================================================================================
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
October 26, 1999
Date of Report (Date of earliest event reported)
Capital Re Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-10995 52-1567009
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
1325 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 974-0100
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
CAPITAL RE CORPORATION
Item 5. Other Events.
On October 26, 1999, Capital Re Corporation and ACE Ltd. entered into an
Amended and Restated Agreement and Plan of Merger dated as of October 26, 1999,
a copy of which is attached as Exhibit 99.1 hereto.
On October 26, 1999, Capital Re Corporation issued press releases which are
included as Exhibits 99.2 and 99.3 hereto.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
99.1. Amended and Restated Agreement and Plan of Merger.
99.2. Press Release, dated October 26, 1999.
99.3. Press Release, dated October 26, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAPITAL RE CORPORATION
Date: October 26, 1999 By: /s/ Alan S. Roseman
---------------------------------------
Alan S. Roseman
Executive Vice President,
General Counsel and Secretary
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
- ------ -------------------
99.1. Amended and Restated Agreement and Plan of Merger.
99.2. Press Release, dated October 26, 1999.
99.3. Press Release, dated October 26, 1999.
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
among
CAPITAL RE CORPORATION,
ACE LIMITED
and
CAPRE ACQUISITION CORP.
Dated as of October 26, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER 1
1.1. The Merger 1
1.2. Closing 2
1.3. Effective Time 2
1.4. Reservation of Right to Revise Structure. 2
ARTICLE II THE SURVIVING CORPORATION 2
2.1. The Certificate of Incorporation 2
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 9
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 14
4.10. Compliance with Laws; Permits 17
4.11. Intellectual Property 18
4.12. Year 2000 Compliance 19
4.13. Environmental Laws 19
4.14. Investment Company 20
4.15. Takeover Statutes 20
4.16. Taxes 20
4.17. Labor Matters 21
4.18. Title to Property 21
4.19. Material Contracts 21
4.20. Brokers and Finders 22
<PAGE>
4.21. Insurance Matters 22
4.22. Liabilities and Reserves 24
ARTICLE V REPRESENTATIONS AND WARRANTIES OFPARENT AND MERGER SUBSIDIARY 24
5.1. Merger Subsidiary 25
5.2. Organization, Good Standing and Qualification 25
5.3. Capitalization 25
5.4. Corporate Authority. 26
5.5. Governmental Filings; No Violations 26
5.6. Parent Reports; Financial Statements 27
5.7. Absence of Certain Changes 28
5.8. Litigation and Liabilities 28
5.9. Brokers and Finders 28
5.10. Financing 29
ARTICLE VI COVENANTS 29
6.1. Interim Operations of the Company 29
6.2. Interim Operations of Merger Subsidiary 32
6.3. No Solicitation 32
6.4. Information Supplied 34
6.5. Stockholders Meeting 34
6.6. Filings; Other Actions; Notification 35
6.7. Taxation 37
6.8. Access 37
6.9. Affiliates 37
6.10. Stock Exchange Listing 38
6.11. Publicity 38
6.12. Benefits 38
6.13. Certain Change in Control Matters 41
6.14. Expenses 41
6.15. Indemnification; Directors'and Officers'Insurance 41
6.16. Purchase of Ordinary Shares 42
6.17. Other Actions by the Company and Parent 43
6.18. Coordination of Dividends 44
6.19. Release and Discharge 44
ARTICLE VII CONDITIONS 45
7.1. Conditions to Each Party's Obligation to Effect
the Merger 45
7.2. Conditions to Obligations of Parent and Merger
Subsidiary 45
7.3. Conditions to Obligation of the Company 46
ARTICLE VIII TERMINATION 46
<PAGE>
8.1. Termination by Mutual Consent 46
8.2. Termination by Either Parent or the Company 46
8.3. Termination by the Company 47
8.4. Termination by Parent 47
8.5. Effect of Termination and Abandonment 48
ARTICLE IX MISCELLANEOUS AND GENERAL 49
9.1. Survival 49
9.2. Modification or Amendment 50
9.3. Waiver of Conditions 50
9.4. Counterparts 50
9.5. Governing Law; Waiver of Jury Trial 50
9.6. Notices 51
9.7. Entire Agreement; No Other Representations 52
9.8. No Third Party Beneficiaries 52
9.9. Severability 52
9.10. Interpretation 53
9.11. Assignment 53
9.12. Definitions 53
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (hereinafter called
this "Agreement"), dated as of October 26, 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 Company, Parent and Merger Subsidiary are parties to an
Agreement and Plan of Merger dated as of June 10, 1999 (the "Original
Agreement"); and
WHEREAS, the respective boards of directors of each of Parent, Merger
Subsidiary and the Company have determined that the merger of the Company with
and into Merger Subsidiary (the "Merger") upon the terms and subject to the
conditions set forth in this Agreement is advisable and have approved the
Merger;
WHEREAS, the Company and Parent have entered into a Stock Option Agreement
dated as of June 10, 1999 (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, the Company, Parent and Merger Subsidiary desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement; and
WHEREAS, the Company, Parent and merger Subsidiary desire to amend and
restate the Original Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
<PAGE>
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 Company shall be merged
with and into Merger Subsidiary and the separate corporate existence of the
Company shall thereupon cease. Merger Subsidiary shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and the separate corporate existence of Merger Subsidiary 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").
1.4. Reservation of Right to Revise Structure.
In the event the sum of (i) the aggregate Cash Component of the Merger
Consideration plus (ii) $75 million plus (iii) an amount reasonably calculated
to equal the cash to be paid in lieu of fractional shares and in respect of
Dissenting Shares (the "Total Cash Consideration") exceeds one-half of the sum
of (i) the fair market value of the aggregate Merger Consideration to be paid in
the Merger plus (ii) $75 million (the "Total Consideration"), at Parent's
election, the Merger may alternatively be structured so that Merger Subsidiary
is merged with and into the Company. No change in structure shall
<PAGE>
(1) alter or change the amount or kind of the Merger Consideration, (2)
materially impede or delay the consummation of the transactions contemplated by
this Agreement or (3) materially and adversely affect the ability of any party
to timely perform its obligations under this Agreement or otherwise to
consummate the transactions contemplated by this Agreement. If Parent makes any
such election, the parties agree to execute an appropriate amendment to this
Agreement and any other documents necessary in order to reflect such election.
ARTICLE II
THE SURVIVING CORPORATION
2.1. The Certificate of Incorporation.
At the Effective Time, the certificate of incorporation of Merger
Subsidiary 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.
<PAGE>
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 (each a "Share" or, collectively, the
"Shares") of common stock, par value $.01 per share, of the Company ("Company
Common Stock") 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) and Dissenting Shares) shall be converted into, and become
exchangeable for the right to receive the "Merger Consideration." The Merger
Consideration shall consist of (i) 0.65 of an ordinary share, par value
$.041666667 per share, of Parent ("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") and
(ii) an amount of cash (the "Cash Component") equal to the greater of (A) $1.30
and (B) the difference (if positive) between (I) $14.00 and (II) the product of
(1) 0.65 multiplied by (2) the average closing price (the "Average Closing
Price") of a Parent Share on the New York Stock Exchange ("NYSE") as reported in
The Wall Street Journal (New York City edition) for the five consecutive trading
days ending three trading days prior to the Effective Time; provided that the
Cash Component shall in no event be greater than $4.68. 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 remain 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
<PAGE>
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 Section 3.1 (including the Cash Component of the Merger Consideration and
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
Component of the Merger Consideration and/or 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) the Cash Component of the Merger
Consideration, cash in lieu of fractional Parent Shares and any unpaid dividends
and other distributions pursuant to Section 3.2(c). 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 Component of the Merger
Consideration, cash in lieu of fractional Parent Shares and 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 Component
of the Merger Consideration, cash to be paid 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
<PAGE>
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. 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.
<PAGE>
(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.
(a) Dissenting Stock. Each outstanding Share as to which a written demand
for appraisal is filed in accordance with ss. 262 of the DGCL at or prior to the
Stockholders Meeting (as hereinafter defined) and not withdrawn at or prior to
the Stockholders Meeting and which is not voted in favor of the Merger shall not
be converted into or represent a right to receive the Merger Consideration
hereunder unless and until the holder shall have failed to perfect, or shall
have effectively withdrawn or lost his or her right to appraisal of and payment
for his or her Shares under such ss. 262, at which time his or her Shares shall
be treated in accordance with Section 3.3(b) below. All such Shares as to which
such a written demand for appraisal is so filed and not withdrawn at or prior to
the time of such vote and which are not voted in favor of the
<PAGE>
Merger, except any such Shares the holder of which, prior to the Effective Time,
shall have effectively withdrawn or lost, his or her right to appraisal of and
payment for his or her Shares under such ss. 262, are herein called "Dissenting
Shares." The Company shall give Parent prompt notice upon receipt by the Company
of any written demands for appraisal rights, withdrawal of such demands, and any
other instruments served pursuant to ss. 262 of the DGCL, and the Company shall
give Parent the opportunity to direct all negotiations and proceedings with
respect to such demands. The Company shall not voluntarily make any payment with
respect to any demands for appraisal rights and shall not, except with the prior
written consent of the Parent, settle or offer to settle any such demands. Each
holder of Shares who becomes entitled, pursuant to ss. 262 of the DGCL, to
payment for his or her Shares under the provisions of such section shall receive
payment therefor from the Surviving Corporation and such Shares shall be
canceled.
(b) Conversion of Dissenting Shares. If prior to the Effective Time any
stockholder of the Company shall fail to perfect, or shall effectively withdraw
or lose, his or her right to appraisal of and payment for his or her Dissenting
Shares under ss. 262 of the DGCL, the Shares of such holder shall be treated for
purposes of this Article III like any other Shares. If, after the Effective
Time, any holder of Shares shall fail to perfect, or shall effectively withdraw
or lose, his or her right to appraisal of and payment for his or her Dissenting
Shares under ss. 262 of the DGCL, each Dissenting Share of such holder shall be
treated as though such share has been converted into the right to receive the
Merger Consideration as provided in this Article III.
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.
<PAGE>
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.
<PAGE>
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
October 25, 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 October 25, 1999, there were an aggregate of not greater than
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
June 30, 1999, 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
<PAGE>
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 in 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.
<PAGE>
(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 Merger Consideration 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
<PAGE>
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 periods ended March 31, 1999 and June 30, 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
<PAGE>
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 and June 30, 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 in Company press releases or other public announcements prior to the date
hereof (the "Public Announcements") or as set forth in Section 4.7 or Section
4.8 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
<PAGE>
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 or Public Announcements filed or
made prior to the date hereof or as set forth in 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 or in the Public Announcements
filed or made prior to the date hereof or as set forth in 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 on the date hereof, 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
<PAGE>
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 in 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.
<PAGE>
(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 Internal Revenue Code of 1986,
as amended (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.
<PAGE>
(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.
<PAGE>
4.10. Compliance with Laws; Permits.
Except as set forth in the Company Reports or Public Announcements filed or
made prior to the date hereof or 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 in
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,
<PAGE>
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 for matters arising from the ordinary business activities of the
Company Insurance Subsidiaries or 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
<PAGE>
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 in 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
<PAGE>
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.
<PAGE>
Except as set forth in the Company Reports or in 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
<PAGE>
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
<PAGE>
(whether with notice, lapse of time or both) terminate such agreement solely 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
<PAGE>
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.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
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.
<PAGE>
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 194,059,295 shares were outstanding as of the close of business
on October 25, 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 September 30, 1999, there were an
aggregate of not greater than 40,000,000 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.
(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,
<PAGE>
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.
<PAGE>
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, March 31, 1999 and June 30, 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.
<PAGE>
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.
5.10. Financing.
Parent or Merger Subsidiary has on the date hereof and will have at the
Effective Time sufficient cash, assets readily convertible into cash and
borrowing availability under committed credit facilities to consummate the
Merger (including payment of the Cash Component of the Merger Consideration) and
the transactions contemplated hereby on a timely basis in accordance with this
Agreement.
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
<PAGE>
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 options outstanding on the date hereof
pursuant to the Company Stock Plans and 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; (D) liens granted by the Company to
lenders pursuant to credit agreements in existence on the date hereof and (E)
Liens granted in the ordinary course of business and consistent with past
practice;
(d) except as may be required by Law or as contemplated by this Agreement, enter
into, adopt, amend or terminate any bonus, profit sharing,
<PAGE>
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 (x) reflected or reserved
against on the consolidated balance sheet of the Company dated June 30, 1999
(the "Latest Balance Sheet") or (y) 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 material policy forms, change the pricing
formula for material insurance policies, materially 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;
<PAGE>
(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 (except
with respect to any assets related to RGB Underwriting Agencies, Ltd.);
(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;
(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, any of its Subsidiaries or its directors,
officers, employees or agents more than an aggregate of $1,000,000 for all such
suits and claims, it being understood that without the prior written consent of
Parent, no such settlement or compromise shall be entered into involving
non-monetary obligations;
(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,
knowingly take any action likely to materially decrease or diminish the assets
or net worth of the Company or any of its Subsidiaries (except for reserves in
the ordinary course of business and consistent with past practice);
(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.
<PAGE>
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.
<PAGE>
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
Requisite Vote, (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 Requisite
Vote; 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
<PAGE>
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 (including any amendments thereto) 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) (such Registration Statement, as amended or
supplemented, the "S-4 Registration Statement") will, at the time the S-4
Registration Statement (or any post-effective amendment) 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, (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
<PAGE>
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 and (c) the Statement on Schedule 13E-3 (such statement, as
amended or supplemented, is herein referred to as the "Schedule 13E-3") to be
filed with the SEC by Parent will, at the time it is first filed with the SEC,
and at any time it is amended or supplemented and at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
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 Merger Consideration 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 Requisite Vote, 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 6.3, (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 6.3), 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.
<PAGE>
6.6. Filings; Other Actions; Notification.
(a) Parent and the Company shall as promptly as practicable prepare and file
with the SEC the Prospectus/Proxy Statement or an amendment or supplement
thereto, and Parent shall as promptly as practicable prepare and file with the
SEC the S-4 Registration Statement, or an amendment or supplement thereto, and
the Schedule 13E-3 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. Parent further agrees to file as promptly as practicable following the
Effective Time a post-effective amendment to the S-4 Registration Statement to
convert it to a Form S-3 shelf registration covering resales of Parent Shares by
affiliates of the Company and to cause the same to become effective.
(b) 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 VII 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
<PAGE>
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.
(c) 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.
(d) 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. Each of Parent and the Company shall use its reasonable best
efforts before and after the Effective Time to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code and to obtain
the opinions of their respective counsel 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. If Parent determines that the Total Cash Consideration will
exceed one-half of the Total Consideration, or counsel to either Parent or the
Company is otherwise unable to provide the anticipated opinion regarding the
qualification of the Merger as a reorganization, Parent and the Company shall
restructure the Merger as described in Section 1.4 hereof, and the opinions of
counsel described in the first sentence of this Section 6.7 shall not be
delivered.
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
<PAGE>
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 10 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 1 day prior to the
Effective Time, from each affiliate of the Company identified in the foregoing
list, a letter in the form attached as Exhibit A. 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.
<PAGE>
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, the Parent Options will be adjusted such that (i) the
difference between the Fair Market Value (as defined below) as of the Closing
Date of the Parent Shares subject to the Parent Option and the aggregate
exercise price of the Parent Option immediately after the Effective Time remains
the same as the aggregate difference between the Implied Value (as defined
below) of the shares of Company Common Stock subject to the Roll-Over Option and
the aggregate exercise price of the Roll-Over Option immediately prior to the
Effective Time, and (ii) the aggregate exercise price of the Parent Option
remains the same as the aggregate exercise price of the Roll-Over Option. For
purposes of this Section 6.12, the "Fair Market Value" of a Parent Share as of
any date shall be the average of the closing prices of Parent Shares on the New
York Stock Exchange as reported in The Wall Street Journal (New York City
edition) for the 5 consecutive trading days ending three trading days prior to
such date and the "Implied Value" of a share of Company Common Stock shall be
equal to the Cash Component plus the Fair Market Value as of the Closing Date of
the Exchange Ratio.
(c) In lieu of the replacement of Roll-Over Options with Parent Options as
provided for in Sections 6.12(a) and (b), if the holder of any such Company
Option so consents in writing, at the Effective Time each outstanding Company
Option with a per share exercise price equal to or greater than the Implied
Value per share of Company Common Stock shall be canceled and replaced with an
option (a "Substitute Parent Option") to acquire a number of Parent Shares equal
to the number of shares of Company Common Stock subject to such Company Option
multiplied by the Implied Value per share of Company Common Stock divided by the
Fair Market Value of a Parent Share as of the Closing Date. Each Substitute
Parent Option shall have an exercise price per Parent Share subject to such
Substitute Parent Option equal to the Fair Market Value per Parent Share as of
the Closing Date. Each Substitute Parent Option shall have a ten-year term
commencing at the Effective Time and shall vest as follows: 1/3 of the
Substitute Parent Options shall become vested on each of the first, second, and
third year
<PAGE>
anniversaries of the Effective Time provided the employee is employed by Parent
or a Subsidiary of Parent on such date.
(d) 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 or a
Substitute Parent Option, as applicable, having the terms provided for in
Section 6.12(b) or Section 6.12(c), as applicable, and effective as of the
Effective Time.
(e) 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.
(f) 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 in Section 6.12(f) 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(f) 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.
(g) As promptly as possible after the Effective Time, Parent shall grant up
to 168,000 Parent 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 Parent Shares shall be covered by
an appropriate registration statement under the Securities Act and shall be
granted as restricted stock awards ("Parent Restricted Stock") subject to
vesting as follows: 1/3 of the shares of Parent Restricted Stock shall become
vested on each of the first, second, and third year anniversaries of the
Effective Time provided the employee is employed by Parent or a Subsidiary of
Parent on such date.
<PAGE>
(h) Parent shall pay to each executive who is a member (an "Executive") of
the Executive Committee of the Company (the "Executive Committee") retention
payments of $200,000 on each of January 1, 2002 and January 1, 2003 if such
Executive continues to be employed by Parent or a Subsidiary of Parent on such
date.
(i) At the Effective Time Parent will grant to each Executive Parent
Options 50,000 to purchase Parent Shares with an exercise price equal to the
lower of (i) the Fair Market Value of Parent Shares as of the date of this
Agreement and (ii) the Fair Market Value of Parent Shares as of the Closing
Date. Such Parent Options shall vest as follows: 1/3 of the Parent Options shall
become vested on each of the first, second, and third year anniversaries of the
Effective Time provided the Executive is employed by Parent or a Subsidiary of
Parent on such date.
(j) At the Effective Time Parent will grant to each Executive 32,000 shares
of Parent Restricted Stock which shall become vested as follows: 1/3 of the
Parent Restricted Stock shall become vested on each of the first, second, and
third year anniversaries of the Effective Time provided the Executive is
employed by Parent or a Subsidiary of the Parent on such date. All such Parent
Restricted Stock shall be covered by an appropriate registration statement under
the Securities Act
(k) Parent shall pay to the Executives, annual bonuses equal to 100% of
such Executive's then current base salary payable at the time incentive award
bonuses are normally paid by the Company.
(l) With respect to all employees other than Executives, Parent shall set
annual bonuses at 150% of the Company's previous target annual bonuses, such
annual bonuses to be payable at the time incentive bonuses are normally paid by
the Company.
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.
<PAGE>
6.14. Expenses.
Unless this Agreement is terminated pursuant to Sections 8.3(a) or 8.4,
whether or not the Merger is consummated, Parent will pay the reasonable costs
and expenses incurred by the Company in connection with the preparation, filing
and mailing of the Proxy Statement/Prospectus, the filing fees for Governmental
Consents and the reasonable fees and expenses of the attorneys and accountants
of the Company in connection with the preparation of this Agreement and the
Proxy Statement/Prospectus.
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 three
years 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
<PAGE>
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, 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 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 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) 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
<PAGE>
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.
6.19. Release and Discharge.
From and after the Effective Time, Parent and Merger Subsidiary do hereby
release and forever discharge the Company, each Subsidiary of the Company and
each officer, director, employee agent, representative, financial advisor and
attorney of the Company or any Subsidiary of the Company (collectively, the
"Company Parties")
<PAGE>
from any and all actions, causes of action, claims, demands, debts, damages,
loss of services, costs, attorneys' fees, obligations, judgments, expenses,
compensation or liabilities of any nature whatsoever, in law or in equity,
whether known or unknown, contingent or absolute, that Parent or Merger
Subsidiary now have, may have ever had in the past or may have in the future
against the Company Parties by reason of or arising out of any breach or alleged
breach of the Original Agreement or this Agreement (including Sections 6.1, 6.3,
6.5, 6.17(c) or 8.3(a) of the Original Agreement and this Agreement) occurring
prior to the date of this Agreement in connection with or arising out of the
Transaction Proposals made prior to the date of this Agreement by XL Capital
Ltd. The foregoing does not constitute an admission by the Company or any
Company Party that any such breach has occurred. Parent and Merger Subsidiary
agree that they shall, from the date hereof, forbear from commencing,
prosecuting or threatening to commence or prosecute any litigation in any court
or other tribunal against the Company or any Company Party relating to any
breach or alleged breach of the Original Agreement or this Agreement unless and
until consummation of a Transaction Proposal following termination of this
Agreement under circumstances in which Parent has received or is entitled to
receive a termination fee under Section 8.5(b) or 8.5(c) of this Agreement (the
"Forbearance Termination Date"); provided that with respect to the existing
litigation between Parent and the Company, both parties agree not to file any
motions or take any other action in respect of such litigation until the
Forbearance Termination Date; provided, further, both parties agree that they
shall not assert as any defense to any amendment of pleadings or filing of
motions in the foregoing litigation any lapse of time or lateness due to the
forbearance of the other party provided for in this Section 6.19.
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.
(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
<PAGE>
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 condition:
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.
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 condition:
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.
<PAGE>
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, in the case of the
Company, its 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
<PAGE>
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 Parent of any 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 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 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 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 to mail the Proxy Statement/Prospectus to its stockholders as
promptly as practicable after the Form S-4 is declared effective, 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
<PAGE>
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.
<PAGE>
(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 any such amount, 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 Section 6.7 (Taxation), Section 6.12 (Benefits), Section
6.15 (Indemnification; Directors' and Officers' Insurance) and 6.19 (Release and
Discharge) shall survive the consummation of the Merger. This Article IX and the
agreements of the Company, Parent and Merger Subsidiary contained in Section
6.14 (Expenses), Section 6.19 (Release and Discharge) 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
<PAGE>
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:
<PAGE>
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, any agreements between Parent and stockholders
of the Company to vote in favor of this Agreement and the Merger and against any
competing proposals 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; provided that Parent and Merger Subsidiary
shall not be deemed to have waived or otherwise affected their rights with
respect to any breach or
<PAGE>
alleged breach of the Original Agreement other than as provided in Section 6.19.
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), Section 6.15
(Indemnification; Directors' and Officers' Insurance) and Section 6.19 (Release
and Discharge) 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
<PAGE>
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
Cash Component 3.1(a)
Certificate 3.1(a)
Certificate of Incorporation 2.1
Certificate of Merger 1.3
Closing 1.2
Closing Date 1.2
Code 4.9
Company Preamble
Company Actuarial Analyses 4.21(d)
Company Audit Date 4.7
Company Board Recommendation 6.5
Company Common Stock 3.1(a)
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 Parties 6.19
Company Requisite Vote 4.4(a)
<PAGE>
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
<PAGE>
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 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 3.1(a)
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 the Company 9.12(b)
Roll-Over Options 6.12(a)
S-4 Registration Statement 6.4
Schedule 13E-3 6.4
SEC 4.6(a)
Secretary 1.3
Securities Act 4.6(a)
Share, Shares 3.1(a)
Stockholders Meeting 6.5
Subsidiary 9.12(b)
Superior Proposal 6.3
Surviving Corporation 1.1
Takeover Statute 4.15
<PAGE>
Tax, Taxes, Taxable 9.12(b)
Taxing Authority 9.12(b)
Tax Return 9.12(b)
Termination Date 8.2
Total Cash Consideration 1.4
Total Consideration 1.4
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
<PAGE>
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 Brian Duperreault,
the Chairman, President and Chief Executive Officer of Parent, Dominic
Frederico, the Chairman, President and Chief Executive Officer of ACE INA
Holdings, Inc., Christopher Z. Marshall, the Chief Financial Officer of Parent
and Peter Mear, the General Counsel and Secretary of Parent.
"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
<PAGE>
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:
ACE LIMITED
By:
CAPRE ACQUISITION CORP.
By:
<PAGE>
Exhibits
- --------
Exhibit A Company Affiliate Letter
Exhibit 99.2
Contact: NEWS RELEASE
David A. Buzen
Chief Financial Officer
Catherine C. Bailey
Director of Communications
212-974-0100
CAPITAL RE CORPORATION
RECEIVES REVISED OFFER FROM ACE
FOLLOWING FAVORABLE DELAWARE COURT RULING
NEW YORK, NY, October 26, 1999 -- Capital Re Corporation (NYSE: KRE) announced
this morning that it had received a further revised offer from ACE Limited. The
increased offer was delivered to Capital Re by ACE immediately following the
issuance, by Vice Chancellor Strine of Delaware Chancery Court, of an opinion
denying ACE's October 21,1999 motion to obtain a temporary restraining order
seeking to enforce ACE's original merger agreement with Capital Re and prevent
Capital Re from accepting a superior offer from XL Capital Ltd.
The Court's ruling permits Capital Re's Board to accept XL's $14.00 all cash
offer made on October 18, 1999, if ACE has not made an offer "at least as
favorable" as XL's offer. Under the revised offer, ACE is now proposing to amend
its October 18, 1999 offer to provide Capital Re shareholders with 0.65 shares
of ACE for each Capital Re share plus cash equal to the greater of $1.30 or an
amount necessary to deliver $14.00 in value to Capital Re shareholders, up to a
maximum cash amount of $4.68 per share. Capital Re shareholders would receive
value of $14.00 per share at closing if ACE's stock price is between $14.34 and
$19.54 per share. If ACE's stock price is below $14.34 per share or above $19.54
per share, Capital Re shareholders would receive less value or more value,
respectively.
The Special Committee of the Capital Re Board will meet on Tuesday morning,
October 26, to evaluate whether the latest ACE offer is "at least as favorable"
as XL's $14.00 all cash offer.
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 risk, are engaged in the business of municipal
and non-municipal financial guaranty reinsurance, mortgage guaranty reinsurance,
title reinsurance, trade credit reinsurance and financial solutions.
<PAGE>
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.
# # #
Exhibit 99.3
Contact: NEWS RELEASE
David A. Buzen
Chief Financial Officer
Catherine C. Bailey
Director of Communications
212-974-0100
CAPITAL RE SIGNS REVISED
MERGER AGREEMENT WITH ACE LTD.
NEW YORK, NY, October 26, 1999 - Capital Re Corporation (NYSE: KRE) today
announced that it had signed a revised merger agreement with ACE Ltd. under
which ACE has increased the merger consideration payable to Capital Re
shareholders from the 0.6 shares of ACE stock provided for in the June 1999
merger agreement to 0.65 shares plus cash in an amount equal to the greater of
$1.30 and the difference between $14.00 and the closing price of a share of ACE
Common Stock for the five trading days ending three days prior to closing, but
not to exceed $4.68. These terms were proposed late Monday, October 25, 1999 by
ACE and were found by the Capital Re board at a meeting held today to be "at
least as favorable" to stockholders as XL's October 18, 1999 cash offer of
$14.00 per share. Closing is conditioned on Capital Re stockholder approval.
Capital Re intends to call a special meeting of its stockholders to vote on the
revised merger agreement as soon as practicable following processing of revised
proxy statement/prospectus materials.
Capital Re will file a Form 8-K with the Securities and Exchange Commission
attaching the revised merger agreement. The principal terms of the
"no-solicitation" provisions of the revised merger agreement, including the
opportunities for the Board to consider other offers, subject to certain
conditions, and the $25 million "break-up" fee, are identical to the original
agreement.
Capital Re is a specialty reinsurance group providing innovative solutions to
problems of financial management. Capital Re's two principal divisions,
financial guaranty and financial risk, 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.
# # #
