SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 16, 1998
EXEL LIMITED
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(Exact Name of Registrant as Specified in its Charter)
Cayman Islands 1-10804 98-0058718
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Cumberland House, 1 Victoria Street, Hamilton, Bermuda HM 11
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(Address of Principal Executive Offices) (Zip Code)
(441) 292-8515
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
EXEL Limited., a Cayman Islands corporation ("EXEL"), entered into an
Agreement and Schemes of Arrangements dated as of March 16, 1998 (the
"Agreement"), pursuant to which each of EXEL and Mid Ocean Limited, a Cayman
Islands corporation ("Mid Ocean"), will become subsidiaries of a newly-formed
Cayman Islands corporation (which will change its name to "EXEL Limited")("New
EXEL") pursuant to a Scheme of Arrangements between EXEL and its shareholders
(the "Parent Arrangement") and a Scheme of Arrangements between Mid Ocean and
its shareholders other than EXEL (the "Company Arrangement," and together with
the Parent Arrangement, the "Arrangements").
In connection with entering into the Agreement, EXEL announced that it
plans to buy back up to $500 million of the shares of its common stock or the
stock of New EXEL, as applicable, before or after the consummation of the
Arrangements.
In accordance with the terms of the Agreement, (i) each Class A
Ordinary Share of Mid Ocean common stock, par value $0.20 per share (the "Class
A Ordinary Shares"), other than such Class A Ordinary Shares held by EXEL or any
of its subsidiaries, issued and outstanding immediately prior to the effective
time of the Company Arrangement shall, by virtue of the Company Arrangement and
without any action on the part of the holder thereof, be transferred to New EXEL
and there shall be allotted and issued to the holder thereof 1.0215 ordinary
voting shares of New EXEL ("New EXEL Voting Shares") per Class A Ordinary Share
so transferred (such number being defined herein as the "Exchange Ratio"), (ii)
each Class B Ordinary Share of Mid Ocean common stock, par value $0.20 per share
(the "Class B Ordinary Shares") and Class C Ordinary Shares of Mid Ocean common
stock, par value $0.01 ("Class C Ordinary Shares")(the Class A Ordinary Shares,
Class B Ordinary Shares, and Class C Ordinary Shares collectively being the
"Shares") issued and outstanding immediately prior to the Company Arrangement
Effective Time shall, by virtue of the Company Arrangement and without any
action on the part of the holder thereof, be transferred to New EXEL and there
shall be allotted and issued to the holder thereof that number of Non-Voting
Common Shares, par value $0.01 per share, of New EXEL ("New EXEL Non-Voting
Shares," together with the New EXEL Voting Shares, the "New EXEL Shares") equal
to the Exchange Ratio, and (iii) each ordinary share, par value $0.01, of EXEL
("Parent Shares") issued and outstanding immediately prior to the Effective Time
shall be, by virtue of the Parent Arrangement and without any action on the part
of the holder thereof, transferred to New EXEL and there shall be allotted and
issued to the holder thereof one New EXEL Voting Share per Parent Share so
transferred.
In addition, at the Effective Time, all rights with respect to Parent
Shares pursuant to stock options outstanding at the Effective Time ("Parent
Options") shall be canceled and replaced by rights with respect to New EXEL
Voting Shares ("New EXEL Options") on the same terms as the Parent Options so
canceled and replaced. At the Effective Time, all rights with respect to Shares
pursuant to stock options ("Company Roll-Over Options"), whether or not then
exercisable, shall be replaced by fully vested and exercisable options ("New
EXEL Options") to acquire New EXEL Shares; provided that to the extent the
Company Roll-Over Options that were not otherwise exercisable would become
automatically exercisable upon the
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Effective Time, the Board of Directors of Mid Ocean has agreed to use reasonable
efforts to obtain optionees' agreements, if required and to the extent that Mid
Ocean has the unilateral legal right to obtain such result, such that each such
Company Roll-Over Option shall be automatically exercisable on a pro rata basis
upon the Effective Time only with respect to 50% of the New EXEL Shares subject
to the New EXEL Options.
The Arrangements are intended to constitute an exchange under Section
351(a) of the Internal Revenue Code of 1986, as amended, and to be accounted for
as a purchase.
Consummation of the Arrangements is subject to various conditions,
including: (i) approval of the Agreement and the Arrangements by the
shareholders of each of EXEL and Mid Ocean pursuant to the laws of the Cayman
Islands; (ii) receipt of requisite regulatory and contractual approvals,
including from the Grand Court of the Cayman Islands and the Corporation of
Lloyd's; (iii) receipt by each of EXEL and Mid Ocean of an opinion of counsel in
reasonably satisfactory form as to the tax treatment of certain aspects of the
Arrangements; (iv) the registration pursuant to the Securities Act of 1933, as
amended (the "Act"), of the New EXEL Shares to be issued in the Arrangements;
(v) listing of the New EXEL Shares on the New York Stock Exchange, and (vi)
satisfaction of certain other conditions.
EXEL and Mid Ocean have further agreed that they will (i) prepare and
file with the Securities and Exchange Commission (the "SEC") a Joint Proxy
Statement in which the substance of the Registration Statement of the New EXEL
Shares shall be included and (ii) cause New EXEL to file the Registration
Statement for the New EXEL Shares to be issued pursuant to the Arrangements with
the SEC promptly after the conclusion of the SEC's review of the Joint Proxy
Statement. After the Registration Statement is declared effective, each of EXEL
and Mid Ocean have agreed to request the Court to convene a meeting of its
respective shareholders for the purpose of approving the Agreement and the
Arrangements.
In connection with the Agreement, EXEL and JP Morgan Capital
Corporation, a shareholder of Mid Ocean, have entered into a Support Agreement,
dated as of March 16, 1998 pursuant to which, among other things, such
shareholder has agreed to vote the Shares then owned by such shareholder in
favor of the Arrangements and the Agreement.
Each of the preceding descriptions of the Agreement and the Support
Agreement is qualified in its entirety by reference to the copies of the
Agreement and the Support Agreement included as Exhibits 2.1 and 2.2 hereto,
respectively, and which are hereby incorporated herein by reference.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit Description
2.1 Agreement and Schemes of Arrangement, dated as of March 16, 1998, by
and among EXEL Limited, EXEL Merger Co. Ltd., and Mid Ocean Limited.
2.2 Support Agreement, dated as of March 16, 1998, by and among EXEL
Limited, EXEL Merger Co. Ltd., and JP Morgan Capital Corporation.
99.1 Text of joint press release, dated March 16, 1998, issued by EXEL
Limited and Mid Ocean Limited.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 17, 1998
EXEL LIMITED
By: /s/ Paul S. Giordano
Paul S. Giordano
Secretary and General Counsel
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EXHIBIT INDEX
Exhibit Description
2.1 Agreement and Schemes of Arrangement, dated as of March 16, 1998, by
and among EXEL Limited, EXEL Merger Co. Ltd., and Mid Ocean Limited.
2.2 Support Agreement, dated as of March 16, 1998, by and among EXEL
Limited, EXEL Merger Co. Ltd., and JP Morgan Capital Corporation.
99.1 Text of joint press release, dated March 16, 1998, issued by EXEL
Limited and Mid Ocean Limited.
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EXHIBIT 2.1
AGREEMENT AND SCHEMES OF ARRANGEMENT
among
EXEL LIMITED,
EXEL MERGER CO. LTD.
and
MID OCEAN LIMITED
March 16, 1998
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TABLE OF CONTENTS
Page
ARTICLE ONE CERTAIN DEFINITIONS.................................... 1
Section 1.1. Certain Definitions................................... 1
ARTICLE TWO THE SCHEMES............................................ 4
Section 2.1. The Schemes........................................... 4
Section 2.2. Application to the Court; Effective Time of the
Schemes; Closing.................................... 4
Section 2.3. Effects of the Schemes................................ 5
Section 2.4. Articles of Association............................... 6
Section 2.5. Boards of Directors and Officers...................... 6
Section 2.6. Terms of the Parent Scheme: Exchange of Parent
Shares.............................................. 7
Section 2.7. Terms of the Company Scheme: Exchange of Shares...... 7
Section 2.8. Terms of the Schemes: Surrender and Payment.......... 8
Section 2.9. Voting................................................ 8
Section 2.10. Structural Modification............................... 8
ARTICLE THREE REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 8
Section 3.1. Corporation; Organization............................. 8
Section 3.2. Authority; Approval and Fairness...................... 9
Section 3.3. Capital Structure..................................... 10
Section 3.4. Financial Statements.................................. 11
Section 3.5. Absence of Certain Changes............................ 12
Section 3.6. Certain Fees.......................................... 12
Section 3.7. No Defaults........................................... 12
Section 3.8. Consents.............................................. 13
Section 3.9. Compliance with Applicable Law........................ 13
Section 3.10. Information Supplied.................................. 13
Section 3.11. Material Contracts.................................... 14
Section 3.12. Taxes................................................. 14
Section 3.13. Litigation............................................ 15
Section 3.14. U.S. Assets........................................... 16
Section 3.15. Employees............................................. 16
Section 3.16. Takeover Statutes..................................... 17
Section 3.17. Opinion of Financial Advisor.......................... 17
Section 3.18. Rights Agreement...................................... 17
Section 3.19. Insurance Matters..................................... 17
Section 3.20. Liabilities and Reserves.............................. 18
Section 3.21. Investment Company.................................... 18
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ARTICLE FOUR REPRESENTATIONS AND WARRANTIES OF PARENT............... 18
Section 4.1. Corporation; Organization............................. 18
Section 4.2. Authority; Approval and Fairness...................... 19
Section 4.3. Capital Structure..................................... 20
Section 4.4. Financial Statements.................................. 21
Section 4.5. Absence of Certain Changes............................ 22
Section 4.6. Certain Fees.......................................... 22
Section 4.7. No Defaults........................................... 22
Section 4.8. Consents.............................................. 23
Section 4.9. Compliance with Applicable Law........................ 23
Section 4.10. Information Supplied.................................. 23
Section 4.11. Material Contracts.................................... 24
Section 4.12. Taxes................................................. 24
Section 4.13. Litigation............................................ 25
Section 4.14. U.S. Assets........................................... 25
Section 4.15. Employees............................................. 25
Section 4.16. Takeover Statutes..................................... 26
Section 4.17. Opinion of Financial Advisor.......................... 26
Section 4.18. Rights Agreement...................................... 26
Section 4.19. Insurance Matters..................................... 27
Section 4.20. Liabilities and Reserves.............................. 27
Section 4.21. Investment Company.................................... 28
ARTICLE FIVE COVENANTS.............................................. 28
Section 5.1. Conduct of Business of the Company.................... 28
Section 5.2. Conduct of Business of Parent......................... 30
Section 5.3. Acquisition Proposals................................. 31
Section 5.4. Access to Information................................. 31
Section 5.5. S-4; Regulatory Matters............................... 32
Section 5.6. Public Announcements.................................. 32
Section 5.7. Supplemental Information.............................. 32
Section 5.8. Shareholders' Meetings................................ 33
Section 5.9. Company Options and Parent Options.................... 33
Section 5.10. Takeover Laws......................................... 35
Section 5.11. Affiliates............................................ 35
Section 5.12. Stock Exchange Listing................................ 35
Section 5.13. Indemnification....................................... 35
Section 5.14. Reasonable Best Efforts............................... 36
Section 5.15. Post-Closing Matters.................................. 36
Section 5.16. Employee Benefit Plans; Existing Agreements........... 37
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ARTICLE SIX CONDITIONS TO THE SCHEMES.............................. 38
Section 6.1. Conditions to Each Party's Obligation to Effect the
Schemes............................................. 38
Section 6.2. Additional Conditions to the Company's Obligation to
Effect the Schemes.................................. 39
Section 6.3. Additional Conditions to Parent's Obligation
to Effect the Schemes............................... 40
ARTICLE SEVEN TERMINATION AND ABANDONMENT............................ 40
Section 7.1. Termination by the Company for Breach................. 40
Section 7.2. Termination by Parent for Breach...................... 41
Section 7.3. Termination by the Company or Parent.................. 41
Section 7.4. Procedure and Effect of Termination................... 42
ARTICLE EIGHT MISCELLANEOUS PROVISIONS............................... 43
Section 8.1. Non-Survival of Representations, Warranties, Covenants
and Agreements...................................... 43
Section 8.2. Amendment and Modification............................ 43
Section 8.3. Waiver of Compliance; Consents........................ 43
Section 8.4. Severability and Validity............................. 44
Section 8.5. Expenses and Obligations.............................. 44
Section 8.6. Parties in Interest................................... 44
Section 8.7. Additional Agreements................................. 44
Section 8.8. Notices............................................... 44
Section 8.9. Governing Law; Submission to Jurisdiction............. 46
Section 8.10. Counterparts.......................................... 46
Section 8.11. Headings.............................................. 46
Section 8.12. Entire Agreement; Assignment.......................... 46
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AGREEMENT AND SCHEMES OF ARRANGEMENT
This Agreement and Schemes of Arrangement, dated March 16, 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
CO. 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 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
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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.
(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 $.20 per share, of the Company.
(f) "Company Disclosure Letter" means the letter, dated as of the date
hereof, from the Company to Parent regarding certain matters related to this
Agreement.
(g) "Confidentiality Letter" means that certain letter between Parent
and the Company, dated March 7, 1998.
(h) "$" 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
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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 the date
hereof, from Parent to the Company regarding certain matters related to this
Agreement.
(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
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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.
(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
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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.
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
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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, 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:
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(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"). The New Parent Voting Shares to be
received as consideration pursuant to the Parent Scheme by each holder of a
Parent 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"). 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. The New Parent Voting Shares and New
Parent Non-Voting Shares (collectively, the "New Parent Shares") 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
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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.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent 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
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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 this
Agreement 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 this Agreement 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 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.
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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 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
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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
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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 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
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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 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.
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(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
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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 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
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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 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.
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(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 under the Lloyd's regulations are in an amount at least equal
to the minimum amounts required by applicable laws or regulations.
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.
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ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF
PARENT
Parent hereby represents and warrants to the Company 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.
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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 this
Agreement 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 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 this
Agreement 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,
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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, 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
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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
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
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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
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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
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
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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 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.
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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.
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
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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.
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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 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.
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
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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 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 the date hereof (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;
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(h) 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;
(i) 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;
(j) 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;
(k) 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;
(l) amend the Rights or the Rights Agreement in any manner adverse to
Parent;
(m) 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
(n) 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:
(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;
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(b) amend or propose to amend the memorandum of association, articles
of association or any similar document of the Company 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
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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 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 Agreements 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 this Agreement and all actions contemplated hereby. In
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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 Boards of Directors that the
shareholders vote in favor of the approval and adoption of this Agreement and
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 this Agreement and the Schemes).
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).
(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
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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, 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
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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
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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 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
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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.
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) This Agreement, the Schemes and the other transactions
contemplated hereby shall have been approved and adopted by the 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 the NYSE and Parent's articles of
association.
(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
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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 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 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 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 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 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 covenant to be performed by it on or prior to the Effective
Time.
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(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.
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,
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<PAGE>
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 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 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
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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):
(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
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<PAGE>
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.
(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,
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<PAGE>
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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<PAGE>
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.
EXEL LIMITED
By: /s/Brian M. O'Hara
Name: Brian M. O'Hara
Title: President and Chief Executive
Officer
Attest:/s/ Paul S. Giordano
Secretary
[SEAL]
EXEL MERGER CO. LTD.
By: /s/Brian M. O'Hara
Name: Brian M. O'Hara
Title: President and Chief Executive
Officer
Attest:/s/ Paul S. Giordano
Secretary
[SEAL]
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EXHIBIT 2.2
March 15, 1998
EXEL Limited
Cumberland House
1 Victoria Street
Hamilton, Bermuda HM11
Dear Sirs:
The undersigned understands that EXEL Limited ("Parent"), Mid Ocean
Limited (the "Company") and a new holding company ("New Parent") are entering
into an Agreement and Plan of Amalgamation (the "Agreement") on the date of this
letter, pursuant to which by virtue of schemes of arrangement under Cayman
Islands law (the "Schemes"), (i) each Class A Share, par value $.20 per share
("Class A Common") of the Company, issued and outstanding as of the effective
date of the Schemes will cease to exist and there will be allotted and issued to
the holder thereof in exchange therefor that number of Common Shares, par value
$.01 per share, of New Parent ("New Parent Common Voting Shares") equal to the
Exchange Ratio (as defined in the Agreement), and (ii) each Class B Share, par
value $.20 per share ("Class B Common"), and Class C Share, par value $.20 per
share ("Class C Common"), of the Company (the Class A Common, Class B Common and
Class C Common, collectively, the "Company Common Shares") issued and
outstanding as of the effective date of the Schemes will cease to exist and
there will be allotted and issued to the holder thereof in exchange therefor
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.
The undersigned is a stockholder of the Company (the "Stockholder")
and is entering into this letter agreement to induce you to enter into the
Agreement and to consummate the transactions contemplated thereby.
The Stockholder confirms its agreement with you as follows:
1. The undersigned represents, warrants and agrees that Schedule I annexed
hereto sets forth the number (and classes) of shares of the Company of which the
undersigned is the record or beneficial owner (the "Shares") and that the
undersigned is on the date hereof the lawful owner of the number of shares set
forth in Schedule I, free and clear of all liens, charges, encum-
<PAGE>
brances, voting agreements and commitments of every kind, except as disclosed in
Schedule I or created under this Agreement. Except as set forth in Schedule I,
the undersigned does not own or hold any rights to acquire any additional shares
or other securities of the Company or any interest therein or any voting rights
with respect to any additional shares, other than as previously disclosed to
you.
2. The Stockholder agrees that, from the date hereof until the Agreement is
terminated in accordance with its terms, it will not sell, contract to sell,
pledge or otherwise transfer or dispose of any of the Shares or any interest
therein or securities convertible thereinto or any voting rights with respect
thereto, other than pursuant to the Schemes, or otherwise with Parent's prior
written consent.
3. The Stockholder agrees that, from the date hereof until the Agreement is
terminated in accordance with its terms, all of the Company Common Shares
(including the Shares) beneficially owned by the Stockholder, or over which the
Stockholder has voting power or control, directly or indirectly, in each case at
the record date for any meeting of stockholders of the Company called to
consider and vote, or for any solicitation of consents, to approve the Agreement
and/or the transactions contemplated thereby will be voted by the Stockholder in
favor thereof; provided that, if the Board of Directors of the Company
recommends that the shareholders of the Company vote against the Agreement and
the Schemes or in favor of a competing transaction, then the Stockholder agrees
that it shall vote the Shares for or against the Agreement and the Schemes or
such competing transaction in the same proportion as the holders of Company
Common Shares (other than the Stockholder) vote for or against the Agreement and
the Schemes or such competing transaction. Moreover, the Stockholder waives its
right to a class vote in connection with the Agreement to the extent permitted
by Cayman Islands law and the court.
4. The Stockholder agrees to, and will cause any company, trust or other
entity controlled by the Stockholder to, cooperate fully with you in connection
with the Agreement and the transactions contemplated thereby. The Stockholder
agrees that it will not, and will not permit any such company, trust or other
entity to, directly or indirectly (including through its officers, directors,
employees or other representatives) initiate, solicit or encourage any
discussions, inquiries or proposals with any third party relating to the
disposition of any significant portion of the business or assets of the Company
or the acquisition of any capital stock or other securities of the Company or
the business combination, merger or consolidation of the Company with any person
or any similar transaction (each such transaction
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<PAGE>
being referred to herein as an "Acquisition Transaction"), or provide any such
person with information or assistance or negotiate with any such person with
respect to an Acquisition Transaction or agree to or otherwise assist in the
effectuation of any Acquisition Transaction. Nothing in this paragraph 4 should
be deemed to prohibit the stockholder from voting its Shares as provided in
paragraph 3.
5. Parent and New Parent agree that the Articles of Association of New
Parent will provide for a separate class of New Parent Non-Voting Shares (which
shall be identical in all respects to New Parent Voting Common Shares except
that they shall not be entitled to vote (and except as indicated in paragraph 6
below), and which shall be convertible into New Parent Voting Common Shares) and
New Parent will issue such New Parent Non-Voting Shares to Stockholder in the
Schemes in exchange for all of the Class B Common and Class C Common held by
Stockholder.
6. The Stockholder agrees that (i) the Articles of Incorporation of New
Parent shall provide that such New Parent Non-Voting Shares shall not be
entitled to vote separately as a class, (ii) the Stockholder shall vote any such
New Parent Non-Voting Shares in accordance with the recommendations of the Board
of Directors of New Parent in any separate class vote to which such Class Shares
may be entitled by law, so long as such New Parent Non-Voting Shares are treated
equally with the New Parent Voting Common Shares in such matter, and (iii) the
Stockholder further agrees that it will convert such New Parent Non-Voting
Shares into New Parent Voting Common Shares prior to or upon any sale or
transfer thereof (other than any transfer to an affiliate of the Stockholder).
7. The Stockholder has all necessary power and authority to enter into this
letter agreement. This agreement is the legal, valid and binding agreement of
the undersigned, and is enforceable against the undersigned in accordance with
its terms.
This letter agreement shall automatically terminate upon termination
of the Agreement in accordance with its terms.
Nothing herein shall be construed to require the Stockholder or any
company, trust or other entity controlled by the Stockholder to take any action
or fail to take any action in violation of applicable law, rule or regulation.
Further, any action taken by a nominee of the Stockholder to the Company's Board
of Directors solely in such person's capacity as a director of the Company (and
not in the Stockholder's capacity as a shareholder) shall not be deemed to
violate the provisions hereof.
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<PAGE>
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof. The Stockholder
agrees that money damages would not be an adequate remedy for violation of its
obligations hereunder and that this letter agreement shall be specifically
enforceable against the Stockholder.
Very truly yours,
JP MORGAN CAPITAL CORPORATION
By: /s/ J.E. Colloton
Title: Vice President
Confirmed on the date first above written.
EXEL LIMITED
By: /s/Brian M. O'Hara
President and Chief Executive Officer
EXEL MERGER CO. LTD.
By: /s/Brian M. O'Hara
President and Chief Executive Officer
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EXHIBIT 99.1
[MID OCEAN LIMITED [EXEL LIMITED
LETTERHEAD AND LOGO] LETTERHEAD AND LOGO]
NEWS RELEASE
IMMEDIATE
Contact: EXEL Limited Mid Ocean Limited
Gavin R. Arton John M. Wadson
(441) 292-8515 (441) 292-1358
EXEL LIMITED AND MID OCEAN LIMITED ANNOUNCE MERGER AGREEMENT
-EACH MID OCEAN SHARE WILL BE EXCHANGED FOR 1.0215 NEWLY ISSUED EXEL SHARES-
--EXEL AUTHORIZES $500 MILLION SHARE REPURCHASE--
HAMILTON, BERMUDA, MARCH 16, 1998 -- EXEL Limited (NYSE:XL) ("EXEL") and Mid
Ocean Limited (NYSE:MOC) ("Mid Ocean") announced today that the two companies
have signed a definitive agreement to merge, creating an organization with
assets in excess of $9.1 billion, shareholders' equity of approximately $4.8
billion and an estimated market capitalization of more than $8.0 billion. EXEL
will be the holding company for the new organization. EXEL and Mid Ocean plan to
combine their reinsurance operations which will operate as X.L. Mid Ocean
Reinsurance Company, Ltd. and be headquartered in Bermuda. The combined
organization, based on market capitalization, will rank as one of the 20 largest
U.S. listed property-casualty insurance companies in the world.
The all stock transaction would result in EXEL issuing 1.0215 new shares of its
ordinary shares for each share of Mid Ocean Limited that it does not already
own. EXEL currently owns 9.7 million, or 26.82 percent, of the outstanding
shares of Mid Ocean. The transaction is subject to the approval of shareholders
of both companies, as well as certain regulatory approvals. The Boards of
Directors of EXEL and Mid Ocean have by vote of affiliated directors unanimously
agreed to the merger which is expected to be completed by mid summer 1998. The
merger will be accounted for as a purchase transaction under U.S. generally
accepted accounting principles ("GAAP").
<PAGE>
In addition, in connection with this transaction, EXEL announced that it intends
to repurchase up to $500 million of its shares either prior to or after
completion of the transaction.
"We are very excited about the business prospects of the combined company,"
commented Michael P. Esposito, Jr., Chairman of EXEL. "We look forward to
working with Bob Newhouse, Mid Ocean's Chairman, and Michael Butt, their
President and Chief Executive Officer, both of whom will join the EXEL Board
upon completion of the transaction and are delighted that they have both agreed
to act as consultants in developing our global business. In addition, we will be
appointing three additional directors from the Mid Ocean Board."
"All of us at Mid Ocean are very pleased to be joining forces with our largest
shareholder who was also one of our major founders," stated Robert J. Newhouse,
Jr., Chairman of the Board of Mid Ocean Limited. "We believe that joining Mid
Ocean with EXEL accelerates the fulfillment of our strategic vision by bringing
immediate access to additional professional and financial resources."
The combination of EXEL and Mid Ocean creates one of the pre-eminent insurance
and reinsurance organizations in the world for excess property and casualty
business," commented Brian M. O'Hara, President and Chief Executive Officer of
EXEL Limited.
"Our reinsurance businesses are complementary, added Mr. O'Hara. "Mid Ocean's
reputation as a market leader and brand name, coupled with their significant
presence at Lloyd's, through their ownership of The Brockbank Group plc,
provides the platform for substantial growth internationally. Reflecting the
fact that both organizations are already lean we anticipate only a nominal cost
savings. I am pleased to note that the combination of our two companies should
be accretive to EXEL's earnings on both a GAAP and cash basis, excluding any one
time charges associated with the transaction.
"We were a founding shareholder of Mid Ocean more than five years ago and have
participated in its growth into a major reinsurance company. As the largest
shareholder of Mid Ocean, it is the natural culmination of our investment, and
more than doubles EXEL's presence in the reinsurance market," Mr. O'Hara added.
Michael A. Butt, President and Chief Executive Officer of Mid Ocean, noted,
"Today's global markets demand and appreciate scale, financial strength,
geographic and product diversification and a competitive cost structure. This
merger will create a powerful platform and will enhance existing competitive
advantages and should lead to greater shareholder value than either company
could achieve independently."
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"I am very proud of what Mid Ocean has accomplished in its five years and
grateful to all who have enabled us to achieve this. I am delighted that it will
now become an integral part of such a strong and dynamic group," added Mr. Butt.
Michael P. Esposito, Jr. and Brian M. O'Hara will remain in their positions as
Chairman of the Board and President and Chief Executive Officer, respectively,
of EXEL Limited.
Henry C. V. Keeling, currently President, Chief Operating and Underwriting
Officer of Mid Ocean Reinsurance Company, Ltd., will become an Executive Vice
President of EXEL, and President and Chief Executive Officer of X.L. Mid Ocean
Reinsurance Company, Ltd. Mr. O'Hara will serve as that company's Chairman.
Mark E. Brockbank, Director and Chief Executive Officer of The Brockbank Group
plc, a subsidiary operating company of Mid Ocean, will continue in that capacity
and be appointed an Executive Vice President of EXEL.
Robert J. Cooney, Executive Vice President of EXEL and President and Chief
Operating Officer of EXEL's principal insurance subsidiary, X.L. Insurance
Company, Ltd. ("X.L. Insurance"), has been appointed President and Chief
Executive Officer of X.L. Insurance.
K. Bruce Connell will continue as an Executive Vice President of EXEL Limited,
assumes responsibility for North American development and becomes Chief
Executive Officer of EXEL's Financial Products Division.
Robert R. Lusardi, Executive Vice President of EXEL, will be the Chief Financial
Officer of the combined companies.
In fiscal 1997, Mid Ocean had revenues of $619.4 million and, as of January 31,
1998, had total assets of $2.45 billion and shareholders' equity of $l.41
billion. EXEL had revenues in fiscal 1997 of $1.2 billion and, as of February
28, l998, had total assets of $6.4 billion and shareholders' equity of $2.7
billion.
EXEL Limited, through X.L. Insurance Company, Ltd., X.L. Europe Insurance and
X.L. Global Reinsurance Company, Ltd., is a leading provider of general
liability, directors and officers liability, employment practices liability,
political risk, X.L. Risk Solutions, excess property insurance and reinsurance
coverages and financial products to industrial, commercial and professional
service firms, insurance companies and other enterprises on a worldwide basis.
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Mid Ocean Limited, through its wholly owned subsidiaries, Mid Ocean Reinsurance
Company Ltd. and The Brockbank Group plc, provide a broad range of reinsurance
and insurance products on a global basis.
This presentation contains forward looking statements of management beliefs,
estimates, projections, and assumptions for the financial condition, results of
operations, business and prospects of EXEL for Mid Ocean and the combined
EXEL/Mid Ocean on a pro forma basis, including statements relating to: (a)
future assets, shareholders' equity, market capitalization and market position;
(b) the cost of savings and accretion to reported and cash earnings that should
be realized from the merger; and (c) the restructuring charges expected to be
incurred in connection with the merger. These forward looking statements involve
certain risks and uncertainties, including those detailed from time to time in
EXEL's and Mid Ocean's reports and filings. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, among others: (1) expected cost savings from the merger
cannot be fully realized or realized within the expected time frame; (2)
revenues following the merger are lower than expected; (3) competitive pressure
among insurers or reinsurers increases significantly; (4) costs or difficulties
related to the integration of the businesses of EXEL and Mid Ocean are greater
than expected, (5) general economic conditions are less favorable than expected;
(6) legislation, tax or regulatory changes adversely affect the businesses in
which the combined company would be engaged; or (7) natural disasters or other
catastrophic events are more prevalent or significant than expected.
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