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EXHIBIT 99(f)
BERKSHIRE HATHAWAY
PREFERRED STOCK AND WARRANTS TERM SHEET
Securities to be Issued: Newco, a Delaware corporation and a wholly-owned
subsidiary of White Mountains Insurance Group,
Ltd., a company organized under the laws of
Bermuda ("WTM"), will issue to Berkshire Hathaway
Inc., a Delaware corporation, or an affiliate
("Berkshire Hathaway"), $300 million face amount
of preferred stock (the "Preferred Stock"), for a
purchase price of $225 million. WTM will issue to
Berkshire Hathaway or an affiliate thereof
warrants to acquire 1,714,285 shares of WTM's
common stock at an exercise price of $175 per
share (the "Warrants"), for a purchase price of
$75 million (together with the purchase price of
the Preferred Stock, the "Purchase Price"). Where
appropriate herein the term "Berkshire Hathaway"
shall refer to any affiliate of Berkshire Hathaway
that is the holder or intended holder of the
Preferred Stock or the Warrants.
The Preferred Stock and Warrants will be issued by
Newco and WTM, respectively, on receipt of the
Purchase Price from Berkshire Hathaway on the day
of the closing of the acquisition by Newco of CGU
Corporation, a Delaware corporation ("CGU"), on
substantially the terms of the Stock Purchase
Agreement with respect to CGU in the form attached
hereto as Exhibit B (the "Stock Purchase
Agreement").
Newco is that corporation described in Exhibit A
hereto as Newco; Newco has and shall have the
position described in Exhibit A in the corporate
structure of WTM and its subsidiaries; and other
investors are making the investments in WTM in the
amounts and on the terms described in Exhibit A;
so that immediately following the closing the
corporate and capital structure of WTM and its
direct and indirect subsidiaries shall be as set
forth in Exhibit A, except for such changes in the
corporate and capital structure of WTM and its
direct and indirect subsidiaries as shall not
adversely affect in any material respect Berkshire
Hathaway.
Preferred Stock Liquidation $300 million plus any and all past due dividends,
Preference: whether or not declared.
Rank: The Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of
assets, upon liquidation or otherwise, prior to
all other shares of preferred stock or common
stock of Newco and prior to all shares of any
other class or series of stock of Newco.
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Preferred Stock Dividend: 2.35475% cumulative dividend per quarter,
compounded quarterly at the same rate of 2.35475%
per quarter (with respect to any amounts not paid
when due) and payable quarterly, from the date of
issuance. If any dividend is not paid when due,
Newco shall be prohibited from paying any
dividends or making any distributions on its
common stock or on any other stock junior to the
Preferred Stock, and from redeeming or otherwise
purchasing (either directly or through any
subsidiary) any shares of its common stock or of
any other stock junior to the Preferred Stock,
until all past due dividends are paid in full.
There shall be no right of redemption of the
Preferred Stock or other "acceleration" right
triggered by Newco's failure to pay dividends on
the Preferred Stock. So long as any shares of the
Preferred Stock are outstanding, Newco shall not
declare or pay any dividend or distribution on its
common stock or repurchase any shares of its
common stock or of any other stock junior to the
Preferred Stock or make any loan to, or guarantee
any indebtedness of, WTM or any subsidiary of WTM
intermediate between WTM and Newco without the
written consent of the holders of a
majority-in-interest of the Preferred Stock unless
the amount of such dividend, distribution,
repurchase, loan or guarantee by Newco is less
than Newco's aggregate consolidated net income
(under U.S. GAAP) since January 1, 2001 minus the
sum of (x) the aggregate dividends and
distributions previously paid by Newco since
January 1, 2001, (y) any past due dividends then
due to be paid on the Preferred Stock or on other
equity securities besides the common stock of
Newco and (z) the aggregate amount of any other
then outstanding indebtedness (plus accrued
interest and other related charges) of WTM or any
subsidiary of WTM intermediate between WTM and
Newco guaranteed by or payable to Newco, provided,
however, that notwithstanding this restriction,
(1) dividends not in excess of $20.0 million (in
addition to any dividends paid on the Preferred
Stock) may be paid by Newco in each of the first
three years following the issuance of the
Preferred Stock and (2) Newco may unconditionally
guarantee payment (provided any demand for payment
in connection with amounts guaranteed must first
be made on WTM) of up to $50,000,000 in
indebtedness (plus accrued interest and other
related charges) of WTM or any subsidiary of WTM
intermediate between WTM and Newco. WTM agrees to
pay (if it is able) any amounts subject to any
such guarantee that are due to be paid.
Preferred Stock Term: Seven years from the date of issuance. The
Preferred Stock will be redeemed by Newco at the
end of the term for the amount of the Liquidation
Preference.
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Preferred Stock Make Whole Newco and Berkshire Hathaway will enter into a
Provision: separate agreement providing that, (a) if the
dividends paid or deemed paid to Berkshire
Hathaway on the Preferred Stock do not qualify for
the 70 percent dividends-received deduction as a
result of Newco's lack of available earnings and
profits, Newco will reimburse Berkshire Hathaway
an amount equal, on an after tax basis, to any
additional taxes, interest and penalties paid by
Berkshire Hathaway as a result of such failure to
qualify and as a result of such reimbursement
payment by Newco, and (b) if the dividends paid or
deemed paid to Berkshire Hathaway on the Preferred
Stock are extraordinary dividends within the
meaning of Section 1059 of the Internal Revenue
Code, Newco will reimburse Berkshire Hathaway an
amount equal, on an after tax basis, to any
additional taxes, interest and penalties paid by
Berkshire Hathaway (x) as a result of such
dividend being an extraordinary dividend, either
with respect to receipt of such extraordinary
dividend or Berkshire Hathaway's disposition of
the Preferred Stock and (y) as a result of such
reimbursement payment by Newco.
Preferred Stock Voting: Non-voting (except as required by law). The
consent or approval of holders of no less than a
two-thirds majority of any shares of outstanding
Preferred Stock, voting as a single class, shall
be required prior to any amendment, alteration or
repeal of Newco's Certificate of Incorporation or
any certificate of designation related to the
Preferred Stock or any other alteration or change
to the Preferred Stock's preferences, rights,
powers or designations that adversely affects the
Preferred Stock or increases the authorized number
of shares of the Preferred Stock.
Preferred Stock Transferable only to an affiliate of Berkshire
Transferability: Hathaway. 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.
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; PROVIDED, HOWEVER, Berkshire Hathaway
may immediately terminate this equity commitment
by written notice to WTM if (a) any of the
conditions to Berkshire Hathaway's obligation
hereunder to complete the Berkshire Hathaway
Investment shall have become incapable of
fulfillment prior to June 30, 2001, and shall have
not been waived by Berkshire Hathaway or (b) there
shall be any order, injunction, or decree of any
governmental entity which prohibits the
consummation of the Berkshire Hathaway Investment
and such order, injunction or decree shall have
become final and nonappealable.
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Obligations to Purchase Berkshire Hathaway will be obligated to purchase
Preferred Stock and the Preferred Stock and Warrants (the "Berkshire
Warrants: Hathaway Investment") concurrently with when the
Transactions (as defined in Exhibit A) are
completed, including the closing of the
acquisition by Newco of CGU pursuant to the terms
and conditions of the Stock Purchase Agreement,
the consummation of the Financing on the terms and
conditions set forth in the Commitment Letter
(each as defined in Exhibit A), the consummation
of the sale of the convertible preferred stock as
described in Exhibit E (the "WTM Equity Term
Sheet") and the delivery to Berkshire Hathaway of
the Preferred Stock and Warrants, in each case
reasonably reflecting the terms of this term
sheet. The Stock Purchase Agreement, the
Commitment Letter and the WTM Equity Term Sheet
(except to the extent necessary to provide that
the Required Shareholder Approval does not apply
to the Series A Warrants) will not be amended and
the closing conditions contained therein will not
be waived in any material respect without the
prior written consent of Berkshire Hathaway. In
addition, Berkshire Hathaway's obligation to
effect the Berkshire Hathaway Investment shall be
subject to (a) there being no change at the time
of closing in the corporate and capital structure
of WTM and its subsidiaries as set forth on
Exhibit A that adversely affects in any material
respect Berkshire Hathaway, (b) expiration or
termination of the waiting period, if any, under
the Hart-Scott-Rodino Act with respect to the
Berkshire Hathaway Investment, (c) receipt of all
necessary approvals from state insurance
regulators (which approvals shall permit exercise
of the Warrants without any further approvals
other than in the case of the Series B Warrants,
the Required Shareholder Approval) with respect to
the Berkshire Hathaway Investment and (d) the
absence of any injunction or other order of any
governmental authority prohibiting the
consummation of the Berkshire Hathaway Investment.
A written notice of the closing of the acquisition
of CGU by Newco will be delivered to Berkshire
Hathaway three business days before such closing
day, and on the closing day, prior to Berkshire
Hathaway's purchase, Berkshire Hathaway shall
receive from WTM an officer's certificate as to
the satisfaction of all of the conditions to
Berkshire Hathaway's obligations hereunder (other
than as to matters that are within the knowledge
or control of Berkshire Hathaway). Each party
shall use its reasonable best efforts to obtain
all necessary governmental and regulatory
approvals.
Warrant Term: Seven years from the date of issuance.
Exercise of Warrants: The Warrants will be exercisable solely for cash
at an exercise price of $175 per share of WTM
common stock (the "Exercise Price"). The Warrants
shall be issued in two series, Series A and Series
B. The Series A Warrants shall entitle the holder
to purchase 1,170,000 shares of WTM common stock
and the Series B Warrants, except as described
below, shall entitle the holder to purchase
544,285 shares of WTM common stock.
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Because the number of shares of WTM common stock
issuable upon exercise of the Series B Warrants
exceeds the threshold for requiring shareholder
approval pursuant to Section 312.03(c) of the New
York Stock Exchange Listed Company Manual (the
"NYSE"), the exercise of the Series B Warrants
will be deferred until the earlier of March 31,
2003 and when WTM receives the shareholder
approval required by the NYSE (the "Required
Shareholder Approval"). WTM will seek such
approval not later than its 2001 Annual Meeting.
WTM will not issue additional shares of its common
stock prior to obtaining the Required Shareholder
Approval to the extent that such issuance would
reduce (after taking into account any Warrant
Antidilution Adjustment) the number of shares of
common stock that WTM could issue upon the
exercise of any of the Series A Warrants. WTM
shall at all times reserve out of its authorized
and unissued common stock, for the sole purpose of
exercise of the Warrants, such number of shares as
shall be sufficient to effect the exercise. If WTM
shall be a party to a merger or other transaction
in which its common stock is changed into or
exchanged for other securities or property, as a
condition of such transaction adequate provision
shall be made so that the Warrants upon exercise
shall be entitled to receive the aggregate
consideration which the shares of common stock
underlying such Warrants would be changed into or
receive in such transaction.
If after March 31, 2003, the Required Shareholder
Approval has not been obtained at the time of the
exercise of any Series B Warrants, in lieu of
issuing WTM common stock, WTM shall pay Warrant
holder in cash, for each share of WTM common stock
to which such holder would otherwise be entitled
upon exercise of such Series B Warrants, an amount
equal to the Current Market Price of a share of
WTM common stock. Any cash payment by WTM to a
Warrant holder pursuant to this provision shall be
made by WTM 90 days after notice of the exercise
the Warrants has been given to WTM by Warrant
holder.
"Current Market Price" shall mean, with respect to
each share of WTM common stock receivable upon
exercise of a Series B Warrant, the difference
between (i) the average of the closing price of a
share of WTM common stock on the New York Stock
Exchange, Inc., for the ten consecutive trading
days immediately prior to the date Warrant holder
gives written notice of its election to exercise
such Series B Warrant and (ii) the Exercise Price.
Call Option on Warrants: After the fourth anniversary of the issuance of
the Warrants, WTM may, at its option on one or
more occasions, call all of the then outstanding
Warrants for cash in an aggregate amount equal to
$60 million (assuming all Warrants are
outstanding) or any portion of the Warrants for a
ratable share of the $60 million purchase price.
Following notice of any call, the Warrant holder
shall have at least 30 days to exercise any
Warrants covered by such call before such Warrants
are purchased pursuant to such call.
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Warrant Registration Rights: After the exercise of the Warrants, Warrant holder
will have (i) two demand registration rights in
aggregate and (ii) unlimited incidental
("piggyback") registration rights with respect to
the WTM common stock received upon exercise,
subject to customary pro rata "cut-backs" with WTM
and any other selling equityholders at the
discretion of a managing underwriter, provided,
however, Warrant holder will not be subject to any
such "cut-backs" with respect to a registration
occasioned by its own demand. No other holder of
WTM common stock will be granted any superior
registration rights to those held by Berkshire
Hathaway, provided that Berkshire Hathaway
acknowledges that the Equity Partners and CGNU
will have the registration rights set forth in
Exhibit E and Exhibit D, respectively. WTM will
pay the registration expenses in connection with
any such demand and piggyback rights other than
any underwriting discounts and fees.
Notwithstanding the foregoing, WTM will not be
obligated to register WTM common stock which could
be sold under Rule 144(k).
Warrant Antidilution With respect to any unexercised Warrants, Warrant
Adjustment: holder will be entitled to a customary
antidilution adjustment to the Exercise Price
and/or the number of shares of WTM common stock to
which the Warrants apply 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
WTM common stock at a price per share less than
fair market value or issues or sells WTM common
stock at a price per share less than fair market
value or in the event of stock splits, stock
dividends, certain extraordinary distributions or
dividends, or reorganizations. Berkshire Hathaway
acknowledges that the Equity Partners will be
issued convertible preferred stock by WTM,
convertible into WTM common stock, in connection
with the Transactions on the terms set forth in
Exhibit E, that CGNU may be issued WTM common
stock on the terms set forth in Exhibit D and that
Berkshire Hathaway shall not be entitled to any
antidilution adjustment for any such issuance or
conversion.
Warrant Transferability: Nontransferable except to one or more affiliates
of Berkshire Hathaway.
WTM Common Stock Transferable only in accordance with applicable
Transferability law. The WTM common stock has not been 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.
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2
Exhibit A
Transactions: 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 B (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;
WTM will issue not less than $300 million face
amount of WTM convertible preferred stock on
substantially the terms set forth in Exhibit E;
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; these assets then
will be contributed by Newco to CGU;
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 C (the "Financing");
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3
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 D 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.
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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.
