<PAGE>
Preliminary Proxy Material
AMENDMENT NO. 2
TO
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
EXEL LIMITED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
MID OCEAN LIMITED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A Ordinary Shares, par value $0.20 per share, of Mid Ocean
Limited; Class B Ordinary Shares, par value $0.20 per share, of Mid
Ocean Limited; Class C Ordinary Shares, par value $0.20 per share, of
Mid Ocean Limited.
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
26,411,781 Class A Ordinary Shares of Mid Ocean Limited; 1,190,292
Class B Ordinary Shares of Mid Ocean Limited; 1,860,000 Class C
Ordinary Shares of Mid Ocean Limited.
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The underlying value of the transaction of $2,096,654,682 has been
calculated pursuant to Exchange Act Rule 0-11 by adding (a) the product
of (i) $75.21875 (the average of the high and low prices of Class A
Ordinary Shares of Mid Ocean Limited on April 29, 1998 on the New York
Stock Exchange) and (ii) 26,411,781 (the aggregate number of Class A
Ordinary Shares of Mid Ocean Limited to be exchanged for Class A
Ordinary Shares of EXEL Merger Company Ltd.); and (b) the product of
(i) $36.06 (the book value of the Class B Ordinary Shares of Mid Ocean
Limited) and (ii) 1,190,292 (the aggregate number of Class B Ordinary
Shares of Mid Ocean Limited to be exchanged for Class B Ordinary Shares
of EXEL Merger Company Ltd.); and (c) the product of (i) $36.06 (the
book value of the Class C Ordinary Shares of Mid Ocean Limited) and
(ii) 1,860,000 (the aggregate number of Class C Ordinary Shares of Mid
Ocean Limited to be exchanged for Class B Ordinary Shares of EXEL
Merger Company Ltd.).
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $2,096,654,682
-----------------------------------------------------------------------
(5) Total fee paid: $419,331
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $419,331
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Schedule 14A
-----------------------------------------------------------------------
(3) Filing Party: EXEL Limited
-----------------------------------------------------------------------
(4) Date Filed: April 30, 1998
-----------------------------------------------------------------------
<PAGE>
Preliminary Proxy Material
THIS PRELIMINARY JOINT PROXY STATEMENT AND THE INFORMATION CONTAINED HEREIN IS
SUBJECT TO COMPLETION OR AMENDMENT.
<PAGE>
SUBJECT TO COMPLETION,
DATED JUNE 11, 1998
Preliminary Proxy Material
[LOGO]
EXEL LIMITED , 1998
Dear Fellow Shareholder:
You are cordially invited to attend a Class Meeting of Shareholders (the
"EXEL CLASS MEETING") of EXEL Limited ("EXEL") called in accordance with an
order of the Grand Court of the Cayman Islands dated April , 1998 to be held
at the Princess Hotel, Hamilton, Bermuda, at 9:00 a.m., local time, on July ,
1998.
At the EXEL Class Meeting you will be asked to consider and vote upon a
Resolution to approve a transaction in which EXEL will become a wholly owned
subsidiary of a new holding company, which will also own all of the shares of
Mid Ocean Limited, an exempted limited liability company incorporated under the
laws of the Cayman Islands ("MID OCEAN"). Specifically, you will be asked to
approve the terms of a scheme of arrangement between EXEL and its shareholders
pursuant to Section 85 of the Companies Law (1995 Revision) of the Cayman
Islands (the "COMPANIES LAW") under which EXEL will become a wholly owned
subsidiary of Exel Merger Company Ltd., an exempted limited liability company
incorporated under the laws of the Cayman Islands, which will be renamed "EXEL
Limited" ("NEW EXEL"), and, subject to the cash election rights described below,
for each outstanding share in EXEL at the effective time of such scheme of
arrangement there will be allotted and issued one share in New EXEL (the "EXEL
ARRANGEMENT"). At class meetings to be held on July , 1998, classes of
shareholders of Mid Ocean will vote on a scheme of arrangement between Mid Ocean
and its shareholders pursuant to Section 85 of the Companies Law under which Mid
Ocean will become a wholly owned subsidiary of New EXEL and, subject to the cash
election rights described below, for each outstanding share in Mid Ocean at the
effective time of such scheme of arrangement (other than shares held by EXEL and
its subsidiaries) there will be allotted and issued 1.0215 shares in New EXEL
(the "MID OCEAN ARRANGEMENT" and, together with the EXEL Arrangement, the
"ARRANGEMENTS"). Under the Arrangements, shareholders of EXEL and Mid Ocean will
have an opportunity to elect to receive cash in lieu of shares in New EXEL, up
to a maximum of $300 million in the aggregate. If more than that amount is
elected, $204 million of the cash will be made available to shareholders of EXEL
and $96 million of the cash will be made available to shareholders of Mid Ocean,
on a PRO RATA basis within each group of shareholders. If the cash pool
available to either group of shareholders is not exhausted by cash elections
within such group, the excess cash shall be made available for the other group
of shareholders. The enclosed Joint Proxy Statement explains in detail the terms
of the proposed Arrangements, the Agreement and Schemes of Arrangement, dated
March 16, 1998, amended and restated April 28, 1998 and further amended on June
, 1998 (as so amended, the "AGREEMENT"), providing for the Arrangements, and
related matters. Please carefully review and consider all of this information.
EXEL's Board of Directors believes that the combination of EXEL and Mid
Ocean is in the best interests of EXEL's shareholders. Through its operating
subsidiaries, Mid Ocean is a leading provider of insurance and reinsurance,
writing property catastrophe, property excess of loss, property PRO RATA, marine
and energy, aviation and satellite and certain other risks in selected global
markets. EXEL's Board believes that the Arrangements will significantly enhance
shareholder value by combining EXEL's traditional North American excess casualty
insurance franchise with Mid Ocean's strong franchises in property reinsurance
and Lloyd's of London. The Arrangements will benefit EXEL by providing EXEL with
increased opportunities in the property reinsurance market, giving EXEL a
leading presence in Lloyd's and diversifying EXEL's business, customer and
distribution base and risk profile. The reasons for the Arrangements are
described in greater detail in the attached Joint Proxy Statement.
<PAGE>
Preliminary Proxy Material
EXEL'S BOARD OF DIRECTORS HAS DETERMINED THAT THE AGREEMENT, THE EXEL
ARRANGEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND IN THE
BEST INTERESTS OF EXEL AND ITS SHAREHOLDERS. ACCORDINGLY, EXEL'S BOARD OF
DIRECTORS HAS APPROVED THE AGREEMENT, THE EXEL ARRANGEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE IN FAVOR OF THE
EXEL ARRANGEMENT AT THE EXEL CLASS MEETING.
In reaching its decision, EXEL's Board of Directors considered, among other
things, the written opinion of Goldman, Sachs & Co., the financial advisor to
EXEL in connection with the Arrangements, to the effect that, as of April 28,
1998 and based upon the qualifications and assumptions described therein, the
aggregate consideration in the form of New EXEL shares and cash, if any, to be
received by shareholders of EXEL in connection with the Arrangements was fair as
of April 28, 1998 to EXEL's shareholders from a financial point of view. A copy
of such opinion is attached as an appendix to the Joint Proxy Statement.
Consummation of the Arrangements is subject to certain conditions, including
approval of the respective Arrangements by the requisite votes of each of the
classes of the shareholders of both Mid Ocean and EXEL, and approval of each of
the Arrangements by the Grand Court of the Cayman Islands and certain other
regulatory authorities.
The Notice of Class Meeting and the Joint ProxyStatement describing these
transactions in greater detail are attached. Whether or not you plan to attend
the EXEL Class Meeting, it is important that your shares be represented. Please
give this information your careful consideration and complete, date, sign and
return promptly the WHITE proxy card in the enclosed envelope. Should you decide
to exercise your rights at the EXEL Class Meeting, you must either vote for or
against the resolution seeking sanction of the EXEL Arrangement. You may attend
the meeting and vote your shares in person if you wish, even though you have
previously returned your proxy.
Thank you for your cooperation and continued support.
Sincerely,
<TABLE>
<S> <C>
Michael P. Esposito, Jr. Brian M. O'Hara
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN THE WHITE PROXY CARD
PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE
EXEL CLASS MEETING.
<PAGE>
Preliminary Proxy Material
EXEL LIMITED
----------------------------------------------------
NOTICE OF CLASS MEETING OF SHAREHOLDERS
----------------------------------------------------
A Class Meeting of Shareholders of EXEL Limited ("EXEL") will be held at the
Princess Hotel, in the city of Hamilton, Bermuda, at 9:00 a.m., local time, on
July , 1998 (the "CLASS MEETING"), for the following purposes:
1. To consider and vote upon a resolution to approve the proposed Scheme
of Arrangement pursuant to Section 85 of the Companies Law (1995 Revision)
of the Cayman Islands between EXEL and its shareholders (the "EXEL
ARRANGEMENT") under which EXEL will become a wholly owned subsidiary of Exel
Merger Company Ltd., an exempted limited liability company incorporated
under the laws of the Cayman Islands.
2. To adjourn the Class Meeting, if necessary, to permit further
solicitation of proxies in the event that there may not be sufficient votes
at the time of the Class Meeting to approve the EXEL Arrangement.
3. To transact such other business as may properly come before the Class
Meeting or any adjournments or postponements thereof.
Only holders of record of Ordinary Shares of EXEL, at the close of business
on , 1998 are entitled to notice of and to vote at the Class Meeting
or any adjournments or postponements thereof. Approval of resolution no. 1 above
requires the affirmative vote of a majority in number representing 75% in value
of the members present and voting in person or by proxy at the Class Meeting
voting together as a single class.
<TABLE>
<S> <C>
Michael P. Esposito, Jr. Brian M. O'Hara
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE CLASS MEETING.
THE BOARD OF DIRECTORS OF EXEL RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
THE MATTERS TO BE VOTED UPON AT THE CLASS MEETING.
<PAGE>
Preliminary Proxy Material
[LOGO]
, 1998
Dear Fellow Shareholder:
You are cordially invited to attend Class Meetings of Shareholders of Mid
Ocean Limited ("MID OCEAN") called in accordance with an order of the Grand
Court of the Cayman Islands dated April , 1998 to be held at the Princess
Hotel, Hamilton, Bermuda, on July , 1998. A Class Meeting for Holders of Class
A Ordinary Shares (other than EXEL Limited, an exempted limited liability
company incorporated under the laws of the Cayman Islands ("EXEL") and its
subsidiaries) will take place at 11:00 a.m., local time. A Class Meeting for
Holders of Class B Ordinary Shares will take place at 10:30 a.m., local time. A
Class Meeting for Holders of Class C Ordinary Shares will take place at 10:00
a.m., local time. The three meetings are collectively referred to as the "MID
OCEAN CLASS MEETINGS."
At each Mid Ocean Class Meeting, the applicable class of shareholders will
be asked to consider and vote upon a Resolution to approve the terms of a scheme
of arrangement between Mid Ocean and its shareholders pursuant to Section 85 of
the Companies Law (1995 Revision) of the Cayman Islands (the "COMPANIES LAW") as
a result of which Mid Ocean will become directly and indirectly a wholly owned
subsidiary of Exel Merger Company Ltd., an exempted limited liability company
incorporated under the laws of the Cayman Islands, which will be renamed "EXEL
Limited" ("NEW EXEL"), and, subject to the cash election rights described below,
for each outstanding share in Mid Ocean at the effective time of such scheme of
arrangement (other than shares held by EXEL and its subsidiaries) there will be
allotted and issued 1.0215 shares in New EXEL (the "MID OCEAN ARRANGEMENT"). At
a class meeting on July , 1998, the shareholders of EXEL will vote on a scheme
of arrangement between EXEL and its shareholders pursuant to Section 85 of the
Companies Law under which EXEL will become a wholly owned subsidiary of New EXEL
and, subject to the cash election rights described below, for each outstanding
share in EXEL at the effective time of such scheme of arrangement there will be
allotted and issued one share in New EXEL (the "EXEL ARRANGEMENT" and, together
with the Mid Ocean Arrangement, the "ARRANGEMENTS"). Under the Arrangements,
shareholders of EXEL and Mid Ocean will have an opportunity to elect to receive
cash in lieu of shares in New EXEL, up to a maximum of $300 million in the
aggregate. If more than that amount is elected, $204 million of the cash will be
made available to shareholders of EXEL and $96 million of the cash will be made
available to shareholders of Mid Ocean, on a PRO RATA basis within each group of
shareholders. If the cash pool available to either group of shareholders is not
exhausted by cash elections within such group, the excess cash shall be made
available for the other group of shareholders. The enclosed Joint Proxy
Statement explains in detail the terms of the proposed Arrangements, the
Agreement and Schemes of Arrangement, dated March 16, 1998, amended and restated
April 28, 1998 and further amended on June , 1998 (as so amended, the
"AGREEMENT"), providing for the Arrangements, and related matters. Please
carefully review and consider all of this information.
The Arrangements will provide you with the opportunity to participate as a
shareholder in a combined company that will be one of the world's leading
insurance and reinsurance organizations. We believe that New EXEL will be well
positioned to compete more effectively in the increasingly competitive insurance
industry and will benefit from a more diversified business, customer and
distribution base and risk profile.
MID OCEAN'S BOARD OF DIRECTORS HAS DETERMINED THAT THE AGREEMENT, THE MID
OCEAN ARRANGEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE ADVISABLE AND IN
THE BEST INTERESTS OF MID OCEAN AND ITS SHAREHOLDERS. ACCORDINGLY, MID OCEAN'S
BOARD OF DIRECTORS HAS APPROVED THE AGREEMENT, THE MID OCEAN ARRANGEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE IN
FAVOR OF THE MID OCEAN ARRANGEMENT AT THE MID OCEAN CLASS MEETINGS.
<PAGE>
Preliminary Proxy Material
In reaching its decision, Mid Ocean's Board of Directors considered, among
other things, the opinion of J.P. Morgan Securities Inc., the financial advisor
to Mid Ocean in connection with the Arrangements, that the consideration to be
paid to the shareholders of Mid Ocean was fair to Mid Ocean and its shareholders
(other than EXEL), from a financial point of view, as of the date of the
Directors' approval of the Agreement. A copy of the opinion of J.P. Morgan
Securities Inc. dated the date hereof is attached as an appendix to the attached
Joint Proxy Statement.
Consummation of the Arrangements is subject to certain conditions, including
but not limited to approval of the respective Arrangements by the requisite
votes of each of the classes of shareholders of both Mid Ocean and EXEL, and
approval of each of the Arrangements by the Grand Court of the Cayman Islands
and certain other regulatory authorities.
The Notice of Class Meetings and the Joint Proxy Statement describing these
transactions in greater detail are attached. Whether or not you plan to attend
the applicable Mid Ocean Class Meeting, it is important that your shares be
represented. Please give this information your careful consideration and
complete, date, sign and return promptly the WHITE proxy card in the enclosed
envelope. Should you decide to exercise your rights at the Mid Ocean Class
Meetings you must vote either for or against the resolution seeking sanction of
the Mid Ocean Arrangement. You may attend the applicable Mid Ocean Class Meeting
and vote your shares in person if you wish, even though you have previously
returned your proxy.
Thank you for your cooperation and continued support.
Sincerely,
<TABLE>
<S> <C>
[LOGO] [LOGO]
Robert J. Newhouse, Jr. Michael A. Butt
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN THE WHITE PROXY CARD
PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE APPLICABLE MID OCEAN CLASS
MEETING.
2
<PAGE>
Preliminary Proxy Material
MID OCEAN LIMITED
----------------------------------------------------
NOTICE OF CLASS MEETINGS OF SHAREHOLDERS
----------------------------------------------------
A Class Meeting of each class of Shareholders of Mid Ocean Limited ("MID
OCEAN") will be held at the Princess Hotel, in the city of Hamilton, Bermuda, on
July , 1998. A Class Meeting for holders of Class A Ordinary Shares (other
than EXEL Limited, an exempted limited liability company incorporated under the
laws of the Cayman Islands, and its subsidiaries) will take place at 11:00 a.m.,
local time. A class meeting for holders of Class B Ordinary Shares will take
place at 10:30 a.m., local time. A class meeting for holders of Class C Ordinary
Shares will take place at 10:00 a.m., local time. These class meetings (each a
"CLASS MEETING," and collectively, the "CLASS MEETINGS") will have the following
purposes:
1. To consider and vote upon a resolution to approve the Scheme of
Arrangement pursuant to Section 85 of the Companies Law (1995 Revision) of
the Cayman Islands between Mid Ocean and its shareholders (the "MID OCEAN
ARRANGEMENT") under which Mid Ocean will become a wholly owned subsidiary of
Exel Merger Company Ltd., an exempted limited liability company incorporated
under the laws of the Cayman Islands.
2. To adjourn the Class Meeting, if necessary, to permit further
solicitation of proxies in the event that there may not be sufficient votes
at the time of the Class Meeting to approve the Mid Ocean Arrangement.
3. To transact such other business as may properly come before the Class
Meeting or any adjournments or postponements thereof.
Only holders of record of Mid Ocean Class A Ordinary Shares (other than EXEL
Limited and its subsidiaries), Class B Ordinary Shares and Class C Ordinary
Shares, at the close of business on , 1998, are entitled to notice of
and to vote at the applicable Class Meeting or any adjournments or postponements
thereof. Approval of resolution no. 1 above requires the affirmative vote of a
majority in number representing 75% in value of the members present and voting
in person or by proxy at such Class Meeting voting together as a separate class.
<TABLE>
<S> <C>
[LOGO] [LOGO]
Robert J. Newhouse, Jr. Michael A. Butt
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE APPLICABLE CLASS MEETING.
THE BOARD OF DIRECTORS OF MID OCEAN RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE MATTERS TO BE VOTED UPON AT EACH CLASS MEETING.
<PAGE>
Preliminary Proxy Material
JOINT PROXY STATEMENT
<TABLE>
<S> <C>
EXEL LIMITED MID OCEAN LIMITED
CLASS MEETING OF SHAREHOLDERS CLASS MEETINGS OF SHAREHOLDERS EACH
TO BE HELD ON JULY , 1998 TO BE HELD ON JULY , 1998
</TABLE>
This Joint Proxy Statement (this "JOINT PROXY STATEMENT") is being furnished
in connection with the solicitation of proxies relating to (i) a scheme of
arrangement pursuant to Section 85 of the Companies Law (1995 Revision) of the
Cayman Islands (the "COMPANIES LAW") between EXEL Limited, an exempted company
incorporated under the laws of the Cayman Islands ("EXEL"), and its shareholders
("EXEL SHAREHOLDERS") (the "EXEL ARRANGEMENT") and (ii) a scheme of arrangement
pursuant to Section 85 of the Companies Law between Mid Ocean Limited, an
exempted company incorporated under the laws of the Cayman Islands ("MID OCEAN")
and its shareholders ("MID OCEAN SHAREHOLDERS") other than EXEL and its
subsidiaries (the "MID OCEAN ARRANGEMENT" and, together with the EXEL
Arrangement, the "ARRANGEMENTS"). Pursuant to the Arrangements up to Class
A Shares, par value $.01 per share ("NEW EXEL VOTING SHARES"), and up to
Class B Shares, par value $.01 per share ("NEW EXEL NON-VOTING SHARES" and,
together with the New EXEL Voting Shares, the "NEW EXEL SHARES"), of Exel Merger
Company Ltd., an exempted company incorporated under the laws of the Cayman
Islands (which will change its name following the completion of the transaction
to "EXEL Limited") ("NEW EXEL"), offered hereby to the shareholders of EXEL and
Mid Ocean. Pursuant to the EXEL Arrangement, EXEL will become a wholly owned
subsidiary of New EXEL, and, for each outstanding ordinary share, par value
$0.01 per share, of EXEL ("EXEL ORDINARY SHARES") at the effectiveness of the
EXEL Arrangement, subject to an EXEL Shareholder's entitlement to elect and to
receive cash consideration for such shareholder's shares as, and up to the
limits, described herein, there will be allotted and issued one New EXEL Voting
Share. Pursuant to the Mid Ocean Arrangement, Mid Ocean will become a wholly
owned subsidiary of New EXEL, and for each outstanding share, par value $0.20
per share (other than shares owned by EXEL and its subsidiaries), of Mid Ocean
at the effectiveness of the Mid Ocean Arrangement, subject to a Mid Ocean
Shareholder's entitlement to elect and to receive cash consideration for such
shareholder's shares as, and up to the limits, described herein, there will be
allotted and issued 1.0215 New EXEL Shares (such number being defined herein as
the "EXCHANGE RATIO") in such class of shares and with such rights as described
below.
Based on the closing sale price per EXEL Ordinary Share as reported on The
New York Stock Exchange, Inc. (the "NYSE") Composite Transactions reporting
system on June 5, 1998 and the number of outstanding Mid Ocean Shares as of
March 10, 1998, the aggregate consideration to be received by Mid Ocean
Shareholders (other than EXEL and its subsidiaries) pursuant to the Mid Ocean
Arrangement would be valued at approximately $2.2440 billion, exclusive of
payments to be made in connection with stock options.
This Joint Proxy Statement also serves as the Joint Proxy Statement of EXEL
and Mid Ocean for use in connection with the solicitation of proxies by the
Boards of Directors of EXEL and Mid Ocean to be used at the class meeting of
EXEL Shareholders (the "EXEL CLASS MEETING") and at the class meetings of each
of the three classes of Mid Ocean Shareholders (the "MID OCEAN CLASS MEETINGS"
and, together with the EXEL Class Meeting, the "CLASS MEETINGS"), respectively,
called in accordance with the orders of the Grand Court of the Cayman Islands
(the "GRAND COURT") dated April , 1998 to approve (in the case of EXEL) the
EXEL Arrangement and such other matters as may properly be brought before the
EXEL Class Meeting, and (in the case of Mid Ocean) the Mid Ocean Arrangement and
such other matters as may properly be brought before the relevant Mid Ocean
Class Meeting.
Upon consummation of the EXEL Arrangement, each ordinary share, par value
$0.01 per share, of EXEL ("EXEL ORDINARY SHARES") will be transferred to New
EXEL and, subject to such EXEL Shareholder's right to receive cash consideration
in lieu of New EXEL Shares (as described herein), there will be allotted and
issued to the holder thereof one New EXEL Voting Share per EXEL Ordinary Share
so transferred. Upon consummation of the Mid Ocean Arrangement, (i) each Class A
Ordinary Share of Mid Ocean, par value $0.20 per share ("MID OCEAN CLASS A
SHARES"), other than Mid Ocean Class A Shares held by EXEL or any of its
subsidiaries, will be transferred to New EXEL and, subject to such Mid Ocean
Shareholder's right to receive cash consideration in lieu of New EXEL Shares (as
described herein), there will be allotted and issued to the holder thereof that
number of New EXEL Voting Shares equal to the Exchange Ratio, (ii) each Class B
Ordinary Share of Mid Ocean, par value $0.20 per share ("MID OCEAN CLASS B
SHARES") and Class C Ordinary Shares of Mid Ocean, par value $0.20 per share
("MID OCEAN CLASS C SHARES," and the Mid Ocean Class A Shares, Mid Ocean Class B
Shares, and Mid Ocean Class C Shares collectively, the "MID OCEAN SHARES"), will
be transferred to New EXEL and, subject to such Mid Ocean Shareholder's right to
receive cash consideration in lieu of New EXEL Shares (as described herein),
there will be allotted and issued to the holder thereof that number of New EXEL
Non-Voting Shares equal to the Exchange Ratio. Based upon the numbers of EXEL
<PAGE>
Preliminary Proxy Material
Ordinary Shares and Mid Ocean Shares outstanding as of the date hereof,
immediately after consummation of the Arrangements, EXEL Shareholders are
expected to hold approximately 74% of the New EXEL Shares, and Mid Ocean
Shareholders (excluding EXEL and its subsidiaries) are expected to hold
approximately 26% of the New EXEL Shares, assuming equivalent percentages of
shareholders of EXEL and Mid Ocean elect to receive cash.
EXEL Shareholders and Mid Ocean Shareholders may elect to receive cash in
lieu of New EXEL Shares in exchange for their EXEL Ordinary Shares and Mid Ocean
Shares, respectively, up to a maximum of $300 million in the aggregate (the
"CASH ELECTION"). If more than that amount is elected, $204 million of the cash
will be made available to EXEL Shareholders and $96 million of the cash will be
made available to Mid Ocean Shareholders, on a PRO RATA basis within each group
of shareholders. If the cash pool available to either group of shareholders is
not exhausted by cash elections within such group, the excess cash shall be made
available for the other group of shareholders. Subject to any PRO RATA
adjustment, the cash consideration payable will be equal to the number of New
EXEL Shares such holder would have been entitled to receive multiplied by the
average of the closing sales prices per EXEL Ordinary Share as reported on the
NYSE Composite Transactions reporting system (as reported in THE WALL STREET
JOURNAL) during the ten consecutive trading days ending the tenth calendar day
prior to the anticipated effectiveness of the Arrangements. If the value of EXEL
Ordinary Shares or Mid Ocean Shares held by shareholders electing to receive
cash exceeds the cash amount available to such respective group of shareholders,
the pro ration feature of the Cash Election will cause such EXEL Shareholders or
Mid Ocean Shareholders, as the case may be, to receive some New EXEL Shares
rather than cash regardless of what such shareholders elect to receive.
For a more complete description of the Agreement and Schemes of Arrangement,
dated March 16, 1998 (the "ORIGINAL AGREEMENT"), amended and restated April 28,
1998, and further amended on June , 1998, by and among EXEL, New EXEL and Mid
Ocean (as amended, the "AGREEMENT") and the Arrangements, see "THE
ARRANGEMENTS." The Agreement (prior to Amendment No. 2), Amendment No. 2 to the
Agreement, the EXEL Arrangement and the Mid Ocean Arrangement are attached to
this Joint Proxy Statement as Appendices A, B, C and D, respectively, and are
incorporated herein by reference.
The last reported sale price of EXEL Ordinary Shares on the NYSE Composite
Transactions reporting system on , 1998 was $ per share and
on March 13, 1998, the last trading day preceding public announcement of the
proposed Arrangements, was $71.25 per share. The last reported sale price of Mid
Ocean Class A Shares as reported by the NYSE Composite Transactions reporting
system on , 1998 was $ per share and on March 13, 1998 was
$63.3125 per share. Because the market price of EXEL Ordinary Shares is subject
to fluctuation, the value of the New EXEL Shares that Mid Ocean Shareholders
will receive in the Arrangements may increase or decrease prior to and after the
effectiveness of the Arrangements. See "PRICE RANGE OF SHARES AND DIVIDENDS."
Unless the context requires otherwise, $ refers to United States dollars.
THIS JOINT PROXY STATEMENT AND FORMS OF PROXY ARE FIRST BEING MAILED TO
SHAREHOLDERS ON OR ABOUT JUNE , 1998.
THE NEW EXEL SHARES TO BE ISSUED PURSUANT TO THE ARRANGEMENTS WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
IN RELIANCE ON THE EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(a)(10) OF
THE SECURITIES ACT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
The date of this Joint Proxy Statement is June , 1998.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED OR INCORPORATED IN THIS JOINT PROXY STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY EXEL OR MID OCEAN. THIS JOINT PROXY STATEMENT DOES
NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO
EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT, OR
THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. THE INFORMATION CONTAINED IN THIS JOINT
PROXY STATEMENT SPEAKS AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFICALLY
INDICATED. INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT REGARDING EXEL
HAS BEEN FURNISHED BY EXEL, AND INFORMATION HEREIN REGARDING MID OCEAN HAS BEEN
FURNISHED BY MID OCEAN.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 1
FORWARD-LOOKING STATEMENTS................................................................................. 2
SUMMARY.................................................................................................... 3
SELECTED FINANCIAL DATA.................................................................................... 13
COMPARATIVE UNAUDITED PRO FORMA AND HISTORICAL PER SHARE DATA.............................................. 17
EXEL CLASS MEETING......................................................................................... 19
General.................................................................................................. 19
Matters to Be Considered................................................................................. 19
Proxies.................................................................................................. 19
Record Date and Voting Rights............................................................................ 19
Dissenters' Rights....................................................................................... 20
Recommendation of the EXEL Board......................................................................... 21
MID OCEAN CLASS MEETINGS................................................................................... 21
General.................................................................................................. 21
Matters to Be Considered................................................................................. 21
Proxies.................................................................................................. 21
Record Date and Voting Rights............................................................................ 22
Dissenters' Rights....................................................................................... 24
Recommendation of the Mid Ocean Board.................................................................... 24
THE ARRANGEMENTS........................................................................................... 24
Background of the Arrangements........................................................................... 24
Reasons for the Arrangements; Recommendations of the Boards of Directors................................. 30
Reasons of EXEL for the Arrangements..................................................................... 30
Reasons of Mid Ocean for the Arrangements................................................................ 32
Opinion of EXEL's Financial Advisor...................................................................... 34
Opinion of Mid Ocean's Financial Advisor................................................................. 39
The Arrangements......................................................................................... 44
Exchange of Shares....................................................................................... 45
Conversion of Options.................................................................................... 46
Conditions to the Arrangements........................................................................... 47
Conduct of Business Pending the Arrangements............................................................. 48
Representations and Warranties........................................................................... 50
Other Agreements......................................................................................... 50
Management After the Arrangements........................................................................ 52
Compensation and Benefits................................................................................ 52
Waiver; Amendment........................................................................................ 53
Termination; Termination Fee............................................................................. 54
Expenses................................................................................................. 55
Indemnification and Insurance............................................................................ 55
Certain Federal Income Tax Consequences of the Arrangements.............................................. 56
Tax Consequences to United States Shareholders of Ownership of New EXEL Shares........................... 58
Cash Election Procedure.................................................................................. 61
Exchange of Certificates................................................................................. 61
Interests of Certain Persons in the Arrangements......................................................... 62
Amendment to Mid Ocean Rights Agreement.................................................................. 65
Amendment to EXEL Rights Plan............................................................................ 65
Accounting Treatment..................................................................................... 65
Regulatory Matters....................................................................................... 65
Grand Court Approval..................................................................................... 66
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Restrictions on Resales.................................................................................. 67
Cayman Islands Dissenters' Rights........................................................................ 67
Stock Exchange Listing of New EXEL Shares................................................................ 68
THE SUPPORT AGREEMENT...................................................................................... 69
MANAGEMENT AND OPERATIONS AFTER THE ARRANGEMENTS........................................................... 70
PRICE RANGE OF SHARES AND DIVIDENDS........................................................................ 71
Market Prices............................................................................................ 71
Dividends................................................................................................ 72
INFORMATION ABOUT EXEL..................................................................................... 73
INFORMATION ABOUT NEW EXEL................................................................................. 73
INFORMATION ABOUT MID OCEAN................................................................................ 73
NEW EXEL SHARE CAPITAL..................................................................................... 74
Description of New EXEL Share Capital.................................................................... 74
General.................................................................................................. 74
New EXEL Shares.......................................................................................... 74
Dividend Rights.......................................................................................... 75
Liquidation.............................................................................................. 75
Voting Rights............................................................................................ 75
Preemptive Rights........................................................................................ 76
Transfer of Shares....................................................................................... 76
Lien on Shares........................................................................................... 76
Limitation of Liability's, Indemnification............................................................... 77
Transfer Agent........................................................................................... 77
ANTITAKEOVER EFFECTS OF NEW EXEL ARTICLES.................................................................. 77
EXEL Rights Plan......................................................................................... 77
Availability of Share Capital for Future Issuances....................................................... 78
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 78
General.................................................................................................. 78
Authorized Share Capital................................................................................. 79
Directors................................................................................................ 79
Election and Removal of Directors........................................................................ 79
Limitation of Liability's; Indemnification of Directors.................................................. 80
Dividends................................................................................................ 80
Amendment of Charter Documents........................................................................... 80
Meetings of Shareholders................................................................................. 80
CERTAIN LITIGATION......................................................................................... 81
LEGAL OPINION.............................................................................................. 81
EXPERTS.................................................................................................... 81
SHAREHOLDER PROPOSALS...................................................................................... 82
OTHER MATTERS.............................................................................................. 82
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION............................................... 83
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.................................. 87
APPENDIX A--Agreement and Schemes of Arrangement (as amended and restated)................................. A-1
APPENDIX B--Amendment No. 2 to the Agreement and Schemes of Arrangement.................................... B-1
APPENDIX C--EXEL Limited Scheme of Arrangement............................................................. C-1
APPENDIX D--Mid Ocean Limited Scheme of Arrangement........................................................ D-1
APPENDIX E--Opinion of Goldman, Sachs & Co................................................................. E-1
APPENDIX F--Opinion of J.P. Morgan Securities Inc.......................................................... F-1
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APPENDIX G--Form of New EXEL Memorandum and New EXEL Articles.............................................. G-1
APPENDIX H--Order of the Grand Court....................................................................... H-1
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AVAILABLE INFORMATION
EXEL and Mid Ocean are subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and, in
accordance therewith, file certain reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference room of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
copies of such materials can be obtained by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. The Commission maintains an Internet world wide web
site that contains reports, proxy and information statements and other
information regarding issuers, like EXEL and Mid Ocean, who file electronically
with the Commission. The address of that site is http://www.sec.gov. In
addition, copies of such materials are available for inspection and reproduction
at the public reference facilities of the Commission at its New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and at its
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Reports, proxy statements and other information
concerning EXEL and Mid Ocean also may be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by EXEL with the Commission are
hereby incorporated by reference in this Joint Proxy Statement: (i) the EXEL
Annual Report on Form 10-K for the year ended November 30, 1997, as filed
February 25, 1998; (ii) the EXEL Quarterly Report on Form 10-Q/A for the quarter
ended February 28, 1998, as filed April 21, 1998; (iii) the EXEL Quarterly
Report on Form 10-Q for the quarter ended February 28, 1998, as filed April 14,
1998; (iv) the description of EXEL Ordinary Shares contained in the EXEL
registration statement filed pursuant to Section 12 of the Exchange Act,
including any amendment or report filed for purposes of giving or updating any
such description; and (v) the EXEL Current Reports on Form 8-K filed March 17,
1998 and May 5, 1998.
The following documents previously filed by Mid Ocean with the Commission
are hereby incorporated by reference in this Joint Proxy Statement: (i) the Mid
Ocean Annual Report on Form 10-K for the year ended October 31, 1997, as filed
on January 28, 1998; (ii) the Mid Ocean Quarterly Reports on Form 10-Q for the
quarters ended January 31, 1998 and April 30, 1998, as filed on March 17, 1998
and June , 1998, respectively; (iii) the description of the Mid Ocean share
capital and of the Mid Ocean 1993 Long-Term Incentive and Share Award Plan and
Mid Ocean Rights (as defined herein) set forth in registration statements filed
by Mid Ocean pursuant to Section 12 of the Exchange Act, including any amendment
or report filed for purposes of giving or updating any such description; and
(iv) the Mid Ocean Current Reports on Form 8-K filed March 24, 1998 and May 14,
1998.
In addition, all documents filed by EXEL and Mid Ocean with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
hereof and prior to the time at which the Mid Ocean Class Meetings and the EXEL
Class Meeting have been finally closed are hereby deemed to be incorporated by
reference herein. Any statements contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Joint
Proxy Statement.
THIS JOINT PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO EXEL (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE NOT SPECIFICALLY INCORPORATED
BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR
ORAL REQUEST FROM THE COMPANY SECRETARY, EXEL LIMITED, CUMBERLAND HOUSE, 1
VICTORIA STREET, HAMILTON, BERMUDA HM 11, TELEPHONE NUMBER (441) 292-8515. THE
DOCUMENTS RELATING TO MID OCEAN (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH
EXHIBITS ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM THE COMPANY
SECRETARY, MID OCEAN LIMITED, RICHMOND HOUSE, 12 PAR-LA-VILLE ROAD, HAMILTON,
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BERMUDA HM 08, TELEPHONE NUMBER (441) 292-1358. EXEL OR MID OCEAN, AS THE CASE
MAY BE, WILL SEND THE REQUESTED DOCUMENTS BY FIRST-CLASS MAIL WITHIN ONE
BUSINESS DAY OF THE RECEIPT OF THE REQUEST. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1998. PERSONS
REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE CHARGED THE COSTS OF
REPRODUCTION AND MAILING OF SUCH EXHIBITS.
FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH
RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF NEW
EXEL FOLLOWING THE CONSUMMATION OF THE ARRANGEMENTS, INCLUDING STATEMENTS
RELATING TO THE COST SAVINGS AND OTHER ADVANTAGES THAT ARE EXPECTED TO BE
REALIZED FROM THE ARRANGEMENTS, THE EXPECTED IMPACT OF THE ARRANGEMENTS ON NEW
EXEL'S FINANCIAL PERFORMANCE AND EARNINGS ESTIMATES FOR THE COMBINED COMPANY
(SEE "THE ARRANGEMENTS-- REASONS OF EXEL FOR THE ARRANGEMENTS," AND "--REASONS
OF MID OCEAN FOR THE ARRANGEMENTS," AND "MANAGEMENT AFTER THE ARRANGEMENTS").
THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NEW
EXEL, EXEL AND MID OCEAN DO NOT UNDERTAKE ANY OBLIGATION TO REFLECT EVENTS AND
CIRCUMSTANCES THAT ARISE AFTER THE DATE HEREOF. FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST
SAVINGS FROM THE ARRANGEMENTS CANNOT BE FULLY REALIZED OR REALIZED WITHIN THE
EXPECTED TIME FRAME; (2) GREATER THAN EXPECTED REVENUE LOSS FOLLOWING THE
ARRANGEMENTS; (3) COMPETITIVE PRESSURE IN THE INSURANCE AND REINSURANCE
INDUSTRIES INCREASES SIGNIFICANTLY; (4) GREATER THAN EXPECTED COSTS OR
DIFFICULTIES RELATED TO REGULATORY REQUIREMENTS ATTENDANT TO THE CONSUMMATION OF
THE ARRANGEMENTS OR THE INTEGRATION OF THE BUSINESSES OF EXEL AND MID OCEAN; (5)
GENERAL ECONOMIC CONDITIONS, INTERNATIONALLY, NATIONALLY OR REGIONALLY, ARE LESS
FAVORABLE THAN EXPECTED; (6) LEGISLATION OR REGULATORY REQUIREMENTS OR CHANGES
ADVERSELY AFFECT THE BUSINESSES IN WHICH THE COMBINED COMPANY WOULD BE ENGAGED;
(7) CHANGES IN BUSINESS CONDITIONS AND INFLATION; (8) CHANGES IN THE SECURITIES
MARKETS; AND (9) NATURAL DISASTERS AND OTHER CATASTROPHIC EVENTS OCCUR WITH A
FREQUENCY OR MAGNITUDE GREATER THAN EXPECTED. THE FORWARD-LOOKING EARNINGS
ESTIMATES INCLUDED IN THIS JOINT PROXY STATEMENT HAVE NOT BEEN EXAMINED OR
COMPILED BY THE INDEPENDENT PUBLIC ACCOUNTANTS OF EXEL OR MID OCEAN NOR HAVE
SUCH ACCOUNTANTS APPLIED ANY PROCEDURES THERETO. ACCORDINGLY, SUCH ACCOUNTANTS
DO NOT EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE ON THEM. FURTHER
INFORMATION ON OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF NEW
EXEL AFTER THE ARRANGEMENTS IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED
BY REFERENCE HEREIN.
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SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION SET FORTH ELSEWHERE
IN THIS JOINT PROXY STATEMENT AND IS NOT INTENDED TO BE COMPLETE. IT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT, THE ACCOMPANYING APPENDICES AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
GENERAL
This Joint Proxy Statement, Notice of the EXEL Class Meeting to be held on
July , 1998, Notice of the Mid Ocean Class Meetings to be held on July ,
1998, and forms of proxy solicited in connection therewith are first being
mailed to EXEL Shareholders and Mid Ocean Shareholders on or about
, 1998. At the EXEL Class Meeting, EXEL Shareholders (other than
Interested EXEL Shareholders (as defined herein) who have consented to the EXEL
Arrangement) will consider and vote on the approval of the EXEL Arrangement. At
the Mid Ocean Class Meetings, each class of Mid Ocean Shareholders (other than
Interested Mid Ocean Shareholders (as defined herein) who have consented to the
Mid Ocean Arrangement) will consider and vote on the approval of the Mid Ocean
Arrangement. Copies of the Agreement (prior to Amendment No. 2), Amendment No. 2
to the Agreement, the EXEL Arrangement and the Mid Ocean Arrangement are
attached to this Joint Proxy Statement as Appendices A, B, C and D,
respectively, and are incorporated herein by reference.
THE COMPANIES
EXEL. EXEL, an exempted company incorporated under the laws of the Cayman
Islands on April 14, 1986, is a holding company whose principal source of income
is dividends from its wholly owned subsidiary, X.L. Insurance Company, Ltd.
EXEL, through X.L. Insurance Company, Ltd. and its other subsidiaries, provides
excess liability insurance coverage to industrial, commercial and other
enterprises, directors and officers of such enterprises, professional firms,
high excess property coverage, and the assumption of reinsurance contracts on
worldwide basis. As of November 30, 1997, EXEL and its subsidiaries had total
assets of over $6.0 billion and 184 full-time equivalent employees. The
principal executive offices of EXEL are located at Cumberland House, One
Victoria Street, Hamilton, Bermuda HM11, and its telephone number is (441)
292-8515. All references herein to EXEL refer to EXEL and its subsidiaries,
unless the context otherwise requires.
For additional information regarding EXEL, see "THE ARRANGEMENTS" and
"INFORMATION ABOUT EXEL."
MID OCEAN. Mid Ocean, an exempted company incorporated under the laws of
the Cayman Islands on April 8, 1993, is a holding company that, through its two
wholly owned subsidiaries, Mid Ocean Reinsurance Company Ltd. and The Brockbank
Group plc ("BROCKBANK"), provides insurance and reinsurance on a worldwide
basis. As of October 31, 1997, Mid Ocean had assets of approximately $2.27
billion and 265 full-time equivalent employees. The principal executive offices
of Mid Ocean are located at Richmond House, 12 Par-La-Ville Road, Hamilton,
Bermuda HM 08, and its telephone number is (441) 292-1358.
All references herein to Mid Ocean refer to Mid Ocean and its subsidiaries,
unless the context otherwise requires. For additional information regarding Mid
Ocean, see "THE ARRANGEMENTS" and "INFORMATION ABOUT MID OCEAN."
NEW EXEL. New EXEL, an exempted company incorporated under the laws of the
Cayman Islands, is a company formed by EXEL solely for the purpose of
consummating the Arrangements, and is not
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engaged in any significant business activity. The principal executive office of
New EXEL is Cumberland House, One Victoria Street, Hamilton, Bermuda HM11, and
its telephone number is (441) 292-8515.
EXEL/MID OCEAN RELATIONSHIP. EXEL accepted an offer to invest in Mid Ocean
at the time of its establishment in 1992, and has since that time been the
largest Mid Ocean Shareholder and has had at least two representatives on the
Board of Directors of Mid Ocean (the "MID OCEAN BOARD"), including one on the
Executive Committee of the Mid Ocean Board. From time to time, subsidiaries of
EXEL and Mid Ocean also have entered into reinsurance coverage arrangements. See
"THE ARRANGEMENTS-- Background of the Arrangements."
EXEL CLASS MEETING AND VOTE REQUIRED
The EXEL Class Meeting will be held on July , 1998 at 9:00 a.m., local
time, at The Princess Hotel, Hamilton, Bermuda. At that time, the EXEL
Shareholders (other than Interested EXEL Shareholders) will be asked to consider
and vote upon the approval of the EXEL Arrangement. The record holders of EXEL
Ordinary Shares at the close of business on , 1998 (the "EXEL
RECORD DATE") are entitled to notice of and to vote at the EXEL Class Meeting.
On the EXEL Record Date, there were approximately holders of record of EXEL
Ordinary Shares and EXEL Ordinary Shares outstanding.
Each EXEL Ordinary Share (other than shares owned by Interested EXEL
Shareholders ("EXEL INTERESTED SHARES")) entitles its holder to one vote at the
EXEL Class Meeting. All EXEL Shareholders (other than Interested EXEL
Shareholders) vote together as a single class and the affirmative vote of a
majority in number of such EXEL Shareholders present in person and voting in
person or by proxy at the EXEL Class Meeting and representing 75% in value of
such EXEL Shareholders is required to approve the EXEL Arrangement. As of the
EXEL Record Date, directors and executive officers of EXEL (other than
Interested EXEL Shareholders) beneficially owned EXEL Ordinary Shares,
equivalent to approximately % of the votes entitled to be cast at the EXEL
Class Meeting. It is currently expected that each such officer of EXEL will vote
the EXEL Ordinary Shares beneficially owned by him or her for approval of the
EXEL Arrangement. In addition, as of the EXEL Record Date, certain directors and
executive officers of Mid Ocean (the "INTERESTED EXEL SHAREHOLDERS"), including
Michael P. Esposito, Jr., EXEL's Chairman, and Brian M. O'Hara, EXEL's Chief
Executive Officer, both of whom are on the Mid Ocean Board, beneficially owned
EXEL Ordinary Shares as of the EXEL Record Date equivalent to approximately
% of the EXEL Ordinary Shares. The Interested EXEL Shareholders, who, under
Cayman Islands law, constitute a separate class of EXEL Shareholders for the
purposes of the EXEL Arrangement, shall not vote in the EXEL Class Meeting, but
have unanimously consented to the EXEL Arrangement. As of the EXEL Record Date,
Mid Ocean beneficially owned no EXEL Ordinary Shares. See "EXEL CLASS MEETING."
MID OCEAN CLASS MEETINGS AND VOTE REQUIRED
The Mid Ocean Class Meetings will be held on July , 1998 at The Princess
Hotel, Hamilton, Bermuda, at 11:00 a.m. (for holders of Mid Ocean Class A Shares
other than EXEL and its subsidiaries), 10:30 a.m. (for holders of Mid Ocean
Class B Shares) and 10:00 a.m. (for holders of Mid Ocean Class C Shares). At
each of the Mid Ocean Class Meetings, Mid Ocean Shareholders of the relevant
class (other than Interested Mid Ocean Shareholders) will be asked to approve
the Mid Ocean Arrangement. Only holders of record of Mid Ocean Shares at the
close of business on , 1998 (the "MID OCEAN RECORD DATE") are
entitled to notice of and to vote at the Mid Ocean Class Meetings. On the Mid
Ocean Record Date, there were approximately holders of record of Mid Ocean
Class A Shares and [36,088,147] Mid Ocean Class A Shares outstanding, one holder
of record of Mid Ocean Class B Shares and 1,190,292 Mid Ocean Class B Shares
outstanding, and one holder of record of Mid Ocean Class C Shares and 1,860,000
Mid Ocean Class C Shares outstanding.
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Each class of Mid Ocean Shares will hold a separate meeting and have a
separate vote, and each Mid Ocean Share (other than Mid Ocean Shares owned by
Interested Mid Ocean Shareholders ("MID OCEAN INTERESTED SHARES")) entitles its
holder to one vote at the appropriate Mid Ocean Class Meeting. The affirmative
vote of a majority in number of Mid Ocean Shareholders present in person and
voting in person or by proxy at each Mid Ocean Class Meeting and representing
75% in value of such Mid Ocean Shareholders at each Mid Ocean Class Meeting is
required to approve the Mid Ocean Arrangement. As of the Mid Ocean Record Date,
directors and executive officers of Mid Ocean beneficially owned approximately
Mid Ocean Class A Shares, equivalent to approximately % of the Mid
Ocean Class A Shares entitled to vote at the Mid Ocean Class A Meeting, no
shares of Mid Ocean Class B Shares and no shares of Mid Ocean Class C Shares. It
is currently expected that each such director and executive officer of Mid Ocean
will vote the Mid Ocean Class A Shares beneficially owned by him or her for
approval of the Mid Ocean Arrangement. In addition, as of the Mid Ocean Record
Date, certain directors and executive officers of EXEL (the "INTERESTED MID
OCEAN SHAREHOLDERS") beneficially owned significantly less than 1% of the Mid
Ocean Shares. The Interested Mid Ocean Shareholders, who, under Cayman Islands
law, constitute a separate class of Mid Ocean Shareholders for the purposes of
the Mid Ocean Arrangement, shall not vote at the Mid Ocean Class Meetings, but
have unanimously consented to the Mid Ocean Arrangement. As of the Mid Ocean
Record Date, EXEL beneficially owned [9,676,367] Mid Ocean Class A Shares,
equivalent to approximately [26.81]% of the Mid Ocean Class A Shares outstanding
as of the Mid Ocean Record Date, but such shares are not being exchanged in the
Mid Ocean Arrangement and are not eligible to vote at the Mid Ocean Class
Meetings. See "MID OCEAN CLASS MEETINGS."
J.P. Morgan Capital Corporation ("JPMCC"), the sole holder of all of the Mid
Ocean Class B Shares and Mid Ocean Class C Shares, has entered into a Support
Agreement dated as of March 15, 1998 (the "SUPPORT AGREEMENT"), with EXEL,
pursuant to which JPMCC has agreed, among other things, to vote, subject to the
terms of the Support Agreement, all of its Mid Ocean Shares in favor of the Mid
Ocean Arrangement. See "THE SUPPORT AGREEMENT."
THE ARRANGEMENTS
Subject to the requisite approvals being obtained at the EXEL Class Meeting
and each of the Mid Ocean Class Meetings, EXEL and Mid Ocean will each cause a
petition to be presented to the Grand Court seeking the sanctioning of the EXEL
Arrangement and the Mid Ocean Arrangement, respectively, pursuant to Section 85
of the Companies Law.
Pursuant to the EXEL Arrangement, EXEL will become a wholly owned subsidiary
of New EXEL, and, subject to the Cash Election described below, each outstanding
EXEL Ordinary Share will entitle the holder to receive one New EXEL Voting
Share. Pursuant to the Mid Ocean Arrangement, Mid Ocean will become a direct and
indirect (by virtue of the Mid Ocean Shares held by EXEL) wholly owned
subsidiary of New EXEL, and, subject to the Cash Election described below, (i)
each outstanding Mid Ocean Class A Share, other than Mid Ocean Class A Shares
held by EXEL or any of its subsidiaries, will entitle the holder to receive such
number of New EXEL Voting Shares equal to the Exchange Ratio, and (ii) each
outstanding Mid Ocean Class B Share and Mid Ocean Class C Share will entitle the
holder to receive such number of New EXEL Non-Voting Shares equal to the
Exchange Ratio, provided that each such holder will receive cash in lieu of any
fractional New EXEL Share which such holder would otherwise be entitled pursuant
to the Mid Ocean Arrangement. The diagram below illustrates the corporate
structure of New EXEL in relevant part following the Arrangements.
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NEW EXEL CORPORATE STRUCTURE
FOLLOWING THE ARRANGEMENTS
[GRAPHIC]
EXEL Shareholders and Mid Ocean Shareholders may exercise the Cash Election
to receive cash in lieu of New EXEL Shares in exchange for their EXEL Ordinary
Shares and Mid Ocean Shares, respectively, up to a maximum of $300 million in
the aggregate. If more than that amount is elected, $204 million of the cash
will be made available to EXEL Shareholders and $96 million of the cash will be
made available to Mid Ocean Shareholders, on a PRO RATA basis within each group
of shareholders. If the cash pool available to either group of shareholders is
not exhausted by cash elections within such group, the excess cash shall be made
available for the other group of shareholders. Subject to any PRO RATA
adjustment, the cash consideration payable to any EXEL Shareholder or Mid Ocean
Shareholder who elects cash will be equal to the number of New EXEL Shares such
EXEL Shareholder or Mid Ocean Shareholder, respectively, would have been
entitled to receive multiplied by the average of the closing sales prices per
EXEL Ordinary Share during the ten consecutive trading day period ending the
tenth calendar day prior to the anticipated Effective Time (as defined herein).
If the value of EXEL Ordinary Shares or Mid Ocean Shares held by shareholders
electing to receive cash exceeds the cash amount available to such respective
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group of shareholders, the pro ration feature of the Cash Election will cause
such EXEL Shareholders or Mid Ocean Shareholders, as the case may be, to receive
some New EXEL Shares rather than cash regardless of what such shareholders elect
to receive.
Based upon the numbers of EXEL Ordinary Shares and Mid Ocean Shares
outstanding as of the date hereof, immediately after consummation of the
Arrangements, EXEL Shareholders are expected to hold approximately 74% of the
New EXEL Shares, and Mid Ocean Shareholders (excluding EXEL and its
subsidiaries) are expected to hold approximately 26% of the New EXEL Shares,
assuming equivalent percentages of EXEL Shareholders and Mid Ocean Shareholders
elect to receive cash. The charts below illustrate the potential effects of the
Cash Election on the ownership of New EXEL. The charts below are for
illustrative purposes only; due to fluctuations in the number of outstanding
EXEL Ordinary Shares, the number of Mid Ocean Shares and the sales price per
EXEL Ordinary Share prior to the Effective Time, the actual effects of the Cash
Election may vary from the table below.
ESTIMATED PRO FORMA OWNERSHIP OF NEW EXEL FOLLOWING THE ARRANGEMENTS
(based on the number of outstanding EXEL Ordinary Shares
as of April 13, 1998, the number of outstanding Mid Ocean Shares
as of March 10, 1998 and the closing sales price
per EXEL Ordinary Share as of June 5, 1998)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
IN THE EVENT OF FULL SUBSCRIPTION BY BOTH
<S> <C>
EXEL Shareholders and Mid Ocean Shareholders or
no Cash Elections (a)
Mid Ocean 26.23%
EXEL 73.77%
In the event of full subscription by EXEL
Shareholders and no subscription by Mid
Ocean Shareholders (b)
Mid Ocean 27.18%
EXEL 72.82%
In the event of full subscription by Mid
Ocean Shareholders and no subscription by
EXEL Shareholders (c)
Mid Ocean 23.54%
EXEL 76.46%
</TABLE>
- ------------------------
(a) Due to rounding to arrive at cash election figures, there would be a de
minimis percentage change in ownership between this full subscription
scenario (full subscription indicating that $204 million of the cash pool
goes to EXEL Shareholders and $96 million goes to Mid Ocean Shareholders)
and the no cash election scenario.
(b) Full subscription indicating that the $300 million cash pool goes to EXEL
Shareholders only.
(c) Full subscription indicating that the $300 milion cash pool goes to Mid
Ocean Shareholders only.
The Cash Election constitutes only a small portion of the consideration to
be received by EXEL Shareholders and Mid Ocean Shareholders in the Arrangements;
the bulk of the consideration will be New EXEL Shares.
7
<PAGE>
Preliminary Proxy Material
The table below illustrates the potential effects of the Cash Election on
the consideration that EXEL and Mid Ocean Shareholders will receive in the
Arrangements. The table below is for illustrative purposes only; due to
fluctuations in the number of outstanding EXEL Ordinary Shares, the number of
Mid Ocean Shares and the sales price per EXEL Ordinary Share prior to Effective
Time, the actual effects of the Cash Election may vary from the table below.
POTENTIAL EFFECTS OF THE CASH ELECTION ON SHAREHOLDERS
(based on the number of outstanding EXEL Ordinary Shares as of April 13, 1998,
the number of outstanding Mid Ocean Shares as of March 10, 1998, and
the closing sales price per EXEL Ordinary Share as of June 5, 1998)
(some figures have been rounded)
<TABLE>
<CAPTION>
EXEL
SHAREHOLDERS WOULD RECEIVE MID OCEAN SHAREHOLDERS
(EXCEPT EXEL AND ITS
APPROXIMATELY SUBSIDIARIES) WOULD RECEIVE
(PER EXEL ORDINARY SHARE): APPROXIMATELY
(PER MID OCEAN SHARE):
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
CASH NEW EXEL SHARES CASH NEW EXEL SHARES
--------- ----------------- --------- -----------------
All EXEL Shareholders and all Mid Ocean Shareholders elect
New EXEL Shares: $ 0 1.0 $ 0 1.0215
All EXEL Shareholders elect cash and all Mid Ocean
Shareholders elect New EXEL Shares: $ 3.54 0.9525 $ 0 1.0215
All EXEL Shareholders elect New EXEL Shares and all Mid
Ocean Shareholders elect cash: $ 0 1.0 $ 10.18 0.8849
All EXEL Shareholders and all Mid Ocean Shareholders elect
cash: $ 2.41 0.9677 $ 3.26 0.9778
</TABLE>
For additional information relating to the Arrangements, see "THE
ARRANGEMENTS."
CONDITIONS TO THE ARRANGEMENTS
The Arrangements are subject to the satisfaction of certain conditions,
including among others: an affirmative vote to approve the EXEL Arrangement by a
majority in number of EXEL Shareholders present in person and voting in person
or by proxy at the EXEL Class Meeting and representing 75% in value of such EXEL
Shareholders; an affirmative vote to approve the Mid Ocean Arrangement by a
majority in number of the relevant class of Mid Ocean Shareholders present in
person and voting in person or by proxy at each Mid Ocean Class Meeting and
representing 75% in value of such Mid Ocean Shareholders at each Mid Ocean Class
Meeting; the approval of the Grand Court as to both Arrangements; the receipt of
certain regulatory approvals; the authorization of New EXEL Shares for trading
on the NYSE, subject to official notice of issuance; receipt by EXEL and Mid
Ocean of opinions of counsel as to the tax-free nature of the Arrangements for
United States federal income tax purposes (except for cash paid for EXEL
Ordinary Shares and Mid Ocean Shares pursuant to the Cash Election); and certain
other customary closing conditions. There can be no assurance as to when and if
such conditions will be satisfied (or, where permissible, waived) or that the
Arrangements will be consummated. See "THE ARRANGEMENTS--Conditions to the
Arrangements" and "--Certain Federal Income Tax Consequences of the
Arrangements."
For additional information relating to the Arrangements, see "THE
ARRANGEMENTS."
8
<PAGE>
Preliminary Proxy Material
RECOMMENDATIONS OF BOARDS OF DIRECTORS
THE BOARD OF DIRECTORS OF EXEL (THE "EXEL BOARD") AND THE MID OCEAN BOARD
HAVE APPROVED THE AGREEMENT AND THE ARRANGEMENTS. THE EXEL BOARD AND THE MID
OCEAN BOARD BELIEVE THAT THE ARRANGEMENTS ARE ADVISABLE AND IN THE BEST
INTERESTS OF EXEL AND MID OCEAN AND THEIR RESPECTIVE SHAREHOLDERS, AND RECOMMEND
THAT SUCH SHAREHOLDERS VOTE "FOR" THE RESPECTIVE ARRANGEMENT TO BE VOTED ON BY
SUCH SHAREHOLDERS. FOR A DISCUSSION OF THE FACTORS CONSIDERED BY THE EXEL BOARD
AND THE MID OCEAN BOARD IN REACHING THEIR RESPECTIVE CONCLUSIONS, SEE "THE
ARRANGEMENTS-- Background of the Arrangements," "--Reasons of EXEL for the
Arrangements" and "--Reasons of Mid Ocean for the Arrangements."
OPINION OF EXEL'S FINANCIAL ADVISOR
Goldman, Sachs & Co. ("GOLDMAN SACHS") has served as financial advisor to
EXEL in connection with the Agreement and the Arrangements. Goldman Sachs has
rendered a written opinion to the EXEL Board, dated as of April 28, 1998, to the
effect that as of such date and based upon the qualifications and assumptions
made and matters considered by Goldman Sachs described in such opinion, that the
aggregate consideration in the form of New EXEL Voting Shares and cash, if any,
to be received by EXEL Shareholders pursuant to the Arrangements is fair to the
holders of EXEL Ordinary Shares from a financial point of view. A copy of the
written opinion of Goldman Sachs (the "GOLDMAN SACHS OPINION") dated April 28,
1998 is attached to this Joint Proxy Statement as Appendix E and should be read
in its entirety. EXEL has paid Goldman Sachs a fee of $1.0 million and will pay
Goldman Sachs an additional fee of approximately $6.6 million subject to
consummation of the Arrangements. See "THE ARRANGEMENTS--Opinion of EXEL's
Financial Advisor."
OPINION OF MID OCEAN'S FINANCIAL ADVISOR
J.P. Morgan Securities Inc. ("J.P. MORGAN") has served as financial advisor
to Mid Ocean in connection with the Agreement and the Arrangements. J.P. Morgan
has rendered its opinion to the Mid Ocean Board that, as of each date thereof,
the consideration to be paid to Mid Ocean Shareholders pursuant to the
Arrangements was fair from a financial point of view to Mid Ocean Shareholders
(other than EXEL) and such opinion takes into account the fact that the
consideration may be in the form of New EXEL Shares and/or cash. J.P. Morgan
indicated that in giving its opinion it recognized that individual shareholders
may make elections with respect to the form of consideration to be received
based on a variety of factors, including their basis in Mid Ocean Shares, tax
status and liquidity needs. Similarly, J.P. Morgan also has indicated that it
took into account the voluntary nature of such election and the election
alternatives given the proportion of share consideration that Mid Ocean
Shareholders (other than EXEL) as a group will receive notwithstanding
individual elections. This opinion was delivered orally (and subsequently
confirmed in writing) to the Mid Ocean Board at its meeting on March 15, 1998
and was delivered again in writing on the date of the amendment and restatement
of the Agreement and on the date of this Joint Proxy Statement. A copy of the
opinion delivered by J.P. Morgan (the "J.P. MORGAN OPINION") on the date hereof
is attached to this Joint Proxy Statement as Appendix F and should be read in
its entirety with respect to assumptions made, matters considered and
limitations on the review undertaken by J.P. Morgan in rendering its opinion.
J.P. Morgan will receive an advisory fee of $10 million contingent upon
consummation of the Arrangements. JPMCC, an affiliate of J.P. Morgan, holds
1,190,292 Mid Ocean Class B Shares, which constitute all of the outstanding
shares of such class, and 1,860,000 Mid Ocean Class C Shares, which constitute
all of the outstanding shares of such class. JPMCC also holds 4,701,980 EXEL
Ordinary Shares, and in 1995 entered into a hedging transaction with respect to
these shares. See "THE ARRANGEMENTS--Opinion of Mid Ocean's Financial Advisor."
9
<PAGE>
Preliminary Proxy Material
EFFECTIVE TIMES OF THE ARRANGEMENTS
Upon receipt of orders from the Grand Court sanctioning the Arrangements,
the EXEL Arrangement will become effective upon the filing of the order of the
Grand Court with respect to the EXEL Arrangement with the Registrar of Companies
in the Cayman Islands (the "REGISTRAR") and upon an office copy of the order of
the Grand Court sanctioning the Mid Ocean Arrangement being delivered to the
Registrar for registration (such time, the "EXEL EFFECTIVE TIME" and such date,
the "EFFECTIVE DATE"). The Mid Ocean Arrangement will become effective
immediately after the EXEL Arrangement becomes effective as a matter of Cayman
Islands law and upon the filing of the order of the Grand Court with respect to
the Mid Ocean Arrangement with the Registrar (such time, the "EFFECTIVE TIME").
Prior to such filings, a closing (the "CLOSING") will be held for the purpose of
confirming the satisfaction or waiver of the conditions to the Arrangements.
WAIVER; AMENDMENT; TERMINATION; EXPENSES
Prior to the EXEL Effective Time, (i) any failure by either EXEL or Mid
Ocean to comply with any obligation, covenant, agreement or condition contained
in the Agreement may be waived by the other party, and (ii) subject to
applicable law, the Agreement may be amended, modified or supplemented by an
agreement in writing among the parties, PROVIDED that after the approval of the
Mid Ocean Arrangement by each class of Mid Ocean Shareholders, the consideration
to be received by Mid Ocean Shareholders may not be decreased or altered without
the approval of the Mid Ocean Shareholders.
The Agreement may be terminated and the Arrangements abandoned at any time
prior to the EXEL Effective Time: (i) by the mutual consent of the parties; (ii)
by either party, in the event that the Effective Time does not occur by October
31, 1998, PROVIDED that the failure of the terminating party to fulfill its
obligations under the Agreement has not been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; (iii) by either
party, if a governmental authority (including the Grand Court) issues a final
and nonappealable order restraining or prohibiting the Arrangements; (iv) by
either party, if such party is unable to obtain the required approval of its
respective shareholders at a meeting of its shareholders; (v) by either party,
if such party is not in material breach of any of its representations,
warranties, covenants or agreements set forth in the Agreement and the other
party materially breaches any of its representations, warranties, covenants or
agreements set forth in the Agreement, in each case after inability or failure
to cure within 30 days; and (vi) by EXEL, if any person has effected a merger or
other combination with Mid Ocean, or entered into an agreement to do so, with
respect to the acquisition of more than 10% of the assets or voting power of Mid
Ocean.
Each party to the Agreement will bear its own expenses incurred in
connection with the Agreement, except that, if the Agreement is terminated under
certain circumstances involving a third-party offer to effect a business
combination transaction with either EXEL or Mid Ocean, and within one and
one-half years after such termination a third party consummates a business
combination with EXEL or Mid Ocean of a type, and at or above the minimum
consideration, specified in the Agreement, EXEL or Mid Ocean (as the case may
be) will, under certain circumstances, be obligated to pay the other a
termination fee equal to $65 million plus expenses incurred by the other party
in connection with the Agreement and the transactions contemplated thereby. See
"THE ARRANGEMENTS--Termination; Termination Fee."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Arrangements are intended to qualify as an exchange under Section 351(a)
of the Internal Revenue Code of 1986, as amended (the "CODE"). As a condition to
the obligations of EXEL, New EXEL and Mid Ocean to consummate the Arrangements,
EXEL and Mid Ocean must receive the opinions of Wachtell, Lipton, Rosen & Katz
and Davis Polk & Wardwell, respectively, dated the Effective Date, rendered on
the basis of facts, representations and assumptions set forth in such opinion
that are consistent with the facts existing on the Effective Date, to the effect
that: (i) the Arrangements will qualify
10
<PAGE>
Preliminary Proxy Material
as an exchange under Section 351(a) of the Code; (ii) no gain or loss will be
recognized by United States transferors of EXEL Ordinary Shares who own less
than 5% of both the total voting power and the total value of the New EXEL
Shares immediately after the Arrangements, and who do not receive any cash
pursuant to the Cash Election, upon the receipt of solely New EXEL Shares
pursuant to the EXEL Arrangement; (iii) no gain or loss will be recognized by
United States transferors of EXEL Ordinary Shares who own 5% or more of the
total voting power or the total value of the New EXEL Shares immediately after
the Arrangements, and who do not receive any cash pursuant to the Cash Election,
upon the receipt of solely New EXEL Shares pursuant to the EXEL Arrangement,
PROVIDED that such United States transferors enter into gain recognition
agreements meeting the requirements of Internal Revenue Service ("IRS") Notice
87-85 and applicable United States Treasury regulations; (iv) no gain or loss
will be recognized by United States transferors of Mid Ocean Shares who own less
than 5% of both the total voting power and the total value of the New EXEL
Shares immediately after the Arrangements, and who do not receive any cash
pursuant to the Cash Election, upon the receipt of solely New EXEL Shares
pursuant to the Mid Ocean Arrangement (except with respect to cash received in
lieu of a fractional share interest in New EXEL Shares); and (v) no gain or loss
will be recognized by United States transferors of Mid Ocean Shares who own 5%
or more of the total voting power or the total value of the shares of New EXEL
immediately after the Arrangements, and who do not receive any cash pursuant to
the Cash Election procedures, upon the receipt of solely New EXEL Shares
pursuant to the Mid Ocean Arrangement (except with respect to cash received in
lieu of a fractional share interest in New EXEL Shares), PROVIDED that such
United States transferors enter into gain recognition agreements meeting the
requirements of IRS Notice 87-85 and applicable United States Treasury
regulations. For a more complete description of the federal income tax
consequences of the Arrangements, see "THE ARRANGEMENTS--Certain Federal Income
Tax Consequences of the Arrangements."
ACCOUNTING TREATMENT
It is intended that the Arrangements will be accounted for as a "purchase"
under generally accepted accounting principles ("GAAP"). See "THE
ARRANGEMENTS--Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENTS
Certain members of Mid Ocean management and of the Mid Ocean Board have
certain arrangements with respect to New EXEL, including those relating to the
appointment of Messrs. Robert J. Newhouse, Jr., Michael A. Butt and certain
other non-executive directors of Mid Ocean to the Board of Directors of New EXEL
(the "NEW EXEL BOARD"), certain benefits under existing employment and
consulting agreements and severance and benefit plans, and certain
post-Arrangements employment and consulting opportunities and compensation
arrangements. See "THE ARRANGEMENTS--Interests of Certain Persons in the
Arrangements."
JPMCC, an affiliate of J.P. Morgan, Mid Ocean's financial advisor, holds
1,190,292 Mid Ocean Class B Shares, which constitute all of the outstanding
shares of such class, and 1,860,000 Mid Ocean Class C Shares, which constitute
all of the outstanding shares of such class. JPMCC also holds 4,701,980 EXEL
Ordinary Shares, and in 1995 entered into a hedging transaction with respect to
these shares whereby an affiliate of JPMCC borrowed EXEL Ordinary Shares and
sold them short into the market with the result that JPMCC is insulated from
economic exposure to EXEL Ordinary Shares.
AMENDMENT TO MID OCEAN RIGHTS AGREEMENT
Each Mid Ocean Share has attached to it a right (a "MID OCEAN RIGHT") issued
pursuant to the Rights Agreement, dated as of September 12, 1996, between Mid
Ocean and the Bank of New York, as rights agent (the "MID OCEAN RIGHTS
AGREEMENT"). In connection with the execution of the Agreement, Mid Ocean
amended the Mid Ocean Rights Agreement to provide that (i) the entering into of
the Agreement, the
11
<PAGE>
Preliminary Proxy Material
consummation of the Arrangements, the execution and delivery of the Support
Agreement and any acquisition of Mid Ocean Shares by EXEL (and certain related
persons) will not cause EXEL, JPMCC or any related person to become an Acquiring
Person (as defined in the Mid Ocean Rights Agreement), and (ii) the Mid Ocean
Rights will not become exercisable at any time from and after, and the Mid Ocean
Rights Agreement will expire at, the Effective Time. See "THE
ARRANGEMENTS--Amendment to Mid Ocean Rights Agreement."
AMENDMENT TO EXEL RIGHTS PLAN
Each EXEL Ordinary Share has attached to it a right (an "EXEL RIGHT") issued
pursuant to the Rights Agreement, dated as of December 1, 1995, between EXEL and
Mellon Securities Trust Company, as rights agent (the "EXEL RIGHTS PLAN"). In
connection with the execution of the Agreement, EXEL amended the EXEL Rights
Plan to provide, among other things, that (i) the execution and delivery of the
Agreement and the Support Agreement and consummation of the Arrangements and any
acquisition of EXEL Ordinary Shares by New EXEL or Mid Ocean Shareholders or
JPMCC (and certain related persons) as contemplated by the Agreement, will not
cause the EXEL Rights to become exercisable, or cause the EXEL Rights to be
separated from the EXEL Ordinary Shares to which they are attached, and (ii) the
EXEL Rights may not become exercisable at any time from and after, and the EXEL
Rights Plan will terminate at, the Effective Time. See "THE
ARRANGEMENTS--Amendment to EXEL Rights Plan" and "ANTITAKEOVER EFFECTS OF NEW
EXEL ARTICLES--EXEL Rights Plan."
It is expected that after the Effective Time, New EXEL will enter into a
rights agreement similar to the EXEL Rights Plan. See "ANTITAKEOVER EFFECTS OF
NEW EXEL ARTICLES."
DISSENTERS' RIGHTS
Neither EXEL Shareholders nor Mid Ocean Shareholders have dissenters'
appraisal rights under the Companies Law with respect to the Arrangements. If
the Arrangements are approved by the requisite vote(s) and the Grand Court
approves the respective Arrangement, the order of the Grand Court will bind in
any dissenters to the terms of such Arrangement. See "EXEL CLASS
MEETING--Dissenters' Rights," "MID OCEAN CLASS MEETINGS--Dissenters' Rights" and
"THE ARRANGEMENTS--Cayman Islands Dissenters' Rights."
NEW EXEL ARTICLES
If the Arrangements are consummated, holders of EXEL Ordinary Shares and
holders of Mid Ocean Shares will become holders of New EXEL Shares. While the
rights of the holders of the former EXEL Ordinary Shares and Mid Ocean Shares
will still be governed by the laws of the Cayman Islands, their rights as
shareholders will also be governed by the New EXEL Memorandum (as defined
herein) and the New EXEL Articles (as defined herein).
Certain significant differences between the New EXEL Articles and the
existing EXEL Articles (as defined herein) and Mid Ocean Articles are described
below and the full text of the New EXEL Memorandum and the New EXEL Articles is
attached as Appendix G to this Joint Proxy Statement. See "NEW EXEL SHARE
CAPITAL," "ANTITAKEOVER EFFECTS OF NEW EXEL ARTICLES" and "COMPARISON OF
SHAREHOLDER RIGHTS."
12
<PAGE>
Preliminary Proxy Material
SELECTED FINANCIAL DATA
The following tables present (i) summary selected financial data for each of
EXEL and Mid Ocean on a historical basis and (ii) summary unaudited pro forma
selected financial data reflecting the consummation of the Arrangements. The
unaudited pro forma selected financial data has been prepared giving effect to
the Arrangements as a purchase. The summary unaudited pro forma selected
financial data does not reflect any anticipated reorganization or restructuring
expenses resulting from the Arrangements.
The summary selected financial data for EXEL is based on and derived from,
and should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of EXEL, audited by Coopers & Lybrand,
independent accountants, which are incorporated herein by reference.
Specifically, Item 6 in the Annual Report on Form 10-K for the fiscal year
ending November 30, 1997, as filed February 25, 1998, is hereby incorporated by
reference with regard to the summary selected financial data on a historical
basis, with the exception of the calculations of earnings per share ("EPS") for
the years ended November 30, 1997, 1996 and 1995 that are presented herein as
restated in accordance with Statement of Financial Accounting Standard No. 128.
Supplementally disclosed herein is Operating net income and Operating net income
per share. Operating net income represents net income excluding any realized
investment gains or losses. Operating net income per share is calculated by
dividing Operating net income by the weighted average number of shares
outstanding. These statistical measures are not contemplated by Statement of
Financial Accounting Standard No. 128, but EXEL and Mid Ocean believe that such
measures are regarded by analysts in the insurance industry as a key measure of
performance. The summary selected financial data for Mid Ocean is based on and
derived from, and should be read in conjunction with, the historical
consolidated financial statements and the related notes thereto of Mid Ocean,
audited by KPMG Peat Marwick, independent accountants, which are incorporated
herein by reference. Specifically, the Selected Financial Data table contained
in the 1997 Annual Report on Form 10-K for the fiscal year ending October 31,
1997, as filed January 28, 1998, is hereby incorporated by reference, with the
exception of the calculations of EPS for the years ended October 31, 1997, 1996
and 1995 which are presented herein as restated in accordance with Statement of
Financial Accounting Standard No. 128. The information set forth in the
unaudited summary selected pro forma financial data should be read in connection
with the unaudited pro forma condensed financial information and notes thereto
appearing elsewhere herein. Results of EXEL for the three months ended February
28, 1998 and results of Mid Ocean for the three months ended January 31, 1998
are not necessarily indicative of results expected for the entire year, nor are
pro forma amounts necessarily indicative of results of operations or the
combined financial position that would have resulted had the Arrangements been
consummated at the beginning of the period indicated. All adjustments,
consisting of only normal recurring adjustments, necessary for a fair statement
of results of the unaudited historical interim periods have been included. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
13
<PAGE>
Preliminary Proxy Material
SELECTED SUMMARY HISTORICAL FINANCIAL DATA OF EXEL
<TABLE>
<CAPTION>
FEBRUARY 28, AS OF NOVEMBER 30,
1998 ----------------------------------------
(UNAUDITED) 1997 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF U.S. DOLLARS)
BALANCE SHEET DATA:
Assets:
Total investments and cash............................ $ 4,803,843 $ 4,649,267 $ 4,025,660 $ 4,028,728
Investments in affiliates............................. 540,625 517,396 414,891 351,669
Unquoted investments.................................. 31,445 27,244 23,803 10,067
Insurance and reinsurance balances receivable......... 509,505 410,263 391,526 235,030
Prepaid reinsurance premiums.......................... 117,246 108,916 63,467 2,438
Goodwill.............................................. 265,731 267,695 -- --
Other assets.......................................... 121,259 107,681 112,191 96,974
------------- ------------ ------------ ------------
Total Assets............................................ 6,389,654 6,088,462 5,031,538 4,724,906
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Liabilities and Shareholders' Equity:
Losses and loss expenses.............................. 2,409,255 2,342,254 2,099,096 1,920,500
Unearned premiums..................................... 652,489 566,911 679,535 539,296
Other liabilities and minority interest............... 665,854 700,167 136,869 258,977
------------- ------------ ------------ ------------
Total Liabilities and minority interest............... 3,727,598 3,609,332 2,915,500 2,718,773
Total Shareholders' Equity.............................. 2,662,056 2,479,130 2,116,038 2,006,133
------------- ------------ ------------ ------------
Total Liabilities and Shareholders' Equity.............. 6,389,654 6,088,462 5,031,538 4,724,906
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
14
<PAGE>
Preliminary Proxy Material
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
(UNAUDITED) YEAR ENDED NOVEMBER 30,
---------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
---------- ---------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Net premiums earned............................. $ 139,882 $ 119,837 $ 540,653 $ 517,892 $ 558,049
Net investment income........................... 57,528 51,557 216,552 198,598 200,145
Equity in net income of affiliates.............. 15,207 13,155 65,882 59,249 51,074
Net realized gains on investments............... 62,951 32,613 335,939 206,212 49,774
---------- ---------- ----------- ----------- -----------
Total Revenues.................................... 275,568 217,162 1,159,026 981,951 859,042
---------- ---------- ----------- ----------- -----------
Losses and loss expenses........................ 81,772 84,960 365,325 405,357 440,922
Acquisition and operational expenses............ 31,479 21,491 98,665 79,476 83,602
Other expenses.................................. 5,126 0 13,020 0 0
---------- ---------- ----------- ----------- -----------
Total Expenses.................................... 118,377 106,451 477,010 484,833 524,524
---------- ---------- ----------- ----------- -----------
Minority interest and income tax.................. 1,781 2,593 5,055 2,805 1,720
---------- ---------- ----------- ----------- -----------
Net Income........................................ 155,410 108,118 676,961 494,313 332,798
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Net income per share:
--Basic $ 1.84 $ 1.24 $ 7.95 $ 5.45 $ 3.24
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
--Diluted $ 1.81 $ 1.23 $ 7.84 $ 5.39 $ 3.21
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Operating net income.............................. $ 72,459 $ 75,505 $ 341,022 $ 288,101 $ 283,024
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Operating net income per share:
--Basic......................................... $ 1.09 $ 0.87 $ 4.01 $ 3.18 $ 2.76
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
--Diluted....................................... $ 1.07 $ 0.86 $ 3.95 $ 3.14 $ 2.73
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
15
<PAGE>
Preliminary Proxy Material
SELECTED SUMMARY HISTORICAL FINANCIAL DATA OF MID OCEAN
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 ----------------------------------------
(UNAUDITED) 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF U.S. DOLLARS)
BALANCE SHEET DATA:
Assets:
Total investments and cash............................. $ 1,802,985 $ 1,669,628 $ 1,550,613 $ 1,386,829
Unquoted investments................................... 11,839 9,880 7,914 3,453
Insurance and reinsurance balances receivable.......... 470,879 352,031 340,860 214,354
Prepaid reinsurance.................................... 39,917 14,679 15,846 5,476
Goodwill............................................... 108,781 112,506 24,416 --
Other assets........................................... 142,707 111,881 83,050 45,396
------------ ------------ ------------ ------------
Total Assets............................................. 2,577,108 2,270,605 2,022,699 1,655,508
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Liabilities and Shareholders' Equity:
Losses and loss expenses............................... 546,772 496,952 427,717 336,051
Unearned premiums...................................... 469,277 321,845 303,340 206,335
Other liabilities and minority interest................ 109,267 78,847 174,443 144,328
------------ ------------ ------------ ------------
Total Liabilities and minority interest.................. 1,125,316 897,644 905,500 686,714
Total Shareholders' Equity............................... 1,451,792 1,372,961 1,117,199 968,794
------------ ------------ ------------ ------------
Total Liabilities and Shareholders' Equity............... 2,577,108 2,270,605 2,022,699 1,655,508
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
(UNAUDITED) YEAR ENDED OCTOBER 31,
----------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Net premiums earned............................... $ 245,804 $ 238,849 $ 486,741 $ 436,097 $ 379,390
Net investment income............................. 54,393 49,175 103,429 83,261 73,835
Net realized gains on investments................. 25,907 (729) 9,603 2,126 1,476
Other Income...................................... 9,545 2,115 19,598 17,632 (2,436)
----------- ---------- ---------- ---------- ----------
Total Revenues.................................... 335,649 284,410 619,371 539,116 452,265
----------- ---------- ---------- ---------- ----------
Losses and loss expenses.......................... 109,538 108,448 216,171 211,888 198,650
Acquisition and operational expenses.............. 77,898 62,768 144,747 109,496 70,680
----------- ---------- ---------- ---------- ----------
Total Expenses...................................... 187,436 171,216 360,918 321,384 269,330
----------- ---------- ---------- ---------- ----------
Minority interest and income tax.................... (4,843) (3,276) 13,445 6,088 0
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Net Income.......................................... 143,370 114,918 245,008 211,644 182,935
----------- ---------- ---------- ---------- ----------
Net income per share:
--Basic........................................... $ 3.66 $ 3.11 $ 6.52 $ 6.14 $ 5.13
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
--Diluted......................................... $ 3.63 $ 3.09 $ 6.46 $ 5.75 $ 4.90
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Operating net income................................ $ 117,463 $ 115,647 $ 235,405 $ 209,518 $ 181,459
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Operating net income per share:
--Basic........................................... $ 3.00 $ 3.13 $ 6.26 $ 5.08 $ 5.09
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
--Diluted......................................... $ 2.97 $ 3.11 $ 6.21 $ 5.69 $ 4.86
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
15
<PAGE>
Preliminary Proxy Material
SELECTED SUMMARY PRO FORMA COMBINED FINANCIAL DATA OF
EXEL AND MID OCEAN
The following selected summary pro forma financial data is qualified in its
entirety by reference to the pro forma condensed consolidated balance sheet and
income statements and notes thereto presented elsewhere in this Joint Proxy
Statement.
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28,
1998
----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total investments and cash.................................................. $ 6,531,589
----------------
----------------
Total assets................................................................ 9,666,163
----------------
----------------
Loss reserves............................................................... 2,915,848
----------------
----------------
Total liabilities........................................................... 4,793,460
----------------
----------------
Shareholders' equity........................................................ 4,872,703
----------------
----------------
Total liabilities and shareholders' equity.................................. 9,666,163
----------------
----------------
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEAR ENDED
1998 NOVEMBER 30, 1997
---------------- -----------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net premiums earned......................................................... $ 262,797 $ 1,033,121
---------------- -----------------
---------------- -----------------
Total revenues.............................................................. 426,196 1,721,990
---------------- -----------------
---------------- -----------------
Losses and loss expenses.................................................... 144,305 587,414
---------------- -----------------
---------------- -----------------
Amortization of intangible assets........................................... 11,431 38,223
---------------- -----------------
---------------- -----------------
Total expenses.............................................................. 224,903 872,654
---------------- -----------------
---------------- -----------------
Net income.................................................................. 196,907 830,776
---------------- -----------------
---------------- -----------------
NET INCOME PER SHARE DATA:
Basic....................................................................... $ 1.71 $ 7.18
---------------- -----------------
---------------- -----------------
Diluted..................................................................... $ 1.69 $ 7.10
---------------- -----------------
---------------- -----------------
OPERATING NET INCOME PER SHARE DATA:
Basic....................................................................... $ 1.04 $ 4.20
---------------- -----------------
---------------- -----------------
Diluted..................................................................... $ 1.03 $ 4.15
---------------- -----------------
---------------- -----------------
</TABLE>
16
<PAGE>
Preliminary Proxy Material
COMPARATIVE UNAUDITED PRO FORMA AND HISTORICAL PER SHARE DATA
The following table presents (i) selected comparative per share data for
each of EXEL and Mid Ocean on a historical basis and (ii) selected unaudited pro
forma comparative per share data reflecting the consummation of the
Arrangements. The unaudited pro forma comparative per share data assumes the
Arrangements had been consummated on December 1, 1996. The unaudited pro forma
data has been prepared giving effect to the Arrangements using the purchase
method of accounting.
The unaudited pro forma per share data does not reflect any anticipated
reorganization or restructuring expenses resulting from the Arrangements. The
Mid Ocean pro forma equivalent amounts are presented with respect to each set of
pro forma information, and have been calculated by multiplying the corresponding
pro forma combined amounts per New EXEL Share by the Exchange Ratio.
EXEL and Mid Ocean expect that the combined company will achieve certain
benefits from the Arrangements in the form of operating cost savings, but these
are not expected to be material and have not been included in the calculations
below.
The comparative per share data presented herein is based on and derived
from, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of each of EXEL and Mid Ocean
incorporated by reference herein. See "AVAILABLE INFORMATION," "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," and "UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION." Results of EXEL for the three months ended February 28,
1998 and results of Mid Ocean for the six months ended April 30, 1998 are not
necessarily indicative of results expected for the entire year, nor are pro
forma amounts necessarily indicative of results of operations or the combined
financial position that would have resulted had the Arrangements been
consummated at the beginning of the periods indicated. All adjustments,
consisting of only normal recurring adjustments, necessary for a fair statement
of results of interim periods have been included.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
1998 1997
--------------- ---------------
(4)
<S> <C> <C>
EXEL HISTORICAL DATA
- -----------------------------------------------------------
Net income per share - basic............................. $ 1.84 $ 7.95
- diluted................................ $ 1.81 $ 7.84
Cash dividends per share................................. $ 0.40 $ 1.36
Diluted book value per share............................. $ 31.84 $ 29.33
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1998 1997
--------------- ---------------
(4)
<S> <C> <C>
MID OCEAN HISTORICAL DATA (1)
Net income per share - basic............................. $ 3.66 $ 6.52
- diluted................................ $ 3.63 $ 6.46
Cash dividends per share................................. $ 1.65 $ 3.00
Diluted book value per share............................. $ 37.08 $ 35.14
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 NOVEMBER 30, 1997
------------------- -----------------
<S> <C> <C>
PRO FORMA COMBINED
Net income per share - basic............................................ $ 1.71 $ 7.18
- diluted............................................... 1.69 7.10
Cash dividends per share (2)............................................ $ 0.40 $ 1.36
Diluted book value per share............................................ $ 42.50 N/A
MID OCEAN PRO FORMA EQUIVALENTS (3)
Net income per share - basic............................................ $ 1.75 $ 7.33
- diluted............................................... $ 1.73 $ 7.25
Cash dividends per share................................................ $ 0.41 $ 1.39
Diluted book value per share............................................ $ 43.41 N/A
</TABLE>
17
<PAGE>
Preliminary Proxy Material
N/A - not applicable
18
<PAGE>
Preliminary Proxy Material
(1) The Mid Ocean historical data is as of April 30, 1998 and October 31, 1997
respectively.
(2) Pro forma cash dividends per share are assumed to be the same as
historically declared by EXEL. However, any decision to increase or decrease
the cash dividend per share is at the discretion of the EXEL Board.
(3) The Mid Ocean pro forma equivalent data represents the unaudited pro forma
earnings per share, cash dividends per share and diluted book value per
share calculated by multiplying the corresponding pro forma combined amounts
per share by the Exchange Ratio of 1.0215.
(4) The historical per share amounts for both EXEL and Mid Ocean as of November
30, 1997 and October 31, 1997 respectively, have been restated to be in
accordance with Statement of Financial Accounting Standard No. 128.
19
<PAGE>
Preliminary Proxy Material
EXEL CLASS MEETING
GENERAL
This Joint Proxy Statement is first being mailed to EXEL Shareholders on or
about , 1998 and is accompanied by the Notice of Class Meeting and a form
of proxy that is solicited by the EXEL Board for use at the EXEL Class Meeting
to be held on July , 1998, at 9.00 a.m., local time, at The Princess Hotel,
Hamilton, Bermuda, and at any adjournments or postponements thereof.
MATTERS TO BE CONSIDERED
At the EXEL Class Meeting, EXEL Shareholders (other than Interested EXEL
Shareholders) will be asked to vote upon a resolution to approve the EXEL
Arrangement and to transact such other business as may properly come before the
EXEL Class Meeting or any adjournment or postponement thereof. The EXEL
Shareholders may also be asked to vote upon a proposal to adjourn or postpone
the EXEL Class Meeting, which adjournment or postponement could be used for the
purpose, among others, of allowing additional time for the soliciting of
additional votes to approve the EXEL Arrangement.
PROXIES
The accompanying form of proxy is for use at the EXEL Class Meeting if an
EXEL Shareholder is unable to attend in person. The proxy may be revoked by the
EXEL Shareholder at any time before it is exercised, either by submitting to the
Corporate Secretary of EXEL written notice of revocation or a properly executed
proxy of a later date or by attending the meeting and electing to vote in
person. Written notices of revocation and other communications with respect to
the revocation of EXEL proxies should be addressed to EXEL Limited, Cumberland
House, 1 Victoria Street, Hamilton, Bermuda HM11, Attention: Corporate
Secretary. All EXEL Ordinary Shares (other than EXEL Interested Shares)
represented by valid proxies received pursuant to this solicitation prior to the
time of the EXEL Class Meeting or the adjourned EXEL Class Meeting, and not
revoked before they are exercised, will be voted in the manner specified
therein. If no specification is made, the proxies will be voted in favor of the
EXEL Arrangement, and in favor of any proposed adjournment or postponement of
the EXEL Class Meeting for the purpose of soliciting additional proxies.
The EXEL Board is not aware of any business to be acted upon at the EXEL
Class Meeting other than as described herein. If, however, other matters are
properly brought before the EXEL Class Meeting, the persons appointed as proxies
will have discretion to vote or act thereon according to their best judgment,
except that properly executed proxies voted against the resolution set out in
the Notice of Class Meeting will not be voted for any such adjournment or
postponement.
The entire cost of soliciting the proxies from the EXEL Shareholders will be
borne by EXEL. In addition to the solicitation of the proxies by mail, EXEL will
request banks, brokers and other record holders to send proxies and proxy
material to the beneficial owners of EXEL Ordinary Shares and secure their
voting instructions, if necessary. EXEL will reimburse such record holders for
their reasonable expenses in so doing. EXEL has also made arrangements with
Georgeson & Company, Inc. to assist it in soliciting proxies from banks, brokers
and nominees and has agreed to pay no more than $12,500, plus expenses, for such
services. If necessary, EXEL may also use several of its regular employees, who
will not be specially compensated, to solicit proxies from shareholders, either
personally or by telephone, telegram, facsimile or special delivery letter.
RECORD DATE AND VOTING RIGHTS
Pursuant to the provisions of the Companies Law and the EXEL Articles of
Association (the "EXEL ARTICLES") and the order of the Grand Court dated
, 1998, the date of , 1998 has been fixed by the EXEL Board
as the EXEL Record Date for determination of EXEL Shareholders (other
19
<PAGE>
Preliminary Proxy Material
than Interested EXEL Shareholders) entitled to notice of and to vote at the EXEL
Class Meeting. Accordingly, only EXEL Shareholders (other than Interested EXEL
Shareholders) of record at the close of business on that date of EXEL Ordinary
Shares will be entitled to notice of and to vote at the EXEL Class Meeting. The
number of outstanding EXEL Ordinary Shares entitled to vote at the EXEL Class
Meeting (which number excludes shares owned by Interested EXEL Shareholders) is
.
EXEL Shareholders (other than Interested EXEL Shareholders) are entitled to
one vote per EXEL Ordinary Share on any matter that may properly come before the
EXEL Class Meeting. The affirmative vote of a majority in number representing
75% in value of the members present and voting in person or by proxy at the EXEL
Class Meeting, voting together as a single class, is required to approve the
EXEL Arrangement.
EXEL Shareholders who abstain will not be treated as present and voting.
EXEL Shareholders wishing to exercise their rights at the EXEL Class Meeting
must vote either for or against the resolution. If it is the intention of an
EXEL Shareholder to oppose the EXEL Arrangement at the hearing of the petition
in the Grand Court, such EXEL Shareholder must record its vote against the
resolution at the EXEL Class Meeting. If a broker or nominee indicates on its
proxy that it does not have discretionary authority to vote on a particular
matter as to certain shares and the proxy does not indicate a vote either for or
against the resolution set out in the Notice of Class Meeting (so-called "broker
non-votes"), those EXEL Ordinary Shares will be treated as abstentions and
accordingly, a broker non-vote will not be treated as shares that are present
and voting.
As of the EXEL Record Date, the directors and executive officers of EXEL
(other than Interested EXEL Shareholders) and their affiliates had the right to
vote an aggregate of EXEL Ordinary Shares, representing less than 1% of
the EXEL Ordinary Shares then outstanding.
The Interested EXEL Shareholders who, under Cayman Islands law, constitute a
separate class of EXEL Shareholders for the purposes of the Mid Ocean
Arrangement, shall not vote at the EXEL Class Meeting, but have unanimously
consented to the EXEL Arrangement.
Additional information with respect to beneficial ownership of EXEL Ordinary
Shares by individuals and entities owning more than 5% of such shares and more
detailed information with respect to beneficial ownership of EXEL Ordinary
Shares by directors and executive officers of EXEL is incorporated by reference
to EXEL's 1997 Annual Report on Form 10-K. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
In the event that EXEL has the right to terminate the Agreement for any
reason, the EXEL Board may, in the exercise of its fiduciary duty, make
determinations (i) whether to terminate the Agreement or to waive the condition
that gives rise to such right to terminate the Agreement and proceed to the
consummation of the Arrangements, and (ii) if it determines to waive the
condition giving rise to such right to terminate and proceed to consummation of
the Arrangements, whether or not to resolicit the approval of EXEL Shareholders.
A resolicitation with an updated Joint Proxy Statement may be required in the
event EXEL waives or amends any conditions material to EXEL Shareholders.
However, EXEL does not presently intend to waive or amend any such material
condition. See "THE ARRANGEMENTS--Waiver; Amendment."
DISSENTERS' RIGHTS
Any EXEL Shareholder who wishes to oppose the sanctioning of the EXEL
Arrangement at the hearing of the petition at the Grand Court must record its
vote against the resolution at the EXEL Class Meeting. At the hearing of the
petition itself such EXEL Shareholders who have so voted will be entitled to
make representations to the Grand Court on the hearing of the petition. If the
EXEL Arrangement is approved by the requisite vote at the EXEL Class Meeting and
the Grand Court approves the EXEL Arrangement, the order of the Grand Court will
bind in any dissenters to the terms of the EXEL Arrangement.
20
<PAGE>
Preliminary Proxy Material
RECOMMENDATION OF THE EXEL BOARD
The EXEL Board has approved the Agreement and the EXEL Arrangement and the
transactions contemplated thereby. The EXEL Board believes that the Agreement
and the EXEL Arrangement and the transactions contemplated thereby are advisable
and in the best interests of EXEL and the EXEL Shareholders, and unanimously
recommends that the EXEL Shareholders vote "FOR" approval of the EXEL
Arrangement. See "THE ARRANGEMENTS--Reasons of EXEL for the Arrangements."
MID OCEAN CLASS MEETINGS
GENERAL
This Joint Proxy Statement is first being mailed to Mid Ocean Shareholders
on or about , 1998 and is accompanied by the Notice of Class Meetings
and form of proxy that is solicited by the Mid Ocean Board to use at the Mid
Ocean Class Meetings of holders of Mid Ocean Class A Shares (other than EXEL and
its subsidiaries), Mid Ocean Class B Shares and Mid Ocean Class C Shares to be
held on July , 1998 at 11:00 a.m., 10:30 a.m., and 10:00 a.m., respectively,
at the Princess Hotel, Hamilton, Bermuda, and at any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED
At the Mid Ocean Class Meetings, each class of Mid Ocean Shareholders (other
than Interested Mid Ocean Shareholders) will be asked to vote upon a resolution
to approve the Mid Ocean Arrangement and to transact such other business as may
properly come before the applicable Mid Ocean Class Meeting or any adjournments
or postponements thereof. Each class of Mid Ocean Shareholders may also be asked
to vote upon a proposal to adjourn or postpone the applicable Mid Ocean Class
Meeting, which adjournment or postponement could be used for the purpose, among
others, of allowing additional time for the soliciting of additional votes to
approve the Mid Ocean Arrangement.
PROXIES
The accompanying form of proxy is for use at the relevant Mid Ocean Class
Meeting if a Mid Ocean Shareholder is unable to attend in person. The proxy may
be revoked by the Mid Ocean Shareholder at any time before it is exercised,
either by submitting to the Corporate Secretary of Mid Ocean written notice of
revocation or a properly executed proxy of a later date or by attending the
meeting and electing to vote in person. Written notices of revocation and other
communications with respect to the revocation of Mid Ocean proxies should be
addressed to Mid Ocean Limited, Richmond House, 12 Par-La-Ville Road, Hamilton
HM 08, Bermuda, Attention: Corporate Secretary. All Mid Ocean Shares (other than
Mid Ocean Interested Shares) represented by valid proxies received pursuant to
this solicitation prior to the time of the relevant Mid Ocean Class Meeting or
the adjourned Mid Ocean Class Meeting and not revoked before they are exercised,
will be voted in the manner specified therein. If no specification is made, the
proxies will be voted in favor of the Mid Ocean Arrangement, and in favor of any
proposed adjournment or postponement of the relevant Mid Ocean Class Meeting for
the purpose of soliciting additional proxies.
The Mid Ocean Board is not aware of any business to be acted upon at the Mid
Ocean Class Meetings other than as described herein. If, however, other matters
are properly brought before the Mid Ocean Class Meetings, the persons appointed
as proxies will have discretion to vote or act thereon according to their best
judgement, except that properly executed proxies voted against the resolution
set out in the Notice of Class Meetings will not be voted for any such
adjournment or postponement.
The entire cost of soliciting the proxies from the Mid Ocean Shareholders
will be borne by Mid Ocean. In addition to the solicitation of the proxies by
mail, Mid Ocean will request banks, brokers and other recorded holders to send
proxies and proxy material to the beneficial owners of the shares and
21
<PAGE>
Preliminary Proxy Material
secure their voting instructions, if necessary. Mid Ocean will reimburse such
record holders for their reasonable expenses in so doing. Mid Ocean has also
made arrangements with Georgeson & Company, Inc. to assist it in soliciting
proxies from banks, brokers and nominees and has agreed to pay no more than
$12,500, plus expenses, for such services. If necessary, Mid Ocean may also use
several of its regular employees, who will not be specially compensated, to
solicit proxies from shareholders, either personally or by telephone, telegram,
facsimile or special delivery letter.
RECORD DATE AND VOTING RIGHTS
Pursuant to the provisions of the Companies Law, the Mid Ocean Articles of
Association (the "MID OCEAN ARTICLES"), and the order of the Grand Court dated
, 1998, the date of , l998 has been fixed by the Mid Ocean
Board as the Mid Ocean Record Date for determination of Mid Ocean Shareholders
(other than Interested Mid Ocean Shareholders) entitled to notice of and to vote
at the Mid Ocean Class Meetings. Accordingly, only Mid Ocean Shareholders (other
than Interested Mid Ocean Shareholders) and with the exception of EXEL) of
record at the close of business on that date of Mid Ocean Shares will be
entitled to notice of and to vote at the Mid Ocean Class Meetings. The number of
outstanding Mid Ocean Shares entitled to vote at the respective Mid Ocean Class
Meetings are, respectively, Mid Ocean Class A Shares (which number
excludes shares held by EXEL and by Interested Mid Ocean Shareholders),
Mid Ocean Class B Shares and Mid Ocean Class C Shares.
Mid Ocean Shareholders (other than EXEL and the Interested Mid Ocean
Shareholders), at the applicable Mid Ocean Class Meeting, are entitled to one
vote per Mid Ocean Share on any matter that may properly come before such Mid
Ocean Class Meeting. The affirmative vote of a majority in number representing
75% in value of the members present and voting in person or by proxy at each Mid
Ocean Class Meeting, in each case, voting together as a single class, is
required to approve the Mid Ocean Arrangement.
Mid Ocean Shareholders who abstain will not be treated as present and
voting. Mid Ocean Shareholders wishing to exercise their rights at the Mid Ocean
Class Meetings must vote either for or against the resolution. If it is the
intention of a Mid Ocean Shareholder to oppose the Mid Ocean Arrangement at the
hearing of the petition in the Grand Court, such Mid Ocean Shareholder must
record its vote against the resolution at the appropriate Mid Ocean Class
Meeting. If a broker or nominee indicates on its proxy that it does not have
discretionary authority to vote on a particular matter as to certain shares and
the proxy does not indicate a vote either for or against the resolution set out
in the Notice of Class Meetings (so-called "broker non-votes"), those Mid Ocean
Shares will be treated as abstentions and accordingly, a broker non-vote will
not be treated as shares that are present and voting.
As of the Mid Ocean Record Date, the directors and executive officers of Mid
Ocean (other than Interested Mid Ocean Shareholders) and their affiliates had
the right to vote an aggregate of Mid Ocean Shares, representing %
of Mid Ocean Class A Shares then outstanding.
The Interested Mid Ocean Shareholders who, under Cayman Islands law,
constitute a separate class of Mid Ocean Shareholders for the purposes of the
Mid Ocean Arrangement, shall not vote at the Mid Ocean Class Meetings, but have
unanimously consented to the Mid Ocean Arrangement.
Additional information with respect to the beneficial ownership of Mid Ocean
Class A Shares by individuals and entities owning more than 5% of such share
capital and more detailed information with respect to beneficial ownership of
Mid Ocean Class A Shares by directors and executive officers of Mid Ocean is
incorporated by reference to Mid Ocean's 1997 Annual Report on Form 10-K. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
In the event that Mid Ocean has the right to terminate the Agreement for any
reason, the Mid Ocean Board may, in the exercise of its fiduciary duty, make
determinations (i) whether to terminate the
22
<PAGE>
Preliminary Proxy Material
Agreement or to waive the condition that gives rise to such right to terminate
the Agreement and proceed to the consummation of the Arrangements, and (ii) if
it determines to waive the condition giving rise to such right to terminate and
proceed to consummation of the Arrangements, whether or not to resolicit the
approval of Mid Ocean Shareholders. A resolicitation with an updated Joint Proxy
Statement may be required in the event Mid Ocean waives or amends any conditions
material to Mid Ocean Shareholders. However, Mid Ocean does not presently intend
to waive or amend any such material condition. See "THE ARRANGEMENTS--Waiver;
Amendment."
23
<PAGE>
Preliminary Proxy Material
DISSENTERS' RIGHTS
Any Mid Ocean Shareholder who wishes to oppose the sanctioning of the Mid
Ocean Arrangement at the hearing of the petition at the Grand Court must record
its vote against the resolution at the relevant Mid Ocean Class Meeting. At the
hearing of the petition itself such Mid Ocean Shareholders who have so voted
will be entitled to make representations to the Grand Court on the hearing of
the petition. If the Mid Ocean Arrangement is approved by the requisite votes at
each of the Mid Ocean Class Meetings and the Grand Court approves the Mid Ocean
Arrangement, the order of the Grand Court will bind in any dissenters to the
terms of the Mid Ocean Arrangement.
RECOMMENDATION OF THE MID OCEAN BOARD
The Mid Ocean Board (with the exception of directors affiliated with EXEL)
has approved the Agreement and the Mid Ocean Arrangement and the transactions
contemplated thereby. The Mid Ocean Board (with the exception of directors
affiliated with EXEL) believes that the Agreement, the Mid Ocean Arrangement and
the transactions contemplated thereby are advisable and in the best interests of
Mid Ocean and the Mid Ocean Shareholders, and recommends that the Mid Ocean
Shareholders vote "FOR" approval of the Mid Ocean Arrangement at the Mid Ocean
Class Meetings. See "THE ARRANGEMENTS--Reasons of Mid Ocean for the
Arrangements."
THE ARRANGEMENTS
THE SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE AGREEMENT, THE EXEL
ARRANGEMENT AND THE MID OCEAN ARRANGEMENT CONTAINED IN THIS AND OTHER SECTIONS
OF THIS JOINT PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
AGREEMENT (AS AMENDED), THE EXEL ARRANGEMENT AND THE MID OCEAN ARRANGEMENT,
WHICH ARE INCORPORATED HEREIN BY REFERENCE AND, WITH THE EXCEPTION OF CERTAIN
EXHIBITS THERETO, ARE ATTACHED TO THIS JOINT PROXY STATEMENT AS APPENDICES A, B
(AMENDMENT NO. 2 TO THE AGREEMENT), C AND D, RESPECTIVELY.
BACKGROUND OF THE ARRANGEMENTS
EXEL was offered the opportunity to invest in Mid Ocean at the time of its
establishment in 1992, and has since that time been the largest Mid Ocean
Shareholder and has had at least two representatives on the Mid Ocean Board,
including one on the Executive Committee of the Mid Ocean Board. EXEL's initial
interest in Mid Ocean stemmed from a strategic initiative to enter the property
catastrophe reinsurance business, which generally is low frequency, high
severity in nature and largely uncorrelated to EXEL's existing excess casualty
insurance lines. EXEL and Mid Ocean have contact in the ordinary course of their
respective businesses because, among other things, Mid Ocean has reinsurance
arrangements in place with EXEL.
On June 2, 1995, at the request of Mid Ocean, Mid Ocean and EXEL entered
into a standstill arrangement in which EXEL agreed that, so long as two officers
of EXEL were on the Mid Ocean Board (one of whom would also be on the Executive
Committee of the Mid Ocean Board) it would not make purchases of Mid Ocean
Shares that would increase its ownership to an amount in excess of 30% of Mid
Ocean Class A Shares or 25% of all shares of Mid Ocean Shares on a fully diluted
basis, or, individually or as part of a group, engage in certain transactions
relating to the control of Mid Ocean. This agreement was to last until the
earliest of (i) May 1, 1998, (ii) any agreement by Mid Ocean to consolidate with
a party other than EXEL or (iii) any action by Mid Ocean that would dilute
EXEL's share ownership of Mid Ocean Shares below 20% or decrease the number of
its representatives on the Mid Ocean Board to below two.
24
<PAGE>
Preliminary Proxy Material
In December 1995, both EXEL and Mid Ocean began to implement diversification
strategies that created partial overlap between their respective businesses.
EXEL formed a reinsurance company to concentrate primarily on specialty
reinsurance, and Mid Ocean acquired 51% of Brockbank, a Lloyd's of London
("LLOYD'S") managing agency which writes a broad range of insurance and
reinsurance business, with a commitment to acquire the remaining 49% (subject to
certain conditions) by September 1, 1997.
In the summer of 1996, the Mid Ocean Board and its advisors reviewed Mid
Ocean's takeover defenses. Among other things, it considered the possible
implementation of a shareholder rights plan and approved employment agreements
with key executives that would define their rights in the event of a change of
control. In the period prior to, and shortly following, the adoption of the Mid
Ocean Rights Agreement, the senior management of Mid Ocean and EXEL held
preliminary discussions exploring the possibility of a combination transaction
between the two companies. None of these discussions resulted in substantive
negotiations, and, at a meeting on September 12, 1996, the Mid Ocean Board
determined that such a transaction would not be in the best interests of Mid
Ocean and Mid Ocean Shareholders at that time and informed EXEL that Mid Ocean's
strategy then called for it to remain independent.
In the summer of 1997, EXEL acquired control of GCR Holdings Limited, whose
wholly-owned property catastrophe reinsurance subsidiary competed with Mid
Ocean, and entered into an agreement to acquire a stake in a Lloyd's managing
agency. In August of 1997, Mid Ocean acquired the remaining 49% of Brockbank,
and EXEL acquired its stake in a Lloyd's managing agency which competes with
Brockbank. As a result of these transactions, in September 1997, Messrs. Robert
J. Newhouse, Jr., Chairman of Mid Ocean, and Michael A. Butt, President and
Chief Executive Officer of Mid Ocean, became concerned about potential conflicts
of interest on the Mid Ocean Board and asked Messrs. Brian M. O'Hara, President
and Chief Executive Officer of EXEL, and Michael P. Esposito, Jr., Chairman of
EXEL, to consider reevaluating EXEL's long-term ownership position in Mid Ocean
and EXEL's continuing representation on the Mid Ocean Board. After consultations
with the Financial Committee of the EXEL Board and EXEL's legal and financial
advisors, Messrs. O'Hara and Esposito informed the Mid Ocean Board at a meeting
on September 10, 1997 that they believed it appropriate and consistent with
applicable law for EXEL, as the largest Mid Ocean Shareholder, to have
representation on the Mid Ocean Board PROVIDED that they observed certain
procedures designed to avoid conflicts of interest. Such procedures included
recusal by Messrs. O'Hara and Esposito from deliberations and voting on matters
relating to strategy and areas in which the businesses of EXEL and Mid Ocean
overlapped. Messrs. O'Hara and Esposito also indicated that EXEL would continue
to evaluate all potential options concerning its stake in Mid Ocean, including
the sale or other disposition thereof, and that EXEL would welcome assistance
from Mid Ocean in such matters.
In the succeeding months, management of Mid Ocean and the Executive
Committee of the Mid Ocean Board (with the exception of Mr. O'Hara) explored
alternatives for facilitating a disposition of the EXEL shareholdings in the
context of long-term strategic alternatives for Mid Ocean and Mid Ocean
Shareholders. These alternatives included several possible acquisitions and
mergers, a share buyback, a purchase of EXEL's interest by a group of investors,
and a secondary stock offering. By the beginning of January 1998, however, no
significant progress had been made in this regard.
On January 8, 1998, Mr. Newhouse received a call from the Chief Executive
Officer (the "THIRD PARTY CEO") of another company (the "THIRD PARTY"), asking
if Mid Ocean would be interested in exploring the terms of a possible
combination with the Third Party. After consulting with Mr. Butt, Mr. Newhouse
told the Third Party CEO that it was his view that Mid Ocean should explore such
a possibility.
On January 14, 1998, after additional meetings between officers of Mid Ocean
and officers of the Third Party, the Third Party executed a confidentiality
agreement with Mid Ocean, and both Mid Ocean and the Third Party commenced due
diligence investigations. During the last two weeks of January and the first
week in February, 1998, additional meetings took place between officers of Mid
Ocean and the Third Party and their respective legal and financial advisors and
accountants, at which a share-for-share business
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combination with an indication of a possible price of approximately $67.00 a
share to be received by Mid Ocean Shareholders was discussed.
In early February 1998, Mr. Butt notified the Mid Ocean Board of the
possible transaction and indicated that Mid Ocean's management would seek
authorization from the Mid Ocean Board to proceed with negotiations with respect
to the transaction.
On February 10, 1998, at a meeting of the Mid Ocean Board, Mr. Newhouse and
Mr. Butt reviewed for the Mid Ocean Board the discussions that had taken place
with the Third Party, and made a presentation regarding the transaction proposed
by the Third Party. Representatives of J.P. Morgan, Mid Ocean's financial
advisor, then made a presentation regarding the financial aspects of the
potential transaction. Following these presentations and various discussions by
the Mid Ocean Board, the Mid Ocean Board unanimously resolved that Mid Ocean's
management and its advisors should proceed with negotiations regarding the terms
of a possible transaction, and indicated that under any circumstance a higher
price than had been indicated by the Third Party CEO would be required if any
transaction was to proceed.
During the week following this meeting, Mid Ocean and its advisors continued
their due diligence and discussions. After several meetings, the financial
advisors of the Third Party stated that they were prepared to discuss a possible
price of $70.00 per Mid Ocean Share in a pooling-of-interests merger
transaction. Many economic and non-economic issues remained subject to
discussion, including the nature and extent of price protection mechanisms for
Mid Ocean Shareholders and certain other material terms.
On February 17, 1998, at a meeting of the Executive Committee of the Mid
Ocean Board, a representative of J.P. Morgan reported on the status, as
described in the previous paragraph, of the negotiations with the Third Party.
Following such meeting, the representative of J.P. Morgan contacted a
representative of EXEL who indicated that EXEL, as a Mid Ocean Shareholder,
would not be prepared to support a transaction at the price levels and on the
terms then being discussed and would not be willing to enter into certain
arrangements into which the Third Party was requiring that EXEL, as a
prospective significant shareholder of the Third Party, enter. The EXEL
representative discussed in principle terms on which EXEL might be willing to
support a transaction with the Third Party.
On February 20, 1998, an informational briefing of the EXEL Board was held
during which members of EXEL's senior management briefed directors on the status
of the proposed business combination involving Mid Ocean and Third Party.
On February 24, 1998, officers of Mid Ocean and the Third Party and their
respective financial and legal advisors met to consider the price and terms of
certain transactions that would not require the consent of EXEL as a Mid Ocean
Shareholder and other possibilities. At this meeting, the Third Party CEO
informed Messrs. Newhouse and Butt that, due to various considerations, the
Third Party was not prepared to proceed with consideration of a combination with
Mid Ocean at that time.
On March 2, 1998, a representative of J.P. Morgan informed a representative
of EXEL that Mid Ocean was considering various potential or theoretical
alternative transactions that might not require EXEL's consent. Also on that
date, Messrs. Butt and O'Hara again discussed the representation of EXEL on the
Mid Ocean Board.
During the morning of March 3, 1998, an informational briefing of the EXEL
Board was held to review the status of EXEL's investment in Mid Ocean. Senior
management of EXEL reviewed the basis for EXEL's position that it was not in the
best interests of EXEL or EXEL Shareholders to support a business combination of
Mid Ocean and the Third Party on the financial and other terms which had been
presented. In the preliminary view of EXEL management, taking into account the
strategic fit between EXEL and Mid Ocean, including potential business overlap
issues, EXEL's management indicated that EXEL should consider proposing a
combination with Mid Ocean on price and other terms more
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advantageous to other Mid Ocean Shareholders than those offered by the Third
Party. EXEL's management indicated that, although they did not know whether the
Mid Ocean Board and Mid Ocean management would be receptive to any such
proposal, communicating EXEL's willingness to consider a combination at a price
and on terms better than the price and other terms put forward by the Third
Party would demonstrate EXEL's conviction as to the value of Mid Ocean. Mr.
Esposito informally polled the EXEL Board, which indicated that they would
support such an approach.
Later, on March 3, 1998, Mr. O'Hara, in a letter to the Mid Ocean Board,
reiterated that, while EXEL remained open to all possibilities, including a
combination of Mid Ocean and the Third Party, it continued to believe that the
previous proposal from the Third Party was not in the best interests of all Mid
Ocean Shareholders. As an indication of the degree of EXEL's conviction that the
transaction with the Third Party was not in the best interests of Mid Ocean
Shareholders, he indicated that EXEL would be prepared to explore the
possibility of a transaction in which EXEL would offer as much as $74.00 per
share in cash and EXEL Ordinary Shares for each Mid Ocean Share, if the Mid
Ocean Board wished to entertain such a possibility.
On March 4 and 5, 1998, at meetings of the Mid Ocean Board, presentations
were made to the Mid Ocean Board by Mid Ocean management and by J.P. Morgan
regarding the possibility raised by EXEL. After discussion of the presentations,
the Mid Ocean Board concluded that a share-for-share merger with EXEL would be
advantageous to Mid Ocean and the Mid Ocean Shareholders from a tax perspective
and would preserve potential upside for the Mid Ocean Shareholders. As a
consequence, the Mid Ocean Board (with the exception of Messrs. Esposito and
O'Hara, who recused themselves during this discussion) authorized management to
proceed with negotiations with EXEL, PROVIDED that EXEL agreed to explore a
merger involving a share-for-share exchange with no cash component.
On March 6, 1998, a representative of EXEL communicated to a representative
of J.P. Morgan that EXEL was concerned at the level of dilution to EPS that
could result under GAAP purchase accounting from a share-for-share merger with
no cash component but was willing to consider a share-for-share merger at a
lower implied value. At that time, the parties discussed an indicative exchange
ratio of 1.043 EXEL Ordinary Shares for each Mid Ocean Share, which translated
to value of $70 per Mid Ocean Share based on the closing price per EXEL Ordinary
Share on the NYSE on March 5, 1998. Over the next few days, Messrs. Newhouse,
Butt, O'Hara, and Esposito discussed the possible composition of the board and
management of the combined entity in the event a transaction could be effected
between the companies.
On March 7, 1998, Mid Ocean and EXEL entered into a confidentiality
agreement and their respective advisors commenced their due diligence
investigations. EXEL's legal advisors circulated a draft of a merger agreement
for discussion purposes.
On March 10, 1998, a special meeting of the Mid Ocean Board was convened to
discuss the current status of discussions with EXEL. All members of the Mid
Ocean Board participated either in person or by conference call, although
Messrs. Esposito and O'Hara recused themselves during the discussion of the
possible transaction with EXEL. At that meeting, Messrs. Newhouse and Butt and a
representative of J.P. Morgan summarized for the Mid Ocean Board the current
status of the discussions with EXEL and certain material terms of the
transaction being discussed, including a number of significant open issues.
Messrs. Newhouse and Butt also described the discussions they had had with EXEL
with respect to the board of directors and management of the combined company.
The Mid Ocean Board then generally discussed these matters among themselves and
with Mid Ocean's advisors.
Following these discussions, the Mid Ocean Board (with the exception of
Messrs. O'Hara and Esposito) directed that Mid Ocean's management and its
advisors should proceed with negotiations regarding the terms of a possible
transaction with EXEL.
From March 10 through March 14, 1998, the respective legal counsels of Mid
Ocean and EXEL discussed the terms of a draft Agreement. The respective legal
counsels of Mid Ocean and EXEL agreed
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that, in order for a possible transaction to provide Mid Ocean Shareholders an
opportunity to exchange stock for stock on a generally tax-free basis for United
States federal income tax purposes, any such transaction should be structured as
the formation of a new holding company, with Mid Ocean and EXEL as wholly-owned
subsidiaries of such holding company, rather than as a merger or amalgamation of
Mid Ocean with and into EXEL. During this period, financial, legal, and
accounting due diligence continued. As EXEL indicated that one condition of its
willingness to proceed would be the voting support of JPMCC, holder of all of
the outstanding Mid Ocean Class B Shares and Mid Ocean Class C Shares, counsel
for EXEL provided to JPMCC a draft of the Support Agreement under which JPMCC
would agree to vote its Mid Ocean Shares, subject to the terms set forth
therein, in favor of the transaction. The respective legal counsels of EXEL and
JPMCC discussed the terms of the draft Support Agreement.
In discussions on March 12 and 13, 1998 representatives of EXEL reiterated
to representatives of Mid Ocean EXEL's concern that any transaction not result
in dilution to EXEL Shareholders and indicated that, because of the significant
increase in the price of EXEL Ordinary Shares from March 6 to March 12, 1998,
they considered an exchange ratio of 1.00 (which would yield value to Mid Ocean
Shareholders of $72.50 based on the closing price of EXEL Ordinary Shares on
March 12) to be appropriate. After further discussions, EXEL's representatives
indicated that they would be willing to recommend to the EXEL Board at their
meeting scheduled for March 13, 1998 an exchange ratio of 1.01 EXEL Ordinary
Shares for each Mid Ocean Share.
On March 13, a meeting of the EXEL Board was held, at which the transaction
was discussed. At this meeting, members of EXEL's management summarized the
business of Mid Ocean, the results of their due diligence investigation and
certain financial, legal and other considerations relating to the proposed
transaction. Representatives of Goldman Sachs, EXEL's financial advisor, made a
presentation to the EXEL Board, and counsel for EXEL discussed the terms of the
draft Original Agreement proposed to be entered into with Mid Ocean. Messrs.
O'Hara and Esposito also described the discussions they had had with Messrs.
Newhouse and Butt with respect to the board of directors and management of the
combined company. Following further discussions of these matters among
themselves and with their advisors, the EXEL Board voted to approve the
transaction with Mid Ocean in principle, pending resolution of the open items,
and directed EXEL's management and its advisors to continue with negotiations
regarding the terms of a transaction within an authorized exchange ratio band of
.97 to 1.03. The EXEL Board then resolved to create a Special Amalgamation
Committee (the "SPECIAL COMMITTEE"), consisting of Messrs. O'Hara and Esposito
and Mr. Cyril Rance, to complete negotiations with Mid Ocean, and vested
appropriate authority in the Special Committee to approve the transaction with
Mid Ocean over the following few days. Goldman Sachs indicated that they
expected that they would be in a position to provide to the Special Committee
the opinion of Goldman Sachs as to the fairness from a financial point of view
of the consideration to be received by EXEL Shareholders.
On March 15, the Mid Ocean Board met to review the terms of the proposed
transaction. At this meeting, representatives of J.P. Morgan made a presentation
to the Mid Ocean Board and provided J.P. Morgan's opinion that the proposed
consideration to be received by the holders (other than EXEL) of Mid Ocean
Shares in the transaction was fair as of such date to such holders from a
financial point of view. See "--Opinion of Mid Ocean's Financial Advisor."
At the same meeting, legal counsel for Mid Ocean described the progress of
negotiations on the draft Original Agreement and described the key issues
therein. Management of Mid Ocean described the results of a due diligence
investigation with respect to EXEL that had been conducted by them and Mid
Ocean's representatives. Thereafter Messrs. Butt and Newhouse described the
proposed composition of the board of directors of the combined entity, including
the fact that the draft Original Agreement provided for them (as well as three
additional directors of Mid Ocean) to be directors, as well as the proposed
consulting and employment arrangements that EXEL sought with certain members of
management of Mid Ocean.
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After these presentations, management of Mid Ocean asked for and obtained
authorization for them and their financial advisors to conduct a further
negotiation with representatives of EXEL to see if the exchange ratio proposed
by EXEL could not be increased from 1.01 EXEL Ordinary Shares per Mid Ocean
Share as well as to obtain agreement on certain other matters. As a result of
negotiation among EXEL, Mid Ocean and their advisors, the parties agreed upon
the Exchange Ratio of 1.0215 EXEL Ordinary Shares per Mid Ocean Share (yielding
a value to Mid Ocean Shareholders of $72.78 based on the closing price of EXEL
Ordinary Shares on the NYSE on March 13, 1998), as well as certain other
matters.
The Exchange Ratio was based upon, among other things, factors of the nature
described below under "Opinion of EXEL's Financial Advisor" and "Opinion of Mid
Ocean's Financial Advisor." The parties did not consider separate exchange
ratios for the Mid Ocean Class B Shares and the Mid Ocean Class C Shares as
opposed to the Mid Ocean Class A Shares because the rights and preferences of
each class are substantially identical (with the exception of voting rights) and
because the Mid Ocean Class B Shares and the Mid Ocean Class C Shares are
convertible into Mid Ocean Class A Shares on a one-for-one basis, suggesting
that the same exchange ratio should apply to all classes of Mid Ocean Shares.
EXEL and Mid Ocean did not assign any particular values to the companies as a
whole.
Thereafter, the Mid Ocean Board (with the exception of directors affiliated
with EXEL, who recused themselves shortly after the meeting began) unanimously
approved the Original Agreement, the Arrangements and the transactions
contemplated thereby. Representatives of JPMCC indicated that they would be
willing to deliver the Support Agreement.
On March 15, Goldman Sachs rendered its oral opinion to the Special
Committee of the EXEL Board, acting pursuant to delegated authority from the
EXEL Board, as to the fairness as of March 15, 1998 of the exchange ratio in the
proposed EXEL Arrangement to EXEL Shareholders from a financial point of view.
The Special Committee of the EXEL Board approved the Original Agreement, the
Arrangements and the transactions contemplated thereby on behalf of and pursuant
to the power granted to it by the EXEL Board. See "--Opinion of EXEL's Financial
Advisor."
Soon thereafter, representatives of Mid Ocean and EXEL finalized and entered
into the Original Agreement, and JPMCC and EXEL entered into the Support
Agreement.
On March 16, 1998, in connection with the announcement of the Original
Agreement, EXEL announced its intention to repurchase up to $500 million of EXEL
Ordinary Shares or New EXEL Shares (after the Effective Time). In light of
EXEL's intention to repurchase shares, EXEL subsequently proposed a limited cash
election to Mid Ocean as a more efficient method of achieving such a result.
Representatives of EXEL and Mid Ocean negotiated the cash election amount with a
view to achieving an appropriate capital structure while at the same time
preserving the basic share-for-share concept of the transaction. As a result of
the cash election feature, EXEL will reduce its intended repurchases of EXEL
Ordinary Shares and/or New EXEL Shares on a dollar for dollar basis. Thus, EXEL
still intends to repurchase a minimum of $200 million of EXEL Ordinary Shares
and/or New EXEL Shares from time to time in the market, in privately negotiated
transactions or otherwise.
On April 28, 1998, EXEL and Mid Ocean agreed to amend and restate the
Original Agreement to provide that up to $300 million in cash would be made
available for voluntary cash elections in the Arrangements, with the $300
million to be divided pro rata among the EXEL Shareholders, on the one hand, and
the Mid Ocean Shareholders, on the other. On that date, Goldman Sachs rendered
its oral opinion to the Special Committee of the EXEL Board, subsequently
confirmed by a written opinion addressed to the EXEL Board dated as of that
date, as to the fairness as of April 28, 1998 of the aggregate consideration to
be received by EXEL Shareholders in the EXEL Arrangement from a financial point
of view, and the Special Committee of the EXEL Board, acting pursuant to
delegated authority from the EXEL Board, approved such amendment and
restatement. See "--Opinion of EXEL's Financial Advisor." On the same day, the
Mid Ocean Board received J.P. Morgan's opinion that the proposed
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consideration to be received by the holders (other than EXEL) of Mid Ocean
Shares in the Mid Ocean Arrangement was fair as of such date to such holders
from a financial point of view, and approved the amendment and restatement by
written consent.
REASONS FOR THE ARRANGEMENTS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The EXEL Board and the Mid Ocean Board believe that the Arrangements will
create one of the pre-eminent insurance and reinsurance organizations in the
world for excess property and casualty insurance and reinsurance business. The
EXEL Board and the Mid Ocean Board believe that the strengths of EXEL and Mid
Ocean will complement one another, and that the Arrangements can be expected to
provide opportunities to achieve substantial benefits that might not otherwise
be available for the shareholders and customers of the two companies. The
resulting company is expected to benefit from the combined financial resources,
management and personnel of EXEL and Mid Ocean, will be better positioned to
compete effectively in an increasingly competitive industry, and will be better
able to capitalize on worldwide growth opportunities in the insurance and
reinsurance industry. In addition, the EXEL Board and the Mid Ocean Board
considered the factors set forth below.
REASONS OF EXEL FOR THE ARRANGEMENTS
In reaching its determination to approve the Agreement and recommend
approval of the EXEL Arrangement, the EXEL Board considered a number of factors,
including, without limitation, the following:
(i) all of the reasons described in the first paragraph under "--Reasons
for the Arrangements; Recommendations of the Boards of Directors;"
(ii) its knowledge of the business, operations, properties, assets,
financial condition, operating results and prospects of EXEL;
(iii) (a) its knowledge and analysis of the global property and casualty
insurance and reinsurance industry environment, including the increasing
pace and scale of consolidation in the industry, intensifying price
competition and the need to anticipate and best position EXEL in light of
industry trends, (b) its belief that a combination of EXEL and Mid Ocean
will enhance EXEL's ability to compete effectively with other insurance and
reinsurance companies and expand its franchise to offer a broader range of
products and services and to serve a significantly greater number of
customers, and (c) Mid Ocean's unique franchises in property reinsurance
and, through Brockbank, in Lloyd's;
(iv) the access to high-quality global business placed through the
Lloyd's insurance market as a result of Mid Ocean's ownership of Brockbank,
a leading Lloyd's managing agency;
(v) the benefits associated with increased size and scale, including (a)
broader distribution for EXEL's products and services, (b) better
positioning EXEL to maintain constructive relationships with insurance and
reinsurance brokers in light of substantial consolidation in that industry,
(c) increased diversification and spread of business by customer type,
product line and geographic region, and (d) the potential for increased
efficiencies through economics of scale;
(vi) the potential to create a global property and casualty insurance
and reinsurance organization by combining EXEL's North American, European
and Latin American business units with Mid Ocean's Lloyd's and Asian
operations;
(vii) access to Mid Ocean's talented management, underwriting and
analytical personnel;
(viii) the complementary relationship between Mid Ocean's short-tail
property book of business and EXEL's long-tail casualty book of business;
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(ix) the consistency of Mid Ocean's reserving and underwriting
philosophies, policies and practices with those of EXEL;
(x) its desire to avoid losing the benefits of EXEL's ownership stake in
Mid Ocean, including EXEL's ability to utilize the equity accounting method
with respect to Mid Ocean's earnings and Mid Ocean's high dividend rate
relative to other industry participants, if Mid Ocean were to enter a
business combination with a party other than EXEL;
(xi) the acceptable degree of overlap between lines of business in which
both EXEL and Mid Ocean are engaged;
(xii) its knowledge and review of the financial condition, results of
operations and business prospects of Mid Ocean, as well as the results of
EXEL's due diligence review of Mid Ocean, and its belief that Mid Ocean is a
high-quality franchise with a respected and capable management, underwriting
and analytical teams with compatible approaches to risk underwriting, risk
management and shareholder value;
(xiii) its evaluation of the financial terms of the Arrangements (see
"--The Arrangements") and their effect on the EXEL Shareholders and the EXEL
Board's belief that such terms are fair to and in the best interests of EXEL
and the EXEL Shareholders and are consistent with EXEL's long-term strategy
of enhancing shareholder value with expansion through selective acquisitions
and taking into account that while there would be some dilution in 1998
earnings per share, the Arrangements are expected to have a mild accretive
impact on earnings per share in 1999 particularly on an economic or cash
basis. The foregoing is based on internal earnings per share estimates
prepared by management of both EXEL and Mid Ocean. The combined company's
ability to achieve such results is dependent upon various factors, a number
of which will be beyond its control, including the regulatory environment,
economic conditions, unanticipated changes in business conditions and
inflation, and there can be no assurance in this regard;
(xiv) the nonfinancial terms of the Arrangements, the Agreement and
related agreements, including the fact that all of the directors of EXEL
would remain on the New EXEL Board, which board would also include five
current directors of Mid Ocean, including Messrs. Butt and Newhouse, and the
fact that EXEL would enter into amendments to the employment agreements
between Mid Ocean and Henry C.V. Keeling and Mark E. Brockbank, and new
consulting agreements with Messrs. Newhouse and Butt (see "--Interests of
Certain Persons in the Arrangements");
(xv) the likelihood that the Arrangements would receive requisite
regulatory approvals (see
"--Regulatory Matters");
(xvi) the expectation that the Arrangements would constitute an
"exchange" under Section 351 of the Code;
(xvii) the strategic fit between EXEL and Mid Ocean, including the
advantages gained by combining their respective strengths in insurance and
reinsurance, and the fact that the Arrangements will create the largest
Bermuda-based property and casualty insurance and reinsurance organization
and the 20th largest such organization listed in the United States;
(xviii) the fact that pursuant to the Agreement, the number of New EXEL
Shares to be issued is fixed so that the maximum number of New EXEL Shares
to be issued is known and the dilution to the ownership interest of current
EXEL Shareholders would consequently be limited;
(xix) the current and historical trading prices and values of EXEL
Ordinary Shares and Mid Ocean Class A Shares and the current and historical
trading multiples of other comparable companies; and
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(xx) the financial condition and business reputation of EXEL, and the
strength of its management team.
EXEL also considered the fact that, based on market prices shortly prior to
announcement of the Arrangements, the Exchange Ratio reflected a premium to the
Mid Ocean Class A Share price of approximately 15%. In addition, in recommending
approval of the EXEL Arrangement by the EXEL Shareholders, the EXEL Board
considered the opinion of Goldman Sachs (including the assumptions and financial
information relied upon by Goldman Sachs in arriving at such opinion, some of
which financial information was provided to Goldman Sachs by the senior
management of EXEL). See "--Opinion of EXEL's Financial Advisor."
The EXEL Board also considered the risk that benefits sought in the
Arrangements would not be obtained, the risk that the Arrangements would not be
consummated, the risks associated with a fixed exchange ratio and the effect of
the public announcement of the Arrangements on the trading price of EXEL
Ordinary Shares. In the judgment of the EXEL Board, the potential benefits of
the Arrangements outweighed all these considerations.
The foregoing discussion of the information and factors considered by the
EXEL Board is not intended to be exhaustive but includes all material factors
considered by the EXEL Board. In reaching its determination to approve the
Arrangements, in view of the variety of factors considered and the complexity of
the determination to be made, the EXEL Board did not assign any relative or
specific weights to the foregoing factors, and individual directors may have
given differing weights to differing factors. After deliberating with respect to
the Arrangements and other transactions contemplated by the Agreement, and
considering, among other things, the matters discussed above, the EXEL Board
unanimously approved the Agreement, the EXEL Arrangement and the transactions
contemplated thereby as being in the best interests of EXEL and the EXEL
Shareholders.
THE EXEL BOARD BELIEVES THE AGREEMENT, THE EXEL ARRANGEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE ADVISABLE, AND IN THE BEST INTERESTS OF,
EXEL AND EXEL SHAREHOLDERS, AND THE EXEL BOARD RECOMMENDS THAT EXEL SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE EXEL ARRANGEMENT.
REASONS OF MID OCEAN FOR THE ARRANGEMENTS
At its meeting on March 15, 1998, the Mid Ocean Board determined that the
Agreement and Arrangements and the transactions contemplated thereby were
advisable and in the best interests of Mid Ocean and Mid Ocean Shareholders and
recommended that Mid Ocean Shareholders approve the Mid Ocean Arrangement. This
determination was made by the unanimous vote of all members of the Mid Ocean
Board at such meeting, except for directors who are also officers or directors
of EXEL and did not participate in such vote.
The Mid Ocean Board made its determination after careful consideration of,
and based on, a number of factors including the material factors described
below:
(i) all of the reasons described in the first paragraph under the
caption "-- Reasons for the Arrangements; Recommendations of the Boards of
Directors";
(ii) the Mid Ocean Board's knowledge of the business, operations,
properties, assets, financial condition, operating results and prospects of
Mid Ocean;
(iii) the current industry, economic and market conditions, including in
particular the intensification of competition in the property and casualty
insurance and reinsurance business and the resulting downward pressure on
pricing, together with the recent consolidation trend within the insurance
and reinsurance industry;
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(iv) the prospects of Mid Ocean as a stand-alone company given the
increased dominance in various lines of business of large competitors with
significant scale and critical mass; while the Mid Ocean Board believed such
prospects suggested a viable stand-alone company, the Mid Ocean Board
believed the value of the company would not be as favorable to Mid Ocean
Shareholders as the value of a substantial stake in a combination with EXEL;
(v) the investigation of Mid Ocean's strategic alternatives by the Mid
Ocean Board and J.P. Morgan, including consideration of Mid Ocean entering
into a transaction with the Third Party (see "-- Background of the
Arrangements"), Mid Ocean merging with another large reinsurance company,
and Mid Ocean continuing as an independent company with growth through
internal expansion;
(vi) the strategic fit between Mid Ocean and EXEL, including the
advantages gained by combining their respective strengths in insurance and
reinsurance, and the fact that the Arrangements will create one of the 20
largest United States-listed property casualty insurance companies;
(vii) the fact that pursuant to the Agreement Mid Ocean Shareholders
would, prior to the Mid Ocean Effective Time, share fully in any
appreciation in the value of EXEL Ordinary Shares;
(viii) the current and historical trading prices and values of Mid Ocean
Class A Shares and EXEL Ordinary Shares and the current and historical
trading multiples of other comparable companies;
(ix) the fact that the consideration to be received by Mid Ocean
Shareholders pursuant to the Agreement represented, as of March 13, 1998,
the last trading day prior to the announcement of the signing of the
Agreement, an approximately 15% premium over the closing price of Mid Ocean
Class A Shares of $63.31 per share on such date, and an approximately 19.5%
premium over the previous 30 calendar days' trading average;
(x) the oral and written presentations of J.P. Morgan and the opinion of
J.P. Morgan that, as of March 15, 1998, the consideration to be received by
Mid Ocean Shareholders in the Arrangements was fair to Mid Ocean
Shareholders (other than EXEL) from a financial point of view. See
"--Opinion of Mid Ocean's Financial Advisor" for a discussion of the factors
considered in rendering the opinion. Such opinion, which is subject to
limitations, qualifications and assumptions, is included as Appendix E
hereto, and should be read in its entirety;
(xi) the ability to consummate the Arrangements as a tax-free exchange
under the Code;
(xii) the Mid Ocean Board's belief that conducting an auction after
receipt of EXEL's proposal might (a) expose Mid Ocean to competitive harm,
(b) cause EXEL to withdraw its proposal and (c) not assure Mid Ocean of
receiving any acceptable offers;
(xiii) the provisions of the Agreement that permit Mid Ocean to furnish
third parties making unsolicited offers with information about Mid Ocean and
participate in discussions and negotiations with such third parties, if the
Mid Ocean Board, after having consulted with and considered the advice of
outside counsel, has determined that the failure to provide such information
or participate in such discussions and negotiations would cause the members
of the Mid Ocean Board to breach their fiduciary duties under applicable
laws. See "--Termination; Termination Fee";
(xiv) the facts that five current directors of Mid Ocean, including
Messrs. Butt and Newhouse, will become directors of New EXEL upon
consummation of the Arrangements; that Mr. Keeling will become chief
executive officer of New EXEL's reinsurance operations; and that Mr.
Brockbank will become the chief executive officer of New EXEL's Lloyd's
operations. See "--Management After the Arrangements" "MANAGEMENT AND
OPERATIONS AFTER THE ARRANGEMENTS";
(xv) the effect of the Arrangements on Mid Ocean's employees, including
the fact that the areas of overlap between EXEL and Mid Ocean were
sufficiently limited that the number of Mid Ocean
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employees that might become redundant as a result of the combination of EXEL
and Mid Ocean would be limited;
(xvi) the financial condition and business reputation of EXEL, and the
strength of its management team;
(xvii) the fact that EXEL is currently a holder of approximately 26.81% of
Mid Ocean's Class A Shares; and
(xviii) the fact that J.P. Morgan Capital Corporation, the holder of Mid
Ocean Class B Shares and Mid Ocean Class C Shares, supported the
Arrangements and had made a commitment to EXEL, subject to the terms of the
Support Agreement (see "--Background of the Arrangements") to vote in favor
of the Arrangements.
The Mid Ocean Board also considered (i) the risk that benefits sought in the
Arrangements would not be obtained, (ii) the risk that the Arrangements would
not be consummated, (iii) the effect of the public announcement of the
Arrangements on sales, agent, broker, customer and other business relationships,
Mid Ocean's operating results and ability to retain employees, and on the
trading price of Mid Ocean Shares, (iv) the management time and effort that will
be required to consummate the Arrangements and integrate the operations of EXEL
and Mid Ocean, and (v) the possibility that the Support Agreement and certain
provisions of the Agreement might have the effect of discouraging other persons
potentially interested in merging with or acquiring Mid Ocean. In the judgment
of the Mid Ocean Board, the potential benefits of the Arrangements outweighed
all these considerations.
The foregoing discussion of the information and factors considered by the
Mid Ocean Board is not intended to be exhaustive but includes all material
factors considered by the Mid Ocean Board. In view of the wide variety of
factors considered by the Mid Ocean Board in connection with its evaluation of
the Arrangements and the complexity of such matters, the Mid Ocean Board did not
consider it practicable to, nor did it attempt to, quantify, rank or otherwise
assign relative weights to the specific factors it considered in reaching its
decision. The Mid Ocean Board relied on the experience and expertise of its
financial advisors for quantitative analysis of the financial terms of the
Arrangements. See "--Opinion of Mid Ocean's Financial Advisor." In addition, the
Mid Ocean Board did not undertake to make any specific determination as to
whether any particular factor (or any aspect of any particular factor) was
determinative to its ultimate determination or assign any particular weight to
any factor, but, rather, conducted a discussion of the factors described above,
including asking questions of Mid Ocean's management and legal and financial
advisors, and reached a general consensus that the merger was advisable and in
the best interests of Mid Ocean and Mid Ocean Shareholders. In considering the
factors described above, individual members of the Mid Ocean Board may have
given different weights to different factors.
For information concerning certain interests of members of the Mid Ocean
Board in the Arrangements, see "--Interests of Certain Persons in the
Arrangements."
THE MID OCEAN BOARD BELIEVES THE AGREEMENT, THE MID OCEAN ARRANGEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY ARE ADVISABLE AND IN THE BEST INTERESTS OF
MID OCEAN AND MID OCEAN SHAREHOLDERS, AND THE MID OCEAN BOARD RECOMMENDS THAT
MID OCEAN SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MID OCEAN ARRANGEMENT AT THE
MID OCEAN CLASS MEETINGS.
OPINION OF EXEL'S FINANCIAL ADVISOR
On March 15, 1998, Goldman Sachs rendered an oral opinion to the Special
Committee of the EXEL Board (subsequently confirmed in writing to the EXEL
Board) to the effect that, as of such date and based upon the qualifications and
assumptions made and matters considered by Goldman Sachs described in its
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written opinion dated March 15, 1998, the exchange ratio in the proposed EXEL
Arrangement pursuant to the Original Agreement is fair from a financial point of
view to EXEL Shareholders.
On April 28, 1998, EXEL, Mid Ocean and New EXEL amended and restated the
Original Agreement. In light of the amendment and restatement of the Original
Agreement, on April 28, 1998, Goldman Sachs rendered the Goldman Sachs Opinion
to the EXEL Board to the effect that, as of such date and based upon the
qualifications and assumptions made and matters considered by Goldman Sachs
described in the Goldman Sachs Opinion dated April 28, 1998, the aggregate
consideration in the form of New EXEL Shares and cash, if any, to be received by
EXEL Shareholders in connection with the Arrangements pursuant to the Agreement
is fair from a financial point to view to such EXEL Shareholders.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION, DATED APRIL 28, 1998, WHICH SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS CONSIDERED IN, AND
THE LIMITATIONS ON, THE REVIEW UNDERTAKEN IN CONNECTION WITH THE GOLDMAN SACHS
OPINION, IS ATTACHED TO THIS JOINT PROXY STATEMENT AS APPENDIX E AND IS
INCORPORATED HEREIN BY REFERENCE. EXEL SHAREHOLDERS SHOULD READ THE GOLDMAN
SACHS OPINION IN ITS ENTIRETY AND CONSIDER IT CAREFULLY. THE SUMMARY OF THE
GOLDMAN SACHS OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE GOLDMAN SACHS OPINION. THE GOLDMAN SACHS OPINION WAS
DIRECTED TO THE EXEL BOARD IN CONNECTION WITH, AND FOR THE PURPOSES OF, ITS
EVALUATION OF THE ARRANGEMENTS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
EXEL SHAREHOLDER AS TO HOW SUCH EXEL SHAREHOLDER SHOULD VOTE WITH RESPECT TO ANY
MATTER TO BE VOTED UPON AT THE EXEL CLASS MEETING.
In connection with the Goldman Sachs Opinion, Goldman Sachs reviewed, among
other things: (i) the Agreement, (ii) the draft Joint Proxy Statement relating
to the EXEL Class Meeting to be held in connection with the Arrangements, (iii)
Annual Reports to Stockholders and Annual Reports on Form 10-K for the five
fiscal years ended November 30, 1997 for EXEL and October 31, 1997 for Mid
Ocean, (iv) certain interim reports to stockholders and Quarterly Reports on
Form 10-Q of EXEL and Mid Ocean, (v) certain other communications from EXEL and
Mid Ocean to their respective stockholders, (vi) certain internal financial
analyses and forecasts for EXEL prepared by EXEL's management (the "EXEL
ESTIMATES"), (vii) certain internal financial analyses and forecasts for fiscal
1998 for Mid Ocean (including analyses and forecasts for Brockbank) prepared by
Mid Ocean's management, as well as certain adjustments to such forecasts
prepared by EXEL's management, (viii) certain financial analyses and forecasts
for Mid Ocean for years subsequent to fiscal 1998 prepared by EXEL's management
(the estimates referenced in clauses (vii) and (viii), the "MID OCEAN
ESTIMATES"), and (ix) certain projected cost savings and operating synergies
resulting from the Arrangements prepared by EXEL's management (the "SYNERGIES").
Goldman Sachs noted in its opinion that the financial forecasts for Mid Ocean
for years subsequent to 1998 which were prepared by EXEL's management assume (i)
management's anticipated effects of the sale of certain subsidiaries of
Brockbank and (ii) certain redundancies of Mid Ocean's loss and loss adjustment
expense reserves. Goldman Sachs also held discussions with members of the senior
management of EXEL and Mid Ocean regarding the strategic importance, and
potential benefits of, the transactions contemplated by the Agreement, and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, Goldman Sachs reviewed with members
of senior management of EXEL the results of EXEL's due diligence examination of
Mid Ocean. With respect to Brockbank, at EXEL's direction, Goldman Sachs did not
meet with the management of Brockbank and its review of Brockbank was limited to
the review of the aforementioned Brockbank forecasts and discussions with EXEL's
management in respect of Brockbank. Goldman Sachs noted in its opinion that it
understood that EXEL had retained separate financial advisors familiar with
Brockbank to assist EXEL in its due diligence review of Brockbank. Goldman Sachs
also reviewed the reported price and trading activity for EXEL Ordinary Shares
and Mid Ocean Shares, compared certain financial and stock market information
for EXEL and Mid Ocean with similar information for certain other companies the
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securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the insurance industry and performed such other
studies and analyses as Goldman Sachs considered appropriate.
In preparing the Goldman Sachs Opinion, Goldman Sachs relied without
independent verification upon the accuracy and completeness of all of the
financial and other information reviewed by Goldman Sachs and assumed such
accuracy and completeness for purposes of rendering its opinion. In that regard,
Goldman Sachs assumed with EXEL's consent, (i) that the financial forecasts for
EXEL and Mid Ocean, including the forecasts in respect of Brockbank, the
forecasts for Mid Ocean adjusted or prepared by EXEL's management and including
the Synergies, were reasonably prepared on a basis reflecting the best currently
available judgments of the managements of EXEL and Mid Ocean, as the case may
be, and (ii) that the forecasts referred to in (i) above, including the
Synergies will be realized in the amounts and at the times contemplated thereby.
Goldman Sachs indicated that it had not been provided with financial forecasts
for Mid Ocean prepared by Mid Ocean management for periods other than fiscal
1998. Accordingly, its review with respect to future periods subsequent to
fiscal 1998 for Mid Ocean was limited to the forecasts for Mid Ocean prepared by
EXEL's management. In addition, Goldman Sachs noted that they are not actuaries
and have not made an independent evaluation or appraisal of the assets and
liabilities, including the loss and loss adjustment expense reserves of EXEL or
Mid Ocean or any of their subsidiaries and were not furnished with any such
evaluation or appraisal. In that regard, Goldman Sachs made no analyses of, and
expressed no opinion as to, the adequacy of the loss and loss adjustment expense
reserves of EXEL or Mid Ocean and relied upon information furnished to it by
EXEL and Mid Ocean as to such adequacy. Goldman Sachs also noted in its opinion
that they were not requested to make, and were not making, a recommendation to
any EXEL Shareholder as to whether he should elect to receive cash under the
Arrangements.
The following is a summary of certain of the financial analyses which were
reviewed by Goldman Sachs with the Special Committee of the EXEL Board on April
28, 1998 in connection with providing the Goldman Sachs Opinion. Goldman Sachs
utilized substantially the same types of financial analyses in preparing the
Goldman Sachs Opinion as it utilized in connection with its earlier opinion on
March 15, 1998.
SUMMARY OF TERMS OF PROPOSED TRANSACTION. Goldman Sachs reviewed the terms
of the proposed Arrangements, including the nominal value per share of Mid Ocean
Common Stock (the "NOMINAL VALUE"), the aggregate consideration, the Exchange
Ratio and the expected method of accounting. Utilizing a price of $74.38 per
EXEL Ordinary Share, the closing price on the NYSE of EXEL Ordinary Shares on
April 27, 1998, and applying an Exchange Ratio equal to 1.0215, Goldman Sachs
calculated a Nominal Value of $75.97 per Mid Ocean Share, as compared to a price
per Mid Ocean Share of $63.31, the closing price on the NYSE on March 13, 1998
(the last business day before the transaction was announced).
DAILY EXCHANGE RATIO HISTORY. Goldman Sachs divided the daily price of Mid
Ocean Shares by the daily price of EXEL Ordinary Shares (the "DAILY EXCHANGE
RATIO") for each day during the period from April 28, 1997 through April 27,
1998, and reviewed the Daily Exchange Ratio for such period. During this period
the Daily Exchange Ratio ranged from a high of 1.8x to a low of 0.8x.
VALUATION PARAMETERS ANALYSIS. Utilizing the Nominal Value of $75.97,
Goldman Sachs analyzed the consideration to be paid per Mid Ocean Share in
relation to (i) the market price per Mid Ocean Share on March 13, 1998 ($63.31),
(ii) the book value per Mid Ocean Share as of January 31, 1998 based on a Mid
Ocean press release, (iii) the 1997 actual EPS of Mid Ocean Shares, (iv) 1998
EPS estimate for Mid Ocean Shares based on information provided by IBES, (v)
EXEL management's 1998 EPS estimate for Mid Ocean Shares, and (vi) the 1999 IBES
EPS estimate for Mid Ocean Shares. Such analysis indicated that the Nominal
Value represented: (i) a 20% premium to the market value per Mid Ocean Share,
(ii) 2.1x the
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book value per Mid Ocean Ordinary Share, (iii) 11.8x the actual 1997 EPS for Mid
Ocean, (iv) 13.2x the IBES 1998 estimate for EPS for Mid Ocean, (v) 16.1x the
EXEL 1998 estimate for EPS for Mid Ocean, and (vi) 12.5x the IBES 1999 estimate
for EPS for Mid Ocean.
COMPARABLE PUBLIC COMPANY ANALYSIS. Goldman Sachs reviewed and compared
certain financial information relating to EXEL and Mid Ocean to corresponding
financial information, ratios and public market multiples for three groups of
selected publicly traded companies in the insurance industry considered by
Goldman Sachs to be reasonably comparable to EXEL and Mid Ocean for purposes of
this analysis. Such comparable companies consisted of: (i) ACE Limited ("ACE"),
(ii) PartnerRe Ltd., RenaissanceRe Holdings Ltd., IPC Holdings, Ltd., Terra Nova
(Bermuda) Holdings Ltd. and LaSalle Re Holdings Limited (the "BERMUDA
CATASTROPHE COMPANIES") and (iii) General Re Corporation, Transatlantic Re
Corporation, Alleghany, Everest Reinsurance Holdings, Inc., NAC Re Corp.,
Trenwick Group, Inc., and Chartwell Re Corporation (the "U.S. REINSURANCE
COMPANIES" together with ACE and the Bermuda Catastrophe Companies, the
"COMPARABLE COMPANIES"). Goldman Sachs calculated and compared various financial
multiples and ratios for EXEL and Mid Ocean with those of the Comparable
Companies using the respective closing price per share for each of the
Comparable Companies, EXEL and Mid Ocean on April 27, 1998. The multiples and
ratios for EXEL, Mid Ocean and the Comparable Companies were based on the most
recent publicly available information and from estimates provided by IBES
(calendarized, where appropriate, to reflect a December 31 fiscal year end).
With respect to the Comparable Companies, Goldman Sachs considered, among
other multiples and ratios, (i) the April 27, 1998 closing price per share as a
percentage of 52-week high, (ii) the price/earnings multiple based on 1998 and
1999 IBES estimates, (iii) the IBES estimate of 1998 to 1999 EPS growth rates
("1999 GROWTH RATES"), (iv) the IBES estimate of five-year EPS growth rate
("FIVE-YEAR GROWTH RATE"), (v) the ratio of the 1998 price/earnings multiple to
the five-year growth rate, (vi) the market price to adjusted book value (common
equity before adjustment for net unrealized gains pursuant to FAS 115) multiple,
(vii) the return on average common equity ("ROE") based on IBES 1998 estimates,
(viii) the dividend yield and (ix) the debt to capital ratio.
Goldman Sachs' analysis indicated that (i) the April 27, 1998 closing price
as a percentage of the 52 week high ranged from 87.0% to 98.0% with a median of
92.0% for the Bermuda Catastrophe Companies, and from 82.0% to 99.0% with a
median of 91.0% for the U.S. Reinsurance Companies, as compared with 82.0% for
ACE, 92.0% for EXEL and 92.0% for Mid Ocean; (ii) 1998 price/earnings multiples
ranged from 7.8x to 11.3x with a median of 9.3x for the Bermuda Catastrophe
Companies, and from 9.9x to 23.6x with a median of 13.2x for the U.S.
Reinsurance Companies, as compared to 15.6x for ACE, 16.7x for EXEL and 14.2x
for Mid Ocean; (iii) 1999 price/earnings multiples ranged from 7.5x to 10.6x
with a median of 9.8x for the Bermuda Catastrophe Companies, and from 9.2x to
21.7x with a median of 12.3x for the U.S. Reinsurance Companies, as compared to
14.1x for ACE, 16.7x for EXEL and 13.1x for Mid Ocean; (iv) 1999 growth rates
ranged from (11.4%) to 6.8% with a median of 4.1% for the Bermuda Catastrophe
Companies, and from 8.3% to 9.7% with a median of 9.0% for the U.S. Reinsurance
Companies, as compared to 10.8% for ACE, 12.4% for EXEL and 6.1% for Mid Ocean
and (v) five-year growth rates ranged from 8.0% to 12.0% with a median of 10.0%
for the Bermuda Catastrophe Companies, and from 9.0% to 14.0% with a median of
11.3% for the U.S. Reinsurance Companies, as compared to 13.0% for ACE, 12.0%
for EXEL and 12.0% for Mid Ocean; (vi) the ratios of the 1998 price/ earning
multiple to the five-year growth rate ranged from 0.8x to 1.1x with a median of
1.0x for the Bermuda Catastrophe Companies, and from 0.7x to 2.6x with a median
of 1.2x for the U.S. Reinsurance Companies as compared to 1.2x for ACE, 1.4x for
EXEL and 1.1x for Mid Ocean; (vii) the market price to adjusted book value
multiple ranged from 1.3x to 1.9x with a median of 1.6x for the Bermuda
Catastrophe Companies, and from 1.2x to 3.0x with a median of 1.6x for the U.S.
Reinsurance Companies, as compared to 2.3x for ACE, 2.7x for EXEL and 2.1x for
Mid Ocean; (viii) ROE ranged from 12.4% to 22.9% with a median of 16.5% for the
Bermuda Catastrophe Companies, and from 6.9% to 17.8% with a median of
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11.9% for the U.S. Reinsurance Companies, as compared to 14.8% for ACE, 16.4%
for EXEL and 16.3% for Mid Ocean; (ix) dividend yield ranged from 0.7% to 8.0%
with a median of 2.5% for the Bermuda Catastrophe Companies, and from 0.0% to
2.7% with a median of 0.5% for the U.S. Reinsurance Companies, as compared to
0.9% for ACE, 2.2% for EXEL and 4.4% for Mid Ocean; and (x) the debt to capital
ratio ranged from 0.0% to 29.1% with a median of 7.4% for the Bermuda
Catastrophe Companies, and from 0.0% to 33.3% with a median of 12.3% for the
U.S. Reinsurance Companies, as compared to 0.0% for ACE, 5.8 for EXEL and 0.8%
for Mid Ocean.
PRO FORMA MERGER ANALYSIS. Goldman Sachs analyzed the estimated pro forma
effect of the Arrangements on a cash basis (assuming the combined entity has no
goodwill amortization) and on a GAAP basis (assuming the combined entity
amortizes goodwill) on the EPS of EXEL on a stand-alone basis. Goldman Sachs'
analysis was based on, among other things, the following assumptions: (i) an
exchange ratio of 1.0215 EXEL Ordinary Share for each Mid Ocean Share, (ii) EXEL
management's anticipated effects of the sale of certain subsidiaries of
Brockbank, (iii) certain redundancies of Mid Ocean's loss and loss adjustment
expense reserves, and (iv) in connection with the GAAP calculation,
approximately $1.5 billion of goodwill amortized over 40 years. Goldman Sachs
conducted its analysis utilizing (i) IBES EPS estimates for EXEL and Mid Ocean,
(ii) the EXEL Estimates and (iii) the Mid Ocean Estimates. Utilizing the IBES
estimates for EXEL and Mid Ocean, Goldman Sachs' analysis indicated that the
proposed Arrangements would be accretive to EXEL Shareholders on an EPS basis in
1998 and 1999 both on a cash and GAAP basis. Utilizing the EXEL Estimates and
the Mid Ocean Estimates, Goldman Sachs' analysis indicated that (i) on a cash
basis the proposed Arrangements would be accretive to EXEL Shareholders on an
EPS basis in 1998 and 1999 and (ii) on a GAAP basis the proposed Arrangements
would be dilutive to EXEL Shareholders on an EPS basis in 1998 and mildly
accretive to EXEL Shareholders on an earning per share in 1999. The analysis
also compared IBES estimates of EXEL EPS on a stand-alone basis to the pro forma
EPS of the combined companies giving effect to the Arrangements based on the
EXEL Estimates and the Mid Ocean Estimates. This analysis indicated that,
relative to IBES stand-alone estimates for EXEL, the impact of the Arrangements
on EXEL EPS would be accretive in 1998 and 1999 on a cash basis and dilutive in
1998 and 1999 on a GAAP basis.
SELECTED ACQUISITIONS ANALYSIS. Goldman Sachs analyzed certain information
relating to 64 acquisitions since 1989 in the property and casualty insurance
industry (the "SELECTED P/C ACQUISITIONS") and 35 acquisitions since 1989 in the
reinsurance industry (the "SELECTED REINSURANCE ACQUISITIONS"). With respect to
the Selected P/C Acquisitions, such analysis indicated, to the extent such
information was available, (i) high, low, mean and median multiples of aggregate
consideration as a multiple of (a) last twelve months ("LTM") GAAP net income of
47.1x, 5.3x, 22.9x and 20.2x, respectively, (b) tangible GAAP book value of
8.3x, 0.6x, 2.0x and 1.4x, respectively, (c) prior year net income calculated on
a statutory basis of 70.0x, 6.2x, 21.5x and 18.3x, respectively, (d) prior year
surplus calculated on a statutory basis of 6.3x, 0.6x, 2.2x and 1.8x,
respectively and (ii) high, low, mean and median percentages of the premium of
the aggregate consideration over market of 97.3%, 1.4%, 33.4% and 29.9%
respectively. With respect to the Selected Reinsurance Acquisitions, such
analysis indicated, to the extent such information was available, high, low,
mean and median multiples of aggregate consideration as a multiple of (i) LTM
GAAP net income of 25.4x, 5.9x, 12.8x and 9.9x, respectively, (ii) tangible GAAP
book value of 3.9x, 0.1x, 1.5x and 1.3x, respectively, (iii) prior year net
income calculated on a statutory basis of 51.7x, 6.1x, 14.2x and 10.3x,
respectively and (iv) prior year surplus calculated on a statutory basis of
3.1x, 0.7x, 1.4x and 1.2x, respectively.
The summary set forth above does not purport to be a complete description of
the analyses performed by Goldman Sachs. The preparation of a fairness opinion
is a complex process and is not susceptible to partial analysis or summary
description. Selecting portions of the analyses or the summary set forth above,
without considering the analysis as a whole, could create an incomplete view of
the processes underlying the Goldman Sachs Opinion. In arriving at its fairness
determination, Goldman Sachs considered the
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results of all such analyses and did not assign relative weights to any analysis
or factor considered by it; rather, Goldman Sachs made its determination as to
fairness on the basis of its experience and professional judgment after
considering the results of all such analyses. No public company used in the
above analyses as a comparison is identical to EXEL or Mid Ocean. The analyses
were prepared solely for purposes of Goldman Sachs providing its opinion to the
EXEL Board and do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities actually may be sold or may trade in the
future. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of EXEL, Mid Ocean,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs
Opinion to the EXEL Board was one of many factors taken into consideration by
the EXEL Board in making its determination to approve the Arrangements and the
Agreement.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with EXEL, having provided certain investment banking services for EXEL
from time to time, including, without limitation, having acted as lead managing
underwriter for the initial public offering of EXEL Ordinary Shares in 1991 and
subsequent offering of EXEL Ordinary Shares in 1992; and having acted as EXEL's
financial advisor in connection with, and having assisted in certain of the
negotiations leading to, the Agreement.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transaction and hold positions in the securities or options on
securities of EXEL and/or Mid Ocean for its own account and/or for the account
of customers.
Pursuant to a letter agreement, EXEL engaged Goldman Sachs as its financial
advisor in connection with the possible acquisition of all or a portion of the
Mid Ocean Shares or other equity interests or assets of Mid Ocean. Pursuant to
the terms of the letter agreement, EXEL has paid Goldman Sachs a fee of $1.0
million and will pay Goldman Sachs an additional fee of approximately $6.6
million if at least 50% of the outstanding Mid Ocean Shares not currently owned
by EXEL are acquired in one or more transactions. Any such fee will be paid to
Goldman Sachs in cash upon consummation of such transaction. In addition, EXEL
has agreed to pay Goldman Sachs a break-up fee of $1.0 million in the event the
transactions contemplated by the Agreement are terminated or otherwise not
consummated and EXEL receives a break-up fee from Mid Ocean under the Agreement.
EXEL has agreed to make such payment to Goldman Sachs in cash when payment of
such fee is made to EXEL. In addition, EXEL also has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including all fees and
disbursements of counsel, and to indemnify Goldman Sachs and certain related
persons against certain liabilities in connection with their engagement,
including certain liabilities under the federal securities laws.
OPINION OF MID OCEAN'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated March 3, 1998, Mid Ocean retained
J.P. Morgan as its financial advisor and to deliver a fairness opinion in
connection with the proposed Arrangements.
At the meeting of the Mid Ocean Board on March 15, 1998, J.P. Morgan
rendered its oral and written opinion to the Mid Ocean Board that, as of such
date, the consideration to be paid to Mid Ocean Shareholders in the proposed
Arrangements was fair, from a financial point of view, to Mid Ocean Shareholders
(other than EXEL) and such opinion takes into account the fact that the
consideration may be in the form of New EXEL Shares and/or cash. J.P. Morgan
indicated that in giving its opinion it recognized that individual shareholders
may make elections with respect to the form of consideration to be received
based on a variety of factors, including their basis in Mid Ocean Shares, tax
status and liquidity
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needs. Similarly, J.P. Morgan also has indicated that it took into account the
voluntary nature of such election and the election alternatives given the
proportion of share consideration that Mid Ocean Shareholders (other than EXEL)
as a group will receive notwithstanding individual elections. J.P. Morgan
confirmed its March 15, 1998 opinion by delivering written opinions to the Mid
Ocean Board, dated April 28, 1998 and the date of this Joint Proxy Statement
that, as of such dates, the consideration to be paid to Mid Ocean Shareholders
in the proposed Arrangements was fair, from a financial point of view, to Mid
Ocean Shareholders (other than EXEL). No limitations were imposed by the Mid
Ocean Board upon J.P. Morgan with respect to the investigations made or
procedures followed by it in rendering its opinions.
THE FULL TEXT OF THE J.P. MORGAN OPINION DATED THE DATE HEREOF, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX F TO THIS JOINT PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. MID OCEAN SHAREHOLDERS ARE URGED TO READ THE
OPINION IN ITS ENTIRETY. THE J.P. MORGAN OPINION IS ADDRESSED TO THE MID OCEAN
BOARD, IS DIRECTED ONLY TO THE CONSIDERATION TO BE PAID IN THE MID OCEAN
ARRANGEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY MID OCEAN
SHAREHOLDER AS TO HOW SUCH MID OCEAN SHAREHOLDER SHOULD VOTE AT THE APPLICABLE
MID OCEAN CLASS MEETING. THE SUMMARY OF THE J.P. MORGAN OPINION SET FORTH IN
THIS JOINT PROXY STATEMENT DESCRIBES THE MATERIAL ASPECTS OF SUCH OPINION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, J.P. Morgan reviewed, among other things: the
Original Agreement and, in the case of its opinion dated April 28, 1998, the
Agreement and, in the case of its opinion dated the date of this Joint Proxy
Statement, the Agreement and this Joint Proxy Statement, certain publicly
available information concerning the business of Mid Ocean and of certain other
companies engaged in businesses comparable to those of Mid Ocean, and the
reported market prices for certain other companies' securities deemed
comparable; publicly available terms of certain transactions involving companies
comparable to Mid Ocean and the consideration received for such companies;
current and historical market prices of Mid Ocean Class A Shares and EXEL
Ordinary Shares; the audited financial statements of Mid Ocean and EXEL for the
fiscal years ended October 31, 1997 and November 30, 1997, respectively, and the
unaudited financial statements of Mid Ocean for the period ended January 31,
1998 and, in the case of its opinions April 28, 1998 and the date of this Joint
Proxy Statement, the unaudited financial statements of EXEL for the period ended
February 27, 1998; certain internal financial analyses prepared by Mid Ocean and
EXEL and their respective managements; and the terms of other business
combinations deemed relevant by J.P. Morgan. J.P. Morgan also held discussions
with certain members of the management of Mid Ocean and EXEL with respect to
certain aspects of the Arrangements, the past and current business operations of
Mid Ocean and EXEL, the financial condition and future prospects and operations
of Mid Ocean and EXEL, the effects of the Arrangements on the financial
condition and future prospects of Mid Ocean and EXEL, and certain other matters
believed necessary or appropriate to J.P. Morgan's inquiry. In addition, J.P.
Morgan reviewed such other financial studies and analyses and considered such
other information as it deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or was
furnished to J.P. Morgan by Mid Ocean and EXEL or otherwise reviewed by J.P.
Morgan, and J.P. Morgan has not assumed any responsibility or liability
therefor. J.P. Morgan did not conduct any valuation or appraisal of any assets
or liabilities, nor were any such valuations or appraisals provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P. Morgan,
J.P. Morgan assumed that these analyses and forecasts had been reasonably
prepared based on assumptions reflecting the best currently available estimates
and judgments by management as to the expected future results of operations and
financial condition of Mid Ocean and EXEL to which such analyses or forecasts
related. J.P. Morgan also assumed that the Arrangements will have the tax
consequences described in this Joint Proxy Statement and in discussions with,
and materials furnished by, representatives of Mid Ocean, and that the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement and in this Joint Proxy Statement.
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The projections furnished to J.P. Morgan for Mid Ocean and EXEL were
prepared by the managements of Mid Ocean and EXEL, respectively. Mid Ocean and
EXEL do not publicly disclose internal management projections of the type
provided to J.P. Morgan in connection with J.P. Morgan's analysis of the
Arrangements, and such projections were not prepared with a view toward public
disclosure. These projections were based on numerous variables and assumptions
that are inherently uncertain and may be beyond the control of management,
including, without limitation, factors related to general economic and
competitive conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in such projections.
The J.P. Morgan Opinion is based on economic, market, and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of such opinion. Subsequent developments may affect the J.P. Morgan
Opinion, and J.P. Morgan does not have any obligation to update, revise, or
reaffirm such opinion. J.P. Morgan expressed no opinion as to the price at which
New EXEL Shares will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
OFFER VALUATION. J.P. Morgan reviewed the terms of the proposed
Arrangements, including the Exchange Ratio and the aggregate transaction value
and also reviewed the implied value of the consideration offered based upon the
closing share price of EXEL Ordinary Shares of $71.25 on March 13, 1998 (the
last trading day prior to the March 15, 1998 meeting of the Mid Ocean Board)
(the "EXEL SHARE PRICE"), which indicated that the implied value of the
consideration offered in the EXEL proposal was approximately $72.78 per share of
Mid Ocean Class A Shares, representing a 15.0 percent premium to the March 13,
1998 Mid Ocean Class A Share closing market price of $63.31 per share (the "MID
OCEAN MARCH 13, 1998 CLOSING PRICE").
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow analysis, J.P.
Morgan estimated the net present value of the future streams of cash flows that
Mid Ocean could produce on a stand-alone basis in the fiscal years 1998 through
2003 and distribute to Mid Ocean's shareholders. In performing this analysis,
J.P. Morgan assumed net operating income estimates as reported by IBES for the
fiscal years 1998 and 1999 and Mid Ocean's current dividend payout ratio.
Additionally, J.P. Morgan assumed an additional dividend of any capital in
excess of that required to maintain an operating leverage (net premiums earned/
shareholders' equity) ratio of 0.5:1. J.P. Morgan also calculated a range of
terminal values of Mid Ocean in 2003 by applying multiples of 9.0x to 11.0x net
income during the final year of the valuation period which implied terminal book
value multiples of 2.0x to 2.5x book value, excluding the effects of FAS 115, at
the end of the valuation period. The dividends and the range of terminal values
were then discounted to present values using a range of discount rates from 10%
to 15%, which were chosen by J.P. Morgan based upon an analysis of the estimated
weighted average cost of capital of Mid Ocean. Based on the aforementioned
projections, terminal net income multiples of 9.0x to 11.0x, and discount rates
of 10% to 15%, the discounted cash flow analysis indicated a range of equity
values of between $66.42 and $69.63 per fully diluted share of Mid Ocean Shares
on a stand-alone basis (I.E., without synergies).
A discounted cash flow analysis was included because it is a widely used
valuation methodology, but the results of such methodology are highly dependent
upon the numerous assumptions that must be made, including earnings growth
rates, dividend payout rates, terminal values and discount rates.
PUBLIC TRADING MULTIPLES. Using publicly available information, J.P. Morgan
compared selected financial data of Mid Ocean with similar data for selected
publicly traded reinsurance companies. The companies selected by J.P. Morgan
were IPC Holdings Limited, LaSalle Re Holdings Ltd, PartnerRe Holdings,
RenaissanceRe Holdings Ltd. (collectively, "CATASTROPHE REINSURERS"); Capital Re
Corp., Chartwell Re Corporation, Everest Reinsurance Holdings, Inc., NAC Re
Corp., Transatlantic Holdings,
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Inc., Trenwick Group Inc. (collectively, "BROKER REINSURERS"); ACE Ltd. and EXEL
(collectively, "DIVERSIFIED REINSURERS"); and General Re Corporation (the
"DIRECT REINSURER"). For each comparable company, publicly available financial
data for the fiscal year 1997 and IBES earnings estimates for the fiscal years
1998 and 1999 were considered. For the Catastrophe Reinsurers, the multiples
(mean, median) derived from this analysis were as follows: (i) GAAP book value
including FAS 115: 1.44x, 1.39x; (ii) GAAP book value excluding FAS 115: 1.45x,
1.40x; (iii) 1998 estimated earnings: 8.7x, 8.4x; and (iv) 1999 estimated
earnings: 8.8x, 9.1x. For the Broker Reinsurers, the multiples (mean, median)
derived from this analysis were as follows: (i) GAAP book value including FAS
115: 1.55x, 1.50x; (ii) GAAP book value excluding FAS 115: 1.63x, 1.65x; (iii)
1998 estimated earnings: 12.6x, 12.5x; and (iv) 1999 estimated earnings: 11.4x,
11.5x. For the Diversified Reinsurers, the median multiples derived from this
analysis were as follows: (i) GAAP book value including FAS 115: 2.24x; (ii)
GAAP book value excluding FAS 115: 2.43x; (iii) 1998 estimated earnings: 15.9x;
and (iv) 1999 estimated earnings: 14.4x. For the Direct Reinsurer, the multiples
derived from this analysis were as follows: (i) GAAP book value including FAS
115: 2.13x; (ii) GAAP book value excluding FAS 115: 2.13x; (iii) 1998 estimated
earnings: 16.9x; and (iv) 1999 estimated earnings: 15.4x. For the Broker
Reinsurers, the median multiples derived from this analysis were as follows: (i)
GAAP book value including FAS 115: 1.50x; (ii) GAAP book value excluding FAS
115: 1.65x; (iii) 1998 estimated earnings: 12.5x; and (iv) 1999 estimated
earnings: 11.5x. For J.P. Morgan's universe of Catastrophe Reinsurers, Broker
Reinsurers, Diversified Reinsurers and the Direct Reinsurer the multiples (mean,
median) derived from this analysis were as follows: (i) GAAP book value
including FAS 115: 1.66x, 1.53x; (ii) GAAP book value excluding FAS 115: 1.74x,
1.72x; (iii) 1998 estimated earnings: 12.2x, 11.6x; and (iv) 1999 estimated
earnings: 11.4x, 10.7x. Based on multiples of IBES estimated 1998 earnings, J.P.
Morgan obtained fully diluted equity values per share of Mid Ocean Shares
ranging from $68.07 to $71.61. Based on multiples of book value, J.P. Morgan
obtained fully diluted equity values per share of Mid Ocean Shares ranging from
$54.31 to $58.95.
SELECTED TRANSACTION ANALYSIS. Using publicly available information, J.P.
Morgan examined the multiples paid in selected reinsurance company transactions
from 1994 to 1997 with respect to: equity value to GAAP book value, excluding
the effects of FAS 115; equity value to GAAP LTM operating earnings; and premium
to market value 45 trading days prior to transaction announcement. Specifically,
J.P. Morgan reviewed the following transactions (Acquiring Company/Acquired
Company): Fairfax Financial Holdings Limited/Sphere Drake Holdings Ltd.;
EXEL/GCR Holdings Ltd.; Schwiezerische Ruckversicherungs-Gesellschaft ("SWISS
RE")/Unione Italiana di Riassicurazione ("UNIORIAS"); PartnerRe Ltd./Societe
Anonyme Francaise de Reassurances; Swiss Re/The Mercantile & General Reinsurance
Company plc ("MERCANTILE & GENERAL"); Munchner Ruckversicherungs-Gesellschaft
("MUNICH RE")/American Re Corporation ("AMERICAN RE"); General Re Corporation
("GENERAL RE")/National Re Corp. ("NATIONAL RE"); ACE Limited/Tempest
Reinsurance Co. Ltd.; PXRE Corporation/Transnational Re Corp.; Zurich
Reinsurance Centre Holdings Inc./Re Capital Reinsurance Corp.; General Re
Corporation/Kolnische Ruckversicherungs-Gesellschaft AG ("COLOGNE RE"). J.P.
Morgan also examined the types of reinsurance business conducted by the
aforementioned companies and designated the following as direct reinsurance
company transactions: Swiss Re/UNIORIAS, Swiss Re/Mercantile & General, Munich
Re/American Re, General Re/National Re, General Re/Cologne Re.
The multiples (mean, median) derived from such analysis of all transactions
were as follows: (i) equity value to GAAP book value: 1.76x, 1.61x; (ii) equity
value to GAAP LTM earnings: 11.8x, 10.4x; (iii) premium to market value 45
trading days prior to transaction announcement: 1.22x, 1.25x. This analysis
yielded an equity valuation range of $61.49 to $69.77 per share of Mid Ocean
Shares on an earnings basis; $57.02 to $62.34 per share of Mid Ocean Shares on a
book value basis; and $70.38 to $71.98 per share of Mid Ocean Shares on a
premium to market value basis.
ANALYSIS OF EXEL ORDINARY SHARES. J.P. Morgan analyzed the trading
performance of EXEL Ordinary Shares relative to Mid Ocean; its closest business
comparable, ACE; and the S&P 500 since January 1996.
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J.P. Morgan performed a discounted cash flow analysis of EXEL similar to
that performed for Mid Ocean with the following adjustments: terminal value of
2003 net operating income range of 13.0x to 15.0x which implies price to book
multiples at exit of 2.9x to 3.3x and operating leverage ratio of 0.3:1. This
analysis yielded a range of $65.33 per share to $71.37 per share of EXEL
Ordinary Shares.
Using publicly available information, J.P. Morgan compared selected
financial data of EXEL with similar data for selected publicly traded
diversified property and casualty insurance companies ("DIVERSIFIED P&C
COMPANIES"): Chubb Corporation, CNA Financial Corporation and St. Paul
Companies; J.P. Morgan also examined the same data for ACE. Publicly available
financial data for the fiscal year ending 1997 and IBES earnings estimates for
the fiscal years ending 1998 and 1999 were considered. For the Diversified P&C
Companies, the multiples (mean, median) derived from this analysis were as
follows: (i) GAAP book value including FAS 115: 1.77x, 1.74x; (ii) GAAP book
value excluding FAS 115: 1.95x, 2.03x; (iii) 1998 estimated earnings: 17.7x,
17.9x; and (iv) 1999 estimated earnings: 17.6x, 16.0x. For ACE, the multiples
derived from this analysis were as follows: (i) GAAP book value including FAS
115: 2.17x; (ii) GAAP book value excluding FAS 115: 2.33x; (iii) 1998 estimated
earnings: 16.0x; and (iv) 1999 estimated earnings: 14.4x. Based upon the above
analysis, J.P. Morgan derived implied equity values for EXEL ranging from $79.81
to $81.35 per share of EXEL Ordinary Shares based on the multiple of price to
1998 IBES earnings of the Diversified P&C Companies and $71.82 per share of EXEL
Ordinary Shares based on the multiple of price to 1998 IBES earnings of ACE;
$53.83 to $54.77 per share of EXEL Ordinary Shares based on price to book value
multiples of the Diversified P&C Companies and $67.27 based on the price to book
value multiple of ACE. These results were compared to EXEL's actual share price
as of March 13, 1998.
OTHER ANALYSES. J.P. Morgan analyzed the impact on estimated EXEL EPS from
the addition of the estimated Mid Ocean earnings and issuance of additional
shares of EXEL Ordinary Shares in the Arrangements. Estimated EXEL and Mid Ocean
earnings were obtained from IBES. J.P. Morgan also compared the estimated 1998
and 1999 EPS of the pro forma EXEL at the given exchange ratio with Mid Ocean's
estimated 1998 and 1999 EPS on a stand-alone basis. J.P. Morgan also analyzed
the historical ratio of ordinary share prices of Mid Ocean and EXEL, as well as
the relative contribution of Mid Ocean and EXEL to several financial and
operating measures of the pro forma combined company (based on historical
financial and operating data).
In connection with its opinions dated April 28, 1998 and the date of this
Joint Proxy Statement, J.P. Morgan reviewed the analyses used to render its
March 15, 1998 opinion to the Mid Ocean Board by performing procedures to update
certain of such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and its analyses must be considered as a whole and that selecting portions
thereof, without considering all of its analyses, could create an incomplete
view of the processes underlying its analyses and opinion. J.P. Morgan based its
analyses on assumptions that it deemed reasonable, including assumptions
concerning general business and economic conditions and industry-specific
factors. The other principal assumptions upon which J.P. Morgan based its
analyses are set forth above under the description of each such analysis. J.P.
Morgan's analyses are not necessarily indicative of actual values or actual
future results that might be achieved, which values may be higher or lower than
those indicated. No company or transaction used in the above analyses as a
comparison is identical to Mid Ocean or the proposed Arrangements. Accordingly,
an analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the value
of the companies to which they are being compared. Moreover, J.P. Morgan's
analyses are not and do not purport to be appraisals or otherwise reflective of
the prices at which businesses actually could be bought or sold.
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As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. J.P. Morgan was selected to advise Mid Ocean with respect to
the Agreement and the Arrangements and to deliver an opinion to the Mid Ocean
Board with respect to the Agreement and the Arrangements on the basis of such
experience and its familiarity with Mid Ocean.
For services rendered in connection with the Agreement and the Arrangements,
Mid Ocean has agreed to pay J.P. Morgan a transaction fee of approximately $10.0
million upon consummation of the Arrangements. Mid Ocean has agreed to reimburse
J.P. Morgan for its expenses incurred in connection with its services, including
the fees and disbursements of counsel, and will indemnify J.P. Morgan against
certain liabilities, including liabilities arising under the United States
federal securities laws.
J.P. Morgan has provided advisory services to Mid Ocean in the past, for
which it has received customary fees. JPMCC, an affiliate of J.P. Morgan, holds
1,190,292 Mid Ocean Class B Shares, which constitute all of the outstanding
shares of such class, and 1,860,000 Mid Ocean Class C Shares, which constitute
all of the outstanding shares of such class. JPMCC also holds 4,701,980 EXEL
Ordinary Shares, and, in 1995, entered into a hedging transaction with respect
to these shares. In the ordinary course of their businesses, J.P. Morgan's
affiliates may sell the securities of third parties to Mid Ocean and EXEL and
may actively trade the debt and equity securities of Mid Ocean and EXEL for
their own account or for the accounts of customers, and, accordingly, they may
at any time hold long or short positions in such securities. Additionally,
Roberto G. Mendoza, a Vice Chairman of J.P. Morgan & Co. Incorporated, is a
director of Mid Ocean.
THE ARRANGEMENTS
DESCRIPTION OF THE ARRANGEMENTS. The Agreement provides for the transfer to
New EXEL of all of the issued share capital of EXEL and all of the issued share
capital of Mid Ocean (other than the shares of Mid Ocean capital held by EXEL or
its subsidiaries, which will remain outstanding), whereupon EXEL will become a
wholly owned subsidiary of New EXEL, and Mid Ocean will become a direct and
indirect (by virtue of the Mid Ocean Shares held by EXEL) wholly owned
subsidiary of New EXEL. At the Effective Time, the articles of association of
New EXEL ("NEW EXEL ARTICLES") will be substantially similar to the EXEL
Articles except as herein described and except for provisions relating to the
New EXEL Non-Voting Shares. Immediately after the consummation of the
Arrangements, New EXEL will be renamed "EXEL Limited" and the name of EXEL will
be changed to "EXEL Holdings Limited." See "NEW EXEL SHARE CAPITAL" and
"COMPARISON OF SHAREHOLDER RIGHTS."
APPLICATION TO THE COURT. EXEL has caused an application to be made to the
Grand Court requesting the Grand Court to summon such class meetings of members
of EXEL as the Grand Court may direct. The Grand Court has directed EXEL to
convene the EXEL Class Meeting in order to obtain the approval required under
Section 85(2) of the Companies Law for the EXEL Arrangement. Subject to such
approval being obtained at the EXEL Class Meeting and to the approval of the Mid
Ocean Arrangement being obtained at each of the Mid Ocean Class Meetings, EXEL
will cause a petition to be presented to the Grand Court seeking the sanctioning
of the EXEL Arrangement pursuant to Section 85 of the Companies Law and file
such other documents as are required to be duly filed with the Grand Court to
effect the EXEL Arrangement. Mid Ocean has caused an application to be made to
the Grand Court requesting the Grand Court to summon such class meetings of
members of Mid Ocean as the Grand Court may direct. The Court has directed Mid
Ocean to convene the Mid Ocean Class Meetings in order to obtain the approvals
required under Section 85(2) of the Companies Law for the Mid Ocean Arrangement.
Subject to such approvals being obtained at each of the Mid Ocean Class Meetings
and to the approval of the EXEL Arrangement being obtained at the EXEL Class
Meeting, Mid Ocean will cause a petition to be presented
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to the Grand Court seeking the sanctioning of the Mid Ocean Arrangement pursuant
to Section 85 of the Companies Law and file such other documents as are required
to be duly filed with the Grand Court to effect the Mid Ocean Arrangement.
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EFFECTIVE DATE AND EFFECTIVE TIMES. Upon receipt of orders from the Grand
Court sanctioning the EXEL Arrangement and the Mid Ocean Arrangement, (i) the
order sanctioning the EXEL Arrangement will be filed with the Registrar, and
(ii) immediately thereafter, the order from the Grand Court sanctioning the Mid
Ocean Arrangement will be filed with the Registrar. The EXEL Arrangement will
become effective upon the filing of the order of the Grand Court with respect to
the EXEL Arrangement with the Registrar and upon an office copy of the order of
the Grand Court sanctioning the Mid Ocean Arrangement being delivered to the
Registrar for registration. The Mid Ocean Arrangement will become effective on
the Effective Date immediately after the EXEL Arrangement becomes effective as a
matter of Cayman Islands law and upon the filing of the order of the Grand Court
with respect to the Mid Ocean Arrangement with the Registrar. Prior to such
filings, the Closing will be held for the purpose of confirming the satisfaction
or waiver of the conditions described herein under "--Conditions to the
Arrangements." The date upon which the Closing occurs is referred to herein as
the "CLOSING DATE."
EXCHANGE OF SHARES
EXCHANGE OF EXEL ORDINARY SHARES. At the EXEL Effective Time, each EXEL
Ordinary Share issued and outstanding immediately prior to the EXEL Effective
Time will be automatically transferred to New EXEL and, subject to the Cash
Election, there will be allotted and issued to the holder thereof one New EXEL
Voting Share. The New EXEL Voting Shares received as consideration pursuant to
the EXEL Arrangement are referred to herein as the "EXEL ARRANGEMENT SHARE
CONSIDERATION." New EXEL will issue and allot the New EXEL Voting Shares to be
received as EXEL Arrangement Share Consideration and will register the persons
to whom New EXEL Voting Shares are issued on New EXEL's register of members.
EXCHANGE OF MID OCEAN SHARES. At the Effective Time, each of the Mid Ocean
Class A Shares issued and outstanding immediately prior to the Effective Time
(other than Mid Ocean Class A Shares held by EXEL or any of its subsidiaries)
will be automatically transferred to New EXEL and, subject to the Cash Election,
there will be allotted and issued to the holder thereof that number of New EXEL
Voting Shares equal to the Exchange Ratio. Also at the Effective Time, each of
the Mid Ocean Class B Shares and each of the Mid Ocean Class C Shares issued and
outstanding immediately prior to the Effective Time will be, by virtue of the
Mid Ocean Arrangement and without any action on the part of the holder thereof,
transferred to New EXEL and, subject to the Cash Election, there will be
allotted and issued to the holder thereof that number of New EXEL Non-Voting
Shares equal to the Exchange Ratio. The New EXEL Voting Shares and New EXEL
Non-Voting Shares to be received as consideration pursuant to the Mid Ocean
Arrangement are referred to herein as the "MID OCEAN ARRANGEMENT SHARE
CONSIDERATION." New EXEL will issue and allot the New EXEL Shares to be received
as Mid Ocean Arrangement Share Consideration and will register the persons to
whom such New EXEL Shares are issued on New EXEL's register of members.
SURRENDER AND VOTING. The method of transferring the Mid Ocean Shares and
the EXEL Ordinary Shares will be as set forth in the Mid Ocean Arrangement and
the EXEL Arrangement, respectively. In determining the shareholders of New EXEL
entitled to receive notice of and to vote at meetings of such shareholders,
former shareholders of record of EXEL and Mid Ocean will not be deemed to be
shareholders of record until the register of members of New EXEL is amended to
reflect the allotment and issue of the New EXEL Shares to such former
shareholders.
CASH ELECTION. EXEL Shareholders and Mid Ocean Shareholders may elect to
receive cash in lieu of New EXEL Shares in exchange for their EXEL Ordinary
Shares and Mid Ocean Shares, respectively; up to a maximum of $300 million in
the aggregate. If more than that amount is elected, $204 million of the cash
will be made available to EXEL Shareholders and $96 million of the cash will be
made available to Mid Ocean Shareholders, on a PRO RATA basis within each group
of shareholders. If the cash pool available to either group of shareholders is
not exhausted by cash elections within such group, the excess cash shall
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be made available for the other group of shareholders. Subject to any PRO RATA
adjustment, the cash consideration payable to any EXEL Shareholder or Mid Ocean
Shareholder who elects cash will be based on the number of New EXEL Shares such
EXEL Shareholder or Mid Ocean Shareholder would have been entitled to receive
multiplied by the average of the closing sales prices per EXEL Ordinary Share as
reported on the NYSE Composite Transactions reporting system (as reported in THE
WALL STREET JOURNAL) during the 10 consecutive trading day period during which
EXEL Ordinary Shares are traded ending the tenth calendar day prior to the
anticipated Effective Time.
An election form and other appropriate and customary transmittal materials
("CASH ELECTION FORM") will be mailed 25 days prior to the anticipated Effective
Time, or on such other date as EXEL and Mid Ocean mutually agree upon, to each
holder of record of EXEL Ordinary Shares or Mid Ocean Shares as of five business
days prior to such mailing date. See "--Cash Election Procedure."
CASH IN LIEU OF FRACTIONAL SHARES. Without in any way limiting the cash
election or the rights pertaining thereto granted to Mid Ocean Shareholders and
notwithstanding any other provision of the Arrangements, Mid Ocean Shareholders
that otherwise would be entitled to receive a fractional New EXEL Share pursuant
to the Mid Ocean Scheme (after aggregating all Mid Ocean Shares held by such Mid
Ocean Shareholder) shall receive instead an amount in cash in lieu of such
fractional New EXEL Share (without interest) determined by multiplying such
fraction by the Valuation Period Market Value (as defined in the Agreement).
CONVERSION OF OPTIONS
MID OCEAN OPTIONS. At the Effective Time, except as otherwise agreed to by
EXEL and the holder and except as discussed below, each outstanding Mid Ocean
option (a "MID OCEAN ROLL-OVER OPTION") will be replaced by a fully vested and
exercisable option (a "NEW EXEL OPTION") to acquire New EXEL Shares under a new
share option plan to be established by New EXEL for such purposes before the
Closing Date, the terms of which New EXEL Option will be no less favorable than
the terms currently applicable to such Mid Ocean Roll-Over Option; PROVIDED
that, to the extent the Mid Ocean Roll-Over Options that were not otherwise
exercisable would become automatically exercisable upon the Effective Time (or
otherwise in connection with the Mid Ocean Arrangement), the Mid Ocean Board has
agreed to use reasonable efforts to obtain optionees' agreements, if required,
that each such Mid Ocean Roll-Over Option will be automatically exercisable upon
the Effective Time on a PRO RATA basis with respect to only 50% of the New EXEL
Shares subject to the New EXEL Options issued in replacement of such Mid Ocean
Roll-Over Options upon the Effective Time, and the exercisability of the New
EXEL Option with respect to the remaining 50% of the unexercisable New EXEL
Shares will be governed by the other terms and conditions of the New EXEL
Option. To the extent Mid Ocean has the unilateral legal right to obtain the
result set forth in the proviso to the previous sentence, the Agreement requires
it to do so. The parties contemplate that, consistent with the methodology
prescribed by Section 424(a) of the Code and the applicable regulations
thereunder (i) the number of New EXEL Shares subject to such New EXEL Option
will be determined by multiplying the number of Mid Ocean Shares subject to the
Mid Ocean Roll-Over Options by the Exchange Ratio (rounded to the next higher
whole number with respect to each holder thereof), and (ii) the exercise price
under such New EXEL Option will be determined by dividing the exercise price per
share under the Mid Ocean Roll-Over Option in effect immediately prior to the
Effective Time by the Exchange Ratio and rounding the exercise price thus
determined to the nearest whole cent.
If the New EXEL Options issued pursuant to the Agreement are not already
covered by an effective registration statement, or an exemption from
registration, New EXEL will file a registration statement (the "ADDITIONAL
REGISTRATION STATEMENT") as promptly as practicable after the Effective Time
that will cover the New EXEL Shares issuable upon exercise of the New EXEL
Options granted in substitution of the Mid Ocean Roll-Over Options (and, as
described below, the EXEL options), and New EXEL will use its reasonable best
efforts to cause such Additional Registration Statement to become effective
under the
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Securities Act and to maintain such registration statement in effect until the
exercise or termination of all such New EXEL Options.
EXEL OPTIONS. At the Effective Time, each outstanding EXEL option will be
replaced by a New EXEL Option. The number of New EXEL Shares subject to such New
EXEL Option will be equal to the number of EXEL Ordinary Shares subject to the
replaced EXEL option, and the exercise price under such New EXEL Option will be
equal to the exercise price under the replaced EXEL option. If the New EXEL
Options issued in respect of the EXEL options are not already covered by an
effective registration statement, or an exemption from registration, they will
be covered under the Additional Registration Statement.
CONDITIONS TO THE ARRANGEMENTS
The respective obligations of each party to the Agreement to consummate the
Arrangements are subject to satisfaction (or waiver, where legally allowed) of
each of the following conditions: (i) approval and adoption of the Arrangements
and the transactions contemplated thereby by the requisite vote or consent of
(a) the relevant classes of Mid Ocean Shareholders as required by the Companies
Law, (b) the relevant classes of EXEL Shareholders as required by the Companies
Law and the NYSE, and (c) the approval of the Arrangements by the Grand Court;
(ii) receipt of certain regulatory and other approvals (without any terms or
conditions to such approvals that would impose material and adverse limitations
on the ability of New EXEL and its subsidiaries to conduct their business after
the Effective Time, that would require changes to the terms of the Arrangements
that would be material and adverse to New EXEL, EXEL or Mid Ocean, or that would
change the consideration payable to shareholders in the Arrangements) required
to consummate the Arrangements and the other transactions contemplated by the
Agreement, which approvals remain in full force and effect, and expiration of
all statutory waiting periods in respect thereof; (iii) absence of any order,
decree or injunction of any court or agency of competent jurisdiction or any
law, statute or regulation that enjoins, prohibits or makes illegal consummation
of any of the transactions contemplated by the Agreement; (iv) the effectiveness
of a registration statement on Form S-4 (the "REGISTRATION STATEMENT"), and the
absence of any stop order or threatened stop order relating to the Registration
Statement; (v) authorization of the New EXEL Shares for trading on the NYSE,
subject to official notice of issuance; (vi ) receipt by New EXEL and EXEL of an
opinion of Wachtell, Lipton, Rosen & Katz, and receipt by Mid Ocean of an
opinion of Davis Polk & Wardwell, in each case, dated the Effective Date,
substantially to the effect set forth under "--Certain Federal Income Tax
Consequences;" (vii) with respect to the obligations of Mid Ocean, EXEL having,
and with respect to the obligations of EXEL, Mid Ocean having, performed in all
material respects the obligations and covenants required to be performed by it
on or prior to the Effective Time (and each party having received a certificate
of an executive of Mid Ocean and EXEL, respectively, certifying compliance to
such effect); (viii) with respect to the obligations of Mid Ocean, the
representations and warranties of EXEL, and with respect to the obligations of
EXEL, the representations and warranties of Mid Ocean, contained in the
Agreement that are qualified as to materiality being true and correct and the
representations and warranties not so qualified being true and correct in all
material respects, in each case as of the date of the Agreement and (except to
the extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made as of and on the Closing Date, except for
such failure or failures to be true and correct (or true and correct in all
material respects) as would not, individually or in the aggregate, have or be
reasonably expected to have, a Material Adverse Effect (as defined herein) on
Mid Ocean or EXEL, as the case may be (and receipt of a certificate of an
executive of Mid Ocean and EXEL, respectively, certifying compliance to such
effect); (ix) with respect to the obligations of Mid Ocean and EXEL, receipt
from EXEL and Mid Ocean, respectively, of customary closing documents in form
and substance reasonably satisfactory to it. "MATERIAL ADVERSE EFFECT" means,
with respect to Mid Ocean or EXEL (as the case may be), any change, event,
condition or development that is materially adverse to the business, assets,
liabilities, results of operations, properties, financial or operating condition
of such party
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and its subsidiaries, taken as a whole (without giving effect to the
consequences of the transactions contemplated by the Agreement), except for any
such change, event, condition or development resulting from or arising in
connection with (a) changes applicable to participants in the businesses of Mid
Ocean or EXEL (as the case may be) generally or (b) changes in economic,
regulatory or political conditions generally. The obligation of EXEL to
consummate the Arrangements is subject to an additional condition requiring
amendment of the Mid Ocean Rights Agreement or the redemption or other
termination of the Mid Ocean Rights and the absence of any trigger event having
occurred thereunder.
CONDUCT OF BUSINESS PENDING THE ARRANGEMENTS
The Agreement contains certain restrictions on the operations of Mid Ocean
and its subsidiaries prior to the Effective Time. In general, the Agreement
obligates Mid Ocean and its subsidiaries to conduct their operations and (to the
extent Mid Ocean is able to control them) the operations of the Syndicates (as
defined in the Agreement) only in, and to not take any action related thereto
except in, the ordinary and usual course of business and consistent with past
practice, and to use their reasonable best efforts to preserve intact their
business organization, to keep available the services of their officers and
employees and to maintain advantageous relationships with customers, business
partners and others having business relationships with Mid Ocean or its
subsidiaries or the Syndicate, as the case may be. Without limiting the
generality of the foregoing, prior to the Effective Time, neither Mid Ocean nor
any of its subsidiaries will, except as expressly contemplated by the Agreement
or as previously disclosed by Mid Ocean, without the prior written consent of
EXEL: (i) split, combine or reclassify any shares, declare, pay or set aside for
payment any dividend or other distribution payable in cash, shares, property or
otherwise in respect of its shares, or directly or indirectly redeem, purchase
or otherwise acquire any shares, or other securities, other than quarterly
dividends in an amount not in excess of $.825 per share, and Mid Ocean and EXEL
will coordinate with each other regarding the declaration of dividends in
respect of EXEL Ordinary Shares and Mid Ocean Shares and the record dates and
payment dates relating thereto (it being the intention of the parties that
holders of EXEL Ordinary Shares and Mid Ocean Shares will not receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their Mid Ocean Shares and/or EXEL Ordinary Shares and New EXEL
Shares any such holder receives in exchange therefor in the Arrangements), or
authorize for issuance, issue, sell, pledge, dispose of or encumber, deliver or
agree or commit to issue, sell, pledge or deliver (whether through the issue or
granting of any options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any Mid Ocean Shares or any securities convertible into
or exercisable or exchangeable for Mid Ocean Shares, except as required by
agreements as in effect as of the date of the Agreement, or amend any of the
terms of any such securities or agreements outstanding as of the date of the
Agreement; (ii) incur or assume any debt except for borrowings in the ordinary
course of business consistent with past practices; assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary course
of business; make any loans or advances to any person other than loans or
advances of out-of-pocket expenses incurred in connection with the business of
Mid Ocean or its subsidiaries, or make any capital contributions to, or
investments in, any other person except, after consultation with EXEL, in the
ordinary course of business; pledge or otherwise encumber shares of Mid Ocean or
its subsidiaries; or mortgage or pledge any of its material assets, tangible or
intangible, or create any lien thereupon other than liens permitted under the
Agreement; (iii) except as may be required by law, enter into, adopt, or amend
or terminate any bonus, profit sharing, compensation, severance, termination,
stock option, share appreciation right, restricted shares, performance unit,
share equivalent, share 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 manner
the salary, wages, bonus, commission, or other compensation or benefits of any
director or officer (at the level of Vice President or above) of Mid Ocean or
any of its subsidiaries, increase in any manner the salary, wages, bonus,
commission, or other compensation or benefits of any director, officer, employee
or agent of Mid Ocean or any of its subsidiaries, except for increases in the
ordinary course of business and consistent
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with past practice (which, in the case of directors and officers at the level of
Vice President or above, may be made only after consultation with EXEL); or hire
employees at the level of Vice President or above, except after consultation
with EXEL; or pay any benefit not required by any plan and arrangement as in
effect as of the date of the Agreement (including, without limitation, the
granting of stock options, share appreciation rights or performance units); (iv)
acquire (by merger, amalgamation, consolidation or acquisition of shares or
assets) any corporation, partnership or other business organization or division
thereof or make any material investment either by purchase of shares 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, except for the purchase of investment shares or securities
in the ordinary course of business; (v) except after consultation with EXEL,
pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, contingent or otherwise) against Mid Ocean or any of its subsidiaries,
its directors, officers, employees or agents, other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice; (vi) propose to amend the memorandum of association, articles of
association or any similar document of Mid Ocean or any of its subsidiaries;
(vii) propose to adopt a plan of complete or partial liquidation or resolutions
providing for the complete or partial liquidation, dissolution, amalgamation,
consolidation, restructuring, recapitalization or other reorganization of Mid
Ocean or any of its subsidiaries; (viii) enter into any new lines of business
(whether or not part of the insurance or reinsurance business) or, without prior
consultation with EXEL, change any policy forms, investment policies or
guidelines or otherwise make material changes to the operation of its business,
or its loss reserve; (ix) sell (whether by amalgamation, consolidation or
otherwise), lease, encumber, transfer or dispose of any material assets
(including without limitation, rights of renewal) outside the ordinary course of
business consistent with past practice, or enter into any material commitment or
transaction outside the ordinary course of business consistent with past
practices; (x) 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; (xi)
amend the Mid Ocean Rights or the Mid Ocean Rights Agreement in any manner
adverse to EXEL; (xii) enter into any agreement providing for the acceleration
of payment or performance or other consequence as a result of a change in
control of Mid Ocean or any of its subsidiaries; or (xiii) resolve, commit or
agree to take any of the foregoing actions or any action that would make any of
its representations or warranties made to EXEL in the representations and
warranties section of the Agreement materially untrue or incorrect.
The Agreement also contains restrictions on the operations of EXEL and its
subsidiaries. In general, the Agreement obligates EXEL and its subsidiaries to
use their reasonable best efforts to preserve intact their business organization
and to maintain advantageous relationships with customers, business partners and
others having business relationships with EXEL or its subsidiaries, as the case
may be. Without limiting the generality of the foregoing, prior to the Effective
Time, neither EXEL nor any of its subsidiaries will, except as expressly
contemplated by the Agreement or as previously disclosed by EXEL, without the
prior written consent of Mid Ocean: (i) split, combine or reclassify any shares,
declare, set aside or pay (whether in cash or property, but excluding dividends
in shares) any dividends on, or make any other distributions in respect of, any
shares other than dividends and distributions by any direct or indirect wholly
owned subsidiary of EXEL to its parent and except for regular quarterly cash
dividends declared by the EXEL Board; (ii) amend or propose to amend the
memorandum of association, articles of association or any similar document of
EXEL in any manner adverse to the shareholders of Mid Ocean; (iii) adopt a plan
of complete or partial liquidation or resolutions providing for the complete or
partial liquidation, dissolution, amalgamation, consolidation, restructuring,
recapitalization or other reorganization of EXEL; (iv) 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; (v) enter into any material acquisition
outside the ordinary course of business; or (vi) resolve, commit or agree to
take any of the foregoing actions or any action which would make any of its
representations or warranties made to Mid Ocean in the representations and
warranties section of the Agreement materially untrue or incorrect.
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REPRESENTATIONS AND WARRANTIES
Under the Agreement, Mid Ocean has made certain representations and
warranties to EXEL (with exceptions for previous disclosures to EXEL), including
those with regard to: (i) the organization, good standing and legal and other
status of Mid Ocean and its subsidiaries; (ii) corporate power and authority,
enforceability of the Agreement and approval of the Agreement and the Mid Ocean
Arrangement by the Mid Ocean Board; (iii) capital structure; (iv) Securities Act
and Exchange Act filings and financial statements included or to be included
therein; (v) absence of certain changes; (vi) brokers' fees; (vii) absence of
material defaults, violations or the occurrence of any events that with notice
or lapse of time or both would constitute a material default or violation of its
corporate governance documents or material contracts and agreements; (viii)
consents and approvals required to contemplate the Arrangements; (ix) compliance
with applicable law; (x) veracity of information supplied or to be supplied by
Mid Ocean with respect to the Joint Proxy Statement; (xi) material contracts and
agreements; (xii) tax matters; (xiii) litigation; (xiv) value of assets located
in the United States; (xv) employment contracts, employee benefit plans and
other employee matters; (xvi) absence of applicable Cayman Islands anti-takeover
statutes or regulation; (xvii) receipt of the opinion of its financial advisor,
J.P. Morgan, that the consideration to be received by the holders of the Mid
Ocean Shares in the Mid Ocean Arrangement is fair from a financial point of view
to such holders; (xviii) insurance matters; (xix) liabilities, reserves and
minimum asset amounts of insurance subsidiaries; and (xx) status with respect to
the application of certain United States federal securities laws regarding
"investment advisors" and "investment companies."
Under the Agreement, EXEL has made certain representations and warranties to
Mid Ocean (with exceptions for previous disclosures to Mid Ocean), including
those with regard to: (i) the organization, good standing and legal and other
status of EXEL and its subsidiaries; (ii) corporate power and authority,
enforceability of the Agreement and approval of the Agreement and the EXEL
Arrangement by the EXEL Board; (iii) capital structure; (iv) Securities Act and
Exchange Act filings and financial statements included or to be included
therein; (v) absence of certain changes; (vi) brokers' fees; (vii) absence of
material defaults, violations or the occurrence of any events that with notice
or lapse of time or both would constitute a material default or violation of its
corporate governance documents or material contracts and agreements; (viii)
consents and approvals required to contemplate the Arrangements; (ix) compliance
with applicable law; (x) veracity of information supplied or to be supplied by
EXEL with respect to the Joint Proxy Statement; (xi) material contracts and
agreements; (xii) tax matters; (xiii) litigation; (xiv) value of assets located
in the United States; (xv) employment contracts, employee benefit plans and
other employee matters; (xvi) absence of applicable Cayman Islands anti-takeover
statutes or regulation; (xvii) receipt of the opinion of its financial advisor,
Goldman Sachs, that the consideration to be received by the holders of EXEL
Ordinary Shares in the EXEL Arrangement is fair from a financial point of view
to such holders; (xviii) insurance matters; (xix) liabilities, reserves and
minimum asset amounts of insurance subsidiaries; (xx) status with respect to the
application of certain United States federal securities laws regarding
"investment advisors" and "investment companies;" and (xxi) nonapplicability of
the EXEL Rights Plan to the Agreement or the Arrangements or the transactions
contemplated thereby.
OTHER AGREEMENTS
Pursuant to the Agreement, Mid Ocean, EXEL and New EXEL reached agreement
with respect to certain matters, including, but not limited to:
(i) affording reasonable access to authorized representatives of the
other party to all its personnel, offices and other facilities and to its
books and records, and permitting such party and its authorized
representatives to make such inspections of its 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, with the confidentiality of all such documents and information to
be governed by the terms of the Confidentiality Letter (as defined in the
Agreement);
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(ii) preparation and filing of the Joint Proxy Statement, and taking
action required under applicable state securities and "Blue Sky" laws in
connection with the issue of New EXEL Shares and furnishing appropriate
information in connection therewith;
(iii) the right of EXEL to change the method of effecting the combination
with Mid Ocean (with the consent of Mid Ocean, which consent may not be
unreasonably withheld) in a manner that does not alter or change the amount
or kind of consideration to be issued to the holders of Mid Ocean Shares as
provided for in the Agreement, adversely affect the tax treatment of the Mid
Ocean Shareholders as a result of receiving the consideration for their Mid
Ocean Shares or materially impede or delay consummation of the transactions
contemplated by the Agreement;
(iv) the use of the parties' reasonable best efforts to exempt the
transactions contemplated by the Agreement from, or if necessary challenge
the validity or applicability of, any applicable takeover or change of
control law, and otherwise act to eliminate or minimize the effects of any
applicable takeover or change of control law;
(v) the use of EXEL's and New EXEL's reasonable best efforts to cause
the New EXEL Voting Shares to be issued in the Arrangements and the New EXEL
Shares to be reserved for issue upon exercise of New EXEL Options to be
approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date;
(vi) the use of the parties' reasonable best efforts to take action to
do all things necessary to effect the transactions contemplated by the
Agreement, including, but not limited to, the holding of class meetings of
their respective shareholders to approve the EXEL Arrangement and the Mid
Ocean Arrangement, as appropriate, and to sanction any increase in share
capital that may be necessary under the terms of each Arrangement;
(vii) the requirement of Mid Ocean not to, and to cause its subsidiaries
and its subsidiaries' officers, directors, agents, advisors and affiliates
not to (without the prior written consent of EXEL), solicit or encourage
inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any
discussions with, any such person relating to, any tender offer or exchange
offer for, or any proposal for the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, or any merger or
consolidation with, Mid Ocean or any of its subsidiaries and to terminate
immediately any such inquiries, proposals or discussions; provided, however,
that Mid Ocean may, and may authorize and permit its officers, directors,
employees or agents to, furnish or cause to be furnished confidential
information and may participate in such discussions and negotiations if the
Mid Ocean Board, after having consulted with and considered the advice of
outside counsel, has determined that the failure to provide such information
or participate in such negotiations and discussions would cause the members
of such Board of Directors to breach their fiduciary duties under applicable
laws, in which case Mid Ocean must advise EXEL of its receipt of any such
proposal or inquiry within 24 hours thereof, and, subject to the fiduciary
duties of the Mid Ocean Board, of the substance thereof and of the identity
of the person making such proposal or inquiry, and must further, subject to
the fiduciary duties of the Mid Ocean Board, keep EXEL reasonably informed
on a current basis of the status of such proposal or inquiry; and
(viii) the requirement of EXEL and Mid Ocean to not issue any press
releases or otherwise make any public statements with respect to the
Arrangements or the Agreement without the approval of the other party as to
the wording, timing and media for such press release or statement, with
certain exceptions;
(ix) providing copies of all filings, material notices or material
communications made with any governmental authority in connection with the
Agreement and the transactions contemplated thereby to the other party,
except where prohibited by applicable statutes and regulations;
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(x) requesting the Grand Court to convene meetings of EXEL Shareholders
and Mid Ocean Shareholders, and matters relating to such meetings, including
the recommendations of the respective board of directors at such meetings;
(xi) the delivery of letters from affiliates of EXEL and Mid Ocean; and
(xii) the prohibition of certain actions by EXEL or New EXEL which would
be inconsistent with the qualification of the Arrangements as tax-free under
Section 351 of the Code, and the cooperation of New EXEL with EXEL
Shareholders and Mid Ocean Shareholders with regard to gain recognition
agreements under Section 367 of the Code.
MANAGEMENT AFTER THE ARRANGEMENTS
BOARD OF DIRECTORS AND OFFICERS OF NEW EXEL. At the Effective Time, the
directors of New EXEL will be the current directors of EXEL, Messrs. Newhouse
and Butt and three additional non-executive directors of Mid Ocean to be
selected by EXEL after consultation with Mid Ocean prior to the Effective Time,
which directors will constitute the New EXEL Board at the Effective Time and
each of which will hold office in accordance with the applicable provisions of
the New EXEL Articles and until his or her successor is elected or appointed and
duly qualified. The three additional non-executive directors of Mid Ocean have
not yet been selected as of the date of this Joint Proxy Statement and thus, at
the time of the respective Class Meetings, EXEL Shareholders and Mid Ocean
Shareholders may not know the precise identity of three persons who will be on
the New EXEL Board at the Effective Time. After giving effect to the EXEL
Arrangement, the officers of New EXEL will be the individuals who are the
current officers of EXEL, each such officer to hold office in accordance with
the applicable provisions of the New EXEL Articles and until his or her
respective successor is duly elected or appointed and qualified.
BOARD OF DIRECTORS AND OFFICERS OF EXEL. At the EXEL Effective Time, the
directors of EXEL who have been designated by EXEL will remain as directors of
EXEL, each such director to hold office in accordance with the applicable
provisions of the EXEL Articles and until his or her successor is elected or
appointed and duly qualified. After giving effect to the EXEL Arrangement, the
officers of EXEL will be the individuals who are the current officers of EXEL,
each such officer to hold office in accordance with the applicable provisions of
the EXEL Articles and until his or her respective successor is duly elected or
appointed and qualified.
BOARD OF DIRECTORS AND OFFICERS OF MID OCEAN. At the Effective Time, the
individuals who will be designated by EXEL prior to the Effective Time will
remain or be appointed as directors of Mid Ocean, each such director to hold
office in accordance with the applicable provisions of the Mid Ocean Articles
and until his or her successor is elected or appointed and duly qualified. EXEL
has not designated such individuals as of the date of this Joint Proxy
Statement. After giving effect to the Mid Ocean Arrangement, the individuals who
will be designated by EXEL will be the officers of Mid Ocean, each such officer
to hold office in accordance with the applicable provisions of the Mid Ocean
Articles and until his or her respective successor is duly elected or appointed
and qualified.
COMPENSATION AND BENEFITS
Following the Effective Time, the employees of Mid Ocean will be entitled to
participate in the employee benefit plans of New EXEL or EXEL in which similarly
situated employees of EXEL participate, to the same extent as similarly situated
employees of EXEL. New EXEL will assume the 1991 Performance Incentive Program
of EXEL, and awards of stock options, restricted stock and other awards
authorized under that plan may be made to employees of EXEL and Mid Ocean
following the Effective Time.
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With respect to each Mid Ocean Plan (as defined in the Agreement) that is an
"employee benefit plan" as defined in Section 3(3) of ERISA, for purposes of
determining eligibility to participate, vesting, and entitlement to benefits,
including for severance benefits and vacation entitlement (but not for accrual
of pension benefits except to the extent that past service credit is provided to
EXEL employees), service with Mid Ocean and its subsidiaries by Mid Ocean
employees employed immediately after the Effective Time will be treated as
service with EXEL and New EXEL, and with respect to EXEL employees employed
immediately after the Effective Time, service with EXEL and its subsidiaries
will be treated as service with New EXEL; PROVIDED, HOWEVER, that such service
will not be recognized to the extent that such recognition would result in a
duplication of benefits. Such service also will apply for purposes of satisfying
any waiting periods, evidence of insurability requirements or the application of
any preexisting condition limitations. Mid Ocean employees and EXEL employees
will be given credit for amounts paid under a corresponding benefit plan during
the same period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in accordance with
the terms and conditions of the New EXEL Plan.
Following the Effective Time, New EXEL will honor in accordance with their
terms all employment, severance and other compensation agreements and
arrangements existing on or prior to the execution of the Agreement that are
between Mid Ocean and any director, officer or employee thereof and that were
disclosed to EXEL on or prior to the date of the Agreement, except that certain
executives of Mid Ocean have agreed to other arrangements with EXEL. See
"--Interests of Certain Persons in the Arrangements."
WAIVER; AMENDMENT
WAIVER. Any failure of EXEL or New EXEL, on the one hand, or Mid Ocean, on
the other hand, to comply with any obligation, covenant, agreement or condition
contained in the Agreement may be waived in writing by Mid Ocean or EXEL,
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.
AMENDMENT. Subject to applicable law, the Agreement may be amended,
modified or supplemented only by written agreement signed on behalf of each
party thereto at any time prior to the EXEL Effective Time with respect to any
of the terms of the Agreement, except that, after approval of the Mid Ocean
Arrangement by Mid Ocean Shareholders, the consideration to be paid to Mid Ocean
Shareholders may not be decreased and the form of consideration to be received
by Mid Ocean Shareholders may not be altered without the approval of such Mid
Ocean Shareholders.
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TERMINATION; TERMINATION FEE
Under the Agreement, EXEL or Mid Ocean may terminate the Agreement, and
abandon the Arrangements, at any time prior to the EXEL Effective Time, whether
before or after approval of the Arrangements by the shareholders of Mid Ocean or
EXEL, as described below:
(i) by either EXEL or Mid Ocean, upon mutual written consent of both
parties;
(ii) by either EXEL or Mid Ocean, if the Effective Time does not occur
on or before October 31, 1998 (PROVIDED, HOWEVER, that the right to
terminate the Agreement under this provision will not be available to any
party whose failure to fulfill any obligation under the Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on
or before such date);
(iii) by either EXEL or Mid Ocean, if a governmental authority (including
the Grand Court) issues a final and nonappealable order, decree or ruling or
takes any other action, in each case, permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Agreement;
(iv) by either EXEL or Mid Ocean, if either such party is unable to
obtain the required approval of its respective shareholders by reason of the
failure to obtain the required vote at a duly held meeting of such
shareholders or at any adjournment or postponement thereof (such terminating
party will not be considered to be in material breach of its obligation to
convene such a meeting of its shareholders and seek approval of its
respective Arrangement);
(v) by EXEL or Mid Ocean, if there has not been a material uncured
breach by such party of any representation, warranty, covenant or agreement
set forth in the Agreement and there has been a material breach by the other
of any such representation, warranty, covenant or agreement set forth in the
Agreement, which breach has had or is reasonably expected to have a Material
Adverse Effect on the breaching party and has not been cured within 30 days
of the breaching party's receipt of written notice specifying the breaching
party's breach and the terminating party's intention to terminate the
Agreement; and
(vi) by EXEL, if any person has effected a merger, amalgamation or other
combination with Mid Ocean, or has entered into a definitive agreement or an
agreement in principle with Mid Ocean with respect to any of the foregoing
or with respect to an acquisition of more than 10% of the Mid Ocean Shares
or total voting power or total assets of Mid Ocean.
In the event of termination of the Agreement, except for the provisions
described in the next paragraph, none of EXEL, Mid Ocean or New EXEL will have
any obligation to perform under the Agreement from and after the date of such
termination, except that certain provisions of the Agreement relating to
confidentiality, public announcements, expenses, notices and governing law will
survive such termination and will remain in full force and effect
notwithstanding such termination. No termination of the Agreement will relieve
EXEL or Mid Ocean from liability for any breach of the Agreement.
If (i) the Agreement is terminated (a) by EXEL pursuant to the termination
provision described in the preceding paragraph (vi) above, (b) by any party as a
result of the failure of Mid Ocean Shareholders to approve the Mid Ocean
Arrangement or (c) by any party as a result of Mid Ocean's material breach of
its obligation to convene a shareholder meeting and seek approval of the Mid
Ocean Arrangement by the Mid Ocean Shareholders, and (ii) at the time of such
termination or prior to the meeting of Mid Ocean Shareholders called pursuant to
Mid Ocean's obligation to convene a shareholder meeting and seek shareholder
approval there has been a third-party tender offer for Mid Ocean Shares, or a
third-party offer or proposal with respect to a merger, amalgamation, scheme of
arrangement or other business combination involving Mid Ocean or any of its
subsidiaries or a sale or other transfer of a material portion of its or their
assets (any such transaction a "BUSINESS COMBINATION"), and (iii) within one and
one-half years of any
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such termination described in clause (i) of this paragraph, Mid Ocean
consummates a Business Combination with a third party which Business Combination
provides consideration per Mid Ocean Share in excess of $70.00 (based, in the
case of a Business Combination in which such consideration consists in part or
in full of publicly traded securities, on the average closing price for such
publicly traded securities as reported in THE WALL STREET JOURNAL for the 10
trading days preceding the date of consummation of such Business Combination),
then Mid Ocean (jointly and severally with its affiliates), upon the
consummation (and as a condition to the closing) of such a Business Combination,
will pay to EXEL a termination fee equal to $65 million in cash plus the
out-of-pocket fees and expenses incurred by EXEL (including, without limitation,
fees and expenses payable to all legal, accounting, financial, public relations
and other professional advisors) arising out of, in connection with or related
to the Arrangements or the transactions contemplated by the Agreement.
If (i) the Agreement (a) is terminated by any party as a result of the
failure of EXEL Shareholders to approve the EXEL Arrangement or (b) is
terminated by any party as a result of EXEL's material breach of its obligation
to convene a shareholder meeting and seek approval of the EXEL Arrangement by
the EXEL Shareholders, and (ii) at the time of such termination or prior to the
meeting of EXEL Shareholders called pursuant to EXEL's obligation to convene a
shareholder meeting and seek shareholders approval, there has been a third-party
tender offer for EXEL Ordinary Shares, or a third-party offer or proposal with
respect to a Business Combination involving EXEL or any of its subsidiaries, and
(iii) within one and one-half years of any such termination described in clause
(i) of this paragraph, EXEL consummates a Business Combination with a third
party which Business Combination provides consideration per EXEL Ordinary Share
in excess of $79.00 (based, in the case of a Business Combination in which such
consideration consists in part or in full of publicly traded securities, on the
average closing price for such publicly traded securities as reported in THE
WALL STREET JOURNAL for the 10 trading days preceding the date of consummation
of such Business Combination), then EXEL (jointly and severally with its
affiliates), prior to or upon the consummation (and as a condition to the
closing) of such a Business Combination, will pay to Mid Ocean a termination fee
equal to $65 million in cash plus the out-of-pocket fees and expenses incurred
by Mid Ocean (including, without limitation, fees and expenses payable to all
legal, accounting, financial, public relations and other professional advisors)
arising out of, in connection with or related to the Arrangements or the
transactions contemplated by this Agreement.
EXPENSES
Each of the parties (subject to the termination fee provisions above) will
pay its own expenses incurred in connection with the negotiation and preparation
of the Agreement, the performance of its covenants therein, and the effectuation
of the transactions contemplated thereby, including, without limitation, all
fees and disbursements of its respective legal counsel, advisors and
accountants. Each of the parties to the Agreement will indemnify and hold
harmless the other against any claim for fees or commissions of brokers,
finders, agents, or bankers retained or purportedly retained by the indemnitor
party in connection with the transactions contemplated by the Agreement.
INDEMNIFICATION AND INSURANCE
INDEMNIFICATION. The Agreement provides that, from and after the Effective
Time, New EXEL will indemnify, defend and hold harmless the officers and
directors of Mid Ocean (the "INDEMNIFIED PARTIES") against all losses, expenses,
claims, damages and liabilities arising out of the transactions contemplated by
the Agreement to the fullest extent permitted or required under applicable law
(including, without limitation, reasonable attorneys' fees). Subject to any
limitations imposed by Cayman Islands law and public policy, to the extent
applicable, EXEL and New EXEL agree that all rights to indemnification existing
in favor of the directors and officers of Mid Ocean or any subsidiary of Mid
Ocean as provided in Mid Ocean's or any such subsidiary's memorandum of
association and articles of association (or analogous documents) or existing
indemnification agreements, as in effect as of the date hereof, with respect to
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matters occurring through the Effective Time, will survive the Arrangements and
will continue in full force and effect, and New EXEL will guaranty the
obligations of Mid Ocean in respect thereof; PROVIDED, HOWEVER, that this will
not limit the ability of New EXEL to effect any corporate restructuring of its
subsidiaries.
INSURANCE. The Agreement further provides that, New EXEL will cause to be
maintained for a period of not less than six years from the Effective Time Mid
Ocean's current directors' and officers' insurance and indemnification policy to
the extent that it provides coverage for events occurring prior to the Effective
Time (the "D&O INSURANCE") for any of the Indemnified Parties; PROVIDED,
HOWEVER, that EXEL may, in lieu of maintaining such existing D&O Insurance as
provided above, cause comparable coverage to be provided under any policy
maintained for the benefit of the directors and officers of EXEL or any of its
subsidiaries, so long as (i) the issuer thereof has an A.M. Best Company rating
of A or better and (ii) the material terms thereof are no less advantageous to
the Indemnified Parties than the existing D&O Insurance. If the existing D&O
Insurance expires, is terminated or canceled during such six-year period, New
EXEL will cause to be obtained, to the extent commercially available,
replacement D&O Insurance on terms and conditions no less advantageous to the
Indemnified Parties than the existing D&O Insurance. Notwithstanding the
foregoing, in satisfying its obligation to provide D& O Insurance under the
Agreement, New EXEL will not be obligated to pay premiums in excess of 200% of
the premium paid or to be paid by Mid Ocean in the fiscal year ended October 31,
1997, which amounts have been disclosed to EXEL and New EXEL, BUT PROVIDED
FURTHER that New EXEL will nevertheless be obligated to provide such coverage as
may be obtained for 200% of the premium to be paid by Mid Ocean for such
insurance in the fiscal year ending October 31, 1997.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ARRANGEMENTS
The following is a summary of the material anticipated United States federal
income tax consequences of the Arrangements to holders of Mid Ocean Shares and
EXEL Ordinary Shares who hold such stock as a capital asset. The summary is
based on the Code, Treasury regulations thereunder, and administrative rulings
and court decisions in effect as of the date hereof, all of which are subject to
change at any time, possibly with retroactive effect. This summary is not a
complete description of all of the consequences of the Arrangements and, in
particular, may not address United States federal income tax considerations
applicable to shareholders subject to special treatment under United States
federal income tax law (including, for example, non-United States persons,
financial institutions, dealers in securities, insurance companies or tax-exempt
entities, holders who acquired Mid Ocean Shares or EXEL Ordinary Shares pursuant
to the exercise of an employee stock option or right or otherwise as
compensation, and holders who hold Mid Ocean Shares or EXEL Ordinary Shares as
part of a hedge, straddle or conversion transaction). In addition, no
information is provided herein with respect to the tax consequences of the
Arrangements under applicable state, local or non-United States laws. HOLDERS OF
MID OCEAN SHARES OR EXEL ORDINARY SHARES ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE ARRANGEMENTS TO THEM, INCLUDING
THE EFFECTS OF UNITED STATES FEDERAL, STATE AND LOCAL, FOREIGN AND OTHER TAX
LAWS.
As a condition to the obligations of EXEL, New EXEL and Mid Ocean to
consummate the Arrangements, EXEL and Mid Ocean must receive an opinion of
Wachtell, Lipton, Rosen & Katz and Davis Polk & Wardwell, respectively, dated
the Effective Date, addressing the U.S. federal income tax consequences of the
Arrangements described below (each, a "TAX OPINION").
Each of the Tax Opinions will be rendered on the basis of facts,
representations and assumptions set forth in such opinion which are consistent
with the facts existing on the Effective Date. In rendering the Tax Opinions,
each counsel may require and rely upon representations and covenants including
those
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contained in certificates of officers of EXEL, Mid Ocean, foreign counsel and
others. Each Tax Opinion will be to the effect that, for United States federal
income tax purposes:
(i) the Arrangements will qualify as an exchange under Section 351(a) of
the Code;
(ii) no gain or loss will be recognized by United States transferors of
EXEL Ordinary Shares who own less than 5% of both the total voting power and
the total value of the shares of New EXEL immediately after the
Arrangements, and who do not receive any cash pursuant to the cash election
procedures, upon the receipt of solely New EXEL Shares pursuant to EXEL
Arrangement;
(iii) no gain or loss will be recognized by United States transferors of
EXEL Ordinary Shares who own 5% or more of the total voting power or the
total value of the New EXEL Shares immediately after the Arrangements, and
who do not receive any cash pursuant to the cash election procedures, upon
the receipt of solely New EXEL Shares pursuant to EXEL Arrangement, PROVIDED
that such United States transferors enter into gain recognition agreements
meeting the requirements of IRS Notice 87-85 and applicable United States
Treasury regulations;
(iv) no gain or loss will be recognized by United States transferors of
Mid Ocean Shares who own less than 5% of both the total voting power and the
total value of the New EXEL Shares immediately after the Arrangements, and
who do not receive any cash pursuant to the cash election procedures, upon
the receipt of solely New EXEL Shares pursuant to the Mid Ocean Arrangement
(except with respect to cash received in lieu of a fractional share interest
in New EXEL Shares); and
(v) no gain or loss will be recognized by United States transferors of
Mid Ocean Shares who own 5% or more of the total voting power or the total
value of the shares of New EXEL immediately after the Arrangements, and who
do not receive any cash pursuant to the cash election procedures, upon the
receipt of solely New EXEL Shares pursuant to the Mid Ocean Arrangement
(except with respect to cash received in lieu of a fractional share interest
in New EXEL Shares), provided that such United States transferors enter into
gain recognition agreements meeting the requirements of IRS Notice 87-85 and
applicable United States Treasury regulations.
Each party's obligation to consummate the Arrangements is conditioned upon
the receipt by each of EXEL and Mid Ocean of its respective Tax Opinion. The Tax
Opinions are not binding on the IRS or the courts, and the parties do not intend
to request a ruling from the IRS with respect to the Arrangements. Accordingly,
there can be no assurance that the IRS will not challenge such conclusion or
that a court will not sustain such challenge.
EXEL Shareholders who receive cash in the EXEL Arrangement pursuant to the
cash elections procedures will be treated under Section 304 of the Code as
though they had received the cash in redemption of a portion of their EXEL
Ordinary Shares. Under Section 304 of the Code, such EXEL Shareholders who are
not also Mid Ocean Shareholders (taking into account constructive ownership of
Mid Ocean Shares under the rules of the Code) will recognize capital gain or
loss equal to the difference between the amount of cash received pursuant to the
cash election procedures and the portion of the EXEL Shareholder's tax basis in
its EXEL Ordinary Shares that is allocable to the EXEL Ordinary Shares that are
treated as redeemed. Such gain or loss will be a long-term capital gain or loss
if the holding period for such EXEL Ordinary Shares is greater than one year at
the Effective Time. In the case of an individual EXEL Shareholder, such capital
gain will be taxed at a maximum rate of 28% if such EXEL Shareholder's holding
period is more than one year but not more than 18 months, and at a maximum rate
of 20% if such holding period is more than 18 months. EXEL Shareholders who are
also Mid Ocean Shareholders (taking into account constructive ownership of Mid
Ocean Shares under the rules of the Code) should consult their own tax advisors
concerning the amount and character of the income resulting from their receipt
of cash pursuant to the cash election procedures.
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If, immediately after the Effective Time, the Mid Ocean Shareholders own New
EXEL Shares possessing at least 50% of the total combined voting power of all
classes of New EXEL Shares entitled to vote or at least 50% of the total value
of all classes of New EXEL Shares ("SECTION 304 CONTROL"), taking into account
certain constructive ownership rules of the Code and, in the case of any Mid
Ocean Shareholder who also owns EXEL Ordinary Shares, taking into account any
New EXEL Shares received by such Mid Ocean Shareholder in the EXEL Arrangement
in its capacity as an EXEL Shareholder, the treatment described above with
respect to the receipt of cash by EXEL Shareholders will also apply to the
receipt by Mid Ocean Shareholders who are not also EXEL Shareholders (taking
into account constructive ownership of EXEL Ordinary Shares under the rules of
the Code) of cash in lieu of fractional New EXEL Shares or pursuant to the cash
election procedures. Mid Ocean Shareholders who are also EXEL Shareholders
(taking into account constructive ownership of EXEL Ordinary Shares under the
rules of the Code) should consult their own tax advisors concerning the amount
and character of the income resulting from their receipt of cash in lieu of
fractional New EXEL Shares or pursuant to the cash election procedures.
If the Mid Ocean Shareholders do not have Section 304 Control immediately
after the Arrangements, a Mid Ocean Shareholder who receives cash in lieu of
fractional New EXEL Shares or pursuant to the cash election procedures will
recognize gain equal to the lesser of (i) the excess of the sum of the fair
market value of the New EXEL Shares received by the Mid Ocean Shareholder in the
Arrangements and the amount of cash received by the Mid Ocean Shareholder in the
Mid Ocean Arrangement over the Mid Ocean Shareholder's tax basis in its Mid
Ocean Shares and its EXEL Ordinary Shares (if any) surrendered in the
Arrangements (other than EXEL Ordinary Shares treated as redeemed in the EXEL
Arrangement as described above) or (ii) the amount of cash received by the Mid
Ocean Shareholder in the Mid Ocean Arrangement. Moreover, if the Mid Ocean
Shareholders do not have Section 304 Control immediately after the Arrangements,
no loss will be recognized by a Mid Ocean Shareholder with respect to the
receipt of cash in lieu of fractional shares or pursuant to the cash election
procedures. Any gain recognized by a Mid Ocean Shareholder will be long-term
capital gain if the Mid Ocean Shareholder's holding period in its Mid Ocean
Shares and EXEL Ordinary Shares (if any) is more than one year. In the case of
an individual Mid Ocean Shareholder, such capital gain will be taxed at a
maximum rate of 28%, if such Mid Ocean Shareholder's holding period in its Mid
Ocean Shares and EXEL Ordinary Shares (if any) is more than one year but not
more than 18 months, and at a maximum rate of 20% if such holding period is more
than 18 months. U.S. persons who hold Mid Ocean Shares or EXEL Ordinary Shares
must satisfy the reporting requirements of Section 6038B of the Code. Unless an
exception applies, each U.S. person must file, with its return for the taxable
year in which the Effective Time occurs, an IRS Form 926 and the attachments
required by applicable Treasury regulations. The penalty for failure to satisfy
the reporting requirements of Section 6038B of the Code is equal to 10% of the
fair market value of the Mid Ocean Shares or EXEL Ordinary Shares transferred by
the U.S. person pursuant to the Arrangements, not to exceed $100,000 unless such
failure was due to intentional disregard. U.S. persons who hold Mid Ocean Shares
or EXEL Ordinary Shares should consult their own tax advisors concerning the
reporting requirements of Section 6038B and the applicability of any exception
to the requirement to file IRS Form 926.
TAX CONSEQUENCES TO UNITED STATES SHAREHOLDERS OF OWNERSHIP OF NEW EXEL SHARES
CLASSIFICATION OF NEW EXEL AS A CONTROLLED FOREIGN CORPORATION. Each
"United States shareholder" of a "controlled foreign corporation" (a "CFC") must
include in its gross income for United States federal income tax purposes its
PRO RATA share of the CFC's "subpart F income", even if the subpart F income is
not distributed. Any United States corporation, citizen, resident or other
United States person who owns, directly or indirectly through foreign persons,
or is considered to own (by application of the relevant rules of constructive
ownership set forth in the Code) 10% or more of the total combined voting power
of all classes of stock of the foreign corporation will be considered to be a
"United States shareholder". In general, a foreign corporation is treated as a
CFC only if such "United States shareholders" collectively
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own more than 50% (more than 25% for certain insurance companies) of the total
combined voting power or total value of the corporation's stock for an
uninterrupted period of 30 days or more during any tax year. New EXEL believes
that because of the wide dispersion of its share ownership and because under the
New EXEL Articles no single shareholder is permitted to hold as much as 10% of
its total combined voting power, it is not a CFC under the foregoing general
rules.
RELATED PERSON INSURANCE INCOME. The following discussion generally is
applicable only if the "related person insurance income" ("RPII") of a
subsidiary of New EXEL, determined on a gross basis, is 20% or more of such
subsidiary's gross insurance income for the taxable year. The following
discussion generally would not apply for any fiscal year in which such
subsidiary's gross RPII fall below the 20% threshold. New EXEL anticipates that
its subsidiaries gross RPII as a percentage of gross insurance income in 1998
and in future fiscal years will fall below the 20% threshold.
RPII COMPANIES. Different definitions of "United States shareholder" and
"controlled foreign corporation" are applicable in the case of a foreign
corporation which earns RPII. RPII is defined in Section 953(c)(2) of the Code
as any "insurance income" attributable to policies of insurance or reinsurance
with respect to which the person (directly or indirectly) insured is a "United
States shareholder" or a "related person" to such a shareholder.
Generally, the term "related person" for this purpose means someone who
controls or is controlled by the United States shareholder or someone who is
controlled by the same person or persons which control the United States
shareholder. Control is measured by either more than 50% in value or more than
50% in voting power of stock applying constructive ownership principles. For
purposes of inclusion New EXEL's subsidiaries' RPII in the income of United
States shareholders, unless an exception applies, the term "United States
shareholder" includes all U.S. persons who beneficially own any amount (rather
than 10% or more) of such subsidiary's stock. Each subsidiary will be treated as
a CFC if such persons are treated as owning 25% or more of the stock of such
subsidiary. In determining the "United States shareholders" of each subsidiary,
stock of such subsidiary held indirectly by United States persons through New
EXEL or any other non-United States entity is treated as held by United States
shareholders, but the other constructive ownership rules of the Code do not
apply.
RPII EXCEPTIONS. The special RPII rules do not apply if (i) direct and
indirect insureds and persons related to such insureds, whether or not U.S.
persons, are treated as owning, directly or indirectly, less than 20% of the
voting power and less than 20% of the value of the stock of each New EXEL
subsidiary, (ii) RPII, determined on a gross basis, is less than 20% of each New
EXEL subsidiary's gross insurance income for the taxable year, (iii) each New
EXEL subsidiary elects to be taxed on its RPII as if the RPII were effectively
connected with the conduct of a United States trade or business, or (iv) each
New EXEL subsidiary elects to be treated as a United States corporation and
certain other conditions are satisfied. Where none of these exceptions applies,
each United States person owning or treated as owning stock in New EXEL (and
therefore, indirectly, in each New EXEL subsidiary) on the last day of New
EXEL's fiscal year will be required to include in its gross income for United
States federal income tax purposes its share of the RPII for the entire taxable
year, determined as if all such RPII were distributed proportionately only to
such United States shareholders at that date, but limited by each New EXEL
subsidiary's current-year earnings and profits and by the United States
shareholder's share, if any, of prior-year deficits in earnings and profits. If,
as anticipated, RPII is less than 20% of gross insurance income in fiscal 1998
and future fiscal years, United States shareholders will not be required to
include RPII in their taxable income.
DISPOSITIONS OF NEW EXEL SHARES. Section 1248 of the Code provides that if
a United States person owns 10% or more of the voting shares of a corporation
that is a CFC, any gain from the sale or exchange of the shares may be treated
as ordinary income to the extent of the CFC's earnings and profits during the
period that the shareholder held the shares (with certain adjustments). Section
1248 of the Code generally also will apply to the sale or exchange of shares in
a foreign corporation that earns RPII if the foreign
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corporation would be taxed as an insurance company if it were a domestic
corporation, regardless of whether the shareholder is a 10% shareholder or
whether RPII constitutes 20% or more of the corporation's gross insurance
income. Existing Treasury Department regulations do not address whether Section
1248 of the Code would apply when the foreign corporation (such as New EXEL) is
not a CFC but the foreign corporation has a subsidiary that is a CFC or that
would be taxed as an insurance company if it were a domestic corporation.
FOREIGN TAX CREDIT. Because United States shareholders own a majority of
New EXEL shares, only a portion of any RPII includible in their income and any
dividends paid by New EXEL (including any gain from the sale of New EXEL Shares
that is treated as a dividend under Section 1248 of the Code) will be treated as
foreign source income for purposes of computing a shareholder's United States
foreign tax credit limitation. It is likely that substantially all of any RPII
includible in their income and any dividends that are foreign source income will
constitute either "passive" or "financial services" income for United States
foreign tax credit limitation purposes.
PASSIVE FOREIGN INVESTMENT COMPANIES. Sections 1291 through 1297 of the
Code contain special rules applicable with respect to foreign corporations that
are "passive foreign investment companies" ("PFICS"). In general, a foreign
corporation will be a PFIC if 75% or more of its income constitutes "passive
income" or 50% or more of its assets produce, or are held for the production of,
passive income. If New EXEL were to be characterized as a PFIC, its United
States shareholders would be subject to a penalty tax at the time of their sale
of (or receipt of an "excess distribution" with respect to) New EXEL Shares,
unless such shareholder elects to include changes in the value of its New EXEL
Shares in income each year under a market-to-market method. In general, a
shareholder receives an "excess distribution" if the amount of the distribution
is more than 125% of the average distribution with respect to the stock during
the three preceding taxable years (or shorter period during which the taxpayer
held the stock). In general, the penalty tax includes an interest charge on
taxes that are deemed due during the period the United States shareholder owned
the shares, and is computed by assuming that the excess distribution or gain (in
the case of a sale) with respect to the shares was taxed in equal portions
throughout the holder's period of ownership at the highest rate applicable
marginal rate. The interest charge is equal to the applicable rate imposed on
underpayments of United States federal income tax for such period.
The PFIC statutory provisions contain an express exception for income
"derived in the active conduct of an insurance business by a corporation which
is predominantly engaged in an insurance business . . . ." This exception is
intended to ensure that income derived by a BONA FIDE insurance company is not
treated as passive income, except to the extent such income is attributable to
financial reserves in excess of the reasonable needs of the insurance business.
In New EXEL's view, New EXEL and its wholly-owned direct and indirect
subsidiaries, taken as a whole, are predominantly engaged in an insurance
business and do not have financial reserves in excess of the reasonable needs of
their insurance business. The PFIC statutory provisions (unlike the RPII
provisions of the Code) contain a look-through rule that states that, for
purposes of determining whether a foreign corporation is a PFIC, such foreign
corporation shall be treated as if it received directly its proportionate share
of the income and held its proportionate share of the assets of any other
corporation in which it owns at least 25% of the stock. While no explicit
guidance is provided by the statutory language, New EXEL believes that under the
look-through rule New EXEL should be deemed to own the assets and to have
received the income of its insurance and investment subsidiaries directly for
purposes of determining whether New EXEL qualifies for the aforementioned
insurance exception. Although each of New EXEL's investment subsidiaries meets
the definition of a PFIC, if New EXEL is not a PFIC, the PFIC statutory
provisions state that a shareholder of New EXEL will not be treated as a
shareholder of such investment subsidiaries for PFIC tax purposes as long as the
shareholder does not own 50% or more of the value of New EXEL Shares.
OTHER. Dividends paid by New EXEL to United States corporate shareholders
will not be eligible for the dividends received deduction provided by Section
243 of the Code.
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Information reporting to the IRS by paying agents and custodians located in
the United States will be required with respect to payments of dividends on the
New EXEL Shares to United States persons. Thus, a holder of New EXEL Shares may
be subject to backup withholding at the rate of 31% with respect to dividends
paid by such persons, unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact; or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The backup withholding tax is not
an additional tax and may be credited against a holder's regular United States
federal income tax liability.
The foregoing summary is based upon current law and is for general
information only. The tax treatment of a holder of New EXEL Shares, or of a
person treated as a holder of New EXEL Shares for United States federal income,
state, or local or non-United States tax purposes, may vary depending on the
holder's particular tax situation. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could be retroactive and
could affect the tax consequences to holders of New EXEL Shares. HOLDERS OF EXEL
ORDINARY SHARES OR MID OCEAN SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL, STATE AND LOCAL AND NON-UNITED STATES TAX
CONSEQUENCES OF OWNING NEW EXEL SHARES.
CASH ELECTION PROCEDURE
A Cash Election Form will be mailed 25 days prior to the anticipated
Effective Time or on such other date as EXEL and Mid Ocean shall mutually agree
to each EXEL Shareholder and Mid Ocean Shareholder of record as of five business
days prior to such mailing date. Each Cash Election Form shall permit an EXEL
Shareholder or a Mid Ocean Shareholder to elect to receive cash with respect to
all or a portion of such holder's EXEL Ordinary Shares or Mid Ocean Shares,
respectively.
Any EXEL Ordinary Shares or Mid Ocean Shares with respect to which the
holder thereof shall not have elected to receive cash consideration by
submitting to EXEL or to the Exchange Agent an effective, properly completed
Cash Election Form on or before 5:00 p.m. on the 20th day following the mailing
date of such form (or such other time and date as EXEL and Mid Ocean may
mutually agree) (the "CASH ELECTION DEADLINE") shall, as of the Effective Time,
be transferred to New EXEL in exchange for New EXEL Shares as described above.
A Cash Election shall have been properly made only if the Exchange Agent
shall have actually received a properly completed Cash Election Form on or prior
to the Cash Election Deadline. A Cash Election Form may be revoked or changed by
the person submitting such Cash Election Form at or prior to the Cash Election
Deadline. See "--Exchange of Certificates" and "--Exchange of Shares--Cash
Election Procedure."
EXCHANGE OF CERTIFICATES
Under the EXEL Arrangement, from and including the Effective Time, all
existing certificates representing EXEL Ordinary Shares shall cease to have
effect as documents of title to the EXEL Ordinary Shares previously represented
thereby but shall instead represent only the right to receive, upon surrender of
such certificates, a certificate representing the same number of New EXEL Voting
Shares except to the extent the holder thereof is entitled to receive cash
consideration in lieu of any or all of such holder's EXEL Ordinary Shares. Under
the Mid Ocean Arrangement, from and including the Effective Time, all existing
certificates representing Mid Ocean Class A Shares shall cease to have effect as
documents of title to the Mid Ocean Class A Shares previously represented
thereby but shall instead represent only the right to receive, upon surrender of
such certificates, a certificate representing New EXEL Voting Shares calculated
on the basis of the Exchange Ratio, except to the extent the holder thereof is
entitled to receive
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cash consideration in lieu of any or all of such holder's Mid Ocean Shares.
Under the Mid Ocean Arrangement, from and including the Effective Time, all
existing certificates representing Mid Ocean Class B Shares and Mid Ocean Class
C Shares shall cease to have effect as documents of title to the Mid Ocean Class
B Shares and Mid Ocean Class C Shares previously represented thereby but shall
instead represent only the right to receive, upon surrender of such
certificates, a certificate representing New EXEL Non-Voting Shares calculated
on the basis of the Exchange Ratio, except to the extent the holder thereof is
entitled to receive cash consideration in lieu of any or all of such holder's
Mid Ocean Shares.
As soon as practicable after the Effective Time, a company selected by New
EXEL (the "EXCHANGE AGENT") will mail to each holder of record of Mid Ocean
Shares immediately prior to the Effective Time, a letter of transmittal and
instructions for use in effecting the surrender of any certificates representing
outstanding Mid Ocean Shares ("MID OCEAN CERTIFICATES") for certificates
representing the appropriate number and class of New EXEL Shares. Upon surrender
of a Mid Ocean Certificate to the Exchange Agent for cancellation, together with
a duly executed letter of transmittal and such other documents, if any, as the
Exchange Agent shall require, the holder of such Mid Ocean Certificate will be
entitled to receive a certificate representing that number and class of whole
New EXEL Shares and any cash in lieu of fractional New EXEL Shares which such
holder has the right to receive pursuant to the provisions of the Mid Ocean
Arrangement and/or any cash in lieu of New EXEL Shares pursuant to the Cash
Election. Until surrendered, each Mid Ocean Certificate will be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of New EXEL Shares and cash in
lieu of any fractional New EXEL Shares and/or any cash in lieu of New EXEL
Shares pursuant to the Cash Election. Initially the Certificates representing
EXEL Ordinary Shares will not be exchanged for new certificates representing New
EXEL Voting Shares.
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENTS
GENERAL. As described below, certain members of Mid Ocean management and of
the Mid Ocean Board have certain arrangements with respect to the New EXEL
management and New EXEL Board composition following the Arrangements, certain
benefits under existing employment agreements and severance and benefit plans
and certain post-Merger employment opportunities with EXEL. In addition, as
described above, the Agreement contains certain provisions relating to the
indemnification of Mid Ocean directors and officers and D&O Insurance. The Mid
Ocean Board was aware of these interests and considered them, among other
matters, in approving the Agreement and the transactions contemplated thereby.
In addition, substantially all arrangements with members of EXEL management
will remain in place with respect to New EXEL following the Arrangements and all
members of the EXEL Board will be members of the New EXEL Board following the
Effective Time. As described above, Messrs. Esposito and O'Hara, EXEL's Chairman
and Chief Executive Officer, respectively, are on the Mid Ocean Board, but did
not participate in deliberations relating to or vote on the approval of the
Agreement or the Arrangements. The EXEL Board was aware of these interests and
considered them, among other matters, in approving the Arrangements and the
transactions contemplated thereby.
BOARD COMPOSITION AND RELATED MATTERS POST-ARRANGEMENTS. The parties have
agreed that at the Effective Time, the initial directors of New EXEL shall be
the current directors of EXEL, Messrs. Newhouse and Butt and three additional
non-executive directors of Mid Ocean to be selected by EXEL. See "MANAGEMENT AND
OPERATIONS AFTER THE ARRANGEMENTS."
EXISTING EMPLOYMENT AGREEMENTS WITH MID OCEAN EXECUTIVE OFFICERS. Mid Ocean
or one of its subsidiaries has entered into employment agreements with five of
its executive officers: Mr. Newhouse, as Chairman of the Mid Ocean Board and Mid
Ocean Reinsurance; Mr. Butt, as President and Chief Executive Officer of Mid
Ocean and Mid Ocean Reinsurance; Mr. Hays, as Senior Vice President and
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Chief Financial and Administrative Officer of Mid Ocean and Executive Vice
President and Chief Financial and Administrative Officer of Mid Ocean
Reinsurance; Mr. Keeling, as Executive Vice President and Chief Underwriting
Officer of Mid Ocean Reinsurance; and Mr. Brockbank, with respect to Brockbank,
a wholly-owned subsidiary of Mid Ocean. Messrs. Butt, Hays and Keeling reside in
Bermuda, and Mr. Newhouse spends at least one week per month in Bermuda. Mr.
Brockbank resides in England.
Each agreement (other than Mr. Brockbank's) provides for (i) a base salary
which is subject to review for increase at the discretion of the Compensation
Committee of the Mid Ocean Board; (ii) an annual bonus determined by the
Compensation Committee of the Mid Ocean Board, based on criteria determined by
the Compensation Committee of the Mid Ocean Board; (iii) reimbursement for, or
payment of, certain travel, living and other expenses; and (iv) the right to
participate in such other employee or fringe benefit programs for senior
executives as are in effect from time to time. Mr. Brockbank's agreement
provides for (i) a base salary, (ii) reimbursement for certain travel,
subsistence and entertainment expenses, (iii) payment of premiums for private
medical health insurance for Mr. Brockbank, (iv) a death insurance benefit equal
to four times his annual salary, (v) provision of permanent health insurance,
and (vi) continued participation in the Brockbank Pension Scheme or equivalent
payment to a personal pension plan in lieu thereof.
The employment agreements of Messrs. Newhouse, Butt, Hays and Keeling each
expire on August 19, 1999. The employment agreement of Mr. Brockbank expires
upon 12 months written notice from any party thereto, PROVIDED that, such
agreement terminates automatically upon the last day of the month in which Mr.
Brockbank attains the age of 65 years. Each agreement (other than Mr.
Brockbank's) shall be automatically extended for an additional period of one
year unless Mid Ocean or the applicable executive provides written notice at
least six months prior to the then-scheduled expiration date.
Each agreement (other than Mr. Brockbank's) further provides that, in the
event of termination of the executive's employment prior to the expiration date
by reason of death or disability, such executive (in the case of death, such
executive's spouse or estate) is entitled to receive the then-current base
salary through the end of the month in which such executive's employment
terminated, and, in the case of Mr. Newhouse, payments at the rate of $162,500
per year (or, if greater, one-half the base salary) for a period of three years
from the date of death. In the case of each such executive, each estate shall be
entitled to any annual bonus awarded but not yet paid and a PRO RATA bonus for
the year of death, if the Executive Committee of the Mid Ocean Board so
determines.
In the event of termination of the executive's employment without cause,
such executive shall receive his then-current base salary, in the case of Mr.
Newhouse, for a period of two years, and, in the cases of Messrs. Butt, Hays and
Keeling, for a period of one year following the date of termination, plus any
annual bonus awarded but not paid, and, with respect to each of Messrs.
Newhouse, Butt, Hays and Keeling, other rights and benefits as determined in
accordance with the applicable terms of the relevant benefit programs, including
the right to exercise options granted. If such executive's employment is
terminated for cause, such executive is entitled to receive his base salary
through the date on which such termination for cause occurs and such other
benefits as determined in accordance with the applicable terms of any benefit
programs, including the right to exercise options granted to such executive then
vested. In the event Mr. Brockbank's employment is terminated for cause or by
reason of disability, he is entitled to receive his base salary through the
effective date of such termination. Each executive may voluntarily terminate his
employment prior to the expiration of the term and such termination shall be
deemed a termination for cause.
If any executive (other than Mr. Brockbank) is terminated (other than for
cause) within the 12 month period following a Change in Control (as defined in
the employment agreements) or terminates during such period for Good Reason (as
defined in the employment agreements), such executive has the right to terminate
his employment in the case of altered duties, and, in both cases, such executive
shall receive his current base salary and employee benefits for a period of two
years (three years, in the case of Mr. Butt),
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an amount equal to two times (three times, in the case of Mr. Butt) the largest
annual bonus awarded to such executive in the three years prior to a Change in
Control, the PRO RATA portion of the annual bonus that would have been paid to
such executive for the year in which the Change in Control occurs and the right
to exercise options granted.
The agreements with Messrs. Butt and Keeling provide for a minimum annual
bonus of $75,000 and $50,000, respectively. In addition, five other executive
officers and all of the employees of Brockbank have employment agreements.
Consummation of the Arrangements will not have any impact on the terms of Mr.
Butt's outstanding $1 million loan from Mid Ocean.
All grants of restricted shares and share options under the Mid Ocean 1993
Long Term Incentive and Share Award Plan automatically vest upon a Change in
Control (as defined therein).
NEW ARRANGEMENTS WITH MID OCEAN EXECUTIVES. As of the Effective Time, the
Change in Control provisions in the employment agreements of Messrs. Newhouse,
Butt, Keeling and Hays will become effective, except that EXEL has requested
Messrs. Newhouse, Butt and Hays to continue under the same terms of their
employment agreements, except for their titles, until October 31, 1998, in the
case of Messrs. Newhouse and Hays, and December 31, 1998, in the case of Mr.
Butt.
As of October 31, 1998, in the case of Mr. Newhouse, and December 31, 1998,
in the case of Mr. Butt, the employment agreements will be amended to become
consulting agreements ("CONSULTING AGREEMENTS") for a period of two years for
Mr. Newhouse and for a period of one year for Mr. Butt. Such Consulting
Agreements call for basically the same provisions of their aforementioned
employment agreements, except for their roles to be that of consultants rather
than employees, with their duties and time commitments as may be mutually
agreed, and their compensation to be an annual fee of $250,000 for Mr. Newhouse
and $535,000 for Mr. Butt. Upon commencing such consulting services, Mr.
Newhouse will receive, as a severance payment, $1,400,000, payable in 24 equal
monthly installments, and Mr. Butt will receive, as a severance payment,
$3,537,000, payable in 36 equal monthly installments. Each of Messrs. Newhouse
and Butt will receive certain additional severance benefits from his respective
Consulting Agreement. Among other things, Mr. Newhouse's agreement provides for
the payment of $187,500 per year to his spouse for three years from his death,
subject to her having survived him. Both Messrs. Newhouse and Butt will be
subject to certain non-competition covenants during their consulting period, and
for a period of 12 months, for Mr. Newhouse, and 24 months, for Mr. Butt,
thereafter.
Under the Change in Control provisions of Mr. Hays' employment agreement,
22,600 restricted Mid Ocean shares and 45,333 options to acquire Mid Ocean Class
A Shares will vest automatically upon the effectiveness of the Arrangements.
In the case of Messrs. Brockbank and Keeling, their employment agreements
will be assumed by EXEL, and each will receive an option grant for 40,000 New
EXEL Voting Shares upon the effectiveness of the Arrangements. Such options will
have an exercise price equal to the fair market value of New EXEL Voting Shares
on the date of grant, and will vest 1/3 per year on each of the first three
anniversaries of the date of grant. In exchange for such option grant, both
Messrs. Brockbank and Keeling have waived automatic vesting in connection with
the Arrangements with respect to 50% of their outstanding options and equity
awards.
DIRECTORS COMPENSATION. All non-employee directors of Mid Ocean, upon
consummation of the Arrangements, will receive accelerated payment of fees for
services as directors, which are payable in Mid Ocean Class A Shares, in respect
of the fiscal year ended October 31, 1998. In addition, each non-employee
director of Mid Ocean, other than directors affiliated with EXEL will, upon
consummation of the Arrangements, receive an additional payment of $35,000
(which is the compensation payable to such director in respect of the fiscal
year ended October 31, 1998).
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CERTAIN ANNUAL BONUSES. The Mid Ocean Board has established the amounts of
the annual bonuses that will be payable to Messrs. Newhouse, Butt, Hays and
Keeling. Such bonuses, which will be payable in addition to salary otherwise
payable to such individual, will be paid to such individual after the conclusion
of the fiscal year ended October 31, 1998. The amounts payable are as follows:
$750,000 to Mr. Newhouse; $675,000 to Mr. Butt; $350,000 to Mr. Hays and
$500,000 to Mr. Keeling.
OUTSTANDING STOCK BASED AWARDS. All of the executive officers and directors
of Mid Ocean hold Mid Ocean Roll-Over Options and/or restricted shares of Mid
Ocean. Pursuant to the Agreement, at the Effective Time each outstanding Mid
Ocean Roll-Over Option, whether or not exercisable, will automatically be
converted into a New EXEL Option adjusted to account for the Exchange Ratio. See
"--The Arrangements."
Pursuant to existing provisions of Mid Ocean's 1993 Long-Term Incentive Plan
and Share Award Plan, upon a Change in Control (as defined therein), all
outstanding grants of Mid Ocean restricted shares and options will automatically
vest (unless otherwise agreed by the holder thereof).
JPMCC. JPMCC, an affiliate of J.P. Morgan, holds 1,190,292 Mid Ocean Class
B Shares, which constitute all of the outstanding shares of such class, and
1,860,000 Mid Ocean Class C Shares, which constitute all of the outstanding
shares of such class. JPMCC also holds 4,701,980 EXEL Ordinary Shares, and in
1995 entered into a hedging transaction with respect to these shares whereby an
affiliate of JPMCC borrowed EXEL Ordinary Shares and sold them short into the
market with the result that JPMCC is insulated from economic exposure to EXEL
Ordinary Shares.
AMENDMENT TO MID OCEAN RIGHTS AGREEMENT
Each Mid Ocean Share has attached to it a Mid Ocean Right issued pursuant to
the Mid Ocean Rights Agreement. In connection with the execution of the
Agreement, Mid Ocean amended the Mid Ocean Rights Agreement to provide, among
other things, that (i) the execution and delivery of the Agreement and
consummation of the Arrangements and execution and delivery of the Support
Agreement and any acquisition of Mid Ocean Shares by EXEL (and certain related
persons) as contemplated by the Agreement, will not cause EXEL or JPMCC or such
related persons to become an Acquiring Person for purposes of the Mid Ocean
Rights Agreement, and (ii) the Mid Ocean Rights may not become exercisable at
any time from and after, and the Mid Ocean Rights Agreement will expire at, the
Effective Time.
AMENDMENT TO EXEL RIGHTS PLAN
Each EXEL Ordinary Share has attached to it an EXEL Right issued pursuant to
the EXEL Rights Plan. In connection with the execution of the Agreement, EXEL
amended the EXEL Rights Plan to provide, among other things, that (i) the
execution and delivery of the Agreement and the Support Agreement and
consummation of the Arrangements and any acquisition of EXEL Ordinary Shares by
New EXEL or Mid Ocean Shareholders or JPMCC (and certain related persons) as
contemplated by the Agreement, will not cause the EXEL Rights to become
exercisable, or cause the EXEL Rights to be separated from the EXEL Ordinary
Shares to which they are attached, and (ii) the EXEL Rights may not become
exercisable at any time from and after, and the EXEL Rights Plan will terminate
at, the Effective Time.
ACCOUNTING TREATMENT
It is intended that the Arrangements will be accounted for as a purchase
under GAAP. The unaudited pro forma financial information included in this Joint
Proxy Statement reflects the Arrangements using the purchase method of
accounting. See "COMPARATIVE UNAUDITED PRO FORMA AND HISTORICAL PER SHARE DATA,"
"SELECTED FINANCIAL DATA" and "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION."
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REGULATORY MATTERS
ANTITRUST FILINGS. The businesses of EXEL and Mid Ocean involve
transactions in numerous jurisdictions, and, as a result, implementation of the
Arrangements may be subject to antitrust laws in such jurisdictions. EXEL and
Mid Ocean have determined that no filing is required in respect of the
Arrangements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended; but are continuing to evaluate whether or not they are legally
required, or it is otherwise appropriate, to make any such filings in any other
jurisdiction.
HM TREASURY CONSENT. Mid Ocean Reinsurance Company Ltd., a wholly owned
subsidiary of Mid Ocean, is currently authorized to carry on insurance business
in the United Kingdom under the Insurance Companies Act 1982 and is, therefore,
a United Kingdom-regulated insurance company. Consent must be obtained from HM
Treasury in the United Kingdom before any changes occur in the directors,
managers or controllers of a United Kingdom-regulated insurance company. The
insurance company must give written notice to HM Treasury detailing the changes
to be made and HM Treasury must indicate whether or not it consents to the
changes within the period of three months following that notice if that period
elapses without HM Treasury objecting consent is deemed to be given.
Once the Arrangements are implemented, there will have been a change of
control of Mid Ocean Reinsurance Company Ltd. within the definition of the
Insurance Companies Act 1982 and, therefore, HM Treasury consent to that change
must be obtained.
LLOYD'S CONSENT. Mid Ocean indirectly owns 100% of the share capital of
Brockbank. Brockbank includes three Lloyd's managing agents, namely Brockbank
Syndicate Management Limited, Brockbank Personal Lines Limited and Cassidy
Brockbank Limited, and two corporate members of Lloyd's, County Down Limited and
Dornoch Limited. Once the Arrangements are completed, New EXEL will be a
controller (as defined in the Underwriting Agents Bylaw (No. 4 of 1984)) of the
three managing agents. The prior written consent of the Lloyd's is required for
New EXEL to become a controller of the managing agents. It takes approximately
six weeks from receipt of a completed application for a change of control to
formal decision by Lloyd's as to whether or not consent is required.
STATE OF NEW YORK. One indirect subsidiary of EXEL, X.L. Insurance Company
of America, Inc., is a New York domiciled insurer. Because the Arrangements
involve the creation of new holding company, the Arrangements will constitute a
change of control under the provisions of the New York Insurance Law regarding
Holding Companies. Accordingly, pursuant to Section 1506 of the New York
Insurance Law, New EXEL will seek the approval of the Superintendent of the
Department of Insurance of the State of New York.
OTHER. In addition to the foregoing, EXEL and Mid Ocean may be required to
obtain regulatory approvals, file notices, or make certain other filings in
other jurisdictions in which one or the other maintains an office, conducts
business or has customers. At the time of this filing, EXEL and Mid Ocean do not
expect any such other approvals, notices or other filings to be material in
connection with the Arrangements.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION. EXEL and Mid Ocean
have filed (or will promptly file) all applications and notices and have taken
(or will promptly take) other appropriate action with respect to any requisite
approvals or other action of any governmental authority. The Agreement provides
that the obligation of each of EXEL and Mid Ocean to consummate the Arrangements
is conditioned upon the receipt of all requisite regulatory approvals. There can
be no assurance that any governmental agency will approve or take any other
required action with respect to the Arrangements, and, if approvals are received
or action is taken, there can be no assurance as to the date of such approvals
or action, that such approvals or action will not be conditioned upon matters
that would cause the parties to mutually consent to abandon the Arrangements or
that no action will be brought challenging such approvals or action.
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EXEL and Mid Ocean are not aware of any governmental approvals or actions
that may be required for consummation of the Arrangements other than as
described above. Should any other approval or action be required, EXEL and Mid
Ocean currently contemplate that such approval or action would be sought.
GRAND COURT APPROVAL
Following the requisite shareholder approvals at the Class Meetings, a
petition will be presented to the Grand Court by EXEL requesting the Grand Court
to approve the EXEL Arrangement, and a related petition will be presented to the
Grand Court by Mid Ocean requesting the Grand Court to approve the Mid Ocean
Arrangement. The Grand Court will conduct an open hearing on such petitions at
which all EXEL Shareholders and all Mid Ocean Shareholders will be entitled to
be present and be heard. In order to approve each of the Arrangements the Grand
Court will consider, among other things, whether the respective Arrangements are
fair to the affected classes of shareholders.
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THE ARRANGEMENTS ARE SUBJECT TO SPECIFIED REGULATORY APPROVALS. THERE CAN BE
NO ASSURANCES THAT SUCH SPECIFIED REGULATORY APPROVALS WILL BE OBTAINED OR AS TO
THE DATES OF ANY SUCH APPROVALS. SEE "--CONDITIONS TO THE ARRANGEMENTS."
See "--The Arrangements--Effective Date and Effective Times," "--Conditions
to the Arrangements" and "--Termination; Termination Fee."
RESTRICTIONS ON RESALES
New EXEL Shares issued to EXEL Shareholders and Mid Ocean Shareholders
pursuant to the Arrangements will not be registered under the Securities Act in
reliance on the exemption from registration provided by Section 3(a)(10) of the
Securities Act. Section 3(a)(10) exempts securities issued in exchange for one
or more outstanding securities from the general requirements of registration
where the terms and conditions of the issuance and exchange of such securities
have been approved by any court, after a hearing on the fairness of the terms
and conditions of the issuance and exchange at which all persons to whom such
securities will be issued have the right to appear and be heard. The Grand Court
will conduct a hearing on the fairness of the terms and conditions of the
Arrangements, including the proposed issuance of New EXEL Shares in exchange for
EXEL Ordinary Shares and Mid Ocean Shares.
EXEL and Mid Ocean have submitted a request to the Commission to confirm
that the New EXEL Shares issued pursuant to the Arrangements will be freely
transferable under United States federal securities laws, except that New EXEL
Shares received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of New EXEL, EXEL or Mid Ocean prior to the
Arrangements may be resold by them only in transactions permitted by the resale
provisions of Rule 145(d)(1), (2) or (3) promulgated under the Securities Act or
as otherwise permitted under the Securities Act. Rule 145(d)(1) generally
provides that "affiliates" of New EXEL, EXEL or Mid Ocean may not sell
securities of New EXEL received in the Arrangements unless pursuant to an
effective registration statement or unless pursuant to the volume, current
public information, manner of sale and timing limitations of Rule144. These
limitations generally require that any sales made by an affiliate in any three-
month period not exceed the greater of 1% of the outstanding shares of New EXEL
or the average weekly trading volume over the four calendar weeks preceding the
placement of the sell order and that such sales be made in unsolicited, open
market "brokers transactions." Rules 145(d)(2) and (3) generally provide that
the foregoing limitations lapse for non-affiliates of New EXEL after a period of
one or two years, respectively, depending upon whether certain currently
available information continues to be available with respect to New EXEL.
Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that control, are controlled by, or are under common
control with, such issuer and may include certain officers and directors of such
issuer as well as principal shareholders of such issuer.
Each of EXEL and Mid Ocean has agreed in the Agreement to use its reasonable
best efforts to cause each person who is an "affiliate" (for purposes of Rule
145 under the Securities Act) of such party to deliver to the other party a
written agreement intended to ensure compliance with the Securities Act.
CAYMAN ISLANDS DISSENTERS' RIGHTS
The Companies Law does not give EXEL Shareholders or Mid Ocean Shareholders
the right to dissent from and obtain a cash payment for their shares in
connection with the matters to be acted upon at the Class Meetings.
Any EXEL Shareholder or Mid Ocean Shareholder who wishes to oppose the
sanctioning of the EXEL Arrangement or the Mid Ocean Arrangement (as the case
may be) at the hearing of the relevant petition at the Grand Court must record
its vote against the resolution at the EXEL Class Meeting or the relevant Mid
Ocean Class Meeting. At the hearing of the relevant petition itself, such EXEL
Shareholders
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or Mid Ocean Shareholders who have so voted will be entitled to make
representations to the Grand Court on the hearing of the petition. If the
respective Arrangements is approved by the requisite votes at the EXEL Class
Meeting or at each of the Mid Ocean Class Meetings, as the case may be, and the
Grand Court approves the respective Arrangement, the order of the Grand Court
will bind in any dissenters to the terms of such Arrangement.
STOCK EXCHANGE LISTING OF NEW EXEL SHARES
New EXEL and EXEL will use their reasonable best efforts to cause the New
EXEL Voting Shares to be issued pursuant to the Arrangements or reserved for
issue upon exercise of New EXEL Options to be approved for listing on the NYSE,
subject to notice of issuance. Such listing is a condition precedent to the
consummation of the Arrangements. So long as EXEL and Mid Ocean continue to meet
the requirements of the NYSE, EXEL Ordinary Shares and Mid Ocean Shares, as the
case may be, will continue to be listed on the NYSE until the Effective Time.
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THE SUPPORT AGREEMENT
On March 15, 1998, JPMCC and EXEL entered into the Support Agreement,
pursuant to which JPMCC has agreed, subject to the terms thereof, to vote all of
its Mid Ocean Shares in favor of the Mid Ocean Arrangement.
Among other things, JPMCC has agreed that after the consummation of the
Arrangements, its New EXEL Non-Voting Shares shall not be entitled to vote
separately as a class, and that it shall vote its New EXEL Non-Voting Shares in
accordance with the recommendations of the New EXEL Board in any separate class
vote to which such New EXEL Non-Voting Shares may be entitled by law, so long as
such New EXEL Non-Voting Shares are treated equally with the New EXEL Voting
Shares in such matter.
Pursuant to the terms of the Support Agreement, if the Mid Ocean Board
recommends that the Mid Ocean Shareholders vote against the Mid Ocean
Arrangement or in favor of a competing transaction, JPMCC will vote its Mid
Ocean Shares for or against the Mid Ocean Arrangement or such competing
transactions in the same proportion as the holders of Mid Ocean Shares (other
than JPMCC) vote for or against the Mid Ocean Arrangement or such competing
transaction.
Pursuant to the Support Agreement, EXEL has included certain provisions
regarding the New EXEL Non-Voting Shares in the New EXEL Articles. See "NEW EXEL
SHARE CAPITAL--New EXEL Shares."
The Support Agreement will terminate upon termination of the Agreement in
accordance with its terms.
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MANAGEMENT AND OPERATIONS AFTER THE ARRANGEMENTS
NEW EXEL BOARD AND OFFICERS. The parties have agreed that at the Effective
Time, the directors of New EXEL shall be the current directors of EXEL, Messrs.
Newhouse and Butt and three additional non-executive directors of Mid Ocean to
be selected by EXEL after consultation with Mid Ocean prior to the Effective
Time. Such directors will constitute the New EXEL Board at the Effective Time,
and each will hold office in accordance with the applicable provisions of the
New EXEL Articles and until his or her successor is elected or appointed and
duly qualified. The three additional non-executive directors of Mid Ocean have
not, as of the date of this Joint Proxy Statement, been selected. After giving
effect to the EXEL Arrangement, the officers of New EXEL will be the individuals
who are the current officers of EXEL, each such officer to hold office in
accordance with the applicable provisions of the New EXEL Articles and until his
or her respective successor is duly elected or appointed and qualified. Certain
information on the current officers and directors of EXEL and on the current
directors of Mid Ocean is incorporated herein by reference. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and "THE ARRANGEMENTS--Interests of Certain
Persons in the Arrangements."
EXEL BOARD AND OFFICERS. At the EXEL Effective Time, the directors of EXEL
who have been designated by EXEL will remain as directors of EXEL, each such
director to hold office in accordance with the applicable provisions of the EXEL
Articles and until his or her successor is elected or appointed and duly
qualified. After giving effect to the EXEL Arrangement, the officers of EXEL
will be the individuals who are the current officers of EXEL, each such officer
to hold office in accordance with the applicable provisions of the EXEL Articles
and until his or her respective successor is duly elected or appointed and
qualified.
MID OCEAN BOARD AND OFFICERS. At the Effective Time, the individuals who
will be designated by EXEL will remain or be appointed as directors of Mid
Ocean, each such director to hold office in accordance with the applicable
provisions of the Mid Ocean Articles and until his or her successor is elected
or appointed and duly qualified. EXEL has not designated such individuals as of
the date of this Joint Proxy Statement. After giving effect to the Mid Ocean
Arrangement, the individuals who will be designated by EXEL will be the officers
of Mid Ocean, each such officer to hold office in accordance with the applicable
provisions of the Mid Ocean Articles and until his or her respective successor
is duly elected or appointed and qualified.
EXEL and Mid Ocean, based on information available at this time, expect to
achieve only nominal expense savings as a result of the transactions
contemplated by the Agreement. It is expected that New EXEL may achieve these
cost savings by, among other things, eliminating duplicative legal and
administrative expenses of running two public companies, the closing down of
redundant office facilities in Bermuda, London and Asia, and a nominal reduction
in personnel due to overlapping functions. The extent to which such expense
savings will be achieved is dependent upon various factors, a number of which
are beyond the control of EXEL and Mid Ocean, including regulatory requirements
attendant to the consummation of the Arrangements, the general regulatory
environment, economic conditions, unanticipated changes in business conditions,
unanticipated catastrophic events and inflation, and no assurances can be given
with respect to the ultimate level and composition of expense savings to be
realized or that such savings will be realized in the time frame currently
anticipated. These amounts have not been included in any of the unaudited pro
forma financial information included in this Joint Proxy Statement.
AMALGAMATION OF SUBSIDIARIES. Following consummation of the Arrangements,
New EXEL intends to amalgamate X.L. Global Reinsurance Company, Ltd. with Mid
Ocean Reinsurance Company Ltd.
For additional information regarding management and operations of the
combined company, see "INFORMATION ABOUT EXEL", "INFORMATION ABOUT MID OCEAN"
and "THE ARRANGEMENTS--Management After the Arrangements."
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PRICE RANGE OF SHARES AND DIVIDENDS
MARKET PRICES
EXEL Ordinary Shares are listed on the NYSE under the trading symbol "XL."
As of , 1998, EXEL Ordinary Shares were held of record by approximately
persons. The following table sets forth the high and low closing sale
prices of the EXEL Ordinary Shares as reported on the NYSE Composite
Transactions List for the periods indicated.
Mid Ocean Class A Shares are listed on the NYSE under the symbol "MOC." The
following table sets forth the high and low sale prices for Mid Ocean Class A
Shares as reported by the NYSE Composite Transactions List for the periods
indicated. As of , 1998 Mid Ocean Class A Shares were held of record by
approximately persons.
<TABLE>
<CAPTION>
EXEL MID OCEAN
SALES PRICES SALES PRICES
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FISCAL YEAR(1) 1996
First Quarter....................................................... $ 35.938 $ 29.813 $ 41.625 $ 35.563
Second Quarter...................................................... 36.375 34.125 42.000 35.625
Third Quarter....................................................... 36.688 33.063 42.625 35.500
Fourth Quarter...................................................... 40.125 31.875 48.125 39.625
FISCAL YEAR 1997
First Quarter....................................................... 45.000 36.500 53.750 47.000
Second Quarter...................................................... 44.500 39.000 51.125 45.250
Third Quarter....................................................... 57.500 44.500 60.500 44.500
Fourth Quarter...................................................... 64.000 55.063 64.875 56.437
FISCAL YEAR 1998
First Quarter 66.688 59.063 66.625 54.125
Second Quarter (through )
</TABLE>
The last reported sale price of EXEL Ordinary Shares on the NYSE Composite
Transactions reporting system on , 1998 was $ per share and
on March 13, 1998, the last trading day preceding public announcement of the
proposed Arrangements, was $71.25 per share. The last reported sale price of Mid
Ocean Class A Shares as reported by the NYSE Composite Transactions reporting
system on , 1998 was $ per share and on March 13, 1998 was
$63.3125 per share.
- ------------------------
(1) The fiscal year of EXEL ends on November 30 of each year; the fiscal year of
Mid Ocean ends on October 31 of each year.
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DIVIDENDS
The following table sets forth dividends declared per share of EXEL Ordinary
Shares and Mid Ocean Class A Shares, respectively, for the periods indicated.
The ability of either EXEL or Mid Ocean to pay dividends to its respective
shareholders is subject to certain restrictions.
<TABLE>
<CAPTION>
EXEL MID OCEAN
DIVIDENDS DIVIDENDS
------------- -----------
<S> <C> <C>
FISCAL YEAR 1996
First Quarter......................................................................... $ 0.20 $ 0.25
Second Quarter........................................................................ $ 0.25 $ 0.275
Third Quarter......................................................................... $ 0.25 $ 0.4125
Fourth Quarter........................................................................ $ 0.25 $ 0.4125
FISCAL YEAR 1997
First Quarter......................................................................... $ 0.32 $ 0.75
Second Quarter........................................................................ $ 0.32 $ 0.75
Third Quarter......................................................................... $ 0.32 $ 0.75
Fourth Quarter........................................................................ $ 0.40 $ 0.75
FISCAL YEAR 1998
First Quarter......................................................................... $ 0.40 $ 0.825
</TABLE>
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INFORMATION ABOUT EXEL
EXEL is a holding company whose principal source of income is dividends from
its wholly owned subsidiary, X.L. Insurance Company, Ltd. EXEL, through X.L.
Insurance Company, Ltd. and its other subsidiaries, provides excess liability
insurance coverage to industrial, commercial and other enterprises, directors
and officers of such enterprises, professional firms, high excess property
coverage, and the assumption of reinsurance contracts on a worldwide basis. As
of November 30, 1997, EXEL and its subsidiaries had total assets of
$6,088,462,000 and 184 full-time equivalent employees.
As part of its operations, EXEL regularly evaluates the potential
acquisition of, and holds discussions with, various insurance institutions and
other businesses as opportunities arise. In addition, EXEL regularly analyzes
the values of, and submits bids for, the acquisition of certain liabilities and
assets of such insurance institutions and other businesses. EXEL's policy is to
publicly announce material acquisitions when a definitive agreement has been
reached.
For more detailed information about EXEL, reference is made to the EXEL
Annual Report on Form 10-K for the year ended November 30, 1997, which is
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
INFORMATION ABOUT NEW EXEL
New EXEL was formed by EXEL solely for the purpose of consummating the
Arrangements. The mailing address and registered office of New EXEL is at the
offices of Huntlaw Corporate Service Limited, The Huntlaw Building, Fort Street,
PO Box 1350, George Town, Grand Cayman, Cayman Islands.
INFORMATION ABOUT MID OCEAN
Mid Ocean is a holding company that, through its two wholly owned
subsidiaries, Mid Ocean Reinsurance Company Ltd. and Brockbank, provides
insurance and reinsurance on a worldwide basis. Mid Ocean Reinsurance Company
Ltd. is a reinsurer writing property catastrophe, property risk excess of loss,
property PRO RATA, marine, energy, aviation, satellite and other reinsurance to
insurers on a worldwide basis. The Brockbank Group plc is a Lloyd's managing
agent which manages syndicates which provide specialty lines of insurance and
reinsurance to a globally diverse group of clients. As of October 31, 1997, Mid
Ocean had total assets of $2,270,605,000 and 265 full time equivalent employees.
For more detailed information about Mid Ocean, reference is made to the Mid
Ocean Annual Report of Form 10-K for the year ended October 31, 1997, which is
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
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NEW EXEL SHARE CAPITAL
DESCRIPTION OF NEW EXEL SHARE CAPITAL
The following summarizes certain provisions of New EXEL's Memorandum of
Association, as amended to the date hereof (the "NEW EXEL MEMORANDUM"), and the
New EXEL Articles. Such summaries do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the New EXEL Memorandum and the New EXEL Articles, including the definitions
therein of certain terms. Copies of the New EXEL Memorandum and New EXEL
Articles are attached hereto as Appendix G and are incorporated herein by
reference.
GENERAL
New EXEL was incorporated with an authorized share capital of US$50,000
divided into 50,000,000 shares of par value US$0.01 each. As of the date of this
Joint Proxy Statement, the authorized share capital of New EXEL is $9,999,900
divided into 999,990,000 shares of par value US$0.01 each. The New EXEL Articles
provide that, without prejudice to the right of the directors of New EXEL (the
"DIRECTORS") to establish classes of shares with such terms, rights and
restrictions as they shall determine, the shares shall initially be divided into
two classes, New EXEL Voting Shares and New EXEL Non-Voting Shares. The
Directors will designate shares as New EXEL Voting Shares or New EXEL Non-Voting
Shares at the time of issue. Based on the number of Mid Ocean Class B Shares and
Mid Ocean Class C Shares as of the date of this Joint Proxy Statement, it is
expected that 3,115,873 shares will be designated as New EXEL Non-Voting Shares
pursuant to the Arrangements. As of the date of this Joint Proxy Statement, the
issued share capital of New EXEL consists of one New EXEL Voting Share, which is
held by Huntlaw Nominees Limited, as sole subscriber to New EXEL at the time of
its incorporation, and the remaining New EXEL Shares are authorized but
unissued.
NEW EXEL SHARES
The New EXEL Shares to be issued to EXEL Shareholders and holders of Mid
Ocean Class A Shares (other than EXEL and its subsidiaries) following the
Effective Date of the Arrangements will be validly issued, fully paid and
nonassessable. New EXEL Voting Shares are entitled to one vote per share on all
matters requiring a vote of shareholders, subject to the 10% voting limitation
described below. Following the Effective Date of the Arrangements, the New EXEL
Non-Voting Shares will be issued to JPMCC as sole holder of Mid Ocean Class B
Shares and Mid Ocean Class C Shares. New EXEL Non-Voting Shares are not entitled
to any votes on any matter to be considered by shareholders of New EXEL but may
be exchanged for New EXEL Voting Shares with the approval of the Directors, and
shall be so exchanged upon a transfer as described below. New EXEL Voting Shares
may not be exchanged for New EXEL Non-Voting Shares except under limited
circumstances. There are no provisions of Cayman Islands law or the New EXEL
Articles which impose any limitation on the rights of shareholders to hold or
vote New EXEL Shares by reason of any such shareholders not being residents of
the Cayman Islands.
The provisions of the New EXEL Articles governing the New EXEL Voting Shares
are substantially similar to the provisions of the EXEL Articles governing the
rights and restrictions attached to the EXEL Ordinary Shares, except as
described below. Provision was made in the New EXEL Articles to accommodate
JPMCC, the sole holder of the Mid Ocean Class B Shares and Mid Ocean Class C
Shares, which is subject to certain regulatory restrictions with respect to its
ownership of Mid Ocean Shares. Except with respect to voting rights, the New
EXEL Voting Shares and the New EXEL Non-Voting Shares shall at all times rank,
as to dividends, return of capital and in all other respects, on a parity with
each other. Certain limitations apply to the exchange of New EXEL Non-Voting
Shares for New EXEL Voting Shares. Upon a transfer of New EXEL Non-Voting Shares
(other than a transfer to the ultimate parent corporation of a
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holder of New EXEL Non-Voting Shares or any wholly owned direct or indirect
subsidiary of such parent) they shall be automatically exchanged for New EXEL
Voting Shares, subject to the approval of the Directors and the 10% voting
limitation described below.
DIVIDEND RIGHTS
Holders of New EXEL Shares are entitled to receive dividends ratably when
and as declared by the New EXEL Board out of the profits of the company or
monies otherwise available for dividend in accordance with the Companies Law.
LIQUIDATION
In the event of any dissolution, liquidation or winding up of New EXEL, the
liquidator may, with the sanction of a special resolution of New EXEL and any
other sanction of the Companies Law, distribute, in kind, to the holders of the
New EXEL Shares remaining assets of New EXEL (whether they shall consist of
property of the same kind or not), and may for such purpose set such value as
the liquidator deems fair upon any property to be divided and may determine how
such division shall be carried out as between the shareholders of different
classes.
VOTING RIGHTS
The New EXEL Articles provide that the quorum required for a general meeting
of shareholders is not less than one or more shareholders present in person or
by proxy holding at least 50% of the voting power of the issued and outstanding
shares entitled to vote at such meeting. A quorum for considering a "special
resolution" is 66 2/3% of the voting power of the issued and outstanding shares
entitled to vote at such meeting. A general meeting of the shareholders of New
EXEL may be convened by the Directors, and shall be so convened at the direction
of shareholders holding not less than 15% of the voting power of the issued
shares of New EXEL.
Each holder of New EXEL Voting Shares is entitled to one vote per New EXEL
Voting Share on all matters submitted to a vote of shareholders at any such
meeting, subject to the 10% voting limitation described below. All matters,
including the election of directors, voted upon at any duly held shareholders'
meeting shall be carried by a majority of the votes cast at the meeting by
shareholders present or represented in person or by proxy, except (i) approval
of a special resolution, (ii) amendment of certain provisions of the New EXEL
Articles which require the approval of at least 66 2/3% of the outstanding New
EXEL Voting Shares, voting together as a single class and (iii) as otherwise
provided in the Companies Law. A special resolution requires the approval of at
least 66 2/3% of the votes cast by such shareholders represented in person or by
proxy at a duly convened meeting. Subject to applicable law and any provision of
the New EXEL Articles requiring a greater majority, New EXEL may from time to
time by special resolution: alter or amend the New EXEL Memorandum or the New
EXEL Articles; increase its share capital; consolidate and divide all or any of
its share capital; subdivide the whole or any part of its share capital; reduce
its share capital, any capital redemption reserve fund, or any share premium
account; change its name or alter its objects; or voluntarily liquidate the
company. The rights of a class of shares may only be varied by ordinary
resolution at a separate meeting of the holders of such class of shares.
Each New EXEL Voting Share has one vote, except that if, and so long as, the
Controlled Shares (as defined below) of any person constitute 10% or more of the
issued New EXEL Shares, the voting rights with respect to the Controlled Shares
owned by such person shall be limited, in the aggregate, to a voting power of
less than 10%, pursuant to a formula specified in the New EXEL Articles.
"CONTROLLED SHARES" means (i) all New EXEL Shares directly, indirectly or
constructively owned by any person within the meaning of Section 958 of the Code
and (ii) all New EXEL Shares directly, indirectly or beneficially owned by any
such person or "group" of persons within the meaning of Section 13(d) of the
Exchange Act.
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The New EXEL Shares have noncumulative voting rights, which means that the
holders of a majority of the voting power of the New EXEL Voting Shares may
elect all of New EXEL's directors and, in such event, the holders of the
remaining New EXEL Shares will not be able to elect any directors. The New EXEL
Articles provide that the New EXEL Board will be divided into three classes,
with one-third of the directors in each class. Each class is elected for a
three-year term, with the result that shareholders will not vote for the
election of a majority of directors in any single year. Directors may be removed
without cause by a special resolution of the company.
This classified board provision could prevent a party who acquires control
of a majority of the outstanding voting power from obtaining control of the New
EXEL Board until the second annual shareholders meeting following the date the
acquiror obtains the controlling share interest. The classified board provision
could have the effect of discouraging a potential acquiror from making a tender
offer or otherwise attempting to obtain control of New EXEL and could thus
increase the likelihood that incumbent directors will retain their positions.
PREEMPTIVE RIGHTS
No holder of New EXEL Shares shall, by reason of such holding, have any
preemptive right to subscribe to any additional issue of shares of any class or
series nor to any security convertible into such shares.
TRANSFER OF SHARES
The New EXEL Articles contain various provisions affecting the
transferability of New EXEL Shares. Under the New EXEL Articles, the New EXEL
Board has absolute discretion to decline to register a transfer of New EXEL
Shares, and in addition shall decline to register a transfer of New EXEL Shares
(i) unless a registration statement under the Securities Act is in effect with
respect to such New EXEL Shares or, if requested by the Directors, a written
opinion from counsel acceptable to the New EXEL Board is obtained to the effect
that such registration is not required or (ii) if the New EXEL Board determines
that such transfer would increase the number of Controlled Shares of any person
to 10% or any higher number of the New EXEL Voting Shares or of the total issued
shares or voting power of New EXEL.
Cayman Islands counsel to New EXEL and Mid Ocean have advised EXEL and Mid
Ocean that while the precise form of the restrictions on transfers contained in
the New EXEL Articles is untested, as a matter of general principle,
restrictions on transfers are enforceable under Cayman Islands law and are not
uncommon. The transferor of such New EXEL Shares will be deemed to own such New
EXEL Shares for dividend, voting and reporting purposes until a transfer of such
New EXEL Shares has been entered in the register of members of New EXEL.
The restrictions on voting and ownership of more than 10% of the issued New
EXEL Shares described above, as well as the provisions discussed below under
"ANTITAKEOVER EFFECTS OF NEW EXEL ARTICLES," may have the effect of discouraging
an attempt to obtain control of New EXEL.
LIEN ON SHARES
The New EXEL Articles provide that New EXEL shall have a first and paramount
lien and charge on all New EXEL Shares for all debts, liabilities or engagements
to or with New EXEL (whether presently payable or not) by the holder of such New
EXEL Shares, except for New EXEL Shares declared to be exempt by the New EXEL
Board. This lien would extend to the payment of dividends or other money payable
in respect of the New EXEL Shares subject to the lien. The New EXEL Articles
also provide that New EXEL may sell any New EXEL Shares on which New EXEL has a
lien, but no sale shall be made unless a sum in respect of which a lien exists
is presently payable and 14 days notice have been given.
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LIMITATION OF LIABILITY; INDEMNIFICATION
The New EXEL Articles provide that no director or officer shall be liable to
New EXEL in respect of the execution of the duties of his respective office and
in certain other circumstances, except as a result of his wilful neglect or
default. The New EXEL Articles provide that New EXEL shall indemnify its
officers, directors, employees and agents against any suits or proceedings
arising out of their activities in such capacities and subject to certain
limitations described therein and authorizes the Directors to purchase and
maintain directors' and officers' liability insurance on behalf of any such
person whether or not New EXEL would have the power to indemnify such person
against any such liability thereunder.
TRANSFER AGENT
New EXEL's registrar and transfer agent is ChaseMellon Shareholder Services,
L.L.C.
ANTITAKEOVER EFFECTS OF NEW EXEL ARTICLES
The New EXEL Articles contain certain provisions that make more difficult
the acquisition of control of New EXEL by means of a tender offer, open market
purchase, a proxy fight or otherwise. These provisions include the discretion of
the New EXEL Board to decline to register transfers, the 10% voting limitation,
the classified New EXEL Board and the requirement for a special resolution to
remove Directors without cause. Certain of these provisions are designed to
encourage persons seeking to acquire control of New EXEL to negotiate with its
directors. The New EXEL Board believes that, as a general rule, the interests of
New EXEL's shareholders would be best served if any change in control results
from negotiations with the directors. The directors would negotiate based upon
careful consideration of the proposed terms, such as the price to be paid to
shareholders, the form of consideration to be paid and the anticipated tax
effects of the transaction. However, these provisions could have the effect of
discouraging a prospective acquiror from making a tender offer or otherwise
attempting to obtain control of New EXEL. To the extent these provisions
discourage takeover attempts, they could deprive shareholders of opportunities
to realize takeover premiums for their shares or could depress the market price
of the shares.
In addition to those provisions of the New EXEL Articles discussed above,
set forth below is a description of other relevant provisions of the New EXEL
Articles and a summary of the EXEL Rights Plan. The New EXEL Board plans to
adopt a rights agreement for New EXEL similar to the EXEL Rights Plan. The
descriptions are intended as a summary only and are qualified in their entirety
by reference to the New EXEL Articles, which are attached hereto as Appendix G
and incorporated herein by reference, and to the EXEL Rights Plan, which is
incorporated by reference.
EXEL RIGHTS PLAN
EXEL has amended the EXEL Rights Plan so that the Agreement and the
transactions contemplated thereby will not cause the EXEL rights to separate
from the EXEL Ordinary Shares. See "THE ARRANGEMENTS--Amendment to EXEL Rights
Plan."
The EXEL Rights Plan provided for the distribution of a dividend of one EXEL
Right for each outstanding EXEL Ordinary Share. The EXEL Rights trade
automatically with EXEL Ordinary Shares and become exercisable and will trade
separately from the EXEL Ordinary Shares on the tenth day after public
announcement, or notice to EXEL, that a person or group has acquired, or has the
right to acquire, beneficial ownership of 20% or more of the EXEL Ordinary
Shares (a "SUBSTANTIAL BLOCK"), or upon commencement or announcement, or notice
to EXEL, of intent to make a tender offer for a Substantial Block, in either
case, without the prior written consent of EXEL. When exercisable, each EXEL
Right will entitle the holder to purchase one EXEL Ordinary Share at a purchase
price of $250. In the event EXEL is acquired in a merger or other business
combination transaction in which EXEL is not the surviving corporation or in
which EXEL Ordinary Shares are exchanged or 50% or more of EXEL's assets or
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earning power is sold, holders of EXEL Rights (other than the acquiring person
or group) may purchase EXEL Ordinary Shares having a market value of twice the
then-current exercise price of each EXEL Right. If EXEL is acquired by any
person or group after the Rights become exercisable, each EXEL Right will
entitle its holder to purchase stock of the acquiring company having a market
value of twice the then-current exercise price of each EXEL Right at the
exercise price. The EXEL Rights are designed to protect the interests of EXEL
and EXEL Shareholders against coercive takeover tactics. The purpose of the EXEL
Rights is to encourage potential acquirors to negotiate with the EXEL Board
prior to attempting a takeover and to give the EXEL Board leverage in
negotiating on behalf of all EXEL Shareholders the terms of any proposed
takeover. The EXEL Rights may deter certain takeover proposals. The EXEL Rights,
which can be redeemed by the EXEL Board in certain circumstances, expire by
their terms on August 31, 2005. It is intended that New EXEL will adopt a rights
plan similar to the EXEL Rights Plan.
AVAILABILITY OF SHARE CAPITAL FOR FUTURE ISSUANCES
The availability for issue of New EXEL Shares by the directors of New EXEL
without further action by shareholders (except as may be required by applicable
stock exchange requirements) could be viewed as enabling the directors to make
more difficult a change in control of New EXEL, including by issuing warrants or
rights to acquire New EXEL Shares to discourage or defeat unsolicited stock
accumulation programs and acquisition proposals and by issuing New EXEL Shares
in a private placement or public offering to dilute or deter stock ownership of
persons seeking to obtain control of New EXEL. New EXEL has no present plans to
issue any New EXEL Shares other than pursuant to the Agreement, the Arrangements
and its employee benefit plans.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
If the Arrangements are consummated, holders of EXEL Ordinary Shares and
holders of Mid Ocean Shares will become holders of New EXEL Shares. While the
rights of the holders of the former EXEL Ordinary Shares and Mid Ocean Shares
will still be governed by the laws of the Cayman Islands, their rights as
shareholders will also be governed by the New EXEL Memorandum and the New EXEL
Articles. It is intended that the New EXEL Articles will be substantially
similar to the EXEL Articles except as described below and except for provisions
relating to the new class of New EXEL Non-Voting Shares. It is not practical to
describe all of the differences between the Mid Ocean Articles and the New EXEL
Articles. The following is a summary of the material differences between the
rights of the shareholders of EXEL and Mid Ocean and the rights of shareholders
of New EXEL. This summary is qualified in its entirety by reference to the full
text of the New EXEL Memorandum and the New EXEL Articles, which are attached in
full as Appendix G and incorporated herein by reference, and to the full texts
of the EXEL Articles and the Mid Ocean Articles, and to applicable laws. For
information as to how such documents may be obtained, see "AVAILABLE
INFORMATION."
The rights of holders of Mid Ocean Class A Shares, Mid Ocean Class B Shares
and Mid Ocean Class C Shares are substantively identical, except that holders of
Mid Ocean Class B Shares and Mid Ocean Class C Shares lack voting rights. Mid
Ocean Class B Shares and Mid Ocean Class C Shares are convertible into Mid Ocean
Class A Shares on a one-for-one basis. Similarly, the rights of holders of New
EXEL Voting Stock (for which Mid Ocean Class A Shares will be exchanged) and New
EXEL Non-Voting Stock (for which Mid Ocean Class B Shares and Mid Ocean Class C
Shares will be exchanged) are substantively identical, except that holders of
New EXEL Non-Voting Shares lack voting rights. New EXEL Non-Voting Shares may be
exchanged for New EXEL Voting Shares on a one-for-one basis with the approval of
the New EXEL Board or if such exchange is required to comply with certain
statutory requirements applicable to the shareholder.
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AUTHORIZED SHARE CAPITAL
EXEL. The authorized share capital of EXEL consists of 999,990,000 EXEL
Ordinary Shares of which EXEL Ordinary Shares were outstanding as of
, 1998.
MID OCEAN. The authorized share capital of Mid Ocean consists of
200,000,000 Mid Ocean Shares of which [36,088,147] Mid Ocean Class A Shares,
1,190,292 Mid Ocean Class B Shares, and 1,860,000 Mid Ocean Class C Shares were
outstanding as of , 1998.
NEW EXEL. The authorized share capital of New EXEL consists of 999,990,000
New EXEL Shares and comprises initially the New EXEL Voting Shares and New EXEL
Non-Voting Shares. At the Effective Time and based upon the number of EXEL
Ordinary Shares and Mid Ocean Shares of each class currently outstanding, and
without giving effect to the Cash Election, the issued share capital of New EXEL
would be New EXEL Voting Shares and 3,115,873 New EXEL Non-Voting Shares.
The New EXEL Articles also authorize the Directors to establish classes of
shares with such terms, rights and restrictions as they shall determine.
DIRECTORS
EXEL AND NEW EXEL. The EXEL Articles provide that the number of members of
the Board of Directors shall not be less than three, nor more than 24, with the
actual number being determined by a resolution of the EXEL Board subject to the
power of shareholders by ordinary resolution to increase or reduce the limits in
the number of directors. The EXEL Board is divided into three classes as nearly
equal in number as feasible. At each annual general meeting of shareholders,
successors to the class of directors whose term has expired as of the annual
meeting are elected to serve for a three-year term or until their successors are
elected and qualified. Classification of directors has the effect of making it
more difficult for shareholders to change the composition of the EXEL Board. At
least two annual meetings, rather than one, will generally be required to effect
a change in a majority of the EXEL Board. Unless otherwise fixed by the EXEL
Board, one-third of the number of directors then in office constitutes a quorum
for the transaction of business. The EXEL Articles provide that a vacancy among
the directors may be filled until the next annual general meeting by the
remaining directors in office, although less than a quorum, or by a sole
remaining director. The term of a director appointed to fill a newly created
directorship or other vacancy shall expire at the same time as the term of the
other directors of the class from which the new directorship is created or in
which the vacancy occurred. The New EXEL Articles also provide for a classified
board of directors, as described above.
MID OCEAN. The Mid Ocean Articles provide that the number of members of the
Mid Ocean Board shall not be less than seven, nor more than 24, with the actual
number being determined by the Mid Ocean Board, subject to the power of Mid
Ocean by ordinary resolution to increase or reduce the limits in the number of
directors. The Mid Ocean Board is divided into three classes with each class
equal in number to the extent possible. At each annual general meeting, the
successors of the class of directors whose term expires at that meeting shall be
elected to hold office for a three-year term and until their successors are
elected and qualified. Classification of directors has the effect of making it
more difficult for Mid Ocean Shareholders to change the composition of the Mid
Ocean Board. At least two annual meetings, rather than one, will generally be
required to effect a change in a majority of the Mid Ocean Board. Unless fixed
by the Mid Ocean Board, one-third of the number of directors then in office
constitutes a quorum for the transaction of business. The Mid Ocean Articles
provide that a vacancy among the directors may be filled by the Mid Ocean Board.
ELECTION AND REMOVAL OF DIRECTORS
EXEL. The EXEL Articles provide that directors hold office until the annual
general meeting of EXEL Shareholders for the year in which his or her term
expires. Under the EXEL Articles, at any time
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the EXEL Shareholders may by ordinary resolution appoint any individual to be a
director and may in like manner remove any director any may in like manner
appoint another individual in such director's stead.
MID OCEAN. The Mid Ocean Articles provide that directors hold office for
the terms for which they are elected or appointed. If Mid Ocean Shareholders by
ordinary resolution decrease the number of directors, this shall in no case
shorten the term of an incumbent director.
NEW EXEL. The New EXEL Articles provide that New EXEL shareholders may at
any time by special resolution of the total voting power determined in
accordance with the New EXEL Articles, including the 10% voting limitation,
remove and replace any Director.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS
EXEL. The EXEL Articles include a provision permitting EXEL to indemnify
its officers, directors, employees and agents, under certain circumstances and
subject to certain provisos (as set forth therein) including a limitation in
certain cases of their negligence or misconduct.
MID OCEAN. The Mid Ocean Articles include a provision permitting Mid Ocean
to indemnify its officers, directors, employees and agents, under certain
circumstances and subject to certain provisos (as set forth therein).
NEW EXEL. The New EXEL Articles include a provision exempting officers and
directors of New EXEL from liability to New EXEL in respect of the execution of
the duties of their respective offices and in certain other circumstances,
except as a result of their wilful neglect or default. The New EXEL Articles
also permit New EXEL to indemnify its officers, directors, employees and agents
against certain liabilities and subject to certain limits, including a
limitation in certain cases of their wilful neglect or default.
DIVIDENDS
EXEL. The EXEL Articles provide that dividends shall be payable only out of
the profits of EXEL, realized or unrealized.
MID OCEAN. The Mid Ocean Articles provide that dividends may be paid.
NEW EXEL. The New EXEL Articles permit the Directors to declare dividends
out of profits or out of monies otherwise available for dividends in accordance
with the Companies Law.
AMENDMENT OF CHARTER DOCUMENTS
EXEL AND NEW EXEL. The EXEL Articles may, subject to the Companies Law, be
amended or altered by a special resolution of EXEL Shareholders. Under the
Companies Law, a special resolution requires an affirmative vote of a majority
of not less than 66 2/3% of those EXEL Shareholders entitled to vote and voting
in person or by proxy at a general meeting of which notice specifying the
intention to propose the resolution as a special resolution has been duly given.
MID OCEAN. The Mid Ocean Articles may, subject to law, be amended or
altered by a special resolution of Mid Ocean Shareholders. A special resolution
requires an affirmative vote of a majority of not less than two-thirds of Mid
Ocean Shareholders entitled to vote and voting, either by a proxy or in person,
at a general meeting of which notice specifying the intention to propose the
resolution as a special resolution has been duly given.
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MEETINGS OF SHAREHOLDERS
EXEL. The EXEL Articles provide that annual general meetings shall be held
in each year of its existence at such place and on such date and at such time as
shall be designated from time to time by the EXEL Board. Extraordinary general
meetings of EXEL Shareholders may be called by the EXEL Board or on the
requisition in writing of EXEL Shareholders holding at least 10% of EXEL's
issued share capital and carrying the right to vote at general meetings of EXEL.
MID OCEAN. The Mid Ocean Articles provide that annual meetings shall be
held in each year of its existence at such time and place as may be designated
from time to time by the Mid Ocean Board. Extraordinary general meetings of Mid
Ocean Shareholders may be called by the Mid Ocean Board or at the request in
writing of Mid Ocean Shareholders holding at least 10% of the voting power of
the issued Mid Ocean Shares entitled to vote at general meetings of Mid Ocean.
NEW EXEL. Extraordinary general meetings of shareholders of New EXEL may be
called by the New EXEL Board and shall be called by the New EXEL Board on the
requisition in writing of shareholders of New EXEL holding at least 15% of New
EXEL's issued share capital carrying the right to vote at general meetings of
New EXEL.
CERTAIN LITIGATION
EXEL, Mid Ocean and the directors of Mid Ocean have been named as defendants
in a purported class action lawsuit (the "SHAREHOLDER ACTION") filed in
connection with the proposed Arrangements in the Supreme Court, County of New
York, State of New York. HARBOR FINANCE PARTNERS V. NEWHOUSE, et al., C.A. No.
. The Shareholder Action alleges that the defendants breached their fiduciary
duties to the Mid Ocean Shareholders by failing to exercise independent business
judgment (due to their alleged conflict of interest) and by agreeing to sell Mid
Ocean at an unfair and inadequate price. The Shareholder Action is brought on
behalf of a purported class of persons consisting of Mid Ocean Shareholders
other than the defendants. As relief, the Shareholder Action seeks, among other
things, an order enjoining consummation of the Arrangements, or, in the event
the Arrangements are consummated, rescission of the Arrangements, and an award
of compensatory damages in an unspecified amount, as well as costs including
fees for plaintiff's counsel and experts' fees and expenses. The time for
defendants to move or answer has not yet elapsed. The defendants believe, on the
advice of counsel, that the complaints in the Shareholder Action are without
merit.
LEGAL OPINION
Certain legal matters in connection with the Arrangements will be passed
upon by Hunter & Hunter, special Cayman Islands counsel to EXEL and New EXEL. As
of the date of this Joint Proxy Statement, partners of Hunter & Hunter
beneficially owned or had rights to acquire EXEL Ordinary Shares and no New
EXEL Shares.
EXPERTS
The consolidated balance sheets as of November 30, 1997 and 1996 and the
consolidated statements of income, retained earnings and cash flows for each of
the three years in the period ended November 30, 1997 of EXEL incorporated in
this Joint Proxy Statement by reference have been so incorporated in reliance on
the report of Coopers & Lybrand, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Mid Ocean incorporated in this
Joint Proxy Statement by reference to the Mid Ocean Annual Report on Form 10-K
for the year ended October 31, 1997, have been audited by KPMG Peat Marwick,
independent certified public accountants, as indicated in their reports
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with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
Representatives of Coopers & Lybrand are expected to be present at the EXEL
Class Meeting, and representatives of KPMG Peat Marwick are expected to be
present at the Mid Ocean Class Meetings. In each case, such representatives will
have the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
EXEL Shareholders may submit proposals to be considered for shareholder
action at the 1999 Annual General Meeting of Shareholders of New EXEL if they do
so in accordance with applicable regulations of the Commission. Any such
proposals must be submitted to the Corporate Secretary of EXEL no later than
, in order to be considered for inclusion in the EXEL 1999 proxy
materials.
Mid Ocean will hold a 1999 Annual General Meeting of Mid Ocean Shareholders
only if the Arrangements are not consummated before the time of such meeting. In
the event that such a meeting is held, any proposals of Mid Ocean Shareholders
intended to be presented at the 1999 Annual General Meeting must have been
received by the Secretary of Mid Ocean no later than in order to be
considered for inclusion in the Mid Ocean 1999 proxy materials.
OTHER MATTERS
As of the date of this Joint Proxy Statement, the Mid Ocean Board and the
EXEL Board know of no matters that will be presented for consideration at the
Class Meetings other than as described in this Joint Proxy Statement. If any
other matters shall properly come before either of the companies' Class Meetings
or any adjournments or postponements thereof and be voted upon, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the respective managements of Mid Ocean
and EXEL.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information combines the historical balance sheets and statements of income of
EXEL and Mid Ocean as at the dates indicated, including their respective
subsidiaries, after giving effect to the Arrangements. The unaudited pro forma
condensed consolidated balance sheet as at February 28, 1998 gives effect to the
Arrangements as if they had occurred on that date. The unaudited pro forma
condensed consolidated statements of income for the year ended November 30, 1997
and the three month period ended February 28, 1998, respectively, give effect to
the Arrangements as if they had occurred on December 1, 1996. The unaudited pro
forma condensed consolidated financial information does not purport to represent
the financial position or operating results that would have been achieved had
the Arrangements been consummated on those dates and should not be construed as
projecting the future financial position or operating results of the combined
entity. The following pro forma financial information does not reflect any
projected revenue increases or cost savings. The pro forma adjustments are
applied to the historical financial statements to account for, among other
things, the Arrangements as a purchase as defined under GAAP whereby the total
purchase cost has been allocated to the assets and liabilities of Mid Ocean
based on their fair values. Allocations are subject to the valuation as of the
date of acquisition based on appraisals and other studies that are not yet
completed. Accordingly, the final allocations will be different from the amounts
reflected herein. Although the final allocations will differ, the unaudited pro
forma combined condensed financial statements and the pro forma adjustments
reflect management's best estimates, and are based upon available information
and certain assumptions that EXEL and Mid Ocean currently believe are reasonable
in the circumstances.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the accompanying notes, the historical consolidated
financial statements of EXEL as of and for the year ended November 30, 1997 and
as of and for the three month period ended February 28, 1998, and the historical
financial statements of Mid Ocean as of and for the year ended October 31, 1997
and as of and for the three-month period ended January 31, 1998, in each case
incorporated by reference in this Joint Proxy Statement.
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PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1998(2)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF U.S. DOLLARS)
<CAPTION>
PRO FORMA
COMBINED FOR
PRO FORMA MID OCEAN
EXEL MID OCEAN ADJUSTMENTS NOTES(4) ACQUISITION
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------
Total investments and cash.................... $ 4,803,843 $1,711,746 $ 16,000 (i) $ 6,531,589
Unquoted investments.......................... 31,445 10,201 3,200 (a) 44,846
Investments in affiliates..................... 540,625 0 (366,976) (b) 173,649
Insurance and reinsurance balances receivable
(including reinsurance recoveries).......... 509,505 453,670 (7,965) (c) 955,210
Prepaid reinsurance........................... 117,246 13,712 (2,342) (c) 128,616
1,295,172 (g)
Goodwill...................................... 265,731 110,631 (110,631) (d) 1,560,903
Other assets.................................. 121,259 150,125 (34) (c) 271,350
------------ ------------ ------------ -------------
Total assets.................................. 6,389,654 2,450,085 826,424 9,666,163
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Unpaid losses and loss expenses............... 2,409,255 505,396 1,197 (c) 2,915,848
Unearned premiums............................. 652,489 446,772 (1,992) (c) 1,097,269
(9,546) (c)
Other liabilities and minority interest....... 665,854 87,385 36,650 (e) 780,343
------------ ------------ ------------ -------------
Total liabilities............................. 3,727,598 1,039,553 26,309 4,793,460
------------ ------------ ------------ -------------
Total shareholders' equity
Share capital and additional paid in 2,210,647 (g)
capital..................................... 299,499 753,781 (753,781) (f) 2,510,146
Retained earnings............................. 2,132,700 642,295 (642,295) (f) 2,132,700
Other shareholders' equity components......... 229,857 14,456 (14,456) (f) 229,857
------------ ------------ ------------ -------------
Total shareholders' equity.................... 2,662,056 1,410,532 800,115 4,872,703
------------ ------------ ------------ -------------
Total liabilities and shareholders' equity.... 6,389,654 2,450,085 826,424 9,666,163
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
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PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF U.S. DOLLARS)
PRO FORMA
COMBINED FOR
PRO FORMA MID OCEAN
EXEL MID OCEAN ADJUSTMENTS NOTES ACQUISITION
-----------------------------------------------------------------
Net premiums earned............................... $ 139,882 $ 122,981 $ (66) (c) $ 262,797
Net investment income............................. 57,528 26,383 0 83,911
Net realized gains on investments................. 62,951 14,280 0 77,231
Equity in net income of affiliates................ 15,207 0 (15,758) (b) (551)
Other income...................................... 0 2,808 0 2,808
---------- ------------ ----------- -------------
Total revenues.................................... 275,568 166,452 (15,824) 426,196
---------- ------------ ----------- -------------
Losses and loss expenses.......................... 81,772 62,285 248 (c) 144,305
Acquisition costs and administrative expenses..... 31,479 35,968 (68) (c) 67,379
Interest expense.................................. 1,788 0 0 1,788
Amortization of intangible assets................. 3,338 1,873 8,093 (h) 11,431
(1,873) (d)
---------- ------------ ----------- -------------
Total expenses.................................... 118,377 100,126 6,400 224,903
---------- ------------ ----------- -------------
Income before minority interest and income tax 157,191 66,326 (22,224) 201,293
expense.........................................
Minority interest and income tax.................. 1,781 2,605 0 4,386
---------- ------------ ----------- -------------
Net income........................................ $ 155,410 $ 63,721 $ (22,224) $ 196,907
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
Net income per share data
Basic............................................. $ 1.84 $ 1.71
Diluted........................................... $ 1.81 $ 1.69
Weighted average shares outstanding (000's)
Basic............................................. 84,544 115,062
Diluted........................................... 86,004 116,705
Operating net income.............................. $ 92,459 $ 49,441 $ (22,224) $ 119,676
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
Operating net income per share:
Basic............................................. $ 1.09 $ 1.04
Diluted........................................... $ 1.07 $ 1.03
</TABLE>
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This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
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PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1997
-------------------------------------------------------------
(IN THOUSANDS OF U.S. DOLLARS)
PRO FORMA
COMBINED
FOR
MID OCEAN
EXEL MID OCEAN ADJUSTMENTS NOTES ACQUISITION
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------
Net premiums earned..................... $ 540,653 $ 486,741 $ 5,727 (c) $1,033,121
Net investment income................... 216,552 103,429 0 319,981
Net realized gains on investments....... 335,939 9,603 0 345,542
Equity in net income of affiliates...... 65,882 0 (62,134) (b) 3,748
Other income............................ 0 19,598 0 19,598
--------- ----------- ----------- -----------
Total revenues.......................... 1,159,026 619,371 (56,407) 1,721,990
--------- ----------- ----------- -----------
Losses and loss expenses................ 365,325 216,171 5,918 (c) 587,414
Acquisition costs and administrative
expenses.............................. 98,665 141,970 (794) (c) 239,841
Interest expense........................ 7,176 0 0 7,176
32,379 (h)
Amortization of intangible assets....... 5,844 2,777 (2,777) (d) 38,223
--------- ----------- ----------- -----------
Total expenses.......................... 477,010 360,918 34,726 872,654
--------- ----------- ----------- -----------
Income before minority interest and
income tax expense.................... 682,016 258,453 (91,133) 849,336
Minority interest and income tax........ 5,055 13,445 0 18,500
--------- ----------- ----------- -----------
Net income.............................. $ 676,961 $ 245,008 $ (91,133) $ 830,776
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Net income per share data:
Basic................................... $ 7.95 $ 7.18
Diluted................................. $ 7.84 $ 7.10
Weighted average shares outstanding
(000's)
Basic................................... 85,120 115,638
Diluted................................. 86,296 116,934
Operating net income.................... $ 341,022 $ 235,405 $ (91,333) $ 485,094
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Operating net income per share:
Basic................................... $ 4.01 $ 4.20
Diluted................................. $ 3.95 $ 4.15
</TABLE>
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This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
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NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
On March 16, 1998, the proposed combination of EXEL and Mid Ocean was
announced and it is expected to be consummated during July 1998. New EXEL will
be the holding company for the new organization, and the reinsurance operations
of both companies in Bermuda will be combined. The new combined organization
will have assets in excess of $9 billion. The transaction, detailed in the Joint
Proxy Statement, will result in New EXEL issuing 1.0215 shares for each Mid
Ocean Share (other than Mid Ocean Shares held by EXEL and its subsidiaries),
subject to the Cash Election rights of the two companies' shareholders described
therein. Prior to this transaction, EXEL owned approximately 25% of Mid Ocean
Class A Shares.
2. ACCOUNTING FOR THE ARRANGEMENTS
(a) The combination of EXEL and Mid Ocean is being accounted for under the
GAAP purchase accounting rules, whereby the total purchase cost will be
allocated to the assets and liabilities acquired based on their relative fair
values at the date of acquisition, and the excess of that total purchase cost
over the fair values will be recorded as goodwill. The fair values to be
ascribed to the individual assets and liabilities acquired will be the subject
of management studies and appraisals that are not yet completed. Accordingly,
the final allocation of the purchase price to the individual assets and
liabilities will differ from the amounts estimated herein. However, the pro
forma financial statements represent management's best estimate based on
currently available information, and the differences are not expected to be
material.
(b) The historical components of Mid Ocean's shareholders' equity, including
retained earnings, have been eliminated in accordance with purchase accounting
practices.
(c) The pro forma balance sheet also reflects the issue of EXEL Ordinary
Shares in exchange for Mid Ocean Shares, resulting in additions to share capital
and additional paid-in capital. These EXEL Ordinary Shares have been included in
the calculation of pro forma EPS.
(d) Included in the pro forma income statements above for the year ended
November 30, 1997 and the three months ended February 28, 1998 is the financial
information of Mid Ocean that is for the year ended October 31, 1997 and the
three months to January 31, 1998 respectively. No adjustments have been made to
take account of these differing period ends as, in the opinion of management,
any such adjustments would not be material.
3. ALLOCATION OF THE PURCHASE CONSIDERATION
<TABLE>
<S> <C>
The allocation of the purchase price is as follows:
Book value of net assets based upon historical Mid Ocean
information.................................................... $1,410,532
Increase in fair value of unquoted investments................... 3,200
Increase in cash and investments following exercise of options... 16,000
Elimination of goodwill carried by Mid Ocean..................... (110,631)
----------
Fair value of assets............................................. 1,391,101
----------
Fair value of share of net assets acquired by EXEL............... 952,125
Liability established under employment and severance
agreements..................................................... (10,000)
Goodwill relating to the acquisition............................. 1,295,172
----------
2,237,297
----------
The consideration for the Arrangements is as follows:
Issue of New EXEL Shares......................................... 2,210,647
Issue of New EXEL fully vested options........................... 14,800
Costs of acquisition............................................. 11,850
----------
</TABLE>
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<TABLE>
<S> <C>
2,237,297
----------
</TABLE>
4. PRO FORMA ADJUSTMENTS
The following adjustments have been made to present the financial
information for the combined entities on a pro forma basis:
(a) Restatement of the unquoted investments of Mid Ocean to estimated
fair value.
(b) Elimination of the equity investment by EXEL in Mid Ocean prior to
this transaction.
(c) Elimination of common reinsurance arrangements between EXEL and Mid
Ocean.
(d) The elimination of goodwill previously carried by Mid Ocean relating
to the 1996 and 1997 acquisition of Brockbank.
(e) Recording of the liability for costs of certain executives and
employees of Mid Ocean arising on the change in control of the
company ($10 million), and the liability for legal and accounting
costs relating to the acquisition ($11.85 million).
(f) Elimination of the shareholders' equity of Mid Ocean as at assumed
date of acquisition.
(g) The issue of New EXEL Shares at a cost of $2.2 billion and the
recognition of the goodwill on acquisition, being the excess of the
purchase price paid by EXEL over the fair value of the assets of Mid
Ocean.
(h) Amortization of goodwill arising on the acquisition on a
straight-line basis over 40 years.
(i) Receipt of assumed option proceeds resulting from the exercise of
options which were subject to accelerated vesting on the change in
control (see note 6).
5. FUTURE COST SAVINGS AND NON-RECURRING COSTS
New EXEL anticipates realizing future cost savings relating to the
elimination of duplicate facilities and corporate overheads. These anticipated
cost savings have not been reflected in the unaudited pro forma financial
information as there can be no assurance that they will be realized in the
expected amounts or in the time frames anticipated by management. Similarly,
anticipated non-recurring exit costs incurred relating to duplicate business
areas have not been reflected in the pro forma statement of income.
6. SHARE OPTIONS OF MID OCEAN
Mid Ocean's 1993 Long-Term Incentive and Share Award Plan and certain
employment agreements of Mid Ocean provide that (unless otherwise agreed by the
employee) all grants of restricted shares and options vest immediately upon a
Change of Control (as defined therein), rather than over the original vesting
period defined when the options were granted. All outstanding Mid Ocean Options
shall be replaced at the time of the consummation of the Arrangements by fully
vested and exercisable (unless otherwise agreed by the holders thereof) options
to acquire New EXEL Shares, with appropriate adjustments to reflect the Exchange
Ratio. Each Mid Ocean Share purchased through the exercise of a Mid Ocean option
prior to the consummation of the Arrangements shall be converted to 1.0215 New
EXEL Shares, as provided in the Agreement. For the purpose of these unaudited
pro forma combined condensed financial statements, management have made their
best estimate with regard to the options that will be exercised prior to
transfer, at an average exercise price of $35 per share. The resulting
consideration of $16 million has been assumed held as a cash deposit for the
purposes of these pro formas.
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Remaining vested options which have not been exercised will be converted
into vested options of New EXEL. The estimated fair value of those options of
$14.8 million has been accounted for as part of the purchase consideration.
7. CASH ELECTION
EXEL Shareholders and Mid Ocean Shareholders will have the opportunity to
make a Cash Election, whereby their entitlement to New EXEL Shares will be
satisfied by the payment to them of cash rather than by the issue of New EXEL
Shares, up to an aggregate of $300 million. This opportunity will be available
to all Mid Ocean Shareholders and all EXEL Shareholders as described more fully
herein. See "THE ARRANGEMENTS--Exchange of Shares." At this time, it is unknown
how many shareholders will subscribe to this Cash Election, and it is similarly
unknown what the average share buy-back price will be at that time. Due to this
uncertainty, for the purpose of the pro forma financial information presented
above, management has assumed that no shareholders will make the Cash Election.
If the Cash Election were to be fully subscribed at an assumed share buy-back
price of $75, the adjusted pro forma income and earnings per share for the
periods indicated would be as follows (in thousands, except for earnings per
share data):
<TABLE>
<CAPTION>
THREE MONTHS TO
FEBRUARY 28, YEAR TO
1998 NOVEMBER 30, 1997
---------------- -----------------
<S> <C> <C>
Net income.................................................................. $ 192,519 $ 813,224
Net income per share-basic.................................................. $ 1.73 $ 7.28
Net income per share-diluted................................................ $ 1.71 $ 7.20
</TABLE>
Net income has been adjusted by the assumed interest cost of the $300
million applied to the Cash Election, and the weighted average number of shares
takes account of the fact that 4 million shares would have been repurchased at
the assumed share buy-back price.
8. SEVERANCE PAYMENTS
Included in the $10 million liability relating to executives and employees
of Mid Ocean as described in note 4(e) are amounts of $3,537,000 and $1,400,000
representing severance payments to Messrs. Newhouse and Butt.
9. OPERATING NET INCOME PER SHARE
Operating net income represents net income, excluding any realized
investment gains or losses. Operating net income per share is calculated by
dividing operating net income by the weighted average number of shares
outstanding. This statistical measure is not contemplated by SFAS 128, but EXEL
and Mid Ocean believe that such measure is regarded by analysts in the insurance
industry as a key measure of performance.
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APPENDIX A
AGREEMENT AND SCHEMES OF ARRANGEMENT
AMONG
EXEL LIMITED,
EXEL MERGER COMPANY LTD.
AND
MID OCEAN LIMITED
MARCH 16, 1998
AMENDED AND RESTATED
APRIL 28, 1998
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE ONE CERTAIN DEFINITIONS............................................................. A-1
Section 1.1. Certain Definitions........................................................... A-1
ARTICLE TWO THE SCHEMES................................................................... A-3
Section 2.1. The Schemes................................................................... A-3
Section 2.2. Application to the Court; Effective Time of the Schemes; Closing.............. A-4
Section 2.3. Effects of the Schemes........................................................ A-4
Section 2.4. Articles of Association....................................................... A-5
Section 2.5. Boards of Directors and Officers.............................................. A-5
Section 2.6. Terms of the Parent Scheme: Exchange of Parent Shares......................... A-6
Section 2.7. Terms of the Company Scheme: Exchange of Shares............................... A-6
Section 2.8. Terms of the Schemes: Surrender and Payment................................... A-6
Section 2.9. Voting........................................................................ A-6
Section 2.10. Structural Modification....................................................... A-6
Section 2.11. Optional Cash Election........................................................ A-6
ARTICLE THREE REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................... A-9
Section 3.1. Corporation; Organization..................................................... A-9
Section 3.2. Authority; Approval and Fairness.............................................. A-9
Section 3.3. Capital Structure............................................................. A-10
Section 3.4. Financial Statements.......................................................... A-11
Section 3.5. Absence of Certain Changes.................................................... A-11
Section 3.6. Certain Fees.................................................................. A-11
Section 3.7. No Defaults................................................................... A-11
Section 3.8. Consents...................................................................... A-12
Section 3.9. Compliance with Applicable Law................................................ A-12
Section 3.10. Information Supplied.......................................................... A-12
Section 3.11. Material Contracts............................................................ A-13
Section 3.12. Taxes......................................................................... A-13
Section 3.13. Litigation.................................................................... A-14
Section 3.14. U.S. Assets................................................................... A-14
Section 3.15. Employees..................................................................... A-14
Section 3.16. Takeover Statutes............................................................. A-15
</TABLE>
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<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Section 3.17. Opinion of Financial Advisor.................................................. A-15
Section 3.18. Rights Agreement.............................................................. A-15
Section 3.19. Insurance Matters............................................................. A-15
Section 3.20. Liabilities and Reserves...................................................... A-15
Section 3.21. Investment Company............................................................ A-16
ARTICLE FOUR REPRESENTATIONS AND WARRANTIES OF PARENT........................................ A-16
Section 4.1. Corporation; Organization..................................................... A-16
Section 4.2. Authority; Approval and Fairness.............................................. A-16
Section 4.3. Capital Structure............................................................. A-17
Section 4.4. Financial Statements.......................................................... A-18
Section 4.5. Absence of Certain Changes.................................................... A-18
Section 4.6. Certain Fees.................................................................. A-18
Section 4.7. No Defaults................................................................... A-18
Section 4.8. Consents...................................................................... A-19
Section 4.9. Compliance with Applicable Law................................................ A-19
Section 4.10. Information Supplied.......................................................... A-19
Section 4.11. Material Contracts............................................................ A-19
Section 4.12. Taxes......................................................................... A-20
Section 4.13. Litigation.................................................................... A-21
Section 4.14. U.S. Assets................................................................... A-21
Section 4.15. Employees..................................................................... A-21
Section 4.16. Takeover Statutes............................................................. A-21
Section 4.17. Opinion of Financial Advisor.................................................. A-21
Section 4.18. Rights Agreement.............................................................. A-22
Section 4.19. Insurance Matters............................................................. A-22
Section 4.20. Liabilities and Reserves...................................................... A-22
Section 4.21. Investment Company............................................................ A-22
ARTICLE FIVE COVENANTS....................................................................... A-23
Section 5.1. Conduct of Business of the Company............................................ A-23
Section 5.2. Conduct of Business of Parent................................................. A-24
Section 5.3. Acquisition Proposals......................................................... A-25
Section 5.4. Access to Information......................................................... A-25
Section 5.5. S-4; Regulatory Matters....................................................... A-25
</TABLE>
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<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Section 5.6. Public Announcements.......................................................... A-26
Section 5.7. Supplemental Information...................................................... A-26
Section 5.8. Shareholders' Meetings........................................................ A-26
Section 5.9. Company Options and Parent Options............................................ A-26
Section 5.10. Takeover Laws................................................................. A-27
Section 5.11. Affiliates.................................................................... A-28
Section 5.12. Stock Exchange Listing........................................................ A-28
Section 5.13. Indemnification............................................................... A-28
Section 5.14. Reasonable Best Efforts....................................................... A-29
Section 5.15. Post-Closing Matters.......................................................... A-29
Section 5.16. Employee Benefit Plans; Existing Agreements................................... A-29
ARTICLE SIX CONDITIONS TO THE SCHEMES....................................................... A-30
Section 6.1. Conditions to Each Party's Obligation to Effect the Schemes................... A-30
Section 6.2. Additional Conditions to the Company's Obligation to Effect the Schemes....... A-31
Section 6.3. Additional Conditions to Parent's Obligation to Effect the Schemes............ A-31
ARTICLE SEVEN TERMINATION AND ABANDONMENT..................................................... A-32
Section 7.1. Termination by the Company for Breach......................................... A-32
Section 7.2. Termination by Parent for Breach.............................................. A-32
Section 7.3. Termination by the Company or Parent.......................................... A-32
Section 7.4. Procedure and Effect of Termination........................................... A-33
ARTICLE EIGHT MISCELLANEOUS PROVISIONS........................................................ A-33
Section 8.1. Non-Survival of Representations, Warranties, Covenants and Agreements......... A-33
Section 8.2. Amendment and Modification.................................................... A-34
Section 8.3. Waiver of Compliance; Consents................................................ A-34
Section 8.4. Severability and Validity..................................................... A-34
Section 8.5. Expenses and Obligations...................................................... A-34
Section 8.6. Parties in Interest........................................................... A-34
Section 8.7. Additional Agreements......................................................... A-34
Section 8.8. Notices....................................................................... A-34
Section 8.9. Governing Law; Submission to Jurisdiction..................................... A-35
Section 8.10. Counterparts.................................................................. A-36
Section 8.11. Headings...................................................................... A-36
Section 8.12. Entire Agreement; Assignment.................................................. A-36
</TABLE>
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AGREEMENT AND SCHEMES OF ARRANGEMENT
This Agreement and Schemes of Arrangement, dated March 16, 1998, as amended
and restated April 28, 1998 (this "AGREEMENT"), by and among EXEL Limited, a
limited liability company organized and incorporated under the laws of the
Cayman Islands ("PARENT"), Exel Merger Company Ltd., a limited liability company
organized and incorporated under the laws of the Cayman Islands ("NEW PARENT"),
and Mid Ocean Limited, a limited liability company organized and incorporated
under the laws of the Cayman Islands (the "COMPANY").
Whereas, the respective Boards of Directors of the Company, Parent and New
Parent deem it advisable and in the best interests of their respective
shareholders that each of the Company and Parent become subsidiaries of New
Parent pursuant to the Scheme of Arrangement between Parent and its shareholders
(the "PARENT SCHEME") and the Scheme of Arrangement between the Company and
certain of its shareholders (the "COMPANY SCHEME," and together with the Parent
Scheme, the "SCHEMES") as provided for herein;
Whereas, as a condition and inducement to Parent entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent is entering into a support
agreement with JP Morgan Capital Corporation ("JPM"), pursuant to which, among
other things, such shareholder has agreed to vote the Shares (as defined herein)
then owned by such shareholder in favor of the Schemes provided for herein;
Whereas, as a condition and inducement to Parent entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, New Parent and/or the Company are
entering into amendments to the employment agreements between the Company and
Henry C.V. Keeling and Mark E. Brockbank, and new consulting agreements with
Robert J. Newhouse, Jr. and Michael A. Butt, all such agreements to become
effective as of the Effective Time (as defined herein);
Whereas, the parties intend that each of the Schemes shall qualify as
tax-free under the United States Internal Revenue Code of 1986, as amended (the
"CODE").
Now, therefore, in consideration of the promises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE ONE
CERTAIN DEFINITIONS
Section 1.1. CERTAIN DEFINITIONS. Certain capitalized terms used in this
Agreement shall have the meaning set forth below:
(a) "AFFILIATE" of a party means any Person or entity controlling,
controlled by, or under common control with such party. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
(b) "BUSINESS DAY" means any day other than a Saturday, a Sunday, or a bank
holiday in Bermuda, the Cayman Islands or in the State of New York in the United
States of America.
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(c) "CLASS A ORDINARY SHARES" means the Class A Ordinary Shares, par value
$.20 per share, of the Company.
(d) "CLASS B ORDINARY SHARES" means the Class B Ordinary Shares, par value
$.20 per share, of the Company.
(e) "CLASS C ORDINARY SHARES" means the Class C Ordinary Shares, par value
$.20 per share, of the Company.
(f) "COMPANY DISCLOSURE LETTER" means the letter, dated as of March 16,
1998, from the Company to Parent regarding certain matters related to this
Agreement.
(g) "CONFIDENTIALITY LETTER" means that certain letter between Parent and
the Company, dated March 7, 1998.
(h) "$" means United States dollars.
(i) "EMPLOYEE BENEFIT PLAN" of a Person means each benefit plan maintained
or contributed to by such Person or with respect to which such Person may
reasonably be expected to have any liability, which provides (or is intended to
provide) benefits to the current or former directors or employees of such Person
(or other service providers to such Person), including, without limitation, each
pension, retirement or deferred compensation plan, incentive compensation plan,
share plan, unemployment compensation plan, vacation pay, severance pay, bonus
or benefit arrangement, insurance, medical or hospitalization program, sickness,
accident, disability or death benefit program or any other fringe benefit
arrangement.
(j) "EXCHANGE ACT" means the United States Securities Exchange Act of 1934,
as amended.
(k) "GAAP" means generally accepted accounting principles as in effect in
the United States of America (as such principles may change from time to time).
(l) "GOVERNMENTAL AUTHORITY" means any governmental, quasi-governmental,
judicial, or regulatory agency or entity or subdivision thereof with
jurisdiction over the Company, Parent, New Parent or any of their respective
Subsidiaries or any of the transactions contemplated by this Agreement
(including, without limitation, the Corporation of Lloyd's).
(m) "LIEN" means any mortgage, lien, security interest, pledge, lease or
other charge or encumbrance of any kind, including, without limitation, the lien
or retained security title of a purchase money creditor or conditional vendor,
and any easement, right of way or other encumbrance on title to real property,
and any agreement to give any of the foregoing.
(n) "MATERIAL ADVERSE EFFECT" means, with respect to the Company or Parent
(as the case may be), any change, event, condition or development that is
materially adverse to the business, assets, liabilities, results of operations,
properties, financial or operating condition of such party and its Subsidiaries,
taken as a whole (without giving effect to the consequences of the transactions
contemplated by this Agreement), except for any such change, event, condition or
development resulting from or arising in connection with (i) changes applicable
to participants in the businesses of the Company or Parent (as the case may be)
generally or (ii) changes in economic, regulatory or political conditions
generally.
(o) "NYSE" means The New York Stock Exchange, Inc.
(p) "PARENT DISCLOSURE LETTER" means the letter, dated as of March 16, 1998,
from Parent to the Company regarding certain matters related to this Agreement.
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(q) "PERMITTED LIENS" means (i) 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; (ii) 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 which 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; (iii) leases or subleases, easements,
rights-of-way, covenants, consents and Liens which do not interfere materially
with the ordinary conduct of the business of the Company or detract materially
from the value of the property to which they attach or materially impair the use
thereof to the Company; and (iv) Liens granted by the Company to lenders
pursuant to credit agreements in existence on the date hereof.
(r) "PERSON" means an individual, company, limited liability company,
partnership, association, trust, unincorporated organization or other entity.
(s) "SEC" means the United States Securities and Exchange Commission.
(t) "SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
(u) "SHARES" means the Class A Ordinary Shares, the Class B Ordinary Shares
and the Class C Ordinary Shares.
(v) "SUBSIDIARY" shall mean, with respect to a specified Person, each
company, partnership or other entity in which the specified Person owns or
controls, directly or indirectly through one or more intermediaries, 50% or more
of the shares or other interests having general voting power in the election of
directors or Persons performing similar functions or rights to 50% or more of
any distributions.
(w) "TAX" or "TAXES" shall mean any Bermuda or United States federal, state,
local, foreign or other income, share capital, employees' income withholding,
foreign Person withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer or other tax, including any
interest, penalties or other additions to tax in respect to the foregoing,
whether disputed or not.
(x) "TOTAL VOTING POWER" means, at any date, the total number of votes that
may be cast in the election of directors of the Company at any meeting of
shareholders of the Company held on such date assuming all Voting Shares were
present and voted at such meeting.
(y) "VOTING SHARES" means Class A Ordinary Shares and Class B Ordinary
Shares and all other securities of the Company, if any, entitled to vote
generally in the election of directors.
ARTICLE TWO
THE SCHEMES
Section 2.1. THE SCHEMES.
(a) THE PARENT SCHEME. On the Effective Date (as defined herein) at the
Parent Scheme Effective Time (as defined herein), and upon the terms and subject
to the conditions hereof and subject to the Grand Court of the Cayman Islands
(the "COURT") exercising its discretion and sanctioning the Parent Scheme
pursuant to Section 85(2) of the Companies Law (1995 Revision) of the Cayman
Islands (the "COMPANIES LAW") and making such facilitating orders as are
appropriate pursuant to Section 86 of the Companies Law, all of the issued share
capital of Parent shall be transferred to New Parent.
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(b) THE COMPANY SCHEME. On the Effective Date at the Company Scheme
Effective Time (as defined herein), and upon the terms and subject to the
conditions hereof, and subject to the Court exercising its discretion and
sanctioning the Company Scheme pursuant to Section 85(2) of the Companies Law
and making such facilitating orders as are appropriate pursuant to Section 86 of
the Companies Law, all of the issued share capital of the Company shall be
transferred to New Parent, other than the Shares owned by Parent, which shall
remain outstanding.
Section 2.2. APPLICATION TO THE COURT; EFFECTIVE TIME OF THE SCHEMES;
CLOSING.
(a) As soon as practicable after the date hereof, (i) Parent, will (x) cause
an application to be made to the Court requesting the Court to summon such class
meetings of members of Parent as the Court may direct, (y) convene such class
meetings, and obtain the approval required under Section 85(2) of the Companies
Law and, subject to such approvals being obtained, (z) cause a petition to be
presented to the Court seeking the sanctioning of a Scheme of Arrangement
pursuant to Section 85 of the Companies Law and file such other documents as are
required to be duly filed with the Court to effect the Parent Scheme, and (ii)
the Company will (x) cause an application to be made to the Court requesting the
Court to summon such class meetings of members of the Company as the Court may
direct, (y) convene such class meetings, and obtain the approval required under
Section 85(2) of the Companies Law and, subject to such approvals being
obtained, (z) cause a petition to be presented to the Court seeking the
sanctioning of a Scheme of Arrangement pursuant to Section 85 of the Companies
Law and file such other documents as are required to be duly filed with the
Court to effect the Company Scheme.
(b) New Parent, Parent and the Company shall, subject to the provisions of
this Agreement, do all things necessary to effect the Parent Scheme and the
Company Scheme including but not limited to the holding of extraordinary general
meetings of their respective shareholders to approve the Parent Scheme and the
Company Scheme, respectively, to sanction any increase in share capital that may
be necessary under the terms of each Scheme of Arrangement and, subject to the
Parent Scheme and the Company Scheme taking full force and effect, to approve
and adopt new articles of association in respect of each.
(c) Upon receipt of orders from the Court sanctioning the Parent Scheme and
the Company Scheme, (i) the order sanctioning the Parent Scheme shall be duly
filed with the Registrar of Companies of the Cayman Islands (the "REGISTRAR"),
and (ii) immediately thereafter, the order from the Court sanctioning the
Company Scheme shall be duly filed with the Registrar. The Parent Scheme shall
become effective upon the filing of the order of the Court with respect to the
Parent Scheme with the Registrar (the time of such filing being the "PARENT
SCHEME EFFECTIVE TIME" and the date of such filing being the "EFFECTIVE DATE").
The Company Scheme shall become effective on the Effective Date immediately
after the Parent Scheme, upon the filing of the order of the Court with respect
to the Company Scheme with the Registrar (the "COMPANY SCHEME EFFECTIVE TIME" or
the "EFFECTIVE TIME"). Prior to such filings, a closing shall be held, at the
offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New
York, at 9:00 a.m. or such other place and/or time as the parties shall agree,
for the purpose of confirming the satisfaction or waiver of the conditions set
forth in Article SIX (the "CLOSING"). The date upon which the Closing shall
occur is referred to herein as the "CLOSING DATE."
Section 2.3. EFFECTS OF THE SCHEMES.
(a) EFFECT OF THE PARENT SCHEME. As of the Parent Scheme Effective Time,
Parent shall be a wholly owned Subsidiary of New Parent.
(b) EFFECT OF THE COMPANY SCHEME. As of the Company Scheme Effective Time,
the Company shall be, directly and indirectly through Parent, a wholly owned
Subsidiary of New Parent.
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Section 2.4. ARTICLES OF ASSOCIATION.
(a) ARTICLES OF ASSOCIATION OF NEW PARENT. At or prior to the Effective
Time, the articles of association of New Parent shall be amended and restated in
substantially the form of the existing articles of association of Parent, with
additional provision for (i) a class of New Parent Non-Voting Shares (as defined
herein) (which shall have substantially the same terms as the Class C Ordinary
Shares) for which the Class B Ordinary Shares and the Class C Ordinary Shares
shall be exchanged and (ii) the authorization of preferred shares by New Parent.
The form of such amended and restated articles of incorporation of New Parent
shall be the articles of association of New Parent until thereafter amended or
restated as provided therein and by law. New Parent shall be renamed "EXEL
Limited" after the Effective Time.
Section 2.5. BOARDS OF DIRECTORS AND OFFICERS.
(a) BOARD OF DIRECTORS AND OFFICERS OF PARENT. The parties hereto shall
procure that at the Parent Scheme Effective Time, those directors of Parent who
shall be designated by Parent shall remain as directors of Parent, each of such
directors to hold office in accordance with the applicable provisions of the
articles of association of Parent and until their successors shall be elected or
appointed and shall duly qualify. After giving effect to the Parent Scheme, the
parties hereto shall procure that the officers of Parent shall be the
individuals who are the current officers of Parent, each to hold office in
accordance with the applicable provisions of the articles of association of
Parent and until their respective successors are duly elected or appointed and
qualified.
(b) BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY. The parties hereto shall
procure that at the Company Scheme Effective Time, the persons who shall be
designated by Parent shall remain or be appointed as directors of the Company,
each of such directors to hold office in accordance with the applicable
provisions of the articles of association of the Company and until their
successors shall be elected or appointed and shall duly qualify. After giving
effect to the Company Scheme, the parties hereto shall procure that the persons,
who shall be designated by Parent, shall be the officers of the Company, each to
hold office in accordance with the applicable provisions of the articles of
association of the Company and until their respective successors are duly
elected or appointed and qualified.
(c) BOARD OF DIRECTORS AND OFFICERS OF NEW PARENT. The parties hereto shall
procure that at the Effective Time, the initial directors of New Parent shall be
the current directors of Parent, Mr. Robert J. Newhouse, Jr., Mr. Michael A.
Butt and three additional non-executive directors of the Company to be selected
by Parent, after consultation with the Company, prior to the Effective Time,
which such directors shall constitute the entire board of directors of New
Parent at the Effective Time and each of such directors to hold office in
accordance with the applicable provisions of the articles of association of New
Parent and until their successors shall be elected or appointed and shall duly
qualify. The parties hereto shall procure that after giving effect to the Parent
Scheme, the officers of New Parent shall be the individuals who are the current
officers of Parent, each to hold office in accordance with the applicable
provisions of the articles of association of New Parent and until their
respective successors are duly elected or appointed and qualified.
Section 2.6. TERMS OF THE PARENT SCHEME: EXCHANGE OF PARENT SHARES. At the
Parent Scheme Effective Time, by virtue of the Parent Scheme:
(a) Each ordinary share, par value $.01 per share, of Parent ("PARENT
SHARE") which is issued and outstanding immediately prior to the Effective Time
shall be, by virtue of the Parent Scheme and without any action on the part of
the holder thereof, transferred to New Parent and there shall be allotted and
issued to the holder thereof one ordinary share, par value $.01 per share, of
New Parent (a "NEW PARENT VOTING SHARE"), subject to the election rights set
forth in Section 2.11. The New Parent Voting Shares (and cash, if any) to be
received as consideration pursuant to the Parent Scheme by each holder of a
Parent
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Share is referred to herein as the "PARENT SCHEME CONSIDERATION." New Parent
shall issue the New Parent Voting Shares to be received as Parent Scheme
Consideration and register the Persons to whom New Parent Voting Shares are
issued on New Parent's register of members.
(b) Each Parent Option (as defined herein) outstanding as of the Parent
Scheme Effective Time shall be treated in accordance with the provisions of
Section 5.9.
Section 2.7. TERMS OF THE COMPANY SCHEME: EXCHANGE OF SHARES. At the Company
Scheme Effective Time, by virtue of the Company Scheme:
(a) Each Class A Ordinary Share, issued and outstanding immediately prior to
the Company Scheme Effective Time (other than Shares held by New Parent or by
Parent or any of its Subsidiaries) shall be, by virtue of the Company Scheme and
without any action on the part of the holder thereof, transferred to New Parent
and there shall be allotted and issued to the holder thereof 1.0215 New Parent
Voting Shares per Class A Ordinary Share so transferred (such number being
defined herein as the "EXCHANGE RATIO"), subject to the election rights set
forth in Section 2.11. Each Class B Ordinary Share and Class C Ordinary Share
issued and outstanding immediately prior to the Company Scheme Effective Time
shall be, by virtue of the Company Scheme and without any action on the part of
the holder thereof, transferred to New Parent and there shall be allotted and
issued to the holder thereof that number of Non-Voting Common Shares, par value
$.01 per Share, of New Parent ("NEW PARENT NON-VOTING SHARES") equal to the
Exchange Ratio, subject to the election rights set forth in Section 2.11. The
New Parent Voting Shares and New Parent Non-Voting Shares (collectively, the
"NEW PARENT SHARES") (and cash, if any) to be received as consideration pursuant
to the Company Scheme by each holder of Shares are referred to herein as the
"COMPANY SCHEME CONSIDERATION." New Parent shall issue the New Parent Shares to
be received as Company Scheme Consideration and register the Persons to whom
such New Parent Shares are issued on New Parent's register of members.
(b) Each Company Option (as defined herein) outstanding as of the Company
Scheme Effective Time shall be treated in accordance with the provisions of
Section 5.9.
Section 2.8. TERMS OF THE SCHEMES: SURRENDER AND PAYMENT. Subject to and by
virtue of the orders of the Court under Section 85(2) of the Companies Law
sanctioning the Schemes, the terms of the Schemes and the provisions for
surrender of the certificates representing Shares shall be as set forth in the
Mid Ocean Limited Scheme of Arrangement and the EXEL Limited Scheme of
Arrangement which shall be in a form agreed by the parties.
Section 2.9. VOTING. In determining shareholders of New Parent entitled to
notice of and to vote at meetings of shareholders of New Parent, former
shareholders of record of Parent and the Company shall not be deemed
shareholders of record until the register of members of New Parent is amended to
reflect the allotment and issue of the New Parent Shares to such former
shareholders.
Section 2.10. STRUCTURAL MODIFICATION. Parent may at any time with the
consent of the Company (not to be unreasonably withheld) change the method of
effecting the combination with the Company (including, without limitation, the
provisions of this Article TWO) if and to the extent it deems such change to be
desirable, including without limitation to provide for a share exchange in which
holders of Shares will receive in exchange for their Shares either New Parent
Common Shares or Parent Shares; PROVIDED, HOWEVER, that no such change will (A)
alter or change the amount or kind of consideration to be issued to holders of
Shares as provided for in this Agreement, (B) adversely affect the tax treatment
of the Company's shareholders as a result of receiving the consideration for
their Shares or (C) materially impede or delay consummation of the transactions
contemplated by this Agreement.
Section 2.11. OPTIONAL CASH ELECTION. Holders of the Parent Shares and the
Shares may elect to receive
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cash consideration in lieu of receiving New Parent Shares in the Parent Scheme
or the Company Scheme, as the case may be, in accordance with the election
procedures set forth below in this Section 2.11. Holders of Parent Shares or
Shares who are to receive cash in lieu of exchanging their Parent Shares or
Shares for New Parent Shares as specified below shall receive an amount in cash
(the "PER SHARE CASH CONSIDERATION") in respect of each New Parent Share they
would have been entitled to receive pursuant to Section 2.7 equal to the
Valuation Period Market Value (as defined below). The aggregate amount of cash
that shall be paid in the Parent Scheme and the Company Scheme to satisfy such
elections shall not exceed $300 million (the "CASH AMOUNT") to be allocated
between the Cash Election Shares (as defined below) of Parent and the Company in
accordance with the last sentence of this Section 2.11. For purposes of this
Section 2.11:
(i) "VALUATION PERIOD MARKET VALUE" shall mean the average of the closing
sales prices for a Parent Share as reported on the NYSE Composite Transactions
reporting system (as reported in The Wall Street Journal or, in the absence
thereof, by another authoritative source) during the Valuation Period; and
(ii) "VALUATION PERIOD" shall mean the ten (10) consecutive trading day
period during which the Parent Shares are traded on the NYSE ending on the tenth
calendar day immediately prior to the anticipated Effective Time.
An election form and other appropriate and customary transmittal materials
in such form as Parent and the Company shall mutually agree ("ELECTION FORM")
shall be mailed 25 days prior to the anticipated Effective Time or on such other
date as the Company and Parent shall mutually agree ("MAILING DATE") to each
holder of record of Parent Shares or Shares as of five business days prior to
the Mailing Date ("ELECTION FORM RECORD DATE").
Each Election Form shall permit a holder of Parent Shares or Shares to elect
to receive cash with respect to all or a portion of such holder's Parent Shares
or Shares (such election, a "CASH ELECTION" and shares as to which the election
to receive cash is made being "CASH ELECTION SHARES").
Any Parent Shares or Shares with respect to which the holder shall not have
elected to receive cash by submitting to Parent or to the exchange agent
designated by Parent (the "EXCHANGE AGENT") an effective, properly completed
Election Form on or before 5:00 p.m. on the 20th day following the Mailing Date
(or such other time and date as Parent and the Company may mutually agree) (the
"ELECTION DEADLINE") shall as of the Effective Time be transferred to New Parent
in exchange for New Parent Shares on the basis set forth in Section 2.7 (such
Parent Shares or Shares being "NO ELECTION SHARES").
Parent shall make available one or more Election Forms as may be reasonably
requested by all persons who become holders of Parent Shares or Shares between
the Election Form Record Date and the close of business on the business day
prior to the Election Deadline, and Parent and the Company shall provide to the
Exchange Agent, if any, all information reasonably necessary for it to perform
as specified herein.
Any such election shall have been properly made only if the Exchange Agent
shall have actually received a properly completed Election Form by the Election
Deadline. Any Election Form may be revoked or changed by the person submitting
such Election Form at or prior to the Election Deadline. In the event an
Election Form is revoked prior to the Election Deadline, the Parent Shares or
Shares represented by such Election Form shall become No Election Shares.
Subject to the terms of this Agreement and of the Election Form, Parent, the
Company and the Exchange Agent, if any, shall have reasonable discretion to
determine whether any election, revocation or change has been properly or timely
made and to disregard immaterial defects in the Election Forms, and any good
faith decisions of the Exchange Agent regarding such matters shall be binding
and conclusive. None of Parent, the Company or the Exchange Agent shall be under
any obligation to notify any person of any defect in an Election Form.
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Within five business days after the Effective Time, or as soon thereafter as
practicable, New Parent shall, or shall cause the Exchange Agent to, effect the
allocation among the holders of Cash Election Shares in accordance with the
Election Forms as follows:
(a) CASH ELECTIONS LESS THAN OR EQUAL TO THE CASH AMOUNT. If the amount of
cash that would be issued in the Parent Scheme and the Company Scheme in respect
of all the Cash Election Shares is less than or equal to the Cash Amount, then
(1) all Cash Election Shares shall be exchanged for the Per Share Cash
Consideration in respect of each New Parent Share the holders thereof would have
been entitled to receive pursuant to Section 2.7, and (2) all No Election Shares
shall be transferred to New Parent in exchange for New Parent Shares in
accordance with Section 2.7.
(b) CASH ELECTIONS MORE THAN THE CASH AMOUNT. If the amount of cash that
would be issued in the Parent Scheme and the Company Scheme in respect of all
the Cash Election Shares is greater than the Cash Amount, then (1) all No
Election Shares shall be transferred to New Parent in exchange for New Parent
Shares in accordance with Section 2.7, and (2) the Cash Election Shares shall be
transferred to New Parent in exchange for the right to receive cash and New
Parent Shares in the following manner:
(A) the number of Parent Shares that are Cash Election Shares covered by
each Cash Election which shall be transferred to New Parent in exchange for
the Per Share Cash Consideration in respect of each New Parent Share the
holder thereof would have been entitled to receive pursuant to Section 2.7
shall equal the number obtained by multiplying (x) the Parent Cash Election
Number by (y) a fraction of which the numerator shall be the number of
Parent Shares covered by such Cash Election and the denominator shall be the
aggregate number of Parent Shares that are Cash Election Shares. The balance
of such Parent Shares that are Cash Election Shares shall be transferred to
New Parent in exchange for New Parent Shares in accordance with the
provisions of Section 2.7 as if such Parent Shares were not Cash Election
Shares; and
(B) the number of Shares that are Cash Election Shares covered by a Cash
Election which shall be transferred to New Parent in exchange for the Per
Share Cash Consideration in respect of each New Parent Share the holder
thereof would have been entitled to receive pursuant to Section 2.7 shall
equal the number obtained by multiplying (x) the Company Cash Election
Number by (y) a fraction of which the numerator shall be the number of
Shares covered by such Cash Election and the denominator shall be the
aggregate number of Shares that are Cash Election Shares. The balance of
such Shares that are Cash Election Shares shall be transferred to New Parent
in exchange for New Parent Shares in accordance with the provisions of
Section 2.7 as if such Shares were not Cash Election Shares.
For purposes of this Section 2.11:
(i) "PARENT CASH ELECTION NUMBER" means the number obtained by dividing the
Parent Cash Pool by the Valuation Period Market Value;
(ii) "COMPANY CASH ELECTION NUMBER" means the number obtained by dividing
the Company Cash Pool by the product of (x) the Exchange Ratio and (y) the
Valuation Period Market Value;
(iii) "PARENT CASH POOL" means amount of cash available for Parent
shareholders, which shall initially be $204,000,000, provided that such amount
shall be increased to the extent holders of Shares do not make Cash Elections
with respect to the full initial amount of the Company Cash Pool and decreased
to the extent holders of Parent Shares do not make Cash Elections with respect
to the full initial amount of the Parent Cash Pool; and
(iv) "COMPANY CASH POOL" means amount of cash available for Company
shareholders, which shall initially be $96,000,000, provided that such amount
shall be increased to the extent holders of Parent Shares do not make Cash
Elections with respect to the full initial amount of the Parent Cash Pool and
decreased to the extent holders of Shares do not make Cash Elections with
respect to the full initial amount of the Company Cash Pool.
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ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent (the representations
and warranties set forth below being made as of March 16, 1998, and as of the
date required by Article Six, to the extent so required, except that references
to "the date hereof" or words of like import shall be construed to be March 16,
1998) that:
Section 3.1. CORPORATION; ORGANIZATION.
(a) Except as set forth in Section 3.1(a) of the Company Disclosure Letter,
each of the Company and its Subsidiaries is a company duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company and its Subsidiaries (i) is qualified,
licensed or domesticated as a foreign corporation in all jurisdictions where
such qualification, license or domestication is required to own and operate its
properties and conduct its business in the manner and at the places presently
conducted; (ii) holds all franchises, grants, licenses, certificates, permits,
consents and orders, all of which are valid and in full force and effect, from
all applicable Cayman Island and foreign regulatory authorities necessary to own
and operate its properties and to conduct its business in the manner and at the
places presently conducted; and (iii) 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 be so qualified, licensed or domesticated, or 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 Material Adverse
Effect on the Company. The Company has furnished to Parent complete and correct
copies of its memorandum of association and articles of association as in effect
on the date hereof. Such memorandum of association and articles of association
are in full force and effect and no other constitutional documents are
applicable to or binding upon the Company.
(b) The Company conducts its insurance and reinsurance operations through
the Subsidiaries set forth in Section 3.1(b) of the Company Disclosure Letter
(collectively, the "COMPANY INSURANCE SUBSIDIARIES"). Each of the Company
Insurance Subsidiaries is (i) duly licensed or authorized as an insurance
company or, where applicable, a reinsurer in its jurisdiction of incorporation
or duly licensed to operate in the insurance or reinsurance business (as
applicable) in its jurisdiction of incorporation, (ii) duly licensed or
authorized as an insurance company and, where applicable, a reinsurer in each
other jurisdiction where it is required to be so licensed or authorized or duly
licensed to operate in the insurance or reinsurance business (as applicable) in
each other jurisdiction where it is required to be so licensed, and (iii) duly
authorized in its jurisdiction of incorporation and each other applicable
jurisdiction to write each line of business currently written by such Company
Insurance Subsidiaries, except, in any such case, where the failure to be so
licensed or authorized is not reasonably likely to have a Material Adverse
Effect on the Company. The Company has made all required filings under
applicable insurance holding company statutes except where the failure to file
is not reasonably likely to have a Material Adverse Effect on the Company.
Section 3.2. AUTHORITY; APPROVAL AND FAIRNESS.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and, subject to the due approval and adoption of the Company
Scheme by its shareholders, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company, the performance by
the Company of its obligations hereunder, and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to compliance with the
provisions of Section 85 of the Companies Law. No other corporate proceedings on
the part of the Company are necessary for the execution, delivery and
performance of this Agreement by the Company and, subject to the approval and
adoption of the Company Scheme by its shareholders as provided above, compliance
with the provisions of Section 85 of the Companies Law, the performance by the
Company of its obligations hereunder and the consummation
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by the Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company (assuming the due authorization,
execution and delivery hereof and thereof by Parent and New Parent), and subject
to the provisions of Section 85 of the Companies Law constitutes the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance its terms, subject with respect to enforceability to the effect of
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, or
similar laws now or hereafter affecting the enforcement of creditors' rights
generally and to the availability of equitable remedies.
(b) The Board of Directors of the Company, with the exception of directors
affiliated with Parent, at a meeting duly called and held (i) has unanimously
declared that they consider this Agreement, the Company Scheme and the other
transactions contemplated hereby are advisable and in the best interests of the
Company and its shareholders and (ii) has authorized and approved in all
respects this Agreement, the Schemes and the other transactions contemplated
hereby, and (iii) has received the opinion of its financial advisors, J.P.
Morgan Securities Inc., to the effect that the consideration to be received by
the holders of the Shares in the Company Scheme is fair from a financial point
of view to such holders.
Section 3.3. CAPITAL STRUCTURE.
(a) As of the date hereof, the authorized share capital of the Company is
$40,000 comprised of 200,000,000 ordinary shares with a par value of $0.20 per
share. As of March 10, 1998, (i) 36,080,267 Class A Ordinary Shares were issued
and outstanding (other than Class A Ordinary Shares issued upon the exercise of
Company Options (as defined herein) since March 10, 1998), (ii) 1,190,292 Class
B Ordinary Shares were issued and outstanding, (iii) 1,860,000 Class C Ordinary
Shares were issued and outstanding and (iv) 38,547,076 Class A Ordinary Shares
were reserved for issue upon exercise of the rights (the "RIGHTS") distributed
to the holders of Class A Ordinary Shares pursuant to the Rights Agreement dated
as of September 12, 1996 (the "RIGHTS AGREEMENT"), between the Company and The
Bank of New York, as Rights Agent. As of the date hereof, JPM is the sole record
owner of Class B Ordinary Shares and Class C Ordinary Shares. Section 3.3(a) of
the Company Disclosure Letter sets forth each plan, arrangement or agreement
pursuant to which options or share appreciation rights with respect to Shares
may be granted or under which such options or share appreciation rights have
been granted and are outstanding and in the aggregate the maximum number of
options and share appreciation rights outstanding as of the date hereof, and the
class and number of Shares reserved for issue pursuant to the plan, arrangement
or agreement (such options and rights being herein collectively referred to as
the "COMPANY OPTIONS"), together with a listing of the aggregate number of such
Company Options which shall vest at the Effective Time as a result of the
Company Scheme. Except as set forth in this Section 3.3, or in Section 3.3(a) of
the Company Disclosure Letter, (i) no Shares have been issued and are
outstanding except for subsequent issues, if any, pursuant to reservations,
share option agreements or other Employee Benefit Plans existing on the date
hereof, and (ii) the Company and its Subsidiaries have not issued or granted any
option, warrant, convertible security or other right or agreement which affords
any person the right to purchase or otherwise acquire any Shares or any other
security of the Company other than options not prohibited by this Agreement and
granted in the ordinary course of business under share option and Employee
Benefit Plans in existence on such date. Except as set forth in this Agreement
or Section 3.3(a) of the Company Disclosure Letter, the Company is not subject
to any obligation (contingent or otherwise) to purchase or otherwise acquire or
retire or register for public sale any of its securities.
(b) Except as described in Section 3.3(b) of the Company Disclosure Letter,
no bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into or exercisable for securities having the right to vote) on any
matters on which shareholders may vote ("VOTING DEBT") of the Company are issued
or outstanding.
(c) Except as described in Sections 3.3(a), (b) or (c) of the Company
Disclosure Letter, there are no options, warrants, calls, rights, commitments or
agreements of any character to which the Company is a party or by which it is
bound obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares or any Voting Debt of the Company or
obligating the Company to
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grant, extend or enter into any such option, warrant, call, right, commitment or
agreement. Except as set forth in this Agreement or in Section 3.3(c) of the
Company Disclosure Letter, at the Effective Time, there will be no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of the Company.
(d) Except as described in Section 3.3(d) of the Company Disclosure Letter
or as specifically described in this Agreement and except for quarterly
dividends in an amount not in excess of $.825 per share, since March 10, 1998,
the Company has not (i) made or agreed to make any share split or share
dividend, or issued or permitted to be issued any shares, or securities
exercisable for or convertible into shares, of the Company other than pursuant
to and as required by the terms of any Company Option; (ii) repurchased,
redeemed or otherwise acquired any shares of the Company; or (iii) declared, set
aside, made or paid to the shareholders of the Company dividends or other
distributions on the outstanding shares of the Company.
Section 3.4. FINANCIAL STATEMENTS.
(a) The Company has delivered or made available to Parent a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement or information statement filed by the Company with the SEC in
respect of its fiscal years ending October 31, 1996 and 1997 under the
Securities Act and the Exchange Act and will deliver to Parent promptly upon the
filing thereof with the SEC all such reports, schedules, registration statements
and proxy statements as may be filed after the date hereof and prior to the
Effective Time (as such documents have since the time of their filing been
amended, or may after their filing, if after the date hereof, be amended, the
"COMPANY SEC REPORTS"), which are or will be all the documents that the Company
was or will be required to file with the SEC. Except as disclosed in Section
3.4(b) of the Company Disclosure Letter, as of their respective dates, the
Company SEC Reports complied or will comply in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Company SEC
Reports, and none of the Company SEC Reports contained or will contain any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made or will be made, not
misleading.
(b) As of their respective dates, the financial statements of the Company
included or to be included in the Company SEC Reports (the "COMPANY FINANCIAL
STATEMENTS") complied or will comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, and present or will present fairly in all
material respects the consolidated financial position of the Company and its
Subsidiaries and the consolidated results of operations, changes in
shareholders' equity and cash flows of the Company and its Subsidiaries as of
the dates and for the periods indicated, in accordance with GAAP applied on a
consistent basis, subject in the case of interim financial statements to normal
year-end adjustments and except for the absence of certain footnote information
in the unaudited statements.
Section 3.5. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company
SEC Reports filed prior to the date hereof, since January 31, 1997, there has
been no event or circumstance that would reasonably be expected to result in a
Material Adverse Effect on the Company.
Section 3.6. CERTAIN FEES. No finder, broker, agent, financial advisor or
other intermediary other than J.P. Morgan Securities Inc. ("JPMS") has acted on
behalf of the Company in connection with this Agreement or the transactions
contemplated hereby, or is entitled to any payment in connection herewith. The
Company has provided to Parent copies of the Company's engagement letter with
JPMS in connection with this Agreement and the transactions contemplated hereby.
Section 3.7. NO DEFAULTS. Neither the Company nor any of its Subsidiaries is
in default or violation (and no event has occurred which with notice or lapse of
time or both would constitute a default or violation) of its memorandum of
association or articles of association or other governing document, or any
material agreement, mortgage, indenture, debenture, trust, lease, license, or
other instrument or obligation
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to or by which it or any of its properties is subject or bound (the "COMPANY
INSTRUMENTS"), except for such defaults or violations as would not reasonably be
expected to have a Material Adverse Effect on the Company either individually or
in the aggregate. Except as set forth in Section 3.7 of the Company Disclosure
Schedule, the execution, delivery and performance of this Agreement and the
taking of any other action contemplated by this Agreement, will not (i) result
in any violation of or be in conflict with or constitute a breach or default
(with or without notice or lapse of time or both) under (a) the memorandum of
association or articles of association of the Company or its Subsidiaries or (b)
any of the other Company Instruments, except for any such violation of, conflict
with, breach of or default under which would not reasonably be expected to have
a Material Adverse Effect on the Company, (ii) result in or constitute an event
entitling any party to a Company Instrument to effect an acceleration of the
maturity of any indebtedness of the Company or any of its Subsidiaries or an
increase in the rate of interest presently in effect with respect to such
indebtedness except for any such accelerations or increases which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company, or (iii) result in the creation of any Lien upon
any of the properties or assets of the Company except for any Liens which would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
Section 3.8. CONSENTS. Except as set forth in Section 3.8 of the Company
Disclosure Schedule and except for compliance with the provisions of Section 85
of the Companies Law, the approval of the Corporation of Lloyd's, the consent of
the Court to the Schemes and the filing of the order or orders of the Court
pursuant to Section 2.2 to the Schemes, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority ("CONSENT") is required on the part of
the Company or its Subsidiaries in connection with the transactions contemplated
by this Agreement, except those required by United States federal and state
securities or "Blue Sky" laws, and where failure to obtain such Consent would
not have a Material Adverse Effect on the Company.
Section 3.9. COMPLIANCE WITH APPLICABLE LAW. Each of the Company and its
Subsidiaries is in compliance with all licenses, permits, and other
authorizations, domestic or foreign, necessary to conduct its respective
business, except where failure to have or comply with such licenses, permits and
authorizations would not reasonably be expected to have a Material Adverse
Effect on the Company. Neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any judgment,
decree, order, law, statute, rule or regulation of any Governmental Authority,
except for such defaults or violations as would not reasonably be expected to
have a Material Adverse Effect on the Company. Subject to obtaining the Consents
referred to in Section 3.8, the execution, delivery, and performance of this
Agreement and the taking of the other actions contemplated by this Agreement to
be executed, delivered and performed by the Company prior to the date or dates
as of which the representations and warranties herein are made or deemed made,
will not result in any default or violation of any judgment, decree, order, law,
statute, rule or regulation of any Governmental Authority applicable to the
Company or its Subsidiaries, except for such defaults or violations as would not
reasonably be expected to have a Material Adverse Effect on the Company either
individually or in the aggregate.
Section 3.10. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion in the Registration Statement on Form
S-4 (the "S-4") to be filed by New Parent relating to the New Parent Shares
comprising the Company Scheme Consideration and the Parent Scheme Consideration
will, at the time the S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading. The letters to shareholders,
notices of meetings, proxy statements and forms of proxies to be distributed to
shareholders of the Company and Parent, respectively, in connection with the
Schemes and the transactions contemplated hereby, except information supplied by
Parent in writing for inclusion in the Joint Proxy Statement (as defined
herein), will not, as of the date the Joint Proxy Statement is first mailed to
such shareholders and on the date of the meetings of the
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Company's shareholders or Parent's shareholders, as the case may be, and the
date of any adjournment thereof, 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. The information and documents referred to in the
previous two sentences are herein referred to as the "Joint Proxy Statement."
All documents that the Company is responsible for filing with any Governmental
Authority in connection with the transactions contemplated hereby will comply as
to form in all material respects with the provisions of any applicable law.
Section 3.11. MATERIAL CONTRACTS. Except as set forth in Section 3.11 of the
Company Disclosure Letter:
(a) All of the material contracts of the Company and its Subsidiaries that
are required to be described in the Company SEC Reports or to be filed as
exhibits thereto are described in the Company SEC Reports or filed as exhibits
thereto and are in full force and effect.
(b) Neither the Company nor any of its Subsidiaries is party to any
agreement containing any provision or covenant limiting in any material respect
the ability of the Company or any of its Subsidiaries (or New Parent or any of
its Subsidiaries subsequent to the Schemes) to (i) sell any products or services
of or to any other person, (ii) engage in any line of business in any
geographical area or (iii) 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.
(c) 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 in the event of the Schemes, except
for any such contract, agreement or arrangement which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
Section 3.12. TAXES.
(a) Except as set forth in Section 3.12(a) of the Company Disclosure Letter,
to the Company's knowledge, neither the Company nor any of its Subsidiaries has,
nor has it had, any income which is, or has been, subject to the United States
federal income tax as income which is effectively connected with the conduct of
a trade or business within the United States, within the meaning of Section
882(a)(1) of the Code. The Company and its Subsidiaries have filed or caused to
be filed with the appropriate Bermuda, United States federal, state, local,
foreign and other Governmental Authorities, all Tax returns, information returns
and reports required to be filed on or prior to the date hereof which, if not
filed, would have a Material Adverse Effect on the Company, and has paid in full
or made adequate provision (in accordance with GAAP) for the payment of all
Taxes (including Taxes withheld from employees' salaries and other withholding
Taxes and obligations) shown to be due on such Tax returns. All material written
assessments of Taxes due and payable by or on behalf of the Company or any of
its Subsidiaries have either been paid or provided for (in accordance with GAAP)
or are being contested in good faith by appropriate proceedings.
(b) There are no material Tax claims pending against the Company or any of
its Subsidiaries and the Company does not know of any threatened claim for Tax
deficiencies or any basis for such claims, no material issues have been raised
in any examination by any taxing authority with respect to the Company or any of
its Subsidiaries which, by application of similar principles, reasonably could
be expected to result in a proposed deficiency for any other period not so
examined, and there are not now in force any waivers or agreements by the
Company or any of its Subsidiaries for the extension of time for the assessment
of any material Tax, nor has any such waiver or agreement been requested by any
taxing authority. Neither the Company nor any of its Subsidiaries has any
liability for any material Bermuda, United States federal, state, local, foreign
or other Taxes of any corporation or entity other than the Company and its
Subsidiaries.
(c) To the Company's knowledge, disclosed in Section 3.12(c) of the Company
Disclosure Letter is, with respect to the year ended October 31, 1997 and for
the period commencing November 1, 1997 and ending on the date of the Company
Disclosure Letter, (i) each insurance or reinsurance transaction by the Company
or any of its Subsidiaries directly with shareholders of the Company and (ii)
each insurance or
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reinsurance transaction by the Company or any of its Subsidiaries directly or
indirectly with Persons related to shareholders of the Company and not disclosed
in clause (i) above, which would cause the Company or any of its Subsidiaries to
have any "related person insurance income" within the meaning of Section
953(c)(2) of the Code.
(d) To the Company's knowledge, the Company and its Subsidiaries did not
have for the year ended October 31, 1997, and the Company does not expect the
Company or any of its Subsidiaries to have for the period ending at the Company
Scheme Effective Time (treating such period as if it were a taxable year)
"related person insurance income" within the meaning of Section 953(c)(2) of the
Code in excess of the exceptions provided in Sections 953(c)(3)(A) and (B) of
the Code.
(e) Neither the Company nor any of its Subsidiaries is, nor has the Company
or any of its Subsidiaries ever been, a "controlled foreign corporation" within
the meaning of Section 957(a) or 957(b) of the Code.
Section 3.13. LITIGATION. Except as disclosed in the Company SEC Reports
filed prior to the date hereof or in Section 3.13 of the Company Disclosure
Letter, there are no actions, suits, claims, proceedings or investigations
pending against, or, to the knowledge of the Company, threatened against or
affecting, the Company or any of its Subsidiaries or any of their respective
properties or any syndicate at Lloyd's managed by a Subsidiary of the Company
("Syndicate") before any Governmental Authority or otherwise which (a)
individually or in the aggregate would be expected to have a Material Adverse
Effect on the Company; or (b) in any manner challenges or seeks to prevent,
enjoin, alter or delay the transactions contemplated hereby. As of the date
hereof, neither the Company nor its Subsidiaries or any of their respective
properties is subject to any order, writ, judgment, injunction, decree,
determination or award having, or which would reasonably be expected to have, a
Material Adverse Effect on the Company or which would prevent or delay the
consummation of the transactions contemplated hereby.
Section 3.14. U.S. ASSETS. The Company and its Subsidiaries, taken as a
whole, do not hold assets located in the United States of America having an
aggregate book value of $15 million or more, other than investment assets,
voting securities and nonvoting securities of another Person. For the purpose of
this representation, investment assets means cash, deposits in financial
institutions, other money market instruments and instruments evidencing
government obligations.
Section 3.15. EMPLOYEES. Section 3.15 of the Company Disclosure Letter lists
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 material 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 of control of
the Company or any of its Subsidiaries (including as a result of a termination
of employment in connection with any of such events). Except as described in
Section 3.15 of the Company Disclosure Letter and except as would not reasonably
be expected to have a Material Adverse Effect on the Company, (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, (b) no labor dispute with employees of the Company or
any of its Subsidiaries exists or, to the knowledge of the Company, is
threatened, (c) each Employee Benefit Plan conforms to, and its administration
is in conformity with, all applicable laws, no liability has been or is expected
to be incurred by the Company or any of its Subsidiaries with respect to any
Employee Benefit Plan except regular periodic contributions to such plans and
full payment has been made of all amounts that the Company or any of its
Subsidiaries is required to have paid as contributions to each Employee Benefit
Plan, (d) to the Company's knowledge, the current value of accrued benefits of
each Employee Benefit Plan under each defined benefit plan subject to Title IV
of ERISA does not exceed the current value of such plan's assets, (e) the
Company has made available to Parent a true and correct copy of each of the
Employee Benefit Plans, and all applicable trust agreements and all contracts
relating thereto, or to the funding thereof, (f) all Employee Benefit Plans
intended to satisfy applicable Tax qualification requirements, or other
requirements necessary to secure
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favorable Tax or other legal treatment comply in all material respects with such
requirements, and (g) adequate accruals for all obligations under the Employee
Benefit Plans are reflected in the Company Financial Statements. Except as
described in Section 3.15 of the Company Disclosure Letter, no agreement,
contract or arrangement to which Company or any of its Subsidiaries is a party
would result in a payment that would not be deductible as a result of Section
280G of the Code.
Section 3.16. TAKEOVER STATUTES. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation enacted
under any Cayman Islands law is applicable to the Schemes or the other
transactions contemplated hereby.
Section 3.17. OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of JPMS, dated March 15, 1998, to the effect that, as of such date, the
consideration to be received in the Company Scheme by the shareholders of the
Company is fair to the shareholders of the Company from a financial point of
view, a copy of which opinion has been delivered to Parent.
Section 3.18. RIGHTS AGREEMENT.
(a) Prior to Parent entering into this Agreement, the Company has taken all
actions necessary such that, for all purposes under the Rights Agreement, New
Parent and Parent shall not be deemed an Acquiring Person (as defined in the
Rights Agreement), the Distribution Date (as defined in the Rights Agreement)
shall not be deemed to occur and the Rights issuable pursuant to the Rights
Agreement will not separate from the Shares as a result of New Parent's or
Parent's entering into this Agreement or consummating the Schemes and/or the
other transactions contemplated hereby.
(b) The Company has taken all necessary action with respect to all of the
outstanding Rights so that, as of immediately prior to the Effective Time, (i)
neither the Company, New Parent nor Parent will have any obligations under the
Rights or the Rights Agreement and (ii) the holders of the Rights will have no
rights under the Rights or the Rights Agreement.
Section 3.19. INSURANCE MATTERS.
(a) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which the Company or any Company Insurance
Subsidiary or any Syndicate is a party or under which the Company or any Company
Insurance Subsidiary or any Syndicate 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 of which are not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on the
Company.
(b) 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 October 31, 1996, 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.
Section 3.20. LIABILITIES AND RESERVES. Except for instances where the
failure of the following statements to be true would not reasonably be likely to
have a Material Adverse Effect on the Company, (i) the reserves carried on the
financial statements of each Company Insurance Subsidiary for future insurance
policy benefits, losses, claims and similar purposes were, as of the respective
dates of such financial statements, compliance with the requirements for
reserves established by the insurance departments of the jurisdiction of such
Company Insurance Subsidiary or (as the case may be) by the Corporation of
Lloyd's, were determined in accordance with generally accepted actuarial
standards and principles consistently applied, and were fairly stated in
accordance with sound actuarial and statutory accounting principles; (ii) 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 financial statements; and (iii)
the admitted assets of each Company Insurance Subsidiary as determined under
applicable laws or
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under the Lloyd's regulations are in an amount at least equal to the minimum
amounts required by applicable laws or regulations.
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Section 3.21. INVESTMENT COMPANY. Neither the Company nor any of its
Subsidiaries conducts activities of or is otherwise deemed under applicable law
to control an "investment advisor" as such term is defined in Section 2(a)(20)
of the Investment Company Act of 1940, as amended (the "1940 ACT"), whether or
not registered under the Investment Advisers Act of 1940, as amended. Neither
the Company nor any of its Subsidiaries is an "investment company" as defined
under the 1940 Act, and neither the Company nor any of its Subsidiaries sponsors
any Person that is such an investment company.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company (the representations
and warranties set forth below being made as of March 16, 1998, and as of the
date required by Article Six, to the extent so required, except that references
to "the date hereof" or words of like import shall be construed to be March 16,
1998) that:
Section 4.1. CORPORATION; ORGANIZATION.
(a) Each of Parent and its Subsidiaries is a company duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Each of Parent and its Subsidiaries (i) is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where such
qualification, license or domestication is required to own and operate its
properties and conduct its business in the manner and at the places presently
conducted; (ii) holds all franchises, grants, licenses, certificates, permits,
consents and orders, all of which are valid and in full force and effect, from
all applicable Cayman Island and foreign regulatory authorities necessary to own
and operate its properties and to conduct its business in the manner and at the
places presently conducted; and (iii) 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 be so qualified, licensed or domesticated, or 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 Material Adverse
Effect on Parent. Parent has furnished to the Company complete and correct
copies of its memorandum of association and articles of association as in effect
on the date hereof. Such memorandum of association and articles of association
are in full force and effect and no other constitutional documents are
applicable to or binding upon Parent.
(b) Parent conducts its insurance and reinsurance operations through the
Subsidiaries set forth in Section 4.1(b) of Parent Disclosure Letter
(collectively, the "PARENT INSURANCE SUBSIDIARIES"). Each of Parent Insurance
Subsidiaries is (i) duly licensed or authorized as an insurance company or,
where applicable, a reinsurer in its jurisdiction of incorporation or duly
licensed to operate in the insurance or reinsurance business (as applicable) in
its jurisdiction of incorporation, (ii) duly licensed or authorized as an
insurance company or, where applicable, a reinsurer in each other jurisdiction
where it is required to be so licensed or authorized or duly licensed to operate
in the insurance or reinsurance business (as applicable) in each other
jurisdiction where it is required to be so licensed, and (iii) duly authorized
in its jurisdiction of incorporation and each other applicable jurisdiction to
write each line of business currently written by such Parent Insurance
Subsidiaries, except, in any such case, where the failure to be so licensed or
authorized is not reasonably likely to have a Material Adverse Effect on Parent.
Parent has made all required filings under applicable insurance holding company
statutes except where the failure to file is not reasonably likely to have a
Material Adverse Effect on Parent.
Section 4.2. AUTHORITY; APPROVAL AND FAIRNESS.
(a) Parent has all requisite corporate power and authority to enter into
this Agreement and, subject to the due approval and adoption of the Parent
Scheme by its shareholders, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Parent, the performance by
Parent of its obligations hereunder, and the consummation by Parent of the
transactions
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contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent, subject only to compliance with the provisions of Section
85 of the Companies Law. No other corporate proceedings on the part of Parent
are necessary for the execution, delivery and performance of this Agreement by
Parent and, subject to the approval and adoption of the Parent Scheme by its
shareholders as provided above, compliance with the provisions of Section 85 of
the Companies Law, the performance by Parent of its obligations hereunder and
the consummation by Parent of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and (assuming the due
authorization, execution and delivery hereof and thereof by the Company and New
Parent) and subject to the provisions of Section 85 of the Companies Law
constitutes the legal, valid and binding obligations of Parent, enforceable
against Parent in accordance its terms, subject with respect to enforceability
to the effect of bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, or similar laws now or hereafter affecting the enforcement of
creditors' rights generally and to the availability of equitable remedies.
(b) The Board of Directors of Parent (i) has unanimously (by all directors
present at a meeting duly called and held) declared that they consider this
Agreement, the Parent Scheme and the other transactions contemplated hereby are
advisable and in the best interests of Parent and its shareholders and (ii) has
authorized and approved in all respects this Agreement, the Schemes and the
other transactions contemplated hereby, and (iii) has received the opinion of
its financial advisors, Goldman, Sachs & Co. ("GOLDMAN SACHS"), to the effect
that the consideration to be received by the holders of the Shares in the Parent
Scheme is fair from a financial point of view to such holders.
Section 4.3. CAPITAL STRUCTURE.
(a) As of the date hereof, the authorized share capital of Parent is
$9,999,900 comprised of 999,990,000 ordinary shares with a par value of $0.01
per share. As of March 10, 1998, 84,653,719 Parent Shares were issued and
outstanding (other than Parent Shares issued upon the exercise of Parent Options
(as defined herein) since March 10, 1998 and excluding 27,594,800 Parent Shares
held in Treasury) and (ii) additional Parent Shares were reserved for issue upon
exercise of the rights (the "PARENT RIGHTS") distributed to the holders of
Parent Shares pursuant to the Rights Agreement dated as of December 1, 1996 (the
"PARENT RIGHTS AGREEMENT"), between Parent and Mellon Securities Trust Company,
as Rights Agent. Section 4.3(a) of the Parent Disclosure Letter sets forth, as
of the date hereof, each plan, arrangement or agreement pursuant to which
options or share appreciation rights with respect to Parent Shares may be
granted or under which such options or share appreciation rights have been
granted and are outstanding and in the aggregate the maximum number of options
and share appreciation rights outstanding, and the class and number of Parent
Shares reserved for issue pursuant to the plan, arrangement or agreement (such
options and rights being herein collectively referred to as the "PARENT
OPTIONS"). Except as set forth in this Section 4.3 or in Section 4.3(a) of the
Parent Disclosure Letter, as of the date hereof, (i) no Parent Shares have been
issued and are outstanding except for subsequent issues, if any, pursuant to
reservations, share option agreements or other Employee Benefit Plans existing
on the date hereof, and (ii) Parent and its Subsidiaries have not issued or
granted any option, warrant, convertible security or other right or agreement
which affords any person the right to purchase or otherwise acquire any Parent
Shares or any other security of Parent other than options not prohibited by this
Agreement and granted in the ordinary course of business under share option and
Employee Benefit Plans in existence on such date. Except as set forth in this
Agreement or Section 4.3(a) of the Parent Disclosure Letter, Parent is not
subject to any obligation (contingent or otherwise) to purchase or otherwise
acquire or retire or register for public sale any of its securities.
(b) Except as described in Section 4.3(b) of the Parent Disclosure Letter,
as of the date hereof, no Voting Debt of Parent is issued or outstanding.
(c) Except as described in Section 4.3(a), (b) or (c) of the Parent
Disclosure Letter, as of the date hereof, there are no options, warrants, calls,
rights, commitments or agreements of any character to which Parent is a party or
by which it is bound obligating Parent to issue, deliver or sell, or cause to be
issued,
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delivered or sold, additional shares or any Voting Debt or obligating Parent to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement. Except as set forth in this Agreement or in Section 4.3(c) of the
Parent Disclosure Letter, as of the date hereof, there are no outstanding
contractual obligations of Parent to repurchase, redeem or otherwise acquire any
shares of Parent.
(d) Except as described in Section 4.3(d) of the Parent Disclosure Letter or
as specifically described in this Agreement and except for quarterly dividends
in an amount not in excess of $.50 per share, since March 10, 1998, as of the
date hereof, Parent has not (i) made or agreed to make any share split or share
dividend, or issued or permitted to be issued any shares, or securities
exercisable for or convertible into shares, of Parent other than pursuant to and
as required by the terms of any Parent Option; (ii) redeemed any Shares of
Parent; or (iii) declared, set aside, made or paid to the shareholders of Parent
dividends or other distributions on the outstanding shares of Parent.
Section 4.4. FINANCIAL STATEMENTS.
(a) Parent has delivered or made available to the Company a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement or information statement filed by Parent with the SEC in respect
of its fiscal years ending November 30, 1996 and 1997 under the Securities Act
and the Exchange Act and will deliver to the Company promptly upon the filing
thereof with the SEC all such reports, schedules, registration statements and
proxy statements as may be filed after the date hereof and prior to the
Effective Time (as such documents have since the time of their filing been
amended, or may after their filing, if after the date hereof, be amended, the
"PARENT SEC REPORTS"), which are or will be all the documents that Parent was or
will be required to file with the SEC. As of their respective dates, the Parent
SEC Reports complied or will comply in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Parent SEC
Reports, and none of the Parent SEC Reports contained or will contain any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made or will be made, not
misleading.
(b) As of their respective dates, the financial statements of Parent
included or to be included in the Parent SEC Reports (the "PARENT FINANCIAL
STATEMENTS") complied or will comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, and present or will present fairly in all
material respects the consolidated financial position of Parent and its
Subsidiaries and the consolidated results of operations, changes in
shareholders' equity and cash flows of Parent and its Subsidiaries as of the
dates and for the periods indicated, in accordance with GAAP applied on a
consistent basis, subject in the case of interim financial statements to normal
year-end adjustments and except for the absence of certain footnote information
in the unaudited statements.
Section 4.5. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Parent
SEC Reports filed prior to the date hereof, since January 31, 1997, there has
been no event or circumstance that would reasonably be expected to result in a
Material Adverse Effect on Parent.
Section 4.6. CERTAIN FEES. No finder, broker, agent, financial advisor or
other intermediary other than Goldman Sachs has acted on behalf of Parent in
connection with this Agreement or the transactions contemplated hereby, or is
entitled to any payment in connection herewith. Parent has provided to the
Company copies of Parent's engagement letter with Goldman Sachs in connection
with this Agreement and the transactions contemplated hereby.
Section 4.7. NO DEFAULTS. Neither Parent nor any of its Subsidiaries is in
default or violation (and no event has occurred which with notice or lapse of
time or both would constitute a default or violation) of its memorandum of
association or articles of association or other governing document, or any
material agreement, mortgage, indenture, debenture, trust, lease, license, or
other instrument or obligation to or by which it or any of its properties is
subject or bound (the "PARENT INSTRUMENTS"), except for such defaults or
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violations as would not reasonably be expected to have a Material Adverse Effect
on Parent either individually or in the aggregate. Except as set forth in
Section 4.7 of the Parent Disclosure Schedule, the execution, delivery and
performance of this Agreement and the taking of any other action contemplated by
this Agreement, will not (i) result in any violation of or be in conflict with
or constitute a breach or default (with or without notice or lapse of time or
both) under (a) the memorandum of association or articles of association of
Parent or its Subsidiaries or (b) any of the other Parent Instruments, except
for any such violation of, conflict with, breach of or default under which would
not reasonably be expected to have a Material Adverse Effect on Parent, (ii)
result in or constitute an event entitling any party to a Parent Instrument to
effect an acceleration of the maturity of any indebtedness of Parent or any of
its Subsidiaries or an increase in the rate of interest presently in effect with
respect to such indebtedness except for any such accelerations or increases
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Parent, or (iii) result in the creation of any
Lien upon any of the properties or assets of Parent except for any Liens which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent.
Section 4.8. CONSENTS. Except as set forth in Section 4.8 of the Parent
Disclosure Schedule and except for compliance with the provisions of Section 85
of the Companies Law, the approval of the Corporation of Lloyd's, the consent of
the Court to the Schemes and the filing of the order or orders of the Court
pursuant to Section 2.2 to the Schemes, no Consent is required on the part of
Parent or its Subsidiaries in connection with the transactions contemplated by
this Agreement, except those required by United States federal and state
securities or "Blue Sky" laws, and where failure to obtain such Consent would
not have a Material Adverse Effect on Parent.
Section 4.9. COMPLIANCE WITH APPLICABLE LAW. Each of Parent and its
Subsidiaries is in compliance with all licenses, permits, and other
authorizations, domestic or foreign, necessary to conduct its respective
business, except where failure to have or comply with such licenses, permits and
authorizations would not reasonably be expected to have a Material Adverse
Effect on Parent. Neither Parent nor any of its Subsidiaries is in default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any judgment, decree, order,
law, statute, rule or regulation of any Governmental Authority, except for such
defaults or violations as would not reasonably be expected to have a Material
Adverse Effect on Parent. Subject to obtaining the Consents referred to in
Section 4.8, the execution, delivery, and performance of this Agreement and the
taking of the other actions contemplated by this Agreement to be executed,
delivered and performed by Parent prior to the date or dates as of which the
representations and warranties herein are made or deemed made, will not result
in any default or violation of any judgment, decree, order, law, statute, rule
or regulation of any Governmental Authority applicable to Parent or its
Subsidiaries, except for such defaults or violations as would not reasonably be
expected to have a Material Adverse Effect on Parent either individually or in
the aggregate.
Section 4.10. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Parent for inclusion in the S-4 to be filed by New Parent
relating to the New Parent Shares comprising the Company Scheme Consideration
and the Parent Scheme Consideration will, at the time the S-4 is filed with the
SEC and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading. The
letters to shareholders, notices of meetings, proxy statements and forms of
proxies to be distributed to shareholders of Parent and the Company,
respectively, in connection with the Schemes and the transactions contemplated
hereby, except information supplied by the Company in writing for inclusion in
the Joint Proxy Statement, will not, as of the date the Joint Proxy Statement is
first mailed to such shareholders and on the date of the meetings of Parent's
shareholders or the Company's shareholders, as the case may be, and the date of
any adjournment thereof, 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. All documents that Parent is
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responsible for filing with any Governmental Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of any applicable law.
Section 4.11. MATERIAL CONTRACTS. Except as set forth in Section 4.11 of the
Parent Disclosure Letter:
(a) All of the material contracts of Parent and its Subsidiaries that
are required to be described in the Parent SEC Reports or to be filed as
exhibits thereto are described in the Parent SEC Reports or filed as
exhibits thereto and are in full force and effect.
(b) Neither Parent nor any of its Subsidiaries is, as of the date
hereof, party to any agreement containing any provision or covenant limiting
in any material respect the ability of Parent or any of its Subsidiaries (or
New Parent or any of its Subsidiaries subsequent to the Schemes) to (i) sell
any products or services of or to any other person, (ii) engage in any line
of business in any geographical area or (iii) compete with or to obtain
products or services from any Person or limiting the ability of any Person
to provide products or services to Parent or any of its Subsidiaries.
(c) Neither Parent 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 in the event of the Schemes,
except for any such contract, agreement or arrangement which would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
Section 4.12. TAXES.
(a) To Parent's knowledge, neither Parent nor any of its Subsidiaries
has, nor has it had, any income which is, or has been, subject to the United
States federal income tax as income which is effectively connected with the
conduct of a trade or business within the United States, within the meaning
of Section 882(a)(1) of the Code. Parent and its Subsidiaries have filed or
caused to be filed with the appropriate Bermuda, United States federal,
state, local, foreign and other Governmental Authorities, all Tax returns,
information returns and reports required to be filed on or prior to the date
hereof which, if not filed, would have a Material Adverse Effect on Parent,
and has paid in full or made adequate provision (in accordance with GAAP)
for the payment of all Taxes (including Taxes withheld from employees'
salaries and other withholding Taxes and obligations) shown to be due on
such Tax returns. All material written assessments of Taxes due and payable
by or on behalf of Parent or any of its Subsidiaries have either been paid
or provided for (in accordance with GAAP) or are being contested in good
faith by appropriate proceedings.
(b) There are no material Tax claims pending against Parent or any of
its Subsidiaries and Parent does not know of any threatened claim for Tax
deficiencies or any basis for such claims, no material issues have been
raised in any examination by any taxing authority with respect to Parent or
any of its Subsidiaries which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined, and there are not now in force any waivers or
agreements by Parent or any of its Subsidiaries for the extension of time
for the assessment of any material Tax, nor has any such waiver or agreement
been requested by any taxing authority. Neither Parent nor any of its
Subsidiaries has any liability for any material Bermuda, United States
federal, state, local, foreign or other Taxes of any corporation or entity
other than Parent and its Subsidiaries.
(c) To Parent's knowledge, disclosed in Section 4.12(c) of the Parent
Disclosure Letter is, with respect to the year ended November 30, 1997 and
for the period commencing December 1, 1997 and ending on the date of the
Parent Disclosure Letter, (i) each insurance or reinsurance transaction by
Parent or any of its Subsidiaries directly with shareholders of Parent and
(ii) each insurance or reinsurance transaction by Parent or any of its
Subsidiaries directly or indirectly with Persons related to shareholders of
Parent and not disclosed in clause (i) above, which would cause Parent or
any of its Subsidiaries to have any "related person insurance income" within
the meaning of Section 953(c)(2) of the Code.
(d) To Parent's knowledge, Parent and its Subsidiaries did not have for
the year ended November 30, 1997, and Parent does not expect Parent or any
of its Subsidiaries to have for the period ending
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at the Parent Scheme Effective Time (treating such period as if it were a
taxable year) "related person insurance income" within the meaning of
Section 953(c)(2) of the Code in excess of the exceptions provided in
Sections 953(c)(3)(A) and (B) of the Code.
(e) To Parent's knowledge, neither Parent nor any of its Subsidiaries
is, nor has Parent or any of its Subsidiaries ever been, a "controlled
foreign corporation" within the meaning of Section 957(a) or 957(b) of the
Code.
Section 4.13. LITIGATION. Except as disclosed in the Parent SEC Reports
filed prior to the date hereof or in Section 4.13 of the Parent Disclosure
Letter, there are no actions, suits, claims, proceedings or investigations
pending against, or, to the knowledge of Parent, threatened against or
affecting, Parent or any of its Subsidiaries or any of their respective
properties before any Governmental Authority or otherwise which (a) individually
or in the aggregate would be expected to have a Material Adverse Effect on
Parent; or (b) in any manner challenges or seeks to prevent, enjoin, alter or
delay the transactions contemplated hereby. As of the date hereof, neither
Parent nor its Subsidiaries or any of their respective properties is subject to
any order, writ, judgment, injunction, decree, determination or award having, or
which would reasonably be expected to have, a Material Adverse Effect on Parent
or which would prevent or delay the consummation of the transactions
contemplated hereby.
Section 4.14. U.S. ASSETS. Parent and its Subsidiaries, taken as a whole, do
not hold assets located in the United States of America having an aggregate book
value of $15 million or more, other than investment assets, voting securities
and nonvoting securities of another Person. For the purpose of this
representation, investment assets means cash, deposits in financial
institutions, other money market instruments and instruments evidencing
government obligations.
Section 4.15. EMPLOYEES. Section 4.15 of the Parent Disclosure Letter lists,
as of the date hereof, all employment contracts and similar arrangements between
Parent or any of its Subsidiaries and their respective executive officers, and
all plans and arrangements pursuant to which Parent or any of its Subsidiaries
is obligated to make any payment or confer any material benefit upon any
officer, director, employee or agent of Parent 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 of control of
Parent or any of its Subsidiaries (including as a result of a termination of
employment in connection with any of such events). Except as described in
Section 4.15 of the Parent Disclosure Letter and except as would not reasonably
be expected to have a Material Adverse Effect on Parent, (a) Parent 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, (b) no labor dispute with employees of Parent or any of
its Subsidiaries exists or, to the knowledge of Parent, is threatened, (c) each
Employee Benefit Plan conforms to, and its administration is in conformity with,
all applicable laws, no liability has been or is expected to be incurred by
Parent or any of its Subsidiaries with respect to any Employee Benefit Plan
except regular periodic contributions to such plans and full payment has been
made of all amounts that Parent or any of its Subsidiaries is required to have
paid as contributions to each Employee Benefit Plan, (d) to Parent's knowledge,
the current value of accrued benefits of each Employee Benefit Plan under each
defined benefit plan subject to Title IV of ERISA does not exceed the current
value of such plan's assets, (e) Parent has made available to the Company a true
and correct copy of each of the Employee Benefit Plans, and all applicable trust
agreements and all contracts relating thereto, or to the funding thereof, (f)
all Employee Benefit Plans intended to satisfy applicable Tax qualification
requirements, or other requirements necessary to secure favorable Tax or other
legal treatment comply in all material respects with such requirements, and (g)
adequate accruals for all obligations under the Employee Benefit Plans are
reflected in the Parent Financial Statements. Except as described in Section
4.15 of the Parent Disclosure Letter, no agreement, contract or arrangement to
which Parent or any of its Subsidiaries is a party would result in a payment
that would not be deductible as a result of Section 280G of the Code.
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Section 4.16. TAKEOVER STATUTES. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation enacted
under any Cayman Islands law is applicable to the Schemes or the other
transactions contemplated hereby.
Section 4.17. OPINION OF FINANCIAL ADVISOR. Parent has received the opinion
of Goldman Sachs, dated March 15, 1998, to the effect that, as of such date, the
consideration to be received in the Parent Scheme by the shareholders of Parent
is fair to the shareholders of Parent from a financial point of view, a copy of
which opinion has been delivered to the Company.
Section 4.18. RIGHTS AGREEMENT.
(a) Prior to the Company entering into this Agreement, Parent has taken
all actions necessary such that, for all purposes under the Parent Rights
Agreement, neither the Company nor New Parent shall be deemed an Acquiring
Person (as defined in the Parent Rights Agreement), the Distribution Date
(as defined in the Parent Rights Agreement) shall not be deemed to occur and
the Parent Rights issuable pursuant to the Parent Rights Agreement will not
separate from the Parent Shares as a result of Parent's or the Company's
entering into this Agreement or consummating the Schemes and/or the other
transactions contemplated hereby.
(b) Parent has taken all necessary action with respect to all of the
outstanding Parent Rights so that, as of immediately prior to the Effective
Time, (i) neither Parent, New Parent nor the Company will have any
obligations under the Parent Rights or the Parent Rights Agreement and (ii)
the holders of the Parent Rights will have no rights under the Parent Rights
or the Parent Rights Agreement.
Section 4.19. INSURANCE MATTERS.
(a) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which Parent or any Parent Insurance
Subsidiary is a party or under which Parent or any Parent 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 of which are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on Parent.
(b) Prior to the date hereof, Parent has delivered or made available to
the Company a true and complete copy of any actuarial reports prepared by
actuaries, independent or otherwise, with respect to Parent or any Parent
Insurance Subsidiary since October 31, 1996, and all attachments, addenda,
supplements and modifications thereto (the "PARENT ACTUARIAL ANALYSES"). The
information and data furnished by Parent or any Parent Insurance Subsidiary
to its independent actuaries in connection with the preparation of the
Parent Actuarial Analyses were accurate in all material respects.
Section 4.20. LIABILITIES AND RESERVES.
Except for instances where the failure of the following statements to be
true would not reasonably be likely to have a Material Adverse Effect on Parent,
(i) the reserves carried on the financial statements of each Parent Insurance
Subsidiary for future insurance policy benefits, losses, claims and similar
purposes were, as of the respective dates of such financial statements,
compliance with the requirements for reserves established by the insurance
departments of the jurisdiction of such Parent Insurance Subsidiary, were
determined in accordance with generally accepted actuarial standards and
principles consistently applied, and were fairly stated in accordance with sound
actuarial and statutory accounting principles; (ii) such reserves were adequate
in the aggregate to cover the total amount of all reasonably anticipated
liabilities of Parent and each Parent Insurance Subsidiary under all outstanding
insurance, reinsurance and other applicable agreements as of the respective
dates of such financial statements; and (iii) the admitted assets of each Parent
Insurance Subsidiary as determined under applicable laws are in an amount at
least equal to the minimum amounts required by applicable laws.
Section 4.21. INVESTMENT COMPANY. Except as set forth in Section 4.21 of the
Parent Disclosure Letter, neither Parent nor any of its Subsidiaries conducts
activities of or is otherwise deemed under applicable law to control an
"investment advisor" as such term is defined in Section 2(a)(20) of the 1940
Act, whether
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or not registered under the Investment Advisers Act of 1940, as amended. Except
as set forth in Section 4.21 of the Parent Disclosure Letter, neither Parent nor
any of its Subsidiaries is an "investment company" as defined under the 1940
Act, and neither Parent nor any of its Subsidiaries sponsors any Person that is
such an investment company.
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ARTICLE FIVE
COVENANTS
Section 5.1. CONDUCT OF BUSINESS OF THE COMPANY. Except as expressly
contemplated by this Agreement, as set forth in Section 5.1 of the Company
Disclosure Letter or as consented to in writing by Parent, during the period
from the date of this Agreement to the Effective Time, the Company and its
Subsidiaries will conduct their operations and (to the extent it is able to
control them) the operations of the Syndicates only in, and neither the Company
nor any of its Subsidiaries shall take any action and shall not take any action
in relation to the Syndicates (to the extent it is able to control them) except
in, the ordinary and usual course of business and consistent with past practice,
and the Company and its Subsidiaries will use their reasonable best efforts to
preserve intact their business organization, to keep available the services of
their officers and employees and to maintain advantageous relationships with
customers, business partners and others having business relationships with the
Company or its Subsidiaries or the Syndicate, 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, except as expressly contemplated
by this Agreement, without the prior written consent of Parent:
(a) split, combine or reclassify any shares, declare, pay or set aside for
payment any dividend or other distribution payable in cash, shares, property or
otherwise in respect of its shares, or directly or indirectly redeem, purchase
or otherwise acquire any shares, or other securities, other than quarterly
dividends in an amount not in excess of $.825 per share; 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 Shares and the Shares and the
record dates and payment dates relating thereto, it being the intention of the
parties that holders of Parent Shares and Shares will not receive two dividends,
or fail to receive one dividend, for any single calendar quarter with respect to
their Shares and/or Parent Shares and the New Parent Shares any such holder
receives in exchange therefor in the Schemes;
(b) authorize for issuance, issue, sell, pledge, dispose of or encumber,
deliver or agree or commit to issue, sell, pledge or deliver (whether through
the issue or granting of any options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any shares of any class of the Company or any
securities convertible into or exercisable or exchangeable for shares of any
class of the Company, except as required by agreements as in effect as of the
date hereof or as disclosed in Section 5.1(b) of the Company Disclosure Letter,
or amend any of the terms of any such securities or agreements outstanding as of
the date hereof;
(c) (i) incur or assume any debt except for borrowings in the ordinary
course of business consistent with past practices, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person except in the
ordinary course of business, (iii) make any loans or advances to any Person
other than loans or advances of out-of-pocket expenses incurred in connection
with the business of the Company or its Subsidiaries, or make any capital
contributions to, or investments in, any other Person except, after consultation
with Parent, in the ordinary course of business, (iv) pledge or otherwise
encumber shares of the Company or its Subsidiaries, or (v) mortgage or pledge
any of its material assets, tangible or intangible, or create any Lien thereupon
other than Permitted Liens;
(d) except as may be required by law or as contemplated by this Agreement,
including Section 5.9, enter into, adopt, or amend or terminate any bonus,
profit sharing, compensation, severance, termination, stock option, share
appreciation right, restricted shares, performance unit, share equivalent, share
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 manner the salary, wages, bonus,
commission, or other compensation or benefits of any director or officer (at the
level of Vice President or above) of the Company or any of its Subsidiaries; or
increase in any
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manner the salary, wages, bonus, commission, or other compensation or benefits
of any director, 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 (which, in the case of directors and officers at
the level of Vice President or above, shall only be made after consultation with
Parent); or hire employees at the level of Vice President or above except after
consultation with Parent; or pay any benefit not required by any plan and
arrangement as in effect as of March 16, 1998 (including, without limitation,
the granting of stock options, share appreciation rights or performance units);
(e) acquire (by merger, amalgamation, consolidation or acquisition of shares
or assets) any corporation, partnership or other business organization or
division thereof or make any material investment either by purchase of shares 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, except for the purchase of investment shares or securities
in the ordinary course of business;
(f) except after consultation with Parent, pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, contingent or otherwise)
against the Company or any of its Subsidiaries, its directors, officers,
employees or agents, other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice;
(g) propose to amend the memorandum of association, articles of association
or any similar document of the Company or any of its Subsidiaries;
(i) propose to adopt a plan of complete or partial liquidation or
resolutions providing for the complete or partial liquidation, dissolution,
amalgamation, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries;
(j) except as set forth in Section 5.1(i) of the Company Disclosure Letter,
enter into any new lines of business (whether or not part of the insurance or
reinsurance business) or, without prior consultation with Parent, change any
policy forms, investment policies or guidelines or otherwise make material
changes to the operation of its business, or its loss reserve;
(k) except as set forth in Section 5.1(j) of the Company Disclosure Letter,
sell (whether by amalgamation, consolidation or otherwise), lease, encumber,
transfer or dispose of any material assets (including without limitation, rights
of renewal) outside the ordinary course of business consistent with past
practice, or enter into any material commitment or transaction outside the
ordinary course of business consistent with past practices;
(l) 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;
(m) amend the Rights or the Rights Agreement in any manner adverse to
Parent;
(n) enter into any agreement providing 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
(o) resolve, commit or agree to take any of the foregoing actions or any
action which would make any representation or warranty in Article THREE hereof
materially untrue or incorrect.
Section 5.2. CONDUCT OF BUSINESS OF PARENT. Except as expressly contemplated
by this Agreement or consented to in writing by the Company, during the period
from the date of this Agreement to the Effective Time, Parent and its
Subsidiaries will use their reasonable best efforts to preserve intact their
business organization and to maintain advantageous relationships with customers,
business partners and others having business relationships with Parent or its
Subsidiaries, as the case may be. Without limiting the generality of the
foregoing, prior to the Effective Time, neither Parent nor any of its
Subsidiaries will, except as expressly contemplated by this Agreement (or
Section 5.2 of the Parent Disclosure Letter), without the prior written consent
of the Company:
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(a) split, combine or reclassify any shares, declare, set aside or pay
(whether in cash or property, but excluding dividends in shares) any dividends
on, or make any other distributions in respect of, any shares other than
dividends and distributions by any direct or indirect wholly owned Subsidiary of
Parent to its parent and except for regular quarterly cash dividends declared by
the Board of Directors of Parent;
(b) amend or propose to amend the memorandum of association, articles of
association or any similar document of Parent in any manner adverse to the
shareholders of the Company;
(c) adopt a plan of complete or partial liquidation or resolutions providing
for the complete or partial liquidation, dissolution, amalgamation,
consolidation, restructuring, recapitalization or other reorganization of
Parent;
(d) 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;
(e) enter into any material acquisition outside the ordinary course of
business; or
(f) resolve, commit or agree to take any of the foregoing actions or any
action which would make any representation or warranty in Article FOUR hereof
materially untrue or incorrect.
Section 5.3. ACQUISITION PROPOSALS. Without the prior written consent of
Parent, the Company shall not, and shall cause its Subsidiaries and its
Subsidiaries' officers, directors, agents, advisors and affiliates not to,
solicit or encourage inquiries or proposals with respect to, or engage in any
negotiations concerning, or provide any confidential information to, or have any
discussions with, any such Person relating to, any tender offer or exchange
offer for, or any proposal for the acquisition of a substantial equity interest
in, or a substantial portion of the assets of, or any merger or consolidation
with, the Company or any of its Subsidiaries and any such inquiries, proposals
or discussions shall be immediately terminated; PROVIDED, HOWEVER, that the
Company may, and may authorize and permit its officers, directors, employees or
agents to, furnish or cause to be furnished confidential information and may
participate in such discussions and negotiations if the Company's Board of
Directors, after having consulted with and considered the advice of outside
counsel, has determined that the failure to provide such information or
participate in such negotiations and discussions would cause the members of such
Board of Directors to breach their fiduciary duties under applicable laws. The
Company shall promptly (within 24 hours) advise Parent of its receipt of any
such proposal or inquiry, and, subject to the fiduciary duties of its Board of
Directors, of the substance thereof and of the identity of the Person making
such proposal or inquiry, and shall, subject to the fiduciary duties of its
Board of Directors, keep Parent reasonably informed on a current basis of the
status of such proposal or inquiry.
Section 5.4. ACCESS TO INFORMATION. Between the date of this Agreement and
the Effective Time, each of Parent and the Company shall (and shall cause its
Subsidiaries to) afford to authorized representatives (including, without
limitation, attorneys, auditors, financial advisors and actuaries) of the other
reasonable access during normal business hours to all its personnel, offices and
other facilities and to its books and records and will permit such party and its
authorized representatives to make such inspections of its 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 information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained in the Agreement or the conditions to the
obligations of the parties to consummate the Schemes. The confidentiality of all
such documents and information furnished in connection with the transactions
contemplated by this Agreement shall be governed by the terms of the
Confidentiality Letter.
Section 5.5. S-4; REGULATORY MATTERS. Parent and Company shall promptly
prepare the Joint Proxy Statement, and Parent shall promptly prepare and file
with the SEC, pursuant to Rule 14a-6(a) under the Exchange Act, the Joint Proxy
Statement, in which the substance of the S-4 shall be included. Parent and
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the Company shall cause New Parent to file the S-4 promptly after the conclusion
of the SEC's review of the Joint Proxy Statement. Each of Parent and the Company
shall provide reasonable opportunity for the other to review and comment upon
the contents of the Joint Proxy Statement and the S-4 and shall not include
therein or omit therefrom any information or supplement to which counsel to the
other shall reasonably object or specifically request (as the case may be).
After the date of the mailing of the Joint Proxy Statement, each of Parent and
Company agrees promptly to notify the other of and to correct or supplement any
information which either of them shall have furnished for inclusion in the Joint
Proxy Statement that shall have become false or misleading in any material
respect. The Company and Parent shall use reasonable best efforts to have the
S-4 declared effective under the Securities Act as promptly as practicable after
such filing. Parent shall also take any action (other than qualifying to do
business in any jurisdiction in which it is now not so qualified) required to be
taken under any applicable state securities and "Blue Sky" laws in connection
with the issue of New Parent Shares in the Schemes and upon the exercise of New
Parent Options (as defined herein), and the Company shall furnish all
information concerning the Company and the holders of Shares as may be
reasonably requested in connection with any such action.
Section 5.6. PUBLIC ANNOUNCEMENTS. Parent and the Company shall not issue
any press release or otherwise make any public statements with respect to the
Schemes or this Agreement without the approval of the other party as to the
wording, timing and media for such press release or statement, except for any
press release or statement as may be required by law or any securities exchange,
which shall be notified to the other party prior to issuing such press release
or disseminating such written material.
Section 5.7. SUPPLEMENTAL INFORMATION. Except where prohibited by applicable
statutes and regulations, each party shall promptly provide the other (or its
counsel) with copies of all filings, material notices or material communications
made by such party with any Governmental Authority (including the SEC or NYSE)
in connection with this Agreement or the transactions contemplated hereby.
Section 5.8. SHAREHOLDERS' MEETINGS. Each of Parent and the Company shall
request the Court to convene meetings of its respective shareholders (and, where
necessary, classes of shareholders), to be duly called and will give notice of,
convene and hold such special meetings as soon as practicable, but in no event
more than 45 days, after the S-4 is declared effective for the purpose of
approving their respective Schemes. In connection with such meetings, each of
Parent and the Company shall mail the Joint Proxy Statement to its respective
shareholders. The respective Boards of Directors of each of Parent and the
Company shall submit for approval and adoption by its respective shareholders
the matters to be voted upon at such meetings, and shall, subject to their
fiduciary duties after having consulted with and considered the advice of
outside counsel, include in the Joint Proxy Statement the recommendation of its
respective Board of Directors that the shareholders vote in favor of the
approval and adoption of the Schemes, and each such party shall (subject to the
fiduciary duties of its Board of Directors) use reasonable best efforts to
secure such approval and adoption. Subject to the provisions of the Mid Ocean
Limited Scheme of Arrangement, Parent shall vote all of its Shares in favor of
approval and adoption of the Company Scheme).
Section 5.9. COMPANY OPTIONS AND PARENT OPTIONS.
(a) (i) At the Effective Time, except as otherwise agreed to by Parent and
the holder and except as set forth in Section 5.9(b)(i), each outstanding
Company Option (the "COMPANY ROLL-OVER OPTIONS") shall be replaced by a fully
vested and exercisable option (a "NEW PARENT OPTION") to acquire New Parent
Shares, the terms of which shall be no less favorable than the terms currently
applicable to such Company Option (except as described in Section 5.9(b)(i)),
under a new share option plan to be established by New Parent for such purposes
before the Closing Date, all as provided in Section 5.9(b)(i).
(ii) At the Effective Time, each outstanding Parent Option shall be replaced
by a New Parent Option, as provided in Section 5.9(b)(ii).
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(b) (i) The cancellation of the Company Roll-Over Options and replacement
with New 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 New Parent
Option shall provide the option holder with termination rights that are no less
favorable to such holder than were provided under the Company Roll-Over Option
for which it was replaced as of the Effective Time; PROVIDED that to the extent
the Company Roll-Over Options that were not otherwise exercisable would become
automatically exercisable upon the Effective Time (or otherwise in connection
with the Scheme), the Company's Board of Directors shall use reasonable efforts
to obtain optionees' agreements, if required, that each such Company Roll-Over
Option shall be automatically exercisable upon the Effective Time on a pro rata
basis with respect to only 50% of the New Parent Shares subject to the New
Parent Options issued in replacement of such Company Roll-Over Options upon the
Effective Time, and the exercisability of the New Parent Option with respect to
the remaining 50% of the unexercisable New Parent Shares shall be governed by
the other terms and conditions of the New Parent Option. To the extent the
Company has the unilateral legal right to obtain the result set forth in the
proviso to the previous sentence, it shall do so. The parties contemplate that,
consistent with the methodology prescribed by Section 424(a) of the Code and the
applicable regulations thereunder (A) the number of New Parent Shares subject to
such New Parent Option will be determined by multiplying to the number of Shares
subject to the Company Roll-Over Options by the Exchange Ratio (rounded to the
next higher whole number with respect to each holder thereof), and (B) the
exercise price under such New Parent Option will be determined by dividing the
exercise price per share under the Roll-Over Option in effect immediately prior
to the Company Scheme Effective Time by the Exchange Ratio, and rounding the
exercise price thus determined to the nearest whole cent (a half-cent shall be
rounded to the next higher whole cent).
(ii) The cancellation of the Parent Options and replacement with New Parent
Options (or the assumption of such options pursuant to their terms) shall
comply, to the extent applicable, 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 New Parent Option
shall provide the option holder with vesting and termination rights that are no
less favorable to such holder than were provided under the Parent Option for
which it was replaced as of the Effective Time (except as described in Section
5.9(b)(i)). The parties contemplate that, consistent with the methodology
prescribed by Section 424(a) of the Code, to the extent applicable, and the
applicable regulations thereunder (A) the number of New Parent Shares subject to
such New Parent Option will be equal to the number of Parent Shares subject to
the replaced Parent Option, and (B) the exercise price under such New Parent
Option will be equal to the exercise price under the replaced Parent Option.
(c) (i) As promptly as practicable after the Effective Time, New Parent
shall issue to each holder of an outstanding Company Option a document
evidencing the New Parent Option having the terms provided for in Section
5.9(b)(i), and effective as of the Effective Time.
(ii) As promptly as practicable after the Effective Time, New Parent shall
issue to each holder of an outstanding Parent Option a document evidencing the
New Parent Option having the terms provided for in Section 5.9(b)(ii), and
effective as of the Effective Time.
(d) If the New Parent Options issued pursuant to Sections 5.9(a)(i) and (ii)
are not already covered by an effective registration statement, New Parent will
file a registration statement as promptly as practicable after the Effective
Time, which registration statement will cover the New Parent Shares issuable
upon exercise of the New Parent Options granted in substitution of the Company
Roll-Over Options and the Parent Options, and New 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 New Parent Options.
Section 5.10. TAKEOVER LAWS. The parties shall use their reasonable best
efforts to exempt the transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of,
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any applicable takeover or change of control law, and otherwise act to eliminate
or minimize the effects of any applicable takeover or change of control law.
Section 5.11. AFFILIATES.
(a) At least five days prior to the Closing Date, the Company shall deliver
to Parent a letter identifying all persons who are anticipated to be, at the
time of the Company shareholders meeting, "affiliates" of the Company for
purposes of Rule 145 under the Securities Act ("RULE 145"). The Company shall
use reasonable best efforts to cause each Person who is identified as an
"affiliate" in such letter to deliver to Parent, prior to the Closing Date, a
written agreement in connection with restrictions on affiliates under Rule 145,
in form mutually agreeable to the Company and Parent.
(b) At least five days prior to the Closing Date, Parent shall deliver to
the Company a letter identifying all Persons who are anticipated to be, at the
time of the Parent shareholders meeting, "affiliates" of Parent for purposes of
Rule 145. Parent shall use reasonable best efforts to cause each Person who is
identified as an "affiliate" in such letter to deliver to the Company, prior to
the Closing Date, a written agreement in connection with restrictions on
affiliates under Rule 145, in form mutually agreeable to the Company and Parent.
Section 5.12. STOCK EXCHANGE LISTING. Parent and New Parent shall use
reasonable best efforts to cause the New Parent Voting Shares to be issued in
the Schemes and the New Parent Shares to be reserved for issue upon exercise of
New Parent Options to be approved for listing on the NYSE, subject to official
notice of issuance, prior to the Closing Date.
Section 5.13. INDEMNIFICATION.
(a) From and after the Effective Time, New Parent shall indemnify, defend
and hold harmless the officers and directors of the Company (the "INDEMNIFIED
PARTIES") against all losses, expenses, claims, damages and liabilities arising
out of the transactions contemplated by this Agreement to the fullest extent
permitted or required under applicable law (including, without limitation,
reasonable attorneys' fees). Subject to any limitations imposed by Cayman
Islands law and public policy, to the extent applicable, Parent and New Parent
agree that all rights to indemnification existing in favor of the directors and
officers, of the Company or any Subsidiary of the Company as provided in the
Company's or any such Subsidiary's memorandum of association and articles of
association (or analogous documents) or existing indemnification agreements, as
in effect as of the date hereof, with respect to matters occurring through the
Effective Time, shall survive the Schemes and shall continue in full force and
effect, and New Parent shall guaranty the obligations of the Company in respect
thereof; PROVIDED, HOWEVER, that this shall not limit the ability of New Parent
to effect any corporate restructuring of its Subsidiaries.
(b) New Parent will cause to be maintained for a period of not less than six
years from the Effective Time the Company's current directors' and officers'
insurance and indemnification policy to the extent that it provides coverage for
events occurring prior to the Effective Time (the "D&O INSURANCE") for any of
the Indemnified Parties; PROVIDED, HOWEVER, that Parent may, in lieu of
maintaining such existing D&O Insurance as provided above, cause comparable
coverage to be provided under any policy maintained for the benefit of the
directors and officers of Parent or any of its Subsidiaries, so long as (i) the
issuer thereof has an A.M. Best Company rating of A or better and (ii) the
material terms thereof are no less advantageous to the Indemnified Parties than
the existing D&O Insurance. If the existing D&O Insurance expires, is terminated
or cancelled during such six-year period, New Parent will cause to be obtained,
to the extent commercially available, replacement D&O Insurance on terms and
conditions no less advantageous to the Indemnified Parties than the existing D&O
Insurance. Notwithstanding the foregoing, in satisfying its obligation under
this Section 5.13(b), New Parent shall not be obligated to pay premiums in
excess of 200% of the premium paid or to be paid by the Company in the fiscal
year ended October 31, 1997, which amounts have been disclosed to Parent and New
Parent, but PROVIDED FURTHER that New Parent shall
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nevertheless be obligated to provide such coverage as may be obtained for 200%
of the premium to be paid by the Company for such insurance in the fiscal year
ending October 31, 1997.
Section 5.14. REASONABLE BEST EFFORTS. Upon the terms and subject to the
conditions hereof, each of the parties hereto will use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper, or advisable to consummate and make
effective the transactions contemplated by this Agreement and shall use its
reasonable best efforts to obtain all waivers, permits, consents and approvals
and to effect all registrations, filings and notices with or to third parties or
Governmental Authorities which are necessary or desirable in connection with the
transactions contemplated by this Agreement. If, 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 or directors of each of the parties hereto
shall take such action.
Section 5.15. POST-CLOSING MATTERS.
(a) Parent and its Affiliates shall (and, following the Company Effective
Time, New Parent shall) take no action with respect to the shares, assets or
liabilities of Parent or the Company, including, without limitation, the filing
of Tax returns or reports, that would be inconsistent with the qualification of
the Schemes as tax-free under Section 351 of the Code; PROVIDED, HOWEVER, that
Parent and its Affiliates may file with the appropriate Governmental Authorities
and execute all documents necessary to consummate the Schemes and other
transactions contemplated by this Agreement.
(b) Upon request, New Parent shall cooperate with any Parent shareholder or
any Company shareholder in the completion and administration of a gain
recognition agreement under Section 367 of the Code.
Section 5.16. EMPLOYEE BENEFIT PLANS; EXISTING AGREEMENTS.
(a) Following the Effective Time, the employees of the Company (the "COMPANY
EMPLOYEES") shall be entitled to participate in the employee benefit plans of
New Parent or Parent in which similarly situated employees of Parent ("PARENT
EMPLOYEES") participate, to the same extent as similarly situated employees of
Parent.
(b) With respect to each Company Plan that is an "employee benefit plan," as
defined in Section 3(3) of ERISA, for purposes of determining eligibility to
participate, vesting, and entitlement to benefits, including for severance
benefits and vacation entitlement (but not for accrual of pension benefits
except to the extent that past service credit is provided to Parent Employees),
service with the Company and its Subsidiaries by Company Employees employed
immediately after the Effective Time shall be treated as service with Parent and
New Parent, and with respect to Parent Employees employed immediately after the
Parent Scheme Effective Time, service with the Parent and its Subsidiaries shall
be treated as service with New Parent; PROVIDED, HOWEVER, that such service
shall not be recognized to the extent that such recognition would result in a
duplication of benefits. Such service also shall apply for purposes of
satisfying any waiting periods, evidence of insurability requirements, or the
application of any preexisting condition limitations. Company Employees and
Parent Employees shall be given credit for amounts paid under a corresponding
benefit plan during the same period for purposes of applying deductibles,
copayments and out-of-pocket maximums as though such amounts had been paid in
accordance with the terms and conditions of the New Parent Plan.
(c) Following the Effective Time, New Parent shall honor in accordance with
their terms all employment, severance and other compensation agreements and
arrangements existing on or prior to the execution of this Agreement which are
between the Company and any director, officer or employee thereof and which have
been disclosed in the Company Disclosure Letter and previously have been
delivered to Parent.
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ARTICLE SIX
CONDITIONS TO THE SCHEMES
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE SCHEMES.
The respective obligations of each party to this Agreement to consummate the
Schemes and to effect the actions referred to in Section 2.2(c) shall be subject
to the following conditions:
(a) The Schemes and the other transactions contemplated hereby shall have
been approved and adopted by any requisite vote or consent of (i) the relevant
classes of the Company's shareholders as required by the Companies Law and (ii)
the relevant classes of the Parent's shareholders as required by the Companies
Law and (if applicable) the NYSE and (iii) orders of the Court sanctioning the
Parent Scheme and the Company Scheme.
(b) Those regulatory and other approvals required to consummate the Schemes
and the other transactions contemplated hereby, that are specified in Section
6.1(b) of the Company Disclosure Letter and the Parent Disclosure Letter, shall
have been obtained (without any terms or conditions to such approvals which
would impose material and adverse limitations on the ability of New Parent and
its Subsidiaries to conduct their business after the Effective Time, which would
require changes to the terms of the Schemes which would be material and adverse
to New Parent, Parent or the Company or which would change the consideration
payable to shareholders in the Schemes) and shall remain in full force and
effect and all statutory waiting periods in respect thereof shall have expired.
(c) No order, decree or injunction of any court or agency of competent
jurisdiction shall be in effect, and no law, statute or regulation shall have
been enacted or adopted, that enjoins, prohibits or makes illegal consummation
of any of the transactions contemplated hereby; PROVIDED, HOWEVER, that each of
Parent and the Company shall have used its reasonable best efforts to prevent
any such rule, regulation, injunction, decree or other order, and to appeal as
promptly as possible any injunction, decree or other order that may be entered.
(d) The S-4 shall have been declared effective by the SEC and shall not be
subject to a stop order or threatened stop order.
(e) The New Parent Shares which shall be issued to holders of Shares upon
consummation of the Schemes shall have been authorized for trading on the NYSE,
subject to official notice of issuance.
(f) New Parent and Parent shall have received an opinion of Wachtell,
Lipton, Rosen & Katz and the Company shall have received an opinion of Davis
Polk & Wardwell, in each case dated the Effective Date, on the basis of facts,
representations and assumptions set forth in such opinions that are consistent
with the facts existing on the Effective Date, substantially to the effect that
(i) the Schemes will qualify as an exchange under Section 351(a) of the Code,
(ii) no gain or loss will be recognized by United States transferors of Parent
Shares who own less than 5% of both the total voting power and the total value
of the shares of New Parent immediately after the Schemes, and who do not
receive any cash pursuant to the cash election procedures, upon the receipt of
solely New Parent Shares pursuant to the Parent Scheme, (iii) no gain or loss
will be recognized by United States transferors of Parent Shares who own 5% or
more of the total voting power or the total value of the New Parent Shares
immediately after the Schemes, and who do not receive any cash pursuant to the
cash election procedures, upon the receipt of solely New Parent Shares pursuant
to the Parent Scheme, PROVIDED that such United States transferors enter into
gain recognition agreements meeting the requirements of Internal Revenue Service
Notice 87-85 and applicable United States Treasury regulations, (iv) no gain or
loss will be recognized by United States transferors of Shares who own less than
5% of both the total voting power and the total value of the New Parent Shares
immediately after the Schemes, and who do not receive any cash pursuant to the
cash election procedures, upon the receipt of solely New Parent Shares pursuant
to the Company Scheme (except with respect to cash received in lieu of a
fractional share interest in New Parent Shares), and (v) no gain or loss will be
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recognized by United States transferors of Shares who own 5% or more of the
total voting power or the total value of the shares of New Parent immediately
after the Schemes, and who do not receive any cash pursuant to the cash election
procedures, upon the receipt of solely New Parent Shares pursuant to the Company
Scheme (except with respect to cash received in lieu of a fractional share
interest in New Parent Shares), PROVIDED that such United States transferors
enter into gain recognition agreements meeting the requirements of Internal
Revenue Service Notice 87-85 and applicable United States Treasury regulations.
In rendering such opinions, counsel may require and rely upon representations
contained in certificates of officers of Parent, the Company, foreign counsel
and others.
Section 6.2. ADDITIONAL CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE
SCHEMES. The obligation of the Company to consummate the Schemes and to effect
the actions referred to in Section 2.2(c) shall be further subject to the
following conditions unless waived in accordance with Section 8.3:
(a) Parent shall have performed in all material respects the obligations and
covenants to be performed by it on or prior to the Effective Time.
(b) The representations and warranties of Parent contained in this Agreement
that are qualified as to materiality shall be true and correct and the
representations and warranties of Parent contained in this Agreement that are
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made as of and on the Closing Date, except for such failure or
failures to be true and correct (or true and correct in all material respects)
as would not, individually or in the aggregate, have or be reasonably expected
to have, a Material Adverse Effect on Parent.
(c) The Company shall receive customary closing documents in form and
substance reasonably satisfactory to it, including a certificate of an executive
officer of Parent certifying compliance with the conditions set forth in
Sections 6.2(a) and (b).
Section 6.3. ADDITIONAL CONDITIONS TO PARENT'S OBLIGATION TO EFFECT THE
SCHEMES. The obligation of Parent to consummate the Schemes and to effect the
actions referred to in Section 2.2(c) shall be further subject to the following
conditions unless waived in accordance with Section 8.3:
(a) The Company shall have performed in all material respects the
obligations and covenants to be performed by it on or prior to the Effective
Time.
(b) The representations and warranties of the Company contained in this
Agreement that are qualified as to materiality shall be true and correct and the
representations and warranties of the Company contained in this Agreement that
are not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made as of and on the Closing Date, except for such failure or
failures to be true and correct (or true and correct in all material respects)
as would not, individually or in the aggregate, have or be reasonably expected
to have, a Material Adverse Effect on the Company.
(c) Parent shall receive customary closing documents in form and substance
reasonably satisfactory to it, including a certificate of an executive officer
of the Company certifying compliance with the conditions set forth in Sections
6.3(a) and (b).
(d) The Rights Agreement shall have been amended or the Rights shall have
been redeemed or otherwise terminated, and no trigger event shall have occurred
thereunder.
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ARTICLE SEVEN
TERMINATION AND ABANDONMENT
Section 7.1. TERMINATION BY THE COMPANY FOR BREACH. The Company may
terminate this Agreement, to the extent not performed, if there shall not have
been a material uncured breach by the Company of any representation, warranty,
covenant or agreement set forth herein and there shall have been a material
breach by the Parent of any representation, warranty, covenant, or agreement set
forth herein, which breach shall have or reasonably be expected to have a
Material Adverse Effect on Parent and shall not have been cured within 30 days
of the Parent's receipt of written notice specifying Parent's breach and the
Company's intention to terminate this Agreement pursuant to this Section 7.1.
Section 7.2. TERMINATION BY PARENT FOR BREACH.
(a) Parent may terminate this Agreement to the extent not performed, if
there shall not have been a material uncured breach by Parent of any
representation, warranty, covenant, or agreement set forth herein and there
shall have been a material breach by the Company of any representation,
warranty, covenant or agreement set forth herein, which breach shall have or
reasonably be expected to have a Material Adverse Effect on the Company and
shall not have been cured within 30 days of the Company's receipt of written
notice specifying the Company's breach and Parent's intention to terminate this
Agreement pursuant to this Section 7.2.
(b) Parent may terminate any and all of its obligations under this Agreement
to the extent not performed, if any Person shall have effected a merger,
amalgamation or other combination with the Company, or shall have entered into a
definitive agreement or an agreement in principle with the Company with respect
to any of the foregoing or with respect to an acquisition of more than 10% of
the Shares or Total Voting Power or total assets of the Company.
Section 7.3. TERMINATION BY THE COMPANY OR PARENT. This Agreement may be
terminated and the Schemes contemplated hereby may be abandoned at any time
prior to the Parent Scheme Effective Time, whether before or after approval of
the Schemes by the shareholders of the Company or Parent:
(a) by mutual written consent of the Parent and the Company;
(b) by either Parent or the Company by written notice to the other:
(i) if the Parent Scheme Effective Time shall not have occurred on or
before October 31, 1998; PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 7.3(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date;
(ii) if a Governmental Authority shall have issued a final and
nonappealable order, decree or ruling or taken any other action, in each
case, permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement;
(iii) if the required approval of the classes of shareholders of the
Company shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of such shareholders or at any
adjournment or postponement thereof; PROVIDED that, if the terminating party
is the Company, the Company shall not be in material breach of its
obligations under Section 5.8; or
(iv) if the required approval of the shareholders of Parent shall not
have been obtained by reason of the failure to obtain the required vote at a
duly held meeting of such shareholders or at any adjournment or postponement
thereof; PROVIDED, that, if the terminating party is Parent, Parent shall
not be in material breach of its obligations under Section 5.8.
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Section 7.4. PROCEDURE AND EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement, except as set forth
in Section 7.4(b), none of Parent, the Company or New Parent shall have any
obligation to perform hereunder from and after the date of such termination,
except that Sections 5.4 (the last sentence only) (Confidentiality), 5.6 (Public
Announcements), 8.5 (Expenses), 8.8 (Notices) and 8.9 (Governing Law) shall
survive such termination and remain in full force and effect notwithstanding
such termination. No termination hereof shall relieve Parent or the Company from
liability for any breach of this Agreement.
(b) If (i) this Agreement (x) is terminated by Parent pursuant to Section
7.2(b), (y) is terminated by any party pursuant to Section 7.3(b)(iii) or (z) is
terminated by any party as a result of the Company's material breach of its
obligations under Section 5.8, and (ii) at the time of such termination or prior
to the meeting of the Company's shareholders called pursuant to Section 5.8
there shall have been a third-party tender offer for Shares, or a third-party
offer or proposal with respect to a merger, amalgamation, scheme of arrangement
or other business combination involving the Company or any of its Subsidiaries
or a sale or other transfer of a material portion of its or their assets (any
such transaction a "BUSINESS COMBINATION"), and (iii) within one and one-half
years of any such termination described in clause (i) above, the Company
consummates a Business Combination with a third party which Business Combination
provides consideration per Share in excess of $70.00 (based, in the case of a
Business Combination in which such consideration consists in part or in full of
publicly traded securities, on the average closing price for such publicly
traded securities as reported in the Wall Street Journal for the 10 trading days
preceding the date of consummation of such Business Combination), then the
Company (jointly and severally with its affiliates), upon the consummation (and
as a condition to the closing) of such a Business Combination, will pay to the
other party a termination fee equal to $65 million in cash plus the
out-of-pocket fees and expenses incurred by Parent (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors) arising out of, in connection
with or related to the Schemes or the transactions contemplated by this
Agreement.
(c) If (i) this Agreement (x) is terminated by any party pursuant to Section
7.3(b)(iv) or (y) is terminated by any party as a result of Parent's material
breach of its obligations under Section 5.8, and (ii) at the time of such
termination or prior to the meeting of Parent's shareholders called pursuant to
Section 5.8 there shall have been a third-party tender offer for Parent Shares,
or a third-party offer or proposal with respect to a Business Combination
involving Parent or any of its Subsidiaries, and (iii) within one and one-half
years of any such termination described in clause (i) above, Parent consummates
a Business Combination with a third party which Business Combination provides
consideration per Share in excess of $79.00 (based, in the case of a Business
Combination in which such consideration consists in part or in full of publicly
traded securities, on the average closing price for such publicly traded
securities as reported in the Wall Street Journal for the 10 trading days
preceding the date of consummation of such Business Combination), then Parent
(jointly and severally with its affiliates), prior to or upon the consummation
(and as a condition to the closing) of such a Business Combination, will pay to
the other party a termination fee equal to $65 million in cash plus the
out-of-pocket fees and expenses incurred by the Company (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors) arising out of, in connection
with or related to the Schemes or the transactions contemplated by this
Agreement.
ARTICLE EIGHT
MISCELLANEOUS PROVISIONS
Section 8.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. None of the representations, warranties, covenants or agreements
contained in this Agreement shall survive the
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Closing, except for those covenants and agreements contained in this Agreement
that by their terms apply or are to be performed in whole or in part after the
Closing.
Section 8.2. AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement
signed on behalf of each party hereto at any time prior to the Parent Scheme
Effective Time with respect to any of the terms contained herein except that
after the meetings of the shareholders of the Company as contemplated by Section
5.8, the Company Scheme Consideration to be paid pursuant to this Agreement to
the holders of Shares shall in no event be decreased and the form of
consideration to be received by the holders of such Shares in the Company Scheme
shall in no event be altered without the approval of such holders.
Section 8.3. WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent or New
Parent, 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
8.3.
Section 8.4. SEVERABILITY AND VALIDITY. The provisions set forth in this
Agreement are severable. If any provision of this Agreement is held invalid or
unenforceable in any jurisdiction, the remainder of this Agreement, and the
application of such provision to other Persons or circumstances, shall not be
affected thereby, and shall remain valid and enforceable in such jurisdiction,
and any such invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
Section 8.5. EXPENSES AND OBLIGATIONS. Each of the parties shall pay its own
expenses incurred in connection with the negotiation and preparation of this
Agreement, the performance of its covenants herein, and the effectuation of the
transactions contemplated hereby, including, without limitation, all fees and
disbursements of its respective legal counsel, advisors and accountants;
PROVIDED, HOWEVER, that nothing in this Section 8.5 shall negate any obligation
of either Parent or the Company to pay the termination fee specified in Sections
7.4(b) and (c). Each party to this Agreement shall indemnify and hold harmless
the other against any claim for fees or commissions of brokers, finders, agents,
or bankers retained or purportedly retained by the indemnitor party in
connection with the transactions contemplated by this Agreement.
Section 8.6. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement, except
for Sections 2.7, 2.8, 5.9 and 5.13 (which are intended to be for the benefit of
the Persons referred to therein and may be enforced by such Persons).
Section 8.7. ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action; and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
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 each corporation which is a party to this Agreement shall take all
necessary action.
Section 8.8. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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(a) if to Parent, New Parent, or the Company after the Effective Time,
to:
EXEL Limited
Cumberland House
1 Victoria Street
Hamilton HM11
Bermuda
Telephone: (441) 292-8515
Facsimile: (441) 292-5280
Attention: Brian M. O'Hara
with copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
Attention: Craig M. Wasserman
(b) if to the Company prior to the Effective Time, to:
Mid Ocean Limited
Richmond House
12 Par-La-Ville Road
Hamilton HM08
Bermuda
Telephone: (441) 292-1358
Facsimile: (441) 292-5226
Attention: Michael A. Butt
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telephone: (212) 450-4000
Facsimile: (212) 450-4800
Attention: George R. Bason, Jr.
Section 8.9. GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) Except for Article TWO, which shall be governed by and construed in
accordance with the laws of the Cayman Islands, this Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to the conflicts of laws rules thereof.
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(b) Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated by this Agreement may be brought against any of the
parties in any federal court located in the State of New York or any New York
state court, and each of the parties hereto consents to the non-exclusive
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and waives any objection to venue laid
therein. Process in any such suit, action or proceeding may be served on any
party anywhere in the world and, without limiting the generality of the
foregoing, each party hereto agrees that service of process upon such party at
the address referred to in Section 8.8, together with written notice of such
service to such party, shall be deemed effective service of process upon such
party.
Section 8.10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 8.11. HEADINGS. The Article and Section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement. References to Articles or Sections, unless otherwise specified,
are to Articles and Sections of this Agreement.
Section 8.12. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, including the
documents and instruments referred to herein and therein, and the
Confidentiality Letter embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no agreements, restrictions, promises, representations, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matters. This Agreement shall
not be assigned by operation of law or otherwise, except with the prior written
consent of each other party hereto.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed and sealed on its behalf by its duly authorized officers, all as of
the day and year first above written.
<TABLE>
<S> <C> <C>
EXEL LIMITED
By: /s/ BRIAN M. O'HARA
-----------------------------------------
Name: Brian M. O'Hara
Title: President and Chief Executive
Officer
</TABLE>
Attest:
/s/ Paul Giordano
-------------------------------------------
SECRETARY
[SEAL]
<TABLE>
<S> <C> <C>
EXEL MERGER COMPANY LTD.
By: /s/ BRIAN M. O'HARA
-----------------------------------------
Name: Brian M. O'Hara
Title: President and Chief Executive
Officer
</TABLE>
Attest:
/s/ Paul Giordano
-------------------------------------------
SECRETARY
[SEAL]
<TABLE>
<S> <C> <C>
MID OCEAN LIMITED
By: /s/ MICHAEL A. BUTT
-----------------------------------------
Name: Michael A. Butt
Title: President and Chief Executive
Officer
</TABLE>
Attest:
/s/ John Wadson
-------------------------------------------
SECRETARY
[SEAL]
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APPENDIX B
AMENDMENT NO. 2
AMENDMENT, dated as of June , 1998 (the "Amendment"), to the Agreement and
Schemes of Arrangement among EXEL Limited ("Parent"), Exel Merger Company Ltd.
("New Parent") and Mid Ocean Limited (the "Company"), dated March 16, 1998,
Amended and Restated April 28, 1998 (as so amended, the "Agreement").
WITNESSETH:
WHEREAS, pursuant to the Agreement, Parent, New Parent and the Company have
approved the terms and conditions of the arrangements pursuant to which Parent
and the Company would become subsidiaries of New Parent; and
WHEREAS, Parent, New Parent and the Company have agreed that the Agreement
be amended in the manner provided for in this Amendment,
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used but not defined herein shall have
the meanings given them in the Agreement. References in the Agreement to the
"Agreement" or "this Agreement" and other similar references shall be deemed to
refer to the Agreement as amended hereby.
2. AMENDMENT TO THE AGREEMENT. Article Two of the Agreement is hereby
amended by adding the following section immediately after Section 2.11 thereof:
"Section 2.12. Cash in Lieu of Fractional Shares. Notwithstanding any other
provision of this Agreement (but subject to the final sentence of this Section
2.12), each holder of Shares that would otherwise be entitled to receive a
fractional New Parent Share pursuant to the Company Scheme (after aggregating
all Shares held by such holder) shall receive instead, in accordance with the
provisions of this Section 2.12, an amount in cash in lieu of such fractional
New Parent Share (without interest) determined by multiplying such fraction by
the Valuation Period Market Value. Any cash to be paid in lieu of any fractional
New Parent Share, shall be distributed in accordance with the Mid Ocean Limited
Scheme of Arrangement which shall be in a form agreed by the parties. This
Section 2.12 shall not in any way limit the operation of or the rights granted
holders of Shares under Section 2.11 of the Agreement."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Parent and to New Parent that the execution, delivery
and performance by the Company of this Amendment and the consummation by the
Company of the transactions contemplated hereby are within the Company's
corporate powers, and, except for any required approval by the Company's
shareholders in connection with the Company Scheme, have been duly authorized by
all necessary corporate and shareholder action. This Amendment constitutes a
valid and binding agreement of the Company.
4. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby represents and
warrants to the Company that the execution, delivery and performance by Parent
of this Amendment and the consummation by Parent of the transactions
contemplated hereby are within the Parent's corporate powers, and except for any
required approval by the Parent's shareholders in connection with the Parent
Scheme, have been duly authorized by all necessary corporate and shareholder
action. This Amendment constitutes a valid and binding agreement of Parent.
5. MISCELLANEOUS.
(a) This Amendment is limited to the matters expressly set forth herein.
Except as expressly amended, modified and supplemented hereby, the
provisions of the Agreement are and shall remain in full force and
effect.
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(b) Except for Section 2 hereof which shall be governed by and construed in
accordance with the laws of the Cayman Islands, this Amendment shall be
governed by and construed in accordance with the laws of the State of New
York, without regard to the conflicts of laws rules thereof.
(c) This Amendment may be signed in two or more counterparts, each of which
shall be deemed an original, but all of which together constitute one and
the same agreement. This Amendment shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be signed and sealed on its behalf by its duly authorized officers, all as of
the day and year first written above.
<TABLE>
<S> <C> <C>
EXEL LIMITED
By:
-----------------------------------------
Name:
Title:
Attest:
- ------------------------------
EXEL MERGER COMPANY LTD.
By:
-----------------------------------------
Name:
Title:
Attest:
- ------------------------------
MID OCEAN LIMITED
By:
-----------------------------------------
Name:
Title:
Attest:
- ------------------------------
</TABLE>
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APPENDIX C
THE EXEL LIMITED SCHEME OF ARRANGEMENT
IN THE GRAND COURT OF THE CAYMAN ISLANDS
CAUSE NO. OF 1998
IN THE MATTER OF EXEL LIMITED
AND
IN THE MATTER OF SECTION 85 OF THE COMPANIES LAW
(1995 REVISION)
------------------------
SCHEME OF ARRANGEMENT
(UNDER SECTION 85 OF THE COMPANIES LAW)
BETWEEN
EXEL LIMITED
AND
THE HOLDERS OF ITS
SCHEME SHARES
(AS HEREINAFTER DEFINED)
------------------------
PRELIMINARY
(A) In this Scheme, unless inconsistent with the subject or context, the
following expressions bear the following meanings.
"Business Day"--a day (excluding Saturdays, Sundays and public holidays) on
which banks are open for business in New York.
"Cash Election Shares"--Scheme Shares with respect to which the holder shall
have elected to receive cash in accordance with the terms hereof.
"Company"--EXEL Limited, an exempted company with limited liability
incorporated in the Cayman Islands.
"Company Shares"--ordinary shares of $0.01 each in the capital of the
Company.
"Court"--the Grand Court of the Cayman Islands.
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"Court Meeting"--the meeting of holders of Scheme Shares convened by Order
of the Court to consider and, if thought fit, approve this Scheme.
"Effective Date"--the date on which this Scheme becomes effective in
accordance with Clause 6.
"holder"--includes any person entitled by transmission.
"members"--members of the Company on the register of members at any relevant
date.
"Mid Ocean"--Mid Ocean Limited, an exempted company with limited liability
incorporated in the Cayman Islands.
"Mid Ocean Scheme"--the scheme of arrangement proposed between Mid Ocean and
its scheme shareholders made in proceedings in the Court with the short title
being "In the matter of Mid Ocean Limited".
"New Parent"--EXEL Merger Company Ltd., an exempted company with limited
liability incorporated in the Cayman Islands.
"New Parent Class A Shares"--Class A Shares of $0.01 each in the capital of
New Parent that have the right to vote on matters generally.
"New Parent Class B Shares"--Class B Shares of $0.01 each in the Capital of
New Parent that do not have the right to vote on matters generally.
"No Election Shares"--Scheme Shares with respect to which the holder shall
not have elected to receive cash in accordance with the terms hereof.
"Record Date"--the Business Day immediately preceding the Effective Date.
"Scheme"--this scheme of arrangement in its present form or with or subject
to any modification, addition or condition approved or imposed by the Court.
"Scheme Shares"--Company Shares in issue at the date of this Scheme together
with any further Company Shares issued:
(i) prior to the date of the Court Meeting; or
(ii) on or after the date of the Court Meeting and prior to the close of
business on the Business Day immediately preceding the date on which an
order of the Court is made sanctioning this Scheme either on terms that
the holders thereof shall be bound by this Scheme or in respect of which
the original or any subsequent holders thereof shall have agreed in
writing by such close of business to be bound by this Scheme;
in each case other than any Company Shares held by New Parent, or by Mid
Ocean or any of its subsidiaries.
References to clauses are to clauses of this Scheme.
(B) The authorized share capital of the Company is $9,999,000 divided into
999,990,000 ordinary shares of US$0.01 each, of which approximately 84,660,852
have been issued and are credited as fully paid. The remaining shares in the
Company are unissued.
(C) New Parent was incorporated in the Cayman Islands on March 16, 1998
under the Companies Law with an authorized share capital of $50,000 divided into
5,000,000 ordinary shares of $0.01 each, of which one has been issued and the
remainder are unissued. Prior to the Effective Date, New Parent will have
increased its authorized share capital to an amount sufficient to honor its
obligations under both this Scheme and the Mid Ocean Scheme. The ordinary share
capital of New Parent is divided into New Parent Class A shares and New Parent
Class B Shares. As of the date of this Scheme, one New Parent Class A Share has
been issued (to the original subscriber) and is fully paid. The remaining shares
in New Parent are unissued.
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(D) New Parent has agreed to appear by Counsel on the hearing of the
Petition to sanction this Scheme and to undertake to the Court to be bound
thereby and to execute and do and procure to be executed and done all such
documents, acts and things as may be necessary or desirable to be executed or
done by each of them for the purpose of giving effect to this Scheme.
THE SCHEME
1. ACQUISITION OF SCHEME SHARES
1.1. With effect from the Effective Date, in exchange for either cash and/or
New Parent Class A Shares, New Parent shall acquire the Scheme Shares free from
all liens, equities, charges, encumbrances and other interests and together with
all rights at the Effective Date of this Scheme or hereafter attaching thereto
including the right to receive all dividends or other distributions declared,
paid or made thereon or after the Effective Date.
1.2. For such purposes the Scheme Shares shall be transferred to New Parent
and/or its nominee(s) and to give effect to such transfers any person may be
nominated by New Parent to execute as transferor an instrument of transfer of
any of the Scheme Shares and every instrument of transfer so executed shall be
as effective as if it had been executed by the holder or holders of the Scheme
Shares thereby transferred.
2. CONSIDERATION FOR THE TRANSFER OF THE SCHEME SHARES
EXCHANGE FOR NEW PARENT SHARES
2.1 In consideration for the acquisition and transfer of No Election Shares,
New Parent shall (subject as provided by the remaining provisions of this Clause
2 and by Clause 4) allot and issue to the holders of No Election Shares (as
appearing in the register of members of the Company at the close of business on
the Record Date) New Parent Class A Shares, credited as fully paid, on the basis
of one New Parent Class A Share for every Company Share, and so in proportion
for any other number of No Election Shares.
EXCHANGE FOR CASH
2.2.1 The holders of Scheme Shares may elect to receive cash consideration
in lieu of receiving New Parent Class A Shares in the Scheme, in accordance with
the election procedures set forth below in this Clause 2.2. The holders of Cash
Election Shares shall receive an amount in cash (the "Per Share Cash
Consideration") in respect of each New Parent Class A Share they would have been
entitled to receive should their shares have been No Election Shares equal to
the Valuation Period Market Value (as defined below). The aggregate amount of
cash that shall be paid to the holders of Cash Election Shares pursuant to this
Scheme and the holders of Cash Election Shares (as defined in the Mid Ocean
Scheme) (the "Mid Ocean Cash Election Shares") pursuant to the Mid Ocean Scheme
to satisfy such elections shall not exceed $300,000,000 (the "Cash Amount") and
such Cash Amount shall be allocated between the holders of Cash Election Shares
and Mid Ocean Cash Election Shares in accordance with Clause 2.2.7. For purposes
of this Clause 2.2:
(i) "Valuation Period Market Value" shall mean the average of the
closing sales prices for a Company Share as reported on The New York
Stock Exchange Inc. Composite Transactions reporting system (as reported
in The Wall Street Journal or, in the absence thereof, by another
authoritative source) during the Valuation Period; and
(ii) "Valuation Period" shall mean the ten (10) consecutive trading
day period during which the Company Shares are traded on The New York
Stock Exchange ending on the tenth calendar day immediately prior to the
Effective Date.
2.2.2 An election form and other appropriate and customary transmittal
materials in such form as the Company and Mid Ocean shall mutually agree
("Election Form") shall be mailed 25 days prior to the
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anticipated Effective Date or on such other date as the Company and Mid Ocean
shall mutually agree ("Mailing Date") to each holder of record of Scheme Shares
as of five business days prior to the Mailing Date ("Election Form Record
Date").
2.2.3 Each Election Form shall permit a holder of Scheme Shares to elect to
receive cash with respect to all or a portion of such holder's Scheme Shares
(such election, a "Cash Election").
2.2.4 Any Scheme Shares with respect to which the holder shall not have
elected to receive cash by submitting to the Company or to the exchange agent
designated by the Company (the "Exchange Agent") an effective, properly
completed Election Form on or before 5:00 p.m. on the 20th day following the
Mailing Date (or such other time and date as the Company and Mid Ocean may
mutually agree) (the "Election Deadline") shall as of the Effective Date be
transferred to New Parent in exchange for New Parent Class A Shares on the basis
set forth in Clause 2.1.
2.2.5 The Company shall make available one or more Election Forms as may be
reasonably requested by all persons who become holders of Scheme Shares between
the Election Form Record Date and the close of business on the business day
prior to the Election Deadline, and the Company shall provide to the Exchange
Agent all information reasonably necessary for it to perform as specified
herein.
2.2.6 Any such election shall have been properly made only if the Exchange
Agent shall have actually received a properly completed Election Form by the
Election Deadline. Any Election Form may be revoked or changed by the person
submitting such Election Form at or prior to the Election Deadline. In the event
an Election Form is revoked prior to the Election Deadline, the Scheme Shares
represented by such Election Form shall become No Election Shares. Subject to
the terms of the Election Form, the Company and the Exchange Agent shall have
reasonable discretion to determine whether any election, revocation or change
has been properly or timely made and to disregard immaterial defects in the
Election Forms, and any good faith decisions of the Exchange Agent regarding
such matters shall be binding and conclusive. Neither the Company nor the
Exchange Agent shall be under any obligation to notify any person of any defect
in an Election Form.
2.2.7 Within five Business Days after the Effective Time, or as soon as
practicable thereafter, New Parent shall, or shall cause the Exchange Agent to,
effect the allocation of cash among the holders of Cash Election Shares in
accordance with the Election Forms as follows:
(i) Cash Elections Under This Scheme And The Mid Ocean Scheme Less
Than or Equal To the Cash Amount: If the aggregate amount of cash that
would be issued in the Scheme in respect of all the Cash Election Shares
and in the Mid Ocean Scheme in respect of all the Mid Ocean Cash Election
Shares is less than or equal to the Cash Amount, then (1) all Cash
Election Shares shall be converted into the right to receive the Per
Share Cash Consideration in respect of each New Parent Class A Share the
holders thereof would have been entitled to receive pursuant to Clause
2.1, and (2) all No Election Shares shall be transferred to New Parent in
exchange for the right to receive New Parent Class A Shares in accordance
with Clause 2.1.
(ii) Cash Elections Under This Scheme And The Mid Ocean Scheme in
Excess of the Cash Amount: If the aggregate amount of cash that would be
issued in the Scheme in respect of all the Cash Election Shares and in
the Mid Ocean Scheme in respect of all the Mid Ocean Cash Election Shares
is greater than the Cash Amount, then (1) all No Election Shares shall be
transferred to New Parent in exchange for the right to receive New Parent
Class A Shares in accordance with Clause 2.1, and (2) the Cash Election
Shares shall be transferred to New Parent in exchange for cash and New
Parent Class A Shares in the following manner:
the number of Scheme Shares that are Cash Election Shares covered by
a Cash Election which shall be transferred to New Parent in exchange
for the Per Share Cash Consideration in respect of each New Parent
Class A Share the holder thereof would have been entitled to receive
pursuant to Clause 2.1 shall equal the number obtained by multiplying
(x) the
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Company Cash Election Number by (y) a fraction of which the numerator
shall be the number of Scheme Shares covered by such Cash Election
and the denominator shall be the aggregate number of Scheme Shares
that are Cash Election Shares. The balance of such Scheme Shares that
are Cash Election Shares shall be transferred to New Parent in
exchange for New Parent Shares in accordance with the provisions of
Clause 2.1 as if such Scheme Shares were not Cash Election Shares.
2.2.8 For purposes of this Section 2.2:
(i) "Company Cash Election Number" means the number obtained by
dividing the Company Cash Pool by the Per Share Cash Consideration;
(ii) "Company Cash Pool" means the amount of cash available for
Scheme Shares, which shall initially be $204,000,000, provided that such
amount shall be increased to the extent holders of shares in Mid Ocean do
not make Cash Elections (as defined in the Mid Ocean Scheme) with respect
to the full initial amount of the cash pool of $96,000,000 available in
the Mid Ocean Scheme and decreased to the extent holders of Scheme Shares
do not make Cash Elections with respect to the full initial amount of the
Company Cash Pool.
2.3 The provisions of this Clause shall take effect subject to any
prohibition or condition imposed by law.
3. ISSUE OF CONSIDERATION SHARES
3.1 In respect of Scheme Shares that are not Cash Election Shares New Parent
shall, as soon as reasonably practicable after the Effective Date, allot and
issue all New Parent Class A Shares which it is required to allot and issue
pursuant to Clause 2.1 and send a certificate to the persons entitled thereto in
the manner prescribed by Clause 3.3. If, in respect of any holder of Scheme
Shares with a registered address outside the United States, the Cayman Islands
or Bermuda, New Parent is advised that the allotment and issue of New Parent
Class A Shares pursuant to Clause 2.1 would infringe the laws of any
jurisdiction outside the United States, the Cayman Islands or Bermuda or would
require New Parent to observe any governmental or other consent on any
registration, filing or other formality, New Parent may (i) take such action as
will permit the legal allotment and issue under applicable law, if to do so
would not be unduly burdensome, or (ii) failing (i), determine that no New
Parent Class A Shares shall be allotted or issued to such holder under Clause
2.1 but shall instead be allotted and issued to a nominee appointed by New
Parent as trustee for such holder, on terms that the nominee shall, as soon as
practicable following the Effective Date, sell the New Parent Class A Shares so
allotted at the best price which can reasonably be obtained and shall account
for the net proceeds of such sale (after the deduction of all expenses and
commissions) by sending a cheque or warrant to the holder of such Scheme Shares
in accordance with the provisions of Clause 3.3.
3.2 The New Parent Class A Shares to be issued pursuant to Clause 3.1 shall
rank PARI PASSU in all respects with other shares in the capital of New Parent
in issue on the Effective Date and shall so rank for all dividends or other
distributions declared, paid or made thereon after the Effective Date.
3.3 All certificates or cheques required to be sent by New Parent or the
Exchange Agent pursuant to this Scheme and all cheques required to be sent by
the nominee referred to in Clause 3.1 shall be sent through the post in prepaid
envelopes addressed to the persons entitled thereto at their respective
registered addresses as appearing in the register of members of the Company, in
the case of certificates at the close of business in New York on the Record
Date, in the case of cheques to be issued pursuant to Clause 2.2.7 as soon as
practicable after such allocation and, in the case of cheques referred to in
Clause 3.1, within 7 days after any sale of the relevant New Parent Class A
Shares (or, in the case of joint holders, at the registered address as appearing
in the said register at such close of business of that one of the joint holders
whose name then stands first in the said register in respect of such joint
holding) or in accordance
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with any special instructions regarding communications, and none of New Parent,
the Exchange Agent or the nominee shall be responsible for any loss or delay in
the transmission of any certificates or cheques posted in accordance with this
clause.
3.4 All cheques shall be made payable to the holder or, in the case of joint
holders, to all such holders of the Scheme Shares concerned or in each case such
other person as specified in the letters of transmittal to accompany
certificates representing Scheme Shares and the encashment of any such cheques
shall be a complete discharge to New Parent for the moneys represented thereby.
3.5 The sole share in the capital of New Parent in issue as at the date of
this Scheme shall remain outstanding from the Effective Date. No consideration
shall be payable in respect thereof.
3.6 The provisions of this Clause shall take effect subject to any condition
or prohibition imposed by law.
4. SHARE CERTIFICATES
4.1 With effect from and including the Effective Date, all existing
certificates representing Scheme Shares shall cease to have effect as documents
of title to the Scheme Shares comprised therein.
4.2 With effect from and including the Effective Date, the Company shall
issue a share certificate to New Parent representing the Scheme Shares acquired
and transferred to New Parent in accordance with the provisions of this Scheme.
5. DIVIDEND MANDATES
5.1 All mandates or other instructions to the Company in respect of Scheme
Shares in force at the close of business on the Effective Date shall, unless and
until revoked or amended, be deemed as from the Effective Date to be also
effective mandates or instructions to New Parent in relation to the
corresponding New Parent Class A Shares allotted and issued pursuant to this
Scheme.
6. THE EFFECTIVE DATE
6.1 This Scheme shall become effective as soon as both:
(a) an office copy of the Order of the Court sanctioning this Scheme
under Section 85 of the Companies Law shall have been delivered to the
Registrar of Companies for registration; and
(b) an office copy of the Order of the Court sanctioning the Mid
Ocean Scheme shall have been delivered to the Registrar of Companies for
registration.
6.2 Unless this Scheme shall have become effective on or before October 31,
1998, or such later date, if any, as the Company and Mid Ocean may agree and the
Court may allow, this Scheme shall lapse.
7. MODIFICATION
The Company and New Parent may jointly consent on behalf of all persons
affected to any modification of or addition to this Scheme or to any condition
which the court may approve or impose.
8. APPLICABLE LAW
This Scheme shall be construed subject to the laws of the Cayman Islands and
the parties herein shall submit to the exclusive jurisdiction of the Grand Court
of the Cayman Islands.
Dated day of 1998
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APPENDIX D
THE MID OCEAN LIMITED SCHEME OF ARRANGEMENT
IN THE GRAND COURT OF THE CAYMAN ISLANDS
CAUSE NO. [ ] OF 1998.
IN THE MATTER OF MID OCEAN LIMITED
AND
IN THE MATTER OF THE COMPANIES LAW (1995 REVISION)
-------------------
SCHEME OF ARRANGEMENT
(UNDER SECTION 85 OF THE COMPANIES LAW)
BETWEEN
MID OCEAN LIMITED
AND
THE HOLDERS OF ITS
SCHEME SHARES
(AS HEREINAFTER DEFINED)
-------------------
PRELIMINARY
(A) In this Scheme, unless inconsistent with the subject or context, the
following expressions bear the following meanings:
"Business Day" - a day (excluding Saturdays, Sundays, and public holidays)
on which banks are open for business in New York.
"Cash Election Shares" - Scheme Shares with respect to which the holder
shall have elected to receive cash in accordance with the terms hereof.
"Company" - Mid Ocean Limited, an exempted Company incorporated in the
Cayman Islands with registered number 414784.
"Company Shares" - Class A Ordinary Shares of $0.20 each, Class B Ordinary
Shares of $0.20 each and Class C Ordinary Shares of $0.20 each, in the capital
of the Company.
"Court" - the Grand Court of the Cayman Islands.
"Court Meetings" - the meetings of the holders of Scheme Shares convened by
Order of the Court to consider and, if thought fit, approve this Scheme.
"Effective Date" - the date on which this Scheme becomes effective in
accordance with Clause 6.
"holder" - includes any person entitled by transmission.
"members" - members of the Company on the register of members at any
relevant date.
"New Parent" - EXEL Merger Company Ltd., an exempted company with limited
liability incorporated in the Cayman Islands.
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"New Parent Voting Shares" - shares of $0.01 each or part or fraction
thereof in the capital of New Parent that have the right to vote on matters
generally.
"New Parent Non Voting Shares" - shares of $0.01 each or part or fraction
thereof in the capital of New Parent that have no voting rights.
"New Parent Shares" - jointly the New Parent Voting Shares and the New
Parent Non Voting Shares.
"No Election Shares" - Scheme Shares with respect to which the holder shall
not have elected to receive cash in accordance with the terms hereof.
"Parent" - EXEL Limited.
"Parent Scheme" - The Scheme of Arrangement proposed between Parent and its
Scheme Shareholders made in proceedings in the Court with the short title being
"In the Matter of EXEL Limited."
"Parent Shares" - Shares of $0.01 each or part or fraction thereof in the
share capital of Parent.
"Record Date" - the Business Day immediately preceding the Effective Date.
"Scheme" - this scheme of arrangement in its present form or with or subject
to any modification, addition or condition approved or imposed by the Court.
"Scheme Shares" - Company Shares in issue at the date of this Scheme
together with any further Company Shares issued:
(i) prior to the date of the Court Meeting; or
(ii) on or after the date of the Court Meeting and prior to the close of
business on the Business Day immediately preceding the date on which an
order of the Court is made sanctioning this Scheme either on terms that the
holders thereof shall be bound by this Scheme or in respect of which the
original or any subsequent holders thereof shall have agreed in writing by
such close of business to be bound by this Scheme.
in each case other than any Company Shares held by New Parent or by Parent
or any of its subsidiaries.
References to clauses are to clauses of this Scheme.
(B) The authorized share capital of the Company is $40,000,000, divided into
200,000,000 ordinary shares with a par value of $0.20 per share. Of these,
36,088,147 Class A Ordinary Shares of $0.20 each have been issued and are
credited as fully paid, 1,190,292 Class B Ordinary Shares of $0.20 each have
been issued and are credited as fully paid and 1,860,000 Class C Ordinary Shares
of $0.20 each have been issued and are credited as fully paid. The remaining
shares in the Company are unissued and no preferred shares of the Company have
been issued.
(C) New Parent was incorporated in the Cayman Islands on March 16, 1998
under the Companies Law with an authorized share capital of $50,000 divided into
5,000,000 ordinary shares of $0.01 each, of which one has been issued and the
remainder are unissued. Prior to the Effective Date it will have increased its
authorized Share Capital to an amount sufficient to honour its obligations under
both this Scheme and the Parent Scheme.
(D) New Parent has agreed to appear by Counsel on the hearing of the
petition to sanction this Scheme and to undertake to the Court to be bound
thereby and to execute and do and procure to be executed and done all such
documents, acts and things as may be necessary or desirable to be executed or
done by each of them for the purpose of giving effect to this Scheme.
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THE SCHEME
1. ACQUISITION OF SCHEME SHARES
1.1 With effect from the Effective Date, in exchange for either cash and/or
New Parent Shares, New Parent shall acquire the Scheme Shares free from all
liens, equities, charges, encumbrances and other interests and together with all
rights at the date of this Scheme or hereafter attaching thereto including the
right to receive all dividends or other distributions declared, paid or made
thereon on or after the Effective Date. The Company shall, as soon as reasonably
practicable, issue new share certificates for the Scheme Shares to New Parent.
1.2 For such purposes the Scheme Shares shall be transferred to New Parent
and/or its nominee(s) and to give effect to such transfers any person may be
nominated by New Parent to execute as transferor an instrument of transfer of
any of the Scheme Shares and every instrument of transfer so executed shall be
as effective as if it had been executed by the holder or holders of the Scheme
Shares thereby transferred.
2. CONSIDERATION FOR THE TRANSFER OF THE SCHEME SHARES
EXCHANGE FOR NEW PARENT SHARES
2.1.1 In consideration for the acquisition and transfer of No Election
Shares, New Parent shall (subject as provided by the remaining provisions of
this Clause 2 and by Clause 4) allot and issue to the holders of No Election
Shares (as appearing in the register of members of the Company at the close of
business on the Record Date) New Parent Shares, credited as fully paid, on the
following basis:
For every Class A Ordinary Share 1.0215 New Parent Voting Shares.
For every Class B Ordinary Share 1.0215 New Parent Non-Voting Shares.
For every Class C Ordinary Share 1.0215 New Parent Non-Voting Shares.
and so in proportion for any other number of No Election Shares.
2.1.2 Each holder of Scheme Shares that otherwise would be entitled to
receive a fraction of a New Parent Share in accordance with the provisions of
Clause 2.1.1 above shall receive instead, from New Parent or the Exchange Agent
(as defined in Clause 2.2.4 below) a cash payment in lieu of such fraction of a
New Parent Share (after aggregating all Scheme Shares held by such holder) in an
amount equal to the value of such fraction, which for this purpose shall be
calculated by multiplying such fraction by the Valuation Period Market Value (as
defined in Clause 2.2.1(i) below). Within five Business Days after the Effective
Date or as soon as reasonably practicable thereafter, New Parent shall, or shall
cause the Exchange Agent to, pay without interest to the holders of Scheme
Shares entitled hereunder the cash payment in lieu of each such fraction of a
New Parent Share. For the avoidance of doubt this Clause 2.1.2 shall not limit
or otherwise affect the provisions of Clause 2.2 below and any cash payment to
be made hereunder shall be in addition to any cash payment to be made in respect
of Cash Election Shares.
EXCHANGE FOR CASH
2.2.1 The holders of Scheme Shares may elect to receive cash consideration
in lieu of receiving New Parent Shares in the Scheme, as the case may be, in
accordance with the election procedures set forth below in this Section 2.2. The
holders of Cash Election Shares shall receive an amount in cash (the "Per Share
Cash Consideration") in respect of each New Parent Share they would have been
entitled to receive should their shares have been No Election Shares equal to
the Valuation Period Market Value (as defined below). The aggregate amount of
cash that shall be paid to the holders of Cash Election Shares to satisfy such
elections shall, subject to clause 2.2.8 (ii) below, not exceed $96 million (as
such amount may be adjusted pursuant to clause 2.2.8 (ii), the "Cash Amount").
For purposes of this Clause 2.2:
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(i) "Valuation Period Market Value" shall mean the average of the
closing sales prices for a Parent Share as reported on the NYSE Composite
Transactions reporting system (as reported in The Wall Street Journal or, in
the absence thereof, by another authoritative source) during the Valuation
Period; and
(ii) "Valuation Period" shall mean the ten (10) consecutive trading day
period during which the Parent Shares are traded on the NYSE ending on the
tenth calendar day immediately prior to the Effective Date.
2.2.2 An election form and other appropriate and customary transmittal
materials in such form as Parent and the Company shall mutually agree ("Election
Form") shall be mailed 25 days prior to the anticipated Effective Date or on
such other date as the Company and Parent shall mutually agree ("Mailing Date")
to each holder of record of Scheme Shares as of five business days prior to the
Mailing Date ("Election Form Record Date").
2.2.3 Each Election Form shall permit a holder of Scheme Shares to elect to
receive cash with respect to all or a portion of such holder's Scheme Shares
(such election, a "Cash Election").
2.2.4 Any Scheme Shares with respect to which the holder shall not have
elected to receive cash by submitting to the Company or to the exchange agent
designated by the Company (the "Exchange Agent") an effective, properly
completed Election Form on or before 5:00 pm on the 20th day following the
Mailing Date (or such other time and date as the Company and Parent may mutually
agree) (the "Election Deadline") shall as of the Effective Date be transferred
to New Parent in exchange for New Parent Shares on the basis set forth in
Section 2.1.
2.2.5 The Company shall make available one or more Election Forms as may be
reasonably requested by all persons who become holders of Scheme Shares between
the Election Form Record Date and the close of business on the business day
prior to the Election Deadline, and the Company shall provide to the Exchange
Agent, if any, all information reasonably necessary for it to perform as
specified herein.
2.2.6 Any such election shall have been properly made only if the Exchange
Agent shall have actually received a properly completed Election Form by the
Election Deadline. Any Election Form may be revoked or changed by the person
submitting such Election Form at or prior to the Election Deadline. In the event
an Election Form is revoked prior to the Election Deadline, the Scheme Shares
represented by such Election Form shall become No Election Shares. Subject to
the terms of the Election Form, the Company and the Exchange Agent, if any,
shall have reasonable discretion to determine whether any election, revocation
or change has been properly or timely made and to disregard immaterial defects
in the Election Forms, and any good faith decisions of the Exchange Agent
regarding such matters shall be binding and conclusive. Neither the Company nor
the Exchange Agent shall be under any obligation to notify any person of any
defect in an Election Form.
2.2.7 Within five business days after the Effective Time, or as soon as
practicable thereafter, New Parent shall, or shall cause the Exchange Agent to,
effect the allocation among the holders of Cash Election Shares in accordance
with the Election Forms as follows:
(i) Cash Elections Less Than or Equal To the Cash Amount. If the amount
of cash that would be issued in the Scheme in respect of all the Cash
Election Shares is less than or equal to the Cash Amount, then (1) all Cash
Election Shares shall be converted into the right to receive the Per Share
Cash Consideration in respect of each New Parent Share the holders thereof
would have been entitled to receive pursuant to Clause 2.1, and (2) all No
Election Shares shall be transferred to New Parent in exchange for the right
to receive New Parent Shares in accordance with Clause 2.1.
(ii) Cash Elections in excess of the Cash Amount. If the amount of cash
that would be issued in the Scheme in respect of all the Cash Election
Shares is greater than the Cash Amount, then (1) all No Election Shares
shall be transferred to New Parent in exchange for the right to receive New
Parent
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Shares in accordance with Clause 2.1, and (2) the Cash Election Shares shall
be transferred to New Parent in exchange for cash and New Parent Shares in
the following manner:
(a) the number of Scheme Shares that are Cash Election Shares covered
by a Cash Election which shall be transferred to New Parent in exchange
for the Per Share Cash Consideration in respect of each New Parent Share
the holder thereof would have been entitled to receive pursuant to Clause
2.1 shall equal the number obtained by multiplying (x) the Company Cash
Election Number by (y) a fraction of which the numerator shall be the
number of Scheme Shares covered by such Cash Election and the denominator
shall be the aggregate number of Scheme Shares that are Cash Election
Shares. The balance of such Scheme Shares that are Cash Election Shares
shall be transferred to New Parent in exchange for New Parent Shares in
accordance with the provisions of Clause 2.1 as if such Scheme Shares
were not Cash Election Shares.
2.2.8 For purposes of this Section 2.2:
(i) "Company Cash Election Number" means the number obtained by dividing
the Company Cash Pool by the product of (x) the Exchange Ratio and (y)
Valuation Period Market Value.
(ii) "Company Cash Pool" means the amount of cash available for Scheme
Shares, which shall initially be $96,000,000, provided that such amount
shall be increased to the extent holders of Parent Shares do not make Cash
Elections with respect to the full initial amount of the Cash Pool of
$204,000,000 available in the Parent Scheme and decreased to the extent
holders of Scheme Shares do not make Cash Elections with respect to the full
initial amount of the Company Cash Pool.
2.3 The provisions of this Clause shall take effect subject to any
prohibition or condition imposed by law.
3. ISSUE OF CONSIDERATION SHARES
3.1 In respect of Scheme Shares that are not Cash Election Shares New Parent
shall, as soon as reasonably practicable after the Effective Date, allot and
issue all New Parent Shares which it is required to allot and issue pursuant to
Clause 2.1 and send a certificate to the persons entitled thereto in the manner
prescribed by Clause 3.3. If, in respect of any holder of Scheme Shares with a
registered address outside the United States, the Cayman Islands or Bermuda, New
Parent is advised that the allotment and issue of New Parent Shares pursuant to
Clause 2.1 would infringe the laws of any jurisdiction outside the United
States, the Cayman Islands or Bermuda or would require New Parent to observe any
governmental or other consent on any registration, filing or other formality,
New Parent may (i) take such action as will permit the legal allotment and issue
under applicable law, if to do so would not be unduly burdensome, or (ii)
failing (i), determine that no New Parent Shares shall be allotted or issued to
such holder under Clause 2.1 but shall instead be allotted and issued to a
nominee appointed by New Parent as trustee for such holder, on terms that the
nominee shall, as soon as practicable following the Effective Date, sell the New
Parent Shares so allotted at the best price which can reasonably be obtained and
shall account for the net proceeds of such sale (after the deduction of all
expenses and commissions) by sending a cheque or warrant to the holder of such
Scheme Shares in accordance with the provisions of Clause 3.3.
3.2 The New Parent Shares to be issued pursuant to Clause 3.1 shall rank
PARI PASSU in all respects with all other New Parent Shares in issue on the
Effective Date and shall so rank for all dividends or other distributions
declared, paid or made thereon after the Effective Date.
3.3 All certificates or cheques required to be sent by New Parent or the
Exchange Agent pursuant to the Scheme and all cheques required to be sent by the
nominee referred to in Clause 3.1 shall be sent through the post in prepaid
envelopes addressed to the persons entitled thereto at their respective
registered addresses as appearing in the register of members of the Company in
the case of certificates at the close of business in New York on the Record Date
and in the case of cheques to be issued pursuant to
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Clause 2.2.7, as soon as practicable after such allocation, and, in the case of
cheques referred to in Clause 3.1, within 7 days after any sale of the relevant
New Parent Shares (or, in the case of joint holders, at the registered address
as appearing in the said register at such close of business of that one of the
joint holders whose name then stands first in the said register in respect of
such joint holding) or in accordance with any special instructions regarding
communications, and none of New Parent, the Exchange Agent, or the nominee shall
be responsible for any loss or delay in the transmission of any certificates or
cheques posted in accordance with this clause.
3.4 All cheques shall be made payable to the holder or, in the case of joint
holders, to all such holders of the Scheme Shares concerned or in each case such
other person as specified in the Letters of Transmittal to accompany
certificates representing Scheme Shares and the encashment of any such cheques
shall be a complete discharge to New Parent for the moneys represented thereby.
3.5 The provisions of this Clause shall take effect subject to any condition
or prohibition imposed by law.
4. SHARE CERTIFICATES
4.1 With effect from and including the Effective Date, all existing
certificates representing Scheme Shares shall cease to have effect as documents
of title to the Scheme Shares comprised therein.
4.2 With effect from and including the Effective Date the Company shall
issue a share certificate to New Parent representing the Scheme Shares acquired
and transferred to New Parent in accordance with the provisions of the Scheme.
5. DIVIDEND MANDATES
5.1 All mandates or other instructions to the Company in respect of Scheme
Shares in force at the close of business on the Effective Date shall, unless and
until revoked or amended, be deemed as from the Effective Date to be also
effective mandates or instructions to New Parent in relation to the
corresponding New Parent Shares allotted and issued pursuant to this Scheme.
6. THE EFFECTIVE DATE
6.1 This Scheme shall become effective as soon as both:
(a) an office copy of the Order of the Court sanctioning the Parent
Scheme under Section 85 of the Companies Law shall have been delivered to
the Registrar of Companies for registration; and
(b) an office copy of the Order of the Court sanctioning this Scheme
under section 85 of the Companies Law shall have been delivered to the
Registrar of Companies for registration.
6.2 Unless this Scheme shall have become effective on or before October 31,
1998, or such later date, if any, as Parent and the Company may agree and the
Court may allow, this Scheme shall lapse.
7. MODIFICATION
The Company and New Parent may jointly consent on behalf of all persons
affected to any modification of or addition to this Scheme or to any condition
that the Court may approve or impose.
8. APPLICABLE LAW
This Scheme shall be construed subject to the laws of the Cayman Islands and
the parties herein shall submit to the exclusive jurisdiction of the Grand Court
of the Cayman Islands.
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Dated 1998
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APPENDIX E
PERSONAL AND CONFIDENTIAL
April 28, 1998
Board of Directors
EXEL Limited
Cumberland House
One Victoria Street
Hamilton, HM 11, Bermuda
Gentlemen and Madame:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding Ordinary Shares, par value $.01 per share (the
"Shares"), of EXEL Limited (the "Company") of the Aggregate Consideration in the
proposed EXEL Scheme (as such terms are hereinafter defined) pursuant to the
Agreement and Schemes of Arrangement, dated March 16, 1998, among the Company,
EXEL Merger Company Ltd. and Mid Ocean Limited ("Mid Ocean"), amended and
restated on April 28, 1998 (as amended the "Agreement"). The Agreement
contemplates a transaction pursuant to which each of the Company and Mid Ocean
will become a subsidiary of EXEL Merger Company Ltd., a limited liability
company organized and incorporated under the laws of the Cayman Islands which
will be renamed EXEL Limited ("New Parent"), pursuant to the Scheme of
Arrangement between the Company and its shareholders (the "EXEL Scheme") and the
Scheme of Arrangement between Mid Ocean and its shareholders (the "Mid Ocean
Scheme" together with the EXEL Scheme the "Schemes"). In the EXEL Scheme, each
Ordinary Share, par value $.01 per share, of the Company will be transferred to
New Parent and there will be allotted to the holder thereof one Ordinary Share,
par value $.01 per share, of New Parent. In the Mid Ocean Scheme, (i) each Class
A Ordinary Share, par value $.20 per share, of Mid Ocean (other than any shares
of Mid Ocean held by the Company, Mid Ocean or any of their subsidiaries) will
be transferred to New Parent and there will be allotted to the holder thereof
1.0215 shares of Voting Ordinary Shares, par value $.01 per share, of New Parent
and (ii) each Class B and Class C Ordinary Share, par value $.20 per share, of
Mid Ocean (other than any shares of Mid Ocean held by the Company, Mid Ocean or
any of their subsidiaries) will be transferred to New Parent and there will be
allotted to the holder thereof an amount of shares of Non-Voting Ordinary
Shares, par value $.01 per share, of New Parent equal to the Exchange Ratio. In
addition, under the Agreement, holders of Shares and holders of Ordinary Shares
of Mid Ocean may, subject to certain procedures and limitations contained in the
Agreement (as to which procedures and limitations we are expressing no opinion),
elect to convert the Ordinary Shares of New Parent that would have been allotted
to them in connection with the Schemes into an amount of cash per Ordinary Share
of New Parent equal to the average of the closing sales prices of the Shares on
the New York Stock Exchange Composite Transactions Tape on each of the ten
consecutive trading days immediately preceding the Effective Time (as defined in
the Agreement); provided, that the aggregate amount of cash to be paid in the
Schemes to satisfy such elections shall not exceed $300 million. The aggregate
consideration in the form of Ordinary Shares of New Parent and cash, if any, to
be received by the holders of Shares in connection with the Schemes is referred
to herein as the "Aggregate Consideration".
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company, having provided certain investment banking services for the Company
from time to time, including, without limitation,
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having acted as lead managing underwriter for the initial public offering of the
Company's Ordinary Shares in 1991 and subsequent offering of Ordinary Shares in
1992; and having acted as its financial advisor in connection with, and having
assisted in certain of the negotiations leading to, the Agreement. Goldman,
Sachs & Co. is a full service securities firm and in the course of its trading
activities it may from time to time effect transactions, for its own account or
the account of customers, and hold positions in securities or options on
securities of the Company, Mid Ocean and New Parent.
In connection with this opinion, we have reviewed, among other things, the
Agreement; a draft of the Joint Proxy Statement relating to the Class Meeting of
Members of EXEL to be held in connection with the Schemes; Annual Reports to
Stockholders and Annual Reports on Form 10-K for the five fiscal years ended
November 30, 1997 for the Company and October 31, 1997 for Mid Ocean; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and Mid Ocean; certain other communications from the Company and Mid
Ocean to their respective stockholders; certain internal financial analyses and
forecasts for the Company prepared by the Company's management; certain internal
financial analyses and forecasts for fiscal 1998 for Mid Ocean (including
analyses and forecasts for The Brockbank Group ("Brockbank")) prepared by Mid
Ocean's management, as well as certain adjustments to such forecasts prepared by
the Company's management; certain financial analyses and forecasts for Mid Ocean
for years subsequent to fiscal 1998 prepared by the Company's management; and
certain projected cost savings and operating synergies resulting from the
Schemes prepared by the Company's management (the "Synergies"). We note that the
financial forecasts for Mid Ocean for years subsequent to 1998 which were
prepared by the Company's management assume (i) management's anticipated effects
of the sale of certain subsidiaries of Brockbank and (ii) certain redundancies
in Mid Ocean's loss and loss adjustment expense reserves. We also have held
discussions with members of the senior management of the Company and Mid Ocean
regarding the strategic importance, and potential benefits of, the transaction
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of the Company and Mid Ocean. We have
also reviewed with members of senior management of the Company the results of
the Company's due diligence examination of Mid Ocean. With respect to Brockbank,
at your direction, we have not met with the management of Brockbank and our
review of Brockbank was limited to our review of the aforementioned Brockbank
forecasts and discussions with the Company's management in respect of Brockbank.
We understand that you have retained separate financial advisors familiar with
Brockbank to assist you in your due diligence review of Brockbank. In addition,
we have reviewed the reported price and trading activity for the Company's
Ordinary Shares and Mid Ocean's Ordinary Shares, compared certain financial and
stock market information for the Company and Mid Ocean with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the
insurance industry and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In that regard, we have assumed, with
your consent, (i) that the financial forecasts for the Company and Mid Ocean,
including the forecasts in respect of Brockbank, the forecasts for Mid Ocean
adjusted or prepared by the Company's management and including the Synergies,
have been reasonably prepared on a basis reflecting the best currently available
judgments of the managements of the Company and Mid Ocean, as the case may be,
and (ii) that the forecasts referred to in (i) above, including such Synergies
will be realized in the amounts and at the times contemplated thereby. As you
are aware, we have not been provided with financial forecasts for Mid Ocean
prepared by Mid Ocean management for periods other than fiscal 1998.
Accordingly, our review with respect to future periods subsequent to fiscal 1998
for Mid Ocean was limited to the forecasts for Mid Ocean prepared by the
Company's management. In addition, we are not actuaries and we have not made an
independent evaluation or appraisal of the assets and liabilities, including the
loss and loss adjustment expense reserves of the Company or Mid Ocean or any of
their subsidiaries and we have not been furnished with any such evaluation or
appraisal. In that regard, we have made no
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analyses of, and express no opinion as to, the adequacy of the loss and loss
adjustment expense reserves of the Company or Mid Ocean and have relied upon
information furnished to us by the Company and Mid Ocean as to such adequacy.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transactions contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Ordinary Shares of the Company should vote with respect to such
transaction. In addition, we have not been requested to make, and we are not
making, a recommendation to any holder of Shares as to whether it should make a
cash election under the Agreement.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Aggregate
Consideration to be received by the holders of Shares pursuant to the Agreement
is fair from a financial point of view to such holders.
Very truly yours,
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APPENDIX F
[Date of Joint Proxy Statement], 1998
The Board of Directors
Mid Ocean Limited
Richmond House
12 Par-la-Ville Road
Hamilton, HM 08
Bermuda
Attention: Robert J. Newhouse, Jr.
Chairman of the Board
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders (other than EXEL Limited ("EXEL")) of Mid Ocean
Limited (the "Company") of the consideration proposed to be paid to them in
connection with the proposed amalgamations and other transactions (collectively,
the "Transaction") to be effected pursuant to the Agreement and Scheme of
Arrangement, dated March 15, 1998 as amended and restated April 28, 1998 (the
"Agreement"), by and among the Company, EXEL, and Exel Merger Company Ltd. ("New
Parent"). The Agreement provides that each Class A Ordinary Share, par value
$0.20 per share, of the Company (other than shares held by New Parent or by EXEL
or any of its subsidiaries) will be transferred to New Parent and there shall be
allotted and issued to the holders thereof 1.0215 ordinary shares, par value
$0.01 per share, of New Parent, subject to the cash election rights set forth in
the Agreement. The Agreement further provides that each Class B Ordinary Share,
par value $0.20 per share, and each Class C Ordinary Share, par value $0.20 per
share, of the Company will be transferred to New Parent and there shall be
allotted and issued to the holders thereof 1.0215 non-voting common shares, par
value $0.01 per share, of New Parent, subject to the cash election rights set
forth in the Agreement.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) the
Joint Proxy Statement of the Company and EXEL relating to the Transaction (the
"Proxy Statement"); (iii) certain publicly available information concerning the
business of the Company and of certain other companies engaged in businesses
comparable to those of the Company, and the reported market prices for certain
other companies' securities deemed comparable; (iv) publicly available terms of
certain transactions involving companies comparable to the Company and the
consideration received for such companies; (v) current and historical market
prices of the common stock of the Company and EXEL; (vi) the audited financial
statements of the Company and EXEL for the fiscal years ended October 31, 1997
and November 30, 1997, respectively, and the unaudited financial statements of
the Company and EXEL for the periods ended January 31, 1998 and February 28,
1998, respectively; (vii) certain internal financial analyses and forecasts
prepared by the Company and EXEL and their respective managements; and (viii)
the terms of other business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the management
of the Company and EXEL with respect to certain aspects of the Transaction, the
past and current business operations of the Company and EXEL, the financial
condition and future prospects and operations of the Company and EXEL, the
effects of the Transaction on the financial condition and future prospects of
the Company and EXEL, and certain other matters we believed necessary or
appropriate to our inquiry. We have reviewed
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such other financial studies and analyses and considered such other information
as we deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and EXEL or otherwise reviewed
by us, and we have not assumed any responsibility or liability therefor. We have
not conducted any valuation or appraisal of any assets or liabilities, nor have
any such valuations or appraisals been provided to us. In relying on financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Company and EXEL to which such
analyses or forecasts relate. We have also assumed that the Transaction will
have the tax consequences described in the Proxy Statement and in discussions
with, and materials furnished to us by, representatives of the Company, and that
the other transactions contemplated by the Agreement will be consummated as
described in the Proxy Statement and the Agreement. We have relied as to all
legal matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which New Parent's
ordinary shares will trade at any future time.
We have acted as financial advisor to the Company with respect to the
proposed Transaction and will receive a fee from the Company for our services if
the proposed Transaction is consummated. Please be advised that J.P. Morgan has
provided advisory services to the Company in the past, and that an executive
officer of J.P. Morgan & Co. Incorporated is a director of the Company. In
addition, J.P. Morgan Capital Corporation holds 1,190,292 Class B Ordinary
Shares of the Company, which constitute all of the outstanding shares of such
Class, and 1,860,000 Class C Ordinary Shares of the Company. J.P. Morgan Capital
Corporation also holds 4,701,980 ordinary shares, par value $0.01 per share, of
EXEL, and in 1995 entered into a hedging transaction with respect to these
shares. In the ordinary course of their businesses, our affiliates may sell the
securities of third parties to the Company and EXEL and may actively trade the
debt and equity securities of the Company and EXEL for their own account or for
the accounts of customers and, accordingly, they may at any time hold long or
short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid to the Company's shareholders in
the proposed Transaction is fair, from a financial point of view, to such
shareholders (other than EXEL).
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Transaction. This
opinion does not constitute a recommendation to any shareholder of the Company
as to how such shareholder should vote with respect to the Transaction. This
opinion may be reproduced in full in any proxy or information statement mailed
to shareholders of the Company.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: _________________________
Name: Edward J. Kelly, III
Title: Managing Director
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APPENDIX G
THE COMPANIES LAW
COMPANY LIMITED BY SHARES
------------------------
MEMORANDUM OF ASSOCIATION
OF
EXEL MERGER COMPANY LTD.
(ADOPTED BY SPECIAL RESOLUTION PASSED ON , 1998)
1. The name of the Company is EXEL Merger Company Ltd.
2. The Registered Office of the Company shall be at the offices of Huntlaw
Corporate Services Limited, The Huntlaw Building, Fort Street, PO Box 1350,
George Town, Grand Cayman, Cayman Islands, or at such other place as the
Directors may from time to time decide.
3. The objects for which the Company is established are unrestricted and
shall include, but without limitation, the following:--
(i) To take, subscribe for, purchase or otherwise acquire and hold,
directly or indirectly, shares, securities or other obligations of EXEL
Limited, an exempted company incorporated in the Cayman Islands on April 14,
1986 (hereinafter referred to as "Old EXEL"), and Mid Ocean Limited, an
exempted company incorporated in the Cayman Islands on April 8, 1993
(hereinafter referred to as "Mid Ocean"), each of which are existing
companies, and of any other company for the benefit of the Company and for
the purposes of advancing, directly or indirectly, the objects of the
Company or for any other purpose which the Directors or the Company may
think expedient; and to carry on business as the holding company of Old EXEL
and Mid Ocean and any other such company.
(ii) To provide to Old EXEL and Mid Ocean and any other company in which
it holds, directly or indirectly, shares, securities or other obligations,
support, assistance and services of all kinds, whether financial,
managerial, advisory, promotional or otherwise.
(iii) To invest monies of the Company in such fashion as the Directors
think fit; to purchase or otherwise acquire, and to sell, exchange,
surrender, lease, mortgage, charge, convert, turn to account, dispose of and
deal with, real and personal property and rights of all kinds, including
without limitation, mortgages, debentures, concessions, options, contracts,
licenses, bonds, stocks, shares, policies, book debts, business concerns,
undertakings and choses in action of all kinds; and to exercise and enforce
all rights and powers conferred by or incidental to the ownership of any
shares, stock, obligations and securities or other choses in action or
property.
(iv) To engage in or carry on any other lawful trade, business or
enterprise which may at any time appear to the Directors or the Company
capable of being conveniently carried on or which may appear to the
Directors or the Company likely to be profitable to the Company, IT BEING
HEREBY DECLARED that in the interpretation of this Memorandum of Association
in general and of this Clause 3 in particular no object, business or power
specified or mentioned shall be limited or restricted by reference to or
inference from any other object, business or power, or the name of the
Company, or by the juxtaposition of two or more objects, businesses or
powers and that in the event of any ambiguity in this clause or elsewhere in
this Memorandum of Association, the same shall be resolved by such
interpretation and construction as will widen and enlarge and not restrict
the objects, businesses and powers of and exercisable by the Company.
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4. Except as prohibited or limited by the Companies Law (1995 Revision), the
Company shall have full power and authority to carry out any object and shall
have and be capable of from time to time and at all times exercising any and all
of the powers at any time or from time to time exercisable by a natural person
or body corporate in doing in any part of the world whether as principal, agent,
contractor or otherwise, whatever may be considered by it necessary for the
attainment of its objects and whatever else may be considered by it as
incidental or conducive thereto or consequential thereon, including, but without
in any way restricting the generality of the foregoing, the power to make any
alterations or amendments to this Memorandum of Association and the Articles of
Association of the Company considered necessary or convenient in the manner set
out in the Articles of Association of the Company, and the power to do any of
the following acts or things, viz: to pay all expenses of and incidental to the
promotion, formation and incorporation of the Company; to own, sell, lease or
dispose of any property of the Company; to draw, make, accept, endorse,
discount, execute and issue promissory notes, debentures, bills of exchange,
bills of lading, warrants and other negotiable or transferable instruments; to
lend money or other assets and to act as guarantors; to borrow or raise money on
the security of the undertaking or on all or any of the assets of the Company
including uncalled capital or without security; to invest monies of the Company
in such manner as the Directors determine; to promote other companies; to sell
the undertaking of the Company for cash or any other consideration; to
distribute assets in specie to members of the Company; to carry on any trade or
business and generally to do all acts and things which, in the opinion of the
Company or the Directors, may be conveniently or profitably or usefully acquired
and dealt with, carried on, executed or done by the Company in connection with
the business aforesaid, PROVIDED THAT the Company shall only carry on the
businesses for which a license is required under the laws of the Cayman Islands
when so licensed under the terms of such laws.
5. The liability of each member is limited to the amount from time to time
unpaid on such member's shares.
6. The authorized share capital of the Company is US$9,999,900 divided into
999,990,000 Ordinary Shares of a nominal or par value of US$0.01 each with power
for the Company insofar as is permitted by law, to redeem or purchase any of its
shares and to increase or reduce the said capital subject to the provisions of
the Companies Law (1995 Revision) and the Articles of Association and to issue
any part of its capital, whether original, redeemed or increased with or without
any preference, priority or special privilege or subject to any postponement of
rights or to any conditions or restrictions and so that unless the conditions of
issue shall otherwise expressly declare every issue of shares whether declared
to be preference or otherwise shall be subject to the powers hereinbefore
contained.
7. The operations of the Company will be carried on subject to the
provisions of Section 192 of the Companies Law (1995 Revision)[ and, subject to
the provisions of the Companies Law (1995 Revision) and the Articles of
Association, it shall have the power to register by way of continuation as a
body corporate limited by shares under the laws of any jurisdiction outside the
Cayman Islands and to be deregistered in the Cayman Islands].
Dated the 16th day of March, One Thousand Nine Hundred and Ninety-Eight.
<TABLE>
<CAPTION>
NO. OF
SHARES
TAKEN BY
NAME OF SUBSCRIBER ADDRESS OCCUPATION SUBSCRIBER
- ------------------------------------------------------------ ------------------ ----------- ------------
<S> <C> <C> <C>
Huntlaw Nominees Ltd. P.O. Box 1350 Company 1 Ordinary
(Sgd. B.S.D. Putterill) Grand Cayman Share
Cayman Islands
</TABLE>
WITNESS TO THE ABOVE SIGNATURE:--
(Sgd. M. Bodden)
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THE COMPANIES LAW
COMPANY LIMITED BY SHARES
------------------------
ARTICLES OF ASSOCIATION
OF
EXEL MERGER COMPANY LTD.
(ADOPTED BY SPECIAL RESOLUTION PASSED ON , 1998)
1. In these Articles, Table A in the Schedule to the Statute does not apply
and, unless there be something in the subject or context inconsistent therewith,
"Articles" means these Articles as originally framed or as from time to
time altered by Special Resolution.
"The Auditors" means the persons for the time being performing the
duties of auditors of the Company.
"The Company" means the above-named Company.
"Debenture" means debenture stock, mortgages, bonds and any other such
securities of the Company, whether constituting a charge on the assets of
the Company or not.
"The Directors" means the directors for the time being of the Company.
"Dividend" includes bonus.
"Member" shall bear the meaning ascribed to it in Section 35 of the
Statute.
"Month" means calendar month.
"Paid-up" means paid-up and/or credited as paid-up.
"The Registered Office" means the registered office for the time being
of the Company.
"Seal" means the common seal of the Company and includes every official
seal.
"Secretary" includes an Assistant Secretary and any person appointed to
perform the duties of Secretary of the Company.
"Special Resolution" has the same meaning as in the Statute.
"Statute" means the Companies Law of the Cayman Islands, as amended, and
every statutory modification or re-enactment thereof for the time being in
force.
"Written" and "In Writing" include all modes of representing or
reproducing words in visible form.
Words importing the singular number only include the plural number and
vice-versa.
Words importing the masculine gender only include the feminine gender.
Words importing persons only include corporations.
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CERTIFICATES FOR SHARES
2. Certificates representing shares of the Company shall be in such form and
may bear such legends (reflecting the terms of issue of the shares thereby
represented, or any of these Articles or other relevant matters), as shall be
determined by the Directors. Such certificates shall be under seal signed by a
Director and countersigned by the Secretary or another Director or other
authorized person. All certificates for shares shall be consecutively numbered
or otherwise identified and shall specify the shares to which they relate.
3. The name and address of the person to whom the shares represented thereby
are issued, with the number of shares and date of issue, shall be entered in the
register of Members of the Company. All certificates surrendered to the Company
for transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled.
4. The Directors may authorize certificates to be issued with the seal and
authorized signatures affixed by some method or system of mechanical process.
5. Notwithstanding Article 3 of these Articles, if a share certificate be
defaced, lost or destroyed, it may be renewed on such terms (if any) as to
evidence and indemnity and the payment of the expenses incurred by the Company
in investigating evidence, as the Directors may prescribe.
SHARE CAPITAL; ISSUE OF SHARES
6. (a) Without prejudice to the power of the Directors under Article 6(b),
the shares of the Company shall initially be divided into two classes of
Ordinary Shares: Ordinary Shares that carry voting rights equal to one vote per
share, which shall be referred to in these Articles as Class A shares; and
Ordinary Shares that do not carry voting rights, which shall be referred to in
these Articles as Class B shares. Class A shares and Class B shares shall at all
times rank, as to assets, dividends and in all other respects (except for the
ability to exchange Ordinary Shares of one class for Ordinary Shares of another
class as provided in these Articles) on a parity with each other, except that
the Class B shares shall not have the right to vote, except as otherwise
provided by law or these Articles. At any time and from time to time, a member
holding Class B shares may, subject to Article 12(a), deliver to the Company
certificates representing all or some of such Class B shares and be entitled to
receive, in exchange for such Class B shares so delivered, certificates
representing an equal number of Class A shares. In the event of any sub-division
or consolidation or similar transaction affecting the outstanding Class A shares
or the Class B shares, the number of Class A shares receivable in exchange for
Class B shares shall be appropriately adjusted. All Class B shares, in addition
to the restrictions on transfer applicable to all shares of the Company,
including those set forth in Articles 8-11, shall also be subject to
restrictions on transfer set forth in Article 12(b).
(b) The Directors may allot, issue or grant options, warrants or other
convertible or exchangeable securities over or with respect to, or otherwise
dispose of, shares of the Company at such times and on such terms as they think
proper. Without prejudice to any special rights previously conferred on the
holders of existing shares, any share may be issued with such preferred,
deferred or other special rights, terms or conditions, or such restrictions,
whether in regard to dividends, voting, return of share capital, exchange for
other classes of shares, exchangeability for other securities or otherwise, as
the Directors may from time to time determine.
(c) No share of the Company shall be issued unless it is fully paid. All
shares shall be non-assessable and no Member shall be liable to make any
additional payment to the Company in respect thereof beyond the initial
consideration agreed and paid to the Company at or before the time of issue.
(d) Subject to the provisions of the Statute, any issued and outstanding
shares may be purchased or redeemed by the Company out of profits or from the
proceeds of a fresh issue of shares or out of capital or
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the share premium account, in such circumstances and on such terms as shall be
agreed by the Directors and the holder thereof.
7. The Company shall maintain a register of its Members and every person
whose name is entered as a Member in the register of Members shall be entitled
with payment to receive within two months after allotment or lodgement of
transfer (or within such other period as the conditions of issue shall provide)
one certificate for all his shares or several certificates each for one or more
of his shares upon payment of US$0.50 or such lesser sum for every certificate
after the first as the Directors shall from time to time determine provided that
in respect of a share or shares held jointly by several persons the Company
shall not be bound to issue more than one certificate and delivery of a
certificate for a share to one of the several joint holders shall be sufficient
delivery to all such holders.
TRANSFER OF SHARES
8. The instrument of transfer of any share shall be in writing and shall be
executed by or on behalf of the transferor; and the transferor shall be deemed
to remain the holder of a share until the name of the transferee is entered in
the register in respect thereof.
9. (a) The Directors shall decline to register a transfer of shares unless
(i) a registration statement under the Securities Act of 1933, as amended, of
the United States of America is in effect with respect to such transfer or (ii)
such transfer is exempt from registration and, if requested by the Directors, a
written opinion from counsel reasonably acceptable to the Directors is obtained
to the effect that no such registration is required.
(b) The Directors shall decline to register a transfer of shares if it
appears to the Directors, whether before or after such transfer, that the effect
of such transfer would be to increase the number of the Controlled Shares (as
defined in Article 41) of any person to ten percent (10%) or any higher
percentage [of the issued Class A shares] or of the total issued shares or of
the voting power of the Company.
(c) The Directors may, in their discretion, advise any person (as defined in
Article 41) that any transfer which would increase the number of such person's
Controlled Shares (as defined in Article 41) to ten percent (10%) or any higher
percentage [of the issued Class A shares] or the total issued shares or voting
power of the Company may not be made and will not be recognized for any purpose
and any such transfer purported to have been made to such person after receipt
of such notice by such person shall be null and void.
10. The Directors shall have an absolute discretion to decline to register
any transfer of shares without assigning any reason therefor. If the Directors
refuse to register a transfer they shall notify the transferee within two months
of such refusal.
11. The registration of transfers may be suspended at such time and for such
periods as the Directors may from time to time determine, provided always that
such registration shall not be suspended for more than 45 days in any year
except as may be required by applicable law.
EXCHANGE OF SHARES
12. (a) Upon the request of any Member holding Class B shares, the Company
shall issue such Member Class A shares in exchange for all or a portion of such
Member's Class B shares; PROVIDED that in no event shall the number of Class A
shares so issued cause the voting power of such Member to exceed ten percent
(10%) of the voting power of all issued shares of the Company; PROVIDED FURTHER
that the Directors may decline to issue shares of one class in exchange for
shares of another class in their absolute discretion. Notwithstanding the second
proviso to the immediately preceding sentence, upon request of any Member
holding Class B shares (or who has previously held Class B shares), the Company
shall issue such Member Class B shares in exchange for such Member's Class A
shares if as a result of a purchase of
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shares or any other action by the Company such exchange is necessary to ensure
compliance by such Member with the Bank Holding Company Act of the United States
of America. Subject to the Statute and applicable law, the exchange of shares of
one class for shares of another class may be effected in such a manner as the
Directors may from time to time determine.
(b) In addition to any and all other restrictions on transfer of shares
contained herein, the Directors shall decline to approve or to register any
transfer of any Class B share (except to the ultimate parent corporation of the
Member or any wholly owned direct or indirect subsidiary of the Parent).
VARIATION OF RIGHTS OF SHARES
13. (a) If at any time the share capital is divided into different classes
or series of shares, the rights attached to any class or series (unless
otherwise provided by the terms of issue of the shares of that class or series)
may be varied by the holder(s) of issued shares of that class or series by
Special Resolution at a separate meeting of the holders of shares of such class
or series. The provisions of these Articles relating to general meetings shall
apply, MUTATIS MUTANDIS, to every such separate general meeting, except that the
necessary quorum shall be any one or more persons present in person or by proxy
holding not less than fifty percent (50%) of the issued shares of the class.
(b) The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking PARI PASSU therewith.
COMMISSION ON SALE OF SHARES
14. The Company may insofar as the Statute from time to time permits pay a
commission to any person in consideration of his subscribing or agreeing to
subscribe, whether absolutely or conditionally, for any shares of the Company.
Such commissions may be satisfied by the payment of cash or the lodgement of
fully or partly paid-up shares or partly in one way and partly in the other. The
Company may also on any issue of shares pay such brokerage as may be lawful.
NON-RECOGNITION OF TRUSTS
15. No person shall be recognized by the Company as holding any share upon
any trust and the Company shall not be bound by or be compelled in any way to
recognize (even when having notice thereof) any equitable, contingent, future,
or partial interest in any share, or any interest in any fractional part of a
share, or (except only as is otherwise provided by these Articles or the
Statute) any other rights in respect of any share except an absolute right to
the entirety thereof in the registered holder, but the Company may, in
accordance with the Statute, issue fractions of shares.
LIEN ON SHARES
16. The Company shall have a first and paramount lien and charge on all
shares registered in the name of a Member (whether solely or jointly with
others) for all debts, liabilities or engagements to or with the Company
(whether presently payable or not) by such Member or his estate, either (alone
or jointly with any other person, whether a Member or not, but the Directors may
at any time declare any share to be wholly or in part exempt from the provisions
of this Article. The registration of a transfer of any such share shall operate
as a waiver of the Company's lien (if any) thereon. The Company's lien (if any)
on a share shall extend to all dividends or other monies payable in respect
thereof.
17. The Company may sell, in such manner as the Directors think fit, any
shares on which the Company has a lien, but no sale shall be made unless a sum
in respect of which the lien exists is presently payable, nor until the
expiration of fourteen days after a notice in writing stating and demanding
payment of such part of the amount in respect of which the lien exists as is
presently payable, has been given to the
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registered holder or holders for the time being of the share, or the person, of
which the Company has notice, entitled thereto by reason of his death or
bankruptcy.
18. To give effect to any such sale, the Directors may authorize some person
to transfer the shares sold to the purchaser thereof. The purchaser shall be
registered as the holder of the shares comprised in any such transfer, and he
shall not be bound to see to the application of the purchase money, nor shall
his title to the shares be affected by any irregularity or invalidity in the
proceedings in reference to the sale.
19. The proceeds of such sale shall be received by the Company and applied
in payment of such part of the amount in respect of which the lien exists as is
presently payable and the residue, if any, shall (subject to a like lien for
sums not presently payable as existed upon the shares before the sale) be paid
to the person entitled to the shares at the date of the sale.
REGISTRATION OF EMPOWERING INSTRUMENTS
20. The Company shall be entitled to charge a fee on the registration of
every probate, letter of administration, certificate of death or marriage, power
of attorney, notice in lieu of distringas, or other instrument.
TRANSMISSION OF SHARES
21. In case of the death of a Member, the survivor or survivors where the
deceased was a joint holder, and the legal personal representatives of the
deceased where he was a sole holder, shall be the only persons recognized by the
Company as having any title to his interest in the shares, but nothing herein
contained shall release the estate of any such deceased holder from any
liability in respect of any shares which had been held by him solely or jointly
with other persons.
22. (a) Any person becoming entitled to a share in consequence of the death
or bankruptcy of a Member (or in any other way than by transfer) may, upon such
evidence being produced as may from time to time be required by the Directors
and subject as hereinafter provided, elect either to be registered himself as
holder of the share or to make such transfer of the share to such other person
nominated by him as the deceased or bankrupt person could have made and to have
such person registered as the transferee thereof, but the Directors shall, in
either case, have the same right to decline or suspend registration as they
would have had in the case of a transfer of the share by that Member before his
death or bankruptcy, as the case may be.
(b) If the person so becoming entitled shall elect to be registered himself
as holder, he shall deliver or send to the Company a notice in writing signed by
him stating that he so elects.
23. A person becoming entitled to a share by reason of the death or
bankruptcy of the holder (or in any case other than by transfer) shall be
entitled to the same dividends and other advantages to which he would be
entitled if he were the registered holder of the share, except that he shall
not, before being registered as a Member in respect of the share, be entitled in
respect of it to exercise any right conferred by Membership in relation to
meetings of the Company, PROVIDED HOWEVER that the Directors may at any time
give notice requiring any such person to elect either to be registered himself
or to transfer the share and if the notice is not complied with within ninety
days, the Directors may thereafter withhold payment of all dividends, bonuses or
other monies payable in respect of the shares until the requirements of the
notice have been complied with.
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AMENDMENT OF MEMORANDUM OF ASSOCIATION, CHANGE OF
LOCATION OF REGISTERED OFFICE & ALTERATION OF CAPITAL
24. (a) Subject to and in so far as permitted by the provisions of the
Statute, the Company may from time to time by Special Resolution alter or amend
its Memorandum of Association and may, without restricting the generality of the
foregoing:
(i) increase the share capital by such sum to be divided into shares of
such amount or without nominal or par value as the resolution shall
prescribe and with such rights, priorities and privileges annexed thereto,
as the Company in general meeting may determine.
(ii) consolidate and divide all or any of its share capital into shares
of larger amount than its existing shares;
(iii) by subdivision of its existing shares or any of them divide the
whole or any part of its share capital into shares of smaller amount than is
fixed by the Memorandum of Association or into shares without nominal or par
value.
(iv) cancel any shares which at the date of the passing of the
resolution have not been taken or agreed to be taken by any person.
(b) All new shares created hereunder shall be subject to the same provisions
with reference to liens, transfer, transmission and otherwise as the shares in
the original share capital.
(c) Subject to the provisions of the Statute the Company may by Special
Resolution reduce its share capital, any capital redemption reserve fund, or any
share premium account.
25. Subject to the provisions of the Statute the Company may by Special
Resolution change its name or alter its objects.
26. Subject to the provisions of the Statute the Company may by resolution
of the Directors change the location of its registered office.
CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE
27. For the purpose of determining Members entitled to notice of or to vote
at any meeting of Members or any adjournment thereof, or Members entitled to
receive payment of any dividend, or in order to make a determination of Members
for any other proper purpose, the Directors of the Company may provide that the
register of Members shall be closed for transfers for a stated period but not to
exceed in any case 40 days. If the register of Members shall be so closed for
the purpose of determining Members entitled to notice of or to vote at a meeting
of Members such register shall be so closed for at least ten days immediately
preceding such meeting and the record date for such determination shall be the
date of the closure of the register of Members.
28. In lieu of or apart from closing the register of Members, the Directors
may fix in advance a date as the record date for any such determination of
Members entitled to notice of or to vote at a meeting of the Members and for the
purpose of determining the Members entitled to receive payment of any dividend.
For the purpose of determining the Members entitled to receive payment of any
dividend, the Directors may, at or within 90 days prior to the date of
declaration of such dividend fix a subsequent date no later than the date of
declaration as the record date for such determination.
29. If the register of Members is not so closed and no record date is fixed
for the determination of Members entitled to notice of or to vote at a meeting
of Members or Members entitled to receive payment of a dividend, the date on
which notice of the meeting is mailed or the date on which the resolution of the
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of Members. When a determination of Members
entitled to vote at any meeting of
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Members has been made as provided in this section, such determination shall
apply to any adjournment thereof.
GENERAL MEETING
30. (a) The Company shall in each year of its existence hold a general
meeting as its Annual General Meeting and shall specify the meeting as such in
the notices calling it. The Annual General Meeting shall be held at such time
and place as the Directors shall appoint.
(b) At these meetings the financial statements of the Company and the
reports of the Directors and Auditors shall be presented and the Directors and
Auditors for the ensuing year shall be elected.
31. (a) The Directors may whenever they think fit, and they shall on the
requisition of Members of the Company holding at the date of the deposit of the
requisition not less than fifteen percent (15%) of the voting power of the
issued shares of the Company which at the date of the deposit carry the right of
voting at general meetings of the Company, proceed to convene a general meeting
of the Company.
(b) The requisition must state the objects of the meeting and must be signed
by the requisitionists and deposited at the Registered Office of the Company and
may consist of several documents in like form each signed by one or more
requisitionists.
(c) If the Directors do not within 21 days from the date of the deposit of
the requisition duly proceed to convene a general meeting, the requisitionists,
or any of them representing more than one-half of the total voting rights of all
of them, may themselves convene a general meeting, but any meeting so convened
shall not be held after the expiration of three months after the expiration of
the said 21 days.
(d) A general meeting convened as aforesaid by requisitionists shall be
convened in the same manner as nearly as possible as that in which general
meetings are to be convened by Directors.
(e) If at any such general meeting a resolution requiring confirmation at
another meeting is passed, the Directors shall forthwith convene a further
general meeting to be held not less than ten days nor later than one month after
the passing of the first resolution for the purpose of considering the
resolution and if the Directors do not give notice of so convening such further
general meeting prior to the date of the passing of the first resolution the
requisitionists or any of them representing more than one-half of the total
voting rights of all the requisitionists may themselves give notice and convene
the general meeting.
NOTICE OF GENERAL MEETING
32. At least 30 days' notice shall be given of an Annual General Meeting or
any other general meeting. Every notice shall be exclusive of the day on which
it is given or deemed to be given and of the day for which it is given and shall
specify the place, the day and the hour of the meeting and the general nature of
the business and shall be given in the manner hereinafter mentioned or in such
other manner if any as may be prescribed by the Company provided that a general
meeting of the Company shall, whether or not the notice specified in this
regulation has been given, be deemed to have been duly called if it is so agreed
by all the Members entitled to attend and vote thereat or their proxies.
33. The accidental omission to give notice of a general meeting to, or the
non-receipt of notice of a meeting by any person entitled to receive notice
shall not invalidate the proceedings of that meeting.
PROCEEDINGS AT GENERAL MEETINGS
34. No business shall be transacted at any general meeting unless a quorum
of Members is present at the time when the meeting proceeds to business. One or
more Members present in person or by proxy holding at least fifty percent (50%)
of the voting power of the issued shares of the Company for the time being shall
be a quorum provided however that no quorum shall exist for the purpose of
considering or
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passing any Special Resolution unless the Member or Members present in person or
by proxy shall hold at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of the issued shares for the time being.
35. Subject and without prejudice to any provisions of the Statute, a
resolution in writing (in one or more counterparts) signed by all Members for
the time being entitled to receive notice of and to attend and vote at general
meetings (or being corporations by their duly authorized representatives) shall
be as valid and effective as if the same had been passed at a general meeting of
the Company duly convened and held.
36. If within one hour after the time appointed for the meeting a quorum is
not present, the meeting shall be dissolved.
37. The Chairman, if any, of the Board of Directors shall preside as
Chairman at every general meeting of the Company, or if there is no such
Chairman, or if he shall not be present within thirty minutes after the time
appointed for the holding of the meeting, or is unwilling to act, the Directors
present shall elect one of their number to be Chairman of the meeting.
38. If at any general meeting no Director is willing to act as Chairman or
if no Director is present within thirty minutes after the time appointed for
holding the meeting, the Members present shall choose one of their number to be
Chairman of the meeting.
39. The Chairman may, with the consent of any general meeting duly
constituted hereunder, and shall if so directed by the meeting, adjourn the
meeting from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left unfinished at
the meeting from which the adjournment took place. When a general meeting is
adjourned for thirty days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting; save as aforesaid it shall not be
necessary to give any notice of an adjournment or of the business to be
transacted at an adjourned general meeting.
40. At any General Meeting a resolution put to the vote at the meeting shall
be decided on a poll taken in such manner as the Chairman directs.
VOTES OF MEMBERS
41. (a) Every Member of record owning Class A shares present in person or by
proxy shall have one vote for each Class A share registered in such Member's
name in the register, provided that if and so long as the votes conferred by the
Controlled Shares of any person constitute ten percent (10%) or more of the
votes conferred by the issued shares of the Company, each issued share comprised
in such Controlled Shares shall confer only a fraction of a vote that would
otherwise be applicable according to the following formula:
[(T divided by 10) - 1] divided by C.
Where: "T" is the aggregate number of votes conferred by all the issued
shares of the Company; and "C" is the number of votes conferred by the
Controlled Shares of such person.
"Controlled Shares" in reference to any person means:
(i) all shares of the Company directly, indirectly or constructively owned
by such person within the meaning of Section 958 of the Internal Revenue
Code of 1986, as amended, of the United States of America; and
(ii) all shares of the Company directly, indirectly or constructively owned
by any person or "group" of persons within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, of the
United States of America and the rules and regulations promulgated
thereunder.
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For the purposes of this Article, "person" shall mean any individual,
firm, partnership, corporation, association, or other entity, or any "group"
of persons within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, of the United States of America and the rules and
regulations thereunder.
(b) Any public shares acquired by J.P. Morgan Securities Inc. in the course
of its maintaining a market in the public shares shall have no voting rights for
so long as J.P. Morgan Securities Inc. or any of its affiliates beneficially
owns such shares within the meaning of Section 13(d) of the Securities Exchange
Act of 1934, as amended, of the United States of America; provided that upon any
disposition thereof to any other person such shares shall be entitled to the
voting rights otherwise provided by the Statute and these Articles.
(c) If, as a result of giving effect to the foregoing provisions of Article
41 or otherwise, the votes conferred by the Controlled Shares of any person
would otherwise represent more than 10% of the votes conferred by all the issued
shares of the Company, the votes conferred by the Controlled Shares of such
person shall be reduced in accordance with the foregoing provisions of Article
41. Such process shall be repeated until the votes conferred by the Controlled
Shares of each person represent no more than 10% of the votes conferred by all
the issued shares of the Company.
(d) Notwithstanding the foregoing Article 41, after having applied the
provisions thereof as best as they consider reasonably practicable, the
Directors may make such final adjustments to the aggregate number of votes
conferred by the Controlled Shares of any member that they consider fair and
reasonable in all the circumstances to ensure that such votes represent less
than 10% of the aggregate voting power of the votes conferred by all the issued
shares of the Company.
42. In the case of joint holders of record the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders, and for this purpose
seniority shall be determined by the order in which the names stand in the
register of Members.
43. A Member of unsound mind, or in respect of whom an order has been made
by any court, having jurisdiction in lunacy, may vote, whether on a show of
hands or on a poll, by his committee, receiver, curator bonis, or other person
in the nature of a committee, receiver or curator bonis appointed by that court,
and any such committee, receiver, curator bonis or other persons may vote by
proxy.
44. No Member shall be entitled to vote at any general meeting unless he is
registered as a shareholder of the Company on the record date for such meeting.
45. No objection shall be raised to the qualification of any voter except at
the general meeting or adjourned general meeting at which the vote objected to
is given or tendered and every vote not disallowed at such general meeting shall
be valid for all purposes. Any such objection made in due time shall be referred
to the Chairman of the general meeting whose decision shall be final and
conclusive. Notwithstanding the foregoing, however, the Chairman of the general
meeting may, in his discretion, whether or not an objection has been raised, and
if the Chairman considers that such action is necessary to determine accurately
the vote count, defer until after the conclusion of the general meeting a
decision as to the proper application of the proviso in Article 41 to any vote
at such meeting. If the decision has been so deferred, then the Chairman of the
general meeting or, failing such decision within ninety (90) days of the general
meeting, the Board of Directors, shall make such decision and such decision
shall be final and conclusive.
46. Votes may be given either personally or by proxy.
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PROXIES
47. The instrument appointing a proxy shall be in writing and shall be
executed under the hand of the appointor or of his attorney duly authorized in
writing, or, if the appointor is a corporation under the hand of an officer or
attorney duly authorized in that behalf. A proxy need not be a Member of the
Company.
48. The instrument appointing a proxy shall be deposited at the Registered
Office of the Company or at such other place as is specified for that purpose in
the notice convening the meeting no later than the time for holding the meeting,
or adjourned meeting, provided that the Chairman of the Meeting may at his
discretion direct that an instrument of proxy shall be deemed to have been duly
deposited upon receipt of telex or cable confirmation from the appointor that
the instrument of proxy duly signed is in the course of transmission to the
Company.
49. The instrument appointing a proxy may be in any usual or common form and
may be expressed to be for a particular meeting or any adjournment thereof or
generally until revoked.
50. A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or insanity of the principal
or revocation of the proxy or of the authority under which the proxy was
executed, or the transfer of the share in respect of which the proxy is given
provided that no intimation in writing of such death, insanity, revocation or
transfer as aforesaid shall have been received by the Company at the office
before the commencement of the general meeting, or adjourned meeting, at which
it is sought to use the proxy.
51. Any corporation which is a Member of record of the Company may in
accordance with its Articles or in the absence of such provision by resolution
of its Directors or other governing body authorize such person as it thinks fit
to act as its representative at any meeting of the Company or of any class of
Members of the Company, and the person so authorized shall be entitled to
exercise the same powers on behalf of the corporation which he represents as the
corporation could exercise if it were an individual Member of record of the
Company.
DIRECTORS
52. There shall be a Board of Directors consisting of not less than three or
more than 24 persons, the exact number at any time to be fixed by the Board of
Directors, subject to the power of the Company by ordinary resolution to
increase or reduce the limits in the number of Directors.
53. The remuneration to be paid to the Directors shall be such remuneration
as the Directors shall determine. Such remuneration shall be deemed to accrue
from day to day.
54. The Directors shall also be entitled to be paid their travelling, hotel
and other expenses properly incurred by them in going to, attending and
returning from meetings of the Directors, or any committee of the Directors, or
general meetings of the Company, or otherwise in connection with the business of
the Company, or to receive a fixed allowance in respect thereof as may be
determined by the Directors from time to time, or a combination partly of one
such method and partly the other.
55. The Directors may by resolution award special remuneration to any
Director of the Company undertaking any special work or services for, or
undertaking any special mission on behalf of, the Company other than his
ordinary routine work as a Director. Any fees paid to a Director who is also
counsel or solicitor to the Company, or otherwise serves it in a professional
capacity shall be in addition to his remuneration as a Director.
56. A Director may hold any other office or place of profit under the
Company (other than the office of Auditor) in conjunction with his office of
Director for such period and on such terms as to remuneration and otherwise as
the Directors may determine.
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57. A Director may act by himself or his firm in a professional capacity for
the Company and he or his firm shall be entitled to remuneration for
professional services as if he were not a Director.
58. A shareholding qualification for Directors may be fixed by the Company
in general meeting, but unless and until so fixed no qualification shall be
required.
59. A Director of the Company may be or become a Director or other Officer
of or otherwise interested in any company promoted by the Company or in which
the Company may be interested as shareholder or otherwise and no such Director
shall be accountable to the Company for any remuneration or other benefits
received by him as a Director or Officer of, or from his interest in, such other
company.
60. No person shall be disqualified from the office of Director or prevented
by such office from contracting with the Company, either as vendor, purchaser or
otherwise, nor shall any such contract or any contract or transaction entered
into by or on behalf of the Company in which any Director shall be in any way
interested be or be liable to be avoided, nor shall any Director so contracting
or being so interested be liable to account to the Company for any profit
realized by any such contract or transaction by reason of such Director holding
office or of the fiduciary relation thereby established. A Director shall be at
liberty to vote in respect of any contract or transaction in which he is so
interested as aforesaid provided however that the nature of the interest of any
Director in any such contract or transaction shall be disclosed by him at or
prior to its consideration and any vote thereon.
61. A general notice that a Director is a shareholder of any specified firm
or company and is to be regarded as interested in any transaction with such firm
or company shall be sufficient disclosure under Article 60 and after such
general notice it shall not be necessary to give special notice relating to any
particular transaction.
POWERS AND DUTIES OF DIRECTORS
62. The business of the Company shall be managed by the Directors, who may
pay all expenses incurred in promoting, registering and setting up the Company,
and may exercise all such powers of the Company as are not, from time to time by
the Statute, or by these Articles, or such regulations, being not inconsistent
with the aforesaid, as may be prescribed by the Company in general meeting,
required to be exercised by the Company in general meeting. No regulations made
by the Company in general meeting shall invalidate any prior act of the
Directors which would have been valid if that regulation had not been made.
63. The Directors may from time to time and at any time by powers of
attorney appoint any company, firm, person or body of persons, whether nominated
directly or indirectly by the Directors, to be the attorney or attorneys of the
Company for such purpose and with such powers, authorities and discretions (not
exceeding those vested in or exercisable by the Directors under these Articles)
and for such period and subject to such conditions as they may think fit, and
any such powers of attorney may contain such provisions for the protection and
convenience of persons dealing with any such attorneys as the Directors may
think fit and may also authorize any such attorney to delegate all or any of the
powers, authorities and discretions vested in him.
64. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for monies paid to the Company shall be
signed, drawn, accepted endorsed or otherwise executed as the case may be in
such manner as the Directors shall from time to time by resolution determine.
65. The Directors shall cause Minutes to be made in books provided for the
purpose:
(a) of all appointments of officers made by the Directors;
(b) of the names of the Directors (including those represented thereat by
proxy) present at each meeting of the Directors and of any committee of the
Directors;
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(c) of all resolutions and proceedings at all meetings of the Company and of
the Directors and of Committees of Directors.
66. The Directors on behalf of the Company may pay a gratuity or pension or
allowance on retirement to any Director who has held any other salaried office
or place of profit with the Company or to his widow or dependents and may make
contributions to any fund and pay premiums for the purchase or provision of any
such gratuity, pension or allowance.
BORROWING POWERS
67. (a) The Directors may exercise all the powers of the Company to borrow
money and to mortgage or charge its undertaking, property and uncalled capital
or any part thereof and to issue debentures, debenture stock and other
securities whether outright or as security for any debt, liability or obligation
of the Company or of any third party.
(b) The Directors may raise or secure the payment or repayment of such sum
or sums in such manner and upon such terms and conditions in all respects as
they think fit and, in particular, by the issue of debentures, debenture stock,
bonds or other securities of the Company, whether outright or as collateral
security for any debts, liability or obligations of the Company or of any third
party.
(c) Debentures, debenture stock, bonds and other securities may be made
assignable free from any equities between the Company and the person to whom the
same may be issued.
(d) Any debentures, debenture stock, bonds or other securities may be issued
at a discount, premium or otherwise and with any special privileges as to
redemption, surrender, drawings, convertibility into shares of the Company,
allotment of shares, attending and voting at general meetings of the Company,
appointment of Directors and otherwise.
(e) The Directors shall cause a proper register to be kept, in accordance
with the provisions of the Statute, of all mortgages and charges specifically
affecting the property of the Company and shall duly comply with the
requirements of the Statute in regard to the registration of mortgages and
charges therein specified and otherwise.
(f) If the Company issues a series of debentures or debenture stock or
similar securities, whether or not transferable by delivery, the Directors shall
cause a proper register to be kept of the holders of such debentures or
securities.
MANAGEMENT
68. The Directors may from time to time provide for the management of the
affairs of the Company in such manner as they shall think fit and the provisions
contained in the next following Article shall be without prejudice to the
general powers conferred by this Article.
69. The Directors from time to time and at any time may establish any
committees, local boards or agencies for managing any of the affairs of the
Company and may appoint any persons to be members of such committees or local
boards or any managers or agents and may fix their remuneration.
PROCEEDINGS OF DIRECTORS
70. Except as otherwise provided by these Articles, the Directors shall meet
together (either within or outside the Cayman Islands) for the despatch of
business, convening, adjourning and otherwise regulating their meetings as they
think fit. Questions arising at any meeting shall be decided by a majority of
votes of the Directors present at a meeting at which there is a quorum. In the
case of an equality of votes, the Chairman shall not have a casting vote.
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71. A Director may, and the Secretary on the requisition of a Director
shall, at any time summon a meeting of the Directors by at least five days'
notice in writing to every Director which notice shall set forth the general
nature of the business to be considered unless notice is waived by all the
Directors either at, before or after the meeting is held and if notice is given
in person, by telegram, telex, cablegram, facsimile transmission or wireless the
same shall be deemed to have been given on the day it is delivered to the
Directors or transmitting organization as the case may be. The provisions of
Article 33 shall apply mutatis mutandis with respect to notices of meetings of
Directors.
72. The quorum necessary for the transaction of the business of the
Directors may be fixed by the Directors and unless so fixed shall be one-third
of the Directors currently in office present in person or represented by proxy.
73. The continuing Directors may act notwithstanding any vacancy in their
body, but if and so long as their number is reduced below the number fixed by or
pursuant to these Articles as the necessary quorum of Directors the continuing
Directors or Director may act for the purpose of increasing the number of
Directors to that number, or of summoning a general meeting of the Company, but
for no other purpose.
74. The Directors may elect a Chairman of their Board and determine the
period for which he is to hold office; but if no such Chairman is elected, or if
at any meeting the Chairman is not present within thirty minutes after the time
appointed for holding the same, the Directors present may choose one of their
number to be Chairman of the meeting.
75. The Directors may delegate any of their powers to committees consisting
of such member or members of the Board of Directors as they think fit; any
committee so formed shall in the exercise of the powers so delegated conform to
any regulations that may be imposed on it by the Directors. 76. A committee may
meet and adjourn as it thinks proper. Questions arising at any meeting shall be
determined by a majority of votes of the Members present.
77. All acts done by any meeting of the Directors or of a committee of
Directors shall, notwithstanding that it be afterwards discovered that there was
some defect in the appointment of any Director, or that they or any of them were
disqualified, be as valid as if every such person had been duly appointed and
qualified to be a Director.
78. Members of the Board of Directors or of any committee thereof may
participate in a meeting of the Board or of such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting. A resolution in writing (in one or more counterparts), signed by all
the Directors for the time being or all the members of a committee of Directors
shall be as valid and effectual as if it had been passed at a meeting of the
Directors or committee as the case may be duly convened and held.
79. (a) A Director may be represented at any meetings of the Board of
Directors by a proxy appointed by him and approved by the Board in which event
the presence or vote of the proxy shall for all purposes be deemed to be that of
the Director.
(b) The provisions of Articles 47-50 shall MUTATIS MUTANDIS apply to the
appointment of proxies by Directors.
VACATION OF OFFICE OF DIRECTOR
80. The office of a Director shall be vacated:
(a) if he gives notice in writing to the Company that he resigns the office
of Director;
(b) if he dies, becomes bankrupt or makes any arrangement or composition
with his creditors generally;
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(c) if he is found a lunatic or becomes of unsound mind;
(d) in the circumstances described in the next following Article; or
(e) if he ceases to be a Director by virtue of, or becomes prohibited from
being a Director by reason of, an order made under any provisions of any law or
enactment.
APPOINTMENT AND REMOVAL OF DIRECTORS
81. (a) The Directors shall be divided into three classes designated Class
I, Class II and Class III. Each class shall consist as nearly as possible of
one-third of the total number of Directors constituting the entire Board of
Directors. The initial term of office for each Director in Class I shall expire
at the Annual General Meeting of the Company in 1999; the initial term of office
for each Director in Class II shall expire at the Annual General Meeting in
2000; and the initial term of office for each Director in Class III shall expire
at the Annual General Meeting in 2001. At each Annual General Meeting,
commencing with the Annual General Meeting to be held in 1999, the successors of
the class of Directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the Annual General Meeting to be held in the
third year of their election, so that the term of one class of Directors shall
expire in each year. Each Director shall hold office for the term for which he
or she is elected or appointed and until his or her successor shall be elected
or appointed and qualify or until he or she shall vacate office in accordance
with Article 80. If the number of Directors is changed, an increase or decrease
shall be apportioned among the classes so as to maintain the number of Directors
in each class as nearly equal as possible, but in no case shall a decrease in
the number of Directors shorten the term of an incumbent Director. The term of a
Director appointed to fill a newly created directorship, or other vacancy, shall
expire at the same time as the term of the other Directors of the class for
which the new directorship is created or in which the vacancy occurred. No
person shall, unless recommended by the Directors, be eligible for election to
the office of Director at any Annual General Meeting unless not less than five
nor more than twenty-one days before the date appointed for the meeting there
has been left at the registered office of the Company notice in writing signed
by a Member duly qualified to attend and vote at the meeting of his intention to
propose such person for election, and also notice in writing signed by that
person of his willingness to be elected.
(b) At any time the Company may by Special Resolution of the total voting
power of the issued shares of the Company determined in accordance with these
Articles, including Article 41, remove any Director and may in like manner
appoint another person in his stead.
82. The Directors shall have power at any time and from time to time to
appoint any person to be a Director to fill any vacancy on the Board of
Directors created pursuant to the provisions of Articles 52 or 80.
PRESUMPTION OF ASSENT
83. A Director of the Company who is present at a meeting of the Board of
Directors at which action on any Company matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
Minutes of the meeting or unless he shall file his written dissent from such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Company immediately after the adjournment of the meeting. Such
right to dissent shall not apply to a Director who voted in favour of such
action.
SEAL
84. (a) Subject to the provisions of Article 4 hereof, the Seal shall only
be used by the authority of the Directors or of a committee of the Directors
authorised by the Directors in that behalf and every
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instrument to which the Seal has been affixed shall be signed by one person who
shall be either a Director or the Secretary or Secretary-Treasurer or some
person appointed by the Directors for the purpose.
(b) The Company may have for use in any territory district or place not
situate in the Cayman Islands, an official seal which shall be a facsimile of
the Common Seal of the Company with or without the addition on its face of the
name of every territory district or place where it is to be used.
(c) A Director, Secretary or other officer or representative or attorney may
without further authority of the Directors affix the Seal of the Company over
his signature alone to any document of the Company required to be authenticated
by him under Seal or to be filed with the Registrar of Companies in the Cayman
Islands or elsewhere wheresoever.
OFFICERS
85. The Company may have a President and shall have a Secretary or
Secretary-Treasurer appointed by the Directors who may also from time to time
appoint such other Officers as they consider necessary, all for such terms, at
such remuneration and to perform such duties, and subject to such provisions as
to disqualification and removal as the Directors from time to time prescribe.
86. A provision of the Statute or these Articles requiring or authorizing a
thing to be done by a Director and an Officer shall not be satisfied by its
being done by the one person acting in the dual capacity of Director and
Officer.
DIVIDENDS AND RESERVE
87. Subject to the Statute, the Directors may from time to time declare
dividends on shares of the Company outstanding and authorise payment of the same
out of the funds of the Company and may from time to time pay to the Members
such interim dividends as appear to the Directors to be justified by the profits
and financial condition of the Company.
88. The Directors may, before declaring any dividends, set aside such sums
as they think proper as a reserve or reserves which shall, at the discretion of
the Directors, be applicable for any purpose of the Company and pending such
application may, at the like discretion, be employed in the business of the
Company.
89. No dividend shall be payable except out of the profits of the Company,
realized or unrealized or out of monies otherwise available for dividends in
accordance with the Statute.
90. Subject to the rights of persons, if any, entitled to shares with
special rights as to dividends, all shares outstanding on the record date for a
dividend shall rank equally for such dividend regardless of their date of issue
and regardless of the amount paid up thereon.
91. The Directors may deduct from any dividend payable to any Member all
sums of money (if any) presently payable by him to the Company on any account.
92. The Directors may declare that any dividend be paid wholly or partly by
the distribution of specific assets and in particular of paid up shares,
debentures, or debenture stock of any other company or in any one or more of
such ways and where any difficulty arises in regard to such distribution, the
Directors may settle the same as they think expedient and in particular may
issue fractional certificates and fix the value for distribution of such
specific assets or any part thereof and may determine that cash payments shall
be made to any Members upon the footing of the value so fixed in order to adjust
the rights of all Members and may vest any such specific assets in trustees as
may seem expedient to the Directors.
93. Any dividend, interest or other monies payable in cash in respect of
shares may be paid by cheque or warrant sent through the post directed to the
registered address of the holder or, in the case of joint
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Preliminary Proxy Material
holders, to the holder who is first named on the register of Members or to such
person and to such address as such holder or joint holders may in writing
direct. Every such cheque or warrant shall be made payable to the order of the
person to whom it is sent. Any one of two or more joint holders may give
effectual receipts for any dividends, bonuses, or other monies payable in
respect of the share held by them as joint holders.
94. No dividend shall bear interest against the Company. Subject to the
Statute, if determined by the Directors, any dividend unclaimed for a period of
six years from the date of declaration of such dividend shall be forfeited and
shall revert to the Company and the payment by the Directors of any unclaimed
dividend, interest or other sum payable on or in respect of the share into a
separate account shall not constitute the Company a trustee in respect thereof.
CAPITALIZATION
95. The Company may, upon the recommendation of the Directors by ordinary
resolution, authorize the Directors to capitalize any sum standing to the credit
of any of the Company's reserve accounts (including share premium account and
capital redemption reserve fund) or any sum standing to the credit of profit and
loss account or otherwise available for distribution and to appropriate such sum
to Members in the proportions in which such sum would have been divisible
amongst them had the same been a distribution of profits by way of dividend and
to apply such sum on their behalf in paying up in full unissued shares (not
being redeemable shares) for allotment and distribution credited as fully paid
up to and amongst them in the proportion aforesaid. In such event the Directors
shall do all acts and things required to give effect to such capitalization,
with full power to the Directors to make such provisions as they think fit for
the case of shares becoming distributable in fractions (including provisions
whereby the benefit of fractional entitlements accrue to the Company rather than
to the Members concerned). The Directors may authorize any person to enter on
behalf of all of the Members interested into an agreement with the Company
providing for such capitalization and matters incidental thereto and any
agreement made under such authority shall be effective and binding on all
concerned.
BOOKS OF ACCOUNT
96. The Directors shall cause proper books of account to be kept with
respect to:
(a) all sums of money received and expended by the Company and the matters
in respect of which the receipt or expenditure takes place;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Proper books shall not be deemed to be kept if there are not kept such books of
account as are necessary to give a true and fair view of the state of the
Company's affairs and to explain its transactions.
97. The Directors shall from time to time determine whether and to what
extent and at what times and places and under what conditions or regulations the
accounts and books of the Company or any of them shall be open to the inspection
of Members not being Directors and no Member (not being a Director) shall have
any right of inspecting any account or book or document of the Company except as
conferred by Statute or authorised by the Directors or by the Company in general
meeting.
98. The Directors shall from time to time cause to be prepared and to be
laid before the Company in general meeting profit and loss accounts, balance
sheets, group accounts (if any) and such other reports and accounts as may be
required by law.
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Preliminary Proxy Material
AUDIT
99. The Company shall at each Annual General Meeting appoint an Auditor or
Auditors of the Company who shall hold office until the next Annual General
Meeting and may fix his or their remuneration.
100. The Directors shall fill any casual vacancy in the office of Auditor,
but while any such vacancy continues the surviving or continuing Auditor or
Auditors, if any, may act. The remuneration of any Auditor, unless fixed by the
Company in General Meeting, shall be fixed by the Directors.
101. Every Auditor of the Company shall have a right of access at all times
to the books and accounts and vouchers of the Company and shall be entitled to
require from the Directors and Officers of the Company such information and
explanation as may be necessary for the performance of the duties of the
auditors.
102. Auditors shall at the next Annual General Meeting following their
appointment and at any other time during their term of office, upon request of
the Directors or any general meeting of the Members, make a report on the
accounts of the Company in general meeting during their tenure of office.
NOTICES
103. Notices shall be in writing and may be given by the Company to any
Member either personally or by sending it by post, cable or telex to him or to
his address as shown in the register of Members, such notice, if mailed, to be
forwarded airmail if the address be outside the Cayman Islands.
104. (a) Where a notice is sent by post, service of the notice shall be
deemed to be effected by properly addressing, pre-paying and posting a letter
containing the notice, and to have been effected at the expiration of 60 hours
after the letter containing the same is posted as aforesaid.
(b) Where a notice is sent by cable, telex, facsimile transmission or air
courier, service of the notice shall be deemed to be effected by properly
addressing, pre-paying and sending through a transmitting organization the
notice, and to have been effected at the expiration of forty-eight hours after
the same is sent as aforesaid.
105. A notice may be given by the Company to the joint holders of record of
a share by giving the notice to the joint holder first named on the register of
Members in respect of the share.
106. A notice may be given by the Company to the person or persons which the
Company has been advised are entitled to a share or shares in consequence of the
death or bankruptcy of a Member by sending it through the post as aforesaid in a
pre-paid letter addressed to them by name, or by the title of representatives of
the deceased, or trustee of the bankruptcy, or by any like description at the
address supplied for that purpose by the persons claiming to be so entitled, or
at the option of the Company by giving the notice in any manner in which the
same might have been given if the death or bankruptcy had not occurred.
107. Notice of every general meeting shall be given in any manner
hereinbefore authorized to:
(a) every person shown as a Member in the register of Members as of the
record date for such meeting except that in the case of joint holders the notice
shall be sufficient if given to the joint holder first named in the register of
Members; and
(b) every person upon whom the ownership of a share devolves by reason of
his being a legal personal representative or a trustee in bankruptcy of a Member
of record, where the Member of record, but for his death or bankruptcy, would be
entitled to receive notice of the meeting.
No other person shall be entitled to receive notices of general meetings.
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Preliminary Proxy Material
WINDING UP
108. If the Company shall be wound up, the Liquidator may, with the sanction
of a Special Resolution of the Company and any other sanction required by the
Statute, divide amongst the Members in specie or kind, the whole or any part of
the assets of the Company (whether they shall consist of property of the same
kind or not) and may for such purpose set such value as he deems fair upon any
property to be divided as aforesaid and may determine how such division shall be
carried out as between the Members or different classes of Members. The
Liquidator may with the like sanction, vest the whole or any part of such assets
in trustees upon such trusts for the benefit of the contributories as the
Liquidator, with the like sanction, shall think fit, but so that no Member shall
be compelled to accept any shares or other securities whereon there is any
liability.
INDEMNITY
109. (a) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another company, partnership, joint venture, trust or other enterprise,
or in a fiduciary or other capacity with respect to any employee benefit plan
maintained by the Company, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, or reasonably believed to be in or not opposed to the
best interests of such employee benefit plan, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company, or reasonably believed to be in or not
opposed to the best interests of such employee benefit plan, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Company shall indemnify any person who was or is a party or is
threatened to be made a party of any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favour by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another company, partnership, joint venture, trust
or other enterprise, or in a fiduciary or other capacity with respect to any
employee benefit plan maintained by the Company, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defence or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or reasonably believed to be in or not opposed to the best
interests of such employee benefit plan, and except that no such indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for willful neglect or default in the
performance of his duty to the Company or to such employee benefit plan unless
and only to the extent that the Grand Court of the Cayman Islands or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Grand Court or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the Company
shall be successful on the merits or otherwise in defence, of any action, suit
or proceeding referred to in paragraphs (a) and (b), or in
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Preliminary Proxy Material
defence of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in paragraphs (a) and (b). Such determination shall be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the shareholders entitled to vote.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Company in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
manner provided in paragraph (d) upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the Company as
authorized in this Article 109.
(f) The indemnification provided by this Article 109 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(g) The Board of Directors may authorise the Company to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another company,
partnership, joint venture, trust or other enterprise, or in a fiduciary or
other capacity with respect to any employee benefit plan maintained by the
Company, against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify him against such liability under the
provisions of this Article 109.
NO LIABILITY
110. No director or officer of the Company shall be liable or answerable for
the acts, receipts, neglects, or defaults of any other Director or other officer
of the Company or for joining in any receipt or other act for conformity or for
any loss or expense happening to the Company through the insufficiency or
deficiency of any security in or upon which any of the monies of the Company
shall be invested or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person with whom any monies, securities or
effects shall be deposited, or for any loss occasioned by any error of judgment
or oversight on his part, or for any other loss, damage, or misfortune whatever
which shall happen in or about the execution of the duties of his office or in
relation thereto, unless the same happen through his own willful neglect or
default.
FISCAL YEAR
111. The Fiscal Year of the Company shall commence on 1st December and end
on the 30th November next following. At any time or times the Directors may
prescribe some other period for any Fiscal Year.
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Preliminary Proxy Material
AMENDMENTS OF ARTICLES
112. Subject to the Statute, the Company may at any time and from time to
time by Special Resolution alter or amend these Articles in whole or in part.
<TABLE>
<CAPTION>
DESCRIPTION
OF
NAME OF SUBSCRIBER ADDRESS SUBSCRIBER
- ------------------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Huntlaw Nominees Ltd. P.O. Box 1350 GT Company
(Sgd. B.S.D. Putterill) Grand Cayman
Cayman Islands
</TABLE>
DATED the 16th day of March, One Thousand Nine Hundred and Ninety-Eight.
Witness to the above signature:--
(Sgd. M. Bodden)
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<PAGE>
PROXY -- EXEL LIMITED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder of EXEL Limited ("EXEL") hereby appoints Michael
P. Esposito, Jr., Brian M. O'Hara and Paul S. Giordano, and each of them acting
singly, with full power of substitution, to be its proxy and to vote for the
undersigned on all matters arising at the Class Meeting of Shareholders of EXEL
(or any adjournments or postponements thereof) to be held on , 1998 at
and to represent the undersigned at such meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED
HEREIN. IF NO INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" PROPOSALS 1
AND 2 ON THE REVERSE HEREOF, ALL SAID ITEMS BEING FULLY DESCRIBED IN THE NOTICE
OF SUCH MEETING AND THE ACCOMPANYING PROXY STATEMENT, RECEIPT OF WHICH IS
ACKNOWLEDGED, THE UNDERSIGNED RATIFIES AND CONFIRMS ALL THAT SAID PROXIES OR
THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE>
/X/ Please mark your votes as indicated in this example
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT
TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE CLASS MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
1. To approve the proposed Scheme of Arrangement pursuant to Section 85 of the
Companies Law (1995 Revision) of the Cayman Islands between EXEL and its
shareholders under which EXEL will become a wholly owned subsidiary of Exel
Merger Company Ltd., an exempted limited liability company incorporated under
the laws of the Cayman Islands.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
2. To adjourn the Class Meeting, if necessary, to permit further solicitation of
proxies in the event that there may not be sufficient votes at the time of
the Class Meeting to approve the proposed Scheme of Arrangement.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
<TABLE>
<S> <C>
The undersigned hereby authorizes the proxies
to vote in their discretion on any other
business which may properly be brought before
the class meeting or any adjournments or
postponements thereof.
-----------------------------------------------
(Name of Shareholder)
Dated:
-------------------------------------------,
1998
By:
-----------------------------------------------
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
</TABLE>
<PAGE>
PROXY -- MID OCEAN LIMITED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned holder of Mid Ocean Limited ("Mid Ocean") Class A Ordinary
Shares hereby appoints Michael A. Butt and John M. Wadson, and each of them
acting singly, with full power of substitution, to be its proxy and to vote for
the undersigned on all matters arising at the Class Meeting of Holders of Mid
Ocean Class A Ordinary Shares (or any adjournments or postponements thereof) to
be held on July 15, 1998 at 11:00 a.m., local time, at the Princess Hotel,
Hamilton, Bermuda and to represent the undersigned at such meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED
HEREIN. IF NO INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" PROPOSALS 1
AND 2 ON THE REVERSE HEREOF, ALL SAID ITEMS BEING FULLY DESCRIBED IN THE NOTICE
OF SUCH MEETING AND THE ACCOMPANYING PROXY STATEMENT, RECEIPT OF WHICH IS
ACKNOWLEDGED, THE UNDERSIGNED RATIFIES AND CONFIRMS ALL THAT SAID PROXIES OR
THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE>
/X/ Please mark your votes as indicated in this example
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT
TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE CLASS MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
1. To approve the proposed Scheme of Arrangement pursuant to Section 85 of the
Companies Law (1995 Revision) of the Cayman Islands between Mid Ocean and its
shareholders under which Mid Ocean will become a wholly owned subsidiary of
Exel Merger Company Ltd., an exempted limited liability company incorporated
under the laws of the Cayman Islands.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
2. To adjourn the Class Meeting, if necessary, to permit further solicitation of
proxies in the event that there may not be sufficient votes at the time of
the Class Meeting to approve the proposed Scheme of Arrangement.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
<TABLE>
<S> <C>
The undersigned hereby authorizes the proxies
to vote in their discretion on any other
business which may properly be brought before
the class meeting or any adjournments or
postponements thereof.
-----------------------------------------------
(Name of Shareholder)
Dated:
-------------------------------------------,
1998
By:
-----------------------------------------------
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
</TABLE>
<PAGE>
PROXY -- MID OCEAN LIMITED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned holder of Mid Ocean Limited ("Mid Ocean") Class B Ordinary
Shares hereby appoints Michael A. Butt and John M. Wadson, and each of them
acting singly, with full power of substitution, to be its proxy and to vote for
the undersigned on all matters arising at the Class Meeting of Holders of Mid
Ocean Class B Ordinary Shares (or any adjournments or postponements thereof) to
be held on July 15, 1998 at 10:30 a.m., local time, at the Princess Hotel,
Hamilton, Bermuda and to represent the undersigned at such meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED
HEREIN. IF NO INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" PROPOSALS 1
AND 2 ON THE REVERSE HEREOF, ALL SAID ITEMS BEING FULLY DESCRIBED IN THE NOTICE
OF SUCH MEETING AND THE ACCOMPANYING PROXY STATEMENT, RECEIPT OF WHICH IS
ACKNOWLEDGED, THE UNDERSIGNED RATIFIES AND CONFIRMS ALL THAT SAID PROXIES OR
THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE>
/X/ Please mark your votes as indicated in this example
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT
TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE CLASS MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
1. To approve the proposed Scheme of Arrangement pursuant to Section 85 of the
Companies Law (1995 Revision) of the Cayman Islands between Mid Ocean and its
shareholders under which Mid Ocean will become a wholly owned subsidiary of
Exel Merger Company Ltd., an exempted limited liability company incorporated
under the laws of the Cayman Islands.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
2. To adjourn the Class Meeting, if necessary, to permit further solicitation of
proxies in the event that there may not be sufficient votes at the time of
the Class Meeting to approve the proposed Scheme of Arrangement.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
<TABLE>
<S> <C>
The undersigned hereby authorizes the proxies
to vote in their discretion on any other
business which may properly be brought before
the class meeting or any adjournments or
postponements thereof.
-----------------------------------------------
(Name of Shareholder)
Dated:
-------------------------------------------,
1998
By:
-----------------------------------------------
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
</TABLE>
<PAGE>
PROXY -- MID OCEAN LIMITED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned holder of Mid Ocean Limited ("Mid Ocean") Class C Ordinary
Shares hereby appoints Michael A. Butt and John M. Wadson, and each of them
acting singly, with full power of substitution, to be its proxy and to vote for
the undersigned on all matters arising at the Class Meeting of Holders of Mid
Ocean Class C Ordinary Shares (or any adjournments or postponements thereof) to
be held on July 15, 1998 at 10:00 a.m., local time, at the Princess Hotel,
Hamilton, Bermuda and to represent the undersigned at such meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED
HEREIN. IF NO INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" PROPOSALS 1
AND 2 ON THE REVERSE HEREOF, ALL SAID ITEMS BEING FULLY DESCRIBED IN THE NOTICE
OF SUCH MEETING AND THE ACCOMPANYING PROXY STATEMENT, RECEIPT OF WHICH IS
ACKNOWLEDGED, THE UNDERSIGNED RATIFIES AND CONFIRMS ALL THAT SAID PROXIES OR
THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE>
/X/ Please mark your votes as indicated in this example
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT
TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE CLASS MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
1. To approve the proposed Scheme of Arrangement pursuant to Section 85 of the
Companies Law (1995 Revision) of the Cayman Islands between Mid Ocean and its
shareholders under which Mid Ocean will become a wholly owned subsidiary of
Exel Merger Company Ltd., an exempted limited liability company incorporated
under the laws of the Cayman Islands.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
2. To adjourn the Class Meeting, if necessary, to permit further solicitation of
proxies in the event that there may not be sufficient votes at the time of
the Class Meeting to approve the proposed Scheme of Arrangement.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
</TABLE>
<TABLE>
<S> <C>
The undersigned hereby authorizes the proxies
to vote in their discretion on any other
business which may properly be brought before
the class meeting or any adjournments or
postponements thereof.
-----------------------------------------------
(Name of Shareholder)
Dated:
-------------------------------------------,
1998
By:
-----------------------------------------------
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
</TABLE>
