<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)
CAPITAL RE CORPORATION
(Name of Issuer)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
140432 10 5
(CUSIP Number of Class of Securities)
Edward S. Best
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
October 25, 1999
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]
Check the following box if a fee is being paid with this statement [ ]. A
fee is not required only if the reporting person: (1) has a previous statement
on file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
<PAGE>
SCHEDULE 13D
Item 2. Identity and Background (a) - (c)
This statement is being filed by ACE Limited, a company organized
under the laws of the Cayman Islands ("ACE"). ACE's principal offices are
located at The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda. ACE,
through its subsidiaries, provides insurance and reinsurance to a diverse group
of companies throughout the world. The names, business addresses and principal
occupation or employment (and the name, principal business and address of any
corporation or other organization in which such employment is conducted) of each
of the persons specified by Instruction C of the Schedule 13D is set forth on
Schedule 1 hereto.
This statement is also being filed by ACE Bermuda Insurance, Ltd., a
company organized under the laws of Bermuda ("ACE Bermuda"). ACE Bermuda is a
wholly owned subsidiary of ACE. ACE Bermuda's principal offices are located at
The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda. ACE Bermuda
provides insurance and reinsurance to a diverse group of companies throughout
the world. The names, business addresses and principal occupation or employment
(and the name, principal business and address of any corporation or other
organization in which such employment is conducted) of each of the persons
specified by Instruction C of the Schedule 13D is set forth on Schedule 1
hereto. ACE Bermuda transferred its shares of Capital Re to ACE.
All executive officers and directors of ACE and ACE Bermuda are
citizens of the United States except for Glen M. Renfrew who is a citizen of
Australia, Christopher Z. Marshall, Robert Blee and Larry P. Lombardo who are
citizens of Bermuda, John Burville, John C. Charman, Andrew Gibbs and Keith P.
White who are citizens of England, Dermot Smurfit who is a citizen of Ireland
and John Engestrom who is a citizen of Sweden.
Item 3. Source and Amount of Funds or Other Consideration
On October 25, 1999, ACE offered to acquire all the shares of Capital
Re Corporation ("Capital Re") common stock not already owned by ACE for $14.00
per share in ordinary shares of ACE plus cash (the "October 25 Offer"). On
October 26, 1999, ACE entered into an amended and restated agreement and plan of
merger (the "Amended Merger Agreement") reflecting the terms of the October 25
Offer. Under the Amended Merger Agreement, Capital Re's stockholders will
receive 0.65 ordinary shares of ACE plus an amount of cash which, on a per share
basis, will deliver $14.00 per share to Capital Re stockholders, subject to a
minimum of $1.30 per Capital Re share in cash and a maximum of $4.68 per Capital
Re share in cash. The source for the cash is the working capital and bank lines
of ACE. On October 26, 1999 ACE entered into a Stand-By Capital Commitment
Agreement ("Capital Commitment") with Capital Re providing for ACE or one of its
subsidiaries to make loans to Capital Re up to $50,000,000, which loans are
convertible into Common Stock of Capital Re. See the full text of the October 25
Offer, the Amended Merger Agreement, ACE's October 26, 1999 press release
(the "Press Release") and the Capital Commitment which are attached hereto as
Exhibit 99.9, Exhibit 99.10, Exhibit 99.11 and Exhibit 99.12, respectively, and
incorporated herein by reference.
Item 4. Purpose of Transaction
On October 21, 1999, ACE filed suit in the Delaware Chancery Court
against Capital Re and sought a temporary restraining order to prevent Capital
Re from terminating its existing merger agreement with ACE. A hearing was held
on October 25, 1999 and the request for the temporary restraining order was
denied.
See the full text of the October 25 Offer, the Amended Merger
Agreement, the Press Release and the Capital Commitment which are attached
hereto as Exhibit 99.9, Exhibit 99.10, Exhibit 99.11 and Exhibit 99.12,
respectively, and incorporated herein by reference.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer
See the full text of the October 25 Offer, the Amended Merger
Agreement, the Press Release and the Capital Commitment, which are attached
hereto as Exhibit 99.9, Exhibit 99.10, Exhibit 99.11 and Exhibit 99.12,
respectively, and incorporated herein by reference.
Item 7. Material to Be Filed as Exhibits
Exhibit Number Description
- -------------- -----------
99.1 Stock Purchase Agreement, dated as of February 19, 1999
between ACE Bermuda Insurance, Ltd. and Capital Re
Corporation (Incorporated by Reference to Exhibit 10.19 to
the Annual Report on Form 10-K for the year ended December
31, 1998 of Capital Re Corporation (1-10995))
2
<PAGE>
99.2 First Amendment to Stock Purchase Agreement dated as of March 16,
1999 between ACE Bermuda Insurance, Ltd. and Capital Re
Corporation (Incorporated by Reference to Exhibit 10.20 to the
Annual Report on Form 10-K for the year ended December 31, 1998
of Capital Re Corporation (1-10995))
99.3 Second Amendment to Stock Purchase Agreement dated as of May 26,
1999 between ACE Bermuda Insurance, Ltd. and Capital Re
Corporation (Incorporated by Reference to Exhibit 10.21 to the
Current Report on Form 8-K (Date of Earliest Event Reported: May
26, 1999) of Capital Re Corporation (1-10995))
99.4 Agreement and Plan of Merger, dated as of June 10, 1999, among
Capital Re Corporation, ACE Limited and CapRe Acquisition Corp.
(Incorporated by Reference to Exhibit 2.1 to the Current Report
on Form 8-K (Date of Earliest Event Reported: May 26, 1999) of
Capital Re Corporation (1-10995))
99.5 Stock Option Agreement, dated as of June 10, 1999, between
Capital Re Corporation and ACE Limited (Incorporated by Reference
to Exhibit 2.2 to the Current Report on Form 8-K (Date of
Earliest Event Reported: May 26, 1999) of Capital Re Corporation
(1- 10995))
99.6 Agreement among ACE Limited and ACE Bermuda Insurance, Ltd.
pursuant to Rule 13d-1(f)(1) and ACE Limited on June 24, 1999
(Incorporated by reference to Exhibit 99.6 to Schedule 13D filed
June 24, 1999)
99.7 Letter dated as of October 14, 1999 from ACE Limited to the Board
of Directors of Capital Re Corporation, pursuant to which ACE
Limited amended the terms of its offer for all of the issued and
outstanding capital stock of Capital Re Corporation.
(Incorporated by reference to Exhibit 99.7 of Amendment No. 1 to
Schedule 13D filed October 19, 1999).
99.8 Letter dated as of October 18, 1999 from ACE Limited to the Board
of Directors of Capital Re Corporation, pursuant to which ACE
Limited further amended the terms of its offer for all of the
issued and outstanding capital stock of Capital Re Corporation.
(Incorporated by reference to Exhibit 98.8 of Amendment No. 1 to
Schedule 13D filed October 19, 1999).
3
<PAGE>
99.9 Letter dated as of October 25, 1999 from ACE Limited to the Board
of Directors of Capital Re Corporation, pursuant to which ACE
Limited further amended the terms of its offer for all of the
issued and outstanding capital stock of Capital Re Corporation.
99.10 Amended and Restated Agreement and Plan of Merger dated as of
October 26, 1999 among Capital Re Corporation, ACE Limited and
Capital Re Acquisition Corporation.
99.11 ACE Limited Press Release dated October 26, 1999.
99.12 Stand-By Capital Commitment Agreement dated as of October 26,
1999 between Capital Re Corporation and ACE Limited.
4
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Date: October 28, 1999 ACE LIMITED
By: /s/ Christopher Z. Marshall
-----------------------------
Name: Christopher Z. Marshall
Title: Chief Financial Officer
ACE BERMUDA INSURANCE, LTD.
By: /s/ Christopher Z. Marshall
-------------------------------
Name: Christopher Z. Marshall
Title: Director
5
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF ACE LIMITED
The name and present principal occupation or employment of each of the
directors and executive officers of ACE Limited ("ACE") are set forth below.
Unless otherwise indicated, the director's or officer's business address is The
ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda. Except as set forth
below, each occupation set forth opposite an individual's name refers to ACE.
Present Principal Occupation Name or Employment
Michael G. Atieh
Vice President - U.S. Human Health Division, Merck & Company, Inc.
Merck & Company, Inc.
770 Sumneytown
Pike West Point, PA 19486
Robert Blee, Chief Accounting Officer
John Burville, Chief Actuary
John C. Charman
Chief Executive Officer, ACE Global Markets
ACE Global Markets
Crosby Court 38
Bishopsgate London EC2N 4DL
England
Bruce L. Crockett
Retired President & CEO, COMSAT Corporation
906 Frome Lane
McLean, VA 22102-2106
Brian Duperreault
Chairman, President and Chief Executive Officer
John Engestrom
President and Chief Executive Officer, Tempest Reinsurance Company
Tempest Reinsurance Company Limited (a subsidiary of ACE)
Wessex House
45 Reid Street
Hamilton HM 12 Bermuda
Dominic J. Frederico
Chairman, President & Chief Executive Officer
ACE INA Holdings, Inc.
2 Liberty Place
1601 Chestnut Street
Philadelphia, PA 19192
Meryl D. Hartzband
Principal - Investment Director, Marsh & McLennan Capital Inc.
Marsh & McLennan Capital Inc.
20 Horseneck Lane
Greenwich, CT 06830
<PAGE>
Robert M. Hernandez
Vice Chairman & Chief Financial Officer, USX Corporation
USX Corporation
600 Grant Street
Room 6105
Pittsburgh, PA 15219-4776
Donald Kramer
Vice Chairman
ACE USA
Suite 1600, 90 Park Avenue
New York, New York 10016
Christopher Z. Marshall
Chief Financial Officer
Robin J.W. Masters
Chief Investment Officer
Peter Mear
General Counsel and Secretary
Peter Menikoff
Former President & CEO, CONEMSCO, Inc.
3 Willowick Circle
Houston, TX 77024
Thomas J. Neff
Chairman, Spencer Stuart & Associates
Spencer Stuart & Associates
277 Park Avenue
New York, NY 10172
Dennis B. Reding
President and Chief Executive Officer, ACE USA Inc.
2 Liberty Place
1601 Chestnut Street
Philadelphia, PA 19192
2
<PAGE>
Glen M. Renfrew
Retired Managing Director & CEO, Reuters Holdings plc
Suite 618
48 Par-La-Ville Road
Hamilton HM 12 Bermuda
Robert Ripp
Retired Chairman & CEO, AMP Incorporated
21 Old Logging Road
Bedford, NY 10506
Gary Schmalzriedt, President & Chief Executive Officer
ACE Bermuda Insurance Ltd.
Kingsley Schubert, President & Chief Executive Officer
ACE International
2 Liberty Place
1601 Chestnut Street
Philadelphia, PA 19192
Walter A. Scott
Retired Chairman of ACE Limited
Fairview Under the Mountain Road
R.R. Box 17
So. Londonderry, VT 05155
Dermot Smurfit
Joint Deputy Chairman, Jefferson Smurfit Group
Jefferson Smurfit Group plc
Beech Hill
Clonskeagh Dublin 4
Ireland
Robert W. Staley
Vice Chairman, Emerson Electric Co.
Emerson Electric Co.
8000 W. Florissant Avenue
St. Louis, MO 63136
Gary M. Stuart
Executive Vice President - Finance, Union Pacific Corporation
Union Pacific Corporation
1416 Dodge Street
Omaha, NE 68179
Sidney F. Wentz
Chairman -- Board of Trustees, Robert Wood Johnson Foundation
Robert Wood Johnson Foundation
Route 1 & College Road
East Princeton, NJ 08543-2316
Keith P. White
Chief Administrative Officer
3
<PAGE>
The name and present principal occupation or employment of each of the
directors and executive officers of ACE Bermuda Insurance, Ltd. are set forth
below. The business address for each director and officer is The ACE Building,
30 Woodbourne Avenue, Hamilton HM 08 Bermuda. Except as set forth below, each
occupation set forth opposite an individual's name refers to ACE Bermuda.
Present Principal Occupation Name or Employment
John Burville
Chief Actuary, ACE Limited
Randi Cigelnik
Senior Vice President, General Counsel and Secretary
Brian Duperreault
Chairman, President and Chief Executive Officer, ACE Limited
Dominic J. Frederico
President, ACE Bermuda Insurance, Ltd.
Andrew Gibbs
Senior Vice President and Chief Financial Officer
Larry P. Lombardo
Executive Vice President, Operations
Christopher Z. Marshall
Chief Financial Officer, ACE Limited
Peter Mear
General Counsel and Secretary, ACE Limited
Gary Schmalzriedt
President and Chief Executive Officer, ACE Bermuda Insurance, Ltd.
Keith P. White
Chief Administrative Officer, ACE Limited
4
<PAGE>
Exhibit 99.9
October 25, 1999
Board of Directors
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Dear Sirs:
This letter is to propose a further improvement to our October 14, 1999 and
October 18, 1999 offers (the October 14 letter, as revised by the October 18
letter and this letter, the "Revised Offer") to amend the terms of our existing
merger agreement, dated June 10, 1999 (the "Merger Agreement"). ACE Limited
("ACE") hereby offers to amend the terms of the existing Merger Agreement to
provide for the acquisition of the shares of common stock of Capital Re
Corporation ("Capital Re") not already owned by ACE for $14.00 per share in
ordinary shares of ACE and cash, as more fully set forth below. We and our
financial advisors strongly believe that our Revised Offer is more favorable,
from a financial point of view, to your stockholders than the current proposal
made by XL Capital Ltd. ACE remains committed to completing a strategic
combination with Capital Re which is in the best interests of both ACE's and
Capital Re's stockholders.
For each outstanding share of Capital Re common stock not currently owned
by ACE, ACE is offering 0.65 of an ACE ordinary share plus an amount of cash
which, on a per share basis, will deliver $14.00 per share to Capital Re
stockholders, subject to a minimum of $1.30 per Capital Re share in cash (or
approximately $42 million) and a maximum of $4.68 per Capital Re share (or $150
million). The value of the ACE ordinary shares to be delivered to Capital Re
stockholders would be valued based upon the average closing price of the
ordinary shares over the five-day trading period ending three business days
prior to the stockholder vote on an amended agreement. Based upon an assumed
average closing price of $16.9375 (ACE's closing price on October 22, 1999),
Capital Re stockholders would receive for each Capital Re share 0.65 ACE
ordinary share and $3.00 in cash.
This offer would provide Capital Re stockholders with $14.00 per share in
value at closing for ACE five-day average closing prices from $14.34 to $19.54.
Capital Re stockholders would receive even greater value as ACE's share price
climbs above $19.54 per share since our revised offer does not limit the maximum
value of the consideration to be received by Capital Re shareholders.
There continues to be no financing contingency to our revised offer and the
terms and conditions of our offer are consistent in all other respects with our
letter of October 14, 1999 letter as revised by our letter of October 18, 1999.
<PAGE>
We have reviewed the proposal made by XL in its letter dated October 15,
1999. We will provide to employees and other non-executive management
substantially similar compensation, bonus and option arrangements as contained
in the XL October 15, 1999 letter. We reserve the right to substantially match
the XL offer with respect to executive management compensation, bonus and option
arrangements.
In light of our Revised Offer, we would expect that you would promptly (i)
execute an amendment to the Merger Agreement, (ii) withdraw your notices of
October 10, 1999 and October 14, 1999 regarding your intention to enter into a
binding agreement with XL and (iii) terminate all negotiations with XL Capital.
Should you require additional information or clarification regarding any of
the matters discussed in this letter, please call me at (441) 299-9276, Dominic
Frederico at (215) 778-4125, our outside counsel, Eddie Best at (312) 701-7100
or our outside financial advisor, Mark Adley of Credit Suisse First Boston at
(212) 325-3538.
Very truly yours,
Brian Duperreault
Chairman, President and Chief Executive Officer
2
<PAGE>
Exhibit 99.10
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
<TABLE>
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Page
<S> <C>
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
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4.16. Taxes................................................................ 20
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4.17. Labor Matters........................................................ 21
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4.18. Title to Property.................................................... 21
-----------------
4.19. Material Contracts................................................... 21
------------------
4.20. Brokers and Finders.................................................. 22
-------------------
4.21. Insurance Matters.................................................... 22
-----------------
4.22. Liabilities and Reserves............................................. 24
------------------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT 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
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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
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
-----------
</TABLE>
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<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:
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
<PAGE>
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 (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.
2
<PAGE>
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.
---------------
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
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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 Closingof 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 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
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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 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,
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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.
(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
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<PAGE>
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 (S) 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 (S) 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 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 (S) 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 (S) 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 (S) 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 (S) 262 of the DGCL, the Shares of such holder shall be
treated for purposes of this Article III like any other Shares. If,
7
<PAGE>
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 (S) 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.
---------------------------------------------
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and each of its
Subsidiaries (as defined in Section 9.12(b)) is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization. The Company and each of its
Subsidiaries has full power and authority (corporate and other) to own, lease
and operate its respective properties and assets and to carry on its business as
presently conducted and as proposed to be conducted, except where the failure to
hold such franchises, grants, licenses, certificates, permits, consents and
orders, or to have such power and authority, would not, when taken together with
all other such failures, reasonably be expected to have a Company Material
Adverse Effect (as defined in Section 9.12(b)). The Company has made available
to Parent a complete and correct copy of the Company's and each Subsidiary's
charter and by-laws or other organizational documents, each as amended to and as
in effect as of the date hereof.
4.2. Capitalization.
--------------
The authorized capital stock of the Company consists of 75,000,000
Shares, of which 32,526,619 Shares were outstanding as of the close of business
on 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
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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 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
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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.
(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
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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
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).
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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 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
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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 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)).
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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 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);
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(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.
(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.
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<PAGE>
(iv) There have been no "prohibited transactions" (as
described in section 406 of ERISA or section 4975 of the Code) with respect to
any Employee Benefit Plan and none of the Company or any of its Subsidiaries has
engaged in any prohibited transaction.
(v) There have been no acts or omissions by the Company
which have given rise to or may give rise to fines, penalties, taxes or related
charges under section 502 of ERISA or Chapters 43, 47 or 68 of the Code for
which the Company or any of its Subsidiaries may be liable.
(vi) Except as set forth in Section 4.9(c) of the Company
Disclosure Schedule, none of the payments contemplated by the Employee Benefit
Plans would, in the aggregate, constitute excess parachute payments (as defined
in section 280G of the Code (without regard to subsection (b)(4) thereof)).
(vii) There are no actions, suits or claims (other than
routine claims for benefits) pending or threatened involving any Employee
Benefit Plan or the assets thereof and no facts exist which could give rise to
any such actions, suits or claims (other than routine claims for benefits).
(viii) No Employee Benefit Plan is subject to Title IV of
ERISA.
(ix) Each Employee Benefit Plan which constitutes a "group
health plan" (as defined in section 607(i) of ERISA or section 4980B(g)(2) of
the Code), including any plans of current and former Affiliates which must be
taken into account under sections 4980B and 414(t) of the Code or section 601 of
ERISA, have been operated in material compliance with applicable law, including
coverage requirements of section 4980B of the Code and section 601 of ERISA to
the extent such requirements are applicable, except where failure to do so would
not have a Company Material Adverse Effect.
(x) None of the Company or any of its Subsidiaries has any
liability or contingent liability for providing, under any Employee Benefit Plan
or otherwise, any post-retirement medical or life insurance benefits, other than
statutory liability for providing group health plan continuation coverage under
Part 6 of Title I of ERISA and section 4980B of the Code.
(xi) Actuarially adequate accruals for all obligations under
the Employee Benefit Plans are reflected in the financial statements of the
Company and such obligations include a pro rata amount of the contributions and
PBGC premiums which would otherwise have been made in accordance with past
practices and applicable law for the plan years which include the Closing Date.
16
<PAGE>
(d) None of the Company nor any of its Subsidiaries contributes to,
has contributed to, or has any liability or contingent liability with respect to
a multiemployer plan (as defined in section 3(37) of ERISA).
(e) Section 4.9(e) of the Company Disclosure Schedule describes in
all material respects all employment contracts and similar arrangements between
the Company or any of its Subsidiaries and their respective executive officers,
and all plans and arrangements pursuant to which the Company or any of its
Subsidiaries is obligated to make any payment or confer any benefit upon any
officer, director, employee or agent of the Company or any of its Subsidiaries
as a result of or in connection with any of the transactions contemplated by
this Agreement or any transaction or transactions resulting in a change in
control of the Company or any of its Subsidiaries. Except as set forth in
Section 4.9(e) of the Company Disclosure Schedule, the Merger will not (i)
entitle any employees of the Company or its Subsidiaries to severance pay, (ii)
accelerate the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any Employee Benefit Plan, or (iii) result in any breach
or violation of, or default under, any Employee Benefit Plan.
(f) All Employee Benefit Plans covering current or former non-U.S.
employees of the Company and its Subsidiaries comply in all material respects
with applicable local law. The Company and its Subsidiaries have no material
unfunded liabilities with respect to any Employee Benefit Plan that covers such
non-U.S. employees.
4.10. Compliance with Laws; Permits.
-----------------------------
Except as set forth in the Company Reports 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
17
<PAGE>
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement. No material change is required in the Company's
or any of its Subsidiaries' processes, properties or procedures in connection
with any such Laws, and the Company has not received any notice or communication
of any material noncompliance with any such Laws that has not been cured as of
the date hereof. The Company and its Subsidiaries each has all permits,
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted except those the absence of which would not, individually or
in the aggregate, have a Company Material Adverse Effect or prevent or
materially impair the ability of the Company to consummate the Merger and the
other transactions contemplated by this Agreement.
4.11. Intellectual Property.
---------------------
The Company and its Subsidiaries own or possess, or have all necessary
rights and licenses in, all patents, patent rights, licenses, inventions
(whether or not patentable or reduced to practice), copyrights (whether
registered or unregistered), know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), registered and unregistered trademarks, service marks and trade
names and other intellectual property rights (collectively, "Intellectual
Property") necessary to conduct their business as conducted and proposed to be
conducted, except such Intellectual Property the failure to own, possess, have
all rights and licenses in would not have a Company Material Adverse Effect.
Neither the Company nor any of its Subsidiaries has received any unresolved
notice of, or is aware of any fact or circumstance that would give any Person a
right to assert, infringement or misappropriation of, or conflict with, asserted
rights of others or invalidity or unenforceability of any Intellectual Property
owned by the Company or any of its Subsidiaries. To the knowledge of the
Responsible Executive Officers of the Company, the use of such Intellectual
Property to conduct the business and operations of the Company and its
Subsidiaries as conducted or proposed to be conducted does not infringe on the
rights of any Person, except such infringement that would not have a Company
Material Adverse Effect. To the knowledge of the Responsible Executive Officers
of the Company, no Person is challenging, infringing on or otherwise violating
any right of the Company or any of its Subsidiaries with respect to any
Intellectual Property owned by or licensed to the Company or any of its
Subsidiaries. Neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby will result in a loss or limitation in the
rights and licenses of the Company to use or enjoy the benefit of any
Intellectual Property employed by the Company or any of its Subsidiaries in
connection with its business as conducted or proposed to be conducted, except
for such loss or limitation which would not have a Company Material Adverse
Effect.
4.12. Year 2000 Compliance.
--------------------
The Company has established an implementation plan and budgeted a
reasonably sufficient amount of capital and resources to institute software
systems which include design, performance and functionality and which are
intended to ensure (it being acknowledged and agreed by the parties hereto that
such intention may never be realized) that such software systems
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<PAGE>
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 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, (S)__203 of the
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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 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
20
<PAGE>
its Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization. There are no strikes, work stoppages or labor disputes
pending or, to the knowledge of the Responsible Executive Officers of the
Company, threatened with respect to the employees of the Company or any of its
Subsidiaries. There is no representation claim or petition or complaint pending
before the National Labor Relations Board or any state or local labor agency
and, to the knowledge of the Responsible Executive Officers of the Company, no
question concerning representation has been raised or threatened. No charges
with respect to or relating to the business of the Company or any its
Subsidiaries are pending before the Equal Employment Opportunity Commission, or
any state or local agency responsible for the prevention of unlawful employment
practices, which would if adversely determined have a Company Material Adverse
Effect.
4.18. Title to Property.
-----------------
Except as set forth in the Company Reports or 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.
21
<PAGE>
Subject to obtaining the Private Consents and except as set forth in
Section 4.19 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries is a party to or bound by any contract, agreement or
arrangement which would cause the rights or obligations of any party thereto to
change upon the consummation of the Merger, except for any such contract,
agreement or arrangement which would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
4.20. Brokers and Finders.
-------------------
Neither the Company nor any of its executive officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or the
other transactions contemplated in this Agreement, except that the Company has
employed Goldman, Sachs & Co. as its financial advisor, the arrangements with
respect to which have been disclosed to Parent prior to the date hereof.
4.21. Insurance Matters.
-----------------
(a) The Company has heretofore provided or otherwise made available
to Parent true, complete and correct copies of all material fire and casualty,
general liability, business interruption, product liability and other insurance
policies maintained by the Company and its Subsidiaries. All such policies are
in full force and effect and no event has occurred that would give any insurance
carrier a right to terminate any such policy. Neither the Company nor any of its
Subsidiaries has been denied or had any policy of insurance revoked or
rescinded. All such policies are adequate to insure against risks to which the
Company and its properties are exposed in such amounts and subject to such terms
as are commercially reasonable.
(b) Except as otherwise would not, individually or in the aggregate,
be reasonably likely to have a Company Material Adverse Effect, all policies,
binders, slips, certificates, annuity contracts and participation agreements and
other agreements of insurance, whether individual or group, in effect as of the
date hereof (including all applications, supplements, endorsements, riders and
ancillary agreements in connection therewith) that are issued by the Company
Insurance Subsidiaries (the "Company Insurance Contracts") and any and all
marketing materials, are, to the extent required under applicable law, on forms
approved by applicable insurance regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for
objection, and such forms comply in all material respects with the insurance
statutes, regulations and rules applicable thereto and, as to premium rates
established by the Company or any Company Insurance Subsidiary which are
required to be filed with or approved by insurance regulatory authorities, the
rates have been so filed or approved, the premiums charged conform thereto in
all material respects, and such premiums comply in all material respects with
the insurance statutes, regulations and rules applicable thereto.
22
<PAGE>
(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
(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
23
<PAGE>
with sound actuarial and statutory accounting principles. Such reserves were
adequate in the aggregate to cover the total amount of all reasonably
anticipated liabilities of the Company and each Company Insurance Subsidiary
under all outstanding insurance, reinsurance and other applicable agreements as
of the respective dates of such Company SAP statements. The admitted assets of
the Company and each Company Insurance Subsidiary as determined under applicable
laws are in an amount at least equal to the minimum amounts required by
applicable laws. In addition, the Company has delivered or made available to
Parent copies of all work papers used as the basis for establishing the reserves
for the Company and the Company Insurance Subsidiaries at December 31, 1997 and
December 31, 1998, respectively. With respect to the quarterly period ended June
30, 1999, the Company will establish the reserves set forth in Section 4.22 of
the Company Disclosure Schedule.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of the Responsible Executive Officers
of the Company, no claim or assessment is pending or threatened against any
Company Insurance Subsidiary which is peculiar or unique to such Company
Insurance Subsidiary by any state insurance guaranty associations in connection
with such association's fund relating to insolvent insurers which if determined
adversely would, individually or in the aggregate, be reasonably likely to have
a Company Material Adverse Effect.
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.
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(c) Merger Subsidiary has not conducted any business prior to the
date hereof and has no, and prior to the Effective Time will have no, assets,
liabilities or obligations of any nature other than those incident to its
formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
5.2. Organization, Good Standing and Qualification.
---------------------------------------------
Parent is a company incorporated with limited liability, validly
existing and in good standing under the Cayman Islands Companies Law, and each
of its Subsidiaries is a corporation or other entity duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
organization. Neither Parent nor Merger Subsidiary is required to be authorized,
qualified, licensed or domesticated as a foreign corporation under any United
States federal, state or local corporate law. Parent has made available to the
Company a complete and correct copy of Parent's and each Subsidiaries' charter
and by-laws or other organizational documents, each as amended to and as in
effect as of the date hereof.
5.3. Capitalization.
--------------
The authorized capital stock of Parent consists of 300 million Parent
Shares, of which 194,059,295 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
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perform its obligations under this Agreement, the Stock Option Agreement and to
consummate the Merger. This Agreement is a valid and binding obligation of each
of Parent and Merger Subsidiary, as the case may be, enforceable against Parent
and Merger Subsidiary in accordance with its terms, except as enforceability may
be limited or affected by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws and equitable principles now or
hereafter in effect and affecting the rights and remedies of creditors
generally.
(b) The Board of Directors of Parent (at a meeting duly called and
held) has approved this Agreement and the Merger and the other transactions
contemplated hereby and thereby. The Parent Shares, when issued in connection
with the consummation of the transactions contemplated hereby, will be validly
issued, fully paid and nonassessable, and no stockholder of Parent will have any
preemptive right of subscription or purchase is respect thereof. The Parent
Shares, when so issued, will be registered under the Securities Act and Exchange
Act and registered or exempt from registration under any applicable state
securities or "blue sky" laws.
5.5. Governmental Filings; No Violations.
-----------------------------------
(a) Except for all filings, permits, authorizations, consents and
approvals as may be required under, and compliance with other applicable
requirements of, the Securities Act, the Exchange Act, the HSR Act, state
securities or "blue sky" laws, state takeover laws, state and foreign insurance
regulatory laws and commissions, including Lloyd's of London and the U.K.
Treasury Department, and except as may result from any facts or circumstances
relating solely to the Company or its Affiliates, in connection with the
execution and delivery of this Agreement by Parent and Merger Subsidiary and the
consummation by Parent and Merger Subsidiary of the Merger and the other
transactions contemplated hereby and thereby, there are no filings,
authorizations, consents, approvals or notices required with or by any Court,
administrative agency, commission, government or regulatory authority, domestic
or foreign, except those that the failure to make or obtain would not,
individually or in the aggregate, have a Parent Material Adverse Effect or
prevent, materially delay or materially impair the ability of Parent or Merger
Subsidiary to consummate transactions contemplated by this Agreement.
(b) Subject to compliance with the filings described in Section
5.5(a), the execution, delivery and performance of the Stock Option Agreement by
Parent and this Agreement by Parent and the Merger Subsidiary, as the case may
be, does not, and the consummation by Parent or Merger Subsidiary of the Merger
and the other transactions contemplated hereby or thereby will not, constitute
or result in (i) a breach or violation of, or a default under, the certificate
of incorporation or bylaws of Parent or Merger Subsidiary, or the comparable
governing instruments of any of Parent's other Subsidiaries, or (ii) a breach or
violation of, or a default under, the acceleration of any obligations (with or
without notice, lapse of time or both) pursuant to, any Contracts binding upon
Parent or any of its Subsidiaries, except for any conflict, breach, violation,
default or acceleration that would not reasonably be expected to have a Parent
Material Adverse Effect or prevent, materially delay or materially impair the
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ability of Parent or Merger Subsidiary to consummate the transactions
contemplated by this Agreement, as the case may be.
5.6. Parent Reports; Financial Statements.
------------------------------------
Parent has delivered or made available to the Company true and
complete copies of each registration statement, report, proxy statement or
information statement prepared by it since September 30, 1998 (the "Parent Audit
Date"), including (a) Parent's Annual Report on Form 10-K for the year ended
September 30, 1998, (b) Parent's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, and (c) Parent's Quarterly Reports on Form 10-Q for the
quarterly periods ended December 31, 1998, 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.
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5.8. Litigation and Liabilities.
--------------------------
Except as disclosed in the Parent Reports filed prior to the date
hereof, there are no (a) civil, criminal or administrative actions, suits,
claims, hearings, investigations, proceedings, judgments, decrees, orders or
injunctions outstanding, pending or, to the knowledge of the Responsible
Executive Officers of Parent, threatened against Parent or any of its
Subsidiaries or (b) obligations or liabilities of any nature, whether or not
accrued, contingent or otherwise and whether or not required to be disclosed
("Parent Liabilities") other than (i) Parent Liabilities incurred since December
31, 1998 in the ordinary and usual course of business and consistent with past
practice, (ii) Parent Liabilities incurred in connection with or as a result of
the transactions contemplated by this Agreement, (iii) Parent Liabilities
incurred in connection with or as a result of the acquisition of the property
and casualty business of Cigna and (iv) Parent Liabilities that would not
reasonably be expected to have a Parent Material Adverse Effect.
5.9. Brokers and Finders.
-------------------
Neither Parent nor any of its executive officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or the
other transactions contemplated in this Agreement, except that Parent has
employed Credit Suisse First Boston Corporation as its financial advisors, the
arrangements with respect to which have been disclosed to the Company prior to
the date hereof.
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
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Company and its Subsidiaries will use their best efforts to preserve intact
their business organization, to keep available the services of their officers
and key employees and to maintain advantageous relationships with ceding
companies, customers, licensors, licensees, suppliers, contractors,
distributors, business partners and others having business relationships with
the Company or its Subsidiaries, as the case may be. Without limiting the
generality of the foregoing, prior to the Effective Time, neither the Company
nor any of its Subsidiaries will, without the prior written consent of Parent
(such consent to be given or withheld in Parent's sole discretion):
(a) except as expressly contemplated by this Agreement, split,
combine or reclassify any shares of its capital stock or other securities,
declare, pay, set aside for payment or consummate any dividend or other
distribution payable in cash, stock, property or otherwise in respect of its
capital stock or other securities, or directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or other securities other than
regular quarterly cash dividends paid by the Company not in excess of $0.04 per
share;
(b) authorize for issuance, issue, sell, pledge, dispose of,
encumber, deliver or agree or commit to issue, sell, pledge or deliver (whether
through the issuance or granting of any options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any capital stock of any class
of the Company or any Subsidiary or any securities convertible into or
exercisable or exchangeable for shares of capital stock of any class of the
Company or any Subsidiary, except as required by 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;
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(d) except as may be required by Law or as contemplated by this
Agreement, enter into, adopt, amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
Employee Benefit Plan; or enter into or amend any employment or severance
agreement with, increase in any material manner the salary, wages, bonus,
commission, or other compensation or benefits of any director or executive
officer of the Company or any of its Subsidiaries, except with respect to new
employees employed in the ordinary course of business and those agreements with
key employees previously disclosed to Parent; or increase in any manner the
salary, wages, bonus, commission, or other compensation or benefits of any other
officer, employee or agent of the Company or any of its Subsidiaries except for
increases in the ordinary course of business and consistent with past practice;
or pay any benefit not required by any plan and arrangement as in effect as of
the date hereof (including, without limitation, the granting of stock options,
stock appreciation rights or performance units);
(e) acquire (by merger, amalgamation, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof or make any material investment either by
purchase of stock or securities, contributions to capital, property transfer or
acquisition (including by lease) of any material amount of properties or assets
of any other individual or entity;
(f) except as expressly required herein, pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities (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;
30
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(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.
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6.2. Interim Operations of Merger Subsidiary.
---------------------------------------
During the period from the date of this Agreement to the Effective
Time, Merger Subsidiary shall not engage in any activities of any nature except
as provided in or contemplated by this Agreement.
6.3. No Solicitation.
---------------
From and after the date hereof, neither the Company nor any of its
Subsidiaries shall (whether directly or indirectly through its or their
officers, directors, agents, representatives, advisors or other intermediaries
(collectively, "Representatives")), nor shall the Company or any of its
Subsidiaries authorize or permit any of its or their Representatives to, (a)
solicit, initiate, encourage (including by way of furnishing information) or
take any action knowingly to facilitate the submission of any inquiries,
proposals or offers (whether or not in writing) from any person relating to,
other than the transactions contemplated by this Agreement and the Stock Option
Agreement, (i) any acquisition or purchase of 15% or more of the consolidated
assets of the Company and its Subsidiaries or of 15% or more of any class of
equity securities of the Company or any of its Subsidiaries, (ii) any tender
offer (including a self tender offer) or exchange offer that if consummated
would result in any person beneficially owning 15% or more of any class of
equity securities of the Company or any of its material Subsidiaries (including
through the ownership of securities convertible or exercisable into or
exchangeable for equity securities of the Company), (iii) any merger,
consolidation, business combination, sale of substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries whose assets, individually or in the
aggregate, constitute 15% or more of the consolidated assets of the Company or
(iv) any other transaction the consummation of which would or would reasonably
be expected to impede, interfere with, prevent or materially delay the Merger
(any of the foregoing, a "Transaction Proposal"), or agree to or endorse any
Transaction Proposal, or (b) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person any
information with respect to its business, properties or assets in connection
with any of the foregoing, or otherwise cooperate in any way with, or knowingly
assist or participate in, facilitate or encourage, any effort or attempt by any
other person to do or seek any of the foregoing; provided, however, that the
foregoing shall not prohibit the Company, prior to the receipt of the Company
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
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<PAGE>
result in a Superior Proposal, and based on the written advice of its outside
legal counsel, that participating in such negotiations or discussions or
furnishing such information is required in order to prevent the Board of
Directors of the Company from breaching its fiduciary duties to its stockholders
under the DGCL; and provided, further, that the Board of Directors of the
Company shall not take any of the foregoing actions unless it provides Parent
with contemporaneous notice thereof. If the Board of Directors of the Company
receives a Transaction Proposal, then the Company shall promptly inform Parent
in writing of the terms and conditions of such proposal and the identity of the
person making it. The Company agrees that it will keep Parent informed, on a
current basis, of the terms of any such proposals or offers and, to the extent
disclosure is not prohibited by the terms of any confidentiality agreement with
the party making such Transaction Proposal, the status of any such material
discussions or negotiations. The Company agrees to immediately cease and cause
its Representatives to cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing, and shall use its reasonable best efforts to cause any such parties
in possession of confidential information about the Company that was furnished
by or on behalf of the Company to return or destroy all such information in the
possession of any such party or in the possession of any agent or advisor of any
such party. The Company agrees not to release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to which such party
or its Subsidiaries is a party. The Company shall ensure that its officers,
directors and employees and any investment banker or other Representative
retained by it are aware of the restrictions described in this Section 6.3.
"Superior Proposal" means any of the transactions described in clause (i), (ii)
or (iii) of the definition of Transaction Proposal (with all of the percentages
included in the definition of such term raised to 51% for purposes of this
definition) with respect to which any required financing is committed or, in the
good faith judgment of the Board of Directors of the Company, based on the
written advice of its outside financial advisors, is reasonably capable of being
financed by the person making the proposal, and with respect to which the Board
of Directors of the Company shall have concluded in good faith, based on the
written advice of its outside legal counsel and financial advisors, is
reasonably capable of being completed, taking into account all legal, financial,
regulatory and other aspects of the Transaction Proposal and the person making
the proposal, and would, if consummated, result in a transaction more favorable
to the Company's stockholders from a financial point of view than the
transactions contemplated by this Agreement.
6.4. Information Supplied.
--------------------
Each of the Company and Parent agree, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it or
its Subsidiaries for inclusion or incorporation by reference in (a) the
Registration Statement on Form S-4 (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
33
<PAGE>
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 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.
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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 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
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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 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
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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.
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
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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 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.
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(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.
(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.
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(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.
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
40
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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
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
41
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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 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,
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(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") 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,
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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 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.
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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.
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
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<PAGE>
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 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:
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(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 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
47
<PAGE>
constitutes an Acquisition Proposal, the Company at the time of entering into
such agreement, shall pay to Parent the termination fee of $25 million payable
by wire transfer of same day funds.
(d) In the event this Agreement is terminated by Parent pursuant to
Section 8.4(b), then the Company shall promptly, but in no event later than two
business days after Parent shall have requested payment of its charges and
expenses incurred in connection with the transactions contemplated hereby
("Expenses"), pay to Parent the amount of such Expenses up to a maximum of
$3,000,000 payable by wire transfer of same day funds.
(e) In the event this Agreement is terminated by the Company pursuant
to Section 8.3(b), then Parent shall promptly, but in no event later than two
business days after the Company shall have requested payment of its Expenses,
pay to the Company the amount of such Company Expenses up to a maximum of
$3,000,000 payable by wire transfer of same day funds.
(f) The Company and Parent each acknowledge that the agreements
contained in Sections 8.5(b)-(e) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, the Company,
Parent and Merger Subsidiary would not enter into this Agreement; accordingly,
if the Company fails to promptly pay the amount due pursuant to Section 8.5(b),
Section 8.5(c) or Section 8.5(d), or Parent fails to promptly pay the amount due
pursuant to Section 8.5(e), and, in order to obtain such payment, Parent or the
Company, as the case may be, commences a suit which results in a judgment
against Parent or the Company, as the case may be, for 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.
48
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9.2. Modification or Amendment.
-------------------------
Subject to the provisions of the applicable law, at any time prior to
the Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties.
9.3. Waiver of Conditions.
--------------------
Any failure of Parent or Merger Subsidiary, on the one hand, or the
Company, on the other hand, to comply with any obligation, covenant, agreement
or condition herein may be waived in writing by the Company or Parent,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 9.3.
9.4. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
9.5. Governing Law; Waiver of Jury Trial.
-----------------------------------
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW
OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT OR THE STOCK OPTION AGREEMENTS IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE STOCK OPTION AGREEMENTS, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR THE STOCK OPTION AGREEMENTS. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
49
<PAGE>
THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE STOCK OPTION AGREEMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
9.5.
9.6. Notices.
-------
Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier or by facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Parent or Merger Subsidiary:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Facsimile: (441) 295-3997
Attention: General Counsel
Copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Facsimile: (312) 701-7711
Attention: Edward S. Best
if to the Company:
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 581-3268
Attention: General Counsel
Copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
Facsimile: (410) 539-6981
Attention: Michael J. Silver
50
<PAGE>
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 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,
51
<PAGE>
such reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
9.11. Assignment.
----------
This Agreement shall not be assignable by operation of law or
otherwise; provided, however, that Parent may designate, by written notice to
the Company, another wholly-owned direct or indirect Subsidiary to be a party to
the Merger in lieu of Merger Subsidiary, in which event all references herein to
Merger Subsidiary shall be deemed references to such other Subsidiary, except
that all representations and warranties made herein with respect to Merger
Subsidiary as of the date of this Agreement shall be deemed representations and
warranties made with respect to such other Subsidiary as of the date of such
designation.
9.12. Definitions.
-----------
(a) Location of Certain Definitions.
<TABLE>
<CAPTION>
Section
<S> <C>
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
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
Company Requisite Vote.............................................................. 4.4(a)
Company SAP Agreements.............................................................. 4.6(b)
Company Stock Plans................................................................. 4.2
Confidentiality Agreement........................................................... 9.7
Contracts........................................................................... 4.5
Costs............................................................................... 6.15(a)
D&O Insurance....................................................................... 6.15(b)
DGCL................................................................................ 1.1
Effective Time...................................................................... 1.3
Employee Benefit Plans.............................................................. 4.9(b)
Environmental Claim................................................................. 9.12(b)
Environmental Laws.................................................................. 9.12(b)
Environmental Permits............................................................... 9.12(b)
Environmental Report................................................................ 9.12(b)
ERISA............................................................................... 4.9(a)(i)
ERISA Affiliate..................................................................... 4.9(c)
Exchange Act........................................................................ 4.5
Exchange Agent...................................................................... 3.2(a)
Exchange Fund....................................................................... 3.2(a)
Exchange Ratio...................................................................... 3.1(a)
Expenses............................................................................ 8.5(d)
GAAP................................................................................ 4.6(a)
Governmental Consents............................................................... 7.1(c)
Governmental Entity................................................................. 4.5
Hazardous Materials................................................................. 9.12(b)
HSR Act............................................................................. 4.5
Indemnified Parties................................................................. 6.15(a)
Insurance Regulators................................................................ 4.10
Intellectual Property............................................................... 4.11
Latest Balance Sheet................................................................ 6.1(f)
Laws................................................................................ 4.10
Maximum Premium..................................................................... 6.15(b)
Merger.............................................................................. Recitals
Merger Consideration................................................................ 3.1(a)
Merger Subsidiary................................................................... Preamble
NYSE................................................................................ 3.1(a)
Order............................................................................... 7.1(d)
Parent.............................................................................. Preamble
Parent Audit Date................................................................... 5.6(a)
Parent 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)
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
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
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
</TABLE>
(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.
54
<PAGE>
"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability arising out of, relating to, based on
or resulting from (i) the presence, discharge, emission, release or threatened
release of any Hazardous Materials at any location, whether or not owned, leased
or operated by the Company or any of its Subsidiaries or (ii) circumstances
forming the basis of any violation or alleged violation of any Environmental Law
or Environmental Permit or (iii) otherwise relating to obligations or
liabilities under any Environmental Laws; provided, however, that the term
"Environmental Claim" shall not include any such claim, demand, action, suit,
complaint, proceeding or other communication under an insurance or reinsurance
policy issued by the Company.
"Environmental Laws" means all applicable statutes, rules,
regulations, ordinances, orders, decrees and common law, in each case of any
Governmental Entity, as they exist at the date hereof, relating in any manner to
contamination, pollution or protection of human health or the environment,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, the Solid Waste Disposal Act, the Resource
Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Occupational Safety and Health Act, the Emergency
Planning and Community-Right-to-Know Act, the Safe Drinking Water Act, all as
amended, and similar state laws.
"Environmental Permits" means all permits, licenses, registrations and
other governmental authorizations required for the Company and its Subsidiaries
and the operations of the Company's and its Subsidiaries' facilities to conduct
its business under Environmental Laws.
"Environmental Report" means any report, study, assessment, audit, or
other similar document that addresses any issue of noncompliance with, or
liability under, any Environmental Law that may affect the Company or any of its
Subsidiaries.
"Hazardous Materials" means any gasoline or petroleum (including crude
oil or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity,
and any other substances of any kind, whether or not any such substance is
defined as hazardous or toxic under any Environmental Law, that is regulated
pursuant to or could give rise to liability under any Environmental Law.
"Parent Material Adverse Effect" means a material adverse effect on
the properties, business, assets, conditions (financial or otherwise),
liabilities or results of operations of Parent and its Subsidiaries taken as a
whole, other than effects caused by changes in general economic conditions or
conditions generally affecting the insurance or reinsurance industry.
"Responsible Executive Officers of the Company" shall mean the persons
designated as such in the preamble to the Company Disclosure Schedule.
55
<PAGE>
"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 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.
56
<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:__________________________
57
<PAGE>
Exhibits
- --------
Exhibit A Form of Company Affiliate Letter
Date
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of Capital Re Corporation, a Delaware corporation (the "Company"),
as such term (i) is defined for purposes of paragraphs (c) and (d) of Rule 145
of the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) is used in and for purposes of
Accounting Series Releases 130 and 135, as amended, of the Commission. Pursuant
to the terms of the Agreement and Plan of Merger dated as of June 10, 1999, as
it may be amended, supplemented or modified from time to time (the "Merger
Agreement"), among the Company, ACE Limited, a Cayman Islands company
("Parent"), and CapRe Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), Merger Sub will be merged with and
into the Company (the "Merger"). Capitalized terms used herein but not defined
herein shall have the meanings ascribed to such terms in the Merger Agreement.
In consideration of the agreements contained herein, Parent's reliance on this
letter in connection with the consummation of the Merger and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that I will not make any
sale, transfer or other disposition of any Ordinary Shares received by me
pursuant to the Merger in violation of the Securities Act or the rules and
regulations thereunder. I have been advised that the issuance of the Ordinary
Shares pursuant to the Merger will have been registered with the Commission
under the Securities Act on a Registration Statement on Form S-4. I have also
been advised, however, that since I may be deemed to be an affiliate of the
Company at the time the Merger is submitted for a vote of the stockholders of
the Company, the Ordinary Shares received by me may be disposed by me only (i)
pursuant to an effective registration under the Securities Act, (ii) in
conformity with the volume and other limitations of Rule 145 promulgated by the
Commission under the Securities Act, or (iii) in reliance upon an exemption from
registration that is available under the Securities Act. I also understand that
instructions will be given to Parent's transfer agent with respect to the
Ordinary Shares to be received by me pursuant to the Merger and that there may
be placed on the certificates representing such Ordinary Shares, or any
substitutes therefor, a legend stating in substance as follows: THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES AN MAY
ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE REQUIREMENTS OF
RULE 145 OR PURSUANT TO A REGISTRATION STATEMENT UNDER THAT ACT OR AN EXEMPTION
FROM SUCH REGISTRATION. It is understood and agreed that the legend set forth
above shall be removed upon surrender of certificates bearing such legend by
delivery of substitute certificates without such legend if I shall have
delivered to Parent an opinion of counsel, in form and substance reasonably
satisfactory to Parent, to the effect that they sale or disposition of the
shares represented by the surrendered certificates may be effected without
registration of the offering, sale and delivery of such shares under the
Securities Act. I further understand and agree that Parent is under no
obligation to register the sale, transfer or other disposition of the Ordinary
Shares by me or on my behalf under the Securities Act or to take any other
action necessary in order to make compliance with an exemption form such
registration available. Execution of this letter should not be considered an
admission on my part that I am an "affiliate" of the Company as described in the
first paragraph of this letter, or as a wavier of any rights I may have to
object to any claim that I am such an affiliate on or after the date of this
letter. This letter agreement constitutes the complete understanding between
Parent and me concerning the subject matter hereof. Any notice required to be
sent to either party hereunder shall be sent by registered or certified mail,,
return receipt requested, using the addresses set forth herein or such other
address as shall be furnished in writing by the parties. This letter agreement
shall be governed by and construed and interpreted in accordance with, the laws
of the State of Delaware. If you are in agreement with the foregoing, please so
indicate by signing below and returning a copy of this letter to the
undersigned, at which time this letter shall become a binding agreement between
us.
Very truly yours,
By:
Name: Address:
Accepted this day of ________, 1999.
ACE LIMITED
By:
Name:
Title:
CAPITAL RE CORPORATION
By:
Name:
Title:
<PAGE>
Exhibit 99.11
HAMILTON, Bermuda--(BUSINESS WIRE)--Oct. 26, 1999--ACE Limited (NYSE: ACL)
announced today that it has signed an amended merger agreement with Capital Re
Corporation (NYSE: KRE). Under the amended agreement, Capital Re's stockholders
will receive 0.65 ordinary shares of ACE Limited plus an amount of cash which,
on a per share basis, will deliver $14.00 per share to Capital Re stockholders,
subject to a minimum of $1.30 per Capital Re share in cash and a maximum of
$4.68 per Capital Re share in cash.
It is anticipated that the transaction will be completed before the end of
the calendar year, subject to, among other things, approval of the merger by
Capital Re's stockholders.
The ACE Group of Companies provides insurance and reinsurance for a diverse
group of clients. The company conducts its business on a global basis with
operating subsidiaries in nearly 50 countries. Additional information can be
found at: www.acelimited.com.
Application of the Safe Harbor of the Private Securities Litigation Reform
Act of 1995:
Certain statements made in this press release, such as the expected
completion date of the Capital Re acquisition, are forward-looking statements,
reflecting the Company's current views with respect to future events and are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements involve risks and uncertainties which may
cause actual results to differ from those set forth in these statements. Among
other things, regulatory approvals could affect the estimated completion date
and, as stated above, the transaction requires the approval of Capital Re's
shareholders. In addition, the impact of mergers and acquisitions, the economic,
competitive, insurance and reinsurance business conditions and other factors
identified in the Company's filings with the Securities and Exchange Commission
could affect the forward-looking statements contained in this press release.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the dates on which they are made. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
CONTACT: ACE Limited, Hamilton
Investor Contact:
Helen Wilson, 441/299-9283
or
Media Contact:
Wendy Davis Johnson, 441/299-9347
<PAGE>
EXHIBIT 99.12
STAND-BY CAPITAL COMMITMENT AGREEMENT
This Stand-By Capital Commitment Agreement (this "Agreement") is made
as of October 26, 1999 (the "Effective Date"), by and between Capital Re
Corporation, a Delaware corporation (the "Borrower"), and ACE Limited, a company
incorporated with limited liability under the Cayman Islands Companies Law (the
"Lender"). Certain capitalized terms used in this Agreement are defined in
Appendix A hereto.
The parties hereto agree as follows:
1. Commitment. The Lender agrees, upon the terms and subject to the
condition set forth herein, to provide, or to cause one of its Subsidiaries to
provide, loans to the Borrower in one or more installments (each, a "Loan") in
an aggregate amount not to exceed U.S.$50,000,000 (the "Commitment") at any time
and from time to time during the period from the Effective Date to the
Termination Date (as defined below). Amounts borrowed as Loans may be repaid
and reborrowed by the Borrower in accordance with the provisions hereof.
2. The Loans. The Loans shall be made upon the Borrower's written
notice delivered to the Lender at least five business days prior to the
requested borrowing date, specifying the amount of the Loan and the requested
borrowing date, which shall be a business day (in the United States and
Bermuda). The obligation of the Lender to make Loans hereunder is subject to
the condition that no Event of Default shall be continuing at the time of the
making of such Loan. Each Loan made hereunder shall be made in United States
Dollars and same day funds and shall be paid to such account or accounts as may
be directed in writing by the Borrower. The Loans made by the Lender shall be
evidenced by one or more loan accounts or records maintained by the Lender in
the ordinary course of business. Any failure so to record or any error in doing
so shall not, however, limit or otherwise affect the obligation of the Borrower
hereunder to pay any amount owing with respect to the Loans.
3. Interest. Interest shall accrue on the outstanding principal
amount of the Loans made hereunder from the applicable borrowing date until paid
at a rate per annum equal to the Applicable Rate and shall be payable quarterly
in arrears on each March 31, June 30, September 30 and December 31 and upon any
repayment. All accrued and unpaid interest shall be due and payable on the
Termination Date. The Borrower additionally agrees to pay interest after the
date the Loans become due (whether at stated maturity, by acceleration or
otherwise), on the principal balance of the Loans outstanding from time to time
and, to the extent not prohibited by law, on accrued interest thereon that is
not paid when due, at a rate per annum equal to all times
<PAGE>
to the sum of the Applicable Rate plus 2.0% per annum. Interest accruing after
the Loans made hereunder become due shall be due and payable on demand.
4. Payment; Event of Default. The Borrower may, at any time or from
time to time, prepay Loans in whole or in part without premium or penalty. Both
principal and interest are payable to such account or accounts as the Lender may
direct, in United States Dollars and same day funds, free and clear or, and
without deduction for, any and all taxes, levies, imposts, deductions, charges,
withholdings and liabilities with respect thereto. If any of the following
events (each, an "Event of Default") shall occur: (a) the failure of the
Borrower to pay within 30 days after the date when due any interest owed
hereunder, (b) the failure of the Borrower to observe the covenants in Section 7
hereof, (c) the merger Agreement is terminated pursuant to Section 8.3(a) or
8.4(a) thereof, (d) after any termination of the Merger Agreement, the Borrower
merges or consolidates or there is a sale of all or substantially all assets of
the Borrower and its Subsidiaries, immediately after which merger, consolidation
or sale the stockholders of the Borrower immediately prior to consummation
thereof own less than a majority of the equity of the surviving company or the
company to which such assets shall have been transferred, (e) the Borrower shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors, or (f) any proceeding shall be instituted by or
against the Borrower seeking to adjudicate it as bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
such proceeding shall remain undismissed or unstayed for a period of 60 days, or
the Borrower shall take any action to authorize any of the actions set forth
above in this clause (f); then, in the case of an Event of Default described in
clause (f), the Loans made under this Agreement shall be immediately due and
payable, whereupon all principal of and interest on all Loans made under this
Agreement shall become and be forthwith immediately due and payable; and in the
case of any other Event of Default the Lender may declare all Loans made under
this Agreement to be immediately due and payable and terminate the Commitment
(the date of such declaration and termination, the "Termination Date"),
whereupon all principal of and interest on all Loans made under this Agreement
shall become and be forthwith immediately due and payable.
5. Conversion.
(a) Optional Conversion. At any time and from time to time after the
Effective Date, subject to the required approval ("Regulatory Approval") of any
Governmental Entity having jurisdiction over the Borrower or the Lender, the
Lender shall have the right to convert, in whole or in part, the Loans
outstanding under this Agreement into such number of shares of Common Stock as
is equal to (x) the amount of Loans outstanding (plus any accrued
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<PAGE>
and unpaid interest) divided by (y) $14.00 (the "Conversion Price"); provided,
that if such conversion is limited by applicable law, only such amount as is
permitted without Regulatory Approval shall be converted, and the Borrower and
the Lender shall use all commercially reasonable efforts to obtain Regulatory
Approval to allow conversion of any remaining portion to be converted. The
Lender shall pay to the Borrower the Conversion Price in cash for each share of
Common Stock converted from any unused portion of the Commitment.
(b) Mandatory Conversion. In the event of the termination of the
Merger Agreement (other than pursuant to Sections 8.3(a) or 8.4(a) thereof), all
of the Loans outstanding under this Agreement shall convert into such number of
shares of Common Stock as is equal to the aggregate amount of the Loans (plus
and accrued and unpaid interest) divided by the lesser of (x) the Conversion
Price or (y) the current market price per share of Common Stock (as defined in
Section 5(e)(iv)) on the date of such conversion; provided, that if such
conversion is limited by applicable law, only such amount as is permitted
without Regulatory Approval shall be converted, and the Borrower and the Lender
shall use all commercially reasonable efforts to obtain Regulatory Approval to
allow conversion of the remaining portion of the Loans.
(c) Fractional Shares. The Borrower will not issue any fractional
shares of Common Stock upon conversion and, in lieu thereof, will deliver a
check for the value of any such fractional share, determined by multiplying the
Conversion Price by the fraction, rounded to the nearest cent.
(d) Company to Provide Conversion Stock. The Borrower shall reserve a
sufficient number of shares of authorized but unissued Common Stock or Common
Stock held in treasury to permit the conversion to be effected in full (the
"Conversion Shares"). Upon conversion, the Lender shall provide notice thereof
to the Borrower and the Borrower, no later than the fifth business day after
such notice has been delivered, shall issue and deliver to the Lender a
certificate for the number of full shares of Common Stock issuable upon such
conversion and a check in lieu of any fractional share. The Borrower shall
comply with all securities laws regulating the issuance and delivery of the
Conversion Shares. The holders of the Conversion Shares shall be entitled to
registration rights on the same terms as outlined in that certain Stock Option
Agreement dated as of June 10, 1999 between the Borrower and ACE Limited.
(e) Adjustment.
(i) In case at any time the Borrower shall pay or make a stock
dividend or other distribution in Common Stock on any class of capital stock of
the Borrower, the Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced so that the same
shall equal the price determined by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common Stock
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<PAGE>
outstanding at the close of business on the date fixed for such determination
and the denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
adjustment to become effective immediately after the opening of business on the
day following the date fixed for such determination.
(ii) In case at any time the Borrower shall (A) subdivide its
outstanding Common Stock, (B) combine its outstanding Common Stock into a
smaller number of shares, or (C) issue by reclassification of its Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Borrower is the surviving corporation) any shares, the
Conversion Price in effect at the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Lender shall be entitled to receive after such time the aggregate number and
kind of shares which, if the Loans or the unused portion of the Commitment had
been converted immediately prior to such time, the Lender would have owned upon
such conversion and been entitled to receive upon such subdivision, combination
or reclassification. Such adjustment shall be made successively whenever any
event listed above shall occur.
(iii) In case at any time the Borrower shall fix a record date for
the making of a distribution, by dividend or otherwise, to all holders of its
Common Stock, of evidences of its indebtedness or assets (including securities
(including warrant, options and rights), but excluding any dividend or
distribution referred to in Section 5(e)(i) and any regular quarterly cash
dividend), then in each such case the Conversion Price in effect after such
record date shall be determined by multiplying the Conversion Price in effect
immediately prior to such record date by a fraction, of which the numerator
shall be the total number of outstanding shares of Common Stock multiplied by
the current market price per share of Common Stock (as defined in Section
5(e)(iv)) on such record date, less the fair market value (as determined by the
Board of Directors of the borrower of the portion of the assets or evidences of
indebtedness so to be distributed, and of which the denominator shall be the
total number of outstanding shares of Common Stock multiplied by such current
market price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such record date has not
been fixed.
(iv) For the purpose of any computation under Sections 5(b) and
5(e)(iii), the current market price per share of Common Stock on any date shall
be deemed to be the average of the closing prices on the New York Stock Exchange
Composite Transaction Reporting System, as reported in the Wall Street Journal,
for the 20 trading days immediately preceding the second trading day prior to
the day in question.
(v) If the Borrower is a party to a merger, combination or other
transaction which reclassifies or changes its outstanding Common Stock, the
successor corporation shall enter into a supplemental agreement which shall
provide that the Lender may
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<PAGE>
convert into the kind and amount of securities, cash or other assets which the
Lender would have owned after such transaction if the Lender had converted
immediately prior to the consummation of such transaction.
(vi) The Borrower may make such downward adjustments in the
Conversion Price as it considers to be advisable in order that any event treated
for United States Federal income tax purposes as a dividend of stock or stock
rights shall not be taxable to the recipients.
6. Representations and Warranties.
(a) Organization, Good Standing and Qualification. The Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, 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. The Borrower 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 Borrower Material
Adverse Effect.
(b) Corporate Authority; Approval. The Borrower 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. This
Agreement has been duly executed and delivered by the Borrower and (assuming the
due authorization, execution and delivery hereof by the Lender) constitutes the
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms.
(c) No Violations. Neither the execution, delivery or performance of
this Agreement nor the consummation by the Borrower of the transactions
contemplated hereby nor compliance by the Borrower with any of the provisions
hereof will (i) result in any breach or violation of any provision of the
certificate of incorporation or bylaws or similar organizational documents of
the Borrower, (ii) 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
Borrower or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound (a "Contract") or result in the creation
of a lien upon any of the properties or assets of the Borrower or any of its
Subsidiaries or (iii) violate any order, writ, injunction, judgment, decree,
statute, rule, regulation or other Law applicable to the Borrower, any of its
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<PAGE>
Subsidiaries or any of their properties or assets, except in the case of clause
(ii) or (iii) 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 Borrower Material Adverse
Effect.
(d) Conversion Shares. The Borrower has reserved a sufficient number
of shares of authorized but unissued Common Stock or Common Stock held in
treasury to permit the conversion contemplated in Section 5 hereof to be
effected in full. All of the Conversion Shares, when issued, will be validly
issued, fully paid and non-assessable.
7. Covenants. So long as there are any Loans outstanding or the
Lender has any Commitment hereunder, none of the Borrower, or its Subsidiaries
will (a) declare or pay any dividends or return any capital to its stockholders
or authorize or make any other distribution, payment or delivery of property or
cash to its stockholders as such (other than (x) to the Borrower and (y) the
Borrower's regular quarterly cash dividend of $0.04 per share), or redeem,
retire, purchase or otherwise acquire, directly or indirectly, for any
consideration, any shares of any class of capital stock of the Borrower now or
hereafter outstanding (or any warrants for or options or stock appreciation
rights in respect of any of such shares) (other than management stock
repurchases required by agreements in effect on the Effective Date), or set
aside any funds for any of the foregoing purposes (all of the foregoing,
"Dividends"), or (b) merge or consolidate with or into another entity (provided
that a Subsidiary of the Borrower may merge with or into the Borrower or another
Subsidiary of the Borrower so long as no Event of Default shall have occurred
and be continuing or would result therefrom) or sell, assign, transfer, convey
or otherwise dispose of all or substantially all of the properties or assets of
the Borrower and its Subsidiaries.
8. Miscellaneous. The parties hereto agree to negotiate in good
faith for any amendments to this Agreement necessary for regulatory purposes.
No amendment or waiver of any provision of this Agreement shall be effective
unless the same shall be in writing and signed by the Borrower and the Lender.
None of the rights, duties and obligations of any party hereunder may be
assigned except with the consent of the other party hereto; provided that the
Lender may assign, in whole or in part, any Loans to any of its Subsidiaries.
Any notice required or permitted to be delivered hereunder shall be deemed to
have been given when given in writing by overnight carrier or facsimile to the
address or number listed on the signature page hereto. This Agreement may be
executed in any number of separate counterparts, each of which, when so
executed, shall be deemed an original, and all of said counterparts taken
together shall be deemed to constitute but one and the same instrument. The
illegality or unenforceability of any provision of this Agreement shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date and year first above written.
Borrower: CAPITAL RE CORPORATION
By:
------------------------------
Name:
Title:
Address for Notices: 1325 Avenue of the Americas
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 581-3268
Lender: ACE LIMITED
By:
-------------------------------
Name:
Title:
Address for Notices: The ACE Building
30 Woodbourne Avenue
Hamilton, HM 08
Bermuda
S-1
<PAGE>
Appendix A
Certain Defined Terms. As used in the Agreement, the following terms
shall have the following meanings:
"Applicable Rate" means 6% per annum.
"Borrower Material Adverse Effect" means a material adverse effect on the
properties, business, assets, conditions (financial or otherwise), liabilities
or results of operations of the Borrower 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.
"Common Stock" means the common stock, par value $.01 per share, of the
Borrower.
"Governmental Entity" means any United States of 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.
"Law" means any 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.
"Merger Agreement" means that certain Agreement and Plan of Merger dated as
of the date hereof among the Borrower, the Lender and CapRe Acquisition Corp.
"Subsidiary" means, with respect to any person, 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 person or by one or more
of its respective Subsidiaries or by such person and any one or more of its
respective Subsidiaries.
