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
May 26, 1999
------------------------------------------------
Date of Report (Date of earliest event reported)
Capital Re Corporation
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(Exact name of registrant as specified in its
charter)
Delaware 1-10995 52-1567009
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(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1325 Avenue of the Americas, New York, New York 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 974-0100
Not Applicable
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(Former name or former address, if changed since last report)
Exhibit Index is on page 4.
<PAGE>
CAPITAL RE CORPORATION
ITEM 5. OTHER EVENTS.
On June 11, 1999, Capital Re Corporation (the "Company") and
ACE, Limited ("ACE") announced that they had reached a definitive merger
agreement in a transaction expected to be a tax-free reorganization. Under the
terms of the Agreement and Plan of Merger entered into between the parties on
June 10, 1999 (the "Merger Agreement"), the Company's shareholders will receive
0.6 ordinary shares of ACE for each share of the Company's common stock at
closing, subject to a maximum value to the Company's shareholders of $22 per
share.
Consummation of the merger is subject to receipt of customary
regulatory approvals, approval by the Company's shareholders, confirmation of
specified financial strength ratings of the Company's principal operating
subsidiaries (Capital Reinsurance Company, KRE Reinsurance Ltd. and Capital
Mortgage Reinsurance Company) and other customary conditions.
In connection with the Merger Agreement, the Company and ACE
entered into a Stock Option Agreement, also dated as of June 10, 1999 (the"Stock
Option Agreement") pursuant to which the Company granted ACE an option
topurchase up to 9.9% of the Company's common stock upon the occurrence of
certain events, including the acquisition of 15% or more of the Company's stock
by any other party.
The press release issued by the Company with respect to the
announcement of the Merger Agreement is included as Exhibit 99.1 hereto.
On May 26, 1999, ACE reaffirmed its previously announced
commitment to make a $75 million investment in the Company's common stock to
support the Company's ongoing business activity.
The foregoing description of and reference to all of the
above-mentioned agreements and documents are qualified in their entirety by
reference to the complete texts of the agreements and documents, which are filed
as exhibits to this Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
2.1. Agreement and Plan of Merger, dated as of June 10, 1999,
between the Company and ACE.
2.2. Stock Option Agreement, dated as of June 10, 1999,
between the Company and ACE.
10.21. Second Amendment, dated as of May 26, 1999, to the
Stock Purchase Agreement dated as of February 19, 1999, by and between the
Company and Ace Bermuda Insurance, Ltd.
99.1. Press Release, dated June 11, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAPITAL RE CORPORATION
Date: June 11, 1999 By: /s/ Alan S. Roseman
-------------------------------
Alan S. Roseman
Executive Vice President,
General Counsel and Secretary
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------
2.1. Agreement and Plan of Merger, dated as of June 10, 1999,
between the Company and ACE.
2.2. Stock Option Agreement, dated as of June 10, 1999, between
the Company and ACE.
10.21. Second Amendment, dated as of May 26, 1999, to the Stock
Purchase Agreement dated as of February 19, 1999, by and
between the Company and Ace Bermuda Insurance, Ltd.
99.1. Press Release, dated June 11, 1999.
AGREEMENT AND PLAN OF MERGER
among
CAPITAL RE CORPORATION,
ACE LIMITED
and
CAPRE ACQUISITION CORP.
Dated as of June 10, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.........................................................2
1.1. The Merger........................................................2
1.2. Closing...........................................................2
1.3. Effective Time....................................................2
ARTICLE II THE SURVIVING CORPORATION.........................................3
2.1. The Certificate of Incorporation..................................3
2.2. The Bylaws........................................................3
2.3. Directors.........................................................3
2.4. Officers..........................................................3
ARTICLE III CONVERSION OF SHARES.............................................3
3.1. Effect on Stock...................................................3
3.2. Exchange of Certificates for Shares...............................4
3.3. Appraisal Rights..................................................7
3.4. Adjustments to Prevent Dilution...................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................8
4.1. Organization, Good Standing and Qualification.....................8
4.2. Capitalization....................................................8
4.3. Company Subsidiaries..............................................10
4.4. Corporate Authority; Approval and Fairness........................10
4.5. Governmental Filings; No Violations...............................11
4.6. Company Reports; Financial Statement..............................12
4.7. Absence of Certain Changes........................................13
4.8. Litigation and Liabilities........................................14
4.9. Employee Benefits.................................................15
4.10. Compliance with Laws; Permits....................................18
4.11. Intellectual Property............................................19
4.12. Year 2000 Compliance.............................................19
4.13. Environmental Laws...............................................20
4.14. Investment Company...............................................20
4.15. Takeover Statutes................................................21
4.16. Taxes............................................................21
4.17. Labor Matters....................................................21
4.18. Title to Property................................................22
4.19. Material Contracts...............................................22
4.20. Brokers and Finders..............................................23
4.21. Insurance Matters................................................23
4.22. Liabilities and Reserves.........................................25
4.23. Accounting and Tax Matters.......................................26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY.....26
5.1. Merger Subsidiary.................................................26
5.2. Organization, Good Standing and Qualification.....................26
5.3. Capitalization....................................................27
5.4. Corporate Authority; Approval and Fairness........................27
5.5. Governmental Filings; No Violations...............................28
5.6. Parent Reports; Financial Statements..............................29
5.7. Absence of Certain Changes........................................29
5.8. Litigation and Liabilities........................................30
5.9. Brokers and Finders...............................................30
ARTICLE VI COVENANTS.........................................................30
6.1. Interim Operations of the Company.................................30
6.2. Interim Operations of Merger Subsidiary...........................34
6.3. No Solicitation...................................................34
6.4. Information Supplied..............................................36
6.5. Stockholders Meeting..............................................36
6.6. Filings; Other Actions; Notification..............................37
6.7. Taxation and Accounting...........................................39
6.8. Access............................................................39
6.9. Affiliates........................................................40
6.10. Stock Exchange Listing...........................................40
6.11. Publicity........................................................40
6.12. Benefits.........................................................40
6.13. Certain Change in Control Matters................................42
6.14. Expenses.........................................................42
6.15. Indemnification; Directors'and Officers'Insurance................42
6.16. Purchase of Ordinary Shares......................................43
6.17. Other Actions by the Company and Parent..........................44
6.18. Coordination of Dividends........................................45
ARTICLE VII CONDITIONS.......................................................46
7.1. Conditions to Each Party's Obligation to Effect the Merger........46
7.2. Conditions to Obligations of Parent and Merger Subsidiary.........47
7.3. Conditions to Obligation of the Company...........................48
ARTICLE VIII TERMINATION.....................................................49
8.1. Termination by Mutual Consent.....................................49
8.2. Termination by Either Parent or the Company.......................50
8.3. Termination by the Company........................................50
8.4. Termination by Parent.............................................51
8.5. Effect of Termination and Abandonment.............................52
ARTICLE IX MISCELLANEOUS AND GENERAL.........................................53
9.1. Survival..........................................................53
9.2. Modification or Amendment.........................................53
9.3. Waiver of Conditions..............................................53
9.4. Counterparts......................................................54
9.5. Governing Law; Waiver of Jury Trial...............................54
9.6. Notices...........................................................54
9.7. Entire Agreement; No Other Representations........................55
9.8. No Third Party Beneficiaries......................................56
9.9. Severability......................................................56
9.10. Interpretation...................................................56
9.11. Assignment.......................................................57
9.12. Definitions......................................................57
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called this
"Agreement"), dated as of June 10, 1999 among Capital Re Corporation, a Delaware
corporation (the "Company"), ACE Limited, a company incorporated with limited
liability under the Cayman Islands Companies Law ("Parent"), and CapRe
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Subsidiary").
RECITALS
WHEREAS, the respective boards of directors of each of Parent,
Merger Subsidiary and the Company have determined that the merger of the Merger
Subsidiary with and into the Company (the "Merger") upon the terms and subject
to the conditions set forth in this Agreement is advisable and have approved the
Merger, whereby each issued and outstanding share of common stock, par value
$.01 per share, of the Company ("Company Common Stock") not owned directly or
indirectly by Parent or the Company will be converted into 0.60 of an ordinary
share, par value $.041666667 per share, of Parent ("Parent Shares");
WHEREAS, in order to induce Parent and Merger Subsidiary to
enter into this Agreement, concurrently herewith certain stockholders are
entering into stockholder support agreements with Parent (the "Stockholder
Agreements"), pursuant to which, among other things, each such stockholder
agrees to vote in favor of this Agreement and the Merger and against any
competing proposals, upon the terms and subject to the conditions set forth
herein;
WHEREAS, as a condition and inducement to Parent and Merger
Subsidiary entering into this Agreement and incurring the obligations set forth
herein, concurrently with the execution and delivery of this Agreement, the
Company and Parent have 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 has granted Parent an option to
purchase shares of common stock of the Company under certain circumstances;
WHEREAS, it is intended that, for federal income tax purposes,
the Merger shall qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"); and
WHEREAS, the Company, Parent and Merger Subsidiary desire to
make certain representations, warranties, covenants and agreements in connection
with this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in Section 1.3) the Merger
Subsidiary shall be merged with and into the Company and the separate corporate
existence of the Merger Subsidiary shall thereupon cease. The Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"), and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger except as otherwise provided herein. The
Merger shall have the effects specified in the Delaware General Corporation Law,
as amended (the "DGCL").
1.2. CLOSING.
The closing of the Merger (the "Closing") shall take place (i)
at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York, at
9:00 A.M. on the third business day after the day on which the last to be
fulfilled or waived of the conditions set forth in Article VII (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) shall be satisfied or waived
in accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Parent may agree in writing (the "Closing
Date").
1.3. EFFECTIVE TIME.
As soon as practicable following the Closing, the Company,
Merger Subsidiary and Parent will cause a Certificate of Merger (the
"Certificate of Merger") to be executed, acknowledged and filed with and
accepted for record by the Delaware Secretary of State (the "Secretary") as
provided in Section 251 of the DGCL. The Merger shall become effective at the
time the Certificate of Merger is filed with the Secretary or at such later time
as may be agreed to by the Company and Parent and set forth in the Certificate
of Merger (the "Effective Time").
ARTICLE II
THE SURVIVING CORPORATION
2.1. THE CERTIFICATE OF INCORPORATION.
At the Effective Time, the certificate of incorporation of the
Company shall be amended so that Article FOURTH thereof reads in its entirety as
follows: "The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 1,000 shares of Common Stock, par
value $.01 per share.", and as so amended shall be the certificate of
incorporation of the Surviving Corporation, until thereafter amended as provided
therein or by applicable law (the "Certificate of Incorporation").
2.2. THE BYLAWS.
The bylaws of Merger Subsidiary in effect at the Effective
Time shall be the Bylaws of the Surviving Corporation (the "Bylaws"), until
thereafter amended as provided therein, as set forth in the Certificate of
Incorporation or by applicable law.
2.3. DIRECTORS.
The directors of Merger Subsidiary at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and the Bylaws.
2.4. OFFICERS.
The officers of the Company at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or termination.
ARTICLE III
CONVERSION OF SHARES
3.1. EFFECT ON STOCK.
At the Effective Time, as a result of the Merger and without
any action on the part of the holder of any stock of the Company:
(a) Merger Consideration. Each share of Company Common Stock
(each a "Share" or, collectively, the "Shares") issued and outstanding
immediately prior to the Effective Time (other than any Shares of Company Common
Stock to be cancelled pursuant to SECTION 3.1(b)) shall be converted into, and
become exchangeable for the right to receive the "Merger Consideration",
consisting of 0.60 Parent Shares (including any related Rights issued pursuant
to the Rights Agreement (the "Parent Rights Agreement") dated May 7, 1999
between Parent and The Bank of New York) (the "Exchange Ratio"); provided,
however, that if the average closing price (the "Average Closing Price") of a
Parent Share as reported on the New York Stock Exchange ("NYSE") for the twenty
consecutive trading days ending three trading days prior to the Effective Time
is equal to or greater than $36.67 per share, the Exchange Ratio shall be equal
to 22 divided by the Average Closing Price. At the Effective Time, all Shares
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate (a "Certificate") formerly
representing any of such Shares shall thereafter represent only the right to
receive the Merger Consideration, cash in lieu of fractional Parent Shares
pursuant to SECTION 3.2(e), if any, and any distribution or dividend pursuant to
SECTION 3.2(c).
(b) Cancellation of Shares. Each Share issued and outstanding
immediately prior to the Effective Time and owned by Parent or owned by the
Company or any direct or indirect Subsidiary of Parent or of the Company (in
each case other than Shares that are owned on behalf of third parties), shall,
by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding and shall be canceled and retired without
payment of any consideration therefor.
(c) Merger Subsidiary. At the Effective Time, each share of
common stock of Merger Subsidiary issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock, $0.01 par value, of the Surviving
Corporation.
3.2. EXCHANGE OF CERTIFICATES FOR SHARES.
(a) Exchange Agent. Promptly after the Effective Time, Parent
shall deposit, or shall cause to be deposited, with an exchange agent, who shall
be the Parent's transfer agent or another entity selected by Parent prior to the
Effective Time with the Company's approval, which shall not be unreasonably
withheld (the "Exchange Agent"), for the benefit of the holders of Shares,
certificates representing the Parent Shares and, after the Effective Time, if
applicable, any cash, dividends or other distributions with respect to Parent
Shares to be issued or paid pursuant to the last sentence of SECTION 3.1(a)
(including cash in lieu of fractional Parent Shares) in exchange for Shares
outstanding immediately prior to the Effective Time upon due surrender of the
Certificates (or affidavits of loss in lieu thereof) pursuant to the provisions
of this ARTICLE III (such certificates for Parent Shares, together with the
amount of any dividends or other distributions payable with respect thereto and
any cash in lieu of fractional Parent Shares, being hereinafter referred to as
the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record of Shares
(i) a letter of transmittal specifying that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent, such
letter of transmittal to be in such form and have such other provisions as
Parent and the Company may reasonably agree prior to the Effective Time, and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for (A) certificates representing Parent Shares and (B) any unpaid
dividends and other distributions pursuant to SECTION 3.2(c) and cash in lieu of
fractional Parent Shares. Subject to SECTION 3.2(h), upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) a certificate representing that number of whole
Parent Shares that such holder is entitled to receive pursuant to this ARTICLE
III, (y) a check in the amount (after giving effect to any required tax
withholdings) of any cash in lieu of fractional Parent Shares plus any unpaid
dividends or other distributions that such holder has the right to receive
pursuant to SECTION 3.2(c), and the Certificate so surrendered shall forthwith
be canceled. No interest will be paid or accrued on any amount payable upon due
surrender of the Certificates. In the event of a transfer of ownership of Shares
that is not registered in the transfer records of the Company, a certificate
representing the proper number of Parent Shares, together with a check for any
cash to be paid upon due surrender of the Certificate in lieu of fractional
Parent Shares and any other dividends or distributions in respect thereof, may
be issued and/or paid to such a transferee if the Certificate formerly
representing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate for Parent
Shares is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the Person (as defined below) requesting such exchange shall pay
any transfer or other taxes required by reason of the issuance of certificates
for Parent Shares in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of Parent or the
Exchange Agent that such tax has been paid or is not applicable. For the
purposes of this Agreement, the term "Person" shall mean any individual,
corporation (including not-for-profit), general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization,
governmental entity or other entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Shares;
Voting.
(i) All Parent Shares to be issued pursuant to
the Merger shall be deemed issued and outstanding as of the Effective Time
and whenever a dividend or other distribution is declared by Parent in respect
of Parent Shares, the record date for which is after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares issuable pursuant to this Agreement. No dividends or other distributions
in respect of Parent Shares shall be paid to any holder of any unsurrendered
Certificate until such Certificate is surrendered for exchange in accordance
with this ARTICLE III. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be issued and/or paid to the
holder of the certificates representing whole Parent Shares issued in exchange
therefor, without interest, (A) at the time of such surrender, the dividends or
other distributions with a record date after the Effective Time and a payment
date on or prior to such time of surrender payable with respect to such whole
Parent Shares and not paid and (B) at the appropriate payment date, the
dividends or other distributions payable with respect to such whole Parent
Shares with a record date after the Effective Time and with a payment date
subsequent to surrender.
(ii) Holders of unsurrendered Certificates who
were the registered holders at the Effective Time shall not be entitled to vote
after the Effective Time at any meeting of Parent stockholders (or consent in
connection with any consent of stockholders in lieu of a meeting).
(d) Transfers. After the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of
this Agreement, no fractional Parent Shares will be issued and any holder of
Shares entitled to receive a fractional Parent Share but for this SECTION 3.2(e)
shall be entitled to receive a cash payment in lieu thereof, which payment shall
equal the amount determined by multiplying (i) the fraction of a Parent Share to
which such holder would otherwise be entitled by (ii) the average closing price
of a Parent Share as reported on the NYSE for the twenty consecutive trading
days ending three trading days prior to the Effective Time. The fractional share
interests of each holder of Company Common Stock shall be aggregated, so that no
such holder shall receive cash in an amount equal to or greater than the value
of one Parent Share.
(f) 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.
(g) Termination of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any investments thereof and any Parent Shares)
that remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who have
not theretofore complied with this ARTICLE III shall thereafter look only to
Parent for payment of their Parent Shares and any cash, dividends and other
distributions in respect thereof payable and/or issuable pursuant to SECTION 3.1
and SECTION 3.2(c) upon due surrender of their Certificates (or affidavits of
loss in lieu thereof), in each case, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation, the
Exchange Agent or any other Person shall be liable to any holder of Shares for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(h) Lost, Stolen or Destroyed Certificates. In the event 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 customary amount as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the Parent Shares and any cash
payable and any unpaid dividends or other distributions in respect thereof
pursuant to SECTION 3.2(c) upon due surrender of and deliverable in respect of
the Shares represented by such Certificate pursuant to this Agreement.
(i) 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 Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, 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.
3.3. APPRAISAL RIGHTS.
In accordance with Section 262(b) of the DGCL, no appraisal
rights shall be available to holders of Shares in connection with the Merger.
3.4. ADJUSTMENTS TO PREVENT DILUTION.
In the event that after the date hereof and prior to the
Effective Time the Company changes the number of Shares or securities
convertible or exchangeable into or exercisable for Shares, or Parent changes
the number of Parent Shares or securities convertible or exchangeable into or
exercisable for Parent Shares, issued and outstanding prior to the Effective
Time, as a result of a reclassification, stock split (including a reverse
split), stock dividend or distribution, recapitalization, merger, subdivision,
issuer tender or exchange offer, or other similar transaction, the Merger
Consideration shall be equitably adjusted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections or
subsections of the Company disclosure schedule attached to this Agreement (the
"Company Disclosure Schedule"), the Company hereby represents and warrants to
Parent and Merger Subsidiary that:
4.1. ORGANIZATION, GOOD STANDING AND QUALIFICATION.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and each of its
Subsidiaries (as defined in SECTION 9.12(b)) is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization. The Company and each of its
Subsidiaries 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
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 Company Material
Adverse Effect (as defined in SECTION 9.12(b)). The Company has made available
to Parent a complete and correct copy of the Company's and each Subsidiary's
charter and by-laws or other organizational documents, each as amended to and as
in effect as of the date hereof.
4.2. CAPITALIZATION.
The authorized capital stock of the Company consists of
75,000,000 Shares, of which 32,526,619 Shares were outstanding as of the close
of business on June 9, 1999, and 25,000,000 shares of Preferred Stock, par value
$.01 per share (the "Preferred Shares"), of which no shares were outstanding as
of the close of business on the date hereof. All of the outstanding Shares have
been duly authorized and are validly issued, fully paid and nonassessable. The
Company has no commitments to issue or deliver Shares or Preferred Shares,
except that, as of June 9, 1999, there were an aggregate of 6,460,000 Shares
reserved for issuance pursuant to the Company's 1992 Employee Stock Option Plan,
1997 Employee Stock Option Plan, 1993 Director's Stock Option Plan and the
Performance Share Plan (the "Company Stock Plans"). Each of the outstanding
shares of capital stock or other securities of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by the Company or a direct or indirect wholly-owned subsidiary of the
Company, free and clear of any lien, pledge, security interest, claim or other
encumbrance. SECTION 4.2 of the Company Disclosure Schedule sets forth in the
aggregate, by Company Stock Plan, the number of options and stock appreciation
rights outstanding, their grant price, the date such options or rights were
granted and the class and number of Shares reserved for issuance pursuant to
each such Company Stock Plan, together with the name of each holder of an option
or stock appreciation right outstanding under any such Company Stock Plan, (such
options and rights being having collectively referred to as the "Company
Options"), a description of the exercise or purchase prices, vesting schedules,
expiration dates, and class and number of Shares subject to each such Company
Option, together with a listing of all Company Options that shall vest at the
Effective Time as a result of the Merger. Except as described in SECTION 4.2 of
the Company Disclosure Schedule, there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements or commitments to
issue or sell any shares of capital stock or other securities of the Company or
any of its Subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe
for or acquire, any securities of the Company or any of its Subsidiaries, and no
securities or obligations evidencing such rights are authorized, issued or
outstanding. The Company does not have outstanding any bonds, debentures, notes
or other obligations the holders of which have the right to vote (or, except as
referred to in this SECTION 4.2, convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matter.
Except as described in SECTION 4.2 of the Company Disclosure
Schedule or as specifically described in this Agreement or the Stock Option
Agreement, since December 31, 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 Stock Plan; (ii) repurchased, redeemed or otherwise
acquired any shares of capital stock of the Company; or (iii) other than its
regular quarterly cash dividend of $0.04 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.
4.3. COMPANY SUBSIDIARIES.
(a) SECTION 4.3(a)(i) of the Company Disclosure Schedule sets
forth the name and jurisdiction of incorporation of each of the Company's
Subsidiaries. The Company conducts its insurance operations through the
Subsidiaries set forth in SECTION 4.3(a)(ii) of the Company Disclosure Schedule
(collectively, the "Company Insurance Subsidiaries"). Each of the Company
Insurance Subsidiaries is (1) duly licensed or authorized as an insurance
company or reinsurer in its jurisdiction of incorporation, (2) duly licensed or
authorized as an insurance company or reinsurer in each other jurisdiction where
it is required to be so licensed or authorized, and (3) duly authorized in its
jurisdiction of incorporation and each other applicable jurisdiction to write
each line of business reported as being written in the Company SAP Statements
(as hereinafter defined), except, in any such case, where the failure to be so
licensed or authorized would not, individually or in the aggregate, be
reasonably expected to have a Company Material Adverse Effect. The Company has
made all required filings under applicable holding company statutes except where
the failure to file would not be reasonably expected to have a Company Material
Adverse Effect.
(b) Except for the Company's Subsidiaries, securities held in
the Company's investment portfolio and except as set forth on SECTION 4.3(b) of
the Company Disclosure Schedule, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
4.4. CORPORATE AUTHORITY; APPROVAL AND FAIRNESS.
(a) The Company has all requisite power and authority and has
taken all corporate action necessary in order to execute, deliver and perform
its obligations under this Agreement and the Stock Option Agreement, and subject
only to approval of the Merger by the holders of at least a majority of the
outstanding Shares (the "Company Requisite Vote"), to consummate the Merger.
This Agreement and the Stock Option Agreement have been duly executed and
delivered by the Company and (assuming the due authorization, execution and
delivery hereof and thereof by Parent and the Company) constitute legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as enforceability may be limited
or affected by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws and equitable principles now or hereafter in
effect and affecting the rights and remedies of creditors generally.
(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, and
(ii) having resolved to recommend that the holders of the Shares adopt this
Agreement and approve the Merger. The affirmative vote in favor of the adoption
of this Agreement by the Company Requisite Vote 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. The Board of Directors of the Company has
received the opinion of its financial advisor Goldman, Sachs & Co., to the
effect that, as of the date of such opinion, the Exchange Ratio is fair from a
financial point of view to the holders of Shares.
4.5. GOVERNMENTAL FILINGS; NO VIOLATIONS.
Subject to obtaining the Private Consents (as defined below)
and except 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, and except as may result from any
facts or circumstances relating solely to the Parent or its Affiliates, 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 Company Material Adverse Effect, (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 "Contract") 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 other 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 Company Material Adverse Effect.
SECTION 4.5 of the Company Disclosure Schedule sets forth, to the knowledge of
the Responsible Executive Officers of the Company (as defined in SECTION
9.12(b)), a list of contracts (by category and type, where applicable) material
to the Company and its Subsidiaries, taken as a whole, pursuant to which
consents or waivers ("Private Consents") are or may be required prior to
consummation of the transactions contemplated by this Agreement (subject to the
exception set forth above).
4.6. COMPANY REPORTS; FINANCIAL STATEMENT.
(a) The Company has delivered or made available to Parent true
and complete copies of each registration statement, report, proxy statement or
information statement prepared by it since January 1, 1996, including (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, (ii)
the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, and (iii) the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999, each in the form (including exhibits,
annexes and any amendments thereto) filed with the Securities and Exchange
Commission (the "SEC") (collectively, including any such reports filed
subsequent to the date hereof, the "Company Reports"). Each Company Report
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. Each report
filed by the Company with the SEC subsequent to the date hereof and prior to the
Effective Time will comply 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 the Company
is required to file any form, report, statement, schedule, registration
statement or other document with the SEC. As of their respective dates, the
Company Reports did not, and any Company Reports filed with the SEC subsequent
to the date hereof will not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents, or will fairly present, the consolidated
financial position of the Company and its Subsidiaries as of its date and each
of the consolidated statements of income and of changes in financial position
included in or incorporated by reference into the Company Reports (including any
related notes and schedules) fairly presents, or will fairly present, the
consolidated results of operations, retained earnings and changes in financial
position, as the case may be, of the Company and its Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that will not be material in amount
or effect), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein.
(b) The Company has delivered or made available to Parent true
and complete copies of the annual and quarterly statements of each of the
Company Insurance Subsidiaries as filed with the applicable insurance regulatory
authorities for the three years ended December 31, 1998 and the quarterly period
ended March 31, 1999, including all exhibits, interrogatories, notes, schedules
and any actuarial opinions, affirmations or certifications or other supporting
documents filed in connection therewith (collectively, the "Company SAP
Statements"). The Company SAP Statements were prepared in conformity with
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority consistently applied for the periods covered
thereby and present fairly the statutory financial position of such Company
Insurance Subsidiaries for the respective periods then ended. The Company SAP
Statements complied in all material respects with all applicable laws, rules and
regulations when filed, and no material deficiency has been asserted with
respect to any Company SAP Statements by the applicable insurance regulatory
body or any other governmental agency or body. The annual statutory balance
sheets and income statements included in the Company SAP Statements have been
audited by Ernst & Young LLP and the Company has delivered or made available to
Parent true and complete copies of all audit opinions related thereto. The
Company has delivered or made available to Parent true and complete copies of
all examination reports of insurance departments and any insurance regulatory
agencies since January 1, 1995 relating to the Company Insurance Subsidiaries.
4.7. ABSENCE OF CERTAIN CHANGES.
Except as disclosed in the Company Reports filed prior to the
date hereof or as set forth on SECTION 4.7 of the Company Disclosure Schedule
and except as otherwise provided in or contemplated by this Agreement, since
December 31, 1998 (the "Company Audit Date"), the Company and its Subsidiaries
have conducted their respective businesses only in, and have not engaged in any
material transaction other than according to, the ordinary and usual course of
such businesses and there has not been: (a) any change in the financial
condition, properties, business or results of operations of the Company and its
Subsidiaries, or any transaction, commitment, dispute or other event, or any
other development or combination of developments that, individually or in the
aggregate, has had or is reasonably likely to result in a Company Material
Adverse Effect; (b) any material damage, destruction or other casualty loss with
respect to any material asset or property owned, leased or otherwise used by the
Company or any of its Subsidiaries, whether or not covered by insurance; (c) any
authorization, declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company, except as permitted
by SECTION 6.1 hereof; (d) any change by the Company in accounting principles,
practices or methods other than as required by changes in applicable GAAP or
statutory accounting principles; (e) any material addition to the Company's
consolidated reserves for unpaid losses and loss adjustment expenses prior to
the date of this Agreement; (f) any material change in the accounting,
actuarial, investment, reserving, underwriting or claims administration
policies, practices, procedures, methods, assumptions or principles of any
Company Insurance Subsidiary; or (g) any repurchase or redemption of any Shares.
Since the Company Audit Date, except as provided for herein or as disclosed in
the Company Reports filed prior to the date hereof or as set forth on SECTION
4.7 of the Company Disclosure Schedule, there has not been any increase in the
compensation payable or that could become payable by the Company or any of its
Subsidiaries to officers at the senior vice president level or above or key
employees or any amendment of any of the Company Compensation and Benefit Plans
(as defined in SECTION 4.9(a)).
4.8. LITIGATION AND LIABILITIES.
Except as disclosed in the Company Reports filed prior to the
date hereof or as set forth on SECTION 4.8 of the Company Disclosure Schedule,
there are no (a) actions, suits, claims, proceedings or investigations (or, to
the knowledge of the Responsible Executive Officers of the Company, any basis
for any person to assert any claim reasonably likely to result in liability or
any other adverse determination) pending against, or to the knowledge of the
Responsible Executive Officers of the Company, threatened against or affecting,
the Company or any of its Subsidiaries or any of their respective properties
before any Governmental Entity or otherwise that (i) individually or in the
aggregate would be expected to have a Company Material Adverse Effect, (ii) in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated hereby or (iii) alleges criminal action or inaction or
(b) liabilities, debts, claims or obligations of any nature on the date of this
Agreement, whether accrued, absolute, direct or indirect, contingent or
otherwise, whether due or to become due, that would be required to be included
on a balance sheet prepared in accordance with GAAP, and there is no existing
condition or set of circumstances that would reasonably be expected to result in
such a liability ("Company Liabilities"), except (i) Company Liabilities
incurred in the ordinary and usual course of business and consistent with past
practice since December 31, 1998, (ii) Company Liabilities incurred in
connection with or as a result of the transactions contemplated by this
Agreement and (iii) Company Liabilities that would not reasonably be expected to
have a Company Material Adverse Effect.
As of the date hereof, neither the Company, its Subsidiaries nor any of
their respective properties is subject to any order, writ, judgment, injunction,
decree, determination or award having, or that would reasonably be expected to
have, a Company Material Adverse Effect or that would prevent or delay the
consummation of the transactions contemplated hereby. Except as disclosed in the
Company Reports, there are no pending or, to the knowledge of the Responsible
Executive Officers of the Company, threatened claims for indemnification by the
Company or any of its Subsidiaries in favor of directors, officers, employees
and agents of the Company or any of its Subsidiaries.
4.9. EMPLOYEE BENEFITS.
(a) Except as set forth in SECTION 4.9(a) of the Company
Disclosure Schedule, none of the Company or any of its Subsidiaries maintains,
is a party to, participates in or has any liability or contingent liability with
respect to:
(i) any "employee welfare benefit plan" or "employee
pension benefit plan" (as those terms are defined in sections 3(1) and 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
respectively), other than a "multiemployer plan" (as defined in section 3(37) of
ERISA);
(ii) any retirement or deferred compensation plan,
incentive compensation plan, stock plan, unemployment compensation plan,
vacation pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangements for any current
or former employee, director, consultant or agent, whether pursuant to contract,
arrangement, custom or informal understanding, which does not constitute an
employee benefit plan (as defined in section 3(3) of ERISA); or
(iii) any employment agreement or consulting agreement.
(b) A true and correct copy of each of the plans,
arrangements, and agreements listed on SECTION 4.9(b) of the Company Disclosure
Schedule (referred to hereinafter as "Employee Benefit Plans"), and all
contracts relating thereto, or to the funding thereof, including, without
limitation, all trust agreements, insurance contracts, administration contracts,
investment management agreements, subscription and participation agreements, and
record keeping agreements, each as in effect on the date hereof, has been
supplied to the Parent. In the case of any Employee Benefit Plan which is not in
written form, the Parent has been supplied with an accurate description of such
Employee Benefit Plan as in effect on the date hereof. A true and correct copy
of the most recent annual report, actuarial report, accountant's opinion of the
plan's financial statements, summary plan description and Internal Revenue
Service determination letter with respect to each Employee Benefit Plan, to the
extent applicable, and a current schedule of assets (and the fair market value
thereof assuming liquidation of any asset which is not readily tradable) held
with respect to any funded Employee Benefit Plan has been supplied to the
Purchaser, and there have been no material changes in the financial condition in
the respective plans from that stated in the annual reports and actuarial
reports supplied.
(c) As to all Employee Benefit Plans:
(i) All Employee Benefit Plans comply and have been
administered in form and in operation in all material respects with all
applicable requirements of Law, and no event has occurred which will or could
cause any such Employee Benefit Plan to fail to comply with such requirements
and no notice has been issued by any governmental authority questioning or
challenging such compliance.
(ii) All Employee Benefit Plans which are employee pension
benefit plans comply in all material respects in form and in operation with all
applicable requirements of sections 401(a) and 501(a) of the Code; there have
been no amendments to such plans which are not the subject of a favorable
determination letter issued with respect thereto by the Internal Revenue Service
or for which the time to file a timely request for a determination letter has
lapsed; and no event has occurred which will or could give rise to
disqualification of any such plan under such sections or to a tax under section
511 of the Code.
(iii) None of the assets of any Employee Benefit Plan are
invested in employer securities or employer real property.
(iv) There have been no "prohibited transactions" (as
described in section 406 of ERISA or section 4975 of the Code) with respect to
any Employee Benefit Plan and none of the Company or any of its Subsidiaries has
engaged in any prohibited transaction.
(v) There have been no acts or omissions by the Company
which have given rise to or may give rise to fines, penalties, taxes or related
charges under section 502 of ERISA or Chapters 43, 47 or 68 of the Code for
which the Company or any of its Subsidiaries may be liable.
(vi) Except as set forth in SECTION 4.9(c) of the Company
Disclosure Schedule, none of the payments contemplated by the Employee Benefit
Plans would, in the aggregate, constitute excess parachute payments (as defined
in section 280G of the Code (without regard to subsection (b)(4) thereof)).
(vii) There are no actions, suits or claims (other than
routine claims for benefits)pending or threatened involving any Employee Benefit
Plan or the assets thereof and no facts exist which could give rise to any such
actions, suits or claims (other than routine claims for benefits).
(viii) No Employee Benefit Plan is subject to Title IV of
ERISA.
(ix) Each Employee Benefit Plan which constitutes a "group
health plan" (as defined in section 607(i) of ERISA or section 4980B(g)(2) of
the Code), including any plans of current and former Affiliates which must be
taken into account under sections 4980B and 414(t) of the Code or section 601 of
ERISA, have been operated in material compliance with applicable law, including
coverage requirements of section 4980B of the Code and section 601 of ERISA to
the extent such requirements are applicable, except where failure to do so would
not have a Company Material Adverse Effect.
(x) None of the Company or any of its Subsidiaries has
any liability or contingent liability for providing, under any Employee Benefit
Plan or otherwise, any post-retirement medical or life insurance benefits, other
than statutory liability for providing group health plan continuation coverage
under Part 6 of Title I of ERISA and section 4980B of the Code.
(xi) Actuarially adequate accruals for all obligations
under the Employee Benefit Plans are reflected in the financial statements of
the Company and such obligations include a pro rata amount of the contributions
and PBGC premiums which would otherwise have been made in accordance with past
practices and applicable law for the plan years which include the Closing Date.
(d) None of the Company nor any of its Subsidiaries
contributes to, has contributed to, or has any liability or contingent liability
with respect to a multiemployer plan (as defined in section 3(37) of ERISA)
(e) SECTION 4.9(e) of the Company Disclosure Schedule
describes in all material respects all employment contracts and similar
arrangements between the Company or any of its Subsidiaries and their respective
executive officers, and all plans and arrangements pursuant to which the Company
or any of its Subsidiaries is obligated to make any payment or confer any
benefit upon any officer, director, employee or agent of the Company or any of
its Subsidiaries as a result of or in connection with any of the transactions
contemplated by this Agreement or any transaction or transactions resulting in a
change in control of the Company or any of its Subsidiaries. Except as set forth
in SECTION 4.9(e) of the Company Disclosure Schedule, the Merger will not (i)
entitle any employees of the Company or its Subsidiaries to severance pay, (ii)
accelerate the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any Employee Benefit Plan, or (iii) result in any breach
or violation of, or default under, any Employee Benefit Plan.
(f) All Employee Benefit Plans covering current or former
non-U.S. employees of the Company and its Subsidiaries comply in all material
respects with applicable local law. The Company and its Subsidiaries have no
material unfunded liabilities with respect to any Employee Benefit Plan that
covers such non-U.S. employees.
4.10. COMPLIANCE WITH LAWS; PERMITS.
Except as set forth in the Company Reports filed prior to the
date hereof or on SECTION 4.10 of the Company Disclosure Schedule, the
businesses of each of the Company and its Subsidiaries have been, and are being,
conducted in compliance with all applicable federal, state, local or foreign
laws, statutes, ordinances, rules, regulations, judgments, orders, injunctions,
decrees, arbitration awards, agency requirements, licenses or permits (including
insurance laws and regulations) of any Governmental Entity ("Laws"), and all
notices, reports, documents and other information required to be filed
thereunder within the last three years were properly filed and were in
compliance with such Laws, except in any such case for noncompliance that,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect or prevent or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement.
Except as set forth in the Company Reports filed prior to the date hereof or on
SECTION 4.10 of the Company Disclosure Schedule and except for routine
examinations by state governmental entities charged with supervision of
insurance companies ("Insurance Regulators"), no investigation or review by any
governmental entity with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Responsible Executive Officers of the
Company, threatened, nor has any governmental entity indicated an intention to
conduct the same, except for those the outcome of which would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect or prevent or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement. No material change is required
in the Company's or any of its Subsidiaries' processes, properties or procedures
in connection with any such Laws, and the Company has not received any notice or
communication of any material noncompliance with any such Laws that has not been
cured as of the date hereof. The Company and its Subsidiaries each has all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct its
business as presently conducted except those the absence of which would not,
individually or in the aggregate, have a Company Material Adverse Effect or
prevent or materially impair the ability of the Company to consummate the Merger
and the other transactions contemplated by this Agreement.
4.11. INTELLECTUAL PROPERTY.
The Company and its Subsidiaries own or possess, or have all
necessary rights and licenses in, 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 their business as conducted and
proposed to be conducted, except such Intellectual Property the failure to own,
possess, have all rights and licenses in would not have a Company Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has received any
unresolved notice of, or is aware of any fact or circumstance that would give
any Person a right to assert, infringement or misappropriation of, or conflict
with, asserted rights of others or invalidity or unenforceability of any
Intellectual Property owned by the Company or any of its Subsidiaries. To the
knowledge of the Responsible Executive Officers of the Company, the use of such
Intellectual Property to conduct the business and operations of the Company and
its Subsidiaries as conducted or proposed to be conducted does not infringe on
the rights of any Person, except such infringement that would not have a Company
Material Adverse Effect. To the knowledge of the Responsible Executive Officers
of the Company, no Person is challenging, infringing on or otherwise violating
any right of the Company or any of its Subsidiaries with respect to any
Intellectual Property owned by or licensed to the Company or any of its
Subsidiaries. Neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby will result in a loss or limitation in the
rights and licenses of the Company to use or enjoy the benefit of any
Intellectual Property employed by the Company or any of its Subsidiaries in
connection with its business as conducted or proposed to be conducted, except
for such loss or limitation which would not have a Company Material Adverse
Effect.
4.12. YEAR 2000 COMPLIANCE.
The Company has established an implementation plan and
budgeted a reasonably sufficient amount of capital and resources to institute
software systems which include design, performance and functionality and which
are intended to ensure (it being acknowledged and agreed by the parties hereto
that such intention may never be realized) that such software systems do not
cause the Company to experience invalid or incorrect results or abnormal
software operation related to calendar year 2000, except where such invalid or
incorrect results or abnormal software operation would not, individually or in
the aggregate, have a Company Material Adverse Effect. Such plan and budget
envision the creation of software systems which include calendar year 2000 date
conversion and compatibility capabilities. As of the date of this Agreement,
such plan, in respect of the business of the Company, is generally proceeding on
schedule.
4.13. 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 following representations, would not reasonably be expected
to have a Company Material Adverse Effect, (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, 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.
4.14. 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, and
neither the Company nor any of its Subsidiaries sponsors any person that is such
an investment company.
4.15. TAKEOVER STATUTES.
No restrictive provision of any "fair price," "moratorium,"
"control share" or other similar anti-takeover statute or regulation, including,
but not limited to, ss. 203 of the DGCL, (each a "Takeover Statute") or
restrictive provision of any applicable anti-takeover provision in the
Certificate of Incorporation or Bylaws of the Company, is, or at the Effective
Time will be, applicable to the Company, Parent, the Shares, the Merger or any
other transaction contemplated by this Agreement.
4.16. TAXES.
Except as set forth on SECTION 4.16 of the Company Disclosure
Schedule:
(a) the Company and each of its Subsidiaries have timely and
accurately filed all Tax Returns (as defined in SECTION 9.12 (b)) which are
required by all applicable laws to be filed by them, and have paid, or made
adequate provision for the payment of, all Taxes (as defined in SECTION 9.12
(b)) which have or may become due and payable pursuant to said Tax Returns and
all other Taxes, governmental charges and assessments received to date other
than those Taxes being contested in good faith for which adequate provision has
been made on the most recent balance sheet included in the Company Reports. The
Tax Returns of the Company and its Subsidiaries have been prepared, in all
material respects, in accordance with all applicable laws consistently applied;
(b) all Taxes which the Company and its Subsidiaries are
required by law to withhold and collect have been duly withheld and collected,
and have been paid over, in a timely manner, to the proper Taxing Authorities
(as defined in SECTION 9.12 (b)) to the extent due and payable;
(c) no liens for Taxes exist with respect to any of the assets
or properties of the Company or its Subsidiaries, except for statutory liens for
Taxes not yet due or payable or that are being contested in good faith; and
(d) there is no audit, examination, deficiency, or refund
litigation pending with respect to any Taxes and during the past three years no
Taxing Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes.
4.17. LABOR MATTERS.
The Company is not aware that any officer, director, executive
or key employee of the Company or any of its Subsidiaries or any group of
employees of the Company or any of its Subsidiaries has any plans to terminate
his, her or its employment with the Company or any of its Subsidiaries (other
than as previously described to Parent in writing). Except as described in
SECTION 4.17 of the Company Disclosure Letter, (a) the Company and its
Subsidiaries have complied with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity, and
collective bargaining, and (b) no labor dispute with employees of the Company or
any of its Subsidiaries exists or, to the knowledge of the Responsible Executive
Officers of the Company, is threatened. Neither the Company nor any of its
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization. There are no strikes, work stoppages or labor disputes
pending or, to the knowledge of the Responsible Executive Officers of the
Company, threatened with respect to the employees of the Company or any of its
Subsidiaries. There is no representation claim or petition or complaint pending
before the National Labor Relations Board or any state or local labor agency
and, to the knowledge of the Responsible Executive Officers of the Company, no
question concerning representation has been raised or threatened. No charges
with respect to or relating to the business of the Company or any its
Subsidiaries are pending before the Equal Employment Opportunity Commission, or
any state or local agency responsible for the prevention of unlawful employment
practices, which would if adversely determined have a Company Material Adverse
Effect.
4.18. TITLE TO PROPERTY.
Except as set forth in the Company Reports or on SECTION 4.18
of the Company Disclosure Schedule, the Company and each of its Subsidiaries
have good and indefeasible title to all of their properties and assets, free and
clear of all material defects and all encumbrances, except liens for taxes not
yet due and payable and such encumbrances or other imperfections of title, if
any, as do not materially detract from the value of or interfere with the
present use of the property affected thereby or which would not reasonably be
expected to have a Company Material Adverse Effect, and except for encumbrances
which secure indebtedness reflected in the financial statements included in the
Company Reports.
4.19. MATERIAL CONTRACTS.
All of the material Contracts of the Company and its
Subsidiaries are in full force and effect and are valid, binding and enforceable
against the Company or its Subsidiaries in accordance with their respective
terms. True and complete copies of all such material Contracts have been
delivered or otherwise made available by the Company to Parent. Except as set
forth in SECTION 4.19 of the Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries is, has received any notice or has any knowledge
that any other party is, in default in any respect under any Contract to which
the Company or any of its Subsidiaries is a party or the assets, business or
operations thereof may be bound or affected or under which it or its
Subsidiaries' respective assets, business or operations receives benefits,
except for those defaults that have not had or would not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect,
and there has not occurred any event that with the lapse of time or the giving
of notice would constitute such a default. Neither the Company nor any of its
Subsidiaries is party to any agreement containing any provision or covenant that
would reasonably be expected to have a Company Material Adverse Effect on the
ability of the Company or any of its Subsidiaries ,assuming the consummation of
the transactions contemplated by this Agreement, to (a) sell any products or
services of or to any other person, (b) engage in any line of business or (c)
compete with or to 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.
Subject to obtaining the Private Consents and except as set
forth in SECTION 4.19 of the Company Disclosure Schedule, 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 Company Material Adverse Effect.
4.20. BROKERS AND FINDERS.
Neither the Company nor any of its executive officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the Merger or the other transactions contemplated in this Agreement, except that
the Company has employed Goldman, Sachs & Co. as its financial advisor, the
arrangements with respect to which have been disclosed to Parent prior to the
date hereof.
4.21. INSURANCE MATTERS.
(a) The Company has heretofore provided or otherwise made
available to Parent true, complete and correct copies of all material fire and
casualty, general liability, business interruption, product liability and other
insurance policies maintained by the Company and its Subsidiaries. All such
policies are in full force and effect and no event has occurred that would give
any insurance carrier a right to terminate any such policy. Neither the Company
nor any of its Subsidiaries has been denied or had any policy of insurance
revoked or rescinded. All such policies are adequate to insure against risks to
which the Company and its properties are exposed in such amounts and subject to
such terms as are commercially reasonable.
(b) Except as otherwise would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect, all
policies, binders, slips, certificates, annuity contracts and participation
agreements and other agreements of insurance, whether individual or group, in
effect as of the date hereof (including all applications, supplements,
endorsements, riders and ancillary agreements in connection therewith) that are
issued by the Company Insurance Subsidiaries (the "Company Insurance Contracts")
and any and all marketing materials, are, to the extent required under
applicable law, on forms approved by applicable insurance 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 statutes, regulations and rules applicable thereto and, as to
premium rates established by the Company or any Company Insurance Subsidiary
which are required to be filed with or approved by insurance 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 statutes, regulations and rules applicable
thereto.
(c) All reinsurance and coinsurance treaties or agreements,
including retrocessional agreements, to which the Company or any Company
Insurance Subsidiary is a party or under which the Company or any Company
Insurance Subsidiary has any existing rights, obligations or liabilities are in
full force and effect except for such treaties or agreements the failure to be
in full force and effect as individually or in the aggregate are not reasonably
likely to have a Company Material Adverse Effect. Neither the Company nor any
Company Insurance Subsidiary, nor, to the knowledge of the Responsible Executive
Officers of the Company, any other party to a reinsurance or coinsurance treaty
or agreement to which the Company or any Company Insurance Subsidiary is a
party, is in default in any material respect as to any provision thereof, and no
such agreement contains any provision providing that the other party thereto may
terminate such agreement by reason of the transactions contemplated by this
Agreement. The Company has not received any notice to the effect that the
financial condition of any other party to any such agreement is impaired with
the result that a default thereunder may reasonably be anticipated, whether or
not such default may be cured by the operation of any offset clause in such
agreement. No insurer or reinsurer or group of affiliated insurers or reinsurers
accounted for the direction to the Company and the Company Insurance
Subsidiaries or the ceding by the Company and the Company Insurance Subsidiaries
of insurance or reinsurance business in an aggregate amount equal to two percent
or more of the consolidated gross premium income of the Company and the Company
Insurance Subsidiaries for the year ended December 31, 1998.
(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 December 31, 1995, 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. Furthermore, to the knowledge of the Responsible Executive Officers of
the Company, each Company Actuarial Analysis was based upon an accurate
inventory of policies in force for the Company and the Company Insurance
Subsidiaries, as the case may be, at the relevant time of preparation, was
prepared using appropriate modeling procedures accurately applied and in
conformity with generally accepted actuarial standards consistently applied, and
the projections contained therein were properly prepared in accordance with the
assumptions stated therein.
4.22. LIABILITIES AND RESERVES
(a) The reserves carried on the Company SAP Statements of each
Company Insurance Subsidiary for the year ended December 31, 1998 for future
insurance policy benefits, losses, claims and similar purposes (including claims
litigation) are in compliance in all material respects with the requirements for
reserves established by the insurance departments of the state of domicile of
such Company Insurance Subsidiary, were determined in all material respects in
accordance with generally accepted actuarial standards and principles
consistently applied, were determined in accordance with SAP and are fairly
stated in all material respects in accordance with sound actuarial and statutory
accounting principles. Such reserves were 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 Company SAP
Statements. The admitted assets of the Company and each Company Insurance
Subsidiary as determined under applicable Laws are in an amount at least equal
to the minimum amounts required by applicable Laws. In addition, the Company has
delivered or made available to Parent copies of all work papers used as the
basis for establishing the reserves for the Company and the Company Insurance
Subsidiaries at December 31, 1997 and December 31, 1998, respectively. With
respect to the quarterly period ended June 30, 1999, the Company will establish
the reserves set forth in SECTION 4.22 of the Company Disclosure Schedule.
(b) Except for regular periodic assessments in the ordinary
course of business or assessments based on developments which are publicly known
within the insurance industry, to the knowledge of the Responsible Executive
Officers of the Company, no claim or assessment is pending or threatened against
any Company Insurance Subsidiary which is peculiar or unique to such Company
Insurance Subsidiary by any state insurance guaranty associations in connection
with such association's fund relating to insolvent insurers which if determined
adversely would, individually or in the aggregate, be reasonably likely to have
a Company Material Adverse Effect.
4.23. ACCOUNTING AND TAX MATTERS.
As of the date hereof, neither the Company nor any of its
Affiliates has taken or agreed to take any action, nor do the Responsible
Executive Officers of the Company have any knowledge of any fact or
circumstance, that would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
Except as set forth in the corresponding sections or
subsections of the Parent Disclosure Schedule attached to this Agreement (the
"Parent Disclosure Schedule"), Parent and Merger Subsidiary hereby, jointly and
severally, represent and warrant to the Company that:
5.1. MERGER SUBSIDIARY.
(a) Merger Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) The authorized capital stock of Merger Subsidiary consists
of 1,000 shares of common stock, par value $.01 per share, all of which are
validly issued and outstanding and are, and at the Effective Time will be, owned
solely by Parent, and there are (i) no other voting securities of Merger
Subsidiary, (ii) no securities of Merger Subsidiary convertible into or
exchangeable for shares of common stock or other voting securities of Merger
Subsidiary and (iii) no options or other rights to acquire from Merger
Subsidiary, and no obligations of Merger Subsidiary to issue or deliver, shares
of common stock or other voting securities or securities convertible into or
exchangeable for shares of common stock or other voting securities of Merger
Subsidiary.
(c) Merger Subsidiary has not conducted any business prior to
the date hereof and has no, and prior to the Effective Time will have no,
assets, liabilities or obligations of any nature other than those incident to
its formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
5.2. ORGANIZATION, GOOD STANDING AND QUALIFICATION.
Parent is a company incorporated with limited liability,
validly existing and in good standing under the Cayman Islands Companies Law,
and each of its Subsidiaries is a corporation or other entity duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of organization. Neither Parent nor Merger Subsidiary is required
to be authorized, qualified, licensed or domesticated as a foreign corporation
under any United States federal, state or local corporate law. Parent has made
available to the Company a complete and correct copy of Parent's and each
Subsidiaries' charter and by-laws or other organizational documents, each as
amended to and as in effect as of the date hereof.
5.3. CAPITALIZATION.
The authorized capital stock of Parent consists of 300 million
Parent Shares, of which 194,018,456 shares were outstanding as of the close of
business on June 9, 1999, and 10 million other shares, none of which are
outstanding. All of the outstanding Parent Shares have been duly authorized and
are validly issued, fully paid and nonassessable. Parent has no commitments to
issue or deliver Parent Shares, except that, as of June 9, 1999, there were an
aggregate of 23,576,886 Parent Shares reserved for issuance pursuant to Parent's
employee benefit plans existing on the date hereof (the "Parent Stock Plans"),
and 500,000 shares of Parent preferred stock subject to issuance pursuant to the
Parent Rights Agreement. Each of the outstanding shares of capital stock or
other securities of each of Parent's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and owned by Parent or a direct or indirect
wholly-owned subsidiary of Parent, free and clear of any lien, pledge, security
interest, claim or other encumbrance. There are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation
rights, redemption rights, repurchase rights, agreements, arrangements or
commitments to issue or sell any shares of capital stock or other securities of
Parent or any of its Subsidiaries or any securities or obligations convertible
or exchangeable into or exercisable for, or giving any Person a right to
subscribe for or acquire, any securities of Parent or any of its Subsidiaries,
and no securities or obligations evidencing such rights are authorized, issued
or outstanding. Parent does not have outstanding any bonds, debentures, notes or
other obligations the holders of which have the right to vote (or, except as
referred to in this SECTION 5.3, convertible into or exercisable for securities
having the right to vote) with the stockholders of Parent on any matter.
5.4. CORPORATE AUTHORITY; APPROVAL AND FAIRNESS.
(a) Each of Parent and Merger Subsidiary has all requisite
corporate power and authority and has taken all corporate action necessary in
order to execute, deliver and perform its obligations under this Agreement, the
Stock Option Agreement and to consummate the Merger. This Agreement is a valid
and binding obligation of each of Parent and Merger Subsidiary, as the case may
be, enforceable against Parent and Merger Subsidiary in accordance with its
terms, except as enforceability may be limited or affected by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws and equitable principles now or hereafter in effect and affecting the
rights and remedies of creditors generally.
(b) The Board of Directors of Parent (at a meeting duly called
and held) has approved this Agreement and the Merger and the other transactions
contemplated hereby and thereby. The Parent Shares, when issued in connection
with the consummation of the transactions contemplated hereby, will be validly
issued, fully paid and nonassessable, and no stockholder of Parent will have any
preemptive right of subscription or purchase is respect thereof. The Parent
Shares, when so issued, will be registered under the Securities Act and Exchange
Act and registered or exempt from registration under any applicable state
securities or "blue sky" laws.
5.5. GOVERNMENTAL FILINGS; NO VIOLATIONS.
(a) Except for all filings, permits,
authorizations, consents and approvals as may be required under, and compliance
with other applicable requirements of, the Securities Act, the Exchange Act, 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 except as may result from any facts or
circumstances relating solely to the Company or its Affiliates, in connection
with the execution and delivery of this Agreement by Parent and Merger
Subsidiary and the consummation by Parent and Merger Subsidiary of the Merger
and the other transactions contemplated hereby and thereby, there are no
filings, authorizations, consents, approvals or notices required with or by any
Court, administrative agency, commission, government or regulatory authority,
domestic or foreign, except those that the failure to make or obtain would not,
individually or in the aggregate, have a Parent Material Adverse Effect or
prevent, materially delay or materially impair the ability of Parent or Merger
Subsidiary to consummate transactions contemplated by this Agreement.
(b) Subject to compliance with the filings described in
SECTION 5.5(a), the execution, delivery and performance of the Stock Option
Agreement by Parent and this Agreement by Parent and the Merger Subsidiary, as
the case may be, does not, and the consummation by Parent or Merger Subsidiary
of the Merger and the other transactions contemplated hereby or thereby will
not, constitute or result in (i) a breach or violation of, or a default under,
the certificate of incorporation or bylaws of Parent or Merger Subsidiary, or
the comparable governing instruments of any of Parent's other Subsidiaries, or
(ii) a breach or violation of, or a default under, the acceleration of any
obligations (with or without notice, lapse of time or both) pursuant to, any
Contracts binding upon Parent or any of its Subsidiaries, except for any
conflict, breach, violation, default or acceleration that would not reasonably
be expected to have a Parent Material Adverse Effect or prevent, materially
delay or materially impair the ability of Parent or Merger Subsidiary to
consummate the transactions contemplated by this Agreement, as the case may be.
5.6. PARENT REPORTS; FINANCIAL STATEMENTS.
Parent has delivered or made available to the Company true and
complete copies of each registration statement, report, proxy statement or
information statement prepared by it since September 30, 1998 (the "Parent Audit
Date"), including (a) Parent's Annual Report on Form 10-K for the year ended
September 30, 1998, (b) Parent's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, and (c) Parent's Quarterly Reports on Form 10-Q for the
quarterly periods ended December 31, 1998, and March 31, 1999, each in the form
(including exhibits, annexes and any amendments thereto) filed with the SEC
(collectively, including any such reports filed between the date hereof and the
Effective Time, the "Parent Reports"). As of their respective dates, the Parent
Reports complied, and any Parent Reports filed with the SEC between the date
hereof and the Effective Time will comply, as to form in all material respects
with the requirements of the Securities Act or the Exchange Act, as applicable,
and the rules and regulations of the SEC. As of their respective dates, the
Parent Reports did not, and any Parent Reports filed with the SEC between the
date hereof and the Effective Time will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets included in or incorporated by reference into the Parent Reports
(including the related notes and schedules) fairly presents, or will fairly
present, the consolidated financial position of Parent and its Subsidiaries as
of its date and each of the consolidated statements of income and of changes in
financial position included in or incorporated by reference into the Parent
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the consolidated results of operations, retained earnings and
changes in financial position, as the case may be, of Parent and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.
5.7. ABSENCE OF CERTAIN CHANGES.
Except as disclosed in the Parent Reports filed prior to the
date hereof and except as otherwise provided in or contemplated by this
Agreement, since the Parent Audit Date, Parent and its Subsidiaries have
conducted their respective businesses only in, and have not engaged in any
material transaction other than according to, the ordinary and usual course of
such businesses and there has not been any change in the financial condition,
properties, business or results of operations of Parent and its Subsidiaries, or
any transaction, commitment, dispute or other event, or any other development or
combination of developments that, individually or in the aggregate, has had or
is reasonably likely to result in a Parent Material Adverse Effect.
5.8. LITIGATION AND LIABILITIES.
Except as disclosed in the Parent Reports filed prior to the
date hereof, there are no (a) civil, criminal or administrative actions, suits,
claims, hearings, investigations, proceedings, judgments, decrees, orders or
injunctions outstanding, pending or, to the knowledge of the Responsible
Executive Officers of Parent, threatened against Parent or any of its
Subsidiaries or (b) obligations or liabilities of any nature, whether or not
accrued, contingent or otherwise and whether or not required to be disclosed
("Parent Liabilities") other than (i) Parent Liabilities incurred since December
31, 1998 in the ordinary and usual course of business and consistent with past
practice, (ii) Parent Liabilities incurred in connection with or as a result of
the transactions contemplated by this Agreement, (iii) Parent Liabilities
incurred in connection with or as a result of the acquisition of the property
and casualty business of Cigna and (iv) Parent Liabilities that would not
reasonably be expected to have a Parent Material Adverse Effect.
5.9. BROKERS AND FINDERS.
Neither Parent nor any of its executive officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or the
other transactions contemplated in this Agreement, except that Parent has
employed Credit Suisse First Boston Corporation as its financial advisors, the
arrangements with respect to which have been disclosed to the Company prior to
the date hereof.
ARTICLE VI
COVENANTS
6.1. INTERIM OPERATIONS OF THE COMPANY.
Except as expressly contemplated by this Agreement or the
Stock Option Agreement or 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 and its Subsidiaries will conduct their operations only in,
and neither the Company nor any of its Subsidiaries shall take any action except
in, the ordinary and usual course of business and consistent with past practice,
and the Company and its Subsidiaries will use their best efforts to preserve
intact their business organization, to keep available the services of their
officers and key employees and to maintain advantageous relationships with
ceding companies, customers, licensors, licensees, suppliers, contractors,
distributors, business partners and others having business relationships with
the Company or its Subsidiaries, as the case may be. Without limiting the
generality of the foregoing, prior to the Effective Time, neither the Company
nor any of its Subsidiaries will, without the prior written consent of Parent
(such consent to be given or withheld in Parent's sole discretion):
(a) except as expressly contemplated by this Agreement, split,
combine or reclassify any shares of its capital stock or other securities,
declare, pay, set aside for payment or consummate any dividend or other
distribution payable in cash, stock, property or otherwise in respect of its
capital stock or other securities, or directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or other securities other than
regular quarterly cash dividends paid by the Company not in excess of $0.04 per
share;
(b) authorize for issuance, issue, sell, pledge, dispose of,
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 capital stock of any class
of the Company or any Subsidiary or any securities convertible into or
exercisable or exchangeable for shares of capital stock of any class of the
Company or any Subsidiary, except as required by agreements disclosed in SECTION
4.9(a) of the Company Disclosure Schedule, or amend any of the terms of any such
securities or agreements outstanding as of the date hereof;
(c) (i) incur any material indebtedness not previously
approved by Parent, (ii) incur any other indebtedness except in the ordinary
course of business, (iii) pledge or otherwise encumber shares of capital stock
of the Company or its Subsidiaries or (iv) mortgage or pledge any of its
material assets, tangible or intangible, or create any lien thereupon other than
(A) liens for Taxes or other assessments or charges of Governmental Authorities
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings, in each case, with respect to which adequate reserves
or other appropriate provisions are being maintained to the extent required by
GAAP; (B) statutory liens of landlords and mortgagees of landlords and liens of
carriers, warehousemen, mechanics, materialmen and other liens imposed by Law
and created in the ordinary course of business for amounts not yet more than 30
days overdue or that are being contested in good faith by appropriate
proceedings, in each case, with respect to which adequate reserves or other
appropriate provisions are being maintained to the extent required by GAAP; (C)
leases or subleases, easements, rights-of-way, covenants and consents that do
not interfere materially with the ordinary conduct of the business of the
Company or detract materially from the value of the property to which they
attach or materially impair the use thereof to the Company; and (D) liens
granted by the Company to lenders pursuant to credit agreements in existence on
the date hereof;
(d) except as may be required by Law or as contemplated by
this Agreement, 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
Employee Benefit Plan; or enter into or amend any employment or severance
agreement with, increase in any material manner the salary, wages, bonus,
commission, or other compensation or benefits of any director or executive
officer of the Company or any of its Subsidiaries, except with respect to new
employees employed in the ordinary course of business and those agreements with
key employees previously disclosed to Parent; or increase in any manner the
salary, wages, bonus, commission, or other compensation or benefits of any other
officer, employee or agent of the Company or any of its Subsidiaries except for
increases in the ordinary course of business and consistent with past practice;
or pay any benefit not required by any plan and arrangement as in effect as of
the date hereof (including, without limitation, 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 material 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;
(f) except as expressly required herein, pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against on the consolidated balance sheet of the Company dated March
31, 1999 (the "Latest Balance Sheet") or incurred in connection with the
transactions contemplated by this Agreement or in the ordinary course of
business and consistent with past practice;
(g) amend the certificate of incorporation or any
similar document of the Company or any of its Subsidiaries;
(h) adopt a plan of complete or partial liquidation or
resolutions providing for the complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of its Subsidiaries;
(i) enter into any new lines of business (whether or not part
of the insurance or reinsurance business), change any policy forms, change the
pricing formula for insurance policies, change its investment policies or
guidelines or otherwise make material changes to the operation of its business
or change its loss reserve methodology other than as expressly provided in this
Agreement;
(j) invest any investment securities of the Company in
investments that 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;
(k) sell (whether by merger, consolidation or otherwise),
lease, encumber, transfer or dispose of any assets outside the ordinary course
of business consistent with past practices or any assets that are material to
the Company or any of its Subsidiaries, or enter into any material commitment or
transaction outside the ordinary course of business consistent with past
practices (provided that with respect to any disposition of RGB Underwriting
Agencies, Ltd., such consent of Parent shall not be unreasonably withheld);
(l) 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 $100,000 in the
aggregate) or pursuant to agreements or commitments entered into by the Company
or any of its Subsidiaries prior to the date hereof, 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;
(m) make any Tax elections or settle or compromise any
material United States federal, state, local or other foreign income tax
liability, or waive or extend the statute of limitations in respect of any such
Taxes;
(n) pay or agree to pay in settlement or compromise of any
suits or claims of liability against the Company or any of its Subsidiaries, its
directors, officers, employees or agents more than an aggregate of $50,000 for
all such suits and claims;
(o) except as expressly contemplated by this Agreement or
pursuant to agreements or commitments entered into by the Company or any of its
Subsidiaries prior to the date hereof and disclosed in SECTION 6.1 of the
Company Disclosure Schedule, take any action likely to materially decrease or
diminish the assets or net worth of the Company or any of its Subsidiaries;
(p) except as may be required as a result of a change in law
or in GAAP, change any of the accounting principles or practices used by it;
(q) enter into any agreement providing for the acceleration or
payment or performance or other consequence as a result of a change in control
of the Company or any of its Subsidiaries; or
(r) take any action or agree, in writing or otherwise, to take
any of the foregoing actions or any action that would make any representation or
warranty in ARTICLE IV hereof materially untrue or incorrect.
6.2. INTERIM OPERATIONS OF MERGER SUBSIDIARY.
During the period from the date of this Agreement to the
Effective Time, Merger Subsidiary shall not engage in any activities of any
nature except as provided in or contemplated by this Agreement.
6.3. 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 only for
informational purposes 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 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 6.3.
"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 financial point of view than the
transactions contemplated by this Agreement.
6.4. INFORMATION SUPPLIED.
Each of the Company and Parent agree, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it or
its Subsidiaries for inclusion or incorporation by reference in (a) the
Registration Statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Shares in the Merger (including the proxy
statement and prospectus (the "Prospectus/Proxy Statement") constituting a part
thereof) (the "S-4 Registration Statement") will, at the time the S-4
Registration Statement 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, and (b) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the times
of the meetings of stockholders of the Company and Parent to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
6.5. STOCKHOLDERS MEETING.
Whether or not the Board of Directors of the Company shall
take any action permitted by the third sentence of this SECTION 6.5, 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 4.4 (the "Company Board Recommendation") and
the written opinion of Goldman, Sachs & Co., 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)(A) the Company has complied with SECTION 6.1,
(b) 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 (C) 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 6.1), or (ii) there has been any
change in the financial condition, properties, business or results of operations
of Parent and its Subsidiaries, or any transaction, commitment, dispute or other
event, or any other development or combination of developments that,
individually or in the aggregate, has had or is reasonably likely to result in a
Parent Material Adverse Effect, and, on the basis of advice of its outside 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.
6.6. FILINGS; OTHER ACTIONS; NOTIFICATION.
(a) Parent and the Company shall promptly prepare and file
with the SEC the Prospectus/Proxy Statement, and Parent shall prepare and file
with the SEC the S-4 Registration Statement as promptly as practicable. Parent
and the Company each shall use its reasonable best efforts to have the S-4
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing, and promptly thereafter mail the
Prospectus/Proxy Statement to the respective stockholders of each of the Company
and Parent. Parent shall also use its reasonable best efforts to obtain prior to
the effective date of the S-4 Registration Statement all necessary state
securities law or "blue sky" permits and approvals required in connection with
the Merger and to consummate the other transactions contemplated by this
Agreement and will pay all expenses incident thereto.
(b) The Company and Parent each shall use all reasonable
efforts to cause to be delivered to the other party and its directors a letter
of its independent auditors, dated (i) the date on which the S-4 Registration
Statement shall become effective and (ii) the Closing Date, and addressed to the
other party and its directors, in form and substance customary for "comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the S-4 Registration Statement.
(c) The Company and Parent each shall from the date hereof
until the Effective Time cooperate with the other and use (and shall cause their
respective Subsidiaries to use) its reasonable best efforts to cause to be done
all things necessary, proper or advisable on its part under this Agreement and
applicable Laws to cause the conditions to closing set forth in Article VI to be
satisfied and otherwise to consummate and make effective the Merger and the
other transactions contemplated by this Agreement as soon as practicable,
including preparing and filing as promptly as practicable all documentation to
effect all necessary notices, reports and other filings and to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party
(including rating agencies) and/or any governmental entity in order to
consummate the Merger or any of the other transactions contemplated by this
Agreement; provided, however, that nothing in this SECTION 6.6 shall require, or
be construed to require, Parent, in connection with the receipt of any
regulatory approval, to proffer to, or agree to (i) sell or hold separate and
agree to sell or to discontinue or limit, before or after the Effective Time,
any assets, businesses, or interest in any assets or businesses of Parent, the
Company or any of their respective Affiliates (or to consent to any sale, or
agreement to sell, or discontinuance or limitation by the Company of any of its
assets or businesses) or (ii) agree to any conditions relating to, or changes or
restriction in, the operations of any such asset or businesses which, in either
case would be reasonably expected to materially and adversely impact the
economic or business benefits to Parent of the transactions contemplated by this
Agreement. Subject to applicable laws relating to the exchange of information,
Parent and the Company shall have the reasonable opportunity to review in
advance and comment on, and to the extent practicable each will consult the
other on, all the information relating to Parent or the Company, as the case may
be, and any of their respective Subsidiaries, that appear in any filing made
with, or written materials submitted to, any third party and/or any governmental
entity in connection with the Merger and the other transactions contemplated by
this Agreement. In exercising the foregoing right, each of the Company and
Parent shall act reasonably and as promptly as practicable.
(d) The Company and Parent each shall, upon request by the
other, furnish the other with all information concerning itself, its
Subsidiaries, directors, executive officers and stockholders and such other
matters as may be reasonably necessary or advisable in connection with the
Prospectus/ Proxy Statement, the S-4 Registration Statement or any other
statement, filing, notice or application made by or on behalf of Parent, the
Company or any of their respective Subsidiaries to any third party and/or any
governmental entity in connection with the Merger and the transactions
contemplated by this Agreement.
(e) The Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any governmental entity with
respect to the Merger and the other transactions contemplated by this Agreement.
The Company and Parent each shall give prompt notice to the other of any change
that is reasonably likely to result in a Company Material Adverse Effect or
Parent Material Adverse Effect, respectively.
6.7. TAXATION AND ACCOUNTING.
Neither Parent nor the Company shall, nor shall they permit
either of their respective Subsidiaries or Affiliates to, take or cause to be
taken any action, whether before or after the Effective Time, that would
disqualify the Merger as a "reorganization" within the meaning of Section 368(a)
of the Code. Each of Parent and the Company agrees to use its reasonable best
efforts to cure any impediment to the qualification of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code.
6.8. ACCESS.
Between the date of this Agreement and the Effective Time,
Parent and the Company will each (and shall cause its Subsidiaries to) afford
access to authorized representatives (including, without limitation, attorneys,
auditors, financial advisors and actuaries) of the other during normal business
hours to all its books and records, facilities, accountants and key employees
and will permit such party and its authorized representatives to make such
inspections as they may reasonably require and will cause its officers and
employees to furnish such party and its authorized representatives such
financial and operating data and other information with respect to its business
and properties as such party and its authorized representatives may from time to
time reasonably request. No investigation pursuant to this Section shall affect
or be deemed to modify any representation or warranty made by the Company,
Parent or Merger Subsidiary, and provided, further, that the foregoing shall not
require the Company or Parent to permit any inspection, or to disclose any
information, that (i) in the reasonable judgment of the Company or Parent, as
the case may be, would result in the disclosure of any trade secrets of third
parties or violate any of its obligations with respect to confidentiality if the
Company or Parent, as the case may be, shall have used all reasonable efforts to
obtain the consent of such third party to such inspection or disclosure or (ii)
would violate any attorney-client privilege of the Company or Parent, as the
case may be. All requests for information made pursuant to this SECTION 6.8
shall be directed to such Person as may be designated by the Company and Parent,
as the case may be, pursuant to SECTION 9.6 hereof. All such information shall
be governed by the terms of the Confidentiality Agreement (as hereinafter
defined).
6.9. AFFILIATES.
At least 45 days prior to the Effective Time, the Company shall deliver
to Parent a list of names and addresses of those Persons who will be, in the
opinion of the Company, "affiliates" of the Company within the meaning of Rule
145 under the Securities Act. The Company shall exercise its best efforts to
deliver or cause to be delivered to Parent, at least 5 days prior to the
Effective Time, from each affiliate of the Company identified in the foregoing
list, a letter in the form attached as Exhibit B. The certificates representing
Parent Common Stock received by such affiliates shall bear a customary legend
regarding applicable Securities Act restrictions.
6.10. STOCK EXCHANGE LISTING.
Parent shall use its best efforts to cause the Parent Shares
to be issued in the Merger to be approved for listing on the NYSE subject to
official notice of issuance, prior to the Closing Date.
6.11. PUBLICITY.
The Company and Parent shall consult with each other prior to
issuing, and will provide each other with a meaningful opportunity to review,
comment upon and concur with, any press releases or otherwise making public
announcements with respect to the Merger and the other transactions contemplated
by this Agreement, and prior to making any filings with any third party and/or
any governmental entity with respect thereto, except as may be required by law,
court process or by obligations pursuant to any listing agreement with or rules
of any national securities exchange or interdealer quotation service.
6.12. BENEFITS.
(a) At the Effective Time, each outstanding Company Option
shall be canceled, and each outstanding Company Option identified in SECTION 4.2
of the Company Disclosure Schedule (the "Roll-Over Options") shall be replaced
by an option (a "Parent Option") to acquire Parent Shares under Parent's
existing stock option plan.
(b) The cancellation of the Roll-Over Options and replacement
with Parent Options shall comply in all respects with, and shall be performed in
accordance with, the methodology prescribed by the provisions of Section 424(a)
of the Code and the regulations thereunder, and each Parent Option shall provide
the option holder with vesting and termination rights that are no less favorable
to him than were provided under the Roll-Over Option for which it was replaced
as of the Effective Time. The parties contemplate that, consistent with the
methodology prescribed by Section 424(a) of the Code and the applicable
regulations thereunder, (i) the number of Parent Shares subject to such Parent
Option will be determined by applying the Exchange Ratio to the number of Shares
subject to the Roll-Over Options and (ii) the exercise price under such Parent
Option will be determined by dividing the exercise price per share under the
Roll-Over Option in effect immediately prior to the Effective Time of the Merger
by the Exchange Ratio, and rounding the exercise price thus determined to the
nearest whole cent (a half-cent shall be rounded to the next higher whole cent).
(c) As promptly as practicable after the Effective Time,
Parent shall issue to each holder of an outstanding Company Option a document
evidencing the foregoing cancellation and the issuance by Parent of a Parent
Option having the terms provided for in SECTION 6.12(b) and effective as of the
Effective Time.
(d) If the Parent Options issued pursuant to SECTION 6.12(a)
above are not already covered by an effective registration statement, Parent
will file a registration statement as promptly as practicable after the
Effective Time, which registration statement will cover the Parent Shares
issuable upon exercise of the Parent Options granted in substitution of the
Roll-Over Options, and Parent will use its reasonable best efforts to cause such
registration statement to become effective under the Securities Act and to
maintain such registration statement in effect until the exercise or termination
of all such Parent Options.
(e) Parent agrees that, during the period commencing at the
Effective Time and ending on the first anniversary thereof, the employees of the
Company and its Subsidiaries will continue to be provided with benefits under
employee benefit plans (other than plans involving the issuance of Shares) that
are no less favorable in the aggregate than those benefits currently provided by
the Company and its Subsidiaries to such employees. For a period of one year
following the Effective Time, Parent shall provide, or cause the Surviving
Company to provide, severance benefits for Company employees whose employment is
terminated during such period which are at least equal to the severance benefits
provided on SECTION 6.12(e) of the Company Disclosure Schedule. Following the
Effective Time, Parent shall honor, or shall cause the Surviving Company to
honor, all individual employment or severance agreements in effect for employees
(or former employees) of the Company as of the date hereof to the extent that
such individual agreements are listed in SECTION 6.12(e) of the Company
Disclosure Schedule; provided, however, that nothing contained herein shall
prevent Parent from amending or terminating any such agreement in accordance
with its terms.
(f) As promptly as possible after the Effective Time, Parent
shall grant up to 80,000 Ordinary Shares under its 1998 Long-Term Incentive Plan
to employees of the Company and its Subsidiaries designated by the Company's
Executive Committee (subject to the approval by Parent). All such Ordinary
Shares shall be granted as restricted stock awards subject to vesting over the
three year period commencing with the grant date, and shall be covered by an
appropriate registration statement under the Securities Act.
6.13. CERTAIN CHANGE IN CONTROL MATTERS.
From and after the date hereof, except as set forth on
Schedule 6.13 of the Company Disclosure Schedule, as generally or specifically
designated in writing by Parent or as contemplated by this Agreement, the
Company shall take all action necessary, to the extent permitted under any
Employee Benefit Plan or employment agreement, so that the execution and
delivery of this Agreement and the consummation of the transactions contemplated
thereby will not (a) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute or otherwise) becoming
due to any employees under any Employee Benefit Plan or otherwise, (b) increase
any benefits otherwise payable under any Employee Benefit Plan or otherwise or
(c) result in any acceleration of the time of payment or vesting of any such
benefits; provided that to the extent the Company has entered into agreements
with respect to stock option awards or stock appreciation rights that provide
for acceleration of vesting upon a change in control, such agreements may remain
in effect notwithstanding this SECTION 6.13.
6.14. EXPENSES.
Except as otherwise provided in SECTIONS 8.5(b)-(e), whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement, the Stockholder Agreements and the Merger and the other
transactions contemplated hereby and thereby shall be paid by the party
incurring such expense, except that expenses incurred in connection with the
filing fee for the S-4 Registration Statement and printing and mailing the
Prospectus/Proxy Statement shall be shared equally by Parent and the Company.
6.15. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) From and after the Effective Time for a period of six
years, Parent agrees that it will indemnify and hold harmless each present and
former director and officer of the Company, (when acting in such capacity)
determined as of the Effective Time (each, an Indemnified Party and,
collectively, the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees and expenses), judgments, fines, losses,
amounts paid in settlement claims, damages or liabilities (collectively,
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, actual or threatened, whether civil, criminal, administrative or
investigative, in whole or in part based on or arising in whole or in part out
of matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that the Company would have been permitted under Delaware law and its
certificate of incorporation or bylaws in effect on the date hereof to indemnify
such Person (and Parent shall also advance expenses as incurred to the fullest
extent permitted under applicable law provided the Person to whom expenses are
advanced provides (i) a written affirmation of his or her good faith belief that
the standard of conduct necessary for indemnification has been met, and (ii) an
undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification).
(b) Parent shall cause to be maintained, for a period of not
less than one year from the Effective Time, the Company's current directors' and
officers' liability insurance policy to the extent that it provides coverage for
events occurring prior to the Effective Time (the "D&O Insurance") for all
present and former directors and officers of the Company or any subsidiary
thereof, so long as the annual premium therefor would not be in excess of 150%
of the last annual premium paid for the D&O Insurance prior to the date of this
Agreement (150% of such premium, the "Maximum Premium"); provided that Parent
may, in lieu of maintaining such existing D&O Insurance as provided above, cause
no less favorable coverage to be provided under any policy maintained for the
benefit of the directors and officers of Parent or a separate policy provided by
the same insurer. If the existing D&O Insurance expires, is terminated or
canceled by the insurer or if the annual premium would exceed the Maximum
Premium during such period, Parent shall obtain, in lieu of such D&O Insurance,
such comparable directors' and officers' liability insurance as can be obtained
for the remainder of such period for an annualized premium not in excess of the
Maximum Premium and on terms and conditions no less advantageous than the
existing D&O Insurance.
(c) The provisions of this Section are in addition to the
rights that an Indemnified Party may have under the certificate of
incorporation, bylaws or agreements of or with the Company or any of its
Subsidiaries or under applicable law. Parent agrees to pay all costs and
expenses (including fees and expenses of counsel) that may be incurred by any
Indemnified Party in successfully enforcing the indemnity or other obligations
under this Section. The provisions of this Section shall survive the Merger and
are intended to be for the benefit of, and shall be enforceable by, each of the
Indemnified Parties, their heirs and their representatives.
6.16. PURCHASE OF ORDINARY SHARES.
Prior to the Effective Time, neither the Company, its
Subsidiaries nor any of their directors, officers, employees or affiliates
shall, directly or indirectly, purchase, otherwise acquire, sell or otherwise
dispose of any Ordinary Shares or any other security convertible or exchangeable
into or exercisable for Ordinary Shares or take any other action, except as
expressly set forth in this Agreement, that could reasonably be expected to have
any influence on the price of the Ordinary Shares. The Company shall promptly
notify Parent of, to the extent that the Company has actual knowledge thereof,
any action on the part of any third party to influence the price of the Ordinary
Shares or the intention of any third party to influence the price of the
Ordinary Shares.
6.17. OTHER ACTIONS BY THE COMPANY AND PARENT.
(a) Takeover Statute. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement and the Stockholder Agreements, each of Parent and the Company and its
board of directors shall grant such approvals and take such actions as are
necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement, the Stockholder
Agreements or by the Merger and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
(b) Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) 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 Merger Subsidiary, 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 (ii) 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 6.17(b) shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
(c) Letters of Accountants. (i) 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.
(ii) 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.
(d) Consents and Approvals. (i) Each of the Company, Parent
and Merger Subsidiary 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, Merger
Subsidiary 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 Merger
Subsidiary 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, Merger Subsidiary, the Company or any
of their Subsidiaries or necessary in the reasonable opinion of Parent, Merger
Subsidiary or the Company in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement.
(ii) 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.
(iii) 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.
6.18. 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 receive no dividends, 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.
ARTICLE VII
CONDITIONS
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER.
The respective obligation of each party to effect the Merger
is subject to the satisfaction or waiver at or prior to the Effective Time of
each of the following conditions:
(a) Stockholder Approval. The Merger shall have been duly
approved by holders of Shares constituting the Company Requisite Vote and shall
have been duly approved by the sole member of Merger Subsidiary in accordance
with applicable law.
(b) NYSE Listing. The Parent Shares issuable to the Company
stockholders pursuant to this Agreement shall have been authorized for listing
on the NYSE upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated. All regulatory approvals and other actions or approvals by any
Governmental Entity required to permit the consummation of the Merger (including
those that are not compulsory but are desirable to obtain in the reasonable
opinion of Parent, Merger Subsidiary and the Company)(collectively,
"Governmental Consents"), shall have been obtained (provided that any such
Governmental Consents shall have been obtained without any conditions,
restrictions or limitations which would reasonably be expected to materially
limit or diminish the benefits to be derived from the Merger by Parent) and such
approvals shall be in full force and effect.
(d) Litigation. No court or governmental entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger
(collectively, an "Order") and no governmental entity shall have instituted any
proceeding which continues to be pending seeking any such Order; provided,
however, that the parties hereto shall use their reasonable best efforts to have
any such injunction, order, restraint or prohibition vacated.
(e) S-4. The S-4 Registration Statement shall have become
effective under the Securities Act. No stop order suspending the effectiveness
of the S-4 Registration Statement shall have been issued, and no proceeding for
that purpose shall have been initiated or be threatened by the SEC.
7.2.CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY.
The obligations of Parent and Merger Subsidiary to effect the
Merger are also subject to the satisfaction or waiver by Parent at or prior to
the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company shall have been true and accurate 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 as of
such date or with respect to such period), except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality," "material adverse effect" or similar
qualification) would not have, and is not reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect; and Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to the effect stated in the foregoing.
(b) Absence of Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any event, change or effect having, or
that would reasonably likely have, individually or in the aggregate, a Company
Material Adverse Effect (other than changes in insurance laws and regulations
affecting the reinsurance industry generally).
(c) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(d) Consents. The Company shall have obtained the consent or
approval of each Person whose consent or approval shall be required under any
Contract to which the Company or any of its Subsidiaries is a party, except
those for which the failure to obtain such consents or approvals, individually
or in the aggregate, is not reasonably likely to have a Company Material Adverse
Effect or is not reasonably likely to prevent or materially impair the ability
of the Company to consummate the transactions contemplated by this Agreement.
(e) Tax Opinion. Parent shall have received the opinion of
Mayer, Brown & Platt, counsel to Parent, dated the Closing Date, to the effect
that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that each
of Parent, Merger Subsidiary and the Company will be a party to that
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, Mayer, Brown & Platt shall require delivery of and rely upon the
representation letters delivered by Parent, Merger Subsidiary and the Company
substantially in the form of Exhibit C and Exhibit D prior to the Closing Date.
(f) Employment Agreements. Each of the employment agreements
identified in SECTION 7.2(f) of the Parent Disclosure Schedule shall be in full
force and effect.
(g) Rating Agencies. There shall not have occurred any
downgrading of the financial strength rating of Capital Reinsurance Company
below Aa3 by Moody's Investor Services, Inc. ("Moody's") or below AAA by
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc.
("S&P"), nor the current financial strength ratings of Capital Mortgage
Reinsurance Company and KRE Reinsurance Ltd. below the double AA category by the
S&P; provided that (i) announcement of a credit watch or credit review action
with respect to the foregoing ratings by either such rating agency shall be
considered a downgrade if Parent reasonably believes, based upon discussions
with any such rating agency, that immediately subsequent to the consummation of
the Merger or as a result thereof there shall occur any such downgrade and (ii)
each such rating agency may condition maintenance of ratings upon consummation
of the Merger. At the Closing Date, the Company shall not have received any
notification from Moody's of its determination not to provide to Capital
Reinsurance Company's financial guaranty ceding companies at least 85% capital
credit in respect of the Company's reinsurance.
7.3. CONDITIONS TO OBLIGATION OF THE COMPANY.
The obligation of the Company to effect the Merger is also
subject to the satisfaction or waiver by the Company at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Subsidiary shall be true and accurate 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 as of such date or with respect to such period), except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality," "material adverse
effect" or similar qualifications) would not have, and is not reasonably likely
to have, individually or in the aggregate, a Parent Material Adverse Effect; and
the Company shall have received a certificate signed on behalf of Parent by an
executive officer of the Parent and on behalf of Merger Subsidiary by an
executive officer of Merger Subsidiary to the effect stated in the foregoing.
(b) Absence of Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any event, change or effect having, or
that would reasonably likely have, individually or in the aggregate, a Parent
Material Adverse Effect (other than changes in insurance laws and regulations
affecting the insurance industry generally).
(c) Performance of Obligations of Parent and Merger
Subsidiary. Each of Parent and Merger Subsidiary shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Parent by an executive officer of Parent and on
behalf of Merger Subsidiary by an executive officer of Merger Subsidiary to such
effect.
(d) Tax Opinion. The Company shall have received the opinion
of Hogan & Hartson L.L.P., counsel to the Company, to the effect that the Merger
will be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that each of Parent, Merger
Subsidiary and the Company will be a party to that reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion, Hogan &
Hartson L.L.P. shall require delivery of and rely upon the representation
letters delivered by Parent, Merger Subsidiary and the Company substantially in
the form of Exhibit C and Exhibit D prior to the Closing Date.
ARTICLE VIII
TERMINATION
8.1. TERMINATION BY MUTUAL CONSENT.
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
approval by stockholders of the Company and Parent referred to in SECTION
7.1(a), by mutual written consent of the Company by action of their respective
Boards of Directors.
8.2. TERMINATION BY EITHER PARENT OR THE COMPANY.
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the Board of
Directors of either Parent or the Company if (a) the Merger shall not have been
consummated by February 28, 2000, whether such date is before or after the date
of approval by the stockholders of the Company (the "Termination Date"),
provided, however, that the Termination Date shall be extended by 60 days if the
sole reason for the failure to consummate the Merger is the failure to obtain
the Government Consents described in SECTION 7.1(c); (b) the approval of the
Company's stockholders required by SECTION 7.1(a) shall not have been obtained
at a meeting duly convened therefor or at any adjournment or postponement
thereof; or (c) any Order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and non-appealable;
provided, that the right to terminate this Agreement pursuant to clause (a) or
(b) above shall not be available to any party that has breached in any material
respect its obligations under this Agreement in any manner that shall have
caused the occurrence of the failure of the Merger to be consummated or the
stockholder approval to be obtained.
8.3. TERMINATION BY THE COMPANY.
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
approval by stockholders of the Company referred to in Section 7.1(a), by action
of the Board of Directors of the Company if:
(a) (i) the Company is not in material breach of any of the
terms of this Agreement, (ii) the Merger shall not have been approved by the
Company's stockholders as required by SECTION 7.1(a), (iii) the Board of
Directors of the Company authorizes the Company, subject to complying with the
terms of this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and the Company notifies Parent
in writing that it intends to enter into such an agreement, attaching the most
current version of such agreement to such notice, (iv) Parent does not make,
prior to five business days after receipt of the Company's written notification
of its intention to enter into a binding agreement for a Superior Proposal (the
"Alternative Transaction Notice"), an offer that the Board of Directors of the
Company determines, in good faith after consultation with its financial
advisors, is at least as favorable, as the Superior Proposal, taking into
account the long term prospects and interests of the Company and its
stockholders and (v) the Company prior to such termination pays to Parent in
immediately available funds the fees required to be paid pursuant to SECTION
8.5; or
(b) there is a breach by the Parent of any
representation, warranty, covenant or agreement contained in this Agreement that
(i) is not curable or, if curable, is not cured within 20 days after written
notice of such breach is given by the Company to Parent and (ii) would cause a
condition set forth in SECTION 7.3(a) or 7.3(b) to be incapable of being
satisfied.
Without limiting the generality of the foregoing
SECTION 8.3(a), the Company agrees and acknowledges (x) that it cannot terminate
this Agreement pursuant to SECTION 8.3(a) in order to enter into a binding
agreement referred to in clause (iii) of SECTION 8.3(a) until at least the date
falling six business days after receipt of the Alternative Transaction Notice
and (y) to notify Parent promptly if its intention to enter into a written
agreement referred to in its Alternative Transaction Notice shall change at any
time after giving such notification.
8.4. TERMINATION BY PARENT.
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, by action of the Board of
Directors of Parent if:
(a) the Company enters into a binding agreement for a
Superior Proposal;
(b) there is a breach by the Company of any representation,
warranty, covenant or agreement contained in this Agreement that (i) is not
curable or, if curable, is not cured within 20 days after written notice of such
breach is given by the Parent to the Company and (ii) would cause a condition
set forth in SECTION 7.2(a) or 7.2(b) to be incapable of being satisfied; or
(c) 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 or failed to reconfirm its
recommendation of this Agreement or the Merger within five business days after a
written request by Parent to do so, (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 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).
8.5. EFFECT OF TERMINATION AND ABANDONMENT.
(a) In the event of the termination of this Agreement and the
abandonment of the Merger pursuant to this Article VIII, this Agreement (other
than as set forth in SECTION 9.1) shall become void and of no effect with no
liability on the part of any party hereto (or of any of its directors, officers,
employees, agents, legal and financial advisors or other representatives);
provided, however, except as otherwise provided herein, no such termination
shall relieve any party hereto of any liability or damages resulting from any
willful or grossly negligent breach of this Agreement.
(b) In the event that this Agreement is terminated (i) by the
Company pursuant to SECTION 8.3(a) or (ii) by Parent pursuant to SECTION 8.4(a),
then the Company shall promptly, but in no event later than two days after the
date of such termination or date of entrance into an agreement concerning a
transaction that constitutes an Acquisition Proposal or such earlier time as
required by this Agreement, pay to Parent a termination fee of $25 million
payable by wire transfer of same day funds.
(c) In the event that this Agreement is terminated by Parent
pursuant to SECTION 8.2(b) and prior to, or at the time of, the meeting referred
to therein any Person shall have made an Acquisition Proposal to the Company or
any of its Subsidiaries or any of its stockholders or shall have publicly
announced an intention (whether or not conditional to make an Acquisition
Proposal with respect to the Company or any of its Subsidiaries and, if within
12 months of such termination, the Company enters into an agreement concerning a
transaction that constitutes an Acquisition Proposal, the Company at the time of
entering into such agreement, shall pay to Parent the termination fee of $25
million payable by wire transfer of same day funds.
(d) In the event this Agreement is terminated by Parent
pursuant to SECTION 8.4(b), then the Company shall promptly, but in no event
later than two business days after Parent shall have requested payment of its
charges and expenses incurred in connection with the transactions contemplated
hereby ("Expenses"), pay to Parent the amount of such Expenses up to a maximum
of $3,000,000 payable by wire transfer of same day funds.
(e) In the event this Agreement is terminated by the Company
pursuant to SECTION 8.3(b), then Parent shall promptly, but in no event later
than two business days after the Company shall have requested payment of its
Expenses, pay to the Company the amount of such Company Expenses up to a maximum
of $3,000,000 payable by wire transfer of same day funds.
(f) The Company and Parent each acknowledge that the
agreements contained in SECTIONS 8.5(b)-(e) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the Company, Parent and Merger Subsidiary would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
SECTION 8.5(b), SECTION 8.5(c) or SECTION 8.5(d), or Parent fails to promptly
pay the amount due pursuant to SECTION 8.5(e), and, in order to obtain such
payment, Parent or the Company, as the case may be, commences a suit which
results in a judgment against Parent or the Company, as the case may be, for the
fee set forth in this SECTION 8.5, the Company shall pay to Parent or Parent
shall pay to the Company, as the case may be, its costs and expenses (including
attorneys' fees) in connection with such suit, together with interest from the
date of termination of this Agreement on the amounts owed at the prime rate of
Morgan Guaranty Trust Company of New York in effect from time to time during
such period plus two percent.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. SURVIVAL.
This ARTICLE IX and the agreements of the Company, Parent and
Merger Subsidiary contained in SECTIONS 6.7 (Taxation and Accounting), SECTIONS
6.12 (Benefits), and 6.15 (Indemnification; Directors' and Officers' Insurance)
shall survive the consummation of the Merger. This ARTICLE IX and the agreements
of the Company, Parent and Merger Subsidiary contained in SECTIONS 6.14
(Expenses), and SECTION 8.5 (Effect of Termination and Abandonment) shall
survive the termination of this Agreement. All other representations,
warranties, covenants and agreements in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
9.2. MODIFICATION OR AMENDMENT.
Subject to the provisions of the applicable law, at any time
prior to the Effective Time, the parties hereto may modify or amend this
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties.
9.3. WAIVER OF CONDITIONS.
Any failure of Parent or Merger Subsidiary, on the one hand,
or the Company, on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived in writing by the Company or Parent,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this SECTION 9.3.
9.4. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT OR THE STOCK OPTION AGREEMENTS IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE STOCK OPTION AGREEMENTS, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR THE STOCK OPTION AGREEMENTS. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT AND THE STOCK OPTION AGREEMENTS BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. NOTICES.
Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier or by facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Parent or Merger Subsidiary:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Facsimile: (441) 295-3997
Attention: General Counsel
Copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Facsimile: (312) 701-7711
Attention: Edward S. Best
if to the Company:
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 581-3268
Attention: General Counsel
Copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
Facsimile: (410) 539-6981
Attention: Michael J. Silver
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. ENTIRE AGREEMENT; NO OTHER REPRESENTATIONS.
This Agreement (including any exhibits hereto), the Stock
Option Agreement, the Company Disclosure Schedule, the Parent Disclosure
Schedule, the Stockholder Agreements and the Confidentiality Agreement dated
February 5,1998, between Parent and the Company (the "Confidentiality
Agreement") constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties both written and
oral, among the parties, with respect to the subject matter hereof. The parties
hereto agree that the Confidentiality Agreement shall be hereby amended to
provide that any provision therein which in any manner would be inconsistent
with this Agreement or the transactions contemplated hereby or thereby shall
terminate as of the date hereof; provided, however, that such provisions of the
Confidentiality Agreement other than subparagraph (a) of the fourth paragraph
thereof shall be reinstated in the event of any termination of this Agreement.
9.8. NO THIRD PARTY BENEFICIARIES.
Except as provided in SECTION 6.12 (Benefits) and SECTION 6.15
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability or the other provisions hereof. If any provision of
this Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
9.10. INTERPRETATION.
The table of contents and headings herein are for convenience
of reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof. Where a
reference in this Agreement is made to a Section or Exhibit, such reference
shall be to a Section of or Exhibit to 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."
9.11. ASSIGNMENT.
This Agreement shall not be assignable by operation of law or
otherwise; provided, however, that Parent may designate, by written notice to
the Company, another wholly-owned direct or indirect Subsidiary to be a party to
the Merger in lieu of Merger Subsidiary, in which event all references herein to
Merger Subsidiary shall be deemed references to such other Subsidiary, except
that all representations and warranties made herein with respect to Merger
Subsidiary as of the date of this Agreement shall be deemed representations and
warranties made with respect to such other Subsidiary as of the date of such
designation.
9.12. DEFINITIONS
(a) Location of Certain Definitions.
Section
Affiliate............................................ 9.12(b)
Agreement............................................ Preamble
Alternative Transaction Notice....................... 8.3(a)
Average Closing Price................................ 3.1(a)
Bylaws............................................... 2.2
Certificate.......................................... 3.1(a)
Certificate of Incorporation......................... 2.1
Certificate of Merger................................ 1.3
Closing.............................................. 1.2
Closing Date......................................... 1.2
Code................................................. Recitals
Company.............................................. Preamble
Company Actuarial Analyses........................... 4.21(d)
Company Audit Date................................... 4.7
Company Board Recommendation......................... 6.5
Company Common Stock................................. Recitals
Company Disclosure Schedule.......................... Preamble to
Article IV
Company Insurance Contracts.......................... 4.21(b)
Company Insurance Subsidiaries....................... 4.3(a)
Company Liabilities.................................. 4.8
Company Material Adverse Effect...................... 9.12(b)
Company Option....................................... 4.2
Company Reports...................................... 4.6(a)
Company Requisite Vote............................... 4.4(a)
Company SAP Agreements............................... 4.6(b)
Company Stock Plans.................................. 4.2
Confidentiality Agreement............................ 9.7
Contracts............................................ 4.5
Costs................................................ 6.15(a)
D&O Insurance........................................ 6.15(b)
DGCL................................................. 1.1
Effective Time....................................... 1.3
Employee Benefit Plans............................... 4.9(b)
Environmental Claim.................................. 9.12(b)
Environmental Laws................................... 9.12(b)
Environmental Permits................................ 9.12(b)
Environmental Report................................. 9.12(b)
ERISA................................................ 4.9(a)(i)
ERISA Affiliate...................................... 4.9(c)
Exchange Act......................................... 4.5
Exchange Agent....................................... 3.2(a)
Exchange Fund........................................ 3.2(a)
Exchange Ratio....................................... 3.1(a)
Expenses............................................. 8.5(d)
GAAP................................................. 4.6(a)
Governmental Consents................................ 7.1(c)
Governmental Entity.................................. 4.5
Hazardous Materials.................................. 9.12(b)
HSR Act.............................................. 4.5
Indemnified Parties.................................. 6.15(a)
Insurance Regulators................................. 4.10
Intellectual Property................................ 4.11
Latest Balance Sheet................................. 6.1(f)
Laws................................................. 4.10
Maximum Premium...................................... 6.15(b)
Merger............................................... Recitals
Merger Consideration................................. 3.1(a)
Merger Subsidiary.................................... Preamble
NYSE................................................. 3.1(a)
Order................................................ 7.1(d)
Parent............................................... Preamble
Parent Audit Date.................................... 5.6(a)
Parent Disclosure Schedule........................... Preamble to
Article V
Parent Liabilities................................... 5.8
Parent Material Adverse Effect....................... 9.12(b)
Parent Option........................................ 6.12(a)
Parent Reports....................................... 5.6(a)
Parent Rights Agreement.............................. 3.1(a)
Parent SAP Statements................................ 5.6(b)
Parent Shares........................................ Recitals
Parent Stock Plans................................... 5.3
Person............................................... 3.2(b)
Preferred Shares..................................... 4.2
Private Consents..................................... 4.5
Prospectus/Proxy Statement........................... 6.4
Representatives...................................... 6.3
Responsible Executive Officers of Parent............. 9.12(b)
Responsible Executive Officers of the Company........ 9.12(b)
Roll-Over Options.................................... 6.12(a)
S-4 Registration Statement........................... 6.4
SEC.................................................. 4.6(a)
Secretary............................................ 1.3
Securities Act....................................... 4.6(a)
Share, Shares........................................ 3.1(a)
Stockholder Agreements............................... Recitals
Stockholders Meeting................................. 6.5
Subsidiary........................................... 9.12(b)
Superior Proposal.................................... 6.3
Surviving Corporation................................ 1.1
Takeover Statute..................................... 4.15
Tax, Taxes, Taxable.................................. 9.12(b)
Taxing Authority..................................... 9.12(b)
Tax Return........................................... 9.12(b)
Termination Date..................................... 8.2
Transaction Proposal................................. 6.3
(b) Certain Other Definitions
"Affiliate" of a Person means any other Person who (i)
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, such Person or (ii) owns more
than 5% of the capital stock or equity interest in such Person. "Control" means
the possession of the power, directly or indirectly, to direct or cause the
direction of the management and policies of a Person whether through the
ownership of voting securities, by contract or otherwise.
"Company Material Adverse Effect" means a material adverse
effect on the properties, business, assets, conditions (financial or otherwise),
liabilities or results of operations of the Company and its Subsidiaries taken
as a whole, other than effects caused by changes in general economic conditions
or conditions generally affecting the insurance or reinsurance industry.
"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.
"Parent Material Adverse Effect" means a material adverse
effect on the properties, business, assets, conditions (financial or otherwise),
liabilities or results of operations of Parent and its Subsidiaries taken as a
whole, other than effects caused by changes in general economic conditions or
conditions generally affecting the insurance or reinsurance industry.
"Responsible Executive Officers of the Company" shall mean the
persons designated as such in the preamble to the Company Disclosure Schedule.
"Responsible Executive Officers of Parent" shall mean the
persons designated as such in the preamble to the Parent Disclosure Schedule.
"Subsidiary" means, with respect to the Company, Parent or
Merger Subsidiary, as the case may be, any entity, whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
indirectly owned or controlled by such party or by one or more of its respective
Subsidiaries or by such party and any one or more of its respective
Subsidiaries.
"Tax" (including, with correlative meaning, the terms "Taxes"
and "Taxable") shall mean, with respect to any Person, (i) all taxes, domestic
or foreign, including without limitation any income (net, gross or other,
including recapture of any tax items such as investment tax credits),
alternative or add-on minimum tax, gross income, gross receipts, gains, sales,
use, leasing, lease, user, ad valorem, transfer, recording, franchise, profits,
property (real or personal, tangible or intangible), fuel, license, withholding
on amounts paid to or by such Person, payroll, employment, unemployment, social
security, excise, severance, stamp, occupation, premium, environmental or
windfall profit tax, custom, duty or other tax, or other like assessment or
charge of any kind whatsoever, together with any interest, levies, assessments,
charges, penalties, additions to tax or additional amounts imposed by any Taxing
Authority, (ii) any joint or several liability of such Person with any other
Person for the payment of any amounts of the type described in (a) of this
definition and (iii) any liability of such Person for the payment of any amounts
of the type described in (i) as a result of any express or implied obligation to
indemnify any other Person.
"Tax Return(s)" shall mean all returns, consolidated or
otherwise (including without limitation informational returns), required to be
filed with any Taxing Authority.
"Taxing Authority" shall mean any authority responsible for
the imposition of any Tax.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers or managers of the parties hereto as
of the date first written above.
CAPITAL RE CORPORATION
By: /s/ Jerome F. Jurschak
---------------------------------
Jerome F. Jurschak
ACE LIMITED
By: /s/ Brian Duperreault
---------------------------------
Brian Duperreault
CAPRE ACQUISITION CORP.
By: /s/ Brian Duperreault
---------------------------------
Brian Duperreault
<PAGE>
EXHIBITS
Exhibit A Stock Option Agreement
Exhibit B Company Affiliate Letter
Exhibit C Parent Tax Letter
Exhibit D Company Tax Letter
<PAGE>
Exhibit A
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of June __, 1999 (the
"Agreement"), is between ACE Limited, a Cayman Islands company (the "Grantee"),
and Capital Re Corporation, a Delaware corporation (the "Grantor").
WHEREAS, Grantee, CapRe Acquisition Corp., a Delaware corporation and a
wholly owned, direct subsidiary of Grantee (the "Merger Subsidiary"), and
Grantor have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), pursuant to which Grantee and Grantor intend to
effect a merger of Merger Subsidiary with and into Grantor (the "Merger");
WHEREAS, as a condition and inducement to Grantee's and Merger
Subsidiary's willingness to enter into the Merger Agreement, Grantee and Merger
Subsidiary have requested that Grantor grant to Grantee an option to purchase up
to 3,220,135 fully paid and nonassessable shares of common stock, par value
$0.01 per share, of Grantor (the "Common Stock"), upon the terms and subject to
the conditions hereof; and
WHEREAS, in order to induce Grantee and Merger Subsidiary to enter into
the Merger Agreement, and in consideration thereof, Grantor is willing to grant
Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Adjustments.
(a) Subject to the other terms and conditions set forth
herein, Grantor hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 3,220,135 fully paid and nonassessable
shares of Common Stock (the "Shares") at a cash purchase price equal to
$17.40 per share (the "Option Price"); provided, however, that in no
event shall the number of shares for which the Option is exercisable
exceed 9.9% of the shares of Common Stock issued and outstanding at the
time of exercise (without giving effect to the shares of Common Stock
issued or issuable pursuant to the Option) (the "Maximum Applicable
Percentage"). The number of shares of Common Stock purchasable upon
exercise of the Option and the Option Price are subject to adjustment
as set forth in this Agreement.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement), the aggregate number
of shares of Common Stock purchasable upon exercise of the Option
(inclusive of shares, if any, previously purchased upon exercise of the
Option) shall automatically be increased (without any further action on
the part of Grantor or Grantee being necessary) so that, after such
issuance, it equals the Maximum Applicable Percentage. Any such
increase shall not affect the Option Price.
<PAGE>
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other
person that shall become a holder of all or part of the Option in
accordance with the terms of this Agreement (each such person being
referred to in this Agreement as a "Holder") may exercise the Option,
in whole or in part, by delivering a written notice thereof as provided
in Section 2(d) within 180 days following the occurrence of a
Triggering Event (as defined in Section 2(b)) unless prior to such
Triggering Event the Effective Time (as defined in the Merger
Agreement) shall have occurred. If no notice pursuant to the preceding
sentence has been delivered prior thereto, the Option shall terminate
upon either (i) the occurrence of the Effective Time or (ii) the close
of business on the earlier of (x) the day 180 days after the date that
Grantee becomes entitled to receive the Termination Fee (as defined in
the Merger Agreement) under Section 8.5(b) or (c) of the Merger
Agreement and (y) the date that Grantee is no longer potentially
entitled to receive the Termination Fee under Section 8.5(b) or (c) of
the Merger Agreement for a reason other than that Grantee has already
received the Termination Fee.
(b) Triggering Event. A "Triggering Event" shall have occurred
if the Merger Agreement is terminated and Grantee then or thereafter
becomes entitled to receive the Termination Fee pursuant to Section
8.5(b) or (c) of the Merger Agreement.
(c) Notice of Triggering Event by Grantor. Grantor shall
notify Grantee promptly in writing of the occurrence of any Triggering
Event, it being understood that the giving of such notice by Grantor
shall not be a condition to the right of a Holder to exercise the
Option.
(d) Notice of Exercise by Grantee. If a Holder shall be
entitled to and wishes to exercise the Option, it shall send to Grantor
a written notice (the date of which is referred to in this Agreement as
the "Notice Date") specifying (i) the total number of shares the Holder
will purchase pursuant to such exercise and (ii) a place and date (a
"Closing Date") not earlier than three business days nor later than 20
business days from the Notice Date for the closing of such purchase (a
"Closing"); provided, that if a filing is required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), or any other notice, report, filing or approval is required
with respect to any governmental or regulatory authority, court,
agency, commission, body or other governmental entity (a "Governmental
Entity") in connection with such purchase, (x) the Holder or Grantor,
as required, promptly after the giving of such notice shall file the
required notice, report, filing or application for approval and shall
expeditiously process the same and (y) the period of time referred to
in clause (ii) above shall commence on the date on which the Grantee
furnishes to Grantor a supplemental written notice setting forth the
Closing Date, which notice shall be furnished as promptly as
practicable after all required notification, reporting or filing
periods shall have expired or been terminated, all required approvals
shall have been obtained and all requisite waiting periods shall have
passed. Each of Grantee and Grantor agrees to use all commercially
reasonable efforts to cooperate with and provide information to Grantor
or the Holder, as the case may be, for the purpose of any required
notice, report, filing or application for approval.
(e) Payment of Purchase Price. At each Closing, the Holder
shall pay to Grantor the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a bank account
designated by Grantor; provided, that failure or refusal of Grantor to
designate such a bank account shall not preclude the Holder from
exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously
with the payment of the purchase price by the Holder, Grantor shall
deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the
Option shall be exercised in part only, a new Option evidencing the
rights of the Holder to purchase the balance (as adjusted pursuant to
Section 1(b)) of the shares of Common Stock then purchasable under this
Agreement.
(g) Restrictive Legend. Certificates for Common Stock
delivered at a Closing may be endorsed with a restrictive legend that
shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to resale restrictions arising under the Securities
Act of 1933, as amended."
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the
Holder shall have delivered to Grantor a copy of a letter from the
staff of the Securities and Exchange Commission, or a written opinion
of counsel, in form and substance reasonably satisfactory to Grantor,
to the effect that such legend is not required for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). In addition,
such certificates shall bear any other legend as may be required by
applicable law.
(h) Ownership of Record; Tender of Purchase Price; Expenses.
Upon the giving by the Holder to Grantor of a written notice of
exercise referred to in Section 2(d) and the tender of the applicable
purchase price in immediately available funds, the Holder shall be
deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer
books of Grantor shall then be closed or that certificates representing
such shares of Common Stock shall not have been delivered to the
Holder. Grantor shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its
assignee, transferee or designee.
3. Covenants of Grantor. In addition to its other agreements and
covenants in this Agreement, Grantor agrees:
(a) Shares Reserved for Issuance. It will maintain, free from
preemptive rights, sufficient authorized but unissued or treasury
shares of Common Stock to issue the appropriate number of shares of
Common Stock pursuant to the terms of this Agreement so that the Option
may be fully exercised without additional authorization of Common Stock
after giving effect to all other options, warrants, convertible
securities and other rights of third parties to purchase shares of
Common Stock from Grantor.
(b) No Avoidance. It will not avoid or seek to avoid (whether
by charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed under this
Agreement by Grantor.
(c) Further Assurances. Promptly after the date of this
Agreement, it will take all actions as may from time to time be
required (including (i) complying with all applicable premerger
notification, reporting and waiting period requirements under the HSR
Act and (ii) in the event that prior notice, report, filing or approval
with respect to any Governmental Entity is necessary under any
applicable foreign or United States federal, state or local law before
the Option may be exercised, cooperating fully with the Holder in
preparing and processing the required applications or notices) in order
to permit the Holder to exercise the Option and purchase shares of
Common Stock pursuant to such exercise and to take all action necessary
to protect the rights of the holder against dilution.
(d) Stock Exchange Listing. Subject to applicable law and the
rules and regulations of the New York Stock Exchange, Inc. (the
"NYSE"), it will promptly file an application to list the Shares on the
NYSE (to the extent they are not already listed) and will use all
commercially reasonable efforts to obtain approval of such listing and
to effect all necessary filings by Grantor under the HSR Act and the
applicable insurance laws of each state and foreign jurisdiction;
provided, however, that if it is unable to effect such listing on the
NYSE by the Closing Date, it will nevertheless be obligated to deliver
the Shares upon the Closing Date.
4. Representations and Warranties of Grantor.
(a) Merger Agreement. Grantor hereby makes each of the
representations and warranties contained in Sections 4.1, 4.2, 4.4, 4.5
and 4.15 of the Merger Agreement as they relate to Grantor and this
Agreement, as if such representations were set forth in this Agreement.
(b) Shares Reserved for Issuance; Capital Stock. Grantor has
taken all necessary corporate action to authorize and reserve, free
from preemptive rights, and permit it to issue, sufficient authorized
but unissued or treasury shares of Common Stock so that the Option may
be fully exercised without additional authorization of Common Stock
after giving effect to all other options, warrants, convertible
securities and other rights of third parties to purchase shares of
Common Stock from Grantor, and all such 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 claims,
liens, encumbrances, and security interests (other than those created
by this Agreement) and not subject to any preemptive rights.
(c) The Shares. No "fair price," "moratorium," "control share
acquisition," "interested shareholder" or other form of antitakeover
statute or regulation, including without limitation Section 203 of the
Delaware General Corporation Law, or similar provision contained in the
certificate of incorporation or by-laws of Grantor, is or shall be
applicable to the acquisition of the Shares pursuant to this Agreement.
5. Representations and Warranties of Grantee. Grantee represents and
warrants to Grantor that (a) the execution and delivery of this Agreement by
Grantee and the consummation by it 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 a duly authorized
officer of Grantee and constitutes a valid and binding obligation of Grantee;
and (b) Grantee is acquiring the Option and, if and when it exercises the
Option, will be acquiring the Shares issuable upon the exercise thereof for its
own account and not with a view to distribution or resale in any manner which
would be in violation of the Securities Act.
6. Exchange; Replacement. This Agreement and the Option granted by this
Agreement are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Grantor,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable at such time under this Agreement, subject to
corresponding adjustments in the number of shares of Common Stock purchasable
upon exercise so that the aggregate number of such shares under all stock option
agreements issued in respect of this Agreement shall not exceed the Maximum
Applicable Percentage. Unless the context shall require otherwise, the terms
"Agreement" and "Option" as used in this Agreement include any stock option
agreements and related Options for which this Agreement (and the Option granted
by this Agreement) may be exchanged. Upon (i) receipt by Grantor of evidence
reasonably satisfactory to it of the loss, theft, destruction of this Agreement,
or mutilation of this Agreement, (ii) receipt by Grantor of reasonably
satisfactory indemnification in the case of loss, theft or destruction of this
Agreement and (iii) surrender and cancellation of this Agreement in the case of
mutilation, Grantor 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 Grantor, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by any person other than the holder of the new Agreement.
7. Adjustments. In addition to the adjustment to the total number of
shares of Common Stock purchasable upon exercise of the Option pursuant to
Section 1(b), the total number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as follows:
(a) In the event of any change in the outstanding shares of
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise of the Option shall be appropriately
adjusted, and proper provision shall be made in the agreements
governing any such transaction, so that (i) any Holder shall receive
upon exercise of the Option the number and class of shares, other
securities, property or cash that such Holder would have received in
respect of the shares of Common Stock purchasable upon exercise of the
Option if the Option had been exercised and such shares of Common Stock
had been issued to such Holder immediately prior to such event or the
record date therefor, as applicable, and (ii) in the event any
additional shares of Common Stock are to be issued or otherwise become
outstanding as a result of any such change (other than pursuant to an
exercise of the Option), the number of shares of Common Stock
purchasable upon exercise of the Option shall be increased so that,
after such issuance and together with shares of Common Stock previously
issued pursuant to the exercise of the Option (as adjusted on account
of any of the foregoing changes in the Common Stock), the number of
shares so purchasable equals the Maximum Applicable Percentage of the
number of shares of Common Stock issued and outstanding immediately
after the consummation of such change.
(b) Whenever the number of shares of Common Stock purchasable
upon exercise of the Option is adjusted as provided in this Section 7,
the Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which is equal to the number of shares of
Common Stock purchasable prior to the adjustment and the denominator of
which is equal to the number of shares of Common Stock purchasable
after the adjustment.
8. Registration.
(a) Upon the occurrence of a Triggering Event, Grantor shall,
at the request of Grantee delivered in the written notice of exercise
of the Option provided for in Section 2(d), as promptly as practicable
prepare, file and keep current a shelf registration statement under the
Securities Act covering any or all shares issued and issuable pursuant
to the Option and shall use all commercially reasonable efforts to
cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of any shares
of Common Stock issued upon total or partial exercise of the Option
("Option Shares") in accordance with any plan of disposition requested
by Grantee; provided, however, that Grantor may postpone filing a
registration statement relating to a registration request by Grantee
under this Section 8 for a period of time (not in excess of 60 days) if
in its judgment such filing would require the disclosure of material
information that Grantor has a bona fide business purpose for
preserving as confidential. Grantor will use all commercially
reasonable efforts to cause such registration statement first to become
effective as soon as practicable and then to remain effective for 270
days from the day such registration statement first becomes effective
or until such earlier date as all shares registered shall have been
sold by Grantee. In connection with any such registration, Grantor and
Grantee shall provide each other with representations, warranties,
indemnities and other agreements customarily given in connection with
such registrations. If requested by Grantee in connection with such
registration, Grantor shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent
of obligating Grantor in respect of representations, warranties,
indemnities, contribution and other agreements customarily made by
issuers in such underwriting agreements.
(b) In the event that Grantee so requests, the closing of the
sale or other disposition of the Common Stock or other securities
pursuant to a registration statement filed pursuant to Section 8(a)
shall occur substantially simultaneously with the exercise of the
Option.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a
Triggering Event, (i) at the request of a Holder, delivered in writing
within 180 days of such occurrence (or such later period as provided in
Section 2(d) with respect to any required notice or application or in
Section 10), Grantor shall repurchase the Option from the Holder, in
whole or in part, at a price (the "Option Repurchase Price") equal to
the number of shares of Common Stock then purchasable upon exercise of
the Option (or such lesser number of shares as may be designated in the
Repurchase Notice (as defined below)) multiplied by the amount by which
the market/offer price (as defined below) exceeds the Option Price and
(ii) at the request of a Holder or any person who has been a Holder
(for purposes of this Section 9 only, each such person being referred
to as a "Holder"), delivered in writing within 180 days of such
occurrence (or such later period as provided in Section 2(d) with
respect to any required notice or application or in Section 10),
Grantor shall repurchase such number of Option Shares from such Holder
as the Holder shall designate in the Repurchase Notice at a price (the
"Option Share Repurchase Price") equal to the number of shares
designated multiplied by the market/offer price. The term "market/offer
price" shall mean the highest of (x) the price per share of Common
Stock at which a tender or exchange offer for Common Stock has been
made, (y) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Grantor and (z) the highest trading
price for shares of Common Stock on the NYSE (or, if the Common Stock
is not then listed on the NYSE, any other national securities exchange
or automated quotation system on which the Common Stock is then listed
or quoted) within the six-month period immediately preceding the
delivery of the Repurchase Notice. In the event that a tender or
exchange offer is made for the Common Stock or an agreement is entered
into for a merger, share exchange, consolidation or reorganization
involving consideration other than cash, the value of the securities or
other property issuable or deliverable in exchange for the Common Stock
shall (I) if such consideration is in securities and such securities
are listed on a national securities exchange, be determined to be the
highest trading price for such securities on such national securities
exchange within the six-month period immediately preceding the delivery
of the Repurchase Notice or (II) if such consideration is not
securities, or if in securities and such securities are not traded on a
national securities exchange, be determined in good faith by a
nationally recognized investment banking firm selected by an investment
banking firm designated by Grantee and an investment banking firm
designated by Grantor.
(b) Method of Repurchase. A Holder may exercise its right to
require Grantor to repurchase the Option, in whole or in part, and/or
any Option Shares then owned by such Holder pursuant to this Section 9
by surrendering for such purpose to Grantor, at its principal office,
this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder
elects to require Grantor to repurchase the Option and/or such Option
Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). As promptly as practicable, and in any
event within two business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of the
Repurchase Notice relating thereto, Grantor shall deliver or cause to
be delivered to the Holder the applicable Option Repurchase Price
and/or the Option Share Repurchase Price. Any Holder shall have the
right to require that the repurchase of Option Shares shall occur
immediately after the exercise of all or part of the Option. In the
event that the Repurchase Notice shall request the repurchase of the
Option in part, Grantor shall deliver with the Option Repurchase Price
a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock purchasable pursuant to
the Option at the time of delivery of the Repurchase Notice minus the
number of shares of Common Stock represented by that portion of the
Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on
Repurchase. To the extent that, upon or following the delivery of a
Repurchase Notice, Grantor is prohibited under applicable law or
regulation from repurchasing the Option (or portion thereof) and/or any
Option Shares subject to such Repurchase Notice (and Grantor will
undertake to use all commercially reasonable efforts to obtain all
required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such
repurchase), Grantor shall immediately so notify the Holder in writing
and thereafter deliver or cause to be delivered, from time to time, to
the Holder the portion of the Option Repurchase Price and the Option
Share Repurchase Price that Grantor is no longer prohibited from
delivering, within two business days after the date on which it is no
longer so prohibited; provided, however, that upon notification by
Grantor in writing of such prohibition, the Holder may, within five
days of receipt of such notification from Grantor, revoke in writing
its Repurchase Notice, whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Grantor shall promptly (i)
deliver to the Holder that portion of the Option Repurchase Price
and/or the Option Share Repurchase Price that Grantor is not prohibited
from delivering; and (ii) deliver to the Holder, as appropriate, (A)
with respect to the Option, a new Stock Option Agreement evidencing the
right of the Holder to purchase that number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the Repurchase Notice less the number of shares as
to which the Option Repurchase Price has theretofore been delivered to
the Holder, and/or (B) with respect to Option Shares, a certificate for
the Option Shares as to which the Option Share Repurchase Price has not
theretofore been delivered to the Holder. Notwithstanding anything to
the contrary in this Agreement, including, without limitation, the time
limitations on the exercise of the Option, the Holder may give notice
of exercise of the Option for 180 days after a notice of revocation has
been issued pursuant to this Section 9(c) and thereafter exercise the
Option in accordance with the applicable provisions of this Agreement.
(d) Acquisition Transactions. In addition to any other
restrictions or covenants, Grantor agrees that, in the event that a
Holder delivers a Repurchase Notice, Grantor shall not enter or agree
to enter into an agreement or series of agreements relating to a merger
with or into or the consolidation with any other person or entity, the
sale of all or substantially all of the assets of Grantor or any
similar disposition unless the other party or parties to such agreement
or agreements agree to assume in writing Grantor's obligations under
Section 9(a) and, notwithstanding any notice of revocation delivered
pursuant to the proviso to Section 9(c), a Holder may require such
other party or parties to perform Grantor's obligations under Section
9(a) unless such party or parties are prohibited by law or regulation
from such performance, in which case such party or parties shall be
subject to the obligations of Grantor under Section 9(c).
10. Extension of Exercise Periods. The 180-day periods for exercise of
certain rights under Sections 2 and 9 shall be extended in each such case at the
request of the Holder to the extent necessary to avoid liability by the Holder
under Section 16(b) of the Securities Exchange Act of 1934, as amended, by
reason of such exercise.
11. Limitation of Holder Profit. (a) Notwithstanding any other
provision herein, in no event shall Grantee's Total Profit (as defined below)
exceed $25,000,000, exclusive of any reimbursement of expenses pursuant to
Section 8.5(e) of the Merger Agreement (the "Maximum Profit"), and, if it
otherwise would exceed such amount, Grantee, at its sole discretion, shall
either (1) reduce the number of shares subject to the Option (and any Substitute
Option), (2) deliver to Grantor for cancellation shares of Common Stock (or
other securities into which such Option Shares are converted or exchanged), (3)
pay cash to the Grantor or (4) 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: (1) 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 9), plus (c) all amounts received by Grantee pursuant to Section 8.5(b)
or (c) of the Merger Agreement (other than reimbursement in respect of
Expenses), minus (2) all amounts of cash previously paid to Grantor pursuant to
this Section 11 plus the value of the Option Shares (or other securities)
previously delivered to the Grantor for cancellation pursuant to this Section
11.
(c) Notwithstanding any other provision of this Agreement, nothing in
this Agreement shall affect the ability of Grantee to receive, nor relieve
Grantor's obligation to pay, any payment provided for in Section 8.5(b) and (c)
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 11(a)
within 30 days of the latest of (1) the date of receipt of such payment, (2) 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 and (3) the date of receipt of net cash from the
disposition of the Option.
(d) For purposes of paragraph (a) of this Section and clause (b)(ii) of
this Section, the value of any Option Shares delivered to the Grantor shall be
the market/offer price of such Option Shares.
12. Assignment. Neither party may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other party except that, (i) Holder may assign
this Agreement to a wholly-owned subsidiary of Holder and (ii) in the event that
a Triggering Event shall have occurred, Grantee may assign the Option, in whole
or in part. Any attempted assignment in contravention of the preceding sentence
shall be null and void.
13. Filings; Other Actions. Grantor will use all commercially
reasonable efforts to make all filings with, and to obtain consents of, all
third parties and governmental authorities necessary for the consummation of the
transactions contemplated by this Agreement.
14. Specific Performance. Grantor acknowledges that if Grantor fails to
perform any of its obligations under this Agreement immediate and irreparable
harm or injury would be caused to Grantee and/or the Holder for which money
damages would not be an adequate remedy. In such event, Grantor agrees that
Grantee or a Holder shall have the right, in addition to any other rights it may
have, to specific performance of this Agreement. Accordingly, if Grantee or a
Holder should institute an action or proceeding seeking specific enforcement of
the provisions hereof, Grantor hereby waives the claim or defense that Grantee
or a Holder has an adequate remedy at law and hereby agrees not to assert in any
such action or proceeding the claim or defense that such a remedy at law exists.
Grantor further agrees to waive any requirements for the securing or posting of
any bond in connection with obtaining any such equitable relief.
15. Severability. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
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 regulatory
agency determines that the Holder is not permitted to acquire, or Grantor is not
permitted to repurchase pursuant to Section 9, the full number of shares of
Common Stock provided in Section 1(a) of this Agreement (as adjusted pursuant to
Sections 1(b) and 7 of this Agreement), it is the express intention of Grantor
to allow the Holder to acquire or to require Grantor to repurchase such lesser
number of shares as may be permissible, without any amendment or modification of
this Agreement.
16. Notice. Notices, requests, instructions, or other documents to be
given under this Agreement shall be in writing and shall be deemed given (i)
three business days following sending by registered or certified mail, postage
prepaid, (ii) when sent, if sent by facsimile, provided that receipt of the fax
is promptly confirmed by telephone, (iii) when delivered, if delivered
personally to the intended recipient, and (iv) one business day later, if sent
by overnight delivery via a national courier service, in each case at the
addresses of the parties set forth below, or such other address as may be
designated in writing hereafter, in the same manner, by such party:
If to Grantee or a Holder:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Attn: Chief Executive Officer
Facsimile: (441) 295-3997
With a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Edward S. Best, Esq.
Facsimile: (312) 701-7711
If to Grantor:
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Attn: Alan S. Roseman
Facsimile: 212-578-3268
With a copy to:
Hogan & Hartson
111 South Calvert Street, Suite 1600
Baltimore, Maryland 21202
Attn: Michael J. Silver, Esq.
Facsimile: 410-539-6981
17. Expenses. Except as otherwise expressly provided in this Agreement
or in the Merger Agreement, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
18. Entire Agreement. This Agreement, the Stockholder Support Agreement
(as defined in the Merger Agreement) and the Merger Agreement constitute the
entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties, with
respect to the subject matter of this Agreement. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns. Nothing in this Agreement, is
intended to confer upon any person or entity, other than the parties to this
Agreement, and their respective successors and permitted assigns, any rights or
remedies under this Agreement.
19. Governing Law and Venue; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all
respects shall be interpreted, construed and governed by and in
accordance with Delaware law without regard to the conflict of law
principles thereof. The parties irrevocably and unconditionally consent
to submit to the exclusive jurisdiction of the courts of the State of
Delaware and of the United States of America located in Wilmington,
Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated by this
Agreement (and agree not to commence any litigation relating thereto
except in such Delaware Courts), waive any objection to the laying of
venue of any such litigation in the Delaware Courts and agree not to
plead or claim in any Delaware Court that such litigation brought
therein has been brought in an inconvenient forum.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.
20. Captions. The Section and paragraph captions in this Agreement are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
21. Amendments. This Agreement may not be changed, amended or modified
orally, but may be changed only by an agreement in writing signed by the party
against whom any waiver, change, amendment, modification or discharge may be
sought.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
23. Public Announcement. Grantee and Grantor shall consult with each
other prior to issuing, and will provide each other with a meaningful
opportunity to review and comment upon, any press releases or otherwise making
public announcements with respect to the Option and prior to making any filings
with any third party and/or Governmental Entity (as defined in the Merger
Agreement) (including any national securities exchange) with respect thereto,
except as may be required by law, court process or by obligations pursuant to
any listing agreement with or rules of any national securities exchange or
interdealer quotation system.
24. Survival. All representations and warranties contained in this
Agreement shall survive delivery of and payment for the Shares.
IN WITNESS WHEREOF, Grantee and Grantor have caused this Agreement to
be duly executed and delivered on the day and year first above written.
CAPITAL RE CORPORATION
By: /s/ Jerome F. Jurschak
--------------------------------------
Jerome F. Jurschak
Chairman and Chief Executive Officer
ACE LIMITED
By: /s/ Brian Duperreault
--------------------------------------
Brian Duperreault
Director/Chairman of the Board
<PAGE>
Exhibit B
Form of Company Affiliate Letter
Date
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be
an "affiliate" of Capital Re Corporation, a Delaware corporation (the
"Company"), as such term (i) is defined for purposes of paragraphs (c) and (d)
of Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) is used in and for purposes
of Accounting Series Releases 130 and 135, as amended, of the Commission.
Pursuant to the terms of the Agreement and Plan of Merger dated as of June 10,
1999, as it may be amended, supplemented or modified from time to time (the
"Merger Agreement"), among the Company, ACE Limited, a cayman Islands company
("Parent"), and CapRe Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), Merger Sub will be merged with and
into the Company (the "Merger"). Capitalized terms used herein but not defined
herein shall have the meanings ascribed to such terms in the Merger Agreement.
In consideration of the agreements contained herein, Parent's reliance
on this letter in connection with the consummation of the Merger and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that I will not make any
sale, transfer or other disposition of any Ordinary Shares received by me
pursuant to the Merger in violation of the Securities Act or the rules and
regulations thereunder. I have been advised that the issuance of the Ordinary
Shares pursuant to the Merger will have been registered with the Commission
under the Securities Act on a Registration Statement on Form S-4. I have also
been advised, however, that since I may be deemed to be an affiliate of the
Company at the time the Merger is submitted for a vote of the stockholders of
the Company, the Ordinary Shares received by me may be disposed by me only (i)
pursuant to an effective registration under the Securities Act, (ii) in
conformity with the volume and other limitations of Rule 145 promulgated by the
Commission under the Securities Act, or (iii) in reliance upon an exemption from
registration that is available under the Securities Act.
I also understand that instructions will be given to Parent's transfer
agent with respect to the Ordinary Shares to be received by me pursuant to the
Merger and that there may be placed on the certificates representing such
Ordinary Shares, or any substitutes therefor, a legend stating in substance as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, APPLIES AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IN COMPLIANCE WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A
REGISTRATION STATEMENT UNDER THAT ACT OR AN EXEMPTION FROM SUCH
REGISTRATION.
It is understood and agreed that the legend set forth above shall be
removed upon surrender of certificates bearing such legend by delivery of
substitute certificates without such legend if I shall have delivered to Parent
an opinion of counsel, in form and substance reasonably satisfactory to Parent,
to the effect that the sale or disposition of the shares represented by the
surrendered certificates may be effected without registration of the offering,
sale and delivery of such shares under the Securities Act.
I further understand and agree that Parent is under no obligation to
register the sale, transfer or other disposition of the Ordinary Shares by me or
on my behalf under the Securities Act or to take any other action necessary in
order to make compliance with an exemption form such registration available.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first paragraph
of this letter, or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
This letter agreement constitutes the complete understanding between
Parent and me concerning the subject matter hereof. Any notice required to be
sent to either party hereunder shall be sent by registered or certified mail,
return receipt requested, using the addresses set forth herein or such other
address as shall be furnished in writing by the parties. This letter agreement
shall be governed by and construed and interpreted in accordance with, the laws
of the State of Delaware.
If you are in agreement with the foregoing, please so indicate by
signing below and returning a copy of this letter to the undersigned, at which
time this letter shall become a binding agreement between us.
Very truly yours,
By:
Name:
Address:
Accepted this day of , 1999.
ACE LIMITED
By:
Name:
Title:
CAPITAL RE CORPORATION
By:
Name:
Title:
<PAGE>
Exhibit C
FORM OF ACE/CAPRE ACQUISITION CORP REPRESENTATION LETTER
_________________,_______, 1999
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004-1109
Ladies and Gentlemen:
This letter is supplied to you in connection with your
rendering of opinions regarding certain income tax consequences of the
transactions described in the Agreement and Plan of Merger (the "Agreement"),
dated as of June 10, 1999, by and among Ace Limited ("Ace"), a Cayman Islands
corporation, CapRe Acquisition Corp. ("MergerSub"), a Delaware corporation and
wholly-owned subsidiary of Ace, and Capital Re Corporation ("Capital Re"), a
Delaware corporation. Pursuant to the Agreement, MergerSub will be merged with
and into Capital Re (the "Merger"). Unless otherwise defined herein, capitalized
terms used herein shall have the same meaning as defined in the Agreement.
The undersigned authorized officer, on behalf and in the name
of Ace, hereby certifies and represents that the following facts are true and
will continue to be true as of the Effective Time:
(1) Ace's principal reasons for participating in the Merger
are bona fide business reasons and not tax reasons.
(2) At the Effective Time of the Merger, the total fair market
value of the ordinary shares of Ace ("Ace Shares") and other consideration
received by each holder of Capital Re Common Stock will be approximately equal
to the fair market value of Capital Re Common Stock surrendered in the exchange,
and the aggregate consideration received by the holders of Capital Re Common
Stock in exchange for their Capital Re Common Stock will be approximately equal
to the fair market value of all of the outstanding shares of Capital Re Common
Stock shares immediately prior to the Merger, other than Capital Re stock owned
by Capital Re or by Ace or by any direct or indirect subsidiary of Capital Re or
Ace (other than shares of Capital Re Common Stock that are owned on behalf of
third parties).
(3) Except with respect to payments of cash to Capital Re
shareholders in lieu of fractional shares of Ace Shares, one hundred percent
(100%) of the Capital Re Common Stock outstanding immediately prior to the
Merger, other than Capital Re stock owned by Capital Re or by Ace or by any
direct or indirect subsidiary of Capital Re or Ace (other than shares of Capital
Re Common Stock that are owned on behalf of third parties), will be exchanged
solely for Ace Shares. Thus, except as set forth in the preceding sentence, Ace
and MergerSub intend that no consideration be paid or received (directly or
indirectly, actually or constructively) for Capital Re Common Stock other than
Ace Shares.
(4) In connection with the Merger, persons that are or may
become related to Ace, within the meaning of Treas. Reg. 1.368-1(e)(3), will not
acquire with consideration other than a proprietary interest in Ace, (i) Capital
Re Common Stock, or (ii) Ace Shares issued to the holders of Capital Re Common
Stock in the Merger.
(5) Assuming the correctness of the representation in
paragraph 5 of Capital Re Representation Letter, following the Effective Time
Capital Re will hold at least 90 percent (90%) of the fair market value of its
net assets and at least 70 percent (70%) of the fair market value of its gross
assets and at least 90 percent (90%) of the fair market value of MergerSub's net
assets and at least 70 percent (70%) of the fair market value of MergerSub's
gross assets held immediately prior to the Effective Time. For the purpose of
this representation, the following assets will be treated as assets of Capital
Re or MergerSub, as the case may be, held immediately before the Merger: (1)
assets disposed of by Capital Re or MergerSub immediately prior to the Merger
and in contemplation thereof (including without limitation any asset disposed of
by Capital Re or MergerSub, other than in the ordinary course of business,
pursuant to a plan or intent existing during the period ending on the Effective
Time and beginning with the commencement of negotiations (whether formal or
informal) by Capital Re with Ace or MergerSub regarding the Merger) (the
"Pre-Merger Period"); (2) amounts paid by Capital Re or MergerSub to
shareholders who receive cash or other property; and (3) Capital Re or MergerSub
assets used to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends), if any, made by Capital Re
or MergerSub immediately preceding the transfer.
(6) Prior to the Merger, Ace will be in control of MergerSub
within the meaning of section 368(c) of the Internal Revenue Code.
(7) Following the Merger, Ace will not cause Capital Re to
issue additional shares of its stock (or securities, options, warrants or
instruments giving the holder thereof the right to acquire Capital Re stock) or
take any other action that would result in Ace losing control of Capital Re
within the meaning of section 368(c) of the Code.
(8) Ace has no present and as of the Effective Time will have
no plan or intention to reacquire any of its stock issued in the Merger.
(9) Ace has no present and as of the Effective Time will have
no plan or intention to liquidate Capital Re; to merge Capital Re with and into
another corporation (except pursuant to the Merger); to sell or otherwise
dispose of the stock of Capital Re, except for any transfer to a corporation
controlled by Ace in accordance with Treas. Reg. ss. 1.368-2(k)(2), or to cause
Capital Re to sell or otherwise dispose of any of its assets or any of the
assets acquired from MergerSub in the Merger, except for dispositions made in
the ordinary course of business or transfers described in Treas. Reg. ss.
1.368-2(k)(2).
(10) No holder of Capital Re Common Stock is acting as agent
for Ace in connection with the Merger or approval thereof, and neither Ace nor
MergerSub will reimburse any holder of Capital Re Common Stock for Capital Re
Common Stock such holder of Capital Re Common Stock may have purchased or for
other obligations such holder of Capital Re Common Stock may have incurred as
agent for Ace or MergerSub.
(11) Following the Merger, Ace will cause Capital Re to
continue its historic business or use a significant portion of its historic
business assets in a business.
(12) Ace and MergerSub will pay their respective expenses,
if any, incurred in connection with the Merger.
(13) There is no intercorporate indebtedness existing between
Ace and Capital Re or between MergerSub and Capital Re that was issued,
acquired, or will be settled at a discount as a result of the Merger, and
neither Ace nor MergerSub will assume any liability of any holder of Capital Re
Common Stock in connection with the Merger.
(14) Neither Ace nor MergerSub are investment companies as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(15) The Ace Shares into which Capital Re Common Stock will be
converted in the Merger is "voting stock" within the meaning of Section
368(a)(2)(E) of the Code.
(16) MergerSub will not have any liabilities assumed by
Capital Re, and will not transfer to Capital Re any assets subject to
liabilities, as part of the Merger.
(17) Except for the options to acquire Capital Re Common Stock
granted to Ace under the Stock Option Agreement and any shares of Capital Re
Common Stock acquired pursuant to the Stock Purchase Agreement between Ace
Bermuda Insurance, Ltd. and Capital Re, dated as of February 19, 1999, neither
Ace nor MergerSub, nor any affiliate of Ace or MergerSub, owns, directly or
indirectly, nor have they owned during the past five years, directly or
indirectly, any Capital Re capital stock or the right to acquire or vote any
such stock.
(18) The payment of cash in lieu of fractional Ace Shares is
solely for the purpose of avoiding the expense and inconvenience to Ace of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
holders of Capital Re Common Stock instead of issuing fractional Ace Shares will
not exceed one percent (1%) of the total consideration that will be issued in
the Merger to holders of Capital Re Common Stock in exchange for their Capital
Re Common Stock. The fractional share interests of each Capital Re shareholder
will be aggregated, and no Capital Re shareholder will receive cash in lieu of
fractional shares in an amount equal to or greater than the value of one full
Ace Share, except for any cases in which a Capital Re shareholder holds
beneficial interests in shares of Capital Re through more than one account and
such multiple accounts cannot be aggregated, either because the beneficial
interest cannot be identified or it would be improper to do so, and in any cases
in which the same shareholder owns stock in multiple accounts and Ace cannot
aggregate those accounts through use of their common taxpayer identification
number or EIN or otherwise (in which case no account will receive more than a
fraction of one share in cash).
(19) None of the compensation received by any
shareholder-employee of Capital Re will be separate consideration for, or
allocable to, any of their Capital Re Common Stock; none of the Ace Shares
received by any shareholder-employees will be separate consideration for, or
allocable to, any Capital Re employment agreement or any covenants not to
compete with Capital Re; and the compensation paid to any shareholder-employees
by Capital Re will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services.
(20) The Merger will be consummated, if at all, in compliance
with the Agreement and the laws of the State of Delaware.
(21) No more than fifty percent (50%) of the total voting
power and the total value of outstanding capital stock of Ace will be received,
pursuant to the Merger, by Capital Re shareholders.
(22) Ace will provide to Capital Re all information necessary
and useful to the timely completion and filing by Capital Re of the statement
titled "Section 367(a) Reporting of Cross Border Transfer Under Reg. ss.
1.367(a)-3(c)(6).
(23) One or more of Ace's "qualified subsidiaries" (within the
meaning of Treas. Reg. ss. 1.367(a)-3(c)(5)(vii)) will have been engaged in the
business of providing insurance and reinsurance products outside the United
States (the "Non-U.S. Business") for the entire 36-month period ending at the
Effective Time of the Merger and there is no intent to dispose of or discontinue
such "active trade or business." Such Non-U.S. Business is a specific unified
group of activities that constitute an independent economic enterprise carried
on for profit. The Non-U.S. Business is conducted by officers and employees of
Ace or its qualified subsidiaries. The primary managerial and operational
activities of the Non-U.S. Business are conducted outside the United States.
(24) At the Effective Time of the Merger, the fair market
value of Ace will be equal to or greater than the fair market value of Capital
Re.
(25) During the 36-month period ending at the Effective Time,
neither Ace nor any "qualified subsidiary" of Ace has acquired, for the
principal purpose of satisfying the substantiality test of Treas. Reg. ss.
1.367(a)-(3)(c)(iii), assets that produce and are held for the production of
passive income as defined in section 1296(b) of the Code, other than, with
respect to Ace, any assets consisting of the stock of a qualified subsidiary or
an interest in a qualified partnership, which stock or interest was not acquired
with the principal purpose of satisfying the active business test of Treas. Reg.
ss. 1.367(a)-3(c)(3) or the substantiality test of Treas. Reg. ss.
1.367(a)-(3)(c)(iii).
(26) During the 36-month period ending at the Effective Time,
neither Ace nor any qualified subsidiary or partnership has acquired any assets
from Capital Re or any "affiliate" (within the meaning of section 1504(a) of the
Code, substituting "50 percent" for "80 percent," where it appears therein, and
without the exceptions under Section 1504(b) of the Code) of Capital Re.
The undersigned recognizes that (i) your opinions will be
based on the representations set forth herein and on the statements contained in
the Agreement and documents related thereto; (ii) your opinions will be subject
to certain limitations and qualifications including that they may not be relied
upon if any such representations are not accurate in all material respects; and
(iii) your opinions will not address any tax consequences of the Merger or any
action taken in connection therewith except as expressly set forth in such
opinion.
Very truly yours,
Ace Limited
By:
Title:
CapRe Acquisition Corp.
By:
Title:
<PAGE>
Exhibit D
FORM OF CAPITAL RE REPRESENTATION LETTER
_________________,_______, 1999
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004-1109
Ladies and Gentlemen:
This letter is supplied to you in connection with your
rendering of opinions regarding certain income tax consequences of the
transactions described in the Agreement and Plan of Merger (the "Agreement"),
dated as of June 10, 1999, by and among Ace Limited ("Ace"), a Cayman Islands
corporation, CapRe Acquisition Corp. ("MergerSub"), a Delaware corporation and
wholly-owned subsidiary of Ace, and Capital Re Corporation ("Capital Re"), a
Delaware corporation. Pursuant to the Agreement, MergerSub will be merged with
and into Capital Re (the "Merger"). Unless otherwise defined herein, capitalized
terms used herein shall have the same meaning as defined in the Agreement.
The undersigned authorized officer, on behalf and in the name
of Capital Re, hereby certifies and represents that the following facts are true
and will continue to be true as of the Effective Time:
(1) Capital Re's reasons for participating in the Merger are
bona fide business reasons and not tax reasons.
(2) At the Effective Time of the Merger, the total fair market
value of the ordinary shares of Ace ("Ace Shares") and other consideration
received by each holder of Capital Re Common Stock will be approximately equal
to the fair market value of Capital Re Common Stock surrendered in the exchange,
and the aggregate consideration received by the holders of Capital Re Common
Stock in exchange for their Capital Re Common Stock will be approximately equal
to the fair market value of all of the outstanding Common Stock of Capital Re
Common Stock immediately prior to the Merger, other than Capital Re stock owned
by Capital Re or by Ace or by any direct or indirect subsidiary of Capital Re or
Ace (other than shares of Capital Re Common Stock that are owned on behalf of
third parties).
(3) Except with respect to payments of cash to Capital Re
shareholders in lieu of fractional Ace Shares, one hundred percent (100%) of the
Capital Re Common Stock outstanding immediately prior to the Merger, other than
Capital Re Common Stock owned directly by Ace or MergerSub, will be exchanged
solely for Ace Shares. Thus, except as set forth in the preceding sentence,
Capital Re intends that no consideration be paid or received (directly or
indirectly, actually or constructively) for Capital Re Common Stock other than
Ace Shares.
(4) Prior to and in connection with the Merger, including
without limitation the period ending on the Effective Time and beginning with
the commencement of negotiations (whether formal or informal) by Capital Re with
Ace or MergerSub regarding the Merger (the "Pre-Merger Period"), (i) Capital Re
has not redeemed (and will not redeem) any Capital Re Common Stock and has not
made (and will not make) any distributions with respect thereto other than those
that are consistent with past custom and practice and (ii) persons that are or
may become related to Capital Re, within the meaning of Treas. Reg. ss.
1.368-1(e)(3), have not acquired (and will not acquire) Capital Re Common Stock
from any holder thereof with consideration other than Capital Re Common Stock or
Ace Shares.
(5) At the Effective Time, Capital Re will hold at least 90
percent (90%) of the fair market value of its net assets and at least 70 percent
(70%) of the fair market value of its gross assets held immediately prior to the
Merger. For the purpose of this representation, the following assets will be
treated as assets of Capital Re held immediately before the Merger: (1) assets
disposed of by Capital Re immediately prior to the Merger and in contemplation
thereof (including without limitation any asset disposed of by Capital Re, other
than in the ordinary course of business, pursuant to a plan or intent existing
during the Pre-Merger Period); (2) amounts paid by Capital Re to shareholders
who receive cash or other property; and (3) Capital Re assets used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends), if any, made by Capital Re immediately preceding the
transfer.
(6) The business conducted by Capital Re immediately prior to
the Merger will be its historic business and no assets of Capital Re have been
acquired, or sold, transferred or otherwise disposed of, which would prevent Ace
from continuing the historic business of Capital Re or from using a significant
portion of Capital Re's historic business assets in a business following the
Merger.
(7) At the Effective Time of the Merger, there will be no
accrued but unpaid dividends on Capital Re Common Stock.
(8) Capital Re and holders of Capital Re Common Stock will pay
their respective expenses, if any, incurred in connection with the Merger.
(9) There is no intercorporate indebtedness existing between
Ace and Capital Re or between MergerSub and Capital Re that was issued,
acquired, or will be settled at a discount as a result of the Merger, and
neither Ace nor MergerSub will assume any liabilities of any holder of Capital
Re Common Stock in connection with the Merger.
(10) Capital Re is not, and will not be at the Effective Time
of the Merger, an investment company as defined in section 368(a)(2)(F)(iii) and
(iv) of the Code.
(11) Capital Re is not, and will not be at the Effective Time
of the Merger, under the jurisdiction of a court in a Title 11 or similar case
within the meaning of section 368(a)(3)(A) of the Code.
(12) The fair market value of the assets of Capital Re will,
at the Effective Time of the Merger, equal or exceed the sum of its liabilities,
plus the amount of liabilities, if any, to which Capital Re's assets are
subject.
(13) Capital Re has no present plan or intention to issue
additional shares of its stock (or securities, options, warrants or instruments
giving the holder thereof the right to acquire Capital Re stock) after the
Effective Time that would result in Ace losing control of Capital Re within the
meaning of Section 368(c) of the Code.
(14) The payment of cash in lieu of fractional Ace Shares is
solely for the purpose of avoiding the expense and inconvenience to Ace of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
holders of Capital Re Common Stock instead of issuing fractional Ace Shares will
not exceed one percent (1%) of the total consideration that will be issued in
the Merger to holders of Capital Re Common Stock in exchange for their Capital
Re Common Stock. The fractional share interests of each Capital Re shareholder
will be aggregated, and no Capital Re shareholder will receive cash in lieu of
fractional shares in an amount equal to or greater than the value of one full
Ace Share, except for any cases in which a Capital Re shareholder holds
beneficial interests in shares of Capital Re through more than one account and
such multiple accounts cannot be aggregated, either because the beneficial
interest cannot be identified or it would be improper to do so, and in any cases
in which the same shareholder owns stock in multiple accounts and Ace cannot
aggregate those accounts through use of their common taxpayer identification
number or EIN or otherwise (in which case no account will receive more than a
fraction of one share in cash).
(15) None of the compensation received by any
shareholder-employee of Capital Re will be separate consideration for, or
allocable to, any of their Capital Re Common Stock; none of the Ace Shares
received by any shareholder-employees will be separate consideration for, or
allocable to, any Capital Re employment agreement or any covenants not to
compete with Capital Re; and the compensation paid to any shareholder-employees
by Capital Re will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services.
(16) At the Effective Time of the Merger, Capital Re will not
have outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Capital Re that, if
exercised or converted, would affect Ace's ownership of "control" of Capital Re,
as defined in Section 368(c) of the Code.
(17) The Merger will be consummated, if at all, in compliance
with the Agreement and the laws of the State of Delaware.
(18) At the Effective Time of the Merger, the fair market
value of Capital Re will not exceed the fair market value of Ace.
(19) Except for any shares of Capital Re Common Stock acquired
pursuant to the Stock Purchase Agreement between Ace Bermuda Insurance, Ltd. and
Capital Re, dated as of February 19, 1999, Ace does not own, directly or
indirectly, nor has it owned, directly or indirectly, during the five-year
period ending at the Effective Time of the Merger, any Capital Re Common Stock.
(20) Capital Re will timely file a United States federal
income tax return for its taxable year in which the Merger occurs and will
attach to such return a statement titled "Section 367(a) - Reporting of Cross
Border Transfer under Reg. Section 1.367(a)-3(c)(6)," which sets forth all of
the information required to be disclosed under such Treasury Regulations
section.
(21) During the 36-month period ending at the Effective Time,
neither Ace nor any qualified subsidiary or partnership has acquired any assets
from Capital Re or an "affiliate" (within the meaning of section 1504(a) of the
Code, substituting "50 percent" for "80 percent," where it appears therein, and
without the exceptions under Section 1504(b) of the Code) of Capital Re.
(22) Capital Re has received certificates from each of its
officers, directors and five percent or more shareholders (within the meaning of
Treas. Reg. ss. 1.367(a)-3(c)(5)(iii)) as to their ownership of Ace Shares
(taking into account the attribution rules of Section 318 of the Code, as
modified by the rules of Section 958(b) of the Code). Based on these
certificates, no more than fifty percent (50%) of the outstanding capital stock
of Ace will be owned, immediately after the Merger, by "U. S. persons" (as
defined in Treas. Reg. ss. 1.367(a)-1T(d)(1)) who are either officers or
directors of Capital Re or persons who directly, indirectly or constructively
owned five percent (5%) or more of either the total voting power or value of the
stock of Capital Re immediately prior to the Merger.
(23) No more than fifty percent (50%) of the total voting
power and the total value of outstanding capital stock of Ace will be received,
pursuant to the Merger, by Capital Re shareholders.
The undersigned recognizes that (i) your opinions will be
based on the representations set forth herein and on the statements contained in
the Agreement and documents related thereto; (ii) your opinions will be subject
to certain limitations and qualifications including that they may not be relied
upon if any such representations are not accurate in all material respects; and
(iii) your opinions will not address any tax consequences of the Merger or any
action taken in connection therewith except as expressly set forth in such
opinion.
Very truly yours,
Capital Re Corporation
By:
Title:
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of June 10, 1999 (the
"Agreement"), is between ACE Limited, a Cayman Islands company (the "Grantee"),
and Capital Re Corporation, a Delaware corporation (the "Grantor").
WHEREAS, Grantee, CapRe Acquisition Corp., a Delaware corporation and a
wholly owned, direct subsidiary of Grantee (the "Merger Subsidiary"), and
Grantor have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), pursuant to which Grantee and Grantor intend to
effect a merger of Merger Subsidiary with and into Grantor (the "Merger");
WHEREAS, as a condition and inducement to Grantee's and Merger
Subsidiary's willingness to enter into the Merger Agreement, Grantee and Merger
Subsidiary have requested that Grantor grant to Grantee an option to purchase up
to 3,220,135 fully paid and nonassessable shares of common stock, par value
$0.01 per share, of Grantor (the "Common Stock"), upon the terms and subject to
the conditions hereof; and
WHEREAS, in order to induce Grantee and Merger Subsidiary to enter into
the Merger Agreement, and in consideration thereof, Grantor is willing to grant
Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Adjustments.
(a) Subject to the other terms and conditions set forth
herein, Grantor hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 3,220,135 fully paid and nonassessable
shares of Common Stock (the "Shares") at a cash purchase price equal to
$17.40 per share (the "Option Price"); provided, however, that in no
event shall the number of shares for which the Option is exercisable
exceed 9.9% of the shares of Common Stock issued and outstanding at the
time of exercise (without giving effect to the shares of Common Stock
issued or issuable pursuant to the Option) (the "Maximum Applicable
Percentage"). The number of shares of Common Stock purchasable upon
exercise of the Option and the Option Price are subject to adjustment
as set forth in this Agreement.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement), the aggregate number
of shares of Common Stock purchasable upon exercise of the Option
(inclusive of shares, if any, previously purchased upon exercise of the
Option) shall automatically be increased (without any further action on
the part of Grantor or Grantee being necessary) so that, after such
issuance, it equals the Maximum Applicable Percentage. Any such
increase shall not affect the Option Price.
<PAGE>
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other
person that shall become a holder of all or part of the Option in
accordance with the terms of this Agreement (each such person being
referred to in this Agreement as a "Holder") may exercise the Option,
in whole or in part, by delivering a written notice thereof as provided
in Section 2(d) within 180 days following the occurrence of a
Triggering Event (as defined in Section 2(b)) unless prior to such
Triggering Event the Effective Time (as defined in the Merger
Agreement) shall have occurred. If no notice pursuant to the preceding
sentence has been delivered prior thereto, the Option shall terminate
upon either (i) the occurrence of the Effective Time or (ii) the close
of business on the earlier of (x) the day 180 days after the date that
Grantee becomes entitled to receive the Termination Fee (as defined in
the Merger Agreement) under Section 8.5(b) or (c) of the Merger
Agreement and (y) the date that Grantee is no longer potentially
entitled to receive the Termination Fee under Section 8.5(b) or (c) of
the Merger Agreement for a reason other than that Grantee has already
received the Termination Fee.
(b) Triggering Event. A "Triggering Event" shall have occurred
if the Merger Agreement is terminated and Grantee then or thereafter
becomes entitled to receive the Termination Fee pursuant to Section
8.5(b) or (c) of the Merger Agreement.
(c) Notice of Triggering Event by Grantor. Grantor shall
notify Grantee promptly in writing of the occurrence of any Triggering
Event, it being understood that the giving of such notice by Grantor
shall not be a condition to the right of a Holder to exercise the
Option.
(d) Notice of Exercise by Grantee. If a Holder shall be
entitled to and wishes to exercise the Option, it shall send to Grantor
a written notice (the date of which is referred to in this Agreement as
the "Notice Date") specifying (i) the total number of shares the Holder
will purchase pursuant to such exercise and (ii) a place and date (a
"Closing Date") not earlier than three business days nor later than 20
business days from the Notice Date for the closing of such purchase (a
"Closing"); provided, that if a filing is required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), or any other notice, report, filing or approval is required
with respect to any governmental or regulatory authority, court,
agency, commission, body or other governmental entity (a "Governmental
Entity") in connection with such purchase, (x) the Holder or Grantor,
as required, promptly after the giving of such notice shall file the
required notice, report, filing or application for approval and shall
expeditiously process the same and (y) the period of time referred to
in clause (ii) above shall commence on the date on which the Grantee
furnishes to Grantor a supplemental written notice setting forth the
Closing Date, which notice shall be furnished as promptly as
practicable after all required notification, reporting or filing
periods shall have expired or been terminated, all required approvals
shall have been obtained and all requisite waiting periods shall have
passed. Each of Grantee and Grantor agrees to use all commercially
reasonable efforts to cooperate with and provide information to Grantor
or the Holder, as the case may be, for the purpose of any required
notice, report, filing or application for approval.
(e) Payment of Purchase Price. At each Closing, the Holder
shall pay to Grantor the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a bank account
designated by Grantor; provided, that failure or refusal of Grantor to
designate such a bank account shall not preclude the Holder from
exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously
with the payment of the purchase price by the Holder, Grantor shall
deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the
Option shall be exercised in part only, a new Option evidencing the
rights of the Holder to purchase the balance (as adjusted pursuant to
Section 1(b)) of the shares of Common Stock then purchasable under this
Agreement.
(g) Restrictive Legend. Certificates for Common Stock
delivered at a Closing may be endorsed with a restrictive legend that
shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to resale restrictions arising under the Securities
Act of 1933, as amended."
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the
Holder shall have delivered to Grantor a copy of a letter from the
staff of the Securities and Exchange Commission, or a written opinion
of counsel, in form and substance reasonably satisfactory to Grantor,
to the effect that such legend is not required for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). In addition,
such certificates shall bear any other legend as may be required by
applicable law.
(h) Ownership of Record; Tender of Purchase Price; Expenses.
Upon the giving by the Holder to Grantor of a written notice of
exercise referred to in Section 2(d) and the tender of the applicable
purchase price in immediately available funds, the Holder shall be
deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer
books of Grantor shall then be closed or that certificates representing
such shares of Common Stock shall not have been delivered to the
Holder. Grantor shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its
assignee, transferee or designee.
3. Covenants of Grantor. In addition to its other agreements and
covenants in this Agreement, Grantor agrees:
(a) Shares Reserved for Issuance. It will maintain, free from
preemptive rights, sufficient authorized but unissued or treasury
shares of Common Stock to issue the appropriate number of shares of
Common Stock pursuant to the terms of this Agreement so that the Option
may be fully exercised without additional authorization of Common Stock
after giving effect to all other options, warrants, convertible
securities and other rights of third parties to purchase shares of
Common Stock from Grantor.
(b) No Avoidance. It will not avoid or seek to avoid (whether
by charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed under this
Agreement by Grantor.
(c) Further Assurances. Promptly after the date of this
Agreement, it will take all actions as may from time to time be
required (including (i) complying with all applicable premerger
notification, reporting and waiting period requirements under the HSR
Act and (ii) in the event that prior notice, report, filing or approval
with respect to any Governmental Entity is necessary under any
applicable foreign or United States federal, state or local law before
the Option may be exercised, cooperating fully with the Holder in
preparing and processing the required applications or notices) in order
to permit the Holder to exercise the Option and purchase shares of
Common Stock pursuant to such exercise and to take all action necessary
to protect the rights of the holder against dilution.
(d) Stock Exchange Listing. Subject to applicable law and the
rules and regulations of the New York Stock Exchange, Inc. (the
"NYSE"), it will promptly file an application to list the Shares on the
NYSE (to the extent they are not already listed) and will use all
commercially reasonable efforts to obtain approval of such listing and
to effect all necessary filings by Grantor under the HSR Act and the
applicable insurance laws of each state and foreign jurisdiction;
provided, however, that if it is unable to effect such listing on the
NYSE by the Closing Date, it will nevertheless be obligated to deliver
the Shares upon the Closing Date.
4. Representations and Warranties of Grantor.
(a) Merger Agreement. Grantor hereby makes each of the
representations and warranties contained in Sections 4.1, 4.2, 4.4, 4.5
and 4.15 of the Merger Agreement as they relate to Grantor and this
Agreement, as if such representations were set forth in this Agreement.
(b) Shares Reserved for Issuance; Capital Stock. Grantor has
taken all necessary corporate action to authorize and reserve, free
from preemptive rights, and permit it to issue, sufficient authorized
but unissued or treasury shares of Common Stock so that the Option may
be fully exercised without additional authorization of Common Stock
after giving effect to all other options, warrants, convertible
securities and other rights of third parties to purchase shares of
Common Stock from Grantor, and all such 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 claims,
liens, encumbrances, and security interests (other than those created
by this Agreement) and not subject to any preemptive rights.
(c) The Shares. No "fair price," "moratorium," "control share
acquisition," "interested shareholder" or other form of antitakeover
statute or regulation, including without limitation Section 203 of the
Delaware General Corporation Law, or similar provision contained in the
certificate of incorporation or by-laws of Grantor, is or shall be
applicable to the acquisition of the Shares pursuant to this Agreement.
5. Representations and Warranties of Grantee. Grantee represents and
warrants to Grantor that (a) the execution and delivery of this Agreement by
Grantee and the consummation by it 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 a duly authorized
officer of Grantee and constitutes a valid and binding obligation of Grantee;
and (b) Grantee is acquiring the Option and, if and when it exercises the
Option, will be acquiring the Shares issuable upon the exercise thereof for its
own account and not with a view to distribution or resale in any manner which
would be in violation of the Securities Act.
6. Exchange; Replacement. This Agreement and the Option granted by this
Agreement are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Grantor,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable at such time under this Agreement, subject to
corresponding adjustments in the number of shares of Common Stock purchasable
upon exercise so that the aggregate number of such shares under all stock option
agreements issued in respect of this Agreement shall not exceed the Maximum
Applicable Percentage. Unless the context shall require otherwise, the terms
"Agreement" and "Option" as used in this Agreement include any stock option
agreements and related Options for which this Agreement (and the Option granted
by this Agreement) may be exchanged. Upon (i) receipt by Grantor of evidence
reasonably satisfactory to it of the loss, theft, destruction of this Agreement,
or mutilation of this Agreement, (ii) receipt by Grantor of reasonably
satisfactory indemnification in the case of loss, theft or destruction of this
Agreement and (iii) surrender and cancellation of this Agreement in the case of
mutilation, Grantor 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 Grantor, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by any person other than the holder of the new Agreement.
7. Adjustments. In addition to the adjustment to the total number of
shares of Common Stock purchasable upon exercise of the Option pursuant to
Section 1(b), the total number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as follows:
(a) In the event of any change in the outstanding shares of
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise of the Option shall be appropriately
adjusted, and proper provision shall be made in the agreements
governing any such transaction, so that (i) any Holder shall receive
upon exercise of the Option the number and class of shares, other
securities, property or cash that such Holder would have received in
respect of the shares of Common Stock purchasable upon exercise of the
Option if the Option had been exercised and such shares of Common Stock
had been issued to such Holder immediately prior to such event or the
record date therefor, as applicable, and (ii) in the event any
additional shares of Common Stock are to be issued or otherwise become
outstanding as a result of any such change (other than pursuant to an
exercise of the Option), the number of shares of Common Stock
purchasable upon exercise of the Option shall be increased so that,
after such issuance and together with shares of Common Stock previously
issued pursuant to the exercise of the Option (as adjusted on account
of any of the foregoing changes in the Common Stock), the number of
shares so purchasable equals the Maximum Applicable Percentage of the
number of shares of Common Stock issued and outstanding immediately
after the consummation of such change.
(b) Whenever the number of shares of Common Stock purchasable
upon exercise of the Option is adjusted as provided in this Section 7,
the Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which is equal to the number of shares of
Common Stock purchasable prior to the adjustment and the denominator of
which is equal to the number of shares of Common Stock purchasable
after the adjustment.
8. Registration.
(a) Upon the occurrence of a Triggering Event, Grantor shall,
at the request of Grantee delivered in the written notice of exercise
of the Option provided for in Section 2(d), as promptly as practicable
prepare, file and keep current a shelf registration statement under the
Securities Act covering any or all shares issued and issuable pursuant
to the Option and shall use all commercially reasonable efforts to
cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of any shares
of Common Stock issued upon total or partial exercise of the Option
("Option Shares") in accordance with any plan of disposition requested
by Grantee; provided, however, that Grantor may postpone filing a
registration statement relating to a registration request by Grantee
under this Section 8 for a period of time (not in excess of 60 days) if
in its judgment such filing would require the disclosure of material
information that Grantor has a bona fide business purpose for
preserving as confidential. Grantor will use all commercially
reasonable efforts to cause such registration statement first to become
effective as soon as practicable and then to remain effective for 270
days from the day such registration statement first becomes effective
or until such earlier date as all shares registered shall have been
sold by Grantee. In connection with any such registration, Grantor and
Grantee shall provide each other with representations, warranties,
indemnities and other agreements customarily given in connection with
such registrations. If requested by Grantee in connection with such
registration, Grantor shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent
of obligating Grantor in respect of representations, warranties,
indemnities, contribution and other agreements customarily made by
issuers in such underwriting agreements.
(b) In the event that Grantee so requests, the closing of the
sale or other disposition of the Common Stock or other securities
pursuant to a registration statement filed pursuant to Section 8(a)
shall occur substantially simultaneously with the exercise of the
Option.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a
Triggering Event, (i) at the request of a Holder, delivered in writing
within 180 days of such occurrence (or such later period as provided in
Section 2(d) with respect to any required notice or application or in
Section 10), Grantor shall repurchase the Option from the Holder, in
whole or in part, at a price (the "Option Repurchase Price") equal to
the number of shares of Common Stock then purchasable upon exercise of
the Option (or such lesser number of shares as may be designated in the
Repurchase Notice (as defined below)) multiplied by the amount by which
the market/offer price (as defined below) exceeds the Option Price and
(ii) at the request of a Holder or any person who has been a Holder
(for purposes of this Section 9 only, each such person being referred
to as a "Holder"), delivered in writing within 180 days of such
occurrence (or such later period as provided in Section 2(d) with
respect to any required notice or application or in Section 10),
Grantor shall repurchase such number of Option Shares from such Holder
as the Holder shall designate in the Repurchase Notice at a price (the
"Option Share Repurchase Price") equal to the number of shares
designated multiplied by the market/offer price. The term "market/offer
price" shall mean the highest of (x) the price per share of Common
Stock at which a tender or exchange offer for Common Stock has been
made, (y) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Grantor and (z) the highest trading
price for shares of Common Stock on the NYSE (or, if the Common Stock
is not then listed on the NYSE, any other national securities exchange
or automated quotation system on which the Common Stock is then listed
or quoted) within the six-month period immediately preceding the
delivery of the Repurchase Notice. In the event that a tender or
exchange offer is made for the Common Stock or an agreement is entered
into for a merger, share exchange, consolidation or reorganization
involving consideration other than cash, the value of the securities or
other property issuable or deliverable in exchange for the Common Stock
shall (I) if such consideration is in securities and such securities
are listed on a national securities exchange, be determined to be the
highest trading price for such securities on such national securities
exchange within the six-month period immediately preceding the delivery
of the Repurchase Notice or (II) if such consideration is not
securities, or if in securities and such securities are not traded on a
national securities exchange, be determined in good faith by a
nationally recognized investment banking firm selected by an investment
banking firm designated by Grantee and an investment banking firm
designated by Grantor.
(b) Method of Repurchase. A Holder may exercise its right to
require Grantor to repurchase the Option, in whole or in part, and/or
any Option Shares then owned by such Holder pursuant to this Section 9
by surrendering for such purpose to Grantor, at its principal office,
this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder
elects to require Grantor to repurchase the Option and/or such Option
Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). As promptly as practicable, and in any
event within two business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of the
Repurchase Notice relating thereto, Grantor shall deliver or cause to
be delivered to the Holder the applicable Option Repurchase Price
and/or the Option Share Repurchase Price. Any Holder shall have the
right to require that the repurchase of Option Shares shall occur
immediately after the exercise of all or part of the Option. In the
event that the Repurchase Notice shall request the repurchase of the
Option in part, Grantor shall deliver with the Option Repurchase Price
a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock purchasable pursuant to
the Option at the time of delivery of the Repurchase Notice minus the
number of shares of Common Stock represented by that portion of the
Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on
Repurchase. To the extent that, upon or following the delivery of a
Repurchase Notice, Grantor is prohibited under applicable law or
regulation from repurchasing the Option (or portion thereof) and/or any
Option Shares subject to such Repurchase Notice (and Grantor will
undertake to use all commercially reasonable efforts to obtain all
required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such
repurchase), Grantor shall immediately so notify the Holder in writing
and thereafter deliver or cause to be delivered, from time to time, to
the Holder the portion of the Option Repurchase Price and the Option
Share Repurchase Price that Grantor is no longer prohibited from
delivering, within two business days after the date on which it is no
longer so prohibited; provided, however, that upon notification by
Grantor in writing of such prohibition, the Holder may, within five
days of receipt of such notification from Grantor, revoke in writing
its Repurchase Notice, whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Grantor shall promptly (i)
deliver to the Holder that portion of the Option Repurchase Price
and/or the Option Share Repurchase Price that Grantor is not prohibited
from delivering; and (ii) deliver to the Holder, as appropriate, (A)
with respect to the Option, a new Stock Option Agreement evidencing the
right of the Holder to purchase that number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the Repurchase Notice less the number of shares as
to which the Option Repurchase Price has theretofore been delivered to
the Holder, and/or (B) with respect to Option Shares, a certificate for
the Option Shares as to which the Option Share Repurchase Price has not
theretofore been delivered to the Holder. Notwithstanding anything to
the contrary in this Agreement, including, without limitation, the time
limitations on the exercise of the Option, the Holder may give notice
of exercise of the Option for 180 days after a notice of revocation has
been issued pursuant to this Section 9(c) and thereafter exercise the
Option in accordance with the applicable provisions of this Agreement.
(d) Acquisition Transactions. In addition to any other
restrictions or covenants, Grantor agrees that, in the event that a
Holder delivers a Repurchase Notice, Grantor shall not enter or agree
to enter into an agreement or series of agreements relating to a merger
with or into or the consolidation with any other person or entity, the
sale of all or substantially all of the assets of Grantor or any
similar disposition unless the other party or parties to such agreement
or agreements agree to assume in writing Grantor's obligations under
Section 9(a) and, notwithstanding any notice of revocation delivered
pursuant to the proviso to Section 9(c), a Holder may require such
other party or parties to perform Grantor's obligations under Section
9(a) unless such party or parties are prohibited by law or regulation
from such performance, in which case such party or parties shall be
subject to the obligations of Grantor under Section 9(c).
10. Extension of Exercise Periods. The 180-day periods for exercise of
certain rights under Sections 2 and 9 shall be extended in each such case at the
request of the Holder to the extent necessary to avoid liability by the Holder
under Section 16(b) of the Securities Exchange Act of 1934, as amended, by
reason of such exercise.
11. Limitation of Holder Profit. (a) Notwithstanding any other
provision herein, in no event shall Grantee's Total Profit (as defined below)
exceed $25,000,000, exclusive of any reimbursement of expenses pursuant to
Section 8.5(e) of the Merger Agreement (the "Maximum Profit"), and, if it
otherwise would exceed such amount, Grantee, at its sole discretion, shall
either (1) reduce the number of shares subject to the Option (and any Substitute
Option), (2) deliver to Grantor for cancellation shares of Common Stock (or
other securities into which such Option Shares are converted or exchanged), (3)
pay cash to the Grantor or (4) 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: (1) 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 9), plus (c) all amounts received by Grantee pursuant to Section 8.5(b)
or (c) of the Merger Agreement (other than reimbursement in respect of
Expenses), minus (2) all amounts of cash previously paid to Grantor pursuant to
this Section 11 plus the value of the Option Shares (or other securities)
previously delivered to the Grantor for cancellation pursuant to this Section
11.
(c) Notwithstanding any other provision of this Agreement, nothing in
this Agreement shall affect the ability of Grantee to receive, nor relieve
Grantor's obligation to pay, any payment provided for in Section 8.5(b) and (c)
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 11(a)
within 30 days of the latest of (1) the date of receipt of such payment, (2) 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 and (3) the date of receipt of net cash from the
disposition of the Option.
(d) For purposes of paragraph (a) of this Section and clause (b)(ii) of
this Section, the value of any Option Shares delivered to the Grantor shall be
the market/offer price of such Option Shares.
12. Assignment. Neither party may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other party except that, (i) Holder may assign
this Agreement to a wholly-owned subsidiary of Holder and (ii) in the event that
a Triggering Event shall have occurred, Grantee may assign the Option, in whole
or in part. Any attempted assignment in contravention of the preceding sentence
shall be null and void.
13. Filings; Other Actions. Grantor will use all commercially
reasonable efforts to make all filings with, and to obtain consents of, all
third parties and governmental authorities necessary for the consummation of the
transactions contemplated by this Agreement.
14. Specific Performance. Grantor acknowledges that if Grantor fails to
perform any of its obligations under this Agreement immediate and irreparable
harm or injury would be caused to Grantee and/or the Holder for which money
damages would not be an adequate remedy. In such event, Grantor agrees that
Grantee or a Holder shall have the right, in addition to any other rights it may
have, to specific performance of this Agreement. Accordingly, if Grantee or a
Holder should institute an action or proceeding seeking specific enforcement of
the provisions hereof, Grantor hereby waives the claim or defense that Grantee
or a Holder has an adequate remedy at law and hereby agrees not to assert in any
such action or proceeding the claim or defense that such a remedy at law exists.
Grantor further agrees to waive any requirements for the securing or posting of
any bond in connection with obtaining any such equitable relief.
15. Severability. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
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 regulatory
agency determines that the Holder is not permitted to acquire, or Grantor is not
permitted to repurchase pursuant to Section 9, the full number of shares of
Common Stock provided in Section 1(a) of this Agreement (as adjusted pursuant to
Sections 1(b) and 7 of this Agreement), it is the express intention of Grantor
to allow the Holder to acquire or to require Grantor to repurchase such lesser
number of shares as may be permissible, without any amendment or modification of
this Agreement.
16. Notice. Notices, requests, instructions, or other documents to be
given under this Agreement shall be in writing and shall be deemed given (i)
three business days following sending by registered or certified mail, postage
prepaid, (ii) when sent, if sent by facsimile, provided that receipt of the fax
is promptly confirmed by telephone, (iii) when delivered, if delivered
personally to the intended recipient, and (iv) one business day later, if sent
by overnight delivery via a national courier service, in each case at the
addresses of the parties set forth below, or such other address as may be
designated in writing hereafter, in the same manner, by such party:
If to Grantee or a Holder:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Attn: Chief Executive Officer
Facsimile: (441) 295-3997
With a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Edward S. Best, Esq.
Facsimile: (312) 701-7711
If to Grantor:
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Attn: Alan S. Roseman
Facsimile: 212-578-3268
With a copy to:
Hogan & Hartson
111 South Calvert Street, Suite 1600
Baltimore, Maryland 21202
Attn: Michael J. Silver, Esq.
Facsimile: 410-539-6981
17. Expenses. Except as otherwise expressly provided in this Agreement
or in the Merger Agreement, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
18. Entire Agreement. This Agreement, the Stockholder Support Agreement
(as defined in the Merger Agreement) and the Merger Agreement constitute the
entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties, with
respect to the subject matter of this Agreement. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns. Nothing in this Agreement, is
intended to confer upon any person or entity, other than the parties to this
Agreement, and their respective successors and permitted assigns, any rights or
remedies under this Agreement.
19. Governing Law and Venue; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all
respects shall be interpreted, construed and governed by and in
accordance with Delaware law without regard to the conflict of law
principles thereof. The parties irrevocably and unconditionally consent
to submit to the exclusive jurisdiction of the courts of the State of
Delaware and of the United States of America located in Wilmington,
Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated by this
Agreement (and agree not to commence any litigation relating thereto
except in such Delaware Courts), waive any objection to the laying of
venue of any such litigation in the Delaware Courts and agree not to
plead or claim in any Delaware Court that such litigation brought
therein has been brought in an inconvenient forum.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.
20. Captions. The Section and paragraph captions in this Agreement are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
21. Amendments. This Agreement may not be changed, amended or modified
orally, but may be changed only by an agreement in writing signed by the party
against whom any waiver, change, amendment, modification or discharge may be
sought.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
23. Public Announcement. Grantee and Grantor shall consult with each
other prior to issuing, and will provide each other with a meaningful
opportunity to review and comment upon, any press releases or otherwise making
public announcements with respect to the Option and prior to making any filings
with any third party and/or Governmental Entity (as defined in the Merger
Agreement) (including any national securities exchange) with respect thereto,
except as may be required by law, court process or by obligations pursuant to
any listing agreement with or rules of any national securities exchange or
interdealer quotation system.
24. Survival. All representations and warranties contained in this
Agreement shall survive delivery of and payment for the Shares.
IN WITNESS WHEREOF, Grantee and Grantor have caused this Agreement to
be duly executed and delivered on the day and year first above written.
CAPITAL RE CORPORATION
By: /s/ Jerome F. Jurschak
--------------------------------------
Jerome F. Jurschak
Chairman and Chief Executive Officer
ACE LIMITED
By: /s/ Brian Duperreault
----------------------------------------
Brian Duperreault
Director/Chairman of the Board
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT ("SECOND
AMENDMENT") is entered into as of May 26, 1999 between ACE Bermuda Insurance,
Ltd., an insurance company licensed and registered under the laws of the Islands
of Bermuda (the "PURCHASER"), and Capital Re Corporation, a Delaware corporation
(the "COMPANY").
Background and Purpose
The Purchaser and the Company are parties to that certain
Stock Purchase Agreement dated as of February 19, 1999, as amended by that
certain First Amendment to Stock Purchase Agreement dated as of March 16, 1999
(as so amended, the "AGREEMENT") pursuant to which the Purchaser agreed to
purchase and the Company agreed to issue shares of the Company's common stock,
$.01 par value per share (the "COMMON STOCK"). The parties hereto have agreed to
amend certain provisions contained in the Agreement and have therefore agreed to
enter into and perform this Second Amendment.
NOW, THEREFORE, in consideration of the continuance of the
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound thereby, hereby agree as follows:
Agreement
1. Definitions. All capitalized terms used in this
Second Amendment shall have the meanings given them in the Agreement.
2. Amendment to Conditions Precedent to the Purchaser's
Obligations. Section 3.2(e) of the Agreement is hereby deleted in its entirety
and the following inserted in place thereof:
"(e) There have shall not have occurred any
downgrading of the financial strength rating of Capital
Reinsurance Company below Aa3 by Moody's Investor Services,
Inc.("Moody's") or below AAA by the Standard & Poor's
Corporation, nor the current financial strength ratings of
Capital Mortgage Reinsurance Company and KRE Reinsurance Ltd.
below the double A category by the Standard & Poor's
Corporation; provided, however, that (i) at the closing date
Moody's will continue to provide to Capital Reinsurance
Company's financial guaranty ceding companies at least 85%
capital credit in respect of Capital Reinsurance Company's
reinsurance, (ii) announcement of a credit watch or credit
review action by a rating agency shall not be considered a
downgrade and (iii) each such rating agency may condition
maintenance of ratings upon the consummation of the sale of
the Shares pursuant to this Agreement and the consummation of
a merger or other business combination which results in the
Company becoming a wholly-owned subsidiary of an Affiliate of
the Purchaser.
3. Waiver of Conditions Precedent. Purchaser hereby waives
fulfillment of the condition precedent set forth in Section 3.2(l) of the
Agreement relating to the absence of the occurrence of any event, change or
effect having, or that would reasonably be likely to have, individually or in
the aggregate, a Material Adverse Effect to the extent that matters that have
been referred to in the financial projections prepared in connection with the
proposed transaction between Purchaser and its affiliates and the Company and
delivered to the President of A.C.E. Insurance Co. Ltd. on or prior to the date
hereof could constitute any such occurrence (the "Disclosed Matters"). In
addition, Purchaser hereby waives the condition set forth in Section 3.2(b) of
the Agreement relating to the truth and correctness of the Company's
representations and warranties as of the Closing Date to the extent the
Disclosed Matters would constitute the basis for a breach of any such
representation or warranty.
4. Continuance of Agreement. Except as specifically amended
hereby, the terms, conditions, provisions and agreements contained in the
Agreement shall be and remain in full force and effect, unchanged, unamended and
unaltered in any way or manner whatsoever.
5. Counterparts. This Second Amendment may be executed by the
parties hereto in one or more counterparts each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
agreement, it being understood that all of the parties need not sign the same
counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Second Amendment, or have caused this Second Amendment to be duly executed on
their behalf, as of the day and year first above written.
PURCHASER:
ACE BERMUDA INSURANCE, LTD.
By: /s/ Brian Duperreault
-------------------------------
Brian Duperreault
Director/Chairman of the Board
COMPANY:
CAPITAL RE CORPORATION
By: /s/ Jerome F. Jurschak
---------------------------------
Jerome F. Jurschak
Chairman and Chief Executive Officer
Contact: NEWS RELEASE
David A. Buzen
Chief Financial Officer
Catherine C. Bailey
Director of Communications
212-974-0100
CAPITAL RE CORPORATION AND ACE LIMITED ANNOUNCE
EXECUTION OF DEFINITIVE MERGER AGREEMENT
- ------------------------------------------------------------------------------
NEW YORK, NY, JUNE 11, 1999--Capital Re Corporation (NYSE: KRE) today announced
the execution of a definitive agreement providing for the merger of Capital Re
Corporation with ACE Limited, pending approval by Capital Re shareholders and
the receipt of necessary regulatory approval.
As previously announced, Capital Re's shareholders will receive 0.6 ordinary
shares of ACE Limited for each share of common stock of Capital Re at closing,
subject to a maximum value to Capital Re shareholders of $22 per share. It is
anticipated that the transaction will be completed during the second half of
1999.
Capital Re is a specialty reinsurance group providing innovative solutions to
problems of financial risk and management. Capital Re's two principal divisions,
financial guaranty and financial risks, are engaged in the business of municipal
and non-municipal financial guaranty reinsurance, mortgage guaranty reinsurance,
title reinsurance, trade credit reinsurance and financial solutions.
THE STATEMENTS CONTAINED IN THIS RELEASE AND STATEMENTS THAT THE COMPANY MAY
MAKE ORALLY IN CONNECTION WITH THIS RELEASE THAT ARE NOT HISTORICAL FACTS ARE
FORWARD LOOKING STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES AND INVESTORS ARE DIRECTED TO THE RISKS
DISCUSSED IN DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
