such employees
than those provided under such existing Company Plans.
(b) For purposes of determining eligibility for participation and vesting
under any Parent Benefit Plans (but not to the extent it results in any
duplication of benefits), employees of the Company and its subsidiaries shall
receive service credit for service with the Company and any of its subsidiaries
to the same extent such service was granted under the Company Plans.
(c) Parent shall cause the Surviving Corporation to assume, recognize and
give effect to all of the change in control provisions with respect to the
severance of employees as set forth in each of the contracts listed in Section
3.8(a) of the Company's Disclosure Letter, in accordance with the terms thereof.
Section 5.7 Letters of Accountants. (a) The Company shall use its
reasonable best efforts to cause to be delivered to Parent a letter of Ernst &
Young LLP, the Company's independent public accountants, dated a date within two
business days before the date on which the Form S-4 shall become effective and
addressed to Parent, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
In connection with the Company's efforts to obtain such letter, if requested by
Ernst & Young LLP, Parent shall provide a representation letter to Ernst & Young
LLP complying with SAS 72, if then required.
(b) Parent shall use its reasonable best efforts to cause to be delivered
to the Company a letter of PricewaterhouseCoopers LLP, Parent's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and addressed to the Company, in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4. In connection with
Parent's efforts to obtain such letter, if requested by PricewaterhouseCoopers
LLP, the Company shall provide a representation letter to PricewaterhouseCoopers
LLP complying with SAS 72, if then required.
Section 5.8 No Solicitation. From and after the date hereof, neither the
Company nor any of its subsidiaries shall (whether directly or indirectly
through its or their officers, directors, agents, representatives, advisors or
other intermediaries (collectively, "Representatives")), nor shall the Company
or any of its subsidiaries authorize or permit any of its or their
Representatives to, (a) solicit, initiate, encourage (including by way of
furnishing information) or take any action knowingly to facilitate the
submission of any inquiries, proposals or offers (whether or not in writing)
from any person relating to, other than the transactions contemplated by this
Agreement and the Stock Option Agreement, (i) any acquisition or purchase of 15%
or more of the consolidated assets of the Company and its subsidiaries or of 15%
or more of any class of equity securities of the Company or any of its
subsidiaries, (ii) any tender offer (including a self tender offer) or exchange
offer that if consummated would result in any person beneficially owning 15% or
more of any class of equity securities of the Company or any of its material
subsidiaries (including through the ownership of securities convertible or
exercisable into or exchangeable for equity securities of the Company), (iii)
any merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries whose assets, individually or
in the aggregate, constitute 15% or more of the consolidated assets of the
Company, or (iv) any other transaction the consummation of which would or would
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger (any of the foregoing, a "Transaction Proposal"), or agree to or
endorse any Transaction Proposal, or (b) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to any
other person any information with respect to its business, properties or assets
in connection with any of the foregoing, or otherwise cooperate in any way with,
or knowingly assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing; provided,
however, that the foregoing shall not prohibit the Company, prior to the receipt
of the Company Stockholder Approval, (A) from complying with Rule 14e-2 and Rule
14d-9 under the Exchange Act with regard to a bona fide tender offer or exchange
offer or (B) from participating in negotiations or discussions with or
furnishing information to any person in connection with an unsolicited bona fide
Transaction Proposal which is submitted in writing by such person to the Board
of Directors of the Company after the date of this Agreement and prior to the
Company Stockholder Approval; provided further, however, that prior to
participating in any such discussions or negotiations or furnishing any
information, (i) the Company receives from such person an executed
confidentiality agreement on terms not less favorable to the Company than the
Confidentiality Agreement, a copy of which shall be provided for informational
purposes only to Parent, and (ii) the Board of Directors of the Company shall
have concluded in good faith, based on the advice of its outside financial
advisors, that such Transaction Proposal is reasonably likely to be or to result
in a Superior Proposal, and based on the written advice of its outside U.S.
legal counsel, that participating in such negotiations or discussions or
furnishing such information is required in order to prevent the Board of
Directors of the Company from breaching its fiduciary duties to its stockholders
under the DGCL; and provided, further, that the Board of Directors of the
Company shall not take any of the foregoing actions unless it provides Parent
with contemporaneous notice thereof. If the Board of Directors of the Company
receives a Transaction Proposal, then the Company shall promptly inform Parent
in writing of the terms and conditions of such proposal and the identity of the
person making it. The Company agrees that it will keep Parent informed, on a
current basis, of the terms of any such proposals or offers and, to the extent
disclosure is not prohibited by the terms of any confidentiality agreement with
the party making such Transaction Proposal, the status of any such material
discussions or negotiations. The Company agrees to immediately cease and cause
its Representatives to cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing, and shall use its reasonable best efforts to cause any such parties
in possession of confidential information about the Company that was furnished
by or on behalf of the Company to return or destroy all such information in the
possession of any such party or in the possession of any agent or advisor of any
such party. The Company agrees not to release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to which such party
or its subsidiaries is a party. The Company shall ensure that its officers,
directors and employees and any investment banker or other Representative
retained by it are aware of the restrictions described in this Section 5.8.
"Superior Proposal" means any of the transactions described in clause (i), (ii)
or (iii) of the definition of Transaction Proposal (with all of the percentages
included in the definition of such term raised to 51% for purposes of this
definition) with respect to which any required financing is committed or, in the
good faith judgment of the Board of Directors of the Company, based on the
written advice of its outside financial advisors, is reasonably capable of being
financed by the person making the proposal, and with respect to which the Board
of Directors of the Company shall have concluded in good faith, based on the
written advice of its outside legal counsel and financial advisors, is
reasonably capable of being completed, taking into account all legal, financial,
regulatory and other aspects of the Transaction Proposal and the person making
the proposal, and would, if consummated, result in a transaction more favorable
to the Company's stockholders from a strategic and financial point of view than
the transactions contemplated by this Agreement.
Section 5.9 Publicity. So long as this Agreement is in effect, neither the
Company nor Parent nor their affiliates shall issue or cause the publication of
any press release or other public statement or announcement with respect to this
Agreement or the transactions contemplated hereby without prior approval of the
other party, except as may be required by law or by obligations pursuant to any
listing agreement with a national securities exchange, and in such case shall
use all reasonable efforts to consult with the other party prior to such release
or announcement being issued.
Section 5.10 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (a) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would cause any representation or warranty of the Company or Parent and
Sub, as the case may be, contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Effective Time and (b) any material
failure of the Company or Parent, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.10 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 5.11 Directors' and Officers' Insurance and Indemnification. (a)
The Surviving Corporation shall, and Parent shall cause the Surviving
Corporation to, (i) indemnify and hold harmless, and provide advancement of
expenses to, all past and present directors and officers of the Company and its
subsidiaries to the same extent such persons are indemnified or have the right
to advancement of expenses as of the date of this Agreement by the Company
pursuant to the Company's certificate of incorporation and by-laws as in
existence on the date hereof for acts or omissions occurring at or prior to the
Effective Time (including for acts or omissions occurring in connection with the
approval of this Agreement and the Stock Option Agreement and the consummation
of the transactions contemplated hereby and thereby) and (ii) ensure that the
certificate of incorporation and by-laws of the Surviving Corporation following
the Merger shall contain provisions identical with respect to elimination of
personal liability and indemnification to those set forth in the certificate of
incorporation and by-laws of the Company, which provisions shall continue in
full force and effect and shall not (except as otherwise required by applicable
law) be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at or immediately prior to the Effective Time were
directors, officers, agents or employees of the Company.
(b) Parent shall cause the Surviving Corporation to maintain in effect for
four years from the Effective Time policies of directors' and officers'
liability insurance containing terms and conditions which are not less
advantageous in any material respect (including with respect to the payment of
reasonable attorneys' fees, to the extent so provided) than those policies
maintained by the Company at the date hereof, with respect to matters occurring
prior to the Effective Time, to the extent available, and having the maximum
available coverage under the current policies of directors' and officers'
liability insurance; provided that (i) Parent following the Effective Time shall
not be required to spend an amount in any year in excess of 150% of the annual
aggregate premiums currently paid by the Company for such insurance; and
provided, further, that if the annual premiums of such insurance coverage exceed
such amount, Parent shall be obligated to cause the Surviving Corporation to
obtain a policy with the best coverage available, in the reasonable judgment of
the Board of Directors of Parent following the Merger, for a cost not exceeding
such amount, and (ii) in the sole discretion of Parent (x) such policies may be
one or more "tail" policies for all or any portion of the full four-year period
or (y) Parent may cause comparable coverage in accordance with the foregoing
clauses to be provided under any policy maintained for the benefit of the
directors and officers of Parent or any of its subsidiaries.
(c) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their respective reasonable best efforts to vigorously
defend against it and respond thereto.
Section 5.12 Listing of Parent Ordinary Shares. Parent shall use its best
efforts to cause the Parent Ordinary Shares to be issued in the Merger and the
Parent Ordinary Shares to be reserved for issuance upon exercise of the
Converted Options to be approved for listing on the NYSE, subject to official
notice of issuance.
Section 5.13 Rule 145 Affiliates; Pooling Letters. No later than 30 days
following the date of this Agreement, each of the Company and Parent shall
deliver to one another letters identifying all other persons who are at the date
of this Agreement or who it is expected that at the time of the Stockholders
Meeting may be deemed to be "affiliates" of the Company for purposes of Rule 145
under the Securities Act (the "Rule 145 Affiliates"). The Company and Parent
shall each use its reasonable best efforts to cause each person who is
identified as a Rule 145 Affiliate in such list to deliver to the other party at
least 35 days prior to the Closing Date a written agreement in the form attached
hereto as Exhibit B or C as applicable.
Section 5.14 Parent Board of Directors. The Board of Directors of Parent
shall take such corporate actions as are necessary to provide that, effective at
the Effective Time subject to satisfying the qualifications of a Director under
Parent's Articles of Association, Ronald L. Bornhuetter and another current
non-executive director of the Company selected by Parent prior to the Effective
Time, after consultation with the Chief Executive Officer of the Company, shall
become members of the Board of Directors of Parent.
Section 5.15 Coordination of Dividends. After the date of this Agreement,
Parent and the Company will coordinate with each other regarding the declaration
of dividends in respect of the Parent Ordinary Shares and the Company Common
Stock and the record dates and payment dates relating thereto, it being the
intention of the parties that holders of Parent Ordinary Shares and shares of
Company Common Stock will not receive two dividends, or fail to receive one
dividend, for any single calendar quarter with respect to their shares of
Company Common Stock and/or the Parent Ordinary Shares any such holder receives
in exchange therefor in the Merger.
Section 5.16 Pooling. During the period from the date of this Agreement to
the Effective Time, each of Parent, Sub and the Company will not, and will not
permit any of their respective subsidiaries to, take any action which (i) would
reasonably be expected to prevent or impede the Merger from qualifying for
pooling-of-interests accounting treatment under United States generally accepted
accounting principles and applicable SEC rules and regulations or (ii) would
reasonably be expected to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code. Nothing in the foregoing
sentence shall preclude Parent from exercising its rights under the Stock Option
Agreement.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of Each Party. The obligations of
the Company, on the one hand, and Parent and Sub, on the other hand, to
consummate the Merger are subject to the satisfaction (or, if permissible,
waiver by the party for whose benefit such conditions exist) of the following
conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval shall
have been received.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition preventing or making illegal the
consummation of the Merger shall be in effect; provided, however, that the
parties hereto shall use their reasonable best efforts to have any such
injunction, order, restraint or prohibition vacated.
(c) HSR and Other Approvals. Any waiting period (and any extension thereof)
or period for any referral to any body applicable to the Merger under the HSR
Act or similar or equivalent statute or statutes in other jurisdictions shall
have expired or been terminated.
(d) Form S-4. The Form S-4 shall have been declared effective under the
Securities Act and no stop order suspending the effectiveness thereof shall be
in effect and no procedures for such purpose shall be pending before or
threatened by the SEC.
(e) NYSE Listing. The Parent Ordinary Shares to be issued in the Merger and
the Parent Ordinary Shares to be reserved for issuance upon the exercise of
Converted Stock Options shall have been approved for listing on the NYSE,
subject to official notice of issuance.
(f) Governmental and Regulatory Approvals. All regulatory approvals and
other actions or approvals by any Governmental Entity required to permit the
consummation of the Merger (including those which are not compulsory but are
desirable to obtain in the reasonable opinion of Parent, Sub and the Company)
(including the insurance regulatory approvals set forth in Section 6.1(f) of the
Company Disclosure Letter), shall have been obtained (without any terms or
conditions to such approvals which would impose material and adverse limitations
on the ability of Parent and its subsidiaries (including the Surviving
Corporation following the Merger) to conduct their business after the Effective
Time, which would require changes to the terms of this Agreement or which would
change the consideration payable to stockholders of the Company in the Merger)
and such approvals shall be in full force and effect.
(g) Pooling. The Company shall have received and delivered to Parent and
Parent's independent public accountants a letter from its independent public
accountants, dated as of the Closing Date, stating that the Company qualifies as
a "combining company" in accordance with the criteria set forth in Opinion 16 of
the Accounting Principles Board and accordingly is a poolable entity. Parent
shall have received and delivered to the Company a letter from its independent
public accountants, dated as of the Closing Date, stating that accounting for
the Merger as a pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations is appropriate if the
Merger is closed and consummated as contemplated by this Agreement.
Notwithstanding the foregoing, the satisfaction of this Section 6.1(g) shall not
be a condition to the obligations of a party to effect the Merger if the failure
to satisfy this condition results from any action taken or agreed to be taken by
or on behalf of such party.
Section 6.2 Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub to consummate the Merger are subject to the
satisfaction (or waiver by Parent) of the following further conditions:
(a) Representations and Warranties. The representations and warranties of
the Company qualified as to materiality shall be true and accurate (and those
not so qualified shall be true and accurate in all material respects) as of the
Effective Time as if made at and as of such time (except for those
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time which need only be true and
accurate (or true and accurate in all material respects) as of such date or with
respect to such period. Parent shall have received a certificate of the chief
executive officer and the chief financial officer of the Company to the effect
set forth in this paragraph.
(b) Performance of Obligations. The Company and its subsidiaries shall have
performed or complied with all agreements and covenants required to be performed
or complied with by them under this Agreement at or prior to the Closing Date
that are qualified as to materiality and shall have performed or complied in all
material respects with all other agreements and covenants required to be
performed by them under this Agreement at or prior to the Closing Date that are
not so qualified, and Parent shall have received a certificate of the chief
executive officer and the chief financial officer of the Company to such effect.
(c) No Material Adverse Change. Since the date of this Agreement, there
shall not have occurred any event, change, circumstance, condition or effect
that shall have caused, or shall be reasonably likely to cause, a Material
Adverse Effect with respect to the Company.
(d) Closing Documents. Parent shall receive customary closing documents in
form and substance reasonably satisfactory to it.
(e) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that all licenses, permits, consents,
approvals, authorizations, qualifications and orders of all third parties listed
on Section 6.2(e) of the Company Disclosure Letter have been obtained without,
in the case of third parties, the payment or imposition of any material costs or
obligations.
(f) No Trigger of Company Rights. The Company Rights Agreement shall have
been amended to cause the expiration of the Company Rights at or prior to the
Effective Time or the Company Rights shall have been redeemed or otherwise
terminated, and no trigger event shall have occurred thereunder.
(g) Tax Opinion. Parent shall have received an opinion, dated the Closing
Date, of Simpson Thacher & Bartlett, counsel to Parent, to the effect that the
Merger will be treated for U.S. federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that the transfer of
Company Common Stock by holders of Company Common Stock, other than holders that
are or will be "5% transferee shareholders" within the meaning of Treasury
regulations Section 1.367(a)-3(c)(5)-(ii) pursuant to the Merger will qualify
for an exception under Treasury regulations Section 1.367(a)-3 and, accordingly,
Parent will be treated as a corporation for U.S. federal income tax purposes.
Each party agrees to make all reasonable representations and covenants
reasonably requested in connection with the rendering of such opinion.
Section 6.3 Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the satisfaction (or
waiver by the Company) of the following further conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub qualified as to materiality shall be true and accurate (and those
not so qualified shall be true and accurate in all material respects) as of the
Effective Time as if made at and as of such time (except for those
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time which need only be true and
accurate (or true and accurate in all material respects) as of such date or with
respect to such period. The Company shall have received a certificate of the
chief executive officer and the chief financial officer of Parent to the effect
set forth in this paragraph.
(b) Performance of Obligations. Parent and its subsidiaries shall have
performed or complied with all agreements and covenants required to be performed
or complied with by them under this Agreement at or prior to the Closing Date
that are qualified as to materiality and shall have performed or complied in all
material respects with all other agreements and covenants required to be
performed by them under this Agreement at or prior to the Closing Date that are
not so qualified, and the Company shall have received a certificate of the chief
executive officer and the chief financial officer of Parent to such effect.
(c) No Material Adverse Change. Since the date of this Agreement, there
shall not have occurred and be continuing any event, change, circumstance,
condition or effect that shall have caused, or shall be reasonably likely to
cause, a Material Adverse Effect with respect to Parent.
(d) Closing Documents. Parent shall receive customary closing documents in
form and substance reasonably satisfactory to it.
(e) Tax Opinion. The Company shall have received an opinion, dated the
Closing Date, of Cadwalader, Wickersham & Taft, counsel to the Company, to the
effect that the Merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that the
transfer of Company Common Stock by holders of Company Common Stock, other than
Company shareholders that are or will be "5% transferee shareholders" within the
meaning of Treasury regulations Section 1.367(a)-3(c)(5)-(ii), pursuant to the
Merger will qualify for an exception under Treasury regulations Section
1.367(a)-3 and, accordingly, Parent will be treated as a corporation for U.S.
federal income tax purposes. Each party agrees to make all reasonable
representations and covenants reasonably requested in connection with the
rendering of such opinion.
Section 6.4 Adjustment of Terms in Certain Circumstances. Each of Parent,
Sub and the Company agrees that, in the event that the Merger is not consummated
as a result of the failure to have satisfied or waived any of the conditions set
forth in this Article VI (other than Section 6.1(a), Section 6.2(a), (b) or (c)
or Section 6.3(a), (b) or (c)) on the Closing Date, it will negotiate with the
other parties to this Agreement in good faith, for a period of 30 days, to
adjust the terms of this Agreement and the transactions contemplated hereby so
as to achieve as nearly as is practicable the benefits expected to be received
by each of them upon entering into this Agreement as of the date hereof. In the
event that the parties are not able to reach an agreement with respect to such
an adjustment, this Agreement may be terminated by either party as provided in
Section 7.1(i), unless the party seeking to terminate this Agreement shall have
breached a representation, warranty or covenant which breach (or the substance
thereof) shall be the cause of the failure to have satisfied such condition.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after the Company Stockholder Approval shall have been received.
(a) by the mutual written consent of Parent and the Company;
(b) by either Parent or the Company if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action, as applicable, and such denial of a request
to issue such order, decree, ruling or take such other action shall have become
final and nonappealable, in the case of each of (i) and (ii) which is necessary
to fulfill the conditions set forth in Sections 6.1(b) and 6.1(f); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose failure to comply with Section 5.4 has
been the cause of such action or failure to act; or
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before December 31, 1999 (the "Termination Date"); provided,
that the right to terminate this Agreement under this Section 7.1(c) shall not
be available to the party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date; or
(d) by Parent or the Company, if the Company Stockholder Approval shall not
have been obtained at a duly held meeting of stockholders or at any adjournment
thereof; or
(e) by Parent, if the Company or its Board of Directors shall have (i)
withdrawn, modified or amended in any respect adverse to Parent its
recommendation of the adoption of this Agreement, (ii) failed as promptly as
practicable after the Form S-4 is declared effective to mail the Proxy
Statement/Prospectus to its stockholders, unless such failure was caused by the
actions or inactions of Parent or its representatives, or failed to include in
such statement the Company Board Recommendation, (iii) approved, recommended or
entered into an agreement with respect to, or consummated, any Transaction
Proposal from a person other than Parent or any of its affiliates, (iv) resolved
to do any of the foregoing or (v) in response to the commencement of any tender
offer or exchange offer for 10% or more of the outstanding the Company Common
Stock, not recommended rejection of such tender offer or exchange offer within
ten business days after the commencement thereof (as such term is defined in
Rule 14d-2 under the Exchange Act);
(f) (i) by the Company, if Parent breaches any of its representations,
covenants or agreements contained in this Agreement and such breach (A) would
permit the Company not to consummate the Merger pursuant to Sections 6.3(a) or
6.3(b), and (B) either by its terms cannot be cured by the Closing Date or with
respect to any such breach that is reasonably capable of being remedied, the
breach is not remedied within 20 days after the Company has furnished Parent
with written notice of such breach; or (ii) by Parent, if the Company breaches
any of its representations, covenants or agreements contained in this Agreement
and such breach (A) would permit Parent not to consummate the Merger pursuant to
Sections 6.2(a) or 6.2(b), and (B) either by its terms cannot be cured by the
Closing Date or with respect to any such breach that is reasonably capable of
being remedied, is not remedied within 20 days after Parent has furnished the
Company with written notice of such breach; or
(g) By the Company, if its Board of Directors determines at any time, by
the vote of a majority of the members of its entire board, during the five-day
period commencing on the business day following the Determination Date, that
both of the following conditions are satisfied:
(i) the Average Closing Price on the Determination Date of Parent
Ordinary Shares shall be less than the product of the Starting Price and 0.85;
and
(ii) (A) the number obtained by dividing the Average Closing Price on
the Determination Date by the Starting Price (such number being the "Parent
Ratio") shall be less than (B) the number obtained by dividing the Average Index
Price on the Determination Date by the Average Index Price on the Starting Date
and subtracting 0.15 from such quotient (such number being referred to herein as
the "Index Ratio");
subject, however, to the following four sentences: If the Company elects to
exercise its termination right pursuant to the immediately preceding sentence,
it shall give prompt written notice to Parent which notice shall specify that
the conditions set forth above have been satisfied; provided that such notice of
election to terminate may be withdrawn at any time within the aforementioned
five-day period and the five-day period described in the following sentence.
During the five-day period commencing with its receipt of such notice, Parent
shall have the option of adjusting the Exchange Ratio to equal the lesser of (x)
a number equal to a quotient (rounded to the nearest one-ten-thousandth), the
numerator of which is the product of 0.85, the Starting Price and the Exchange
Ratio (as then in effect) and the denominator of which is the Average Closing
Price on the Determination Date, and (y) a number equal to a quotient (rounded
to the nearest one-ten-thousandth), the numerator of which is the Index Ratio
multiplied by the Exchange Ratio (as then in effect) and the denominator of
which is the Parent Ratio. If Parent makes an election contemplated by the
preceding sentence within such five-day period, it shall give prompt written
notice to the Company of such election and the revised Exchange Ratio, whereupon
no termination shall have occurred pursuant to this Section 7.1(g) and this
Agreement shall remain in effect in accordance with its terms (except as the
Exchange Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this Section 7.1(g).
For purposes of this Section 7.1(g), the following term shall have the
following meanings:
"Average Closing Price on the Determination Date" means the average of the
daily closing prices of Company Common Stock as reported on the NYSE Composite
Tape (as reported in The Wall Street Journal or, if not reported therein, in
another mutually acceptable authoritative source) for the ten consecutive full
trading days in which such shares are traded on the NYSE ending at the close of
trading on the Determination Date (the "Company Stock Measurement Period").
"Average Index Price" means, as of the Starting Date or the Determination
Date, the average of the weighted average (weighted in accordance with the
market capitalization of such companies on the Starting Date) of the daily
closing prices of the common stocks of the companies composing the Index Group
as reported on the NYSE Composite Tape (as reported in The Wall Street Journal
or, if not reported therein, in another authoritative source) on the Starting
Date or for the ten consecutive full trading days in which such shares are
traded on the NYSE ending at the close of trading on the Determination Date.
"Determination Date" means the trading day immediately preceding the date
on which all the conditions to Closing (other than conditions that, by their
terms, cannot be satisfied until the Closing Date) set forth in Article VI shall
have been satisfied or waived, subject to change as provided in this Section
7.1(g).
"Index Group" means the group of the ten companies listed in Section 7.1(g)
of the Company Disclosure Letter. In the event that the common stock of any such
company ceases to be publicly traded or a proposal shall be announced for such
company to be acquired or for such company to acquire another company or
companies in transactions with a value exceeding 25% of the acquiror's market
capitalization as of the Starting Date, such company will be removed from the
Index Group, and the weights (which have been determined based on market
capitalization) redistributed proportionately for purposes of determining the
Average Index Price.
"Starting Date" means the first full trading day following the issuance of
a press release announcing the execution of this Agreement.
"Starting Price" shall mean the last sale price per Parent Ordinary Share
on the Starting Date, as reported by the NYSE Composite Tape (as reported in The
Wall Street Journal or, if not reported therein, in another mutually agreed upon
authoritative source).
If between the date of this Agreement and the Determination Date, the
outstanding shares of any stock in the Index Group shall have been changed into
a different number of shares or a different class by reason of any
reclassification, recapitalization, stock split, split-up, combination or
exchange of shares or a stock dividend or dividend payable in any other
securities or extraordinary cash dividend shall be declared with a record date
within such period, or any similar event shall have occurred, appropriate
adjustments shall be made to the Average Index Price, as the case may be, for
purposes of this Agreement; or
(h) By the Company, prior to the receipt of the Company Stockholder
Approval, if its Board of Directors approves a Superior Proposal; provided,
however, that (i) the Company shall have complied with Section 5.8, (ii) the
Board of Directors of the Company shall have concluded in good faith, on the
basis of the advice of its outside legal counsel and financial advisors, that
such proposal is a Superior Proposal and (iii) the Board of Directors shall have
concluded in good faith, based upon the advice of its outside legal counsel,
that approving and entering into an agreement in connection with, and
consummating, such Superior Proposal would likely be required in order to
prevent the Board of Directors of the Company from breaching its fiduciary
duties to the stockholders of the Company under the DGCL; provided, that this
Agreement may not be terminated pursuant to this Section 7.1(h) unless (A)
concurrently with, and as a condition to the effectiveness of, such termination,
the Company pays to Parent the Termination Fee and Expenses (as defined in
Sections 7.3(a) and 7.3(b)), (B) concurrently with such termination the Company
enters into a definitive agreement with respect to, or consummates, such
Superior Proposal, (C) the Company shall have given Parent three business days'
prior written notice of the terms and identity of the party proposing such
Superior Proposal and of such proposed termination, and (D) during such three
business day period, the Company shall have negotiated in good faith with Parent
to permit Parent to make an equivalent proposal, which will be accepted by the
Company; or
(i) By the Company or Parent in accordance with the provisions of Section
6.4 hereof.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 7.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become null
and void, and there shall be no liability on the part of Parent, Sub or the
Company except (a) for fraud or for willful breach of this Agreement, (b) for
the payment of the Termination Fee and Expenses in accordance with Section 7.3
and (c) as set forth in this Section 7.2, in Article VIII hereof and in the last
sentence of Section 5.3.
Section 7.3 Termination Fees and Expenses. (a) In addition to any other
amounts which may be payable pursuant to any other paragraph of this Section
7.3, the Company shall, following the termination of this Agreement pursuant to
Sections 7.1(e) or 7.1(h), promptly, but in no event later than one business day
following written notice thereof, together with reasonable supporting
documentation, reimburse Parent, in an aggregate amount of up to $8,000,000, for
all out-of-pocket expenses and fees (including fees payable to all counsel,
accountants, financial advisors, financial printers, experts and consultants),
whether incurred prior to, concurrently with or after the execution of this
Agreement, in connection with the Merger and the consummation of all
transactions contemplated by this Agreement and the Stock Option Agreement
(collectively, the "Expenses").
(b) In the event that this Agreement is terminated by Parent pursuant to
Sections 7.1(e) or 7.1(h), the Company shall pay to Parent by wire transfer of
immediately available funds to an account designated by Parent on the next
business day following such termination an amount equal to $38,000,000 (the
"Termination Fee").
(c) If all of the following events have occurred:
(i) a Transaction Proposal is commenced, publicly disclosed, publicly
proposed or otherwise communicated to the Company at any time on or after the
date of this Agreement and prior to the termination hereof, and either (A)
Parent or the Company terminates this Agreement pursuant to Sections 7.1(c) or
7.1(d) or (B) Parent terminates this Agreement pursuant to Section 7.1(f)(ii);
and
(ii) thereafter, within 18 months of the date of such termination, the
Company enters into a definitive agreement with respect to, or consummates, any
Transaction Proposal (whether or not such Transaction Proposal was commenced,
publicly disclosed, publicly proposed or otherwise communicated to the Company
prior to such termination);
then, the Company shall pay to Parent an amount equal to the Termination Fee and
Expenses concurrently with the earlier of the execution of such definitive
agreement or the consummation of such Transaction Proposal.
(d) In the event this Agreement is terminated by the Company pursuant to
Section 7.1(i) following the failure of the condition contained in Section
6.1(g) to be satisfied on the Closing Date (other than as a result of a breach
by the Company of its representation and warranty contained in Section 3.22 or
the covenants contained in Sections 5.4(c) or 5.16), Parent shall pay to the
Company by wire transfer of immediately available funds, to an account
designated by the Company, on the next business day following notice of such
termination, together with receipt of reasonable supporting documentation, the
amount of $8 million as reimbursement of expenses incurred by the Company in
connection with this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Costs and Expenses. Except for expenses incurred in connection
with printing the Proxy Statement/Prospectus, as well as the filing fees
relating thereto, which costs shall be shared equally by Parent and the Company,
and except as set forth in Article VII, all costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company contemplated
hereby, by written agreement of the parties hereto, pursuant to action taken by
their respective Boards of Directors, at any time prior to the Effective Time
with respect to any of the terms contained herein; provided, however, that after
the approval of this Agreement by the stockholders of the Company, no such
amendment, modification or supplement shall reduce or change the consideration
to be received by the Company's stockholders in the Merger except as set forth
in Section 7.1(g).
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time. None of the covenants or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for those covenants and agreements contained herein or therein that
by their terms apply or are to be performed in whole or in part after the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Sub, to:
Cumberland House
One Victoria Street
P.O. Box HM 2245
Hamilton HM JX
Bermuda
Attention: Paul S. Giordano, Esq.
Telephone No.: (441) 294-7162
Telecopy No.: (441) 292-5280]
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Lee Meyerson, Esq.
Telephone No.: (212) 455-3675
Telecopy No.: (212) 455-2502
(b) if to the Company, to:
One Greenwich Plaza
P.O. Box 2568
Greenwich, CT 06836-2568
Attention: Martha G. Bannerman, Esq.
Telephone No.: (203) 622-5248
Telecopy No.: (203) 625-5511
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10028
Attention: Dennis J. Block, Esq.
Telephone No.: (212) 504-5555
Telecopy No.: (212) 504-5557
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation".
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
and the Confidentiality Agreement (including the exhibits hereto and the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) except as provided in Section 5.11 with respect to the obligations of
Parent thereunder, are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
Section 8.9 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to the remedy of specific performance of the terms hereof, in addition
to any other remedy at law or equity.
Section 8.10 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof.
Section 8.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned subsidiary of Parent; provided,
however, that no such assignment shall relieve Parent from any of its
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
Section 8.12 Consent to Jurisdiction and Service of Process. Any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated by this Agreement may be brought against any of the parties in any
federal court located in the State of Delaware or any Delaware state court, and
each of the parties hereto consents to the non-exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and waives any objection to venue laid therein. Process in
any such suit, action or proceeding may be served on any party anywhere in the
world and, without limiting the generality of the foregoing, each party hereto
agrees that service of process upon such party at the address referred to in
Section 8.4, together with written notice of such service to such party shall be
deemed effective service of process upon such party.
Section 8.13 Headings. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement. References to Articles or Sections, unless otherwise specified,
are to Articles and Sections of this Agreement.
Section 8.14 Certain Definitions. Certain capitalized terms used in this
Agreement shall have the meaning set forth below:
(a) "affiliate"shall have the meaning set forth in Rule 12b-2 of the
Exchange Act.
(b) "business day" means any day other than a Saturday, a Sunday, or a bank
holiday in Bermuda or in the State of New York.
(c) "Dollars" or "$" means United States dollars.
(d) "Lien" means any mortgage, lien, security interest, pledge, lease or
other charge or encumbrance of any kind, including, the lien or retained
security title of a purchase money creditor or conditional vendor, and any
easement, right of way or other encumbrance on title to real property, and any
agreement to give any of the foregoing.
(e) "person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization or other entity.
(f) "subsidiary" means, with respect to a specified person, each
corporation, partnership or other entity in which the specified person owns or
controls, directly or indirectly through one or more intermediaries, 50 percent
or more of the stock or other interests having general voting power in the
election of directors or persons performing similar functions or rights to 50
percent or more of any distributions; provided, however, with respect to the
Company, "subsidiary" shall also include any syndicate at Lloyd's of London
managed by any such subsidiary.
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
XL CAPITAL LTD
By: /s/ Brian M. O'Hara
----------------------------
Name: Brian M. O'Hara
Title: President and Chief
Executive Officer
ATTEST: /s/ Paul S. Giordano
--------------------------
Secretary
[SEAL]
DASHER ACQUISITION CORP.
By: /s/ Brian M. O'Hara
------------------------------
Name: Brian M. O'Hara
Title: President
NAC RE CORP.
By: /s/ Nicholas M. Brown, Jr.
------------------------------
Name: Nicholas M. Brown, Jr.
Title: President and Chief
Executive Officer
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of February 15, 1999 (the
"Agreement"), by and between NAC Re Corp., a Delaware corporation ("Issuer"),
and XL Capital Ltd, a limited liability company organized and incorporated under
the laws of the Cayman Islands ("Grantee").
RECITALS
A. The Merger Agreement. Grantee, Issuer and Dasher Acquisition Corp., a
Delaware corporation ("Sub") are concurrently herewith entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), among Issuer, Grantee and Sub, providing for, among other things,
the merger of Sub with and into Issuer, with Issuer being the surviving
corporation.
B. Condition to Merger Agreement. As a condition and inducement to
Grantee's and Sub's execution of the Merger Agreement, Grantee and Sub have
required that Issuer agree, and Issuer has agreed, to grant Grantee the Option
(as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 1,860,215 shares (as adjusted as set forth herein, the "Option Shares") of
common stock, par value $0.10 per share, of Issuer ("Issuer Common Stock"), at a
purchase price per Option Share (as adjusted as set forth herein, the "Purchase
Price") equal to $45.3125; provided that in no event shall the number of Option
Shares for which this Option is exercisable exceed 10.1% of the issued and
outstanding shares of Issuer Common Stock. Each Option Share issued upon
exercise of the Option shall be accompanied by the applicable number of Company
Rights as provided in the Company Rights Agreement.
3. Exercise of Option.
(a) Holder may exercise the Option, in whole or in part, at any time and
from time to time following the occurrence of a Purchase Event (as hereinafter
defined); provided that the Option shall terminate and be of no further force or
effect upon the earliest to occur of (A) the Effective Time, (B) termination of
the Merger Agreement in accordance with the terms thereof prior to the
occurrence of a Purchase Event (as hereinafter defined) or (C) the later of (1)
February 15, 2000 and (2) 6 months after a termination of the Merger Agreement
following the occurrence of a Purchase Event; and provided, further that any
purchase of shares upon exercise of the Option shall be subject to compliance
with applicable law. Notwithstanding the termination of the Option, Grantee or
Holder, as the case may be, shall be entitled to purchase those Option Shares
with respect to which it has exercised the Option in accordance with the terms
of this Agreement prior to the termination of the Option. The term "Holder"
shall mean the holder or holders of the Option from time to time, which
initially is Grantee. The termination of the Option shall not affect any rights
hereunder which by their terms extend beyond the date of such termination.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly disclosed an
intention to authorize, recommend or propose, or entered into one or more
agreements with any person (other than Grantee or any subsidiary of
Grantee) to effect, or effected, in a single transaction or a series of
related transactions, any Transaction Proposal; or
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in Section
13(d)(3) of the Exchange Act), other than a group of which Grantee or any
subsidiary of Grantee is a member, shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of 10%
or more of the voting power of Issuer or any of its Subsidiaries; or
(iii) any person (other than Grantee or any subsidiary of Grantee)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to
purchase any shares of Issuer Common Stock such that, upon consummation of
such offer, such person would own or control 10% or more of the then
outstanding shares of Issuer Common Stock (such an offer being referred to
herein as a "Tender Offer" or an "Exchange Offer," respectively); or
(iv) the Company Stockholder Approval shall not have been received at
a duly held meeting of stockholders or at any adjournment thereof, or the
Stockholders Meeting shall not have been held or shall have been canceled
prior to the termination of the Merger Agreement, in each case after it
shall have been publicly disclosed that any person (other than Grantee or
any subsidiary of Grantee) shall have (A) made, or disclosed an intention
to make, a Transaction Proposal, or (B) filed an application or notice,
whether in draft or final form, with a Governmental Entity for approval or
consent to make or consummate a Transaction Proposal; or
(v) the Issuer or its Board of Directors shall have (A) withdrawn,
modified or amended in any respect adverse to Grantee the recommendation of
Issuer's Board of Directors with respect to the Merger Agreement, (B)
failed as promptly as practicable after the Form S-4 is declared effective
to mail the Proxy Statement/ Prospectus to its stockholders, unless such
failure was caused by the actions or inactions of Grantee or its
representatives, or failed to include in such Proxy Statement/Prospectus
the Company Board Recommendation or (C) resolved to take any of the
foregoing actions; or
(vi) the Merger Agreement shall have been terminated in accordance
with its terms under any circumstances in which the Termination Fee is or,
upon the occurrence of the events specified therein, would become payable
as provided in Section 7.3(b) or 7.3(c) of the Merger Agreement.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(c) Issuer shall notify Grantee promptly in writing of the occurrence of
any Purchase Event, it being understood that the giving of such notice by Issuer
shall not be a condition to the right of Holder to exercise the Option.
(d) In the event Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 60 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"); provided that if
the Closing cannot be consummated by reason of any applicable Law or the need to
obtain any necessary approvals or consents of applicable Governmental Entities,
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired or
been terminated; and provided, further, without limiting the foregoing, that if
prior notification or application to, approval of or authorization by any
Governmental Entity is required in connection with such purchase, Issuer shall
use all reasonable efforts to cooperate with the Holder in the prompt filing of
the required notice or application for approval or authorization, and the
Closing shall occur immediately following the date on which such approvals have
been obtained or any required notification or waiting periods have expired. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(e) Notwithstanding Section 3(d), in no event shall any Closing Date be
more than 12 months after the related Notice Date, and if the Closing Date shall
not have occurred within 12 months after the related Notice Date due to the
failure to obtain any such required approval, the exercise of the Option
effected on the Notice Date shall be deemed to have expired. In the event (i)
Holder receives official notice that an approval of any Governmental Entity
required for the purchase of Option Shares will not be issued or granted or (ii)
a Closing Date shall not have occurred within 12 months after the related Notice
Date due to the failure to obtain any such required approval, Grantee shall be
entitled to exercise the Option (whether or not the Option would have otherwise
terminated) in connection with the resale of Issuer Common Stock or other
securities pursuant to a registration statement as provided in Section 11. The
provisions of this Section 3 and Section 4 shall apply with appropriate
adjustments to any such exercise.
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer
(provided that the failure or refusal of Issuer to designate a bank account
shall not preclude the Holder from exercising the Option), an amount equal to
the Purchase Price multiplied by the number of Option Shares to be purchased on
such Closing Date, and (ii) present and surrender this Agreement to the Issuer
at the address of the Issuer specified in Section 14(f).
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
Issuer shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all Liens and subject to no preemptive rights, and (B) if the
Option is exercised in part only, an executed new agreement with the same terms
as this Agreement evidencing the right to purchase the balance of the shares of
Issuer Common Stock purchasable hereunder, and (ii) Holder shall deliver to
Issuer a letter agreeing that Holder shall not offer to sell or otherwise
dispose of such Option Shares in violation of applicable federal and state law
or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 15,
1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE SECRETARY OF THE ISSUER OF A WRITTEN
REQUEST THEREFOR.
It is understood and agreed that (i) the portion of the above legend relating to
the Securities Act shall be removed by delivery of substitute certificate(s)
without such legend if such Option Shares have been registered pursuant to the
Securities Act, such Option Shares have been sold in reliance on and in
accordance with Rule 144 under the Securities Act or Holder shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act, (ii)
the reference to restrictions pursuant to this Agreement in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Option Shares evidenced by certificate(s) containing such reference have
been sold or transferred in compliance with the provisions of this Agreement
under circumstances that do not require the retention of such reference and
(iii) such legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied.
(d) Upon the giving by Holder to Issuer of the written notice of exercise
of the Option provided for under Section 3(d), the tender of the applicable
Purchase Price in immediately available funds and the tender of this Agreement
to Issuer, Holder shall be deemed to be the holder of record of the shares of
Issuer Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates representing
such shares of Issuer Common Stock shall not then be actually delivered to
Holder. Issuer shall pay all expenses, and any and all federal, foreign, state,
and local taxes and other charges that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 4(d)
in the name of Holder or its assignee, transferee, or designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from Liens
and preemptive or similar rights, sufficient authorized but unissued or treasury
shares of Issuer Common Stock ("Available Authorized Shares") so that the Option
may be exercised without additional authorization of Issuer Common Stock after
giving effect to all other options, warrants, convertible securities and other
rights to purchase Issuer Common Stock then outstanding, (ii) that it will not,
by charter amendment or through reorganization, recapitalization, consolidation,
merger, dissolution, liquidation, spin-off, sale of assets or similar
transaction, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, agreements, stipulations or
conditions to be observed or performed hereunder by Issuer, (iii) promptly to
take all action as may from time to time be required (including (A) complying
with all premerger notification, reporting and waiting period requirements and
(B) in the event prior approval or authorization of or notice or application to
any Governmental Entity is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Entity as it may require) in
order to permit Holder to exercise the Option and Issuer duly and effectively to
issue shares of the Issuer Common Stock pursuant hereto, and (iv) promptly to
take all action provided herein to protect the rights of Holder against
dilution. Notwithstanding the foregoing, it is understood that as of the date of
this Agreement, Issuer does not have Available Authorized Shares sufficient to
permit the exercise of the Option in full. Issuer covenants and agrees to use
its best efforts to cause its Board of Directors to designate, in accordance
with its certificate of incorporation and the DGCL, a series of preferred stock
of Issuer having terms such that each 1/100 of a share of such preferred stock
(a "Preferred Share") shall have voting, dividend and liquidation rights
equivalent to one share of Issuer Common Stock. In the event of an exercise of
the Option for a number of shares of Issuer Common Stock in excess of the number
of Available Authorized Shares (such excess, the "Excess Shares"), Grantee shall
be entitled to purchase a number of such Preferred Shares equal to the number of
Excess Shares at a price per 1/100th of a Preferred Share equal to the Purchase
Price. Any such Preferred Shares so issued pursuant to the terms hereof shall be
"Option Shares" and shares of "Issuer Common Stock" for all purposes under this
Agreement and all references herein to "Option Shares" and "Issuer Common Stock"
shall include the Preferred Shares.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee (and Holder, if different than Grantee) as follows:
(a) Corporate Authority. Issuer has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; the execution and delivery of this Agreement
and, subject to receiving any necessary approvals or authorizations from
Governmental Entities, the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of Issuer, and
no other corporate proceedings on the part of Issuer are necessary to authorize
this Agreement or to consummate the transactions so contemplated; this Agreement
has been duly and validly executed and delivered by Issuer and (assuming due
authorization, execution and delivery by Grantee) constitutes a valid and
binding obligation of Issuer, enforceable against Issuer in accordance with its
terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws, now or
hereinafter in effect, affecting creditors' rights generally, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) Shares Reserved for Issuance; Capital Stock. Issuer has taken all
necessary corporate action to authorize and reserve and permit it to issue, and
at all times from the date hereof through the termination of this Agreement in
accordance with its terms, will have reserved for issuance, upon the exercise of
the Option, that number of shares of Issuer Common Stock (including Preferred
Shares) equal to the maximum number of shares of Issuer Common Stock and other
shares and securities which are at any time and from time to time purchasable
upon exercise of the Option, and all such shares and other securities (including
Preferred Shares), upon issuance pursuant to the Option, will be duly
authorized, validly issued, fully paid and nonassessable, and will be delivered
free and clear of all Liens (other than those created by this Agreement) and not
subject to any preemptive or other similar rights.
(c) No Violations. The execution, delivery and performance of this
Agreement does not and will not, and the consummation by Issuer of any of the
transactions contemplated hereby will not, constitute or result in (A) a breach
or violation of, or a default under, its certificate of incorporation or
by-laws, or the comparable governing instruments of any of its subsidiaries, or
(B) a breach or violation of, or a default under, any Company Agreement (with or
without the giving of notice, the lapse of time or both) or under any Law or
governmental or non-governmental permit or license to which it or any of its
subsidiaries is subject, that would in any case give any other person the
ability to prevent or enjoin Issuer's performance under this Agreement in any
material respect.
(d) Board Action. The Board of Directors of Issuer has approved this
Agreement and the consummation of the transactions contemplated hereby as
required under Section 203 of the DGCL and any other applicable state takeover
laws so that any such state takeover laws do not and will not apply to this
Agreement or any of the transactions contemplated hereby (including the purchase
of shares of Issuer Common Stock pursuant to this Agreement).
(e) Rights Amendment. The Company Rights Agreement has been amended to
provide that neither Grantee nor any Holder will become an "Acquiring Person"
and that no "Stock Acquisition Date" or "Distribution Date" (as such terms are
defined in the Company Rights Agreement) will occur as a result of the approval,
execution or delivery of this Agreement or the Merger Agreement or the
consummation of the transactions contemplated hereby and thereby, including the
acquisition of shares of Issuer Common Stock by Grantee or Holder pursuant to
this Agreement.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer as follows:
(a) Corporate Authority. Grantee has full corporate power and authority to
enter into this Agreement and, subject to obtaining the approvals referred to in
this Agreement, to consummate the transactions contemplated by this Agreement;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee; and this Agreement has been duly
executed and delivered by Grantee and (assuming due authorization, execution and
delivery by Issuer) constitutes a valid and binding obligation of the Grantee,
enforceable against the Grantee in accordance with its terms.
(b) Purchase Not for Distribution. Any Option Shares or other securities
acquired by Grantee or Holder upon exercise of the Option will not be taken with
a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
7. Adjustment upon Changes in Issuer Capitalization, Etc.
(a) In the event of any change from time to time in Issuer Common Stock and
any other shares or securities subject to the Option by reason of a stock
dividend, subdivision, spinoff, stock split, split-up, merger, consolidation,
recapitalization, combination, exchange of shares, distribution on or in respect
of the Issuer Common Stock that would be prohibited under the terms of the
Merger Agreement, or similar transaction, the type and number of shares or
securities subject to the Option, and the Purchase Price therefor, shall be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction, so that Holder shall receive, upon exercise of the
Option, the economic benefits provided hereunder, including the number and class
of shares or other securities or property that Holder would have received in
respect of Issuer Common Stock if the Option had been exercised immediately
prior to such event, or the record date therefor, as applicable. If any
additional shares of Issuer Common Stock are issued or otherwise become
outstanding after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 7(a) or upon exercise of the
Option) the number of shares of Issuer Common Stock subject to the Option shall
be adjusted so that, after such issuance, it, together with any shares of Issuer
Common Stock previously issued pursuant hereto, equals 10.1% of the number of
shares of Issuer Common Stock then issued and outstanding, without giving effect
to any shares subject to or issued pursuant to the Option. In the event that
Issuer issues or agrees to issue any shares of Issuer Common Stock (other than
as permitted by the Merger Agreement) at a price per share less than the
Purchase Price (as theretofore adjusted pursuant to this Section 7) the Purchase
Price shall be reduced to equal such lesser price. No provision of this Section
7 shall be deemed to affect or change, or constitute authorization for any
violation of, any of the covenants, agreements, representations or warranties in
the Merger Agreement.
(b) Without limiting the parties' relative rights, remedies, liabilities
and obligations under the Merger Agreement or this Agreement, in the event that
Issuer shall enter into an agreement (other than the Merger Agreement) (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for another
class or series of stock or other securities of Issuer or any other person or
cash or any other property or the outstanding shares of Issuer Common Stock
immediately prior to such merger shall, after such merger, represent less than
75% of the outstanding shares and share equivalents having general voting power
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets or the assets of its subsidiaries taken as a
whole, in one transaction or a series of related transactions, to any person,
other than Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of Holder, of either (x) the
Acquiring Corporation (as hereinafter defined), (y) any person that controls the
Acquiring Corporation, or (z) in the case of a merger described in clause (ii),
Issuer (such person being referred to as "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option, provided
that, if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to Holder, and provided, further that the Substitute Option
shall be exercisable immediately upon issuance without the occurrence of a
further Purchase Event. Substitute Option Issuer shall also enter into an
agreement with Holder in substantially the same form as this Agreement, which
shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of Substitute Common Stock (the "Substitute Option Price")
shall then be equal to the Purchase Price multiplied by a fraction in which the
numerator is the number of shares of Issuer Common Stock for which the Option
was theretofore exercisable and the denominator is the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (y) Issuer in a merger in which Issuer is the continuing or
surviving person, or (z) the transferee of all or substantially all of
Issuer's assets (or the assets of its subsidiaries taken as a whole).
(ii) "Assigned Value" shall mean the highest of (w) the price per
share of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made, (x) the price per share of Issuer Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (y) the
highest closing price for shares of Issuer Common Stock within the
six-month period immediately preceding the date on which the merger,
consolidation, asset sale or other transaction in question is consummated,
and (z) in the event of a sale of all or substantially all of Issuer's
assets (or of the assets of its subsidiaries as a whole) an amount equal to
(I) the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer, as determined by a
nationally recognized investment banking firm selected by Holder, divided
by (II) the number of shares of Issuer Common Stock outstanding at such
time. In calculating the Assigned Value, in the event that a Tender Offer
or an Exchange Offer is made for Issuer Common Stock or an agreement is
entered into for a merger or consolidation involving consideration other
than cash, the value of the securities or other property issuable or
deliverable in exchange for Issuer Common Stock shall be determined by a
nationally recognized investment banking firm selected by Holder.
(iii) "Average Price" shall mean the average closing price of a share
of Substitute Common Stock on the NYSE (or if such Substitute Common Stock
is not listed on the NYSE, the average closing price on the National
Association of Securities Dealers Automated Quotation System or, if the
shares of Substitute Common Stock are not quoted thereon, the highest bid
price per share as quoted on the principal trading market on which such
shares are traded as reported by a recognized source) for the one year
immediately preceding the date of consummation of the consolidation, merger
or sale in question, but in no event higher than the closing price of the
shares of Substitute Common Stock on the day preceding such consolidation,
merger or sale; provided that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a share of
common stock issued by Issuer, by the person merging into Issuer or by any
company which controls such person, as Holder may elect.
(iv) "Substitute Common Stock" shall mean the shares of capital stock
(or similar equity interest) with the greatest voting power in respect of
the election of directors (or persons similarly responsible for the
direction of the business and affairs) of the Substitute Option Issuer.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 10.1% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 10.1% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this Section 7(f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this Section 7(f) over (ii) the value of the Substitute Option
after giving effect to the limitation in the first sentence of this Section
7(f). This difference in value shall be determined by a nationally-recognized
investment banking firm selected by Holder.
(g) Issuer shall not enter into any transaction described in Section 7(b)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder and take
all other actions that may be necessary so that the provisions of this Section 7
are given full force and effect (including, without limitation, any action that
may be necessary so that the holders of the other shares of common stock issued
by Substitute Option Issuer are not entitled to exercise any rights by reason of
the issuance or exercise of the Substitute Option and the shares of Substitute
Common Stock are otherwise in no way distinguishable from or have lesser
economic value (other than any diminution in value resulting from the fact that
the Substitute Common Stock are restricted securities, as defined in Rule 144
under the Securities Act or any successor provision) than other shares of common
stock issued by Substitute Option Issuer).
8. Repurchase at the Option of Holder.
(a) At the request of Holder at any time (i) commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 18
months immediately thereafter and (ii) for 30 business days following the
occurrence of either of the events set forth in clauses (i) and (ii) of Section
3(e) (but solely as to shares of Issuer Common Stock with respect to which the
required approval was not received, Issuer (or any successor) shall repurchase
from Holder (x) the Option and (y) all shares of Issuer Common Stock purchased
by Holder pursuant hereto with respect to which Holder then has beneficial
ownership. The date on which Holder exercises its rights under this Section 8 is
referred to as the "Request Date". Such repurchase shall be at an aggregate
price (the "Section 8 Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Holder for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Holder then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the option has been exercised but
the Closing Date has not occurred, payable) by Holder for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Holder then has beneficial ownership, multiplied by
the number of such shares.
(b) If Holder exercises its rights under this Section 8, Issuer shall,
within 5 business days after the Request Date, pay the Section 8 Repurchase
Consideration to Holder in immediately available funds, and contemporaneously
with such payment, Holder shall surrender to Issuer the Option and the
certificates evidencing the shares of Issuer Common Stock purchased thereunder
with respect to which Holder then has beneficial ownership, and Holder shall
warrant that it has sole record and beneficial ownership of such shares and the
Option and that the same are then free and clear of all Liens. Notwithstanding
the foregoing, to the extent that prior notification to or approval of any
Governmental Entity is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing
option to revoke its request for repurchase pursuant to Section 8, in whole or
in part, or to require that Issuer deliver from time to time that portion of the
Section 8 Repurchase Consideration that it is not then so prohibited from paying
and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other in
the filing of any such notice or application and the obtaining of any such
approval) and the period of time that would otherwise run pursuant to the
preceding sentence for the payment of the portion of the Section 8 Repurchase
Consideration shall run instead from the date on which, as the case may be, (i)
any required notification period has expired or been terminated or (ii) such
approval has been obtained and, in either event, any requisite waiting period
shall have passed. If any Governmental Entity disapproves of any part of
Issuer's proposed repurchase pursuant to this Section 8, Issuer shall promptly
give notice of such fact to Holder. If any Governmental Entity prohibits the
repurchase (and Issuer hereby undertakes to use all reasonable efforts to obtain
all required approvals from Governmental Entities to accomplish such repurchase)
in part but not in whole, then Holder shall have the right (i) to revoke the
repurchase request or (ii) to the extent permitted by such Governmental Entity,
determine whether the repurchase should apply to the Option and/or Option Shares
and to what extent to each, and Holder shall thereupon have the right to
exercise the Option as to the number of Option Shares for which the Option was
exercisable at the Request Date less the sum of the number of shares covered by
the Option in respect of which payment has been made pursuant to Section
8(a)(ii) and the number of shares covered by the portion of the Option (if any)
that has been repurchased; whereupon, in the case of clause (ii), Issuer shall
promptly (x) deliver to the Holder that portion of the Section 8 Repurchase
Consideration Price that Issuer is not prohibited from delivering and (y)
deliver to the Holder, as appropriate, either (A) a new Agreement evidencing the
right of the Holder to purchase that number of shares of Issuer Common Stock
obtained by multiplying the number of shares of Common Stock for which the
surrendered Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Section 8 Repurchase
Consideration less the portion thereof theretofore delivered to the Holder and
the denominator of which is the Section 8 Repurchase Consideration, or (B) a
certificate for the Option Shares it is then so prohibited from repurchasing;
provided, that if the Option shall have terminated prior to the date of such
notice or shall be scheduled to terminate at any time before the expiration of a
period ending on the thirtieth business day after such date, Holder shall
nonetheless have the right so to exercise the Option or exercise its rights
under Section 9 until the expiration of such period of 30 business days. Holder
shall notify Issuer of its determination under the preceding sentence within 10
business days of receipt of notice of disapproval of the repurchase.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i), (ii) the price
per share of Issuer Common Stock received by holders of Issuer Common Stock in
connection with any merger or other business combination transaction described
in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), and (iii) the highest closing sales
price per share of Issuer Common Stock quoted on the NYSE (or if Issuer Common
Stock is not listed on the NYSE, the highest closing price per share as quoted
on the Nasdaq National Market System or, if the shares of Issuer Common Stock
are not quoted thereon, the highest bid price per share as quoted on the
principal trading market in which such shares are traded as reported by a
recognized source) during the 40 business days preceding the Request Date;
provided, however, that in the event of a sale of less than all of Issuer's
assets, the Applicable Price shall be the sum of the price paid in such sale for
such assets and the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected by
Holder, divided by the number of shares of the Issuer Common Stock outstanding
at the time of such sale. If the consideration to be offered, paid or received
pursuant to either of the foregoing clauses (i) or (ii) shall be other than
cash, the value of such consideration shall be determined in good faith by an
independent nationally recognized investment banking firm selected by Holder,
which determination shall be conclusive for all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act), or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, 35% or
more of the then outstanding shares of Issuer Common Stock, (ii) any of the
transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) has been
consummated or (iii) Issuer has entered into an agreement pursuant to which any
of the transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) could or
will be consummated.
9. Repurchase of Substitute Option.
(a) At the request of Holder at any time (i) commencing upon the first
occurrence of a Substitute Repurchase Event (as defined in Section 9(d)) and
ending 18 months immediately thereafter and (ii) for 30 business days following
the occurrence of either of the events set forth in clauses (i) and (ii) of
Section 3(e) (but solely as to shares of Substitute Common Stock with respect to
which the required approval was not received), Substitute Option Issuer (or any
successor) shall repurchase from Holder (x) the Option and (y) all shares of
Substitute Common Stock purchased by Holder pursuant hereto with respect to
which Holder then has beneficial ownership. The date on which Holder exercises
its rights under this Section 9 is referred to as the "Section 9 Request Date".
Such repurchase shall be at an aggregate price (the "Section 9 Repurchase
Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Holder for any shares of
Substitute Common Stock acquired pursuant to the Substitute Option with
respect to which Holder then has beneficial ownership;
(ii) the excess, if any, of (x) the Substitute Applicable Price (as
defined below) for each share of Substitute Common Stock over (y) the
Purchase Price (subject to adjustment pursuant to Section 7), multiplied by
the number of shares of Substitute Common Stock with respect to which the
Substitute Option has not been exercised; and
(iii) the excess, if any, of the Substitute Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in
the case of Option Shares (for purposes of this Agreement, Option Shares
shall include shares of Substitute Common Stock and related securities
subject to the Substitute Option) with respect to which the Substitute
Option has been exercised but the Closing Date has not occurred, payable)
by Holder for each share of Substitute Common Stock with respect to which
the Substitute Option has been exercised and with respect to which Holder
then has beneficial ownership, multiplied by the number of such shares.
(b) If Holder exercises its rights under this Section 9, Substitute Option
Issuer shall, within 5 business days after the Section 9 Request Date, pay the
Section 9 Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment, Holder shall surrender to Substitute Option
Issuer the Substitute Option and the certificates evidencing the shares of
Substitute Common Stock purchased thereunder with respect to which Holder then
has beneficial ownership, and Holder shall warrant that it has sole record and
beneficial ownership of such shares and the Substitute Option and that the same
are then free and clear of all Liens. Notwithstanding the foregoing, to the
extent that prior notification to or approval of any Governmental Entity is
required in connection with the payment of all or any portion of the Section 9
Repurchase Consideration, Holder shall have the ongoing option to revoke its
request for repurchase pursuant to Section 9, in whole or in part, or to require
that Substitute Option Issuer deliver from time to time that portion of the
Section 9 Repurchase Consideration that it is not then so prohibited from paying
and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other in
the filing of any such notice or application and the obtaining of any such
approval) and the period of time that would otherwise run pursuant to the
preceding sentence for the payment of the portion of the Section 9 Repurchase
Consideration shall run instead from the date on which, as the case may be, (i)
any required notification period has expired or been terminated or (ii) such
approval has been obtained and, in either event, any requisite waiting period
shall have passed. If any Governmental Entity disapproves of any part of
Substitute Option Issuer's proposed repurchase pursuant to this Section 9,
Substitute Option Issuer shall promptly give notice of such fact to Holder (such
notice a "Notice of Disapproval"). If any Governmental Entity prohibits the
repurchase (and Substitute Option Issuer hereby undertakes to use all reasonable
efforts to obtain all required approvals from Governmental Entities to
accomplish such repurchase) in part but not in whole, then Holder shall have the
right (i) to revoke the repurchase request or (ii) to the extent permitted by
such Governmental Entity, determine whether the repurchase should apply to the
Substitute Option and/or Option Shares and to what extent to each, and Holder
shall thereupon have the right to exercise the Substitute Option as to the
number of Option Shares for which the Substitute Option was exercisable at the
Section 9 Request Date less the sum of the number of shares covered by the
Substitute Option in respect of which payment has been made pursuant to Section
9(a)(ii) and the number of shares covered by the portion of the Substitute
Option (if any) that has been repurchased; whereupon, in the case of clause
(ii), Substitute Option Issuer shall promptly (x) deliver to the Holder that
portion of the Section 9 Repurchase Consideration Price that Substitute Option
Issuer is not prohibited from delivering and (y) deliver to the Holder, as
appropriate, either (A) a new Stock Option Agreement evidencing the right of the
Holder to purchase that number of shares of Substitute Common Stock obtained by
multiplying the number of shares of Substitute Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Section 9
Repurchase Consideration less the portion thereof theretofore delivered to the
Holder and the denominator of which is the Section 9 Repurchase Consideration or
(B) a certificate for the Option Shares it is then so prohibited from
repurchasing; provided, further, that if the Substitute Option shall have
terminated prior to the date of such notice or shall be scheduled to terminate
at any time before the expiration of a period ending on the thirtieth business
day after such date, Grantee shall nonetheless have the right so to exercise the
Substitute Option or exercise its rights under Section 9 until the expiration of
such period of 30 business days. Holder shall notify Substitute Option Issuer of
its determination under the preceding sentence within ten business days of
receipt of Notice of Disapproval of the repurchase.
(c) For purposes of this Agreement, the "Substitute Applicable Price"
means the highest of (i) the highest price per share of Substitute Common Stock
paid for any such share by the person or groups described in Section 9(d)(i),
(ii) the price per share of Substitute Common Stock received by holders of
Substitute Common Stock in connection with any merger or other business
combination transaction described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or
(iii) the highest closing sales price per share of Substitute Common Stock
quoted on the NYSE (or if the Substitute Common Stock is not listed on the NYSE,
the highest closing price per share as quoted the Nasdaq NMS or, if the shares
of Substitute Common Stock are not quoted thereon, the highest bid price on the
principal trading market in which such shares are traded by a recognized source)
during the 40 business days preceding the Section 9 Request Date; provided,
however, that in the event of a sale of less than all of Substitute Option
Issuer's assets, the Substitute Applicable Price shall be the sum of the price
paid in such sale for such assets and the current market value of the remaining
assets of Substitute Option Issuer as determined by a nationally recognized
investment banking firm selected by Holder, divided by the number of shares of
the Substitute Common Stock outstanding at the time of such sale. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Holder, which determination shall
be conclusive for all purposes of this Agreement.
(d) As used herein, a "Substitute Repurchase Event" shall occur if (i) any
person (other than Grantee or any subsidiary of Grantee) shall have acquired
beneficial ownership of (as such term is defined in Rule 13d-3 promulgated under
the Exchange Act), or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under the Exchange Act) shall have been formed
which beneficially owns or has the right to acquire beneficial ownership of, 35%
or more of the then outstanding shares of Substitute Common Stock, (ii) any of
the transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) has been
consummated or (iii) Substitute Option Issuer has entered into an agreement
pursuant to which any of the transactions described in Section 7(b)(i), 7(b)(ii)
or 7(b)(iii) could or will be consummated. If the consideration paid or to be
paid to holders of Substitute Common Stock in the transactions referred to in
either of the foregoing clauses (i) or (ii) shall be other than cash, the value
of such consideration shall be determined in good faith by an independent
nationally recognized investment banking firm selected by Holder, which
determination shall be conclusive for all purposes of this Agreement.
(e) All references to "Issuer", "Issuer Common Stock" and "Section 8"
contained herein shall also be deemed to be references to "Substitute Option
Issuer," "Substitute Common Stock" and "Section 9" respectively.
10. Right of First Refusal. If, within one year after the Closing Date (but
not thereafter), Grantee proposes to sell all or any part of the Option Shares
in a transaction not required to be registered under the Securities Act (other
than in a transfer by operation of law upon consummation of a merger or
consolidation, in a tender or exchange offer or in a sale under Rule 144 or a
successor provision under the Securities Act), it shall give Issuer the
opportunity, in the following manner, to purchase such Option Shares:
(a) Grantee shall give notice to Issuer in writing of its intent to sell
Option Shares (a "Disposition Notice"), specifying the number of Option Shares
to be sold, the price and the material terms of any agreement relating thereto.
The Disposition Notice may be given at any time.
(b) Issuer shall have the right, exercisable by written notice given to
Grantee within 5 business days after receipt of a Disposition Notice, to
purchase all, but not less than all, of the Option Shares specified in the
Disposition Notice at the price set forth in the Disposition Notice. If the
purchase price specified in the Disposition Notice includes any property other
than cash, the purchase price to be paid by Issuer shall be an amount of cash
equal to the sum of (i) the cash included in the purchase price plus (ii) the
fair market value of such other property at the date of the Disposition Notice.
If such other property consists of securities with an existing public trading
market, the average of the last sale prices for such securities on the five
trading days ending five days prior to the date of the Disposition Notice shall
be used as the fair market value of such property. If such other property
consists of something other than cash or securities with an existing public
trading market and at the time of the closing referred to in paragraph (c)
below, agreement on the value of such other property has not been reached, the
average of the closing prices for the Issuer's common stock on the five trading
days ending five days prior to the date of the Disposition Notice shall be used
as the per share purchase price; provided, however, that promptly after the
closing, Grantee and Issuer or its designee, as the case may be, shall settle
any additional amounts to be paid or returned as a result of the determination
of fair market value of such other property made by a nationally recognized
investment banking firm selected by Issuer and approved by Grantee within 30
days of the closing. Such determination shall be final and binding on all
parties hereto.
(c) If Issuer exercises its right of first refusal hereunder, the closing
of the purchase of the Option Shares with respect to which such right has been
exercised shall take place within five business days after the notice of such
exercise; provided, however, that at any time prior to the closing of the
purchase of Option Shares hereunder, Grantee may determine not to sell the
Option Shares and revoke the Disposition Notice and, by so doing, cancel
Issuer's right of first refusal with respect thereto. Issuer shall pay for the
Option Shares in immediately available funds.
(d) If Issuer does not exercise its right of first refusal hereunder within
the time specified for such exercise, Grantee shall be free for 90 days
following the expiration of such time for exercise to sell or enter into an
agreement to sell the Option Shares specified in the Disposition Notice, at the
price specified in the Disposition Notice or any price in excess thereof and
otherwise on substantially the same terms set forth in the Disposition Notice;
provided, that if such sale is not consummated within such 90-day period (unless
the approval or consent of a Governmental Entity is required to consummate such
sale, in which case the 90-day period shall not be deemed to have expired until
after such approval or consent shall have been granted), then the provisions of
this Section 10 will again apply to the sale of such Option Shares.
11. Registration Rights.
(a) Demand Registration Rights. Issuer shall, subject to the conditions of
Section 11(c) below, if requested by any Holder, including Grantee and any
permitted transferee ("Selling Stockholder"), as expeditiously as possible
prepare, file and keep current a registration statement under the Securities Act
if such registration is necessary in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other securities that
have been acquired by or are issuable to the Selling Stockholder upon exercise
of the Option in accordance with the intended method of sale or other
disposition stated by the Selling Stockholder in such request, including,
without limitation, a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use its best efforts
to qualify such shares or other securities for sale under any applicable state
securities laws.
(b) Piggyback Registration Rights. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to the
Selling Stockholders of its intention to do so and, upon the written request of
any Selling Stockholder given within 30 days after receipt of any such notice
(which request shall specify the number of shares of Issuer Common Stock
intended to be included in such underwritten public offering by the Selling
Stockholder), Issuer will cause all such shares for which a Selling Stockholder
requests participation in such registration, to be so registered and included in
such underwritten public offering; provided, however, that Issuer may elect to
not cause such shares to be so registered (i) if in the reasonable good faith
opinion of the underwriters for such offering, the inclusion of all such shares
by the Selling Stockholder would materially interfere with the marketing of such
offering (in which case Issuer shall register as many shares as possible without
materially interfering with the marketing of the offering), or (ii) in the case
of a registration solely to implement an employee benefit plan or a registration
filed on Form S-4 of the Securities Act or any successor Form. If some but not
all the shares of Issuer Common Stock with respect to which Issuer shall have
received requests for registration pursuant to this Section 11(b) shall be
excluded from such registration, Issuer shall make appropriate allocation of
shares to be registered among the Selling Stockholders desiring to register
their shares pro rata in the proportion that the number of shares requested to
be registered by each such Selling Stockholder bears to the total number of
shares requested to be registered by all such Selling Stockholders then desiring
to have Issuer Common Stock registered for sale.
(c) Conditions to Required Registration. Issuer shall use all reasonable
efforts to cause each registration statement referred to in Section 11(a) above
to become effective and to obtain all consents or waivers of other parties which
are required therefor and to keep such registration statement effective;
provided, however, that Issuer may delay any registration of Option Shares
required pursuant to Section 11(a) above for a period not exceeding 90 days
provided Issuer shall in good faith determine that any such registration would
adversely affect an offering or contemplated offering of other securities by
Issuer, and Issuer shall not be required to register Option Shares under the
Securities Act pursuant to Section 11(a) above:
(i) prior to the earliest of (a) termination of the Merger Agreement
pursuant to Article VII thereof, (b) failure to obtain the Company
Stockholder Approval, and (c) a Purchase Event;
(ii) on more than two occasions during any calendar year;
(iii) within 90 days after the effective date of a registration
referred to in Section 11(b) above pursuant to which the Selling
Stockholder or Selling Stockholders concerned were afforded the opportunity
to register such shares under the Securities Act and such shares were
registered as requested;
(iv) unless a request therefor is made to Issuer by Selling
Stockholders that hold at least 25% or more of the aggregate number of
Option Shares (including shares of Issuer Common Stock and other securities
issuable upon exercise of the Option) then outstanding; and
(v) after such date as all the Option Shares may be resold in one
transaction pursuant to Rule 144 of the Securities Act (or any successor or
similar rule or act).
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of one year
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares; provided, however, that Issuer shall not
be required to consent to general jurisdiction or qualify to do business in any
state where it is not otherwise required to so consent to such jurisdiction or
to so qualify to do business. If requested by any such Holder in connection with
such registration, Issuer shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating itself
in respect of representations, warranties, indemnities and other agreements
customarily included in secondary offering underwriting agreements. Upon
receiving any request under this Section 11 from any Holder, Issuer agrees to
send a copy thereof to any other person known to Issuer to be entitled to
registration rights under this Section 11, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
(d) Expenses. Except where applicable state law prohibits such payments,
Issuer will pay all expenses (including, without limitation, registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal fees and expenses, including the reasonable fees and expenses
of one counsel to the holders whose Option Shares are being registered, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to Section 11(a) or 11(b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to Section 11(a) or 11(b)
above.
(e) Indemnification. In connection with any registration under Section
11(a) or 11(b) above Issuer hereby indemnifies the Selling Stockholders, and
each underwriter thereof, including each person, if any, who controls such
holder or underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement of a material fact contained in any
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by each such Selling Stockholder, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement, that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such Selling Stockholder or such underwriter, as the case
may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 11(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 11(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 11(e) unless the failure so to notify the indemnified party results in
substantial prejudice thereto. In case notice of commencement of any such action
shall be given to the indemnifying party as above provided, the indemnifying
party shall be entitled to participate in and, to the extent it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense of such action at its own expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(i) the indemnifying party either agrees to pay the same, (ii) the indemnifying
party fails to assume the defense of such action with counsel satisfactory to
the indemnified party, or (iii) the indemnified party has been advised by
counsel that one or more legal defenses may be available to the indemnifying
party that may be contrary to the interest of the indemnified party, in which
case the indemnifying party shall be entitled to assume the defense of such
action notwithstanding its obligation to bear fees and expenses of such counsel.
No indemnifying party shall be liable for any settlement entered into without
its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 11(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified, shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the Selling Stockholders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the Selling Stockholders and
the underwriters in connection with the statements or omissions which resulted
in such expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a
result of the expenses, losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim; provided, however, that in no case shall any Selling Stockholder be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Any obligation by any holder to
indemnify shall be several and not joint with other holders.
In connection with any registration pursuant to Section 11(a) or 11(b)
above, Issuer and each Selling Stockholder (other than Grantee) shall enter into
an agreement containing the indemnification provisions of this Section 11(e).
(f) Miscellaneous Reporting. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Selling Stockholders
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144. Issuer shall at its expense provide the Selling Stockholders with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Act or the
Exchange Act, or required pursuant to any state securities laws or the rules of
the NASD or any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save the Selling Stockholders harmless, without
limitation as to time, against any and all liabilities with respect to all such
taxes.
12. Quotation: Listing. If Issuer Common Stock or any other securities to
be acquired in connection with the exercise of the Option are then authorized
for quotation or trading or listing on the NYSE, the Nasdaq NMS or any other
securities exchange or securities quotation system, Issuer, upon the request of
Holder, will promptly file an application, if required, to authorize for
quotation or trading or listing the shares of Issuer Common Stock or any other
securities (including Preferred Shares) to be acquired upon exercise of the
Option on the NYSE, the Nasdaq NMS or such other securities exchange or
securities quotation system and will use all reasonable efforts to obtain
approval, if required, of such quotation or listing as soon as practicable.
13. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Stock Option Agreement and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
14. Limitation of Grantee Profit. (a) Notwithstanding any other provision
herein, in no event shall Grantee's Total Profit (as defined below) exceed
$38,000,000, exclusive of any reimbursement of expenses pursuant to Section 7.3
of the Merger Agreement (the "Maximum Profit"), and, if it otherwise would
exceed such amount, Grantee, at its sole discretion, shall either (i) reduce the
number of shares subject to the Option (and any Substitute Option), (ii) deliver
to Issuer, or the Substitute Issuer, as the case may be, for cancellation shares
of Issuer Common Stock or Substitute Common Stock, as the case may be (or other
securities into which such Option Shares are converted or exchanged), (iii) pay
cash to Issuer, or the Substitute Issuer, as the case may be, or (iv) any
combination of the foregoing, so that Grantee's actually realized Total Profit
shall not exceed the Maximum Profit after taking into account the foregoing
actions.
(b) For purposes of this Agreement, "Total Profit" shall mean: (i) the
aggregate amount of (A) the excess of (x) the net cash amounts received by
Grantee pursuant to a sale of Option Shares (or securities into which such
shares are converted or exchanged) to any unaffiliated third party within 12
months after the exercise of the Option, over (y) the Grantee's aggregate
purchase price for such Option Shares (or other securities), plus (B) all
amounts received by Grantee on the transfer of the Option (including pursuant to
Section 8), plus (C) all equivalent amounts with respect to the Substitute
Option (including pursuant to Section 9), plus (D) all amounts received by
Grantee pursuant to Section 7.3 of the Merger Agreement (other than
reimbursement in respect of Expenses), minus (ii) all amounts of cash previously
paid to Issuer pursuant to this Section 14 plus the value of the Option Shares
(or other securities) previously delivered to Issuer for cancellation pursuant
to this Section 14.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Issuer's
obligation to pay, any payment provided for in Section 7.3 of the Merger
Agreement; provided that if and to the extent the Total Profit received by
Grantee would exceed the Maximum Profit following receipt of such payment,
Grantee shall be obligated to comply with the terms of Section 14(a) within 30
days of the latest of (i) the date of receipt of such payment, (ii) the date of
receipt of the net cash by Grantee pursuant to the sale of Option Shares (or
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party within 12 months after the exercise of this Option with
respect to such Option Shares, (iii) the date of receipt of net cash from the
disposition of the Option or Substitute Option, as the case may be, and (iv) the
date of receipt of equivalent amounts pursuant to the sale of the Substitute
Option or shares of Substitute Common Stock (or other securities into which such
Substitute Common Stock is converted or exchanged).
(d) For purposes of paragraph (a) of this Section and clause (b)(ii) of
this Section, the value of any Option Shares delivered to Issuer shall be the
Assigned Value of such Option Shares and the value of any Substitute Common
Stock delivered to Substitute Issuer shall be the Substitute Applicable Price of
such Substitute Common Stock.
15. Miscellaneous.
(a) Expenses. Except as otherwise provided herein or in the Merger
Agreement, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including, without limitation, fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights. No
single or partial exercise of any right, remedy, power or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. Any waiver shall be effective only in
the specific instance and for the specific purpose for which given and shall not
constitute a waiver to any subsequent or other exercise of any right, remedy,
power or privilege hereunder.
(c) Entire Agreement: No Third-Party Beneficiaries; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto or their respective successors and assigns (other than
any transferees of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 15(h)) any rights, remedies, obligations or
liabilities hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or Governmental Entity to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected impaired or invalidated. If for any
reason such court or Governmental Entity determines that the Option does not
permit Holder to acquire, or does not require Issuer to repurchase, the full
number of shares of Issuer Common Stock as provided in Section 2 (as may be
adjusted herein), it is the express intention of Issuer to allow Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the addresses set forth in the Merger Agreement (or
at such other address for a party as shall be specified by like notice).
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Holder may assign this Agreement
to a wholly-owned subsidiary of Holder and Holder may assign its rights
hereunder in whole or in part after the occurrence of a Purchase Event. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
(i) Further Assurances. In the event of any exercise of the Option by the
Holder, Issuer and the Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
(k) Rights Plan. Until the Option has been exercised or terminated in full
and Grantee or Holder no longer holds any Option Shares, Issuer shall not amend,
modify or waive any provision of the Company Rights Agreement or take any other
action which would cause Grantee or Holder to be an "Acquiring Person", or which
would cause a "Stock Acquisition Date" or "Distribution Date", or any event
specified in Section 11 or 13 of the Company Rights Agreement or any similar
event with respect to the Company Rights to occur, by reason of the existence or
exercise (in whole or in part) of the Option, the beneficial ownership by
Grantee or Holder or any of their respective "Affiliates" or "Associates" of any
of the Option Shares, or the consummation of the other transactions contemplated
hereby (all terms in quotes are used as defined in the Company Rights
Agreement). This covenant shall also apply to any Substitute Option or shares of
Substitute Common Stock issued in respect thereof, and to any securities into
which any Option Shares or Substitute Common Stock are converted or exchanged.
(l) Consent to Jurisdiction and Service of Process. Any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated by
this Agreement may be brought against any of the parties in any federal court
located in the State of Delaware or any Delaware state court, and each of the
parties hereto consents to the non-exclusive jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and waives any objection to venue laid therein. Process in any such
suit, action or proceeding may be served on any party anywhere in the world and,
without limiting the generality of the foregoing, each party hereto agrees that
service of process upon such party at the address referred to in Section 8.4 of
the Merger Agreement, together with written notice of such service to such party
shall be deemed effective service of process upon such party.
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
NAC RE CORP.
By: /s/ Nicholas M. Brown, Jr.
-------------------------------
Name: Nicholas M. Brown, Jr.
Title: President and Chief
Executive Officer
XL CAPITAL LTD
By: /s/ Brian M. O'Hara
-------------------------------
Name: Brian M. O'Hara
Title: President and Chief
Executive Officer
NAC RE CORPORATION XL CAPITAL LTD
One Greenwich Plaza Cumberland House
P.O. Box 2568 One Victoria Street
Greenwich, CT 06836-2568 P. O. Box HM 2245
U.S.A. Hamilton HM JX
Bermuda
Phone: (203) 622- 5200 Phone: (441) 292-8515
Fax: (203) 622-5511 Fax: (441) 292-5280
NEWS RELEASE
IMMEDIATE
- --------------------------------------------------------------------------------
Contact: Richard H. Miller Gavin R. Arton
CFO & Treasurer SVP - Investor Relations
NAC Re Corporation XL Capital Ltd
(203) 622-5535 (441) 292-8515
- --------------------------------------------------------------------------------
XL CAPITAL LTD AND NAC RE CORPORATION ANNOUNCE
INTENTION TO MERGE
NAC RE SHAREHOLDERS TO RECEIVE 0.915 SHARES OF XL CAPITAL IN ALL STOCK
TRANSACTION
HAMILTON, BERMUDA AND GREENWICH, CT, FEBRUARY 16, 1999 - XL Capital Ltd
(NYSE:XL) ("XL") and NAC Re Corporation (NYSE:NRC) ("NAC Re") announced today
that the two companies have signed a definitive agreement whereby XL and NAC Re
will merge in an all stock transaction. In addition, all outstanding NAC Re
indebtedness will be assumed by XL.
Under the terms of the transaction, shareholders of NAC Re will receive 0.915 XL
shares for each NAC Re share in a tax-free exchange of shares that will be
accounted for as a pooling of interests under U.S. generally accepted accounting
principles ("GAAP"). The transaction is subject to the approval of the NAC Re
shareholders, expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, receipt of insurance, regulatory
approvals and other customary closing conditions. It is expected that the merger
will be completed by late second calendar quarter or early third quarter of this
year. The Boards of Directors of NAC Re and XL have each voted unanimously to
approve the transaction. Based on XL's closing price of $60.50 on the New York
Stock Exchange on Friday, February 12, 1999, each NAC Re share would be valued
at $55.36.
"NAC Re is the premier broker-market reinsurer in the United States and will
be a major cornerstone of XL's business," stated Brian M. O'Hara, President and
Chief Executive Officer of XL Capital Ltd. "NAC Re will become our platform for
the United States, the largest insurance and reinsurance market in the world.
Its reinsurance portfolio complements our other businesses very well,
particularly XL Mid Ocean Re's existing property and specialty reinsurance
operations. In terms of capital, on a combined basis we will have the world's
largest broker market reinsurance activities. Under the leadership of Ron
Bornhuetter and Nick Brown, NAC Re has become one of the most respected and
successful franchises in the reinsurance business with an outstanding
professional staff. We expect this transaction to be not only accretive, but the
foundation upon which significant future growth in the U.S. can be built."
Nicholas M. Brown, Jr., President and Chief Executive Officer of NAC Re
Corporation noted "We are very pleased with this new affiliation with XL. They
are a highly successful, well-respected and innovative player in the global
insurance and reinsurance markets. The merger as structured will maintain the
strong NAC Re franchise and enable us to better serve our clients, providing new
and expanded product offerings and increasing our capacity. This is clearly a
combination that will benefit both parties. I am looking forward to working with
Brian O'Hara and his team at XL."
Upon completion of the transaction, Mr. Brown will serve as Chairman, President
and Chief Executive Officer of NAC Re Corporation, which will retain its name.
Ronald L. Bornhuetter, current Chairman of NAC Re, along with another member of
the current NAC Re Board to be designated prior to the closing, will be invited
to join the Board of Directors of XL Capital Ltd. Mr. Brown will also become
President and Chief Executive Officer of XL America, Inc. and will serve as an
Executive Vice President of XL Capital Ltd with responsibility for North
American operations.
On a pro-forma basis at year-end 1998, the combined XL Capital/NAC Re
organization would have had assets of $13.3 billion, $2.3 billion of revenues,
shareholders' equity of $5.6 billion and a market capitalization of
approximately $8 billion.
Donaldson, Lufkin & Jenrette Securities Corporation and Wasserstein Perella &
Co. Inc. acted as financial advisors to XL Capital Ltd and Morgan Stanley,
Dean Witter & Co. Incorporated, CIBC Oppenheimer Corp. and SBC Warburg Dillon
Read acted as financial advisors for NAC Re Corporation.
XL Capital Ltd, through XL Insurance Ltd, XL Mid Ocean Reinsurance Ltd, The
Brockbank Group plc and XL Capital Products Ltd, is a leading provider of
insurance and reinsurance coverages and financial products worldwide. As of
November 30, 1998, XL Capital Ltd had assets of $10.1 billion and shareholders'
equity of $4.8 billion. XL Capital Ltd changed its name from EXEL Limited on
February 1, 1999.
NAC Re Corporation through its A+ rated subsidiaries writes insurance and
reinsurance throughout the world. As of December 31, 1998, NAC Re Corp. had
assets in excess of $3.2 billion and shareholders' equity in excess of $750
million.
Additional information on both XL Capital and NAC Re is available from their
respective web sites, `www.xl.bm' and "www.nacre.com."
This presentation contains forward looking statements of management beliefs,
estimates, projections, and assumptions for the financial condition, results of
operations, business and prospects of XL for NAC Re and the combined XL/NAC Re
on a pro forma basis, including statements relating to: (a) future assets,
shareholders' equity, market capitalization and market position; (b) the cost
savings, synergies and accretion to reported and cash earnings that will be
realized from the merger; and (c) the restructuring charges expected to be
incurred in connection with the merger. These forward looking statements involve
certain risks and uncertainties, including those detailed from time to time in
XL's and NAC Re's reports and filings with the Securities and Exchange
Commission. Factors that may cause actual results to differ materially from
those contemplated by such forward looking statements including, among others:
(1) expected cost savings and synergies from the merger cannot be fully realized
or realized within the expected time frame; (2) revenues following the merger
are lower than expected or customer loss and business disruption following the
merger are greater than anticipated; (3) competitive pressure among insurers or
reinsurers increases significantly; (4) costs or difficulties related to the
integration of the businesses of XL and NAC Re are greater than expected; (5)
general economic conditions are less favorable than expected; (6) legislation,
tax or regulatory changes adversely affect the businesses in which the combined
company would be engaged; or (7) natural disasters or other catastrophic events
are more prevalent or significant than expected, or losses have a greater
frequency or severity than anticipated by the companies' reserving
methodologies.
# # #
