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WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONVERTIBLE PREFERRED STOCK TERM SHEET
All capitalized terms used but not defined herein shall have the meanings given
to them in the Subscription Agreement dated as of October 6, 2000 (the
"SUBSCRIPTION AGREEMENT") between White Mountains Insurance Group, Ltd., a
company existing under the laws of Bermuda ("WTM"), and the Purchasers named
therein.
Transaction: WTM is proposing to acquire the outstanding capital stock
of CGU Corporation, a Delaware corporation ("CGU") and an
indirect wholly owned subsidiary of CGNU plc, for
approximately $2.17 billion of which approximately $1.96
billion is payable in cash and $210 million is payable
with a seller's note (see below). In addition, at the time
of the acquisition, an approximately $500 million note
between CGU and CGNU plc will be outstanding, after the
reduction of the note by the proceeds from the sale of
Pilot, CGNU's life insurance subsidiaries and certain
other assets to CGNU plc, as described below.
WTM has formed TACK Holding Corp., a Delaware corporation
("HOLDCO"), to hold all the equity interests in TACK
Acquisition Corp., a Delaware corporation ("NEWCO"), which
was formed by WTM to acquire CGU.
At the closing, the following transactions (the
"TRANSACTIONS") shall occur:
- Newco will acquire CGU on substantially the terms of
the Stock Purchase Agreement in the form attached
hereto as Exhibit A (the "STOCK PURCHASE AGREEMENT");
- CGU will sell Pilot to CGNU for approximately $285
million;
- Newco will issue Newco common stock to Holdco, and
Holdco will issue Holdco common stock to WTM, for $725
million in cash contributed by WTM to Holdco and by
Holdco to Newco;
- Newco will issue Newco common stock to Holdco, and
Holdco will issue Holdco common stock to WTM, for
approximately $725 million in net tangible assets
(FolksAmerica, Peninsula, Main Street America,
American Centennial Insurance Company and British
Insurance Company of Cayman) contributed by WTM to
Holdco and by Holdco to Newco;
- Newco will borrow $1 billion pursuant to the terms and
conditions of a commitment letter (the "COMMITMENT
LETTER") from Lehman Brothers Inc. substantially in
the form attached hereto as Exhibit B (the
"FINANCING");
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- Holdco will issue a seller's note for $210 million
(the "SELLER'S NOTE") on the terms set forth in the
term sheet attached hereto as Exhibit C to be repaid
in cash or in WTM Common Stock, at Holdco's option,
six months after closing; if repaid in WTM Common
Stock, the stock will be priced at $174.50 per share;
and
- In exchange for a purchase price of $225 million,
Berkshire Hathaway, Inc. will purchase Newco preferred
stock; in addition, for a purchase price of $75
million(1), Berkshire Hathaway Inc. will purchase a
warrant to purchase WTM common stock; the terms of the
preferred stock and warrant are set forth in the term
sheet attached hereto as Exhibit D.
Closing: The Transactions are anticipated to close between December
15, 2000 and February 15, 2001. The drop dead date for
this equity commitment will match the drop dead date in
the Stock Purchase Agreement.
The Purchasers will fund their commitments pursuant to
this term sheet at the time of closing of the acquisition
of CGU. The commitment shall be in lieu of any commitment
of a Purchaser to purchase equity in Holdco or Newco
pursuant to the subscription agreement dated September
24, 2000, among WTM, Holdco and certain of the Purchasers,
which subscription agreement shall terminate with respect
to any such Purchaser.
Securities to WTM will issue to each Purchaser, the face amount of
be issued: convertible preference shares (the "PREFERRED STOCK")
equal to its purchase price as described in Schedule I to
the Subscription Agreement (the "PURCHASE PRICE").
The Preferred Stock will be issued upon receipt of the
Purchase Price from each Purchaser on the day of the
closing of the acquisition of CGU by WTM.
In addition to the Preferred Stock issued to the
Purchasers, WTM may issue additional shares of Preferred
Stock at the closing of the Transactions to members of
WTM's and CGU's management, WTM directors and other
friends and family of WTM. WTM presently plans to issue up
to $47.5 million face amount of such additional shares of
Preferred Stock on substantially the same terms as
provided for in this termsheet.
Liquidation The liquidation preference of Preferred Stock will equal
Preferences: 25% of the face amount.
Coupon: The Preferred Stock will receive a cumulative dividend of
1% per year, payable semi-annually.
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(1)This $75 million is included in the $725 million cash capital
contribution by WTM to Holdco and by Holdco to Newco, described above.
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Term: The term of the Preferred Stock will be from the date of
issuance to the earlier of (a) the date of the Required
Shareholders Approval (as defined below) or (b) the 10th
anniversary of issuance. The Preferred Stock will be
automatically converted into common stock of WTM ("WTM
COMMON STOCK") by WTM following receipt of the Required
Shareholders Approval.
Conversion: Each Purchaser's Preferred Stock will be converted into a
number of shares of WTM Common Stock equal to such
Purchaser's Purchase Price, divided by $200 (the
"CONVERSION PRICE"), immediately after the Required
Shareholders Meeting.
"REQUIRED SHAREHOLDERS MEETING" as used herein shall mean
the first shareholders meeting at which the shareholder
approval required pursuant to Section 312.03(c) of the New
York Stock Exchange Listed Company Manual to issue such
WTM Common Stock is obtained (the "REQUIRED SHAREHOLDERS
APPROVAL"), assuming all such shares are issued in
connection with WTM's acquisition of CGU and represent the
issuance of shares of WTM Common Stock in excess of 20% of
the shares of WTM Common Stock outstanding prior to such
acquisition.(2) WTM will seek such approval not later than
its 2001 Annual Meeting, although obtaining such approval
is not a condition to the Purchasers' obligations
hereunder to purchase the Preferred Stock.
Mr. John J. Byrne will vote his shares of WTM Common Stock
in favor of, and WTM will use its commercially reasonable
efforts to obtain, the Required Shareholders Approval.
After March 31, 2003, the Preferred Stock shall be
convertible at any time at the holder's option, provided
that if the Required Shareholders Approval has not been
obtained at the time of any such conversion, in lieu of
issuing WTM Common Stock, WTM shall pay the holder in
cash, for each share of WTM Common Stock to which such
holder is entitled upon conversion, an amount equal to the
Current Market Price of a share of WTM Common Stock. Any
cash payment by WTM to a holder of the Preferred Stock
pursuant to this provision shall be made by WTM on the
next March 31 or September 30 following written notice by
the holder to WTM of its election to convert its shares of
Preferred Stock into WTM Common Stock; provided that such
notice must be received by WTM at least 60 days prior to
such payment date.
"CURRENT MARKET PRICE" shall mean, with respect to each
share of Preferred Stock, the average of the closing price
on the New York Stock Exchange, Inc., for the ten
consecutive trading days immediately prior to the date the
holder of such Preferred Stock gives written notice of its
election to convert such shares of Preferred Stock into
WTM Common Stock.
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(2)To clarify that the first 20% goes to Berkshire Hathaway.
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Obligation to Fund: The closing of the Purchasers' investment in WTM on the
terms provided in the Subscription Agreement and in this
Term Sheet and their obligations to fund their commitments
as provided therein and herein will be subject only to the
completion of the Transactions, including the closing of
the acquisition of CGU pursuant to the terms and
conditions of the Stock Purchase Agreement, the
consummation of Financing on the terms and conditions set
forth in the Commitment Letter and the delivery by WTM of
Preferred Stock and of a Shareholders Agreement executed
by WTM, in each case reasonably reflecting the terms of
this term sheet. The Stock Purchase Agreement and the
Commitment Letter will not be amended and the closing
conditions contained therein will not be waived in any
material respect without the consent of each of the
Purchasers.
Registration Rights: After the conversion of the Preferred Stock, Purchasers
holding not less than 250,000 shares of WTM Common Stock
(subject to customary adjustment for stock splits, stock
dividends or reorganizations) will have the right to
exercise (i) up to three demand registration rights (in
aggregate for all Purchasers) and (ii) unlimited
incidental ("PIGGYBACK") registration rights. The
Purchasers shall have priority on their demand rights. All
shareholders shall be cut back pro rata in any
registration initiated by WTM. WTM will pay the
registration expenses in connection with any such demand
and piggyback rights other than any underwriting discounts
and fees and will use commercially reasonable efforts to
effect any demand registration as soon as reasonably
practicable. Notwithstanding the foregoing, WTM will not
be obligated to register securities which could be sold
under Rule 144(k) or to keep a registration statement
relating to the foregoing registration rights effective
longer than 90 days.
Antidilution The Conversion Price will be subject to customary
Adjustment: antidilution adjustment prior to the conversion of the
Preferred Stock in the event WTM issues warrants, options
or other rights to purchase or otherwise acquire
additional stock or securities convertible into or
exchangeable for additional common stock at a price per
share less than fair market value or in the event of stock
splits, certain extraordinary distributions or dividends,
or reorganizations. The Purchasers acknowledge that (a)
Berkshire Hathaway will be issued up to $300 million of
preference shares of WTM or of a subsidiary of WTM, which
will be convertible into (or will have detachable warrants
to purchase) WTM Common Stock at a conversion price of
$175 and (b) that Purchasers shall not be entitled to any
antidilution adjustment for such issuance, conversion or
exercise.
Voting: The Preferred Stock will be non-voting.
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Transferability: Except to the extent required by applicable law, the
Preferred Stock will be transferable by a Purchaser only
(i) with the consent of WTM, which consent shall not be
unreasonably withheld, (ii) to an affiliate or (iii) to
WTM or other Purchaser(s). The Preferred Stock has not
been and will not be registered under the Securities Act
of 1933 and may not be offered or sold in the United
States or to U.S. persons in the absence of such
registration except in reliance on an exemption from the
Securities Act.
